PALM OIL PLANTATION PROPOSAL

PALM OIL PLANTATION EXPANSION PLAN PROJECT

PT ABC PLANTATION Pasar Pagi Street No.16 North Jakarta Indonesia Phone (021) 6903118 Fax (021) 6903123
Palm oil is the worlds highest yielding oil crop, with an output 510 times greater per hectare than other leading vegetable oils. Combined with historically low prices, relative shelf stability, and reported nutritional benefits (Bethe, 2010), palm oil leverages natural advantages that position it as a likely long-term staple of the global diet. Rapidly expanding populations and changing consumption patterns, as well as increasing demand from the bioenergy and oleochemicals industries, have resulted in sustained high prices for crude palm oil.

Sakura Street No. 23 West Borneo Indonesia Phone/Fax (0561) 732044

PALM OIL PLANTATION PROPOSAL EXPANSION PROJECT PLAN PT ABC PLANTATION

PART A INDONESIAN PALM OIL OVERVIEW

The palm oil industry has the potential to generate significant economic and social development in Indonesia. Palm oil is Indonesias second most successful agricultural product, after rice paddy, and largest agricultural export. It provides a means of income and economic development to a large number Indonesias rural poor. The Indonesian palm oil industry is expected to continue its rapid growth in the medium-term; however, its competitiveness will be negatively impacted by the anti-palm oil agenda. The global market for palm oil has experienced rapid growth in recent decades with current production of palm oil estimated at over 45 million tons. Indonesia is one of the worlds largest producers and exporters of palm oil, producing over 18 million tons of palm oil, annually.

With global demand for palm oil expected to grow further into the future, palm oil offers the most promising economic prospects for Indonesia. World production of palm oil is expected to increase by 32 percent to almost 60 million tons by 2020. Restrictions on the conversion of forests to oil palm plantations Indonesia would reduce the availability of fertile land and impede expansion of the industry. Government policies should aim to improve productivity and not implement anti-growth NGO policies. Palm oil plantation expansion in Indonesia is set to release more than 558 million metric tons of carbon dioxide by 2020, according to a report published Sunday in Nature Climate Change. Thats more than Canadas yearly CO2 emissions.

The study which conducted by researchers from Yale and Stanford examined palm oil plantation development in the Borneo region of Indonesia from 1990 to 2010. Using Landsat satellite images and carbon accounting, the researchers analyzed land cover changes over the 20-year period, estimated the carbon emissions from the plantations and projected the levels of carbon emitted between 2010 and 2020 under Business as Usual and protection scenarios. Heres what they found: In 1990, oil palm plantations covered 903 square kilometers of Borneo by 2010 that number had grown to 31,640 km2. Between 2000 and 2010, forest clearing for
1

PALM OIL PLANTATION PROPOSAL EXPANSION PROJECT PLAN PT ABC PLANTATION

palm plantations contributed to about 57 percent of Indonesias total deforestation. Palm growth occurs on government-awarded land leases, 79 percent of which remain undeveloped. The development of the remaining leases would convert 93,844 km2 of land to palm plantations, 90 percent of which is forested and 18 percent of which is peat land.

Palm oil is Indonesias second largest agricultural product; in 2008, Indonesia produced over 18 million tons of palm oil. For the last decade, palm oil has been Indonesias most significant agricultural export. In 2008, Indonesia exported over $14.5 billion in palm oil related products. 16 Indonesian palm oil industries has experienced significant growth in recent years with approximately 1.3 million ha of new area dedicated to palm oil plantations since 2005, reaching almost 5 million ha in 2007 (representing 10.3 percent of the 48.1 million ha of agricultural land). This substantial expansion is due to higher returns driven by stronger demand. The majority of Indonesias palm crop is located in Sumatra, with over 75 percent of total mature palm area and 80 percent of total palm oil production. 18 Key Indonesian production provinces include West Borneo, Riau, North Sumatera, South Sumatera, Jambi and West Sumatera.

In 2008, approximately 49 percent of palm oil plantations were owned by private plantations, 41 percent by small shareholders and the remaining 10 percent by Government plantations.
2

PALM OIL PLANTATION PROPOSAL EXPANSION PROJECT PLAN PT ABC PLANTATION

Private plantations represent the largest producers of palm oil in Indonesia, producing over 9.4 million tons of palm oil valued in 2008. In the same year smallholder plantations produced 6.7 million tons of palm oil and Government plantations produced 2.2 million tons of palm oil.

