http://www.atimes.com/atimes/Southeast_Asia/II27Ae03.html
Sep 27, 2007 Indonesia's richest man loses his mine By Bill Guerin JAKARTA - Indonesia's richest man last week lost a drawn-out legal tussle over his 40% ownership claim to the country's second-largest coal-mining company, PT Adaro Indonesia (Adaro). This comes crucially at a time when the energy commodity is enjoying its biggest boom ever. The decision was made by Singapore's High Court, bypassing Indonesia's notoriously politically pliable judiciary, though paper and plantation tycoon Sukanto Tanoto is weighing his appeal options. The legal saga over the highly coveted mine's ownership is as complicated as it is contentious among the competing international claimants to the assets, which includes the world's biggest exporter of power-station-grade coal. Tanoto claimed that PT Dianlia Setyamukti (Dianlia), owned by another tycoon, Edwin Soeryadjaya, together with his cousin T P Rachmat and others conspired illegally with Deutsche Bank to buy his shares in PT Adaro Indonesia and PT Indonesia Bulk Terminal, which serves the Adaro mine. The shares had been pledged as collateral by Singapore-based investment company Beckkett, partly owned by Tanoto and Hashim Djojohadikusumo and his sister-in-law, Titiek Prabowo, former president Suharto's second daughter, through their Tirtamas group. Beckkett held the shares through a subsidiary, PT Swabara Mining and Energy (SME). The roller-coaster saga stretches back as far as 1991, when PT Asminco Bara Utama (Asminco) took over management of the Adaro concession. Asminco, which owned a 15% stake in Adaro, then borrowed US$100 million from Deutsche Bank in October 1997, mainly to buy out the 25% stake in Adaro and 15% in the related bulk terminal held by Tirtamas. The guarantor of the loan was Beckkett, which owned Asminco and pledged all 40% of its shares as collateral However, no repayments were made on the loan, prompting Deutsche Bank to sell the shares at an alleged below-market value of $46 million to Dianlia in a November 2001 agreement made under Singaporean law. With coal prices rising even then, the stake was estimated to be worth more than $400 million. Beckkett held the shares through SME, and claimed that because the sale was illegal under Indonesian law, it was therefore invalid. Undaunted, Soeryadjaya, son of the founder of Indonesia's national car company Astra, in June 2005 sold Adaro to a consortium of international banks and strategic investors for $950 million, leaving him and Rachmat each with about one-third of the company. Among the foreign investors were the Singapore Investment Corp, owned by the Singapore government, and the private-equity arms of Goldman Sachs Group and Citigroup. Along with his family, Tanoto, who owns the widely diversified Singapore-based Raja Garuda Mas International, with core businesses in pulp and paper, palm oil, energy, and construction and engineering, had a net worth of $2.8 billion as of September 2006, according to Forbes Asia. The magazine noted that Tanoto and Eka Tjipta Widjaja, a fellow ethnic-Chinese tycoon who is worth an estimated $2 billion, had built their fortunes by turning Indonesia's trees into paper and pulp. The timing of the court verdict could hardly be worse for Tanoto, or better for Soeryadjaya, in terms of the profit potential of coal, currently the world's fastest-growing energy source despite growing global-warming concerns. Indonesia's coal output is on track to reach an expected 205 million tonnes this year, up from 193.5 million tonnes in 2006. According to the Indonesian Coal Mining Association, output could jump to as much as 218 million tonnes next year, which would be double the level five years ago. Even before the verdict, Soeryadjaya had disclosed plans to capitalize on Indonesia's coal potential, including plans to buy up to four more mines and form a new asset-holding company that would go public with a planned $600 million listing on the Jakarta Stock Exchange by early next year. King of coal Indonesia has coal deposits of about 38.9 billion tonnes and, thanks to Adaro's output, has overtaken Australia as the world's largest exporter of thermal coal, the type used in power stations. Regional thermal-coal prices have almost doubled since 2004, and hit a record high of $72.37 a tonne last month, up almost 50% at the same time last year, and pushed up because of supply constraints after certain Indonesian mines said for undisclosed reasons they would miss some contracted shipments. Domestic demand is also rising fast, expected to increase to 58 million tonnes in 2008 from about 49 million tonnes this year, to fuel several more coal-fired power plants expected to come on line early next year as part of the government's drive to slash its consumption of expensive crude oil. State-owned electricity utility PLN is building several coal-fired plants to meet spiking domestic electricity demand, which is growing by some 7% a year. These should add an extra 10,000 megawatts to the national grid by the end of 