Krakatau Steel agreement canceled

JAKARTA (JP): The government and Dutch firm Ispat N.V. have canceled a memorandum of understanding (MOU) for the purchase of a 49 percent stake in state-owned P.T. Krakatau Steel, an official of the State Enterprises Management Agency said yesterday.

The assistant of the agency's communications division chief, Sofyan Djalil, told reporters that the widely criticized MOU was no longer in effect starting yesterday.

"The decision to cancel the MOU was made by Ispat through its financial consultant, Credit Suisse First Boston," Sofyan said.

He said Ispat canceled the agreement due to its inability to meet a June 21 deadline for the completion of a due diligence on Krakatau Steel at Cilegon in West Java.

However, Ispat is still entitled to join other bidders for Krakatau's stake through a competitive bidding process, he said.

U.S. investment bank Salomon Smith Barney is in charge of the Krakatau sale, Sofyan added.

Agency chairman Tanri Abeng, who is also the state minister for the promotion of state enterprises, was widely criticized for quietly signing the MOU on May 7 to sell 49 percent to 51 percent of Krakatau's stake to Ispat.

Yesterday morning, economist Wimar Witoelar told a public forum that the World Bank country director in Indonesia, Dennis de Tray, had asked the government to review the MOU because it was not generated transparently and was widely criticized.

Wimar said de Tray had told him on the phone yesterday morning that the perceived special treatment given to Ispat could encourage abuses.

Early this month, Krakatau's top executives complained that Tanri had signed the MOU without informing them about its contents.

Critics also have expressed concern that the deal would have created a new monopoly in the domestic wire and rod market because Ispat's unit in Surabaya, Ispatindo, was already the country's largest producer in the industry.

A copy of a letter dated June 12 addressed to Tanri from Salomon Smith recommended 18 companies, in addition to Ispat, as being eligible to bid on the Krakatau tender.

The letter, a copy of which was obtained by The Jakarta Post, shows that six of the companies are from the United States, five from Japan and one each from Germany, France, Austria, Taiwan, South Korea, Britain and Australia

They include Australia's Broken Hill Proprietary Company, British Steel Ltd., America's Pohang Iron and Steel Company, Germany's Thyssen AG, and Japan's Kobe Steel Ltd., Nippon Steel Corp. and Kawasaki Steel Corp. (das)