Govt still controling PTP Agrintara

Govt still controling PTP Agrintara

JAKARTA (JP): The debut of state plantation companies in
developing downstream industries through their jointly-owned PTP
Agrintara seem to be beset with government intervention, cost
overruns and project delays and questionable deals.

Documents related to Agrintara's two industrial projects and
other business operations obtained by The Jakarta Post reveal
that even though Agrintara has been granted a quasi private
business status by the finance minister it cannot escape heavy
government intervention, notably that of Agriculture Minister
Sjarifudin Baharsjah.

The records indicate how Sjarifudin, apparently in a bid to
spur Agrintara's industrial development, often exerted his
influence, sometimes at the request of Agrintara's president, H.
Soeharno himself, on almost every major business decision taken
by its management.

Sjarifudin defended his deep involvement in Agrintara in view
of its important role as the spearhead of state plantation
companies to develop downstream industries.

"I have from the outset been keenly monitoring Agrintara's
industrial projects. I want to ensure that its plants are highly
competitive," Sjarifudin told the Post last week.

However, the documents also record what many agricultural
officials consider great preferential treatment of PT Kalpataru
Semesta, which is controlled by Burhanuddin, reportedly a very
close associate of Sjarifudin.

The corporate memos further testify to the inability of
Agrintara's board of commissioners to perform their function
properly.

Agrintara's first project -- the Rp 36.9 billion (US$16
million) rubber goods plant in Purwakarta, West Java -- suffered
a cost overrun of Rp 7.28 billion and was several months behind
schedule (Post's front page story on May 6).

But Soeharno defended the price escalation as fully
justifiable because it financed the components of the plant which
had previously not been accounted for in the original plan.

"We originally were allowed by the shareholders only to rent
the land for the factory. Since we faced difficulties at getting
bank loans without adequate collateral, we were later allowed to
buy the land," he said.

He added the plant was initially designed to produce ordinary
conveyor belt but market trends required the production of longer
conveyor belt so that the factory building had to be redesigned.

Moreover, he added, since Agrintara obtained bank loans in
rupiah while the project required foreign exchange financing in
Deutsche mark and American dollar, the cost in rupiah increased
as a result of the deutsche mark appreciation.

"We simply did not expect the deutsche mark depreciation in
1993 would reverse so shortly into a high appreciation so that we
did not swap the foreign exchange cost component," Soeharno
argued in justifying the cost increase.

Now its Rp 52 billion palm oil refining and fractionation
project which is being built by PT Kalpataru Semesta on Batam
island, is also threatened with a delay of about seven months and
cost overruns.

Both PT Mestika and PT Kalpataru are controlled by the same
shareholders.

The project's construction management supervisor, PT Mitra
Lestari Alam, reported to PT Agrintara in February that the
project's completion would most likely be seven months behind the
March 7, 1996 schedule, as set in the contract.

Soeharno himself warned PT Kalpataru in a letter dated Dec.21,
1995, saying that the delay could increase the pre-operating
costs and the interest costs during construction.

But Soeharno told the Post yesterday the palm oil refining and
fractionation plant would start trial operations in August
because almost all the plant machinery and equipment had been
installed.

"The contractor is now doing the wiring and piping work,"
added Soeharno, who was accompanied by project manager Dahyar and
Eddy J. Amir, the manager of Agrintara's rubber goods factory.

Siregar also argued in his report to Soeharno in November,
1995 that the price escalation asked for by PT Kalpataru were
quite unreasonable, contending that Rp 52 billion for such a
project with a daily capacity of 1,000 tons was already high.

Uncompetitive

Siregar further argued in his letter to Agrintara's chief
Soeharno that the additional prices would make the capital costs
of the project unusually high and consequently make it
uncompetitive against private olein producers.

Siregar cautioned that the high capital costs, combined with
the high minimum wage in Batam and the shipping costs of crude
palm oil from as far away as North Sumatra to Batam, would make
the plant's products uncompetitive.

Despite the probable delay, and even though the project was
awarded on a turnkey basis, Soeharno approved last November about
US$900,000 and Rp 124 million in additional costs for the project
at the strong objection from the construction supervisor.

"The price escalation was caused by the redesigning of the
first plant to make it efficiently integrated into the second
unit to be built," Sjarifudin said last week in defending the
rationale of the price increase.

Soeharno claimed, however, that the redesigning also resulted
in some cost reduction through better efficiency so that there
had actually not been any increase in the project's costs.

Repeat order

In another move which officials also considered as
preferential treatment of PT Kalpataru, Soeharno late last year
awarded, with prior approval of Sjarifudin, PT Kalpataru a repeat
order for the construction of the second line to the first palm
oil plant.

The second palm oil project, also designed with a daily
capacity of 1,000 tons, was first proposed in April, 1995, at a
cost of Rp 35.2 billion.

