In what is clearly a costly rescue exercise, the Sarawak state government has stepped in to take control of a pulp and paper project in Bintulu, estimated to cost US$1.4 billion (RM5.32 billion).

This is to save the company from closure which would lead to the state losing substantially on its investments in the project.

No official figures have been made available as to how much the rescue exercise has cost taxpayers, but this is roughly estimated in the region of a few hundred million ringgit.

What is known is that the state government, through state-owned Sarawak Timber Industry Development Corporation (STIDC) held a 40 percent equity stake in a joint-venture company known as Borneo Paper & Pulp Sdn Bhd (BPP).

The remaining 60 percent equity was held by Indonesian-owned Singapore-based financially-troubled Asia Pulp & Paper Pte Ltd, also the project manager.

The government alienated about 200,000 hectares of worked forest land to BPP in 1996 for re-planting.

The BPP has secured a syndicated loan of RM250 million of which RM100 million had already been drawndown.

Cash flow problems

Apparently, because of the foreign equity holder's financial difficulties, the planning and planting were severely disrupted, and the company ran into serious cash flow problems.

This resulted in BPP's inability to meet its financial commitments. Last month, creditors issued the company letters of demand which resulted in the Sarawak government's decision to step in to save the project.

The Resource Management and Planning Ministry in a press statement on Wednesday indicated that the state government had 'reluctantly' taken over the project and settled all the liabilities so that the tree re-planting programme could carry on "in the interest of the workers and the state".

It is learnt that the government's moves included taking back the land alienated to BPP.

The state government had earlier offered to buy back APP's equity but the deal fell through. No reasons were given, but pricing was thought to be the factor behind it.

There has been talk that the Sarawak government is talking to other prospective foreign partners for the project.

The Bintulu paper and pulp project was planned with an initial annual production capacity of 700,000 tonnes of pulp and, at a later stage, to go into the production of paper and paper products.

The other billion-ringgit project that the state government is involved in is 1st Silicon (M) Sdn Bhd which owns and operates Malaysia's pioneer wafer foundry with a total project cost of RM6.45 billion in Sama Jaya Free Industrial Zone on the outskirts of Kuching.

The project has been affected by the slump in the technology market, and the government continues to fund its operations. It has, however, started production and delivery to overseas customers.