Special Severance Program

1. PT Inco announced the decision to offer the severance package to its employees in January 2005, effective February 1, 2005. Why the sudden announcement? Why didn’t you give them more notice?

A: This has been one of the hardest decisions that we have had to make. The decision is inevitable because we have to ensure the ability of PT Inco to compete in the international market and honor its commitment to its shareholders worldwide.

2. Why didn’t PT Inco inform its employees about the program in advance?

A: We appreciate the valuable service provided by our employees. However, as the business decision was only finalized recently, it would have been inappropriate to inform the employees before the plan was finalized. On the other hand, we believe that a potential crisis may emerge if nickel prices return to normal. Nickel prices are still high and that’s why we are now able to offer a generous severance package.

3. When did you know that PT Inco was going to terminate its employees?

A: The decision was only finalized recently. We prepared the program after first obtaining feedback from staff at the employee, manager, superintendent and supervisor levels, labor unions, Ministry of Manpower and Transmigration, and an independent consultant.

4. Were the employees given any time to consider PT Inco’s severance payment offer?

A: Discussions about the severance payment scheme were held with the unions, managers, superintendents, and supervisors. Employees also had the opportunity to voice their concern with the unions and their immediate superiors.

5. How many employees will lose their jobs following this decision?

A: PT Inco has offered a special severance program to around 250 employees. They comprise of superintendent, senior staff, staff and non-staff levels and the program is based on competence, age, and health.

6. Were employees terminated because of poor performance?

A: The decision was made to ensure the company would be able to compete in the international market as well as honor our commitment to our shareholders worldwide. Since we appreciate the valuable service provided by these employees, we designed the generous severance plan as a good will gesture that reflects their valuable contribution to the company over many years.

7. Why weren’t they given a second chance to improve their performance/ productivity?

A: This is not a question about performance or productivity. However we need to be able to compete in the international market as well as honor our commitment to our shareholders worldwide. Nickel prices are high at the moment so this was a good time to offer a generous severance plan to them. It was better to do this now rather than wait for nickel prices to fall. Should nickel prices fall, we could not afford to be so generous. The end result is a good will gesture that reflects their valuable contribution to the company over many years.

8. After working for PT Inco for more than 20 years, don’t you think that the decision to terminate the employees is rather harsh? Did you help them find other employment? If not, why not?

A: Since we appreciate the valuable service provided by these employees, we designed the generous severance plan as a good will gesture that reflects their valuable contribution to the company over many years. Our severance plan complies with all relevant Indonesian laws. In fact, we have given them a significantly higher amount than that stipulated under Law No. 13/2003 due to the length of their service.

In addition, we will also provide them with individual, voluntary financial counseling as well as packing, moving assistance for those employees currently living in company-owned houses, and moving assistance back to point of hire for all terminated employees. These same benefits are given to all persons retiring from the company.

9. Do you realize that by not giving the employees enough time to look for another job you are limiting their chances for employment with other companies?

A: We began communication regarding the retirement plan with the employees as soon as it was finalized. We are optimistic that their period of employment with PT Inco has been a rewarding work experience and a valuable reference for any future employment.

10. You state that PT Inco has done all it can to ensure that employees are cared for and yet your decision resulted in the termination of around 250 employees. Isn’t that contradictory?

A: It was not an easy decision for PT Inco. We appreciate the continuing support of our staff that has enabled the company to record almost 40 years of sustained growth. However, we need to ensure the company’s ability to compete in the international market and honor our commitment to our shareholders worldwide.

11. Can you confirm that all employees will be taken care of during their search for new employment?

A: PT Inco has acted in the best interests of these employees by providing a significantly higher severance payment than that stipulated under Law No. 13/2003. The payment takes into account salary/wages higher than the standard stipulated by the government, relevant allowances, annual vacation bonus and other bonuses. In addition, we will also provide them with individual, voluntary financial counseling.

12. Would you say that the decision to start terminating your employees forms part of your company’s strategic plan?

A: Strategic decisions are made to ensure the company maintains its ability to compete in the international market and honor its commitment to shareholders worldwide. We believe that a potential crisis may emerge if nickel prices return to normal.

13. Why were certain people singled out for this program and others not?

A: PT Inco has offered a special severance program to around 250 employees based on feedback from various parties including managerial level, unions, and an independent consultant. It complies with all relevant Indonesian law. Most of the people selected for the program are employees who either because of age, health, knowledge or skills, are simply not able to meet the company’s current productivity needs. The demand for increased productivity goes hand in hand with the introduction of new technologies and work methods. Some employees will find it difficult to adjust to these changing requirements. Others were selected due to non-performance recognized over a sustained period.

