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FEER: Betting the Farm
By S. Jayasankaran
24/4/2001 8:38 pm Tue
[Guthrie menerokai risiko yang amat tinggi di Indonesia dalam
projek kelapa sawitnya dalam menyahut seruan globalisasi Mahathir.
Ia menang tender dengan menawarkan harga yang terlalu tinggi (saingan
terdekat 40% beda) sedangkan banyak perkara masih tidak pasti -
sehingga perjanjian tidak ditanda tangani lagi walaupun sudah 3 bulan
tender diperolehi. Megawati pula membantah tender itu kerana ia
menggugat kepentingan Indonesia. Bulan ini ada krisis keselamatan
kedutaan Malaysia di Pontianak pula.
Risiko: Harga yang dibayar Guthrie terlalu tinggi sedangkan 44% tanah
itu tidak diusahakan lagi. Tanah itu juga dipajak sementara dalam
jangkamasa pendek 30 tahun sahaja dan tiada jaminan ia akan diperpanjangkan.
Lagipun kira-kira 60 pengurus asalnya telah meninggalkannya untuk berkhidmat
dengan kumpulan Salim.
Apa yang membimbangkan ialah sebahagian daripada tanah itu terletak
di kawasan Aceh dan Sulawesi yang tidak tenteram sehingga hari ini.
Guthrie mungkin ada sedikit pengalaman di Indonesia tetapi tidak pengalaman
ngeri mayat bertebaran yang pasti membuat ramai bingkas lari.
Apa kena mengena Guthrie dengan reformasi? Jawapannya ada dalam pegangan
di dalam syarikat ini.
Betting the Farm
Depressed palm-oil prices have forced state-owned company Guthrie to
take a gamble on Indonesia
By S. Jayasankaran/KUALA LUMPUR and Sadanand Dhume/JAKARTA
WITH PRICES AT EIGHT-YEAR LOWS, increased production costs at home,
and an ageing crop causing lower yields, what's a 180-year-old
palm-oil producer to do? Take a huge dose of risk by investing $350
million in Indonesia, where costs are about as low as you can get.
That's the Guthrie solution, at any rate.
On March 13, the Malaysian state-owned company won an international
tender by bidding $350 million for the right to acquire 25 palm-oil
companies put on the block by the Indonesian Bank Restructuring
Agency, or Ibra. With inherited debt, the real price could be as much
as $390 million. Guthrie is funding the deal with a 1.5 billion
ringgit ($395 million) issuance of Islamic bonds, which will bring its
gearing to 70%.
The move looks extremely risky in the short term. But it could mark
the beginning of a paradigm shift in the way plantations do business.
Palm-oil producers are already beginning to relocate to East Malaysia,
where land prices are much lower than on the peninsula. Plantations
will increasingly find themselves faced with a choice between moving
somewhere cheaper and changing their core business to property
The plan has already run into political problems. The results of the
tender were announced in November, but the deal was not signed until
March. The PDI-P party of Indonesian Vice-President Megawati
Sukarnoputri objected strenuously to the deal on grounds of national
interest. Since the signing of the agreement, farmers' groups have
demanded the right to farm 70% of the plantations themselves and sell
their produce to Guthrie, which has been asked to consider further
commitments to community farming.
People close to the negotiations say it took continuous prodding from
Kuala Lumpur and a meeting between Ibra chief Edwin Gerungan and
Megawati to overcome nationalist objections raised in Jakarta's unruly
parliament--mainly by members of Megawati's PDI-P.
Thomas Lembong, an Ibra vice-president who helped negotiate the sale
of the companies to Guthrie, is confident, however. "A deal is a
deal," he says. Currently, several senior Guthrie executives are in
Jakarta and "just waiting and waiting" because "no one seems to know
what's happening," according to one industry insider. The company's
management declined requests for an interview.
PAYING THE PRICE
If the deal survives the political attacks, it will give Guthrie a
total plantation land bank of more than 380,000 hectares, the biggest
compared with the region's other producers. But the move is still
fraught with tremendous potential pitfalls. First on the list is that
the company may have bid too much for the plantations; industry
insiders say that the second highest bid--from Cargill-Mas--was almost
Second, 44% of the land it is buying has not been planted yet, while
much of the rest is unkempt. The machinery and mills are in need of
maintenance work. Some Malaysian plantation managers say that Guthrie
will have to spend more than 500 million ringgit on refurbishments,
although it could take up to two years for the purpose in order to
lessen the impact on its balance sheet.
The land itself is on a short-term lease of 30 years, with no
guarantees that the leases will be renewed. And around 60 senior
managers have left to work for the land's former owners, the Salim
Group. It's thought that they may have been the pick of the crop. It
also isn't clear if Salim, which remains a powerful force in the
Indonesian plantation industry and controls most of the marketing of
refined palm oil, will cooperate with Guthrie in marketing. If not,
Guthrie may have to go through Singapore or Malaysia, where costs are
Some of the land which the company has acquired lies in the troubled
provinces of Aceh and Sulawesi, although Guthrie is likely to
concentrate on Kalimantan and Sumatra for the time being. Still,
continued political turmoil and the threat of labour unrest may make
running the former Salim plantations a nightmare for Guthrie.
"The whole thing puzzles me," says an Indonesian industry source.
"They are clearly betting the farm on this. They're paying a lot, plus
44% of the land isn't producing. They have a colossal job ahead of
It could be, however, that Guthrie is simply taking a painful reality
check, and that other Malaysian producers may be forced into similar
moves. The Malaysian plantation industry is increasingly
uncompetitive. It already depends on migrants, mainly from Indonesia,
for 60% of its workforce. But its land and wage costs are easily three
times as high as in Indonesia.
Consider the statistics: Guthrie's production costs are 700-750
ringgit for every tonne produced, compared with equivalent costs in
Indonesia of around 400-440 ringgit a tonne. That means Indonesian
companies can still make a profit of almost 100% even at current
prices, which are around 800 ringgit a tonne, although some analysts
foresee a slight improvement later in the year, as supply undergoes a
The price Guthrie is paying for a hectare of land in Indonesia--9,000
ringgit--is equivalent to the price of an acre, or 0.4 hectares, in
peninsular Malaysia. "It's prime land and very, very cheap," says a
Malaysian industry executive. "That's why, given time, Guthrie can
make this work."
The company may simply have no choice. Its attempts at diversification
into manufacturing and infrastructure projects have been dismal. It
has managed to shore up its results to a certain extent by selling
huge tracts of land, and from some initial forays into property
development. Plantations still make up 60% of revenues, which have
been hard hit by depressed palm-oil prices. Guthrie reported net
profits for the year ended December 31, 2000 of 92 million ringgit, a
fall of 63% from the previous year. If there is no recovery in prices,
industry analysts say they will expect to see Guthrie make a loss.
Indonesia holds out the possibility of a fresh start, with improved
yields--the palms are much younger there, with yields which are around
40% greater than that of Guthrie's ageing Malaysian trees. And Guthrie
has some Indonesian experience, with 12,000 fully planted, and
profitable, hectares in Palembang, Sumatra, which it nurtured from
Given that background, along with Prime Minister Mahathir Mohamad's
exhortations to Malaysians to "Think Big," Guthrie seems willing to
accept the risks in the hope of throwing off the mantle of gloom which
has descended on the industry. "It can work but it will require
massive effort and time," says a senior Malaysian plantation
Some observers do not share this optimism. "Frankly, we're hoping that
the deal doesn't go through, "says Noor Azwa Mohamad Noor, a
plantations analyst at the Kaf Research in Kuala Lumpur