Indorayon plans to reopen pulp mill

Indorayon plans to reopen pulp mill

JAKARTA (Dow Jones): Officials at pulp producer PT Inti Indorayon Utama met over the weekend with community leaders and environmental critics in a last-ditch effort to reopen its mill in northern Sumatra.

But faced with a continued standoff that has kept the US$600 million plant out of action since 1998, Indorayon's main shareholder is threatening to cut off funding, officials said on Monday.

Indorayon, which defaulted on its debt in 1998, had reached agreement with its creditors to restructure $400 million in debt, provided the mill can reopen. Under this debt workout, founder shareholder Sukanto Tanoto agreed to inject working capital into the company.

"The shareholders have informed us that there will be no more money," said Chairman Palgunadi Setyawan.

In May, President Abdurrahman Wahid ruled Indorayon could reopen its pulp mill but ordered its adjacent rayon mill to remain closed. However, protesters against the controversial pulp plant have scuppered efforts to reopen.

Indorayon has begun to retrench 700 noncore workers in a bid to reduce costs, but continues to work on convincing community groups to support the mill, said finance director David Pile.

"It's a question of timing, we still don't know when we will restart (operations)," he said.

Demonstrators in 1998 targeted the mill, which they claimed was damaging the environment and the health of residents in the area. Indorayon denied the charges.

The mill has a capacity of either 240,000 metric tons of bleached hardwood kraft, or 180,000 tons of dissolving pulp, that feeds an adjacent 60,000-ton capacity rayon plant.

Under the debt deal reached last year, Indorayon agreed to swap debt for equity with foreign banks and bondholders.

Its shares were suspended in July after its 1999 financial report was submitted with a disclaimer from auditors. They last traded at Rp 340.