Govt plans to turn Bulog into a conglomerate

Adianto P. Simamora, The Jakarta Post, Jakarta

Following the change of the State Logistic Agency's (Bulog) status to a semi-profit-oriented state company (Perum), Bulog has transformed its business strategy from the short-term to the long-term with the aim of becoming a conglomerate, but the plan has drawn mixed reactions from analysts.

With its new status, Bulog is allowed to run commercial activities both in the upstream and downstream, aside from its main task of strengthening much-needed food security in the country.

According to a paper written by Suyitno Afandi, the deputy for logistics and tourism affairs at the State Ministry of State Enterprises, Bulog, in the downstream, will enter commercial businesses such as hotels, the property sector, gas stations, education, hypermarkets and cargo forwarding.

In the upstream, said Suyitno, Bulog would establish a food estate and set up modern large-scale rice mills and several other mills for crude palm oil, wheat and processed food.

In addition, based on government regulation No.7/2003 on the establishment of Perum Bulog, the government can also assign Bulog to do anything.

Bustanul Arifin, an economist from the Institute for the Development of Economics and Finance (Indef), said he was worried that these big tasks would only make it difficult for Bulog to focus on its main job of maintaining the country's basic food supply.

"For me, it is an extraordinary business plan, but I am worried that it will hamper Bulog's main job. This huge task would create new controversies in the future," Bustanul told the Jakarta Post.

He said Bulog had to first improve its corporate culture from the bureaucratic-minded before eying commercial activities.

He said the government should also clearly define commercial and public activities as well as make special assignments for Bulog.

With regard to the government's assignment, for example, one of the much-debated problems is the appointment of Bulog to purchase four Russian-made Sukhoi jet fighters and two Mi-35 helicopters under a countertrade deal.

Minister of Industry and Trade Rini Soewandi recently tasked Bulog, which is now under the State Ministry of State Enterprises, to execute the US$129 million countertrade deal between Indonesia and Russia.

But the deal has caused quite a controversy following Bulog's demand that the government reimburse it for the $26 million down payment for the military equipment.

The House of Representatives has barred the government from reimbursing the agency and has even set up a special committee to investigate possible irregularities in the process leading to the countertrade deal and the appointment of Bulog as the executor of the deal.

As a matter of fact, Bulog has been dogged by numerous controversies since its establishment in the late 1960s to stabilize the price of farmers' unhusked rice and to distribute rice.

Throughout the three-decade-long administration of former president Soeharto, the agency developed into a very profitable state agency holding the monopoly in the importation of several basic commodities, including wheat, sugar and soybeans.

During that time, it become a cash cow for government cronies and the political elite to finance political and business interests.

Bulog's exclusive rights were rescinded by the government in early 1998 at the request of the International Monetary Fund (IMF), but the agency continued to stir controversy thereafter.

After Soeharto's era, a number of the country's top figures have been disgraced due to scandals related to the funds from the agency, including former president Abdurrahman 'Gus Dur' Wahid, former minister of industry and trade Rahardi Ramelan and incumbent House Speaker Akbar Tanjung.

An audit conducted by Arthur Andersen in 2000 revealed that Bulog lost some Rp 6.7 trillion between April 1993 and March 1998, due to unfavorable business contracts, irregularities and weak supervision.

Thus far, the public remains in the dark about the amount of funds owned by Bulog as the government has so far not unveiled them. As such, most people do not know whether it has the financial capability to finance the new business plan.

Meanwhile, noted agriculture expert H.S. Dillon was not entirely opposed to Bulog's new business plan, but he said the agency should first focus on its core task of maintaining the country's food security.

"It is not a problem if Bulog wants to do commercial activities but they have to first fix its core task," Dillon told the Post.

He added that the planned commercial activities had to be also carried out in remote areas where the private sector was still hesitant about developing the same business.

List of Bulog's "victims"

Abdurrahman 'Gus Dur' Wahid: In July 2002, the People's Consultative Assembly (MPR) impeached then president Abdurrahman "Gus Dur" Wahid, despite the police dropping all charges against him involving Rp 35 billion of Bulog's money. The case is better known as Buloggate I.

Akbar Tanjung: In August 2002, the Central Jakarta District Court sentenced House of Representatives' Speaker Akbar Tanjung to three years in jail for misappropriation of Rp 40 billion in Bulog funds. The High Court upheld the district court's decision in January 2003, but until now Akbar is still free. The case is better known as Buloggate II.

Hutomo 'Tommy' Mandala Putra: In November 2000, Tommy was sentenced to 18 months in jail for his involvement in a Rp 5.2 billion land exchange deal with Bulog. Tommy, however, absconded until November 2001. Tommy is in prison for the murder of supreme court judge M. Syaifuddin Kartasasmita.

Megawati Soekarnoputri: The House of Representatives has set up a special committee to investigate the purchase of four Russian-made Sukhoi jet fighters and two Mi-35 helicopters. The move is seen by many as an effort to damage President Megawati Soekarnoputri's reputation ahead of the 2004 general election. The case is better known as Sukhoigate, but some have started calling it Buloggate III.