Analyst doubts restart of Timor project

Analyst doubts restart of Timor project

JAKARTA (JP): A leading automotive analyst expressed
skepticism on Tuesday about a plan to revive the suspended
national car project, despite a renewed commitment from the
former South Korean partner.

Suhari Sargo said the project was no longer viable given the
considerable amount of outstanding bad debts of PT Timor Putra
National (TPN).

The firm, controlled by president Soeharto's youngest son
Hutomo Mandala Putra, was named by the government in 1996 to
develop the national car program with Kia Motors Corp. During the
first years of its operation, TPN was allowed to import the
vehicles from the South Korean company under special tax
dispensations.

The company was granted a three-year exemption from import
duties and luxury taxes on the condition that the local content
of the car, known as the Timor, would reach at least 20 percent
in the first year of the program, 40 percent by the end of the
second year and 60 percent by the end of the third year.

TPN is now saddled with around Rp 3 trillion (US$416 million)
in debts following a sharp decline in sales and a disagreement
with the taxation office over allegedly unpaid import duties.

The project unraveled when the World Trade Organization ruled
in early 1997 for the removal of the exclusive rights given to
the company. Japanese and U.S carmakers had disputed the
provisions as unfair.

Suhari said he doubted the South Korean company would remain
serious about its commitment considering the amount of unresolved
problems with the project.

"It is possible that Kia will back off, if it finds the car
project is still in the same mess as when it left last year," he
said on the sidelines of an automotive seminar.

He said the government's invitation for Kia to restart the
suspended Timor car project was not sincere. He believed it was
only a diplomatic tool to convince the South Korean government
that Indonesia's new government was willing to provide a good
business climate for foreign investors.

Suhari said it was not easy for the government to settle the
financial problems of TPN, which was taken over by the Indonesian
Bank Restructuring Agency (IBRA) after the government suspended
the car project last year.

Kia, which is now owned by South Korean car giant Hyundai
Motor Co., withdrew from the project last year.

The Korean company renewed its commitment during President
Abdurrahman Wahid's official visit to South Korea in early
February. Kia did not mention the amount of investment it would
bring back into the project, which has so far entailed about $400
million in investment. However, the government predicted the
revival of the project would absorb at least $100 million in
fresh funds.

Kia's representatives were scheduled to arrive in Jakarta in
early April to start negotiations with IBRA, which is currently
undertaking the restructuring process of TPN, to form a new joint
venture company to continue with the car project.

Suhari said the government, including IBRA, was slow in
restructuring TPN.

Separately, IBRA's deputy head Eko S. Budianto said his office
would ask Hutomo to provide fresh funds for TPN or risk losing
his ownership.(cst/rei)