Djamaloedin shocks investors

Djamaloedin shocks investors

We have often highly commended Minister of Forestry
Djamaloedin Soeryohadikoesoemo in this column for his strong
determination to enforce the principle of sustainable management
among forest concessionaires.

Immediately after his appointment to the cabinet in the middle of
March, 1993, he began cracking down on reckless loggers. He has revoked
the permits for a number of poorly-managed forest concessions and put
them under the management of state forestry companies. He has fined many
others.

He also has earned great praise for his courage in dealing
indiscriminately and firmly with errant forest concessionaires,
including those whom many previously saw as the "untouchables"
due to their strong political connections.

He refused to give a recommendation for the Djajanti Group's planned
share offering. His intervention last year delayed Barito Pacific's
primary share offering in August, 1993, for a few months.

He buckled only when he received a Presidential instruction in June
to set aside an equivalent of around US$185 million of the reforestation
funds collected from forest concessionaires for a loan to the state-
owned IPTN aerospace company in Bandung.

However, his threat not to renew the licenses for the forest
concessions of PT Barito Pacific Timber unless the publicly listed
company transfers 49 percent of its shares to a state-owned company
seems to be not only out of proportion and based on an inaccurate
assessment, but also in danger of doing damage to investor confidence in
the Indonesian stock exchange.

We reckon that, as a career civil servant, Djamaloedin should
have been aware that such a threat could cause the price of
Barito's shares on the stock market to collapse at the expense of
hundreds of thousands of investors, including the Civil Servant
Pension Fund which owns 17.85 percent of Barito. Djamaloedin
surely must know that information is vital for price formation on
the stock exchange.

Yet he made the remarks before the opening of the monthly limited
cabinet meeting on Wednesday, which caused confusion rather than
shedding light on the rumors about Barito that have been circulating
since early this week.

His statement did not explicitly mention which of Barito's 22 forest
concessions are so damaged they must be denied extensions. This
question was answered only yesterday when the forestry ministry
issued a press release apparently meant to clarify Djamaloedin's
remarks. The press statement by the ministry's acting secretary
general states that Barito's own concessions are not at issue,
but rather two concessions owned by PT Aya Timber and PT Yayang
Indonesia, whose relations with Barito are based only on log-
supply contracts.

As it turned out, it was the information from Barito, contained in
its press release of Wednesday evening, that was accurate.

But the damage has been done.

We wonder why a minister could be so careless about such information,
which is quite vital for publicly-traded companies. Moreover, Barito and
its 22 concessions, totaling 2.2 million hectares, had been subjected to
thorough examinations only last year in connection with its planned
share offering.

Even assuming that two of Barito's concessions would not be
extended, we think that could not be used as a legitimate reason for the
government to take over 49 percent of Barito's shares. Moreover, the
government has ruled that forest-based companies cannot count their
forest concessions in their fixed assets because they are owned by the
government.

Still more confusing has been the fact that Djamaloedin did
not explain the procedures through which the government would
take over the 49 percent equity holding it demanded. We think
acquiring a company already listed on the stock exchange must be
subject to clear-cut procedures. We also should take notice of
the fact that Barito, with total assets of Rp 3 trillion (US$1.4
billion), is the largest single company listed on the Jakarta
exchange, with 49 percent of its listed shares (representing 12.2
percent of its total common stock) owned by foreign portfolio
investors.

Djamaloedin's argument that a 49 percent share holding in
Barito would entitle the government to appoint its own man to the
management to ensure sustainable forest management seems to be
weak. The government at present already has a high level official
(Secretary General of the Ministry of Finance Jusuf Anwar) on the
company's board of supervisors and Dadang Munandar Sadikin, an
official of the Civil Servant Pension Fund, on the board of
directors.

We do not mean to say that Barito Pacific is a "lily white"
company regarding its forest concession management. We think
nonetheless that the way the government settles its dispute with
Barito has the potential to influence the confidence of domestic
and foreign investors in the Indonesian stock exchange and the
economy in general.