Preliminary Affirmative Countervailing Duty Determination and Alignment of Final Countervailing Duty Determination With Final Antidumping Duty Determination: Certain Cut-to-Length Carbon-Quality Steel Plate From Indonesia

DEPARTMENT OF COMMERCE

International Trade Administration

[C-560-806]

Preliminary Affirmative Countervailing Duty Determination and

Alignment of Final Countervailing Duty Determination With Final

Antidumping Duty Determination: Certain Cut-to-Length Carbon-Quality

Steel Plate From Indonesia

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

EFFECTIVE DATE: July 26, 1999.

FOR FURTHER INFORMATION CONTACT: Kathleen Lockard or Eva Temkin, Office

of CVD/AD Enforcement VI, Import Administration, U.S. Department of

Commerce, Room 4012, 14th Street and Constitution Avenue, NW,

Washington, DC 20230; telephone (202) 482-2786.

PRELIMINARY DETERMINATION: The Department of Commerce (the Department)

preliminarily determines that countervailable subsidies are being

provided to certain producers and exporters of certain cut-to-length

carbon-quality steel plate from Indonesia. For information on the

estimated countervailing duty rates, please see the ``Suspension of

Liquidation'' section of this notice.

SUPPLEMENTARY INFORMATION:

Petitioners

The petition in this investigation was filed by Bethlehem Steel

Corporation, U.S. Steel Group, a unit of USX Corporation, Gulf States

Steel, Inc., IPSCO Steel, Inc., Tuscaloosa Steel Corporation, and the

United Steel Workers of America (the petitioners).

Case History

Since the publication of the notice of initiation in the Federal

Register (see Initiation of Countervailing Duty Investigations: Certain

Cut-To-Length Carbon-Quality Steel Plate from France, India, Indonesia,

Italy, and the Republic of Korea, 64 FR 12996 (March 16, 1999)

(Initiation Notice)), the following events have occurred. On March 16,

1999, we issued countervailing duty questionnaires to the Government of

Indonesia (GOI), and the producers/exporters of the subject

merchandise. On April 21, 1999, we postponed the preliminary

determination of this investigation until no later than July 16, 1999.

See Certain Cut-to-Length Carbon-Quality Steel Plate From France,

India, Indonesia, Italy, and the Republic of Korea: Postponement of

Time Limit for Countervailing Duty Investigations, 64 FR 23057 (April

29, 1999).

We received responses to our initial questionnaires from the GOI

and two of the three producers of the subject merchandise, PT Gunawan

Dianjaya Steel (Gunawan), and PT Jaya Pari Steel Corporation (Jaya

Pari), on April 29, 1999. On May 11, 1999 and June 3, 1999, we issued

supplemental questionnaires to the responding parties. On June 7, 1999,

petitioners alleged additional subsidies that were not contained in the

original petition. We determined to include these allegations in this

investigation on June 21, 1999. See Memorandum for Bernard Carreau,

Deputy Assistant Secretary for AD/CVD Enforcement Group II, a public

document on file in the Central Records Unit, room B-099 of the Main

Commerce Building (CRU). We issued a questionnaire addressing these

programs on June 22, 1999. We received additional responses between

June 1, 1999 and July 14, 1999.

Scope of Investigation

The products covered by this scope are certain hot-rolled carbon-

quality steel: (1) Universal mill plates (i.e., flat-rolled products

rolled on four faces or in a closed box pass, of a width exceeding 150

mm but not exceeding 1250 mm, and of a nominal or actual thickness of

not less than 4 mm, which are cut-to-length (not in coils) and without

patterns in relief), of iron or non-alloy-quality steel; and (2) flat-

rolled products, hot-rolled, of a nominal or actual thickness of 4.75

mm or more and of a width which exceeds 150 mm and measures at least

twice the thickness, and which are cut-to-length (not in coils).

Steel products to be included in this scope are of rectangular,

square, circular or other shape and of rectangular or non-rectangular

cross-section where such non-rectangular cross-section is achieved

subsequent to the rolling process (i.e., products which have been

``worked after rolling'')--for example, products which have been

beveled or rounded at the edges. Steel products that meet the noted

physical characteristics that are painted, varnished or coated with

plastic or other non-metallic substances are included within this

scope. Also, specifically included in this scope are high strength, low

alloy (HSLA) steels. HSLA steels are recognized as steels with micro-

alloying levels of elements such as chromium, copper, niobium,

titanium, vanadium, and molybdenum.

