RI to build 30 new oil palm mills: Consultant

RI to build 30 new oil palm mills: Consultant

Dow Jones, Kuala Lumpur

Indonesian plantation companies are building about 30 new oil palm mills this year, in an effort to meet a shortage of milling capacity and rising production of oil palm, said Henry Fernandez, a Malaysia-based private consultant to several Indonesian companies.

Tenders for the construction of these milling plants are out and many of the plants are already under construction, including three being built by the Sinar Mas Group, he said.

Indonesia has been facing a shortage of milling capacity as the rapid expansion of new areas under oil palm cultivation prior to the 1997 financial crisis outpaced expansion in the country's milling capacity.

According to Fernandez, a shortage of funds has forced several Indonesian plantation companies to look for investors who can set up palm oil mills on a "build-operate-transfer" basis.

The arrangement usually requires an investor to build the mill and run it for a period of seven to ten years, after which ownership is transferred to the plantation company. The plantation company, on the other hand, guarantees a steady supply of fresh fruit bunches, or FFB, the feed stock for crude palm oil, through this period.

According to private estimates, Indonesia has nearly 300 mills spread over some 16 provinces.

About 240 of these are in Sumatra and nearly 40 in Kalimantan, but Sumatra still faces a capacity shortage, particularly in the peak production months.

Sumatra's mature plantations of about 2.12 million hectares yield about 43 million tons of FFB a year. In other words, the area requires a milling capacity of around 10,320 tons of FFB/hour in peak production months.

The available capacity, however, is only about 9,650 tons/hour, leaving a shortfall in capacity of 256,000 tons of FFB a month, Fernandez said.

The scarcity is getting more severe this year as some 200,000 hectares of newly mature plantations are expected to come onstream, he said.