14. If employees have questions where do they go?

A: PT Inco has formed a special task force to assist employees and this will be in operation for the duration of the program. (For Internal: Their contact names and numbers are listed in your package).

15. PT Inco is currently benefiting from the high nickel prices. So why is the company offering a severance program during boom times?

A: A decision was taken to ensure the ability of PT Inco to compete in the international
market and honor its commitment to its shareholders worldwide. At historical average nickel prices, PT Indo would be losing money right now. The reasons for this are twofold. Firstly, our costs have increased by more than 37% in the last few years, and secondly, our productivity, which is related to costs and production, is decreasing. If we do not act now, we will be forced into more drastic action in the future when nickel prices drop, as we know they will. And by that time, we may not be able to afford to provide employees with as generous a package as this one.

16. Who made the decision to initiate this program now?

A: The decision was inevitable because PT Inco must maintain its competitiveness in the international market. Nickel prices have experienced extraordinary growth over the last seven years. We believe that a potential crisis may emerge if nickel prices return to normal while productivity remains low, or declines further. PT Inco prepared the offer and related programs after obtaining feedback from all parties, including, manager, superintendent and supervisor levels, labor unions, Ministry of Manpower and Transmigration, and an independent consultant.

17. Is this related to the Productivity Initiative (External)/3P Productivity Initiative (Internal)?

A: No it is not part of the Productivity Initiative/3P Productivity Initiative. The decision was inevitable because PT Inco must maintain its competitiveness in the international market. Nickel prices have experienced extraordinary growth over the last seven years. We believe that a potential crisis may emerge if nickel prices return to normal while productivity remains low, or declines further.

18. How did you calculate the compensation packages? As PT Inco is an international company did you follow an international formula? If not, why not?

A: PT Inco is domiciled in Indonesia and Indonesian laws and regulations apply to all operations. We comply with all relevant laws. The severance package meets the requirements of Ministerial Decree (Manpower) No. 13/2003.

19. You mentioned a decline in productivity. What is the extent of the loss incurred by PT Inco in the last few years?

A: Many companies have faced financial challenges over the last eight years, especially during the Southeast Asian financial crisis. At all times we endeavor to maintain our company’s competitiveness in the international market as well as honor our commitment to shareholders worldwide.

20. Are you saying that you expect all employees to accept PT Inco’s Severance Program in its entirety?

A: We are making all necessary efforts to meet the needs of employees. We hope that our workers will acknowledge those efforts and that their period of employment with PT Inco has been a rewarding work experience.

21. Why are the packages in excess of those set by the Government? Isn’t this rewarding employees for poor performance?

A: PT Inco appreciates the continuing support of its staff that has enabled the company to record more than 35 years of sustained growth. Hence, the packages were intentionally designed above the Government’s standard in order to enable the employees to have the opportunity to do a fresh start and to have a financial security.

22. Was the program voluntary? If so, how did the employees volunteer?

A: This severance program has been offered to specific employees. In certain circumstances, area managers may decide that the offer can be extended to additional employees. Requests are considered on an individual basis.

23. Why was this program not voluntary?

A: Many companies have faced financial challenges over the last eight years, especially during the Southeast Asian financial crisis. At all times we endeavor to maintain our company’s competitiveness in the international market as well as honor our commitment to shareholders worldwide. It is important that we retain appropriate resources to support PT Inco in facing challenges to the company’s success.

24. Did any employees refuse the severance package? What action did you take for those who refused to accept it?

A: Employees who refuse the package must go through a bipartite process aimed at peaceful settlement. Should this fail, both parties must proceed to mediation (tripartite) with a mediator from the East Luwu regency manpower office. Should this step also fail, then the matter must be settled via the National Committee for the Resolution of Industrial Disputes (P4P). This is the final process that decides whether or not employees can return to work.

Should employees return to work, they will be required to meet clearly defined performance standards and their performance will be monitored closely. If they are unable to meet these performance standards they will be subject to termination with the normal government minimum severance package.

25. When can employees who refuse the package go back to work (at Inco)?

A: Employees who refuse the package must go through a bipartite process aimed at peaceful settlement. Should this fail, both parties must proceed to mediation (tripartite) with a mediator from the East Luwu regency manpower office. Should this step also fail, then the matter must be settled via the National Committee for the Resolution of Industrial Disputes (P4P). This is the final process that decides whether or not employees can return to work.

Should employees return to work, they will follow a work performance standard stipulated by the company with regular monitoring from the company.

