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| June 5, 2001 | atimes.com | ||
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Southeast Asia
Indonesian 'done deal' not quite done By Bill Guerin JAKARTA - Six months after selling off 265,776 hectares (656,500 acres) of oil palm plantations scattered over the provinces of Aceh, Riau, Jambi, South Sumatra, Central Kalimantan, South Kalimantan and Central Sulawesi, Indonesia now wants an independent audit of the controversial US$368 million deal with Malaysia's Kumpulan Guthrie Bhd. Guthrie, the winning bidder last November, bought 24 plantations and took over Rp 500 billion ($43 million) of debt. Indonesian Bank Restructuring Agency (Ibra) chairman Edwin Gerungan explained that the review of the deal follows demands from legislators, who questioned the fairness of the pact. Ibra took over the plantations, formerly owned by the Salim Group, in 1998 as part collateral against the conglomerate's Rp 53 trillion debt to local banks that were nationalized during the economic crisis. Ibra, at the time, must have been well pleased to be rid off these diverse assets where less than 50 percent of the trees were mature, and the estates were crying out for investment and working capital to prevent the value of the Ibra inheritance from degrading to a total loss. Certainly the investment gave Guthrie the strategic ability to capitalize on low-cost labor and overcome their biggest problem at home in Malaysia - the lack of available land. With crude palm oil prices near eight-year lows due to a massive oversupply, increasing Indonesian holdings to benefit from the lower labor costs in Indonesia mirrors earlier strategies when Guthrie and Sime Darby Bhd, both controlled by Malaysia's government investment arm Permodalan Nasional Bhd, bought Indonesian plantations amid rising costs of labor and land shortages at home. The Malaysians know that a less productive workforce in Indonesia, rampant smuggling and poor infrastructure in some provinces will be offset by the greater output from the younger Indonesian palm oil-producing trees. Charges that the deal was an opening for Malaysia to monopolize Indonesia's palm oil industry make no sense as the Guthrie controlling ownership does not allow them to be above Indonesian laws and unaffected by government policies. Indonesia is the world's second largest producer of crude palm oil after Malaysia and both countries have been involved in fierce competition in the palm oil market, but Malaysia has superior planting technology and the Guthrie deal, if freed from land ownership issues, could benefit Indonesia. In any event, both countries are planning an alliance to boost sagging international prices. Malaysia's Primary Industries Minister Lim Keng Yaik has been to Jakarta to establish the basics of a marketing cooperation. Indonesia should still remain competitive in palm oil in the medium term because land leases and labor costs are much cheaper than in Malaysia and the land available for palm oil plantations is enormous. This competitive cost structure is unlikely to be affected by Guthrie's entry. The somehow inevitable controversy over the deal arose in February at a time when hopes were high that closing the Guthrie deal would inspire increasingly skeptical foreign investors to look again at opportunities in Indonesia's battered economy. Legislators said the sale could create political and security problems in Sumatra and other provinces and criticized Ibra for having neglected the social and political impact the deal could have locally. They wanted a review or even a cancellation of the deal. The House of Representatives commission IX on state budget and finance questioned Ibra on the deal. Said legislator Rizal Djalil during one hearing. "The implications of Ibra's decision are huge ... It could create instability in Riau and other areas. You should have been sensitive to this kind of thing," he complained Ibra in turn announced a delay of several weeks on the transaction process. Once again, as with Chandra Asri, (A case study The FSPC groups several economic ministers and oversees the country's major bank and corporate restructuring program. Ibra needs approval from the FSPC for transactions valued over Rp 1 trillion. Guthrie CEO Abdul Khalid Ibrahim remained upbeat, telling reporters in Kuala Lumpur "It's an international deal ... so Kumpulan Guthrie and Ibra are both working and acting in good faith. We are as committed as Ibra." Guthrie will divest up to 10 percent of the shares in the palm oil plantations to employees and plans to go public in Jakarta within a period of three to five years, offering a 20 percent stake to the public. In March, Vice President Megawati Soekarnoputri, in a rare foray into the limelight, called on Ibra to renegotiate the sale and was even quoted as saying it was not yet final. Several Ibra officials quickly warned that canceling the transaction with Guthrie could further erode international investor confidence in the ailing economy and would also destroy the credibility of Ibra when selling other assets. The chairman of the Indonesian Farmers' Association (HKTI), Siswono Yudhohusodo, took up Megawati's theme, saying the HKTI had asked Ibra to renegotiate several aspects of the sale, and to ensure