Wed, 24 Dec 1997

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)