Krakatau Steel not yet sold to Ispat: Tanri

JAKARTA (JP): State Minister for the Empowerment of State Enterprises Tanri Abeng said yesterday that the government had yet to sell PT Krakatau Steel to a foreign investor, following opposition from the company's management over an agreement made with the Netherlands-based Ispat International.

Speaking to journalists before a limited cabinet meeting here yesterday, Tanri confirmed that the government had signed a memorandum of understanding (MOU) on the transfer of 49 percent of the state-owned steel producer's shares to Ispat International.

"This is a business strategic game, but we have not yet reached the final stage. This is only the beginning... This is a game to attract domestic and international interest in Krakatau Steel.

"We will give the same opportunity to other parties to conduct similar studies, and we will have an open tender... There must be a fair game."

Tanri stressed that four stages should occur before a state company was privatized: an open tender, a technical evaluation, an economic evaluation and a recommendation from his office.

He said the government had yet to open a tender for Krakatau Steel, and that Ispat had come as an unsolicited investor.

"We have to give it a chance. But we have not undergone the stages of negotiation, tender and technical evaluation. So we are still in a very early stage," he said.

Tanri made the statement in response to accusations from Krakatau Steel's management that the deal with Ispat was "mysterious" since the management was not consulted.

Krakatau Steel's acting president, Djoko Subagyo, said Tuesday that he and other members of the company's board of directors and commissioners never received reports on the deal, not even a copy of the MOU.

The company's former president, Soetoro Mangoensoewargo, who resigned from his job Monday, questioned the legitimacy of the Ispat deal, saying the MOU violated earlier strategic agreements on Krakatau Steel's privatization.

According to the MOU, signed May 7 by Tanri and Ispat chief executive officer Lakshmi N. Mittal, the government has agreed to sell 49 percent of Krakatau Steel's shares but will allow Ispat to buy up to 51 percent if the offer is attractive.

The sale of 49 percent of Krakatau Steel would be worth about US$400 million, assuming the company's total assets are worth $800 million.

Krakatau Steel said yesterday that its assets were valued at Rp 6 trillion (US$545 million at the current rate) according to an audit performed last year. It claimed its assets currently total about $2 billion.

The MOU also states that Ispat is to complete all due diligence by June 21 and that the binding and sales purchases agreement is to be executed by June 30.

It says Krakatau is not to disclose any nonpublic information concerning the deal to a third party without Ispat's written consent until July 7.

Soetoro said that if Ispat controlled 49 percent of Krakatau's shares, it would hold a monopoly in the domestic steel wire and rod market since the company fully owned local subsidiary PT Ispat-Indo in Surabaya.

Ispat-Indo is currently the largest domestic maker of wire and rods, producing 450,000 metric tons annually.

If Ispat took control of Krakatau Steel, which now produces 300,000 tons of wire and rods a year, the combined production would account for 80 percent of domestic capacity.

Tanri, however, noted that Krakatau Steel had long been regarded as the most difficult state-owned company to sell.

"Why is Krakatau Steel difficult to sell? Because it has often been said that the company would go bankrupt and that it needed an investment of $1.2 billion," he said.

He added that a number of foreign investors invited to be Krakatau's strategic partners, like BHP of Australia and British Steel, had not been interested.

He said that to date, the company's management had not found a partner.

"That is why we began with such a business strategy to start attracting investors. The company has yet to be sold," he reiterated.

Asked why the company's management was not involved in the process that led to the signing of the MOU, he said they would be invited to participate in the recommendation stage.

The newly formed Independent Committee for Integrated Economic Reform called yesterday for the cancellation of the Krakatau Steel purchase deal.

Committee spokesman Deddy Julianto said the sale would form a new monopoly in the domestic wire and rod market.

Members of the committee, formed two months ago, met yesterday with Krakatau's top executives to question the transparency of the MOU deal. (prb/das/rid)