Government says it will not bailout Tuban center

Government says it will not bailout Tuban center

JAKARTA (JP): The government has no plan to bail out the
financially-troubled US$2.3 billion integrated petrochemical
industry in Tuban, East Java, according chairman of the
Indonesian Bank Restructuring Agency (IBRA) Cacuk Sudarijanto
said.

But Cacuk said here on Wednesday that since the petrochemical
center was a strategic industry, the government would help the
company, called PT Trans Pacific Petrochemical Indotama (TPPI),
to seek new investors.

"The government is still thinking of ways to invite new
investors without having to bailout or take over the company's
debts," Cacuk told reporters on the sidelines of a dialogue on
the economy.

"It is part of the company's restructuring process," he added.

Cacuk was responding to reports that the government via IBRA
would take over TPPI due to strong pressure from the company's
Japanese creditors.

The government had previously bailed out another petrochemical
center called PT Chandra Asri whose creditors also included
Japanese giant trading houses.

The Tuban petrochemical center is controlled by the Tirtamas
Group, a local conglomerate which has huge debts with IBRA. The
Tirtamas Group borrowed money from local banks prior to the
economic crisis but after the crisis the loans turned sour. The
banks then transferred the non-performing loans (NPLs) to IBRA, a
unit under the finance ministry, whose mandate includes
restructuring the NPLs in the banking sector.

The development of the petrochemical center came to a halt in
1998 after the country was hit by an economic crisis and social
unrest.

Reports said that only around 40 percent of the project had
been completed.

Because of the crisis, no investors want to continue financing
the project including the existing creditors: JGC Corp., Nissho
Iwai Corp., and Itochu Corp.

Reports said that out of some $900 million which had been
invested in the petrochemical center, JGC contributed $600
million.

Another $1.3 billion is needed in order for the petrochemical
project to be completed some time in 2002.

Reports said that the Tirtamas Group had so far failed to
invite new investors even though the group had agreed to become a
minority in the project.

The government took a controversial step in June when
President Abdurrahman Wahid instructed IBRA to convert all of its
$460 million investments in the petrochemical center PT Chandra
Asri into equity.

The move effectively took over Chandra Asri's debts owed to
foreign creditors including Japanese trading houses.

Meanwhile, the foreign creditors led by Japan's Marubeni Corp.
agreed to also convert $100 million, part of its loans to Chandra
Asri, into a 20 percent equity.

The remaining $700 million loan would be repaid in 12 years.

Abdurrahman's deal with Marubeni received a negative response
from analysts, saying that the deal was not transparent and the
taking over of the company's debts by the government would set a
bad precedent for future debt restructuring processes.

Noted economist Sri Mulyani Indrawati said on Tuesday that if
the government did take similar measures with the Tuban
petrochemical center, it could create a further burden to the
already strained state budget.

She pointed out that other indebted companies would also
demand similar special treatment.

Sri also said that the country's international donors would be
deeply disappointed because they would think that the money they
lent to the government would be used to bailout the debts of the
private sector instead of financing the development of crucial
infrastructure in rural areas or to help the poor survive the
economic crisis.

The government is expected to meet its traditional donors
grouped in the so-called Consultative Group on Indonesia (CGI) on
Oct. 17-18 in Tokyo, Japan, to seek another $4.8 billion loan to
help finance the deficit in the 2001 state budget. (rei)