By 2020, FAPRI estimates that Indonesia will produce almost 30 million tons of palm oil, including exports of almost 23 million tons. This growth will be achieved through increased yields and further land conversion.

PALM OIL PLANTATION PROPOSAL EXPANSION PROJECT PLAN PT ABC PLANTATION

PART B INTRODUCTION AND COMPANY PROFILE

PT ABC PLANTATION already has Concession Right for 4,500 ha of land in Sambas, West Borneo. The condition nowadays, there are 1,200 ha of land that already worked on and planted. By considering the analysis result of world classed institution, and palm oil business worthiness analysis. PT ABC PLANTATION made a plan to do an area expansion and use the entire Concession Right land that already owned. The land area that will be submitted in this proposal is 2,800 ha, which is the rest of Concession Right land (about 500 ha is assumed to make the infrastructures, such as road and bridge). Trend of palm oil price and palm oil core that keep increasing annually, moreover supported with the condition of next years demand, makes us sure that this expansion plan is a correct step to taken by us. Therefore, with this proposal, we invite candidate of investors to put their financial capital with a quite competitive return. The location of PT ABC PLANTATIONs project is in N0101415 0102417 & E10903558, it is in Sambas, West Borneo province. This is our companys profile: PT ABC PLANTATION was held based on: Deed of Establishment No.16 dated 23 August 1999, Notary public M. Rijanto, SH Deed of Changes No.48 dated 25 September 2007, Notary public H. Yunardi, SH Law and Human Right Ministrys endorsement No. AU 17456.AH.01.02 year 2008 a. Licensing base: Decree of Sambas regent Plantation land information: No.582/241/Prenc-BKI/2004 dated 25 November 2004 Environment feasibility: No. 135 year 2007 Early site permit: No. 179 year 2007, land area: 8,750 Ha Change site permit: No. 168.A year 2008 land area: 7,769 Ha Early plantation business permit: No. 232 year 2007, land area: 8,750 Ha Change plantation business permit: N0. 193A year 2008, land area: 7,769 Ha
4

PALM OIL PLANTATION PROPOSAL EXPANSION PROJECT PLAN PT ABC PLANTATION

b. Concession Right Total Concession Right wide 4,500.82 Ha consist of: Certificate No. 14 Land area Survey Certificate Certificate No. 15 Land area Survey Certificate Certificate No. 16 Land area Survey Certificate : 3,536.44 Ha : N0. 877/SABUNG/2010 dated 17 March 2010 : 200.87 Ha : N0. 875/SABUNG/2010 dated 17 March 2010 : 763.51 Ha : No. 876/SABUNG/2010 dated 17 March 2010

Concession Right Certificate is valid for 35 years. The certifications of concession right are available and will be given when the investors team has accepted the proposal.

PALM OIL PLANTATION PROPOSAL EXPANSION PROJECT PLAN PT ABC PLANTATION

PART C MARKETING AND DISTRIBUTION

The main country that produced palm oil is Indonesia and Malaysia. In Malaysia, palm oil is the main foreign exchange because most of their products are exported, meanwhile in Indonesia and Nigeria, palm oil mostly used as domestic use, so the export is the rest of domestic consumption. Singapore which is not a palm oil producer country has a big contribution in the world export. It means that the manufacture factories in Singapore are exporting the palm oil that they imported from Malaysia or Indonesia. Based on the commodity sight, the main competitor of palm oil is the soybean oil, meanwhile from the country which produces palm oil, the main competitor for Indonesia is Malaysia. However, Indonesia has comparative advantage from the production cost of famous vegetable oil. Its because palm oil is included to tropical perennial, meanwhile the other vegetable oil producer is the crops. Price projection that set for palm oil export is IDR 7,000/kg for the minimal (with assumption that the price will gradually increase each year), meanwhile, for the domestic market is IDR 6,100/kg (with assumption that the price will gradually increase each year). The main palm oil price projection for the domestic market is IDR 1,100/kg (with assumption that the price will gradually increase each year) and export price is IDR 1,000/kg (with assumption that the price will gradually increase each year). Taxed that fined to the processed products sales is differenced into export tax and domestic sales tax. In this case, the export tax was projected about 14% from the export result; meanwhile the domestic sales tax is 10% from the domestic sales result.

