PTPs may not survive into the 2000s<\/p>\n
JAKARTA (JP): Some analysts here allege that the team in
\ncharge of the second stage of the consolidation process of state
\nplantation companies (PTPs) wants to make the restructuring the
\nend, and not the means, to improve their overall efficiency,
\nproductivity and accountability.<\/p>\n
They see it as strange that those PTP directors who were
\nsacked during the grouping process in May, 1994, were included in
\nthe consolidation team.<\/p>\n
However, Agriculture Minister Sjarifudin Baharsjah denied the
\nnotion that the restructuring was the only reform measure to
\nraise the efficiency of PTPs.<\/p>\n
\"You will see additional measures in the future aimed at
\nincreasing productivity of plantations and processing mills,\" he
\nsaid.<\/p>\n
Concerns with the inefficiency and low productivity at the
\nPTPs have increased since the late 1980s when they were no longer
\ngranted special treatment and facilities from the government.<\/p>\n
As a result, the PTPs have since had to compete on par with
\nprivate companies.<\/p>\n
The problem, though, is that despite the phasing out of the
\nspecial treatment and facilities, the PTPs remain vulnerable to
\nexcessive government intervention, an obvious deterrence to
\nbusiness efficiency.<\/p>\n
\"The PTP managements should be given freedom to run the
\nbusiness according to normal business principles,\" Hastjartjo
\nSoemardjan, a senior researcher at the Indonesian Planters
\nAssociation of Plantation Research and Development (AP3I)
\nsuggested.<\/p>\n
According to Hastjartjo, PTPs should be freed to develop their
\nown businesses. The government, as the owner, needs only to
\nassess their performance through their annual reports.<\/p>\n
\"I think there should not be any political considerations in
\nthe assessment of the PTP managements. If they do not perform
\naccording to the prescribed parameters, they should be replaced
\nimmediately,\" Hastjartjo said.<\/p>\n
But the parameters should be clear cut and make a lot of
\nbusiness sense, he said.<\/p>\n
Poor management<\/p>\n
Poor management and low PTP productivity, for example, have
\nbeen reflected in a low oil palm yield, estimated to be 25
\npercent lower, and rubber yield 15 percent less than at the
\nestates managed by private plantation firms.<\/p>\n
Their tree crop planting costs and the capital costs of
\nprocessing mills are 20 to 25 percent higher than at private
\ncompanies.<\/p>\n
That does not mean, however, that all the PTPs are losing
\nmoney. In fact, as an official of the PTP Administration Bureau
\nat the ministry of agriculture claims, the majority of them have
\nalways made some profit.<\/p>\n
Nonetheless, the PTP returns on investment are quite low,
\nestimated at an average of only 5 percent.<\/p>\n
\"The PTP performance is even poorer if it is assessed in terms
\nof the opportunity cost of capital,\" the analyst noted.<\/p>\n
The latest estimates put the PTPs total plantation area at 1.5
\nmillion hectares, 20 percent of which have planted sugarcanes
\n(mostly in Java) and the other 80 percent with tree crops, mainly
\noil palm and rubber.<\/p>\n
In 1993, the latest available figures, the 26 PTPs recorded
\ntotal sales of Rp 3.5 trillion, of which Rp 1.13 trillion (US$500
\nmillion) were derived from exports.<\/p>\n
Even though their proportional role in the economy has
\ndeclined due to the rapid expansion of smallholdings, private
\nplantations and the manufacturing industry, the PTPs remain a
\nmajor employer with about one million workers.<\/p>\n
Supervision<\/p>\n
As several studies have concluded, PTP supervision has been
\nquite inadequate and ineffective despite the omnipresence of
\nseveral bureaucratic layers of internal and external supervision,
\nincluding those within the agriculture and finance ministries.<\/p>\n
\"The problem is that the PTP directors can always neutralize
\nall those supervisors,\" an agriculture official said.<\/p>\n
Sjarifudin, however, promised that regular inspections would
\nbe conducted at the plantations and processing plants but he did
\nnot comment on the ineffective supervision.<\/p>\n
The main elements of the consolidation program, as
\nrecommended by the studies, are to include: The establishment of
\nindependent, yet highly accountable managements with clear-cut
\nperformance evaluations, incentive systems and independent
\nsupervisors; the decentralization of the decision-making process
\nand the clarification of the roles of the government (notably the
\nfinance and agriculture ministries) and boards of supervisors
\n(commissioners).<\/p>\n
\"One of the main weaknesses that has made the PTP management
\ninert, complacent and oblivious to changes is their closed
\nrecruitment system,\" the official commented.<\/p>\n
He noted that most of the directors who currently manage the
