Rio Tinto may seek arbitration over KPC dispute: Report

Rio Tinto Plc, the world's third-biggest mining company, may ask for international arbitration over a dispute with an Indonesian province regarding the sale of a controlling stake in a coal mine, Bloomberg reported Thursday.

Rio Tinto and BP Plc, joint owners of PT Kaltim Prima Coal, which runs the mine, are being sued by the East Kalimantan government for $776 million for failing to sell part of their holding in 1996, a requirement of their contract, causing an Indonesian court in April to seize some BP and Rio Tinto assets. The province said it won't drop its challenge unless it's given first right to buy the stake.

``If at some point a decision is forcedly taken against what has been set out in the agreement, then the only way out would be arbitration,'' said Noke Kiroyan, chairman of Rio Tinto Indonesia and president director of KPC. ``The contract says KPC is obliged to offer the stake to Indonesia's government or companies controlled by Indonesian citizens. It's clear that all bidders are equal.''

The dispute may further delay the sale that has been rescheduled since 1996. The overseas miners must complete the sale of a majority stake in the mine by June 30.

KPC is Indonesia's no. 2 producer and the country's biggest exporter of thermal coal, used in power plants. KPC produced 15.6 million metric tons of coal last year and aims to increase it to more than 17 million this year.

All of KPC coal is exported, making about a quarter of the country's total of 60 million last year. Indonesia was world's fourth-largest coal exporter in 2001. (*)