Bakrie palm oil production growth curbed by debt

Bakrie palm oil production growth curbed by debt

SINGAPORE (Dow Jones): Indonesia's PT Bakrie Sumatera Plantation doubled its palm oil production last year from 1998, Chief Financial Officer Ambono Janurianto told Dow Jones Newswires late Tuesday.

However, the company's debt restructuring program has thwarted any further palm oil processing capacity expansion. It means the plantation concern will have to sell twice the amount of fresh fruit bunches this year, giving up nearly four times the value added from selling crude palm oil, said Ambono.

Bakrie Sumatera sells fresh fruit bunches at Rp 225 a kilogram, which Ambono noted is only 10 percent of the price of CPO.

CPO was quoted Tuesday at Rp 2,311/kg, FOB Medan.

Fresh fruit bunches can yield 20.5 percent-22 percent of CPO, depending on the fruit, said Ambono.

That means one metric ton of fresh fruit can produce 210 kg of CPO.

"Unfortunately, we have to sell it (fresh fruit bunches) because we don't have enough capacity to process it into CPO because we aren't allowed to expand by the bank," Ambono said.

Bakrie Sumatera is in the process of restructuring its US$75 million long-term credit facility with Credit Suisse First Boston, said Ambono.

This year, Bakrie Sumatera is projected to sell 99,000 tons of fresh fruit bunches, compared with 55,000 tons last year, Ambono said. In 1998, the company sold 61,000 tons.

Bakrie Sumatera's projected sales volume of CPO this year is also set to double from 1999 because of its maturing plantations, he said.

CPO sales this year are projected to reach 57,500 tons, compared with last year's 30,700 tons and 19,800 tons in 1998, he said.

Ambono said the production figures for CPO are "more or less the same" as the sales volume.

Bakrie Sumatera's palm kernel sales volume is projected to reach 11,000 tons this year from 7,000 tons last year and 4,000 tons in 1998, he said.

The higher production figures from Bakrie Sumatera's palm oil estates are mainly due to the doubling of hectarage of mature palm oil trees, Ambono said.

In 1999, there were 20,000 hectares of mature palm oil trees. In 1998, the figure was 10,000 hectares.

Another 3,000 hectares of palm oil trees are expected to reach maturity this year, said Ambono.

More and more trees are reaching maturity. The more mature the trees, the higher the yield, he said.

It takes three to four years for palm oil trees to bear fruit.

The yield in a three-year-old plantation is around 15-17 tons a hectare, but can be as high as 26 tons a hectare for seven-year-old trees, he said.

Bakrie Sumatera owns four palm oil plantations, three of which are run by its fully owned subsidiaries.

At its biggest plantation in Kisaran, about 160 kilometers south of Medan in north Sumatra, around 5,000 hectares are planted with palm oil and 17,000 hectares with rubber trees. Bakrie Sumatera's palm oil plantation in Padang, west Sumatra, is run by PT Bakrie Pasamam Plantation, he said.

The Jambi palm oil plantation is run by PT Agro Wiyana and the last, in West Kalimantan, by PT Patriot Andalas, he said.

Bakrie Sumatera has no plans to open new palm oil plantations and will maintain its existing estates, said Ambono. Likewise for its other major commodity, rubber.

"It isn't the time to grow, but to consolidate," he said. He expects CPO prices to be stable this year at current levels, he said.

But CPO prices could fall because many palm oil plantations have expanded their capacity, he said, while demand isn't strong.