Financially-strapped Inalum gets Japan aid

JAKARTA (JP): The Japanese government said yesterday it will provide financial assistance to Indonesia to help restart a stalled joint aluminum smelter at Asahan in North Sumatra, Kyodo reported from Tokyo yesterday.

The joint smelting company -- PT Indonesia Asahan Aluminum (Inalum) -- which began production in 1982 has been stalled due to falling aluminum prices and increasing financial burden on the Indonesian side, according to the Japanese news agency

Kyodo said Japan will lower interest rates on its lending extended to the Indonesian government for the project -- from 5.0 percent to 4.1 percent for the portion provided by the Export- Import Bank of Japan and from 5.3 percent to 4.4 percent for loans from private financial institutions.

The joint venture's capital will be expanded by 13 billion yen, of which the Japanese side will put up 7.66 billion yen and Indonesia 5.34 billion yen, the government said.

Inalum has been beset with financial problems since the early 1980s. When the smelter began production at its full designed capacity of 225,000 tons in 1984, the international aluminum price had collapsed to $1,000 from as high as $2,000/ton in 1980.

Its debt burdens, which are denominated entirely in the Japanese yen, increased sharply when the yen appreciated by more than 50 percent in 1985 against the dollar, in which the international aluminum price is quoted. Therefore, Inalum lost money steadily between 1982 and 1986.

In response, the Japanese shareholders, consisting of 12 companies and the government, injected 12 billion yen ($79 million at the rate prevailing at that time) in additional equity capital and reduced the interest rate on Inalum's 220 billion yen debts.

The company made a sharp turnaround in 1987 with a profit of $50 million which doubled to $100 million in 1987. But this bullish era was soured by the decline in the smelter's production due to the decrease in the power supply from its power stations which was caused by the dropping of the water level in the lake.

The bottom line of the 12 years of Inalum's operations is cumulative losses of $230 million. (vin)