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)