Controversy continues over Timor car program

By Riyadi

JAKARTA (JP): Indonesia's national car program has long driven controversy domestically and internationally.

But the controversy has died domestically with the remaining question being whether or not the program will succeed on time.

Internationally the controversy continues. It made news headlines again when Japan asked late last month the World Trade Organization (WTO) to form a panel to examine the policy.

Japan says Indonesia's national car policy, which exempts PT Timor Putra Nasional from paying duty and tax for three years to manufacture the national car, breaches WTO's provisions.

Although Indonesia has blocked Japan's attempt, it is almost certain the WTO will eventually form a panel to examine the policy, as Japan is backed by the European Union and the United States.

But Indonesia can simply prolong the WTO deliberation process so it can finish the national car program before the WTO rules on the matter.

In February 1996, the government announced a preferential car policy which exempted producers of a national car from import duties and luxury taxes.

It said only Timor Putra -- a company controlled by President Soeharto's youngest son Hutomo Mandala Putra -- qualified for the exemptions.

Timor Putra is cooperating with Kia Motors Corp. of South Korea to produce sedans here, under the name Timor.

Japan's decision to challenge the national car policy at a WTO panel has simply fueled Indonesia's incentive to expedite the program.

President Soeharto instructed relevant ministers to expedite the program so it is completed before the WTO rules on Japan's complaint in 1999.

Minister of Industry and Trade Tunky Ariwibowo said the government would provide any assistance Timor Putra needed to develop the car.

He said the government would assign state banks to financially assist Timor Putra.

The latest reports said the government had assigned three state banks -- Bank Dagang Negara, Bank Expor Impor Indonesia and Bank Rakyat Indonesia -- to form a consortium to provide US$1.2 billion in credit to Timor Putra.

Banking sources said 70 percent would be provided by Bank Indonesia through subsidized liquidity credit.

Bank Negara Indonesia (BNI) 1946 was excluded because it is a listed bank.

Bank Bumi Daya was also excluded because it financed the importation of Timor cars from South Korea.

Automotive analyst Suhari Sargo agreed with the government's persistent efforts to defend and expedite the program but questioned the works of Timor Putra in materializing the program.

Many parties, including domestic component producers, shared Suhari's view and questioned whether Timor Putra could finish the program on time.

The chairman of the Indonesian Automotive Parts and Components Industries Association, A. Safiun, said it would be difficult for Timor Putra to achieve the 60 percent local content.

Timor Putra has so far ordered components from 36 local vendors to meet the required 20 percent local content by the end of the first year.

The protection granted Timor Putra lasts for three years on condition that the 20 percent local component rule is met by the end of the first year, 40 percent by the end of the second year and 60 percent by the end of the third year.

But local component producers needed at least nine months to produce the components, Safiun said.

He said even if every existing local auto component producer, there are about 110 firms, was involved, they could only supply about 40 percent of the car's components.

But Timor Putra seems to have its own agenda.

Soemitro Soerachmad, president of PT Timor Distributor Nasional, a subsidiary of Timor Putra, said the company planned three stages to manufacture the car.

The first stage was product socialization and market penetration by selling imported Timor sedans on the domestic market, he said.

Currently Timor Putra imports Timor sedans from its main partner, Kia Motors Corp. of South Korea.

Timor Distributor has over 60 distribution outlets across the country, some offer after sales service. It also cooperates with 226 spare parts shops across the country to sell Timor parts.

Timor Distributor sold about 12,500 Timor sedans between last October and March, 2,500 a month. This was below its original target of 4,000 a month.

But the Indonesian Automotive Industries Association said Timor sedans dominated the market of 1,300cc- to 1,600cc-engine sedans by 49.23 percent last year.

The second stage is the domestic assembly of Timor sedans. Timor Putra has leased two lines of assembly facilities of local automotive assembler PT Indomobil, a subsidiary of the giant Salim Group.

Soemitro said this month that Timor Putra would start importing completely-knocked down Timor cars and assemble them at Indomobil's assembly facilities.

He predicted that by October, Timor sedans would have a 24.7 percent local content, including universal components and engine, transmission, drive axle, steering system, clutch, chassis and body, suspension and brake system parts.

The next stage would be the complete manufacture of Timor sedans. Currently Timor Putra, through its joint venture with Kia PT Kia Timor Motors, is building manufacturing facilities in Cikampek, West Java. They should be ready by next year.

Timor Putra, through its subsidiary PT Timor Industri Komponen, is cooperating with local and foreign component producers to producer Timor components and parts.

Timor Industri Komponen is also building its own component industry, aiming to supply around 25 percent of the components. It will out-source the other 75 percent.

Soemitro said he was confident that despite the controversy Timor Putra would be able to manufacture Timor sedans by early 1999.