However, Sjarifudin notified Finance Minister Mar'ie Muhammad
later in November, 1995, that the cost of the project should be
revised upward to Rp 45.05 billion because the previous proposal
did not take into account the interest costs during construction,
the costs of a packaging unit and housing for employees.

"If Agrintara wants to play a significant role in stabilizing
the cooking oil price, its palm oil refining and fractionation
plant should be expanded right from the outset," Sjarifudin
argued.

Earlier in July, 1995, Soeharno raised the eyebrows of many
agricultural officials when he proposed in a letter to Minister
Sjarifudin that Agrintara be allowed to set up joint-venture
trading companies in Indonesia and Singapore to facilitate the
marketing of its products.

Once again, PT Kalpataru and Burhanuddin were in the
limelight.

Soeharno proposed that PT Kalpataru and Focor Trading Ltd. be
appointed as Agrintara's shareholding partners in the two joint-
venture trading houses and that Burhanuddin of Kalpataru be
appointed a director in the planned trading house in Singapore
and a supervisor (commissioner) in the one in Indonesia.

"I see trading houses as necessary to help Agrintara to market
its products," Sjarifudin noted.

He argued that since the professional experiences of most of
Agrintara's executives were in plantation management (as
planters) they will need a change in attitude to become good
marketing professionals.

Soeharno said Agrintara needs a marketing arm to sell its CPO-
based products from Batam, arguing " we are quite new in this
downstream industry so that we need a strategic partner with a
lot of experiences and extensive distribution networks."

"We are now finalizing the incorporation documents," Soeharno
said yesterday.

He said Focor Trading Ltd. was chosen as a strategic partner
because of its long experiences in the marketing of CPO-based
products in Indonesia and overseas.

Focor Trading Ltd. is the Hong Kong-based trading subsidiary
of PT Arthasolid which itself is a unit of the Arthagraha group,

However, Soeharno did not want to comment much on PT
Kalpataru's role in the joint venture trading companies, saying
the company was recommended by Focor Trading Ltd./PT Arthasolid.

But Arthasolid's Executive Director Eddy Rinaldi told the Post
yesterday his company had no relations whatsoever with PT
Kalpataru.

"But you should realize that a strategic partner could mean
many things. It should not always contribute directly to the
business. But it might help provide access to facilities or other
things that contribute to business operations," Rinaldi said in
referring to PT Kalpataru's participation in the joint venture
trading companies.

CPO allocations

Soeharno suggested to Sjarifudin in August, 1995 that
Agrintara be given crude palm oil allocations to allow adequate
time for the company to gain marketing experiences.

In November, Sjarifudin, ordered the Joint Marketing Agency of
state plantation companies to give Agrintara 30,000 tons of crude
palm oil a month starting in December.

On Jan. 24, 1996, Soeharno again asked Sjarifudin to intervene
in the Joint Marketing Board to enable Agrintara to get its
January and February crude palm oil allocations at a preferential
price similar to the one granted to the National Logistics Agency
(Bulog) as the stabilizer of the cooking oil price.

Sjarifudin immediately fulfilled the request, asking the Joint
Marketing Board to sell Agrintara 30,000 tons of crude palm oil
every month below the market price.

Sjarifudin confirmed that the allocations had been granted to
give Agrintara the opportunity to gain marketing experience
before its plant in Batam went on stream and, at the same time,
to help stabilize the cooking oil price.

"However, starting this month (May), they have to pay the
market price for their crude palm oil allocations because the
cooking oil prices seem to be stable ," Sjarifudin added.

However, Soeharno said Agrintara could not get CPO allocations
fully at the volume recommended by Sjarifudin because the
marketing board simply had no stocks.

"We began to get CPO allocations only in January at a volume
of 10,000 tons. Because we had not time to arrange their refining
we simply resold the CPO to private cooking oil companies,"
Soeharno added.

Agrintara, he said, got 20,000 tons in February and 15,000
tons in March which were toll-refined at the factories of the
Sinar Mas and Bukit Kapur Reksa plants.

"The olein from these CPO allocations enabled us to gain
marketing experiences and to start developing distribution
networks," he said.

Soeharno admitted keen competition in the domestic olein
market because Agrintara has to compete with such major producers
as the Sinar Mas, Bimoli, Musi Mas and Bukit Kapur Reksa groups.

Documents show that PT Agrintara's board of commissioners was
opposed to such preferential treatment because they saw that kind
of business practice as being incapable of teaching the company
the hard lesson of doing business.

The commissioners argued that Agrintara's request for
"marketing experiences" was entirely unreasonable because the
marketing agencies of state plantation companies -- the Joint
Marketing Agency, Indoham GmbH in Hamburg and PTO Commodities
Ltd. in New York -- still operate.

But Sjarifudin's approval made the commissioners' opposition
meaningless.

H.S. Dillon, who until January was a commissioner at PT
Agrintara, said he would not comment on that company as he was
now an outsider.

However, Dillon admitted that Agrintara's board of
commissioners had been rendered ineffective right from the
outset. (vin)