Guthrie deal finally closed

Guthrie deal finally closed

Common sense has finally prevailed among the politicians from
the major factions in the House of Representatives who over the
last few weeks have joined forces with several local
businesspeople, leaders of farm associations and several non-
governmental organizations to oppose the sale of 25 oil palm
plantations, covering about 260,000 hectares, to Malaysia's
Kumpulan Guthrie Bhd. Now that the political interference has
been removed, the Indonesian Bank Restructuring Agency (IBRA) can
soon close the sale, which was won by Guthrie through a
competitive tender last November.

High praise should go to the officials of IBRA and the finance
ministry who apparently have worked hard at lobbying and
convincing the House of the crucial importance of the deal not
only for the state budget but, even more pivotal, for sustaining
the budding recovery of the entire economy.

Had the political opposition to the deal lasted much longer,
Guthrie might have withdrawn from the transaction, thereby
depriving the government of some US$387 million in sorely-needed
revenue. But a more devastating impact would likely have been a
complete loss of investor confidence in the credibility and
authority of IBRA in disposing of the multi-billion dollar stock
of assets currently under its management, thus dealing a
crippling blow to the agency's efforts to raise at least Rp 27
trillion ($2.75 billion) from asset sales for the 2001 state
budget.

It is not an exaggeration to say that without the timely
disposal of the huge pool of assets which were taken over from
closed, nationalized and recapitalized banks and indebted
conglomerates in 1998 and 1999, the economy will never emerge
from the present crisis. Moreover, the longer the assets remain
under IBRA control, the less will be their economic value.

Take, for example, the 25 plantation companies that were taken
over by IBRA from the Salim Group in 1998 in part payment of its
Rp 53 trillion debt to the government. IBRA has admitted that the
condition of the plantations, which are scattered among several
provinces in Sumatra, Kalimantan and Sulawesi, has worsened due
to lack of investment and working capital. As 57 percent of the
trees are still immature, the estates still need additional
investment and working capital which IBRA cannot provide. New
investors are therefore urgently needed to prevent the assets
from degrading to a total loss.

Even though land is quite a sensitive issue in all countries,
one cannot help but wonder as to why House members, local
businesspeople and NGO leaders came out attacking the sale only
after all the set procedures had been completed. IBRA had
notified more than 90 potential foreign and domestic investors
and related organizations about the tender for the plantations
before the final bidding process was closed.

The deal with Guthrie, which emerged as the winning bidder,
should instead be welcomed as a confidence-building transaction.
A quick profit is certainly not the primary motive for Guthrie in
taking such a plunge into a crisis-plagued country, where the
political and security situation is highly volatile and local
administrations are still only learning how to exercise their
newly-given powers under regional autonomy. Their interest should
be long term, especially now that international palm oil prices
have sunk to eight-year lows.

Obviously, Guthrie's investment in Indonesia, the world's
second largest palm oil producer after Malaysia, is a strategic
move to capitalize on low-cost labor and to sidestep the biggest
barrier to plantation expansion in Malaysia -- the lack of land.
Nothing wrong with that.

The argument that the deal will enable Malaysia to monopolize
Indonesia's palm oil industry is completely groundless. The
plantation companies, even after under Guthrie controlling
ownership, will remain subject to Indonesian laws and government
policies. Guthrie's entry is instead a synergic tie-up with local
plantations as they will benefit from the transfer of better
managerial expertise and the superior planting technology that
has been developed in Malaysia.

Now that the political opposition has been removed and the
transaction will be closed within days, Guthrie should start
working to become a good corporate citizen in each of the
provinces where the plantations are located. But since Guthrie
itself is a big plantation company in Malaysia, we are confident
of its ability to deal with local communities and
administrations.