A muddy deal in the name of the son

Water firm fiasco: Ex-president Suharto's high-living eldest boy was at the heart of a contract which would make him a fortune

THE ELDEST son of the former Indonesian president Suharto was due to receive 20 per cent of profits for 25 years from the Thames Water contract to supply half the citizens of Jakarta, it was disclosed yesterday.

In return, all Sigit Hardjojudanto was to have provided was "local and legal knowledge and political know-how" to ensure the smooth running of the pounds 450m deal, of which Thames's venture would earn half.

The contract, which may now be scrapped by the post-Suharto government amid claims of nepotism, is an indication of the iron control that has been wielded over investment in Indonesia by the Suharto family. Foreign companies wishing to do business in the country had to join forces with an Indonesian partner company - many of which had links to Suharto's immediate family or a chosen group of cronies.

The Thames Water saga is a perfect illustration of the way the Suhartos went about the business of enriching themselves at the expense of foreign investors and their own citizens. In 1989, the Central Intelligence Agency estimated the wealth of the Suharto family - the president and his four offspring, the brothers Bambang, Tommy and Sigit, and their sister, Tutut - at $30bn (pounds 19bn).

Before Mr Suharto resigned last week after 32 years as Indonesian dictator, they had unimagined control over huge areas of economic and political life: a son-in-law was a rising general, a daughter was chairwoman of the ruling party and their business interests encompassed everything from airlines, telecommunications, hotels and toll roads to sugar and oranges.

In the early Nineties, Sigit, 46, wanted to extend that control to water. A major shareholder in the top-ranked Bank Central Asia and a man whose wealth was put at $454m in 1996, Sigit and his family have been the subject of considerable adverse gossip in Indonesia. He gained notoriety as a gambler in his youth, but still went on to manage a lottery that was dropped after Muslim groups declared it to be gambling.

Known as a man with a taste for impeccable clothes and expensive cars, Sigit is soon expected to move into billionaire status because of a deal he has done with a Canadian mining company to extract 57 million ounces of gold worth pounds 12bn from Indonesia's East Kalimantan province in Borneo.

His wife, Elsye Anneke Ratnawati, was embarrassed when she was unmasked as an aggressive share buyer on the Singapore stock exchange in 1995. And even his son, Ari Haryo Sigit, a well-known party animal on the Jakarta circuit, astonished the population with his greed at only 24 when one of his companies imposed a levy on beer and alcohol sales in Bali in 1996. The then president Suharto had to intervene personally to remove it.

According to Thames Water, now the world's third largest water company, a representative of Sigit approached them, possibly in 1994, and they were invited to submit a feasibility study on improving Jakarta's water supplies.

Thames, which says that it behaved properly at all times, had to link up with Sigit's company, PT Kekar Plastindo, which in turn took 20 per cent of the joint-venture water company, known as Kati.

"We were to provide the technical expertise to improve and manage the water supply system," said Clare Bonney, a Thames spokeswoman. "Mr Sigit's company's role was to provide the local and legal knowledge and political know-how essential in starting up this kind of venture."

Asked what his company was to receive in return, Ms Bonney said: "Twenty per cent of any profits over the lifetime of the contract." The contract was to run for 25 years. She added, however: "His company did have a valuable role to play. They weren't getting money for nothing."

Thames said that it had to negotiate the deal for three years, from June 1994 to June 1997, before it was finally awarded the contract. However, a letter dated July 1995 from Radinal Moochtar, the minister of public works, to PAM Jaya, the old city water company, suggests that the deal was already sewn up by Sigit, something Thames said it knew nothing of.

The letter informs PAM Jaya that Sigit's company - Thames's partner - was to supply east Jakarta, while a consortium led by Soedino Salim, one of Indonesia's richest men and a Suharto crony, was to control the other. The decision was taken, it said, "in the meeting room of the Minister of Public Works on 15 June 1995".

It came as a blow to the PAM Jaya workers, who had been given $1m by the World Bank to put together a feasibility study on which to base a bid of their own.

To Thames Water, however, the deal was as straightforward as any ever was with Indonesia.

"It was a fact of life that you had to have a partner company and there would always be a member of the Suharto family attached to it in one way or another," said Ms Bonney.

And it would be difficult to argue that Thames Water could not improve a system that was supplying water to only 20 per cent of homes in Jakarta on an intermittent and low-quality basis.

To the Suharto family, it was simply the latest in a long line of deals aimed at self-enrichment.

In 1990, the American telecommunications firm AT&T and Japan's NEC and Sumitomo were competing for the right to supply $300m of telephone equipment to the Suharto regime.

Those in business privately estimate the hidden cost of Suharto at 25 to 30 per cent of a contract, so the Americans and Japanese acted quickly to buy the support of his children. The Americans engaged as their "agent" his oldest daughter, Siti Hardijianti Rukmana, known as "Tutut". The Japanese hired Hutomo "Tommy" Mandala Putra, the youngest boy. Mr Suharto's anxious officials, presented with the dilemma of choosing between two of the then president's offspring, came up with an ingenious solution: they doubled the size of the contract, and awarded the prize jointly.

In 1996, Tommy was also in charge of a joint venture with the Korean car firm Kia to produce an Indonesian national car, known indelicately as the "Timor". Determined to make the car and Tommy appear successful, Mr Suharto exempted it from import duties and the 35 per cent luxury tax imposed on its rivals.

As a result, Tommy's Timor hit the road at about $10,000 - almost half the cost of similar imports.