Rio, BP sell majority stake in Indonesian mine

SYDNEY, Australia (CNN) -- Miner Rio Tinto and UK energy company BP have finalized the sale of their majority stake in the Indonesian coal mine joint-venture Kaltim Prima.

Under the deal which was finalized Monday after months of protracted negotiations, the Indonesian government will buy 51 percent of Kaltim Prima Coal (KPC).

KPC reached a deal with the Indonesian government in March to offer 51 percent of the company to Indonesian parties.

But the plans were threatened by a civil suit earlier this year by the East Kalimantan provincial government which was seeking $776m in damages for alleged unlawful delays in the process.

The two foreign owners were required by Indonesian law to divest 51 percent of the company to local partners by the tenth year of operation, which was in 1992.

KPC initially wanted $453 million for the 51 percent stake, but dropped its price to $419 million. The provincial government, the leading bidder, offered $320 million.

In a statement released last week, Rio Tinto confirmed the legal action had been dropped, clearing the way for the sale to go ahead. The proceeds will amount to $419 million, to be split evenly between Rio Tinto and BP.

The Indonesian government has offered East Kalimantan a 31 percent stake with the remaining 20 percent being sold to private Indonesian investors at a later date.

The KPC sale is regarded as a test case for investors watching the dynamics of power in Indonesia between the central government and the provinces.

The administration of President Megawati Sukarnoputri is giving more authority to local governments. But it is also concerned not to upset potential overseas investors.

Rio Tinto shares jumped 4.2 percent or $1.27 from Tuesday's close to trade at A$31.45 in Australia on Wednesday.