Government will not guarantee Tuban petrochemical project

Minister of Energy and Mineral Resources Purnomo Yusgiantoro has made it clear that the government will not provide any financial guarantee for the loans to be raised to finance the Tuban petrochemical project in East Java, Bisnis Indonesia reported on Tuesday.

"If there is a guarantee, it will not be in the form of a financial guarantee" the minister told reporters on Monday. He acknowledged that a consortium, which would provide the funding of the project, had asked for a government guarantee on fear that the change in Pertamina?s status would affect the payment prospect of the loan.

Purnomo, however, said that the government would issue a confirmation letter in responding the request. But he said the final answer was being discussed by the financial sector policy committee (KKSK).

Pertamina earlier agreed to guarantee the loan scheme for the project, which was halted during the peak of the country?s financial crisis in 1998. But the planned change in Pertamina?s status had created concern among the lending consortium.

Under the new oil and gas law, Pertamina which at present acts as a semi-government institution, will operate as a full business entity. The exclusive rights awarded to Pertamina in the oil and gas sector will also be removed under the new law.

Creditors comprising of Beyond Petroleum (BP), ANZ Bank, Japan Bank for International Corporation (JBIC), Nippon Export Insurance and Mitsui have agreed to provide US$400 million to finance the continuation of the East Java-based petrochemical project.

BP and ANZ Bank initially asked the government to provide political risk guarantee as the condition for the disbursement of the $400 million fund to finance of the Tuban petrochemical project, while the Japanese creditors requested a number of conditions related to force majeur if it is approved to take part in the project.

The project was previously controlled by Tirtamas Group but the business group lost most of its interest in the project following the rescheduling of its massive debts. At present the Indonesian Bank Restructuring Agency (IBRA) and Pertamina are the majority shareholders of the project which is also partly owned by Siam Cement of Thailand and Nissho Iwai Corp. (*)