PTP Agrintara beset with project delays

PTP Agrintara beset with project delays

JAKARTA (JP): The state-owned PTP Agrintara may lose billions
of rupiah due to the price escalations and delays in the
completion of its rubber goods factory in Purwakarta, West Java,
and palm oil refining and oleochemical plant on Batam island,
officials say.

Agricultural officials involved in the two projects disclosed
to The Jakarta Post that the contract for the construction of the
Rp 36.9 billion (US$16 million) rubber goods factory, which was
signed in early April 1993, required the project's completion
within 630 days.

However, the factory, designed to produce conveyor belts, dock
fenders and dams, started production only in January 1996,
resulting in at least four months of lost sales revenues and
larger interest costs during construction.

"Although the contract did not allow for price escalations,
Agrintara's president H. Soeharno approved Rp 7.28 billion in
additional costs last January," said an agricultural official who
monitored the project.

Agrintara was set up in 1991 by the 26 state plantation
companies (before they were merged into 14 companies in March),
as their holding company for developing downstream industries.

Finance Minister Mar'ie Muhammad decided in 1993 to grant
Agrintara quasi-private company status, thereby freeing it from
the arduous procurement procedures imposed on state companies and
providing it more autonomy and operational flexibility to compete
with private companies.

Agriculture Minister Sjarifudin Baharsjah admitted some delay
in the completion of the rubber plant but he argued "that was
because Agrintara could not immediately open Letter of Credit
(for import procurement) after the signing of the contract."

"Moreover, the project's engineering design had to be changed
to accommodate the latest process technology," Sjarifudin told
the Post on Friday.

He said Agrintara, however, had not paid the contractor the
whole amount of the contract's price.

Nonetheless, he added, the plant has now been operating and is
producing conveyor belts for the State Electricity Company and is
negotiating a similar deal with the state-owned PT Batubara Bukit
Asam coal mining company in South Sumatra, he said.

"Agrintara also is negotiating with the Ministry of Public
Works on a deal to manufacture rubber dams," Sjarifudin added.

Soeharno did not respond to repeated requests for comments.

Project documents show the additional prices granted to the
contractor, PT Mestika Karunia, included Rp 2.35 billion in
foreign exchange rate increases.

"The additional prices due to the foreign currency
appreciation against the rupiah were totally unacceptable because
the job contract clearly stipulated the components of foreign
exchange costs consisting of $4.11 million and DM19.50 million,"
the agricultural official contended.

Soeharno's memo showed that the remaining price escalation
consisted of Rp 1.3 billion for design changes, Rp 2.32 billion
for land acquisition, and Rp 1.25 billion for additional plant
equipment.

"The additional costs simply show how unprofessional Agrintara
has been in planning and designing the project. That will
certainly affect the competitiveness of the plant," the official
added.

He also saw the approval of the cost increase, even though the
contract was awarded on a turnkey basis, as preferential
treatment to the contractor.

"We have tried our best to ensure that Agrintara's projects
were implemented efficiently and effectively to make their
products highly competitive," commented H.S. Dillon, who until
early this year was a commissioner of Agrintara.

He refused to be blamed for the problems currently besetting
Agrintara's industrial projects and declined to give further
comments, saying he had been discharged from the board of
commissioners.

But Dillon added he had provided enough data to Agrintara's
shareholders meeting on Jan. 25, urging them to undertake
fundamental managerial changes in order to ensure project
viability.

Project documents show that the limited tender for the plant
project in February, 1993, got 10 bids from the 13 bidders
invited to take part.

According to reports on the bid evaluation, PT Mestika
Karunia's bid of Rp 37.47 billion was the lowest. The second
lowest bidder was PT Kalpataru with Rp 37.48 billion.

Both PT Kalpataru and PT Mestika are owned or controlled by
the same shareholders, including Burhanuddin as the majority
owner.

Despite the problems with PT Mestika Karunia, Agrintara
awarded in April 1995, PT Kalpataru a Rp 52 billion contract for
building a palm oil refining, fractionation and oleochemical
plant on Batam Island with a daily capacity of 1,000 tons.

"I have checked the tender process and it was conducted
according to the set procedures. It was only a coincidence if
the same company won the two contracts," Sjarifudin said.

PT Mitra Lestari Alam, the construction management supervisor
hired by Agrintara for the palm oil plant project, reported in
February that the completion of the project would be at least
seven months behind the March 7, 1996 schedule. By last November
only 6.4 percent of the 85 percent target had been completed.

However, the delay seemed not to have discouraged Soeharno
from awarding a repeat order to PT Kalpataru to build the second
line near the first plant at a cost of Rp 45 billion.

Sjarifudin recommended to the finance minister in April, 1995
that Agrintara be granted a concessional loan (12 percent
interest) to finance the second palm oil refinery in Batam.

But Mar'ie turned down the request, asking instead Agrintara
to use commercial loans. (vin)