Bimantara-Hyundai project shelved

Bimantara-Hyundai project shelved

JAKARTA (JP): PT Bimantara Citra Mobil Nasional said yesterday
the decision to shelve its joint project with South Korea's
Hyundai Motor Co was made due to the government's plan to remove
tax incentives given to the country's car industry.

Bimantara Citra Mobil's president Jongkie D. Sugiarto said
yesterday the company was awaiting clarification from the
government about the plan to eliminate the tax incentives by 2000
before it made further plans for the project.

According to the government's existing regulation, cars
assembled domestically with a local content of at least 60
percent are given tax incentives, such as the exemption of import
duty for its imported components.

Jongkie said the company could not continue to build a car
manufacturing plant or car component plants without knowing what
the government would do with the tax incentives.

"If we continue the project now, it is expected to be
completed by mid-1999, while the government's lift of the
incentive is scheduled to take effect in 2000," he said.

Indonesia has agreed to reduce high tariffs now ranging at 200
percent on imported cars in return for the International Monetary
Fund's bailout program to cope with the monetary crisis, a source
said.

Details of the government's measure are expected to be
announced during the new ministerial cabinet meeting in April,
after the presidential election.

Jongkie said if the government dropped the import tax
dramatically, importing cars would be a better choice than
building them here.

Hyundai announced Monday it had temporarily shelved the joint
venture Bimantara Hyundai Indonesia (BHI), which planned to build
a car manufacturing plant costing US$400 million in Purwakarta,
West Java, citing financial difficulties.

Hyundai said it might pull out altogether from the project,
depending on the result of government negotiations on reducing
the import tax and if the financial crisis did not improve.

The joint venture had planned to build 100,000 cars, using 60
percent local components, to benefit from the import duty and
luxury tax.

Jongkie said PT BHI had also decided to review other
investment plans, including a $250 million project to build a car
component manufacturing plant.

"We are going to evaluate which components we will manufacture
and which we will not make before deciding our next step in
April," he said.

Jongkie said the monetary upheaval caused by sharp currency
drops and the tight monetary policy played a major part in
causing the project's suspension.

Both Bimantara and Hyundai faced difficulties getting banks to
finance their project, he said.

"If we continued with the project with no guarantee from
banks, it would be very dangerous. The plant's construction could
stop in the middle of the road," he said. (das)