RI woes cast doubt on Guthrie plantation deal

RI woes cast doubt on Guthrie plantation deal

KUALA LUMPUR (Reuters): Land disputes, demands for a greater
share of revenues by local governments and security problems are
throwing into doubt Malaysia's Kumpulan Guthrie Bhd.'s purchase
of Indonesian oil palm plantations, industry sources said on
Thursday.

Indonesia said last month the around US$370 million deal for
25 plantations once owned by the troubled Salim Group had been
finally closed after weeks of delays and repeated calls for the
Indonesian Bank Restructuring Agency (IBRA) to review the deal.

But then last week, Indonesia Finance Minister Prijadi
Praptosuhardjo proposed setting up a team to review the sale. He
said sale proceeds, which the central bank had planned to spend
on buying rupiah to help the battered local currency, should not
be used yet.

Analysts say any review would further weaken already waning
investor confidence in the troubled country.

"We prefer (Guthrie) not to go ahead with the acquisition,"
said Noor Azwa Mohd Noor, an analyst at KAV Research Sdn. Bhd. in
Kuala Lumpur, in view of the various problems Guthrie is likely
to face in Indonesia.

Critics have expressed concern the deal would lead to foreign
domination in the country's lucrative palm oil industry. Some
even asked for the deal to be canceled.

"If the deal can't be canceled, Guthrie should be willing to
offer 70 percent of the shares for (farmers) as promised by Salim
when it first developed the plantations," said Siswono
Yudohusodo, chairman of the Indonesian Farmers Association.

"I am very worried that bigger problems will erupt if Guthrie
refuses to do that. This will slap the government in the face,"
he said in Jakarta.

Commenting on news of a possible review in the deal, Guthrie
said in a statement to the Kuala Lumpur Stock Exchange recently:
"We wish to reiterate... the sale and purchase agreements remain
valid and binding."

Some traders in Malaysia said such a review would further
undermine waning investor confidence in crisis-hit Indonesia, the
world's second largest palm oil producer after Malaysia.

"This will shake anybody's confidence. Who will come and
invest in Indonesia after this," said Nakul Rastogi,
international trading manager of Pacific Inter-Link Sdn. Bhd. in
Kuala Lumpur.

The Guthrie deal was IBRA's second biggest sale after the
around $506 million it received from selling its stake in
Indonesia's largest car maker, Astra International in 1999.

Salim was once Indonesia's biggest conglomerate and was headed
by a close associate of former President Soeharto, who stepped
down in disgrace amid the worst economic and political crisis in
decades.

The plantations cover 265,777 hectares and are located in
Aceh, Jambi, Riau and South Sumatra provinces on Sumatra, central
and South Kalimantan and Central Sulawesi. Guthrie has 110,000
hectares of palm oil holdings in Malaysia and much of its
revenues come from palm oil.

Industry sources say one of the main problems Guthrie will
face is unresolved land acquisition, in which small farmers claim
their land has been taken by politically well-connected
plantation companies without proper compensation.

After Soeharto's downfall in 1998, many farmers claimed back
their land in sometimes violent clashes with plantation staff,
while the economic crisis sparked widespread looting.

Bambang Warih Koesoema of the Social Democratic Union, an
organization dealing with local farmers, warned of more problems.

"It's time for the government to pay back what it had taken
from the people. People are now very sick and tired. They are
very emotional. If their rights are violated again, you know what
will happen," he said.

"Long before the government decided to sell ex-Salim
plantation to Guthrie, I asked IBRA to give a chance for people
in Riau to buy the plantations located in Riau," said governor
Saleh Djasit.

"IBRA should have taken the opportunity to improve the welfare
of the local people by selling (plantations) to them. IBRA
ignored this because it is obliged to get the money for the
state," he said without elaborating.