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)