Plantation firms merged

Plantation firms merged

The merger of the 26 state plantation companies (PTPs) was finally completed on Monday, almost two years after the firms were to be realigned into nine groups in May, 1994, in the first phase of what the government calls the overall reform of the PTPs. Additional changes made after the grouping resulted in the establishment of 14 PTPs (called PTP Nusantara), instead of nine as originally planned. The changes were made after the ministry decided to separate the PTPs in Central and East Java which produce sugar-- a commodity controlled by the government-- from those which cultivate other crops, and to set up two completely new PTPs in Kalimantan and Riau in the central part of Sumatra.

Minister of Agriculture Sjarifuddin Baharsyah said merging the PTPs was designed to improve management and to strengthen the structure and efficiency of the plantations to enable them to eventually qualify for stock exchange listings.

Sjarifuddin, however, did not state what further reforms will be taken. Hopefully, the government will not consider the merger as the completion of the reform process. The merger should be only one component of the PTP rehabilitation.

Several other factors are more crucial to improving the PTPs' efficiency and competitiveness. The state companies will have to compete against private plantation companies and those in other ASEAN countries, notably Malaysia and Thailand, when the ASEAN free trade area starts in 2003.

The merger will not improve efficiency and competitiveness if the new PTPs are not granted management autonomy with clear-cut performance evaluation and incentive systems, as well as independent supervisors. The new PTPs will not achieve this main reform objective if the ministries of finance and agriculture, and the local administrations continue to intervene in the companies' daily operations.

Hence, further reforms should include the decentralization of the decision-making process in PTPs, and the clarification of the roles of the Ministry of Finance, the Ministry of Agriculture, and the board of commissioners. Of no less importance is relieving PTPs from their conflicting social and commercial tasks -- a main reason the plantations are inefficient.

If PTPs continue to be shackled by several layers of bureaucratic supervision the managers will become inert and complacent.

At present, the management of a PTP is required to deal with external supervisors at the special bureau of state companies at the agriculture ministry and the Directorate General of State- owned Companies at the finance ministry, and the internal board of commissioners. How a PTP manager can concentrate on leading the company while answering to so many different supervisors is beyond comprehension. No wonder the World Bank, local agrobusiness researchers and the association of plantation companies all conclude in recent studies that PTP production costs are between 35% and 50% higher than those of private plantations companies.

It is therefore imperative the managers of the 14 new PTPs be granted full management autonomy. External supervision should be limited to the assessment of the five year corporate working plan, individual annual working programs, and the individual annual reports which have been audited by the Government Audit Agency. Daily supervision need only be done by the board of commissioners.

This reform would relieve PTP management from its bureaucratic chains and enable it to achieve the government's objectives.