Rio Tinto questions the change in KPC divestment procedure

The world?s mining giant Rio Tinto, the shareholder of PT Kaltim Prima Coal (KPC) has questioned the government?s recent decision to change the supervision procedure in the divestment of KPC?s 51 percent share, Kompas reported on Saturday.

Rio Tinto?s deputy director for external relations, Anang Rikzani, said in Jakarta on Friday that the change in the procedure of KPC?s mandatory divestment could cause a legal problem in the future.

"We could not predict the negative impact of the change in the KPC divestment procedure. But the change has created another uncertainty," he was quoted as saying.

Previously, the divestment of the KPC shares was directly supervised and controlled by a team formed by the Ministry of Energy and Mineral Resources. At present, the divestment of the East Kalimantan-based coal producer is handled by the Office of State Minister for State Owned Enterprises. The office has formed a new team, which is headed by Deputy State Minister of State Owned Enterprises Roes Aryawijaya to directly handle the divestment program.

The new team will no longer use the existing framework agreement (FA) as the basis for the divestment of the KPC shares. The new team has instead decided to use KPC?s contract of works as the basis of the mandatory divestment.

Anang said that the process of the divestment of KPC?s 51 percent could not be carried out if the new team refused to use the FA agreement as the basis for the divestment because KPC shareholders, in the agreement, had formally appointed the government to offer the shares.

"KPC insists that the government should use the framework agreement as the basis in the divestment process. If not, there will be a problem in the divestment," Anang added.

Roes said earlier that the new team would no longer use the FA agreement because the life span of the agreement had expired on April 30, last year. The agreement, among others, gave the buyers six months to complete the purchase of KPC?s shares.

He said that under KPC?s contract of works, the appointed bidders could directly carry out its due diligence audit. "We expect that the due diligence can be completed in three months. During such a period of time, bidders and KPC can negotiate the price of the shares," he said. But he said that the price for the 51 percent of KPC shares would be retained at US$419.2 million as previously decided.

Under the previous agreement, 31 percent of KPC?s shares will be sold to the East Kalimantan administration through local companies and another 20 percent to state owned coal producer PT Tambang Batubara Bukit Asam (PT BA). (*)