Controversy continues over Timor car program

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.