Chandra Asri haunts Indonesia-Japan ties

Chandra Asri haunts Indonesia-Japan ties

Kornelius Purba, Staff Writer, The Jakarta Post, Tokyo

One of the main messages that was conveyed to President
Megawati Soekarnoputri during her recent visit to Japan was the
looming threat of bankruptcy over its giant trading house
Marubeni Corp. A major cause, Japan's top politicians told the
President, was her government's indecisiveness over the debt
restructuring of a cash-trapped Indonesian company PT Chandra
Asri, a petrochemical center.

Marubeni led the consortium that lent the firm US$700 million
in the early 1990s.

The Japanese officials, led by Prime Minister Junichiro
Koizumi, said that, given its major role in a Japanese economy
that was already mired in recession, an insolvent Marubeni would
have far-reaching repercussions in Japan.

Officials said the Japanese government would therefore go all-
out to prevent another failure in Marubeni's negotiations with
Indonesia over the settlement of Chandra Asri's loan, the
majority of whose shares are controlled by tycoon Prajogo
Pangestu.

Apart from Koizumi, three Japanese ministers, including
Minister of Economic and Financial Policy Heizo Takenaka and
Financial Services Agency chief Hakuo Yanagisawa, met with
Megawati, pressing her to interfere to end the deadlocked
negotiations between the Indonesian Bank Restructuring Agency
(IBRA) and Marubeni.

The Japanese government also has a direct interest in the
project because most of the $700-million loan came from the Japan
Bank for International Cooperation (JBIC), which handles Japan's
Official Development Assistance.

Marubeni president Toru Tsuji met three times with Megawati,
while her senior executives held intensive negotiations with
State Minister of State Enterprises Laksamana Sukardi in their
desperate effort to resolve the bad debts.

"If Marubeni fails this time, Japan may face its worst
bankruptcy since World War II," said a senior Japanese diplomat,
who was assigned to closely monitor the negotiations.

Marubeni is reportedly facing several problematic projects in
Indonesia, with total debts of more than $1 billion. Its success
in overcoming Chandra Asri's debts will pave the way to resolve
other bad debts.

Megawati told her ministers she was in a difficult position
regarding Chandra Asri. Politically it was not popular to bail
out such a controversial company, especially when the country's
economy continued to shrink. Downstream plants depended on
Chandra Asri for chemical supplies. But rejecting Japan's demands
would have serious consequences for bilateral relations.

Marubeni corporate communications manager Hiroshi Nishizaki
complained,"Despite the series of negotiations, we still cannot
perceive any clear indication that the Indonesian government is
ready to solve the problem."

Many Indonesians regard Chandra Asri as an example, par
excellence, of the dirtiest business practices carried out under
Soeharto's 32-year regime. From its beginnings in the early
1990s, the company had been controversial due to the involvement
of a member of the Soeharto family and his close associates.

Chandra Asri was accused of markup practices and secured
special tariff protection and various other forms of preferential
treatment from Soeharto.

Prajogo subsequently had a majority stake in the company after
Soeharto's son Bambang Trihatmodjo and his cronies quit the
petrochemical project.

An angry Marubeni official blurted out, "Do you think that
American companies operating in your country are cleaner than
Japanese companies?"

"I think Indonesia would have quickly resolved the issue if
Chandra Asri were related to American interests," he told The
Jakarta Post recently.

During Megawati's visit from Sept. 26 to 30, Koizumi and his
top officials raised four financially troubled megaprojects
during several separate meetings with Megawati.

One of them is a joint venture led by PT Trans-Pacific
Petrochemical Indotama (TPPI) to build a $2.3 billion integrated
petrochemical plant in Tuban, East Java, now only 50 percent
completed. Japanese investors such as JGC Corp. have poured $600
million of the total $900 million already invested into the
project. Other shareholders are Nissho Iwai Corp., Itochu Corp.
and Indonesian businessman Hashim Djojohadikusumo.

State-owned electricity company PT PLN and its partners,
mainly Japanese firms led by Sumitomo Corp., are also facing a
stalemate in progressing the Tanjung Jati B coal-fired power
plant in Tanjung Jati, Central Java.

PLN wants to buy out the unfinished project, with $1.5 billion
loan in Japanese loans, but its plan was rejected by its
partners.

Another problematic company is independent power producer PT
Paiton Energy, the owner of the Paiton I coal-fired power plant
in East Java. It is a joint venture between Mitsui & Co.,
American firm General Electric and Edison Mission Energy.
Indonesia is represented by PT Batu Hitam Perkasa, also owned by
Hashim.

Like Chandra Asri, these three projects were related to JBIC
and Soeharto's cronies.

"Of the four projects, Chandra Asri is the most delicate for
us," State Secretary/Cabinet Secretary Bambang Kesowo said, given
the importance of the project, quite apart from its loans being
the greatest.

Further delays in the resolution of Chandra Asri could damage
the credibility of the Megawati government and put in great doubt
the government's commitment to contracts it has signed.

Meanwhile, Soeharto and most of his children, who allegedly
had involvement in all the controversial projects, continue to
enjoy their liberty at their residence in Menteng. Most of their
cronies, except Bob Hasan, remain untouchable by the law.

The Megawati administration and Marubeni must come up with a
acceptable solution to the Chandra Asri debt debacle, otherwise
the olefins industry, the only one in Indonesia, could go
bankrupt, disrupting chemicals supplies to hundreds of downstream
plants.