Steel products to be included in this scope, regardless of

Harmonized Tariff Schedule of the United States (HTSUS) definitions,

are products in which: (1) Iron predominates, by weight, over each of

the other contained elements, (2) the carbon content is two percent or

less, by weight, and (3) none of the elements listed below is equal to

or exceeds the quantity, by weight, respectively indicated:

1.80 percent of manganese, or

1.50 percent of silicon, or

1.00 percent of copper, or

0.50 percent of aluminum, or

1.25 percent of chromium, or

0.30 percent of cobalt, or

0.40 percent of lead, or

1.25 percent of nickel, or

0.30 percent of tungsten, or

0.10 percent of molybdenum, or

0.10 percent of niobium, or

0.41 percent of titanium, or

0.15 percent of vanadium, or

0.15 percent zirconium.

All products that meet the written physical description, and in

which the chemistry quantities do not equal or exceed any one of the

levels listed above, are within the scope of these investigations

unless otherwise specifically excluded. The following products are

specifically excluded from these investigations: (1) Products clad,

plated, or coated with metal, whether or not painted, varnished or

coated with plastic or other non-metallic substances; (2) SAE grades

(formerly AISI grades) of

[[Page 40458]]

series 2300 and above; (3) products made to ASTM A710 and A736 or their

proprietary equivalents; (4) abrasion-resistant steels (i.e., USS AR

400, USS AR 500); (5) products made to ASTM A202, A225, A514 grade S,

A517 grade S, or their proprietary equivalents; (6) ball bearing

steels; (7) tool steels; and (8) silicon manganese steel or silicon

electric steel.

The merchandise subject to these investigations is classified in

the HTSUS under subheadings: 7208.40.3030, 7208.40.3060, 7208.51.0030,

7208.51.0045, 7208.51.0060, 7208.52.0000, 7208.53.0000, 7208.90.0000,

7210.70.3000, 7210.90.9000, 7211.13.0000, 7211.14.0030, 7211.14.0045,

7211.90.0000, 7212.40.1000, 7212.40.5000, 7212.50.0000, 7225.40.3050,

7225.40.7000, 7225.50.6000, 7225.99.0090, 7226.91.5000, 7226.91.7000,

7226.91.8000, 7226.99.0000.

Although the HTSUS subheadings are provided for convenience and

Customs purposes, the written description of the merchandise under

investigation is dispositive.

Scope Comments

As stated in our notice of initiation, we set aside a period for

parties to raise issues regarding product coverage. In particular, we

sought comments on the specific levels of alloying elements set out in

the description below, the clarity of grades and specifications

excluded from the scope, and the physical and chemical description of

the product coverage.

On March 29, 1999, Usinor, a respondent in the French antidumping

and countervailing duty investigations and Dongkuk Steel Mill Co., Ltd.

and Pohang Iron and Steel Co., Ltd., respondents in the Korean

antidumping and countervailing duty investigations (collectively the

Korean respondents), filed comments regarding the scope of the

investigations. On April 14, 1999, the petitioners responded to

Usinor's and the Korean respondents' comments. In addition, on May 17,

1999, ILVA S.p.A. (ILVA), a respondent in the Italian antidumping and

countervailing duty investigations, requested guidance on whether

certain products are within the scope of these investigations.

Usinor requested that the Department modify the scope to exclude:

(1) Plate that is cut to non-rectangular shapes or that has a total

final weight of less than 200 kilograms; and (2) steel that is 4'' or

thicker and which is certified for use in high-pressure, nuclear or

other technical applications; and (3) floor plate (i.e., plate with

``patterns in relief'') made from hot-rolled coil. Further, Usinor

requested that the Department provide clarification of scope coverage

with respect to what it argues are over-inclusive HTSUS subheadings

included in the scope language.

The Department has not modified the scope of these investigations

because the current language reflects the product coverage requested by

the petitioners, and Usinor's products meet the product description.

With respect to Usinor's clarification request, we do not agree that

the scope language requires further elucidation with respect to product

coverage under the HTSUS. As indicated in the scope section of every

Department antidumping and countervailing duty proceeding, the HTSUS

subheadings are provided for convenience and Customs purposes only; the

written description of the merchandise under investigation or review is

dispositive.

The Korean respondents requested confirmation whether the maximum

alloy percentages listed in the scope language are definitive with

respect to covered HSLA steels.

At this time, no party has presented any evidence to suggest that

these maximum alloy percentages are inappropriate. Therefore, we have

not adjusted the scope language. As in all proceedings, questions as to

whether or not a specific product is covered by the scope should be

timely raised with Department officials.

ILVA requested guidance on whether certain merchandise produced

from billets is within the scope of the current CTL plate

investigations. According to ILVA, the billets are converted into wide

flats and bar products (a type of long product). ILVA notes that one of

the long products, when rolled, has a thickness range that falls within

the scope of these investigations. However, according to ILVA, the

greatest possible width of these long products would only slightly

overlap the narrowest category of width covered by the scope of the

investigations. Finally, ILVA states that these products have different

technological properties and mechanical uses than merchandise covered

by the scope of the investigations and therefore are not covered by the

scope of the investigations.

