FO acts to rescue UK deals in Indonesia business crisis

THE FOREIGN Office minister, Derek Fatchett, flew into Jakarta last night amid growing tension over the cancellation of a lucrative business contract involving Thames Water and the family of former president, Suharto.

Mr Fatchett will today become the first foreign government minister to meet with the country's new president, BJ Habibie, who took over the leadership after the sudden resignation of President Suharto a week ago. But his visit, as the personal emissary of Tony Blair, risks being overshadowed by the row over Thames Water, which recently lost its contract to supply water to half of Jakarta in a joint venture with Sigit Hardjojudanto, eldest son of the disgraced dictator.

Last Saturday, the Jakarta city authorities suspended the deal - said to be worth pounds 225m - claiming that it was awarded because of nepotism after the cancellation of a competitive tender. Today Mr Fatchett will raise the matter with the Indonesian government, amid fears that dozens of other British projects involving the Suharto clan will be jeopardised by the current backlash against the corruption of the former first family.

The nationwide wave of revolt against Mr Suharto, which led to demonstrations, deadly riots and finally forced his resignation, has transformed itself into a growing determination to dismantle the extensive business networks which his family built up during his 32-two year reign.

The new energy minister is carrying out an investigation into the Suhartos' domination of Indonesia's huge oil and gas industry. A similar examination is being made of the family's links with Indonesian co-operatives. The investment minister in Mr Habibie's so-called "reform cabinet" has announced a review of tax breaks granted to relatives and cronies of the former president.

"It will take some time to eliminate corruption and collusion," said HS Dillon, an adviser to the government, yesterday after a meeting with the investment minister, Hamzah Haz. "But whatever can be demonstrated to the public will serve to boost up morale. I would like to see more [contracts cancelled]."

The problem for foreign businessmen in Jakarta is that, for the last three decades, business partnership with a Suharto has been one of the most effective means of making a profit in Indonesia. Last year, after tailing behind Japan, Britain became the biggest foreign investor with commitments of $5.5bn (pounds 3.4bn) in 31 separate projects. Hundreds of companies, from BP to the Body Shop, have a presence in Indonesia, and many of those have had a leg up from one of Suharto's children or his network of favoured business cronies.

"Last week, these companies were going about things the right way," said one indignant British businessman yesterday. "This week everything's changed, and Thames is just the tip of the iceberg. God help all the others who are caught in the middle. How were they to know?"

"On the one hand, you applaud the Indonesian people because they want a more democratic system," said another businessman. "But the timing is terrible, because they've got to restore investor confidence."

On his arrival at Jakarta last night, Mr Fatchett refused to answer questions, but British diplomats in Jakarta have told businessmen that he will raise their concerns in meetings with members of the Indonesian government, who will include President Habibie and his foreign and economic ministers.