JAKARTA -
The Indonesian government has reached an agreement with
publicly listed Bumi Resources, an Indonesian energy
investment company, to value the latter's PT Kaltim
Prima Coal (KPC) at almost thrice the price it paid for
it little more than a year ago. Bumi is part of the
Bakrie conglomerate owned by the former Indonesian
Chamber of Commerce chairman, Coordinating Minister for
the Economy Aburizal Bakrie. The company bought KPC, the
most profitable coal-mining company in Indonesia at the
time, from Anglo-Australian mining giant Rio Tinto and
British energy giant BP Plc in October 2003 for US$500
million.
Company director Eddie S Soebari said
last month that increased production and reserves as
well as the rising coal price justified the new
valuation of $1.9 billion. Bumi then revised this
valuation downward slightly to $1.7 billion but last
week agreed on $1.45 billion with the government, thus
clearing the way for its proposed sale of 32.4% in the
first quarter of next year under its contractual
agreement with the government.
In 1982, Rio
Tinto, in partnership with British Petroleum, secured a
contract to exploit coal in Sangatta, East Kalimantan.
It cost them $1 billion to set up their lucrative
7,900-square-kilometer concession in what was then a
jungle village with some 600 inhabitants. Sangatta is
now the capital of East Kutai regency. In 2003, after
several deadlines for divestment had passed, the
government named the East Kalimantan provincial
government as the buyer of a 31% stake in KPC and
state-owned coal producer PT Batubara Bukit Asam as the
buyer of the other 20% stake, in a move it hoped would
settle the long-delayed divestment.
But,
despairing of ever reaching a fair and just settlement
for their mandatory divestment to Indonesian ownership,
the foreign mining giants suddenly sold out the whole
company at only $500 million, far less than the value of
$820 million agreed between the government and KPC. Lex
Graefe, president of Rio Tinto Indonesia, said at the
time, "We weren't happy with the slow [divestment]
progress and we weren't happy with a number of disputes.
Nobody likes to spend a lot of time and money in dealing
with issues like that."
The then state minister
of state enterprises, Laksamana Sukardi, was not happy
either, accusing the two giant mining companies of
acting in bad faith over their obligation to divest. But
Graefe said: "BP wanted to sell its 50% share because it
is not a mining company. Bumi Resources approached the
company with an offer to buy 100% of the shares. We got
to a process of negotiation to a price that was
satisfactory for Rio Tinto to sell its 50%."
Bumi now owns only an 81.4% stake in KPC, having
sold 18.6% to the East Kutai regency administration late
last year, which means that it must sell another 32.4%
stake to fulfill its contractual obligation with the
government to sell 51% of its original 100% stake to
Indonesian companies.
Established in 1973, Bumi
started life as Bumi Modern and soon became a major
player in the hotel and tourism sector. In 1998,
however, it shifted its core business to oil, natural
gas and mining and changed its name. The company went
public in 1990 and a year later announced that it was
leaving its hotel business in Tashkent, Uzbekistan, to
move to the mining business there. The company first
went digging for black gold in Indonesia in October 2001
when it acquired 80% of Kalimantan-based PT Arutmin
Indonesia (Arutmin), one of the country's largest coal
producers and the fourth-largest coal-mining company in
the world, from BHP Billiton, Australia's biggest
"natural resource" company. BHP-Billiton was the first
to meet its divestment obligation under Indonesian law
by selling its 80% interest in Arutmin.
It was
alleged, though never proved, that Bumi had used funds
from state-run workers' insurance company Jamsostek on
deposit in state-owned Bank Mandiri to pay for the $148
million deal. As PT Bakrie and Brothers Tbk already
owned the remaining 20% equity in PT Arutmin,
Indonesia's biggest coal mine was back in Indonesian
hands. Two years later, Bumi dug even deeper by
purchasing a 100% stake in KPC, making Bumi the
country's largest coal producer, supplying more than 40%
of the total domestic coal market and controlling 6-8%
of thermal coal supply in the global market.
