Latief defends business accords with Freeport

JAKARTA (JP): PT ALatief Corporation (ALC) defended on Saturday its business deals with PT Freeport Indonesia, saying that such transactions are normal and fair.

"Therefore, we'll take legal measures against those who accuse ALC's business (with Freeport) of smacking of corruption, collusion and nepotism," ALatief Corp president Usman Ja'far said in a statement.

The statement was made amid controversy about alleged corruption and collusion involved in Freeport's operations after it renewed its contract in 1991 to operate a huge copper and gold resource in Grasberg, Irian Jaya.

The controversy was set off by American scholar Jeffrey A. Winters, who noted in Jakarta early last week that Coordinating Minister for Economy, Finance and Industry Ginandjar Kartasasmita helped his friends and family get stakes and win projects in Freeport.

Ginandjar was the minister of mines and energy when Freeport renewed its contract.

Winters, quoting local research agency Econit's reports and Asian Wall Street Journal's Sept. 30 edition, said Ginandjar was involved in collusive practices which enabled Bakrie Group's president Aburizal Bakrie to acquire stakes in Freeport and ALatief Corp's chairman Abdul Latief to acquire Freeport's noncore business in his mining fields in Irian Jaya.

Bakrie, through its subsidiary PT Indocopper Investama Corporation (IIC), bought a 10 percent stake shortly after Freeport renewed its contract, while Latief acquired Freeport's noncore business in 1992.

Freeport Indonesia is 81.28 percent owned by giant U.S. mining company Freeport McMoRan Copper & Gold. The remaining shares are owned by the Indonesian government (9.36 percent) and IIC (9.36 percent).

IIC is 50.48 percent by PT Nusamba Mineral Industri, and the remaining shares owned by Freeport McMoRan (49 percent) and members of the public (0.52 percent)

Angered by Winters' claims, President BJ Habibie ordered the police to investigate Winters on charges of defaming Ginandjar and the Indonesian government.

The police have questioned several people, including Ginandjar, Freeport's president Adrianto Machribie, Econit's president Rizal Ramli.

Usman said ALatief Corp was asked by Freeport to cooperate in managing its noncore business assets in Irian Jaya in 1985. But the negotiations between them did not bear fruit.

Freeport approached ALatief Corp again in late 1990 and they were engaged in serious talks in early 1991, Usman said. During the negotiations, Freeport was represented by New York's law office Davis Polk and Associates while ALatief Corp was represented by Makarim and Tairas.

Usman said Freeport offered a cooperation with ALatief Corp due to the latter's good reputation in retail and management business.

According to Usman, ALatief Corp bought Freeport's infrastructure assets for US$370 million, financed by $115 million of equity and $255 million of debt guaranteed by Freeport.

The assets include department stores, recreational facilities, a hotel, a golf course, schools, a hospital, housing, a port.

Usman said ALatief Corp considered the business deal very risky due to the remote location of Freeport's mining field and the fact that ALatief Corp would only serve a single market.

Banks were then only willing to give loans to ALatief Corp after Freeport acted as guarantor for the loans, Usman said.

In the first years, Usman said, ALatief Corp could make a profit from the margin between a yearly after-tax return on equity of 15 percent and the yearly 9 percent cost of funds.

Since the middle of 1997, however, the investment become unprofitable following the rise in the cost of funds to between 15 percent and 20 percent.

"Nevertheless, we shall fulfill our commitment to the project. We shall not back away from it despite the difficult times," Usman said. (jsk)