Tue, 31 Oct 2000

Japan urges quick deal on giant projects

JAKARTA (JP): The Japanese government has called on Indonesia to speed up the negotiation process of Chandra Asri and Tuban petrochemical projects, and the Paiton I power plant, a senior minister said on Monday.

Minister of Industry and Trade Luhut Pandjaitan said that Japan's Ministry of Trade and Industry had made the request during his visit to Tokyo last week.

Luhut said he understood Japan's concern because the future operation of the three projects would affect Japanese investors.

"But we will prioritize completing Chandra Asri, as we've already signed an MoU (memorandum of understanding) with Japan," was his only statement on the meeting.

PT Chandra Asri is a joint venture between the Indonesian government and Japan's Marubeni Corp.

Under the MoU, Indonesia has agreed to convert all of its US$460 million loans in PT Chandra Asri into equity, while Marubeni agreed to convert part of its loans worth $100 million into a 20 percent equity.

Domestically, the agreement was widely criticized as bowing to pressure from Japan, which is one of Indonesia's largest donor countries.

But at present, it is unclear whether Japan has managed to secure a final deal with the Indonesian government.

The Tuban project, which is owned by the Tirtamas group, also worries Japanese contractors, who were involved in the construction of the project.

The development of the Tuban petrochemical center by PT Trans Pacific Petrochemical Indotama (TPPI), came to a halt in 1998 after the country was hit by the economic crisis.

As the project is unable to generate revenue, Tuban's majority owner, the Tirtamas Group, cannot repay its debts of $600 million to Japanese contractors.

Upon completion of the project, Tuban would produce olefins and aromatics.

Tirtamas chairman Hashim Djojohadikusumo said he was prioritizing the completion of the Tuban's aromatics production, to help pay part of the debts.

According to him, world prices of aromatics were favorable and the product was in high demand in the local textile industry.

He said that 65 percent of the plant that would produce aromatics was already completed, but its completion needed another $475 million.

He said that he was seeking the support of foreign investors to finish the plant's construction.

"We expect that with the entrance of IBRA, investors will become more confident," he told in a press meeting after the extraordinary shareholders' meeting of the public listed cement producer PT Semen Cibinong.

Indonesia, through the Indonesian Bank Restructuring Agency (IBRA) also restructured its nonperforming loans in the Tuban project, which is owned by the Tirtamas group.

Hashim said that IBRA took over a controlling stake at the holding company for a 10-year period after which Tirtamas must repay its debt to IBRA.

Details of the restructuring deal are sketchy, but Hashim denied that the government had bailed out Tirtamas' debts.

Japan through Mitsui & Co also has a 32.5 percent stake in independent power producer (IPP) PT Paiton Energy, which operates the Paiton I power plant in East Java.

The IPP is currently renegotiating its contract with state owned electricity firm PT PLN.

PLN has said that Paiton's contracted power prices were too high and that it could not afford buying them under the current rates.

The state company is expecting a long term agreement with Paiton in the near future.(bkm)