2009. While PLN still uses petroleum-based fuels in about a quarter of its power plants, the lower production costs associated with new coal-fired plants in 2006 helped PLN cut losses to just over Rp1 trillion ($95 million) from Rp4.92 trillion in 2005. Meanwhile, exports are expected to reach 160 million tonnes in 2008, up slightly from an expected 156 million tonnes this year, amid surging demand from China and India. Both energy-starved economic giants continue to seek out regionally long-term secure coal supplies. Analysts at UBG Investment Research predict that up to 73% of China's new power capacity built between now and 2020 will be coal-fired; southern China's Guangdong province imported 4.5 million tonnes of Indonesian coal in the first half of 2007, almost two and a half times the amount in the same period last year. Coal prices are expected to remain strong as production continues to lag behind demand, creating lucrative investment incentives for foreign acquisitions or minority share purchases of local mining companies. China's largest coal miner Shenhua Energy reportedly plans to buy Indonesian coal operations and India's Tata Power has bought 30% stakes in both PT Kaltim Prima Coal and PT Arutmin. They paid $1.3 billion in April to Bumi Resources (Bumi) for shares in the two mines that have made Bumi the country's top coal producer. It is controlled by the Bakrie family, including holdings by the country's coordinating minister for people's welfare Aburizal Bakrie. In March 2006, Bumi announced an agreement to sell the lucrative mines for $3.2 billion to a consortium headed by Borneo Lumbung Energi, an affiliate of Jakarta-based investment bank Renaissance Capital, and the Marubeni Corp, Japan's fifth-largest trading company. Marubeni was expected to fund up to 50% of the purchase, rationalizing that it needed more coal to boost existing supplies from its own mines in Australia and Canada to meet increased demand for coal at power plants in both Japan and China. Bumi's total outlay for the two mines had been just under $251 million, so the sale would have earned it a net profit of just under $3 billion. Renaissance Capital could not close the deal, which was officially canceled a few weeks later. Another recent Bumi deal was the joint-venture agreement struck with Australia's coal-seam gas company Westside Corp Ltd to develop these types of projects in Kalimantan along with PT Arutmin. Thailand's biggest coal miner, Banpu, is also planning an initial public offering of its 95%-owned local unit PT Indo Tambangraya Megah, which operates four coal-mining concessions in Indonesia. The IPO, expected during the first quarter of next year, will still leave Banpu owning 80% of its Indonesian unit. Surging regional demand and skyrocketing prices for coal mean the recent Singaporean court decision against Tanoto represents a big loss to his company's future profitability. A spokesman for Beckkett has said it is too early for the company to make a decision on whether it will move to appeal the verdict to Singapore's Supreme Court, although the option is not being ruled out and the company is also still considering filing a counter-lawsuit in Indonesia. A Deutsche Bank statement in Hong Kong suggested that the verdict fully vindicated the bank's legal position and actions in recovering a long overdue debt. "In confirming the lender's rights, it will be welcomed by the broader banking community," spokesman Mike West said in the statement. Whether it will be welcomed by the broader borrowing community is still open to debate, however. Beckkett noted in its written statement that the verdict had actually affirmed the claims it had made all along: that Deutsche Bank did not undertake the share sale in a proper manner. For its part, RGM International is forging ahead with a $4 billion expansion of its pulp-and-paper, palm-oil, energy, and other interests toward the aim of increasing its asset base by 70% by 2009, Tanoto told Reuters in an interview in May. Meanwhile, Indonesian mining firm PT Darma Henwa shares soared nearly 70% in their stock-market debut on Wednesday, making it one of Jakarta's best-performing first-day issues this year. The shares opened at Rp550 and then quickly rose to Rp565, well above the offer price of Rp335. The firm's businesses include mining, infrastructure services, coal marketing and power generation. Darma Henwa, owned by British Virgin Islands-based Zurich Assets International and local company PT Indotambang Perkasa, raised $117.25 million from the IPO for its working capital. Bill Guerin, a Jakarta correspondent for Asia Times Online since 2000, has been in Indonesia for more than 20 years, mostly in journalism and editorial positions. He specializes in Indonesian political, business and economic analysis, and hosts a weekly television political talk show, Face to Face, broadcast on two Indonesia-based satellite channels. He can be reached at [EMAIL PROTECTED] (Copyright 2007 Asia Times Online Ltd. 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