As ILVA itself acknowledges, the particular products in question

appear to fall within the parameters of the scope and, therefore, we

are treating them as covered merchandise for purposes of these

investigations.

The Applicable Statute and Regulations

Unless otherwise indicated, all citations to the statute are

references to the provisions of the Tariff Act of 1930, as amended by

the Uruguay Round Agreements Act (URAA) effective January 1, 1995 (the

Act). In addition, unless otherwise indicated, all citations to the

Department's regulations are to the current regulations as codified at

19 CFR Part 351 (1998) and to the substantive countervailing duty

regulations published in the Federal Register on November 25, 1998 (63

FR 65348) (CVD Regulations).

Injury Test

Because Indonesia is a ``Subsidies Agreement Country'' within the

meaning of section 701(b) of the Act, the International Trade

Commission (ITC) is required to determine whether imports of the

subject merchandise from Indonesia materially injure, or threaten

material injury to, a U.S. industry. On April 8, 1999, the ITC

published its preliminary determination finding that there is a

reasonable indication that an industry in the United States is being

materially injured, or threatened with material injury, by reason of

imports from Indonesia of the subject merchandise. See Certain Cut-To-

Length Carbon-Quality Steel Plate from the Czech Republic, France,

India, Indonesia, Italy, Japan, Korea, and Macedonia, 64 FR 17198

(April 8, 1999).

Alignment With Final Antidumping Duty Determination

On July 2, 1999, the petitioners submitted a letter requesting

alignment of the final determination in this investigation with the

final determination in the companion antidumping duty investigation.

See Initiation of Antidumping Duty Investigations: Certain Cut-to-

Length Carbon-Quality Steel Plate from the Czech Republic, France,

India, Indonesia, Italy, Japan, the Republic of Korea, and the Former

Yugoslav Republic of Macedonia, 64 FR 12959 (March 16, 1999).

Therefore, in accordance with section 705(a)(1) of the Act, we are

aligning the final determination in this investigation with the final

determinations in the antidumping investigations of cut-to-length

plate.

Period of Investigation

The period of investigation for which we are measuring subsidies

(the POI) is calendar year 1998.

Attribution of Subsidies

Section 351.525 of the CVD Regulations states that the Department

[[Page 40459]]

will attribute subsidies received by two or more corporations to the

products produced by those corporations where cross ownership exists.

According to Sec. 351.525(b)(6)(vi) of the CVD Regulations, cross-

ownership exists between two or more corporations where one corporation

can use or direct the individual assets of the other corporation in

essentially the same ways it can use its own assets. The regulations

state that this standard will normally be met where there is a majority

voting ownership interest between two corporations. The preamble to the

CVD Regulations, identifies situations where cross ownership may exist

even though there is less than a majority voting interest between two

corporations: ``in certain circumstances, a large minority interest

(for example, 40 percent) or a `golden share' may also result in cross-

ownership.'' See 63 FR 65401.

Because we have preliminarily found both Gunawan and Jaya Pari to

have zero subsidy rates, we do not reach the question of whether the

relationship between the companies satisfies the standard of cross-

ownership. However, if we discover subsidies at verification or

otherwise modify our findings so that one or more of the companies does

have a subsidy rate for the final determination, we will consider

whether there is cross-ownership between Gunawan and Jaya Pari and

thus, whether, for purposes of calculating a countervailing duty rate,

we should attribute any subsidies received by either or both companies

to the products produced by both companies. Accordingly, we invite the

parties to comment on whether the relationship between the firms

satisfies our new cross-ownership standard.

Use of Facts Available

PT Krakatau Steel (Krakatau), a producer of subject merchandise,

failed to respond to the Department's questionnaire. Section 776(a)(2)

of the Act requires the use of facts available when an interested party

withholds information that has been requested by the Department, or

when an interested party fails to provide the information requested in

a timely manner and in the form required. As described in more detail

below, Krakatau has failed to provide information explicitly requested

by the Department; therefore, we must resort to the facts otherwise

available.

In using the facts otherwise available, however, the Department

notes that the GOI has provided some, although not all, of the

information requested about Krakatau. With this information from the

GOI, we find that the administrative record with regard to Krakatau is

not so incomplete that it cannot serve as a reliable basis for reaching

this preliminary determination. In addition, we find that the remainder

of the criteria listed in 782(e) of the Act have been met.

Consequently, we find it unnecessary to resort to total facts available

with respect to Krakatau. Where practicable, we have based our

preliminary determination for this company on information provided by

the GOI. We have only used facts available where specific information

concerning Krakatau, that is necessary for our analysis, is absent from

the record.

