Symbol of past mess: Chandra Asri debacle

By Kornelius Purba Staff Writer The Jakarta Post Tokyo

One of the main messages that was conveyed to President Megawati Soekarnoputri during her recent visit to Japan was the looming threat of bankruptcy over its giant trading house Marubeni Corp. A major cause, Japan's top politicians told the President, was her government's indecisiveness over the debt restructuring of a cash-trapped Indonesian company PT Chandra Asri, a petrochemical center.

Marubeni led the consortium that lent the firm US$700 million in the early 1990s.

The Japanese officials, led by Prime Minister Junichiro Koizumi, said that, given its major role in a Japanese economy that was already mired in recession, an insolvent Marubeni would have far-reaching repercussions in Japan.

Officials said the Japanese government would therefore go all- out to prevent another failure in Marubeni's negotiations with Indonesia over the settlement of Chandra Asri's loan, the majority of whose shares are controlled by tycoon Prajogo Pangestu.

Apart from Koizumi, three Japanese ministers, including Minister of Economic and Financial Policy Heizo Takenaka and Financial Services Agency chief Hakuo Yanagisawa, met with Megawati, pressing her to interfere to end the deadlocked negotiations between the Indonesian Bank Restructuring Agency (IBRA) and Marubeni.

The Japanese government also has a direct interest in the project because most of the $700-million loan came from the Japan Bank for International Cooperation (JBIC), which handles Japan's Official Development Assistance.

Marubeni president Toru Tsuji met three times with Megawati, while her senior executives held intensive negotiations with State Minister of State Enterprises Laksamana Sukardi in their desperate effort to resolve the bad debts.

"If Marubeni fails this time, Japan may face its worst bankruptcy since World War II," said a senior Japanese diplomat, who was assigned to closely monitor the negotiations.

Marubeni is reportedly facing several problematic projects in Indonesia, with total debts of more than $1 billion. Its success in overcoming Chandra Asri's debts will pave the way to resolve other bad debts.

Megawati told her ministers she was in a difficult position regarding Chandra Asri. Politically it was not popular to bail out such a controversial company, especially when the country's economy continued to shrink. Downstream plants depended on Chandra Asri for chemical supplies. But rejecting Japan's demands would have serious consequences for bilateral relations.

Marubeni corporate communications manager Hiroshi Nishizaki complained,"Despite the series of negotiations, we still cannot perceive any clear indication that the Indonesian government is ready to solve the problem."

Many Indonesians regard Chandra Asri as an example, par excellence, of the dirtiest business practices carried out under Soeharto's 32-year regime. From its beginnings in the early 1990s, the company had been controversial due to the involvement of a member of the Soeharto family and his close associates.

Chandra Asri was accused of markup practices and secured special tariff protection and various other forms of preferential treatment from Soeharto.

Prajogo subsequently had a majority stake in the company after Soeharto's son Bambang Trihatmodjo and his cronies quit the petrochemical project.

An angry Marubeni official blurted out, "Do you think that American companies operating in your country are cleaner than Japanese companies?"

"I think Indonesia would have quickly resolved the issue if Chandra Asri were related to American interests," he told The Jakarta Post recently.

During Megawati's visit from Sept. 26 to 30, Koizumi and his top officials raised four financially troubled megaprojects during several separate meetings with Megawati.

One of them is a joint venture led by PT Trans-Pacific Petrochemical Indotama (TPPI) to build a $2.3 billion integrated petrochemical plant in Tuban, East Java, now only 50 percent completed. Japanese investors such as JGC Corp. have poured $600 million of the total $900 million already invested into the project. Other shareholders are Nissho Iwai Corp., Itochu Corp. and Indonesian businessman Hashim Djojohadikusumo.

State-owned electricity company PT PLN and its partners, mainly Japanese firms led by Sumitomo Corp., are also facing a stalemate in progressing the Tanjung Jati B coal-fired power plant in Tanjung Jati, Central Java.

PLN wants to buy out the unfinished project, with $1.5 billion loan in Japanese loans, but its plan was rejected by its partners.

Another problematic company is independent power producer PT Paiton Energy, the owner of the Paiton I coal-fired power plant in East Java. It is a joint venture between Mitsui & Co., American firm General Electric and Edison Mission Energy. Indonesia is represented by PT Batu Hitam Perkasa, also owned by Hashim.

Like Chandra Asri, these three projects were related to JBIC and Soeharto's cronies.

"Of the four projects, Chandra Asri is the most delicate for us," State Secretary/Cabinet Secretary Bambang Kesowo said, given the importance of the project, quite apart from its loans being the greatest.

Further delays in the resolution of Chandra Asri could damage the credibility of the Megawati government and put in great doubt the government's commitment to contracts it has signed.

Meanwhile, Soeharto and most of his children, who allegedly had involvement in all the controversial projects, continue to enjoy their liberty at their residence in Menteng. Most of their cronies, except Bob Hasan, remain untouchable by the law.

The Megawati administration and Marubeni must come up with a acceptable solution to the Chandra Asri debt debacle, otherwise the olefins industry, the only one in Indonesia, could go bankrupt, disrupting chemicals supplies to hundreds of downstream plants.