Mandiri asked to put money into ailing firm

Rendi A. Witular, The Jakarta Post, Jakarta

The Office of the State Minister of State Enterprises has requested Bank Mandiri, the nation's largest bank by assets, to explore the possibility of injecting fresh capital into the ailing state-owned paper firm PT Kertas Kraft Aceh (KKA).

The request was made despite the fact that Mandiri is saddled with bad debts worth some Rp 165 billion (US$17.86 million) with the same company. KKA has total debts of Rp 300 billion.

"A capital injection from Bank Mandiri is one of the three options put forward by the government to rescue KKA from bankruptcy," Minister Sugiharto told Tuesday's hearing with the House of Representatives' Commission VI overseeing industry, trade and state enterprises.

According to reports submitted by the state minister's office to the Commission, KKA will need some Rp 200 billion in fresh funds to restart its operations after its management decided to temporarily shut down the company in April 2003.

The minister's request seemingly contradicts his earlier statements over the need for Mandiri management to address their high number of non-performing loans (NPLs).

The level of NPLs at Mandiri during the third quarter of 2004 remained high at 7.49 percent, up slightly from 7.44 percent in same period the year before. The rate is well above the ceiling of 5 percent set by Bank Indonesia.

The request to inject more funds into KKA is likely to put Mandiri at even higher risk, as KKA faces the possibility of default.

Sugiharto said aside from fresh capital injections from Mandiri, the government was also looking at other options to keep KKA afloat, including inviting new investors into the company.

KKA has ceased operations due to the unavailability of gas supplies to fuel its production activities.

Gas supply to the company was cut off after U.S. energy giant ExxonMobil refused to continue its supply following KKA's failure to pay its gas bill totaling Rp 65 billion. ExxonMobil has a contract to supply gas to KKA until 2008.

KKA, which employs 1,035 workers, has an installed capacity of 135,000 tons of packaging paper per year, with most of its products being sold to local cement companies. The company stopped paying its workers last year.