Tension in RI deters palm oil investors

Tension in RI deters palm oil investors

KUALA LUMPUR (Reuters): Indonesia's political and social
tensions have discouraged many palm oil companies in Malaysia,
where land for cultivation is getting scarce, from expanding
their business in its giant neighbor, industry sources said on
Monday.

More than 10 Malaysian companies set up joint ventures with
their Indonesian counterparts and opened new plantations in
Sumatra and Kalimantan on Borneo island in 1995, but expansions
were frozen due to uncertainties in the world's second largest
producer.

Malaysia is the world's biggest producer and exporter of palm
oil.

"We lost some 100,000 ringgit ($26,315) when our office was
attacked by the Dayaks late last year during riots with another
ethnic group," said an official at a Malaysian firm, referring to
the Borneo's indigenous people in Kalimantan.

"We are not only talking about the economic uncertainty, but
also the political and social problems as well. I believe other
Malaysian companies are adopting the same stance, to put their
expansion program on hold," he said.

The Kuala Lumpur-based official said his company had delayed a
plan to expand the plantation area to 10,000 hectares from the
current 8,000 hectares in West Kalimantan province.

"We are continuing our business there, but whatever expansion
we have planned must be put on hold. We started planting trees in
1996 and expect to harvest the crop this year," he added.

Indonesian government officials could not be reached for
comment on Monday.

Problems in finding new areas and difficulties in hiring cheap
labor had encouraged Malaysian plantation companies to look for
other options, including Indonesia, to expand their businesses.

Malaysia, whose production is projected to rise to 10.8-11.0
million tonnes of crude palm oil in 2000 against 10.5 million
tonnes last year, depends largely on foreign workers to tend the
plantations.

Since 1997, a serious regional financial crisis and the worst
ever in Indonesia, the world's largest archipelago, increased
crime, unemployment and social tension in the multi-ethnic
nation. There were reports of looting at oil palm plantations.
The crisis brought the downfall of former President Soeharto in
1998, during whose administration many agreements between
Indonesian and Malaysian plantation firms were signed.

Indonesia expects output to reach 6.5 million tonnes this year
against 5.9 million tonnes in 1999 as planted areas have grown
and more trees have matured.

Malaysian Deputy Primary Industries Minister Anifah Aman said
Indonesia remained an attractive place to do business despite the
political uncertainty.

"Apart from the political situation...sure they have an
abundance of land and cheap labor compared to Malaysia," Anifah
said, adding that more than 10 Malaysian firms operated in
Indonesia.

"(But) like in every country, they have their own system of
government, so it's just a matter of trying to solve the problems
and sometimes it takes longer...," he said without elaborating.

One source at the primary industry ministry said getting the
permit was among the main problems for Malaysian firms to expand
their plantations.

"The central government may give a go ahead. But when it comes
to the provincial government, the case will be different...they
may refuse to grant permit," said the source.