Inalum's perpetual problems<\/p>\n
PT Indonesia Asahan Aluminium (Inalum), which is reportedly
\nmired once again in severe financial problems and urgently
\nrequires fresh capital injection, is much more than simply an
\nIndonesian-Japanese aluminum-smelting joint venture company. It
\nis a monument to the friendship and cooperation between the two
\ncountries. So important is this industrial entity that the ebb
\nand tide of bilateral relationships in the 1970s were strongly
\ninfluenced by the progress of the negotiations for the
\nimplementation of the US$2 billion venture.<\/p>\n
No wonder, Inalum and its hydropower project became the
\nfavorite site for President Soeharto's visits in the 1970s and
\nearly 1980s. That fact, by and large, shows the political
\ndimension of the huge venture located in North Sumatra.<\/p>\n
Economically, however, the project seems to be a parody of the
\nold story of a theoretically viable business venture that turns
\ninto a money-losing proposition. The venture was designed to
\nharness the huge hydropower of the Asahan river that flows from
\nSoutheast Asia's largest volcanic reservoir, Lake Toba. And
\neconomically, aluminum smelting is the best user of this kind of
\ncheap power because a smelter is one of the highest energy-
\nintensive manufacturing plants. When the construction of the
\nproject was started in 1976, many aluminum smelters were losing
\nmoney and were about to close down due to high energy costs.
\nHence, the Inalum smelter, supported by cheap hydropower, was
\nsupposed to be highly competitive on the international market.<\/p>\n
However, Inalum has been beset with financial problems since
\nits start-up in 1982. When the smelter began production at its
\nfull designed capacity of 225,000 tons in 1984, the international
\naluminum price had collapsed to $1,000 from as high as $2,000\/ton
\nin 1980. Its debt burdens, which are denominated entirely in the
\nJapanese yen, increased sharply when the yen appreciated by more
\nthan 50 percent in 1985 against the dollar, in which the
\ninternational aluminum price is quoted. Therefore, Inalum lost
\nmoney steadily between 1982 and 1986.<\/p>\n
In response, the Japanese shareholders, consisting of 12
\ncompanies and the government, injected 12 billion yen ($79
\nmillion at the rate prevailing at that time) in additional equity
\ncapital and reduced the interest rate on Inalum's 220 billion yen
\ndebts from seven to 6.45 percent.<\/p>\n
The company made a sharp turnaround in 1987 with a profit of $50
\nmillion which doubled to $100 million in 1987. But this bullish
\nera was soured by the decline in the smelter's production due to
\nthe decrease in the power supply from its power stations which
\nwas caused by the dropping of the water level in the lake.<\/p>\n
Inalum's operations were disturbed again in 1988, when A.R.
\nSoehoed, chairman of the Asahan Development Authority,
\ntemporarily canceled the company's aluminum exports to Japanese
\nbuyers due to a drawn-out row with the Japanese shareholders over
\nIndonesia's demand for a larger share of the smelter's output
\ncommensurate with the increase in its share ownership to 41
\npercent.<\/p>\n
The bottom line of the 12 years of Inalum's operations is
\ncumulative losses of $230 million. A very sad condition indeed.<\/p>\n
It is very difficult to verify last week's wire service
\nstories about Inalum's severe financial problems because the
\ncompany's head office in Jakarta is refusing to make any comment.
\nIn fact, Inalum seems to us a very closed company in so far as
\nmass media access to its reports of accountability is concerned,
\nalthough it is 30 percent owned by the Japanese government and 41
\npercent by the Indonesian government.<\/p>\n
However, talks with Japanese officials in Jakarta, who are in
\ncharge of overseeing Inalum, gave us the impression that Inalum's
\nproblems are not due simply to the depressed aluminum market.
\nThere have been questions about Inalum's relations with the
\nAsahan Development Authority and about the company's plan to
\nbuild a new hydropower station with a capacity of 180 megawatts
\nto support its plan to expand capacity by 75,000 tons. It is, we
\nthink, high time for both Indonesian and Japanese shareholders to
\nnegotiate a comprehensive program for an overall solution to
\nInalum's troubles.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/inalums-perpetual-problems-1447898607",
"image": ""
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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