Sat, 01 Apr 2000

Indorayon's foreign shareholders to sue govt

JAKARTA (JP): Foreign shareholders of publicly listed pulp and rayon firm PT Inti Indorayon have decided to file suit against the Indonesian government over the mid-1998 suspension of the factory's operations in Porsea, North Sumatra.

The trustee of Indorayon foreign shareholders, lawyer Todung Mulya Lubis, said on Friday the foreign investors had lost their patience because the government had not demonstrated serious efforts to solve the dispute that forced the plant to stop operating in June 1998.

"The foreign shareholders are going to file suit against the Indonesian government at the International Center for Settlement of Foreign Investment Dispute in Washington DC," he told a news conference.

"They will charge the Indonesian government for unlawful closure. The legal documents will be ready in two weeks," he said.

Todung said the foreign shareholders, who together own 86 percent of Indorayon, however, would still give the government time to act on its recent plan to assign an independent auditor to investigate the company before proceeding with the lawsuit.

"If the team set up by the government to manage the new audit does not come up with clear terms of reference and a timetable for the audit, foreign shareholders will immediately file a lawsuit. It could possibly be done at the end of April," Lubis added.

President Abdurrahman Wahid said on Thursday a new audit would immediately be done on Indorayon by a special team established by the government without having to reopen the company's factory.

However, Indorayon's chief commissioner Palgunadi Setyawan said it would be impossible to obtain accurate data to prove the allegations that the factory's operations damage the environment and cause public health hazards.

"It would need about six months to prepare everything from log supply to machine adjustment to make the factory operate at the normal capacity and be ready for auditing," he said.

The two-decade presence of Indorayon's pulp and fiber factory in North Sumatra, which has a capacity to produce 240,000 metric tons of pulp in addition to 60,000 tons of rayon fiber a year, has led to mounting criticism and pressure from local people and many non-governmental organizations.

State Minister of Environment Sonny Keraf recently recommended to the Cabinet that the plant be closed down or relocated to another area.

But the government did not respond to the recommendation after most other ministers instead proposed a new audit of Indorayon before any decision was made.

Last year then president Habibie ordered an independent audit but the instruction was never implemented.

According to Indorayon's finance director David Pile, major creditors, such as financial institutions and banks, were the parties that had the biggest interest in the lawsuit plan.

Pile said that under a debt restructuring program reached last year, Indorayon agreed to swap debt for equity with foreign banks and bondholders.

He said the restructuring program was actually based on the assumption that the factory would be reopened in the first half of this year.

Pile said the first coupon payment that falls due in December 2000, however, could be rolled over until the following year since the company had built flexibility into its debt restructuring plan.

He said Indorayon's inability to operate during the last 20 months had resulted in a sharp drop in its market capitalization value from about $1.4 billion in 1996 to only around $40 million at present.

Inti Indorayon is listed on the Jakarta Stock Exchange and is also traded in the United States through American depository receipts. (cst)