Krakatau case must not affect privatization plans

Krakatau case must not affect privatization plans

JAKARTA (JP): Indonesia must continue with its program to
privatize state enterprises and secure badly needed foreign
exchange, despite worries over the lack of transparency in the
sale of steel maker PT Krakatau Steel.

Former finance minister Mar'ie Muhammad said the Krakatau case
should not affect the privatization program.

Proceeds from the privatization program would help to finance
the 1998/1999 state budget, which has been badly affected by the
plunge in the value of the rupiah against the U.S. dollar, he
said.

"If we can secure US$2 billion from the privatization program
then that would be a very meaningful contribution to the budget,"
he told journalists on Friday.

The government plans to sell 12 state-owned companies in the
current fiscal year and hopes to raise Rp 15 trillion ($1.2
billion) by doing so.

Mar'ie explained that the sharp depreciation in the rupiah had
considerably inflated planned expenditure. The budget has
allocated trillions of rupiah to subsidize the import of
essential food items.

"Proceeds from privatizations can be used to cover some of the
budget deficit," he said, adding that the deficit would be
further worsened by last week's plunge in the rupiah, which
surpassed Rp 15,000 to the dollar last week.

He stressed that the privatization process must be transparent
and arranged in a way that ensured no company could "steal a
march" in the competition to acquire state assets.

State Minister for the Empowerment of State Enterprises Tanri
Abeng was recently accused of quietly trying to sell PT Krakatau
Steel to Netherlands-based Ispat International.

Infuriated

The House of Representatives was infuriated by press reports
of the accusations which quoted Krakatau's management.

Although Tanri later explained that it was not a final deal
but part of the early stages of a 12 steps process which includes
competitive bidding, some observers suspect that Ispat was trying
to steal an early start in the competition.

Ispat's local partner is a company related to the former first
family.

Despite Tanri's explanation, some House members urged the
government to cancel the privatization program.

Tanri said the government would not cancel the memorandum of
understanding signed with Ispat chairman Lakshmi N. Mittal on May
7, unless Ispat, which is listed as a bluechip company on the New
York Stock Exchange, failed to undertake a due diligence process
within 60 days of signing the memorandum.

He also said that investment bank Salomon Smith Barney, which
had been appointed to advise the government over the sale, would
soon invite 12 foreign steel companies to submit competitive bids
for PT Krakatau.

The government has appointed nine overseas investment banks
including Salomon to assist in the privatization process.

Tanri indicated that strategic foreign investors would be
given a say in the management of the state-owned companies.

This may explain why some bureaucrats have been trying hard to
thwart the privatization program, because for a long time they
have used the state companies as personal cash cows, one analyst
said. (rei)