Furthermore, section 776(b) of the Act provides that in selecting

from among the facts available, the Department may use an inference

that is adverse to the interests of a party if it determines that party

has failed to cooperate to the best of its ability. Here, the

Department asked Krakatau to submit the information requested in the

initial countervailing duty questionnaire. Krakatau did not respond to

the questionnaire. The Department then asked Krakatau once again to

respond to the questionnaire, reminding the company that the Department

may have to use facts available if no response was received. However,

Krakatau failed to submit the information that was specifically

requested by the Department on two separate occasions. Krakatau stated

that, due to the recent financial crisis, it does not have the

resources available to participate in the investigation. We note,

however, that Krakatau is participating in the companion antidumping

duty investigation.

The Department finds that by not providing necessary information

specifically requested by the Department and failing to participate in

any respect in this investigation, Krakatau has failed to cooperate to

the best of its ability. Therefore, in selecting partial facts

available, the Department determines that an adverse inference is

warranted.

When employing an adverse inference, the statute indicates that the

Department may rely upon information derived from (1) the petition; (2)

a final determination in a countervailing duty or an antidumping

investigation; (3) any previous administrative review, new shipper

review, expedited antidumping review, section 753 review, or section

762 review; or (4) any other information placed on the record. See also

Sec. 351.308(c) of the CVD Regulations. Due to the absence of any other

relevant information on the record, we consider the petition to be an

appropriate source for the necessary information.

Finally, the Statement of Administrative Action accompanying the

URAA clarifies that information from the petition and prior segments of

the proceeding is ``secondary information.'' See Statement of

Administrative Action, accompanying H.R. 5110 (H.R. Doc. No. 103-316)

(1994) (SAA), at 870. If the Department relies on secondary information

as facts available, section 776(c) of the Act provides that the

Department shall, ``to the extent practicable,'' corroborate such

information using independent sources reasonably at its disposal. The

SAA further provides that to corroborate secondary information means

simply that the Department will satisfy itself that the secondary

information to be used has probative value.

As discussed above, the GOI submitted some information about

Krakatau's use of programs included in this investigation. As discussed

above and in the Analysis Memo for the Preliminary Countervailing Duty

Determination, dated July 16, 1999, public version on file in the CRU

(Analysis Memo), we find that the information submitted by the GOI may

be used in reaching our determination in accordance with section 782(e)

of the Act. Based on this information, we were able to determine that

Krakatau did not use the Bank of Indonesia Rediscount Program with

respect to shipments of subject merchandise and did not use the Tax

Holiday Program. However, we are applying the facts available in

countervailing the 1995 Equity Infusion to Krakatau program including

our analysis of the company's creditworthiness. For a more detailed

description of our treatment of this program, see the program

description in the Program Preliminarily Determined to be

Countervailable section of this notice. We are using information

submitted in the countervailing duty petition, modified by and

corroborated by Krakatau's financial statements which were submitted

for the record by petitioners. See Analysis Memo.

In addition, as noted earlier, on June 7, 1999, petitioners made

new subsidy allegations with respect to Krakatau. The Department has

not had sufficient time to collect information from Krakatau and the

GOI on the use of the Pre-1993 Equity Infusions to Krakatau, P.T. Cold-

Rolled Mill Indonesia (CRMI) Equity Infusions and Two-Step Loan

programs. Thus, we do not have sufficient information to make

determinations with respect to these programs' countervailability.

Because respondents have not had sufficient

[[Page 40460]]

opportunity to provide information about these programs for the record,

the use of the facts available is not warranted at this time. We will

continue to collect information that will enable us to make a

determination about these programs in our final determination.

Subsidies Valuation Information

Allocation Period

Section 351.524(d)(2) of the CVD Regulations states that we will

presume the allocation period for non-recurring subsidies to be the

average useful life (AUL) of renewable physical assets for the industry

concerned, as listed in the Internal Revenue Service's (IRS) 1977 Class

Life Asset Depreciation Range System and updated by the Department of

Treasury. The presumption will apply unless a party claims and

establishes that these tables do not reasonably reflect the AUL of the

renewable physical assets for the company or industry under

investigation, and the party can establish that the difference between

the company-specific or country-wide AUL for the industry under

investigation is significant.

In this investigation, no party to the proceeding has claimed that

the AUL listed in the IRS tables does not reasonably reflect the AUL of

the renewable physical assets for the firm or industry under

investigation. Therefore, according to Sec. 351.524(d)(2) of the CVD

Regulations, we have allocated Krakatau's non-recurring benefits over

15 years, the AUL listed in the IRS tables for the steel industry.

