Rajawali Looks to Sweeten Prospects by Planting Roots in Papua Food Estate

Rajawali Looks to Sweeten Prospects by Planting Roots in Papua Food Estate

, 18 October 2010


The Rajawali Corporation is in the final stages of securing government approval to seal a deal valued at over $300 million for a sugarcane operation that will help transform Papua’s Merauke into the nation’s breadbasket.

Under the plan, Rajawali unit Cendrawasih Jaya Mandiri is expected to spend up to Rp 3 trillion ($336 million) to set up an integrated sugarcane operation in Merauke. Investments will include securing land and providing infrastructure such as electricity.

If all goes smoothly, the plant is expected to eventually produce 12,000 tons of cane per day.

Rajawali’s move to invest in Indonesia’s eastern outpost coincides with the government’s newly introduced industrial zone status for the region, called the Merauke Integrated Food and Energy Estate.

Under the plan, the estate will have a 1.6-million-hectare food-production zone where companies will grow, process and package their products.

The Mifee is being touted as a site for major foreign direct investment and is expected to provide more jobs and boost economic growth.

The government says the Merauke estate is part of a plan to develop agricultural estates in remote areas such as Papua and Kalimantan so that they can become self-sufficient in food production and eventually become major food exporters.

“It’s just the right move by Indonesian corporations to invest in Papua, as Kalimantan, Sumatra and Java islands have been saturated. Papua is not,” said Juniman, an economist at Bank Internasional Indonesia in Jakarta.

“However, investing in Papua is more expensive given its lack of infrastructure and high labor costs.”

Despite the lack of development and higher costs, large corporations such as Rajawali, Medco Group and the Modern Group are conducting cost-benefit analyses in Papua and eastern Indonesia as a whole.

“We have to support the plans by those companies to make Papua a center of economic excellence,” Juniman said.

Rajawali’s Cendrawasih is competing with other Indonesian business groups to invest in Papua. Arifin Panigoro’s Medco Group, among others, plans to invest in sugarcane to produce ethanol, while the Modern Group has also expressed interest in Papua’s emerging sugarcane industry.

FS Heru Priyono, a director at Cendrawasih, said that despite the competition, big business groups could join forces in certain areas to achieve economies of scale.

There have already been discussions among the groups on how they could combine their resources to invest in the region, he explained.

“Other than competition, we have held a number of discussions on potential cooperative activities,” Heru said, declining to elaborate.

For now, Cendrawasih has planted cane on almost 20,000 hectares of land along and around Merauke’s Biyan River, with the first sugar production expected in 2013.

The initial production target is 140,000 tons of white sugar per year. That would require around 1.75 million tons of sugarcane, Heru said.

Cendrawasih’s white sugar will help meet the gap in production capacity in Indonesia’s sugar industry.

Each year, Indonesia needs five million tons of sugar, half of it used in beverages and other consumer goods.

But Rajawali is not new to Papua.

The company already has palm oil interests on the island, and is now seeking future investment opportunities in the region after selling its substantial investments in national assets.

Rajawali sold its stake in Bentoel International Investama for $494 million last year to British American Tobacco and its 16 percent remaining stake in XL Axiata, formerly Excelcomindo, for $438 million a year before.

Early this year, Rajawali sold its stake in Semen Gresik, which it bought from Mexican cement maker Cemex for $337 million in 2006, for more than $1 billion.

There is much speculation about what Rajawali owner Peter Sondakh plans to do with this pile of cash.

The Jakarta-based conglomerate has set aside more than $1 billion to invest in Papua, Bisnis Indonesia reported recently, citing Darjoto Setyawan, the group’s managing director.

The group plans to spend $400 million in sugarcane, $400 million in mining, $300 million in palm oil and $200 million in hotels, the newspaper reported. Darjoto was not available for comment.

Rajawali, which was formed in 1984, also runs an airline-charter business with three executive aircraft, a local taxi company, plantations and a hotel business.

The sprawling conglomerate owns eight high-end hotels and resorts and manages Indonesia’s second-largest taxi operator, Express Taxi.

As with any other business, Peter’s Rajawali has not always had an easy ride. When the 1997-98 Asian financial crisis hit Indonesia, Sondakh was forced to unload 30 percent of the group’s assets, including Bank Pos.

Its future in the east, however, looks promising.