JAKARTA (AFX-ASIA) – The East Kalimantan government has withdrawn legal action against PT Kaltim Prima Coal (KPC) — a joint venture between BP PLC and Rio Tinto PLC — in a move expected to pave way for the sale of a 51% stake in the company, Detik.com news service reported, citing KPC president director Noke Kiroyan.

“Because of this withdrawal, we will continue the offer of a 51% stake in KPC,” Mr Kiroyan was quoted as saying.

However, he added that the offer will remain open to all local investors as stipulated under KPC’s contract of work with the central government.

The East Kalimantan government has demanded first right of refusal over the entire 51% stake of KPC shares up for sale, and had been seeking damages from KPC of US$776 million in the South Jakarta District Court on allegations that BP and Rio Tinto had manipulated the sale process.

“We do not agree if they (East Kalimantan provincial government) claim first right of refusal over the 51 pct stake because there are other parties that have the right to bid for the stake,” Mr Kiroyan said.

KPC officials and East Kalimantan’s lawyers were not immediately available to confirm the report.

The news of the abandoned lawsuit follows a demand by the central government earlier this month that the East Kalimantan authority withdraw the legal action against KPC and lift an attachment order on KPC shares that bans BP and Rio Tinto from taking any action in relation to ownership of those shares.

The East Kalimantan government earlier this month withdrew its legal action against the central government in the administrative court, but had remained defiant to central government attempts to resolve the legal dispute with KPC.

KPC and the central government have extended until July 31 the offer of the 51% stake — valued at US$419 million — to allow more time to resolve the impasse.

Under its 1992 contract of work with the central government, KPC — which is located in East Kutai regency, East Kalimantan — must divest a majority stake to local investors by the 10th year of its operation.

In its latest attempt to resolve the conflict with the East Kalimantan authority, the central government has proposed a compromise whereby it would sell around 20% of KPC to state-owned PT Tambang Batubara Bukit Asam and the remainder to the regional government.