Equityworthiness

In analyzing whether a company is equityworthy, the Department

considers whether that company could have attracted investment capital

from a reasonable private investor in the year of the government equity

infusion based on the information available at that time. In this

regard, the Department has consistently stated that a key factor for a

company in attracting investment capital is its ability to generate a

reasonable return on investment within a reasonable period of time. In

making an equityworthiness determination, in accordance with

Sec. 351.507(a)(4) of the CVD Regulations, the Department may examine

the following factors, among others:

A. Objective analyses of the future financial prospects of the

recipient firm or the project as indicated by, inter alia, market

studies, economic forecasts, and project or loan appraisals prepared

prior to the government-provided equity infusion in question;

B. Current and past indicators of the recipient firm's financial

health calculated from the firm's statements and accounts, adjusted, if

appropriate, to conform to generally accepted accounting principles;

C. Rates of return on equity in the three years prior to the

government equity infusion; and

D. Equity investment in the firm by private investors.

The Department has examined Krakatau's equityworthiness for the

year 1995. We are also examining Krakatau's equityworthiness for the

period 1988 through 1992, to the extent equity infusions may have been

received in these years. See June 1, 1999, memorandum to Bernard

Carreau, Deputy Assistant Secretary for AD/CVD Enforcement II, a public

document on file in the CRU. Krakatau did not respond to our first

questionnaire regarding the new allegations pertaining to the period

1988 through 1992, but the company has not yet had the opportunity to

respond to any additional questionnaire on these allegations.

Therefore, we are not addressing Krakatau's equityworthiness in these

years for this preliminary determination.

In considering whether Krakatau was equityworthy in 1995, we

examined information on the above-listed factors. With respect to

factor A, no studies or other relevant data have been submitted to the

record. However, according to press articles submitted by petitioners,

Krakatau was not an attractive investment. In one article, the

Indonesian Minister for the Empowerment of State Enterprises stated,

``[w]hy is Krakatau Steel difficult to sell? Because it has often been

said that the company would go bankrupt and that it needed an

investment of $1.2 billion.'' The Minister also stated in 1998 that

Krakatau had a very low return on equity compared to its international

competitors. Another government official stated that Krakatau would, ``

* * * first have to restructure its subsidiaries, cut costs and reduce

staff,'' in order to complete its proposed privatization. See

Countervailing Duty Petition, public version on file in the CRU.

In addition, according to information submitted by the Petitioners,

the investment climate in Indonesia in 1995 was considered a risky one,

further dampening any potential for private investment. According to

press articles, problems with state-owned firms would have further

deterred private investment in these companies.

To address factors B and C, we examined Krakatau's financial ratios

for the three years prior to each of the infusions based on the

information contained in Krakatau's translated financial statements

that were submitted by petitioners. See Analysis Memo. This data

indicates that Krakatau did report modest profits in the years relevant

to examination. Return on sales was positive, but declined over the

period 1992 through 1994. Return on equity declined from 1992 to 1993,

but recovered in 1994. In all relevant years Krakatau's return on

equity remained less than half of the annual inflation rate; thus the

company was posting negative returns in real terms. Further, Krakatau's

returns during this period were well-below commercial interest rates.

With respect to the final factor, Krakatau has no private

investors. Therefore, there are no private investments that may be used

to evaluate Krakatau's equityworthiness.

In light of Krakatau's unfavorable financial position, anemic

returns and the press reports about the company's dubious financial

health, it seems unlikely that a reasonable private investor would have

made equity investments in the company. On this basis, we preliminarily

determine that Krakatau was unequityworthy in 1995.

Equity Methodology

In measuring the benefit from a government equity infusion, in

accordance with Sec. 351.507(a)(2) of the CVD Regulations, the

Department compares the price paid by the government for the equity to

actual private investor prices, if such prices exist. According to

Sec. 351.507(a)(3) of the CVD Regulations, where actual private

investor prices are unavailable, the Department will determine whether

the firm was unequityworthy at the time of the equity infusion. In this

case, private investor prices were unavailable; thus, we conducted an

equityworthy analysis. As discussed above, we have determined that

Krakatau was unequityworthy in 1995.

Section 351.507(a)(3) of the CVD Regulations provides that a

determination that a firm is unequityworthy constitutes a determination

that the equity infusion was inconsistent with the usual investment

practices of private investors. The Department will then apply the

methodology described in Sec. 351.507(a)(6) of the regulations, and

treat the equity infusion as a grant. Use of the grant methodology for

equity infusions into an unequityworthy company is based on the premise

that an unequityworthiness finding by the Department is tantamount to

saying that

[[Page 40461]]

the company could not have attracted investment capital from a

reasonable investor in the infusion year based on the available

information.

