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.