PALM OIL PLANTATION PROPOSAL EXPANSION PROJECT PLAN PT ABC PLANTATION

Based on those palm oil marketing industry facts, PT ABC PLANTATION already standing along 5 years and worked on 1,200 Ha of land with these details:
Plantation Status TM - 2 TM -1 TBM - 3 TBM - 2 TBM - 1 TBM - 0 Land Area (Ha) 115 390.8 297.35 65.03 93.2 238.78

With the experiences of PT ABC PLANTATION, this expansion project will use the rest of unused Concession Right land about 2,800 Ha. All this time, PT ABC PLANTATION supplied fresh fruit bunch (Tandan Buah Segar, TBS) to Wilmar. But, to get wider market segment, we initiated to build a factory that will be the TBS manufacturing facility to produce CPO (Crude Palm Oil) that can be supplied to the cooking oil, soap, body lotion, fuel, and other goods that included human basic needs industrys consumers. Thus, our team already made early analysis to the target market for the entire TBS products or CPO that produced.

PALM OIL PLANTATION PROPOSAL EXPANSION PROJECT PLAN PT ABC PLANTATION

PART D OPERATIONAL MANAGEMENT ASPECT

To build the palm oil plantation by using the cultivation technology and sophisticated manufacturing, we have to count the economic production capacity so that the investment in this subsector can really give benefits in the next days. Factory building that covers machines and tools with the certain standard capacity from the research result that has optimum production scale is already available in the market. Next, the project initiators should appropriate the palm oil plantation area that should be built. Based on the research result, one factory unit can produces 30 tons TBS/hour, and can be expanded by its multiple.

At this project, the development of the factory has been decided to be done gradually, starts with a capacity of 10 tons TBS/hour in 4th year, and then will be expanded to 20 tons TBS/hour in the 5th year and increasing until 30 tons/hour in the 6th year, by considering the TBS production that produced by the main and plasma company.

The main kind of product which produced is the palm oil or the main oil palm that resulted from TBS manufacturing from the main plantation and plasma plantation TBS amount projection, palm oil, and main oil palm which produced in each main and plasma plantation along the project lifespan can be served in the Appendix 1. The production of palm oil and main oil palm was counted based on the yield toward TBS from each main and plasma plantation. In this case, the early working hour per day is 22 hours based on the picket system with the extra hour possibility is 2-3 hours per day, depend on the TBS supply to the factory. Meanwhile, the amount of working day is 25 days.

PALM OIL PLANTATION PROPOSAL EXPANSION PROJECT PLAN PT ABC PLANTATION

As a better picture toward the main oil palm manufacturing process (IKS/TBS) to be palm oil (MKS/CPO), this is the workflow diagram of that process:

Oil palm manufacturing factory location should fulfill some pre requirements, which are: (i) should be located in the middle of plantation; (ii) should be near with water source; (iii) should be near with temporary storage place and CPO shipping place; (iv) should be free from flood and has enough area to become TBS staying place and for build workshop and other buildings; and (v) could be built a factory waste landfill. We will make the next mapping do decide the factory location which appropriate with those pre requirements and we also attach our recent plantation documentation.

PALM OIL PLANTATION PROPOSAL EXPANSION PROJECT PLAN PT ABC PLANTATION

PART E ORGANIZATIONAL MANAGEMENT ASPECT

To manage this palm oil plantation, we will need many kinds of leadership personnel and main personnel with various skills. A General Manager will be needed as the top operational leader (Sutoyo S 1996). This project leader is the top operational leader. This functionary should capable in technique, marketing and project financial side. To guaranty the operational fluent, this project will be helped by a manager, in this case is the Plantation Leader. This functionary will lead three compartments, they are (1) Head Assistant who leads plantation component assistants; (2) Head of Office (Administrator) who sectoring the entire administration of the project component; and (3) Head Engineer who responsible to the factory component. There is a Head of Technology under the Head Engineer, who will lead Technology Assistant, Factory Assistant, and Laboratory Assistant. Under assistants, there is Monthly Employee and Daily Employee. Main kind and main employee which is needed will be appropriated with the plantation employee and factory employees placement plan with standard salary of plantation employee and factory employee which already decided in this project. The daily operational activity will be done by the Plantation Head who is responsible toward Project Leader.