Creditworthiness

When the Department examines whether a company is creditworthy, it

is essentially attempting to determine if the company in question could

obtain commercial financing at commonly available interest rates. To do

so, the Department examines whether the company received long-term

commercial loans in the year in question, and, if necessary, the

overall financial health and future prospects of the company. If a

company not owned by the government receives long-term financing from

commercial sources without government guarantees, that company will

normally be considered creditworthy. In the absence of commercial

borrowings, in accordance with Sec. 351.505(a)(4) of the CVD

Regulations, the Department examines the following factors, among

others, to determine whether or not a firm is creditworthy:

A. The receipt by the firm of comparable commercial long-term

loans;

B. The present and past financial health of the firm, as reflected

in various financial indicators calculated from the firm's financial

statements and accounts;

C. The firm's recent past and present ability to meet its costs and

fixed financial obligations with its cash flow; and

D. Evidence of the firm's future financial position, such as market

studies, country and industry economic forecasts, and project and loan

appraisals prepared prior to the agreement between the lender and the

firm on the terms of the loan.

With respect to the first factor, Krakatau received one long-term

commercial loan in 1995 amounting to approximately 3 billion Rupiah.

However, because Krakatau is owned by the government, this loan may not

be considered dispositive as to the company's creditworthiness. See

Sec. 351.505(a)(4)(ii) of the CVD Regulations.

Therefore, to determine whether Krakatau was creditworthy in 1995,

in accordance with the Department's past practice, we analyzed

financial ratios for each of the three years prior to the year under

examination to address factors B and C. In examining these ratios,

however, because tKrakatau failed to respond to our questionnaires (as

discussed in the ``Facts Available'' section of this notice), we do not

have the company's financial statements for 1992 and 1993. The only

financial information for the years 1992 and 1993 on the record of this

investigation is taken from data from the Indonesian Commercial

Newsletter submitted by petitioners. Thus, we are not able to evaluate

whether this data is supported by the financial statements and whether

there may be any notes to the financial statements that would call the

data into question.

Using the only information available on the record, we found that,

as discussed above, Krakatau had positive returns on sales and equity

during the relevant years, but these rates were lower than commercial

interest rates and lower than the level of inflation. Krakatau's

current ratio remained relatively strong during this period, ranging

from 3.86 to 6.51, showing a fairly strong degree of short-term

protection for creditors and no indication of difficulty in covering

short-term liabilities.

The Department normally examines other financial ratios including

the quick ratio and times-interest-earned ratio; however, data on the

record is incomplete, allowing us only to examine the company's

position in 1994. Both of these ratios indicate that the company

probably did not have difficulties managing its debt obligations in

1994, but we are unable to examine the company's ratios for the other

relevant years.

With respect to the final factor, there are no studies or analyses

submitted to the record that may be used to evaluate Krakatau's

financial position.

While the data we have indicates that Krakatau may not have had any

difficulty obtaining financing at commercial interest rates, again, we

note that the record evidence is incomplete. In addition, other

financial data and press reports, as discussed in the

``Equityworthiness'' section above, indicate that Krakatau had

financial difficulties. Therefore, as adverse facts available we

preliminarily find that Krakatau was uncreditworthy in 1995.

Discount Rates

We calculated the discount rates in accordance with the formula for

constructing a long-term interest rate benchmark for uncreditworthy

companies as stated in the Department's new regulations. See

Sec. 351.505 (a)(3)(iii) of the CVD Regulations. This formula requires

values for the probability of default by uncreditworthy and

creditworthy companies. For the probability of default by an

uncreditworthy company, we relied on the average cumulative default

rated reported for the Caa to C-rated category of companies as

published in Moody's Investors Service, ``Historical Default Rates of

Corporate Bond Issuers, 1920-1997,'' (February 1998). For the

probability of default by a creditworthy company we used the average

cumulative default rates reported for the Aaa to Baa.1 For

the period before 1998, we used the average cost of long-term fixed-

rate loans in Indonesia in 1995 as the interest rate that would be paid

by a creditworthy company, specifically the investment rate offered by

commercial banks in Indonesia as reported in the Indonesian Financial

Statistics of February 1999, attached to the GOI's April 29, 1999,

questionnaire response, a public document on file in the CRU. For this

period, we used the average cumulative default rates for both

uncreditworthy and creditworthy companies that were based on a 15 year

term, since Krakatau's allocable subsidy was based on this allocation

period. For 1998, since Indonesia experienced high inflation during

this year, we converted the subsidy into U.S. dollars and then applied

a long-term dollar rate as the discount rate, specifically, the average

yield to maturity on selected long-term Baa-rated bonds. See Analysis

Memo. This conforms with our practice in Final Affirmative

Countervailing Duty Determination: Steel Wire Rod from Venezuela, 62 FR

55014, 55019 (October 22, 1997). In calculating the uncreditworthy rate

for 1998, we used the average cumulative default rates for both

uncreditworthy and creditworthy companies based on a 12 year term,

since that period remained on Krakatau's allocated subsidy.

