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)