Three nations to sell shares in AAF

Three nations to sell shares in AAF

Zakki P. Hakim, The Jakarta Post, Jakarta

Malaysia, Thailand and Singapore plan to sell all 27 percent of
their shares in the ailing fertilizer producer PT ASEAN Aceh
Fertilizer (AAF) in Nanggroe Aceh Darussalam to any interested
investors, a senior executive says.

AAF president director Rauf Purnama said on Tuesday that the
three members of the Association of Southeast Asian Nations
(ASEAN) announced their plan in a shareholder's meeting last
month.

"Right now we are using a consultant to evaluate the value of
the shares owned by the three ASEAN members," he said.

Indonesia, through PT Pupuk Sriwijaya (Pusri), holds 60
percent of AAF shares, while Malaysia, the Philippines and
Thailand each has 13 percent, and Singapore owns only 1 percent
of the equity through Temasek Holdings Pte.

The decision by the three countries to sell their shares
reflects frustration over the sustainability of the firm, which
has been in the red for the past two years.

Established in 1979, AAF reached its peak capacity in 1997 to
produce 695,826 tons of urea fertilizer. The joint venture
company prioritized as its market ASEAN countries, with the
remainder going to China, India, Japan and Taiwan, among other
places.
However, AAF's financial condition has been deteriorating since
its operations were disturbed two years ago due to a lack of
natural gas supply, Rauf said, "The firm suffers at least a US$3
million loss per month".

The firm may not be able to pay the salaries of its remaining
800 employees, who are mostly maintenance staff, next month.

Late last year, Megawati's administration announced that it
wanted to shut down AAF, which ceased much of its operations in
August 2003, as natural gas (a key raw production material)
supply in the province was considered insufficient to cover
export commitments and the needs of other manufacturers there.

However, the proposal to shut down AAF must take into
consideration other shareholder countries.

Fertilizer firms in Aceh have been struggling to survive due
to natural gas supply problems as reserves from its main gas
field, Arun, are dropping, while at the same time, the remaining
reserves are being converted into liquefied natural gas (LNG) to
meet Arun's LNG export commitments to Japan and South Korea.

In the meantime however, Rauf continued, the new
administration, through the Office of the State Minister of State
Enterprises and ExxonMobil Oil Indonesia (EMOI), had promised to
provide AAF with a supply of natural gas sufficient for six
months' production by July.

"If we have no natural gas supply by July, we would have to
hand AAF over to the government. By which time the government
could do whatever they like to the firm," he said.

At the moment, EMOI is the sole natural gas producer in Aceh
and its output has largely been dedicated to Arun for LNG
production.

EMOI has also seen its gas reserves declining over the past
few years. This has affected Arun's operations as it now operates
only four trains out of six trains in Lhokseumawe.

At present, there are two other fertilizer firms in Aceh: PT
Pupuk Iskandar Muda (PIM)-I and II.