Timor car project to go ahead despite Kia's woes

Timor car project to go ahead despite Kia's woes

JAKARTA (JP): PT Timor Putra Nasional announced on Thursday
that its controversial car project would move ahead despite
financial problems facing its Korean partner and the removal of
government tax breaks.

Timor Putra president Moedjiono said the company's foreign
partner, South Korea's Kia Motor Corp., was still committed to
helping Timor build a car manufacturing plant in Cikampek, West
Java.

"Kia is currently being looked at by other investors, but its
commitment with Timor will remain, no matter who its new
investors are," Moedjiono told reporters on the sidelines of a
seminar on the automotive industry.

"So it's not the end of the world for us. We are still looking
for what's ahead," he added, commenting on speculation that his
company's days might be numbered due to the country's worsening
crisis and its partner's financial problems.

The fact that the government will no longer provide special
support to the company following the resignation of former
president Soeharto will not affect the company's future plans, he
claimed.

If Kia's new investors show no interest in keeping the
partnership with Timor, the company will seek other investors
after it begins operation of its manufacturing plants in
Cikampek, he said.

Timor has completed about 65 percent of the construction of
its component plant and 60 percent of its assembly plant.

The company has also purchased 86 percent of the machinery
needed for its assembly line and 90 percent of the equipment for
its component manufacturing plant, he said.

"All we have to do is install the machinery and start
operation of the factories. Then we can start attracting new
investors," he said.

Kia Motors produces the Sephia, a sedan sold here by Timor
Putra under its company name. The Korean company also invested in
Timor's manufacturing complex in Cikampek.

Kia is currently being wooed by Hyundai Motor Co., Daewoo
Motor Co. and Samsung Motors, all of South Korea.

Timor Putra, owned by Soeharto's youngest son Hutomo Mandala
Putra, was appointed by the government in 1996 as the sole
company to develop a "national car" program. The designation
allowed the company to enjoy luxury tax and import duty breaks.

The special facilities were given on condition that Timor
would raise its local content 20 percent per year until it could
attain 60 percent in the third year. During its first year,
however, Timor was allowed to import wholly foreign-made Sephia
cars from Kia tax free, allowing Timor to undercut its
competitors.

The tax breaks were removed in January following pressure from
the International Monetary Fund.

Minister of Industry and Trade Rahardi Ramelan said last week
that Timor would have to repay the waived taxes as a penalty for
failing to meet the agreement's conditions.

Moedjiono said Thursday the company would negotiate with the
government over the sanctions since the tax breaks were backed by
presidential decree issued last January.

"There has been a presidential decree since the tax facilities
were lifted stating that Timor had met all obligations," he said.

According to a finding by state-owned auditor Sucofindo, Timor
had only attained the 20 percent local content required to
receive the tax facilities on Jan. 26, 1998 -- a date exceeding
the Oct. 1, 1997 deadline.

Moedjiono admitted the accuracy of the finding, but conceded
that "this isn't math, this is economy and we can negotiate it".

Timor currently has 14,500 cars in stock out of the 40,957
imported from South Korea since late 1996.

Moedjiono admitted he did not know how much the company would
have to pay if the sanctions were imposed, but added that it
would be "difficult" for the company to pay. (das)