Indonesia Challenge to Final Bp Mine Sale

BP yesterday announced the proposed sale of its last mining asset - a joint venture in Indonesian Borneo, for $500m (£312m), but immediately ran into controversy.

The Indonesian government has complained that BP and partner Rio Tinto should have sought its approval before selling PT Kaltim Prima Coal (KPC), which runs the Sangatta mine in East Kalimantan, to PT Bumi Resources.

It has not ruled out legal action, especially because it believed BP and Rio would sell only 51% of their stake for $450m (£281m) to a different company, Bukit Asam, and to the administration of East Kalimantan, where KPC is based.

Bumi Resources, a diversified company that is part of a conglomerate owned by Indonesia's chamber of commerce chairman, Aburizal Bakrie, was not expected to secure a stake.

Under the deal, struck late last week, BP and Rio Tinto will each gain $250m in cash. Bumi Resources will also take on KPC's debt. If the agreement does obtain government and regulatory approval it should be completed by October.

BP is believed to be the driving force behind the deal because it wanted to get rid of its last mine. It sold its other mining assets years ago.

A BP vice-president in Indonesia, Nico Kanter, said Bumi Resources approached BP in London with an offer and both owners of KPC regarded it as "a sensible business opportunity".

The two companies have faced years of bitter industrial dispute and legal wrangling in their efforts to fulfil their contractual obligations and sell 51% of KPC.

Under the terms of the original 1992 deal with the government, the partners had to sell a majority stake to Indonesian investors by the tenth year of operation.

The district government in East Kalimantan had sued KPC for not honouring its contract, and dropped the suit only after it thought it had secured a stake in the mine.

Analysts predicted that the deal would not be finalised quietly. "Considering how hard they've fought to get a piece of KPC, I doubt the regional government will accept this," said Chalid Mohammad, coordinator of Indonesian mining advocacy group Jatam.

The dispute for ownership of KPC is driven by the high quality and large quantity of coal in the Sangatta mine, along with the ready access to a deep water port. KPC contributes £280m a year to Indonesia in export revenues.

Mr Kanter also justified the greatly reduced price on the grounds that the $450m figure for 51% of the firm was a 2001 valuation, and circumstances had changed since then, particularly the coal price. Mr Chalid said: "The price has gone down, but not that drastically. I think there is another agenda."