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Govt injects Rp 50 billion to revitalize state sugar firms

The Industry Ministry has agreed to inject Rp 50 billion (US$5 million) to state owned sugar makers in a bid to revitalize the sugar industry and to attain self-sufficiency by 2014. The fund will be distributed in the form of 10 percent subsidy for every purchase of new machinery by nine state sugar companies. The nine companies include PT Perkebunan Negara and subsidiaries, PT Rajawali Nusantara Indonesia and subsidiaries, and PT Madu Baru - a joint venture between the Yogyakarta Sultanate and the government. "I am confident that sugar production will increase rapidly this year due to the revitalization project and the good price of sugar nowadays which *has* reached around Rp 7,500 for a kilogram of sugar," said Director General for Plantations Ahmad Manggabarani on Monday. Ahmad was present at the Industry Ministry to represent the Agriculture Ministry in the signing of an agreement for the distribution of funds with the Industry Ministry. The government subsidy does come with a condition. Director General for Metal, Machinery, Textiles and Miscellaneous Ansari Buchari said machines purchased by the companies must be entirely assembled in Indonesia and with a minimum 40 percent local content. Under the scheme, the companies must first buy the new machines and then request reimbursement by the Industry Ministry, with validation by the Agriculture Ministry. Currently Indonesia has at least 58 sugar refineries relying on machines generally older than 20 years and with each refinery able to produce 3,000 tons per day. The machines in refineries nowadays are only able to produce 7 percent of sucrose content from the sugar cane crop, meaning that from 100 kilograms of sugar cane, the refineries can only make 7 kilograms of sugar, Ahmad explained. "With the revitalization, government hopes that the machines would be able to produce at least 8 percent of sucrose content from sugar cane crops," Ahmad said. On average, the use of new machines would boost production capacity per existing unit to 3,200 tons per day and also help the companies to improve energy efficiency.

Ahmad Manggabarani said the local sugar industry was aiming to supply national household demand (about 2.7 million tons last year). In line with the revitalization program, national sugar production was forecast to reach 2.9 million tons this year, said Ahmad. As for industries that rely on refined sugar as raw material for their production, they rely on imports. By 2014, he said, the government hopes that the country can become self-sufficient for sugar for all domestic demand, both for households and for industrial use. Ahmad said that improving efficiency in sugar refineries is the key to reaching selfsufficiency. (mrs

State refineries inefficiencies disadvantage sugar farmers

Inefficiencies in state sugar refineries have become the main problem causing big disadvantages for sugar farmers, an association says. Chairman of the Association of Sugarcane Farmers (APTRI), Abdul Wachid, said Thursday that the inefficiencies were found in all stages of the sugar production process. "*In developed countries* it takes only six hours to process sugarcane. But in Indonesia it could take three days due to the low capacity of the sugar refineries", said Abdul. The time lapse has put the quality of sugarcane at stake and in the end it also affects the price, Abdul said. In an efficient system, refineries can produce at least 13 kilograms sugar out of 100 kilograms sugarcane; but Indonesia can only reach a maximum of 7 kilograms. Corporate secretary for state sugar company PTPN XI Adig Suwandi agreed that stateowned refineries faced greater problems of inefficiency problem when compared to local private companies, whereas the sugar refining industry is still under state domination. There are only nine private sugar refineries out of 59 sugar refineries in the country. According to Adig, last year the state refineries were only able to produce an average of 5.48 tons of sugar from a hectare of sugarcane plantation, compared to an average of 6.90 tons in the private ones.

Most state sugar refineries are in Java, and were constructed during Dutch colonial era, relying on machines generally older than 20 years. Each refinery is only able to produce 3,000 tons of sugar per day. The daily demand for sugar reaches 4.2 million tons, according to the data from the Ministry of Agriculture. Due to outdated technology state refineries rely more on workers, leading to higher costs for human resources. "A major sugar refinery using high technology in Australia only has 27 workers, but in Indonesia a small refinery could have about 200 workers," Adig said. The geographic location of the refineries also contributed to the problems of inefficiency. The state refineries in Java rely on sugarcane supplies from farmers. "If the price of sugar is not good enough for the farmers, they would not harvest *or plant* the crop. During these times, the state refineries production will fall," said Adig Most of the private refineries are located outside Java. They could have their own sugarcane plantation, making use of idle land. Therefore, private refineries have more stable and adequate sugarcane supplies, Adig explained.

State plantation company to spend Rp 300 billion on expansion drive

State-owned plantation company PTPN VII will spend Rp 300 billion (around US$26 million) in capital expenditure this year in support of an expansion drive. "We've actually set aside total capital of around Rp 500 billion from our internal cash as well as from state banks, but we will only use Rp 300 billion for this year," president director Andi Punoko told reporters on Wednesday. He said the funds would be used to revitalize a sugar plantation along with the replanting of around 30,000 hectares of rubber plantations and 40,000 hectares of palm oil plantations. The Bandar Lampung-based company had announced that it would expand its plantation areas by 10,000 hectares for rubber, 8,500 hectares for palm oil and 6,800 hectares for sugar cane. The move was part of the company's effort to boost production capacity in its sugar refineries in Cintamanis, South Sumatra, to 7,000 tons per year from the existing 4,000 tons and in Bungamayang, Lampung, up to 10,000 tons from the previous 5,500 tons.

With the expansion plan set to continue beyond this year, Andi said the company had also secured supporting long-term loan commitments of up to Rp 600 billion from two state banks, Bank Mandiri and Bank Rakyat Indonesia (BRI). "Long-term loans with relatively loose requirements from banks are good leverage to fund our activities or expansion plans. This is also an alternative just in case our planned initial public offering (IPO) failed," he said. The company plans to sell a 30 percent stake to raise up to another Rp 1.5 trillion through an IPO later on this year. "We will wait for the market to get better before going public, meanwhile we will use the time to replant and revitalize our plantations" he said. In addition to market volatility, other factors hindering the implementation of the proposed IPO, included various formal and legal aspects, internal preparations, and the current condition of the plantations, according to Andi. PTPN at present has 62,713 hectares of palm oil plantations, 55,617 hectares of rubber, 18,780 hectares of sugar cane and 1,580 hectares of tea in Lampung and Palembang, South Sumatra. (fmb)