PTPs may not survive into the 2000s
JAKARTA (JP): Some analysts here allege that the team in charge of the second stage of the consolidation process of state plantation companies (PTPs) wants to make the restructuring the end, and not the means, to improve their overall efficiency, productivity and accountability.
They see it as strange that those PTP directors who were sacked during the grouping process in May, 1994, were included in the consolidation team.
However, Agriculture Minister Sjarifudin Baharsjah denied the notion that the restructuring was the only reform measure to raise the efficiency of PTPs.
"You will see additional measures in the future aimed at increasing productivity of plantations and processing mills," he said.
Concerns with the inefficiency and low productivity at the PTPs have increased since the late 1980s when they were no longer granted special treatment and facilities from the government.
As a result, the PTPs have since had to compete on par with private companies.
The problem, though, is that despite the phasing out of the special treatment and facilities, the PTPs remain vulnerable to excessive government intervention, an obvious deterrence to business efficiency.
"The PTP managements should be given freedom to run the business according to normal business principles," Hastjartjo Soemardjan, a senior researcher at the Indonesian Planters Association of Plantation Research and Development (AP3I) suggested.
According to Hastjartjo, PTPs should be freed to develop their own businesses. The government, as the owner, needs only to assess their performance through their annual reports.
"I think there should not be any political considerations in the assessment of the PTP managements. If they do not perform according to the prescribed parameters, they should be replaced immediately," Hastjartjo said.
But the parameters should be clear cut and make a lot of business sense, he said.
Poor management
Poor management and low PTP productivity, for example, have been reflected in a low oil palm yield, estimated to be 25 percent lower, and rubber yield 15 percent less than at the estates managed by private plantation firms.
Their tree crop planting costs and the capital costs of processing mills are 20 to 25 percent higher than at private companies.
That does not mean, however, that all the PTPs are losing money. In fact, as an official of the PTP Administration Bureau at the ministry of agriculture claims, the majority of them have always made some profit.
Nonetheless, the PTP returns on investment are quite low, estimated at an average of only 5 percent.
"The PTP performance is even poorer if it is assessed in terms of the opportunity cost of capital," the analyst noted.
The latest estimates put the PTPs total plantation area at 1.5 million hectares, 20 percent of which have planted sugarcanes (mostly in Java) and the other 80 percent with tree crops, mainly oil palm and rubber.
In 1993, the latest available figures, the 26 PTPs recorded total sales of Rp 3.5 trillion, of which Rp 1.13 trillion (US$500 million) were derived from exports.
Even though their proportional role in the economy has declined due to the rapid expansion of smallholdings, private plantations and the manufacturing industry, the PTPs remain a major employer with about one million workers.
Supervision
As several studies have concluded, PTP supervision has been quite inadequate and ineffective despite the omnipresence of several bureaucratic layers of internal and external supervision, including those within the agriculture and finance ministries.
"The problem is that the PTP directors can always neutralize all those supervisors," an agriculture official said.
Sjarifudin, however, promised that regular inspections would be conducted at the plantations and processing plants but he did not comment on the ineffective supervision.
The main elements of the consolidation program, as recommended by the studies, are to include: The establishment of independent, yet highly accountable managements with clear-cut performance evaluations, incentive systems and independent supervisors; the decentralization of the decision-making process and the clarification of the roles of the government (notably the finance and agriculture ministries) and boards of supervisors (commissioners).
"One of the main weaknesses that has made the PTP management inert, complacent and oblivious to changes is their closed recruitment system," the official commented.
He noted that most of the directors who currently manage the PTPs have been so inbred with the old system that they completely lack new ideas.
"When our plantations were managed by Dutch companies until the mid-1950s, even the smallest administration units within a plantation company worked as innovators," he said.
He added, though, that it is not fair to blame all those problems on the PTP managements. In fact, a great deal of the problems have been caused by the government itself.
Conflicting tasks
The conflicting tasks of performing commercial and social missions have also been partly responsible for the weaknesses.
Therefore, the restructuring program has also been designed to reclarify their missions. Under this program, the development of smallholder plantations will be restored to the directorate general of plantations.
The PTPs, notably those in North Sumatra, have been greatly credited with the fast expansion of oil palm smallholdings to a total area of around 585,000 hectares in Riau, Kalimantan, Sulawesi and Irian Jaya from a mere 5,000 ha. in the early 1980s.
However, responsibility for the development of smallholders has overstretched PTP resources. The span of their control became very weak since the estates under their management are spread out and far away from their home bases.
Several North Sumatra-based PTPs, for example, manage oil palm plantations as far away as Irian Jaya.
Analysts find it quite strange that the PTPs, which have developed such tree crops as oil palm and rubber since the 1960s, have not expanded their business into downstream products, despite the high volatility of primary commodity prices.
Oil palm PTPs have always concentrated on producing crude palm oil and rubber PTPs crumb rubber.
Constraints
"That shows the extreme lack of commercial sense on the part of the PTP managements due to the external and internal constraints they encounter," another agronomist noted.
Oil palm has become the most favored tree crop in the country due to the numerous downstream products which can be derived from palm oil.
"But none of the PTPs have even ventured into cooking oil, let alone such higher value-added products as fatty acids, fatty alcohol, fatty esters, fatty amines and glycerines," the analyst noted.
Since the PTPs depend almost entirely on primary commodities whose prices tend to be highly volatile their earnings also are vulnerable to price gyrations.
The analyst blamed the lack of commerciality on the part of PTPs and their complete ignorance of marketing.
As PTPs sell their commodities through joint marketing offices, individual PTPs are kept in the dark about what the market needs. Consequently, individual PTPs are oriented entirely toward primary commodities.
Therefore, the abolishment of the joint marketing offices has been included in the restructuring program. The marketing responsibility will be restored to individual PTPs to enhance their commercial sense.
"This, however, will be possible, only when the individual PTPs have been strong enough with large economies of scale," said Abdurrachman Rangkuti, an experienced plantation manager.
Rangkuti, who is also a member of the House Agricultural Commission, therefore saw it as quite imperative for the PTPs to merge.
"Merging not only will reduce their overhead costs but also increase their economies of scale to make the PTPs commercially strong to diversify into downstream products,"Rangkuti said.
Some analysts reckon that the government has apparently restricted the PTPs from entering the downstream industry to allow for greater business opportunities for the private sector.
This restriction, they say, is not only extremely unfair but also discriminatory as private companies are fully free to operate plantations and their downstream processing plants.
The latest study by the World Bank in June, 1993, concluded that the PTPs are experiencing inertia at all levels. They have been hit with what has become known as a guard duty mentality, whereby directors feel it is preferable to take a "wait and see" approach than to generate waves by organizational or productivity improvements.
The consequence is that as the PTPs lag in management, technology and productivity. Their financial condition has also deteriorated.
Analysts contend that if all the elements of the restructuring program designed to remove the weaknesses are not implemented, most PTPs will not be able to sustain viable operations into the next century.
Such a fate would be tragic because Indonesia actually enjoys strong competitive advantages in such agrobusinesses as tree crops. (hdj/vin)