Erick creates holding SugarCo to cut imports, support energy transition
The State-Owned Enterprises (SOEs) Ministry has finally established its sugar factory holding entity SugarCo or PT Sinergi Gula Nusantara (SGN). The holding formation aims to achieve national sugar self-sufficiency to reduce imports and increase domestic bioethanol production to support the country’s renewable energy target.
SugarCo will take over the management of at least 35 state-owned plantation (PTPN) holdings’ active sugar factories. Its shareholders consist of PTPN Group sub-holdings PTPN II, PTPN VII (PT Buma Cima Nusantara), PTPN IX, PTPN X, PTPN XI, PTPN XII (PT Industri Gula Glenmore) and PTPN XIV, with PTPN III as the majority shareholder.
Indonesia has been dependent on sugar imports to meet its domestic consumption. Without imports, Indonesia would only be producing less than half of the sugar it consumes. The national sugar production in 2020 and 2021 were 2.13 and 2.42 million tonnes, respectively.1 Meanwhile, Indonesia’s national sugar consumption has been sitting at 5.8 million tonnes per year from 2015 to 2021.2
Sugar shortages led to high prices of sugar in the domestic market for the last two years, leading to soaring sugar imports in 2020 and 2021. At the same time, the cost of importing sugar has been increasing. Even though sugar imports decreased by 84,500 tonnes from 2020 to 2021, the total cost of the imports increased by Rp 6.9 trillion (US$446.3 million) from 2020 to 2021. (See What’s more)
The Industry Ministry estimates that SugarCo will need 700,000 hectares of sugar plantations to reach sugar self-sufficiency. The land acquisition to achieve such area is slated for 2028. Meanwhile, after consolidating the assets of PTNP III’s subsidiaries, SugarCo currently only has around 153,000 ha of sugar plantations, only one-fourth of the land needed.3
The government argues that the main obstacle that dampens Indonesia’s sugar output is mismanagement and the lack of modernization of existing sugar plantations. By bringing all of Indonesia’s state-owned sugar plantations under one entity, SOEs Minister Erick Thohir hopes to be able to streamline revitalization efforts.
During a meeting with the House of Representatives last year, Erick used the successful modernization of the Glenmore sugar factory (IGG), which is the factory that refines PTPN XII’s sugarcane, as a reference for how the other plantations can be modernized through consolidation into SugarCo. (Read: Indonesia to establish SugarCo to end refined sugar imports)
Furthermore, during the kick-off event at the national sugar industry revitalization last Monday at Mojokerto, East Java, Erick said that he hoped for Indonesia to become a major global player when it comes to bioethanol production. According to his estimation, SugarCo could potentially produce 1.2 million kiloliters of bioethanol by 2030.4
The formation of a sugar factory holding company has been in the works for a little over a year. At the time, the idea was not considered popular for a variety of reasons, one of which was the high cost. PTPN III president director Mohammad Abdul Ghani said in a hearing with the House on June 2021 that the project would have an estimated capital expenditure of a whopping Rp 23 trillion ($ 1.48 billion).5 At the same time, PTPN III itself was also having issues with its finances and had been in the middle of restructuring its debt since April 2021. Due to the debt restructuring, PTPN III was not able to receive bank loans.
After determining that it was impossible to finance the revitalization of sugar factories using conventional methods, Deputy SOEs Minister II Kartika Wirjoatmodjo pushed a plan for the Indonesia Investment Authority (INA) to become either a main or supporting investor in SugarCo. In addition to the INA, SugarCo has also received financing support from both private and foreign investors. There were some concerns regarding the entry of private and foreign investors into the SOE, but SugarCo has given an assurance that it will always have full control over the stock of domestic sugar.6
Total Sugar Imports
|
Year |
Weight (tonnes) |
Value (US$) |
|
2015 |
3.375 million |
1.256 billion |
|
2016 |
4.761million |
2.09 billion |
|
2017 |
4.484 million |
2.074 billion |
|
2018 |
5.028 million |
1.796 billion |
|
2019 |
4.09 million |
1.365 billion |
|
2020 |
5.539 million |
1.935 billion |
|
2021 |
5.455 million |
2.382 billion |
Source: Statistics Indonesia
Several sources in the government explained that the formation of SugarCo as a holding company of state-owned enterprise (SOE) PT Perkebunan Nusantara (PTPN) is related to the drafting of the Presidential Regulation on sugar self-sufficiency. This plan to accelerate sugar self-sufficiency is rumored to have come from SugarCo itself in order to smoothen its formation.
Even though the name includes “self-sufficiency”, the draft of this presidential regulation will enable SugarCo to monopolize the imports of sugar, starting from the imports of raw sugar to consumable sugar.
A source who was involved in the formation of SugarCo added that the presidential regulation draft was part of the government’s attempts to revitalize the sugar industry. In the early phases, imports will be treated as a stopgap while existing factories are optimized to reach self-sufficiency.
This draft has been protested by many stakeholders, starting from the sugar farmers through to private sugar factories. The reason is that the government in its plan will still be relying on imports to fulfill both consumption and industrial sugar needs. In the plan, farmers are concerned that the sugar factories under PTPN would not be able to absorb their crops. The rivalry between PTPN and private sugar companies has also been intensifying over the years.
One executive of PTPN also mentioned that while SugarCo was being formed, each PTPN was in the middle of making its own spin-off sugar factory. Further down the line, that factory would be consolidated with SugarCo as well and the plan is to operate those new factories with several partners.
Currently, SugarCo is in the middle of doing an asset valuation on 35 existing sugar factories that will be offered to investors. The government hopes that this year SugarCo will have already gathered enough investors to have time to improve the performance of the sugar factories. “There are already four interested investors,” said one of the sources. One of those prospective investors is rumored to hail from Brazil.
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