---------------------------------------------------------------------------

\1\ We note that since publication of the CVD Regulations,

Moody's Investors Service no longer reports default rates for Caa to

C-rated category of companies. Therefore for the calculation of

uncreditworthy interest rates, we will continue to rely on the

default rates as reported in Moody Investor Service's publication

dated February 1998 (see Exhibit 28).

---------------------------------------------------------------------------

I. Program Preliminarily Determined To Be Countervailable

1995 Equity Infusion Into Krakatau

Because Krakatau did not respond to this allegation, we used the

information and data provided in the petition as adverse facts

available, in accordance with section 776(b) of the Act (See ``Facts

Available'' discussion above). According to both the Countervailing

Duty Petition and Krakatau's financial statements, the GOI provided

Krakatau with equity in the form of debt-to-equity conversions in 1995.

See Analysis Memo. In 1995, the GOI converted subordinated loans into

equity. The conversion was authorized by the

[[Page 40462]]

Minister of Finance in decree number S-44/MK016/1995 dated July 25,

1995. According to Krakatau's financial statement, provided in the

petition, on April 29, 1996, through decree of the Minister of Finance

S-240/MK016/1996, the conversion was approved at a slightly lower

amount than originally authorized. The excess amount has not yet been

converted into capital and has been recorded as a loan in the financial

statement, with interest still due.

We preliminarily determine that under section 771(5)(E)(i) of the

Act, the equity conversion into Krakatau was not consistent with the

usual investment practice of a private investor and confers a benefit

in the amount of each infusion (see ``Equityworthiness'' section

above). The equity conversion is specific within the meaning of section

771(5A)(D) of the Act because it was limited to Krakatau. Accordingly,

we preliminarily find that the 1995 debt-to-equity conversion is a

countervailable subsidy within the meaning of section 771(5) of the

Act.

As explained in the ``Equity Methodology'' section above, we have

treated equity infusions into unequityworthy companies as grants given

in the year the infusion was received because no market benchmark

exists. In accordance with Sec. 351.507(c) of the CVD Regulations, the

equity conversion is allocated as a non-recurring subsidy. We allocated

the subsidy and converted the remaining face value of the infusion in

1998 into U.S. dollars using the average 1997 rupiah/dollar exchange

rate and applied the long-term U.S. dollar uncreditworthy interest rate

described in the ``Discount Rate'' section of this notice. We then

divided the benefit amount allocable to the POI by Krakatau's estimated

1998 U.S. dollar total sales figure, which was calculated based on the

facts available in the petitioner's submission. See Analysis Memo. On

this basis, we preliminarily determine the net countervailable subsidy

to be 17.38 percent ad valorem for Krakatau.

II. Program Preliminarily Determined To Be Not Countervailable

Reduction in Electricity Tariffs

Petitioners alleged that discounts on electricity rates were

provided to the steel industry during the POI; they alleged that after

the GOI increased electricity rates in 1998, the GOI decreased rates

for the steel industry. According to the questionnaire response, in

1998, the GOI instituted a substantial increase in electricity tariff

rates for electricity supplied by the state-owned electricity company,

PT Perusahaan Listrik Negara, known as Persero. In accordance with

Presidential Decree No. 70/1998 of May 4, 1998, rates were scheduled to

increase periodically throughout the year, in May, August, and

November. The May 1998 increase was implemented as discussed in the

Announcement of the Minister of Mines and Energy, No. Pm/40/MPE/1998

dated May 4, 1998, submitted in the June 23, 1999, questionnaire

response. Subsequently, the August and November increases were

retroactively postponed, by Presidential Decree No. 1/1999 of January

7, 1999, submitted in the June 1, 1999, questionnaire response.

According to this decree, the rate increase was postponed for all

electricity customers, with the exception of large residential

households.

The postponement of the rate increase applied broadly throughout

the economy, with only large residential households excepted from the

new rate. According to the GOI, all ``[i]ndustrial customers pay

electricity rate solely according to the tariff and time of use.''

Thus, contrary to petitioners' allegation, there is no basis for

concluding that the steel industry received a special electricity

discount. Based on the record evidence, the electricity discount was

not limited to a specific enterprise, industry or group thereof, but

was available to all industrial users in the country. Therefore, we

preliminarily determine that the electricity discount program is not

countervailable.

