TEMPO.CO, Jakarta - The government is to set up a sugar industry holding company to achieve self-sufficiency. Assets must not fall into the hands of rent seekers.
The government's plan to establish a state-owned sugar holding company is a sign that it is running out of ideas for how to achieve its ambition for self-sufficiency in this key commodity. This consolidation, which will end in the privatization of state assets, shows the ineffectiveness of a number of previous government strategies to improve the performance of state-owned sugar producers. After efforts to revitalize sugar refineries and machinery came to nothing, the government announced its latest plan to establish Sugar Co. This company is a spin-off from subsidiaries of Perkebunan Nusantara III or PTPN III, which is now a state-owned plantation holding company. Five PTPN III subsidiaries and subsidiaries of subsidiaries will be merged into Sugar Co.
In total, thse companies operate 40 sugar refineries. After the consolidation is complete, Sugar Co-also known as the national sugar industry holding company-will relinquish 35 refineries to invstors with the aim of raising Rp23 trillion. The government claims it has non-disclosure agreements with a number of prospective investors, including those which will come through the Indonesian Soverign Wealth Fund. With fresh funds and skilled investors, the government hopes the sugar industry revitalization program will be accelerated.
There is nothing wrong with the government and PTPN wanting to embrace local and foreign investors to develop the sugar industry. After all, PTPN has not been successful in increasing production. The sugar refinery revitalization program rolled out in the era of Susilo Bambang Yudhoyono simply absorbed funding without producing satisfactory results. It even resulted in corruption. In the era of Joko Widodo, the state injected Rp3.5 trillion of state funds into state-owned sugar refineries, but the increase in production was not satisfactory.
Jokowi also rolled out a program for the construction of new sugar refineries by the private sector. In order to tempt investors, the government provided incentives in the form of quotas for the import of unrefined sugar for a certain period so that refineries could continur to operate if supplies of sugarcane were less than had been planned. But instead of moving toward self-sufficiency, these investors became importers and did not buy sugarcane from farmers.
Problems upstream are no less complex. Productivity from sugarcane fields owned by PTPN has fallen. As a result, domestic show production has never exceeded 2.5 million tons or only half of total consumption.
Intervention from competent investors is indeed needed in order to improve this situation. The problem is that there is still a question mark over the investors. These investors must not simply be rent seekers hoping to take over state assets. It is here that the ability of the government and th sugar holding company will be tested. Will they be able to attract credible investors or not?
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