that Guthrie would gradually surrender 70 percent of its plantations area to farmers. He was referring to the obligation of large plantations to develop them under the so-called "plasma" scheme where 30 percent is held by the company and the remaining 70 percent is owned by farmers under a credit program funded by the company which allows the farmers to later sell their harvest to the company for processing. Siswono did not stop there, raising the heat by reminding Guthrie that if they ignored the regulations, they would face "dangerous social problems" in the long term. The HKTI contended the Guthrie deal was engineered in such a way that local investors had little opportunity to contend in the Ibra tender, which they said lacked transparency. This in spite of the fact that Ibra had notified more than 90 potential foreign and domestic investors and related organizations about the tender for the plantations before the final bidding process was closed. The complaints emanated mainly from wealthy Riau, and a delegation of the province's palm oil farmers staged a protest at parliament in Jakarta where they threatened to take over the plantation areas unless they were satisfied with answers from Ibra. A representative from Riau province said the land formerly belonged to the local community, but that in 1992 ownership was forcibly shifted to conglomerates such as the Salim Group. "Now it is time to regain our lands," he warned. Conglomerates faced with such protests in the past always claimed that the protesting farmers were merely squatters on state land. The relevant regulations, unsurprisingly, are ambiguous, allowing those with money to secure an interpretation in their favor. Government regulation 24/1997 on Land Registration states that occupation of land for 20 years or more is considered to equate to ownership, provided the appellant has acquired the land legally and in good faith, and no objections are raised by others (including the government) during that period. However, many past cases show that farmers who had occupied land for 40 years or more could still be evicted as squatters to make way for development projects. A Wahid administration regulation in 1999 acknowledges the communal land rights of traditional communities (hak rakyat) and supports the principle that communal land can only be used with the approval of the community. Another regulation limits corporate ownership of plantations to 20,000 hectares in one province, and 100,000 hectares nationwide, aiming to move ownership of the country's land resources to common people from the hands of conglomerates. Although the area being purchased by Guthrie exceeds these limits, Coordinating Minister for the Economy Rizal Ramli stressed from the outset last December that the regulation posed no problem for the deal. "I have told Ibra that we will not make a problem out of this. What has been transacted will not be disturbed," he said. Illegal "land-grabbing" of plantation land belonging to state-owned companies and private companies by locals claiming ownership of the land has been increasing and the "euphoria" from the new regional autonomy which grants greater powers to provinces and regencies intensified the phenomenon. Guthrie appear unfazed over any possibility that the plantations in Riau are on disputed land, and the provincial administration could at any time decide to support the farmers whose land rights were ignored during the New Order era of Suharto. Ibra, seemingly destined to be forever between a rock and a hard place, is frequently accused of tardiness in liquidating billions of dollars of state assets to help pay off the country's debt, plug the budget deficit and compensate for hefty bank restructuring costs. Just last month Ibra chairman Edwin Gerungan was grilled by legislators during a hearing over the Guthrie sale. What apparently incensed legislators was the fact that Ibra had not formally notified them that the deal had been closed This is Ibra's second largest asset sale after the $1.8 billion it gained from selling its stake in Indonesia's largest car maker, Astra International, in March 2000 and is a crucial part of efforts by the government and Ibra to reach the Rp27 trillion needed to satisfy the 2001 state budget through the sale of state-owned enterprises. Salim itself is Ibra's largest debtor, with its more than 100 companies owing Rp53 trillion. Some politicians, with their own narrow vested interests at heart, appear not to appreciate that without an efficient and speedy disposal of the massive pool of assets inherited from the closed, nationalized and recapitalized banks, and the indebted conglomerates in 1998 and 1999, the economy has little chance of emerging from its present gloom. The logical extension of this is that the longer the assets remain under Ibra control, the less will be their value to the market. The politicians would serve their people and the nation better by delivering a legal certainty in property ownership, the prime concern of any investor considering a country plagued by such political uncertainty. ((c)2001 Asia Times Online Co, Ltd. All rights reserved. Please contact content@atimes.com for information on our sales and syndication policies.) |
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