III. Programs Preliminarily Determined To Be Not Used

Based on the information provided by respondents and the GOI, we

determine that Gunawan, Jaya Pari, and Krakatau did not apply for or

receive benefits under the following programs during the POI:

A. Bank of Indonesia Rediscount Loans

B. Corporate Income Tax Holidays

Verification

In accordance with section 782(i)(1) of the Act, we will verify the

information submitted by respondents prior to making our final

determination.

Suspension of Liquidation

In accordance with section 703(d)(1)(A)(i) of the Act, we have

calculated individual rates for each of the companies under

investigation.

According to section 705(5)(A)(i) of the Act, the all others rate

is, ``an amount equal to the weighted average countervailable subsidy

rates established for exporters and producers individually

investigated, excluding any zero and de minimis countervailable subsidy

rates and any rates determined entirely under section 776.'' Thus, in

accordance with section 705(5)(A)(i) of the Act, we are excluding the

rates calculated for Gunawan and Jaya Pari because they are zero rates.

Although the subsidy rate calculated for Krakatau is based in part on

facts available, section 705(5)(A)(i) specifies that only those rates

calculated entirely under section 776 (facts available) are excluded;

thus, we are including the subsidy rate calculated for Krakatau in the

all others rate.

------------------------------------------------------------------------

Producer/exporter Net subsidy rate

------------------------------------------------------------------------

P.T. Krakatau Steel................. 17.38% ad valorem.

P.T. Gunawan Steel.................. 0.00% ad valorem.

P.T. Jaya Pari...................... 0.00% ad valorem.

All Others Rate..................... 17.38% ad valorem.

------------------------------------------------------------------------

In accordance with section 703(d) of the Act, we are directing the

U.S. Customs Service to suspend liquidation of all entries of cut-to-

length plate from Indonesia, except with respect to Gunawan and Jaya

Pari as discussed above, which are entered or withdrawn from warehouse,

for consumption on or after the date of the publication of this notice

in the Federal Register, and to require a cash deposit or bond for such

entries of the merchandise in the amounts indicated above. Since the

estimated preliminary net countervailing duty rates for Gunawan and

Jaya Pari are zero, these two companies will be excluded from the

suspension of liquidation. This suspension will remain in effect until

further notice.

ITC Notification

In accordance with section 703(f) of the Act, we will notify the

ITC of our determination. In addition, we are making available to the

ITC all nonprivileged and nonproprietary information relating to this

investigation. We will allow the ITC access to all privileged and

business proprietary information in our files, provided the ITC

confirms that it will not disclose such information, either publicly or

under an administrative protective order, without the written consent

of the Assistant Secretary for Import Administration.

In accordance with section 705(b)(2) of the Act, if our final

determination is affirmative, the ITC will make its final determination

within 45 days after the Department makes its final determination.

[[Page 40463]]

Public Comment

In accordance with 19 CFR 351.310, we will hold a public hearing,

if requested, to afford interested parties an opportunity to comment on

this preliminary determination. The hearing is tentatively scheduled to

be held 57 days from the date of publication of the preliminary

determination at the U.S. Department of Commerce, 14th Street and

Constitution Avenue, NW, Washington, DC 20230. Individuals who wish to

request a hearing must submit a written request within 30 days of the

publication of this notice in the Federal Register to the Assistant

Secretary for Import Administration, U.S. Department of Commerce, Room

1870, 14th Street and Constitution Avenue, NW, Washington, DC 20230.

Parties should confirm by telephone the time, date, and place of the

hearing 48 hours before the scheduled time.

Requests for a public hearing should contain: (1) The party's name,

address, and telephone number; (2) the number of participants; and, (3)

to the extent practicable, an identification of the arguments to be

raised at the hearing. In addition, six copies of the business

proprietary version and six copies of the non-proprietary version of

the case briefs must be submitted to the Assistant Secretary no later

than 50 days from the date of publication of the preliminary

determination. As part of the case brief, parties are encouraged to

provide a summary of the arguments not to exceed five pages and a table

of statutes, regulations, and cases cited. Six copies of the business

proprietary version and six copies of the non-proprietary version of

the rebuttal briefs must be submitted to the Assistant Secretary no

later than 5 days from the date of filing of the case briefs. An

interested party may make an affirmative presentation only on arguments

included in that party's case or rebuttal briefs. Written arguments

should be submitted in accordance with 19 CFR 351.309 and will be

considered if received within the time limits specified above.

This determination is published pursuant to sections 703(f) and

777(i) of the Act.

Dated: July 16, 1999.

Richard W. Moreland,

Acting Assistant Secretary for Import Administration.

[FR Doc. 99-18858 Filed 7-23-99; 8:45 am]

BILLING CODE 3510-DS-P