Joint venture set up to produce industrial gears

JAKARTA (JP): State-owned PT Barata Indonesia signed a joint- venture agreement here yesterday with PT Prakarsa Rekaroda and David Brown Engineering Group Plc. of Britain to manufacture industrial gears in Surabaya, East Java.

State Minister of Research and Technology B.J. Habibie, who witnessed yesterday's signing, said the three firms will establish a joint venture, called PT Barata David Brown Gear Industries, with an investment of US$10 million.

At the initial stage of its operation, the joint venture is expected to reap a 10 percent share of Indonesia's increasing industrial-gear market.

This market, which is currently valued at around $60 million per year, is now dominated by imports, leaving about 5 percent to 10 percent to a number of small domestic manufacturers.

"If we can capture 10 percent of this market, Indonesia can save some $6 million annually in its import expenditures," Habibie announced after the signing ceremony.

In the long run, he said, Barata David is expected to have an 80 percent share of the domestic market, saving about $48 million in import expenditures.

Yesterday's joint-venture agreement was signed by Chris J. Brown, the joint chief executive officer of David Brown Engineering Ltd., I. Kartono Wardoyo, the president of PT Barata Indonesia, and Andre Pondaag, the president of PT Prakarsa Rekaroda.

Barata Indonesia is managed by the Management Board for Strategic Industries (BPIS), a division overseen by the State Ministry of Research and Technology. BPIS is chaired by Habibie.

Prakarsa Rekaroda is the representative of David Brown in Indonesia and has businesses in the marketing and distribution of industrial products.

From the project's total investment of $10 million, which will be provided over a five-year period, 51 percent comes from David Brown, 36 percent from Barata Indonesia and 13 percent from Prakarsa Rekaroda.

Manufacture

Habibie explained that the new venture will manufacture gear drives, transmission gears and replaceable gears, all of which are used in a wide range of industries.

These include the material industry, such as cement, mining, iron and steel; agro-industry, such as pulp and paper, sugar and irrigation works; the maritime industry, including dredging, bulk transshipment and shipping equipment; the transportation sector, which includes trains and automotive vehicles; and the petrochemical industry, such as gas and oil, and off-sea refineries.

Habibie said the industrial-gear industry complies with the vendor system that the government is developing.

The vendor system, he pointed out, is beneficial not only because vendors' individual products and their assembled output can reap more taxes than that of built-up imports, but also because the system can provide numerous job opportunities.

Habibie said he would suggest a tax incentive for the development of the new plant.

"We will make a request...I am sure the minister of finance will take this into consideration, because he is the one who is most concerned in tax revenue. People can only pay taxes if they work, and to work they need jobs, which we must create," he said.

However, he acknowledged that the most important incentive in a vendor system is the confidence that there is a captive market for its products. In this case, this is an assembling company for industrial equipment. (pwn)