PLAYER 2: THE COMPANY LEADER

5.3.2. PLAYER 2: THE COMPANY LEADER

In October 2003, BUMI Resources acquired Kaltim Prima Coal (KPC) from Beyond Petroleum and Rio Tinto through its holding companies Sangata Holding Limited and Kalimantan Coal Limited at a price of US$500 million. This was much cheaper than US$ 822 million agreed upon by the government and KPC owners or around US$ 420 million for the 51% shares. Following that, the 51% shares sold to the East Kalimantan regional administration and state-owned Bukit Asam was at US$ 255 million. The local government of East Kalimantan regional then acquired a 31% stake and Bukit Asam to take the remaining 20% stake. The acquisition of KPC turned the company into the country’s largest coal producer as well as one of

the largest thermal coal exporters in the world, accounting for approximately 8 percent of

1 In comparison to the average of Indonesia consumption, almost one out of two Indonesians has a cellular phone and just every household has a television set (Roy Morgan Single Source, 2009).

internationally traded thermal coals in 2005. The BNBR Group was the only non-Chinese business group in Indonesia which successfully survived the transition from the Soekarno period to the Soeharto period and even to Susilo Bambang Yudhoyono regime. Founded by Achmad Bakrie, the father of Aburizal Bakrie, Indonesian Senior Minister, BNBR started its long journey as a trading company in 1942. In 1950s, Soekarno, the first president of Indonesia, stated that Achmad Bakries is the only remarkable pribumi or indigenous businessman. The company pioneered Indonesia’s steel pipe

manufacturing industry. The company expanded into several other sectors including steel structures, plantations, petrochemicals, trading, mining, food, automobile components, building products, and telecommunications both in Indonesia and abroad.

In the early of 1970s, the company was one of main suppliers for some state-owned company, especially as Pertamina and Krakatau Steel. The key success of this company was the close links between Bakrie Senior and some executives in the state-owned companies, such as Ibnu Sutowo and Tungky Aribowo. Ibnu was the president director of Indonesia state-owned oil company, Pertamina, while Tungky was the director of Indonesia stated-owned steel company, PT Krakatau Steel. Tungky also became Ministers for some departments during the Suharto's cabinet, and was a director in Tommy Suharto's car racing company.

In 1998, the expansion had come into a halt due to Asia financial crisis. BNBR defaulted on its debts and restructured $1.2 billion of debt, converting some into equity (called debt equity swap) between 1998 and 2001. PT Bakrie Sumatera Plantation Tbk decided to repay US$4.2 billion of its debts in 2002 or 75% of its total mature debts, which amount to US$5.6 million. The company had to deal with 150 creditors which controlled over 80% of five companies, i.e. Bakrie Sumatera Plantations, Bakrie Electronic Company, Bakrie Kasei Corp, Arutmin Indonesia, and Iridium LLC. The National Bank-Restructuring Board (BPPN) also controlled 15% asset. The share ownership of Bakrie over those companies dropped from 58% into 2.5%.

After the restructuring program, the management came into another ambitious program toward modem multinational enterprise. The first movement was acquisition of 97.5% of shares of Gallo Oil Ltd 2 in 2000 by Bumi which cost more than Rp9.3 trillion ($1.3 billion). That asset of Bumi jumped to Rp 441.6 billion ($250 million). Then, in November 2001, BUMI took over 80% shares of PT Arutmin Indonesia from BHP Mineral Explorations Inc. 3 Along with four open-cut coal mines in Senakin, Satui, Asam-asam and Batulicin in South Kalimantan, Arutmin was the fourth largest coal producer in Indonesia. The acquisition cost US$ 180 million with support from Bank Mandiri, though Repo $103 million while the rest came from its asset. Surprisingly, this process was done on 10 October 2001, less than two months of the deal. Another information mentioned that acquisition cost US$148.5 million which partially financed

by a US$100 million loan from PT Bank Mandiri. 4 Then, BUMI became the first coal mining company producing quality eco-coal for international and domestic power generation

2 Gallo Oil was established in Jersey, Chanel Island on 17 December 1997.

3 Since 1981, Arutmin got concession to explore coal mining more than 70,000 hectares in South Kalimantan. According to the agreement of coal mining exploration, it was a mandate for BHP to sell its share for Indonesia

after 10 years

Association, http://www.apbi- icma.com/news.php?pid=616&act=detail 4 High Beam Research, November 2001.

of

concession.

Indonesian

Coal

Mining Mining

Between 2005 and 2008, the price of coal at international spot market was increasing dramatically. The highest price was $1,200 per ton in 2008. Then, BUMI share price rose to a record 8,550 rupiah at the early of 2008 in Jakarta trading, recorded as Indonesia's most valuable company at the time. Three year before, the stock of Bumi Resouces was just around Rp800 when the price of coal was around $50. It triggered Bakrie to expand more over.

In 2004 Aburizal Bakrie was appointed as the chief economic minister of Indonesia by President Susilo Bambang Yudoyono. Subsequently, Aburizal Bakrie had been blamed for poor economic development and business nepotism. During the reshuffling of the cabinet in 2005,

he transferred into the Coordinating Minister for People's Welfare. 5 For the following years, the Forbes magazine published Mr. Bakrie as the top billionaire in South-east Asia with estimated assets more than US$9 billion.

Along with the famous name as a controversial minister, BNBR played more important role on Indonesian coal production, especially through Bumi Resources. The sales growth rose by 23% from 35 million ton in 2004 into 44.4 million tons in 2005. In line with the growing global consumption of energy resources, the strong demand for thermal coal had driven higher average selling price. Then, ownership of KPC and Arutmin, BUMI Resources became the largest thermal coal producer in Indonesia, accounting for approximately a third of Indonesia’s total

coal production in 2005. With a gross production of 44.9 million tons in 2005, the company was also one of the five largest thermal coal exporters in the world. Kaltim Prima Coal was the largest coal producer in Indonesia, which accounting for approximately 8 percent of internationally traded thermal coals in 2005. Formerly, it belonged to Petroleum and Rio Tinto. In October 2003, BUMI Resources acquired the most remarkable coal mining company, Kaltim Prima Coal (KPC), from Beyond Petroleum and Rio Tinto through its holding companies Sangata Holding Limited and Kalimantan Coal Limited at a price of US$500 million.

Between 2005 and 2008, the price of coal at international spot market was increasing dramatically. The highest price was evident in 2008 at $1,200 per ton. The Bumi share price rose to a record 8,550 rupiah at the early of 2008 in Jakarta trading, recorded as Indonesia's most valuable company at the time. Three year before, the stock of Bumi Resouces was around Rp800 when the price of coal was around US50. It triggered Bakrie to expand more over.