Kia to resume Timor national car project after June

JAKARTA (JP): The government said on Thursday that South Korean car manufacturer Kia Motors Corp. would resume the Indonesian national car project after June, pending the restructuring of the project's massive debts.

Minister of Trade and Industry Luhut Pandjaitan said that the South Korean government had expressed its willingness to resume the project as soon as possible.

"We have agreed to continue the national car project, for which we will restructure its debts first," Luhut told reporters following a meeting here with visiting South Korean Trade Minister Han Duck-soo.

The government appointed PT Timor Putra Nasional (TPN), which is owned by Hutomo "Tommy" Mandala Putra, the youngest son of former president Soeharto, to develop the national car project in 1996.

However, the project fell apart at the peak of the economic crisis in 1998, and TPN now faces debts amounting to over Rp 3 trillion (US$380 million). The company has since been put under the control of the Indonesian Bank Restructuring Agency (IBRA).

"We expect to have a debt restructuring agreement by late June," he said, adding that the restructuring process comprised a financial audit, a legal audit and due diligence.

Luhut further indicated that the government would bail out TPN's debts under a debt to equity swap. But he declined to explain further.

According to Luhut, the Indonesian government and Kia will form a joint venture to resume the project.

"Tommy will have to leave TPN," Luhut concluded.

The Timor car project has been widely criticized by international car manufacturers for the special treatment it received from the government.

TPN was exempted from import duty and luxury tax for three years on the condition that local content reach at least 20 percent in the first year of the program, 40 percent by the end of the second year and 60 percent by the end of the third year.

The government earlier said it would not provide special incentives if the national car project is resumed.

Kia, now owned by South Korean car giant Hyundai Motor Co., committed to reviving the Timor car project, following a visit by President Abdurrahman Wahid to its plant last year.

"The South Korean business people have also expressed interest in investing in electronics, manufacturing, forestry, insurance and banking sectors," Luhut told journalists later on the day following a meeting between the delegation and the President.

He said there was an immediate plan to invest some US$75 million to construct a second Nike shoe factory here, which was expected to be completed by the end of the year.

Luhut said that in the forestry sector, South Korea would help in the rehabilitation of some 10,000 hectares of tropical rain forest and assist in the resettlement of nomadic farmers.

He said the South Koreans enterprises would also relocate some of their production facilities to Indonesia.

"South Korea will also help us in the fishery sector to curb the theft of our fishery resources," Luhut said.

According to data provided by the Ministry of Trade and Industry, the balance of trade between Indonesia and South Korea in 1999 amounted to US$4.65 billion, or a 13.53 percent increase from the level in 1998. However, it was below the $5.78 billion in 1997.

Indonesia's exports to South Korea during the year totaled $3.32 billion, while imports were $1.33 billion.

South Korea is the country's fourth largest export market.

It is also Indonesia's seventh largest foreign investor, with total approved investment plans of $10.66 billion as of March 2000. (bkm/rei/prb)