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)