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.