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Had the political opposition to the deal lasted much longer, Guthrie might have withdrawn from the transaction, thereby depriving the government of some US$387 million in sorely-needed revenue.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.