In
September, KPC secured $385 million from a syndicate of
24 banks and finance companies to refinance its KPC
debt, saving the company $25 million a year in interest
costs. Credit Suisse First Boston (CSFB), the loan
arranger, said in a statement that the syndicate had
offered KPC up to $686 million, repayable over two and a
half years, almost twice as much as the company had
sought. CSFB said the deal marked the revival of foreign
financial institutions' trust in the Indonesian
corporate sector. Though that claim may be a bit
premature, the deal was, nonetheless, the biggest loan
ever received by an Indonesian company in a single
transaction since the economic crisis hit the country in
1997.
Not bad too for a company whose shares
were suspended for three weeks on the Jakarta Stock
Exchange, with authorities alleging that the company had
given no information on its controversial acquisition of
KPC. The company's trading was suspended on July 29 last
year amid widespread controversy over the fact that the
entire stock of KPC plus assumed debt had gone for $500
million, not too much more than the $419 million
demanded by the shareholders for the 51% divestment
stake previously offered to the central government.
Meanwhile, it's business as usual for Bumi as it
forges ahead to a rosy future. Bumi's coal sales in 2003
were Rp3.73 trillion ($414.44 million), up from Rp2.43
trillion the previous year. It chalked up a number of
coal sales contracts this year prompting it to predict a
consolidated income of $1.3 billion by the end of the
year. A long-term contract signed with state-owned PT
Indonesia Power to supply 5.4 million tons of coal for
its power plants will contribute around $113.4 million a
year to its income target.
Bumi's KPC is the
second-biggest coal producer in Indonesia, second only
to PT Adaro Indonesia, which also mines in Kalimantan.
The latter produces 70,000 tonnes of coal per day, which
is shipped to 18 countries. KPC produces some 18 million
tonnes per annum and exports about 93% of this to
European and Asian countries. According to a 2002
financial statement, proven reserves at Sangatta are 1.3
billion tonnes and there are additional unproven
reserves of approximately 1 billion tonnes.
Bumi
recorded an increase in revenue in the third quarter of
this year to $797 million mainly due to improving coal
prices. Bumi expects production to reach 40 million
tonnes by the end of this year - 23 million from KPC and
16.5 million from Arutmin. Its two Arutmin mines in
South Kalimantan, Satui and Senakin, produce about 11
million tonnes of coal a year, which is shipped to its
Asia-Pacific markets. Arutmin is in the bottom 25% in
the world in terms of production costs. The coal is
close to the surface and very close to the coast, so
transport costs are low, making the company highly
competitive. Next year, the company aims to increase
output to 51 million tonnes - 33 million from KPC and 18
million from Arutmin. For 2006, the company predicts
production of 57 million tonnes and 70 million in 2007.
Coal is the source of about a quarter of the
world's energy, and is likely to remain so as power
demand increases. There are some 200 years of global
reserves at current production levels and the US Energy
Information Administration predicts coal will still meet
22.5% of world energy demand in 2025. Demand last year
rose faster than for any other fuel. Domestic
consumption of coal in Indonesia is still minimal at
only 13% of the total energy mix but it has been staging
a comeback as a cheap and reliable fuel. In the power
sector, consumption of coal has increased to 34% of the
total energy consumption.
Bumi currently exports
most of its coal to Japan, Taiwan, South Korea, Hong
Kong and Malaysia. It expects energy companies to switch
some of their fuel needs from oil to coal due to soaring
world oil prices. Bumi has been in talks with energy
utilities in Italy, France and Spain and is looking at
expanding sales to Malaysia. Indonesia has the potential
to meet Malaysia's demand for coal, which is expected to
reach 20 million tonnes annually by 2010, the head of
the Malaysian Energy Commission, Datuk Mohammad Annas
bin Mohammad Nur, said last month. Bumi also plans to
develop its share of the market in China, the world's
biggest user, which burned about a sixth more than in
2002.
Bill Guerin, a weekly Jakarta
correspondent for Asia Times Online since 2000, has
worked in Indonesia for 19 years in journalism and
editorial positions. He has been published by the BBC on
East Timor and specializes in business/economic and
political analysis in Indonesia.
(Copyright
2004 Asia Times Online Ltd. All rights reserved. Please
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