Japan ready to restart major projects in Indonesia

Berni K. Moestafa, The Jakarta Post, Jakarta

Japan has pledged to resume this year the financing of billions of U.S. dollars worth of projects in the power, petrochemical and gas industries, which were put on hold during the late 90s economic crisis, the government announced on Thursday.

Coordinating Minister for the Economy Dorodjatun Kuntjoro- Jakti said that interest in these projects had been revived after both countries finalized their renegotiation and restructuring.

"There is an intention to resume all projects in 2002," he told reporters when explaining his visit to Japan last week.

He did not say whom he met in Tokyo, but added talks had focused on the financing of the long-delayed projects.

The projects came under state control after their owners became indebted to the Indonesian Bank Restructuring Agency (IBRA).

IBRA took over bad loans from financially troubled local banks as part of bailing them out from the financial crisis.

The Japanese government had been urging Indonesia to move fast on getting deals for the resumption of these projects.

Japan is one of Indonesia's main creditor countries under the the Consultative Group on Indonesia (CGI) and the Paris Club.

But getting these projects back on track would also give the economy a much-needed boost amid the prolonged absence of foreign investment.

Dorodjatun could not give the combined value of these projects, but assured they reached billions of U.S. dollars.

Their construction alone is likely to require a huge local labor force, thereby easing the costs of unemployment on the economy.

Among the major projects slated for resumption is the US$1.65 billion coal-fired Tanjung Jati B power project in Central Java.

The government suspended the project in late 1997 to help cope with the impact of the economic crisis.

Power demand fell sharply, and the U.S. dollar denominated power prices of Tanjung Jati B became too expensive in rupiah terms.

State-owned electricity company PT PLN signed a deal with Japan's Sumitomo Corporation to lower the power prices from the original contract.

Development of the 1,320 Megawatt-strong power project is also seen as crucial to fend off a power crisis in East Java, where electricity demand is growing fast.

Also on the table is East Java's petrochemical center PT Trans Pacific Petrochemical Indotama (TPPI), of which five percent is owned by Nisho Iwai and another five percent by Itochu.

Foreign investment in the project amounted to $700 million, but investors refused to inject any more because of the country's economic crisis.

The construction of TPPI came to a halt after 60 percent of it had been completed. Another $400 million is still needed to wrap up the remainder.

The project was originally owned by the Tirtamas Group, which later transferred its stake to IBRA as part of settling its debts.

As urged by Japanese investors, state-owned oil and gas company Pertamina agreed to buy a 15 percent stake in TPPI to help kick-start its construction again.

Earlier this month, IBRA and Japan's Marubeni Corp also agreed on the debt restructuring of petrochemical firm Chandra Asri.

The company owes some $730 million to a consortium of foreign creditors led by Marubeni and another $464 million to IBRA, which took over the loans from local banks.