26. Why were most people who were included in the program over the age of 45?

A: Criteria used to determine eligibility for special severance program were competence, age, and condition of health. The majority of these employees happened to fall in the age range of 45 to 54.

27. When do employees on this program need to vacate their company-owned house?

A: The company has made arrangements to assist employees with moving out of company-owned houses, or back to their point of hire, if they want. This process was completed at the end of February 2005.

28. Can employees refuse to vacate their company-owned houses?

A: No. Employees must vacate company-owned homes by February 28, 2005 unless they have school age children attending local schools, in which case they must vacate their homes by the end of the school year. Individual dates will be arranged through TAS (Town Administration and Services) and Human Resources.

29. Will terminated employees living in company-owned houses be allowed to purchase furniture or appliances?

A: This will depend on the age, value and condition of the furniture or appliances. These decisions will be made on an individual basis by TAS (Town Administration and Services). It is expected that most furniture and appliances will not be for sale.

30. In addition to the severance package will you provide any other assistance to employees on this program?

A: In addition to the generous financial severance package, PT Inco has arranged for individual, voluntary Financial Counseling, as well as packing and moving assistance for those employees currently living in company-owned houses and moving assistance back to point of hire for all terminated employees. This is the same as all people who retire from the company now.

31. What if employees on the program have children in local schools?

A: If employees have school-age children attending school in the Sorowako area, employees can remain in their company-owned homes until the end of the school year (June 2005).

32. They say you are using thugs (preman). So what are you doing/what can you do about threats against employees?

A: This is absolutely untrue. We continue to abide by all relevant Indonesian laws and regulations. Security teams are part of our daily operations. Employees who feel threatened should contact Peter Johnson, or Phil Taulelei of Department of Security Services as soon as possible. Employees who threaten other employees, including PT Inco management staff, will jeopardize their severance package.

33. Why were employees selected for the program removed from the work site immediately and not allowed to return to their work place?

A: PT Inco understands that this decision is sensitive for some people. Therefore, in order to ensure the safety of working environment, security teams are present in our factories and we have also limited access to the factory to employees who are working on site.

34. Why did you use security guards when you notified employees about the program?

A: PT Inco understands that this decision is sensitive for some people. Security teams have always been part of our daily operations and are designed to ensure a safe working environment.

35. Will there be more terminations in the near future?

A: It is not wise to speculate about the future. We need to ensure PT Inco is able to compete in the international market and honor its commitment to its shareholders worldwide.

36. Was the Union informed about this program?

A: Yes. We involved the unions and other relevant parties in discussions and preparations and then obtained feedback from them before preparing the special severance program.

37. Will terminated employees be replaced?
A: It is too early to decide and this will require a further management decision. It is possible that a number of terminated employees will be replaced.

38. What about Contractor employees, will their numbers be reduced as well?

A: The practice of using contractor laborers officially ended on January 1, 2005. PT Inco recognizes that better control of contractors, including the number of contract workers is an essential part of being able to decrease our costs and increase our productivity. As a result, the number of contractors and contract workers will continue to be reviewed, and it is our intention to improve the productivity of our contractor employees, which means using less to do more.

39. What do you put first, reaching production target (profit) or protecting your employees?

A: We cannot have one without the other. Like any other company, we have to remain competitive in the international market and honor our commitment to shareholders worldwide. On the other hand, we appreciate the valuable service provided by these employees and have therefore designed generous severance plans.

40. Have you notified the Manpower offices regarding the Severance Program?

A: We notified the Manpower office, included officials from the department of labor and all relevant parties in discussions to obtain their feedback prior to preparing the special severance program.

41. The Manpower office has been very supportive of you regarding the Severance Program. What have you given them in return?

A: We continue to abide by all relevant Indonesian laws and regulations and international codes of conduct, such as FCPA (Foreign Corruption Practices Act), Sarbanes-Oxley Act, and apply good corporate governance. We also included officials from the department of labor in all discussions.

42. We heard that you bribed the Manpower office to facilitate your plan to dismiss your employees without prior notification. Can you explain this?

A: This is absolutely untrue. We continue to abide by all relevant Indonesian laws and regulations and international codes of conduct, such as FCPA (Foreign Corruption Practices Act), Sarbanes-Oxley Act, and apply good corporate governance.

43. Do you fully understand the Indonesian situation and the huge number of unemployed people in Indonesia?

A: PT Inco has been in operation in Indonesia for almost 40 years and remains committed to long-term investment in Indonesia and the promotion of the economic wellbeing of the nation, including development of the surrounding community.
Management made the decision after reviewing all possible options and it was definitely not an easy decision for PT Inco. However we are making every effort to ensure that the needs of employees are met.