\nPTPs have been so inbred with the old system that they completely
\nlack new ideas.<\/p>\n
\"When our plantations were managed by Dutch companies until
\nthe mid-1950s, even the smallest administration units within a
\nplantation company worked as innovators,\" he said.<\/p>\n
He added, though, that it is not fair to blame all those
\nproblems on the PTP managements. In fact, a great deal of the
\nproblems have been caused by the government itself.<\/p>\n
Conflicting tasks<\/p>\n
The conflicting tasks of performing commercial and social
\nmissions have also been partly responsible for the weaknesses.<\/p>\n
Therefore, the restructuring program has also been designed to
\nreclarify their missions. Under this program, the development of
\nsmallholder plantations will be restored to the directorate
\ngeneral of plantations.<\/p>\n
The PTPs, notably those in North Sumatra, have been greatly
\ncredited with the fast expansion of oil palm smallholdings to a
\ntotal area of around 585,000 hectares in Riau, Kalimantan,
\nSulawesi and Irian Jaya from a mere 5,000 ha. in the early 1980s.<\/p>\n
However, responsibility for the development of smallholders
\nhas overstretched PTP resources. The span of their control became
\nvery weak since the estates under their management are spread out
\nand far away from their home bases.<\/p>\n
Several North Sumatra-based PTPs, for example, manage oil palm
\nplantations as far away as Irian Jaya.<\/p>\n
Analysts find it quite strange that the PTPs, which have
\ndeveloped such tree crops as oil palm and rubber since the 1960s,
\nhave not expanded their business into downstream products,
\ndespite the high volatility of primary commodity prices.<\/p>\n
Oil palm PTPs have always concentrated on producing crude palm
\noil and rubber PTPs crumb rubber.<\/p>\n
Constraints<\/p>\n
\"That shows the extreme lack of commercial sense on the part
\nof the PTP managements due to the external and internal
\nconstraints they encounter,\" another agronomist noted.<\/p>\n
Oil palm has become the most favored tree crop in the country
\ndue to the numerous downstream products which can be derived from
\npalm oil.<\/p>\n
\"But none of the PTPs have even ventured into cooking oil, let
\nalone such higher value-added products as fatty acids, fatty
\nalcohol, fatty esters, fatty amines and glycerines,\" the analyst
\nnoted.<\/p>\n
Since the PTPs depend almost entirely on primary commodities
\nwhose prices tend to be highly volatile their earnings also are
\nvulnerable to price gyrations.<\/p>\n
The analyst blamed the lack of commerciality on the part of
\nPTPs and their complete ignorance of marketing.<\/p>\n
As PTPs sell their commodities through joint marketing
\noffices, individual PTPs are kept in the dark about what the
\nmarket needs. Consequently, individual PTPs are oriented entirely
\ntoward primary commodities.<\/p>\n
Therefore, the abolishment of the joint marketing offices has
\nbeen included in the restructuring program. The marketing
\nresponsibility will be restored to individual PTPs to enhance
\ntheir commercial sense.<\/p>\n
\"This, however, will be possible, only when the individual
\nPTPs have been strong enough with large economies of scale,\" said
\nAbdurrachman Rangkuti, an experienced plantation manager.<\/p>\n
Rangkuti, who is also a member of the House Agricultural
\nCommission, therefore saw it as quite imperative for the PTPs to
\nmerge.<\/p>\n
\"Merging not only will reduce their overhead costs but also
\nincrease their economies of scale to make the PTPs commercially
\nstrong to diversify into downstream products,\"Rangkuti said.<\/p>\n
Some analysts reckon that the government has apparently
\nrestricted the PTPs from entering the downstream industry to
\nallow for greater business opportunities for the private sector.<\/p>\n
This restriction, they say, is not only extremely unfair but
\nalso discriminatory as private companies are fully free to
\noperate plantations and their downstream processing plants.<\/p>\n
The latest study by the World Bank in June, 1993, concluded
\nthat the PTPs are experiencing inertia at all levels. They have
\nbeen hit with what has become known as a guard duty mentality,
\nwhereby directors feel it is preferable to take a \"wait and see\"
\napproach than to generate waves by organizational or productivity
\nimprovements.<\/p>\n
The consequence is that as the PTPs lag in management,
\ntechnology and productivity. Their financial condition has also
\ndeteriorated.<\/p>\n
Analysts contend that if all the elements of the restructuring
\nprogram designed to remove the weaknesses are not implemented,
\nmost PTPs will not be able to sustain viable operations into the
\nnext century.<\/p>\n
Such a fate would be tragic because Indonesia actually enjoys
\nstrong competitive advantages in such agrobusinesses as tree
\ncrops. (hdj\/vin)<\/p>",
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