10

PALM OIL PLANTATION PROPOSAL EXPANSION PROJECT PLAN PT ABC PLANTATION

PART F FINANCIAL ASPECT

We submit funding scenario to the investor candidates for this expansion project with a comprehensive funding scheme and produce palm oil (CPO/MKS) as the product. Investment fund that we need is IDR 284,200,000,000 (US$ 30,891,305) with allocation of IDR 184,200,000,000 (US$ 20,021,740) for build the main plantation and infrastructures, IDR 50,000,000,000 (US$ 5,434,783) for planting plasma plantation, IDR 50,000,000,000 (US$ 5,434,783) to build palm oil manufacturing factory. We use these basic assumptions to count the annual operational cost: Rate of exchange USD 1 = IDR 9,200 Changing value subjected to be constant along project (25 years) Deleting the inflation factor Palm oil price assume IDR 6,100 /kg The main palm oils price subjected to be increased 5% each year The entire cost and basic price subjected to be increased 5% each year The plantation soil type is red-yellow podzolic mineral in Borneo with the maximum production rate is 30 ton TBS/ha/year in adolescent age. 2,800 planting schedule will be finished in 2 year. Productive time of palm oil is 25 years. There are 136 oil palms in 1 hectare of plantation Production rate: TBS: 7-30 ton/ha (low to high productivity) Oil palm starts to produce TBS in the 4th year

Maximum TBS production could be reached in the 10 th until 18th year, and starts to decreasing in the 19th year.

Plasma plantation not included to the revenue counting and operational cost production period in this proposal.

11

PALM OIL PLANTATION PROPOSAL EXPANSION PROJECT PLAN PT ABC PLANTATION

1. Investment Cost Capital Expenditure

Activity Infrastructure building (road and bridge) Total IDR 5,000,000,000 US$ 543,479 Factory building and operational tools IDR 50,000,000,000 US$ 5,434,784 Plasma Plantation (+ 1000 ha) IDR 50,000,000,000 US$ 5,434,784

Operational and Developing Expenditure (per hectare)

TBM 0 IDR 7,000,000 US$ 761 TBM 1 TBM 2 TBM 3

Activity Nurseries

Land Clearing

IDR 10,000,000 US$ 1,087

Beans planting

IDR 2,500,000 US$ 272

IDR 2,500,000 US$ 272 IDR 4,000,000 US$ 435

Early planting

Maintenance includes: Fertilizer Herbicide

cost,

IDR 10,000,000 US$ 1,087

IDR 13,000,000 US$ 1,414

IDR 15,000,000 US$ 1,631

and

insecticide giving Harvest Ship and delivery Labor General cost Selling other cost and

12

PALM OIL PLANTATION PROPOSAL EXPANSION PROJECT PLAN PT ABC PLANTATION

Total Initial Investment: Funding Capital Expenditure Operational and 2800 hectare IDR 64,000,000 Land Area (hectare) Total IDR 105,000,000,000 IDR 179,200,000,000

Developing Expenditure Total Initial Investment IDR 284,200,000,000 US$ 30,891,305

2. Production Plan Year Production (Tons/hectare) 7 11 15 19 23 27 30 30 30 4 5 6 7 8 9 10 11 12

Year Production (Tons/hectare)

13 30

14 30

15 30

16 30

17 30

18 30

19 26

20 22

21 20

Year Production (Tons/hectare)

22 16

23 14

24 10

25 6

13

PALM OIL PLANTATION PROPOSAL EXPANSION PROJECT PLAN PT ABC PLANTATION

3. Operational Cost of CPO1 Production Period Cost Fertilizers and Compost Harvesting Shipping & Delivery Labor Factory Maintenance 4. Production Period Cash Flow Plan Year Revenue Expense Tax (15%) Net Profit Investor share (55%) Owner Share (45%) 4
IDR 119,560,000,000 IDR 43,386,000,000 IDR 11,426,100,000 IDR 64,747,900,000 IDR 35,611,345,000 IDR 29,136,555,000

Unit 10 kg / pohon

Capacity 136 pohon/hektar

Land Area 2800 hectare 2800 hectare 2800 hectare 2800 hectare

Price IDR 6,500/kg IDR 130 /kg IDR 160 /kg IDR 2,000,000 /hectare IDR 7,000,000,000

5
IDR 197,274,000,000 IDR 48,965,700,000 IDR 22,246,245,000 IDR 126,062,055,000 IDR 69,334,130,250 IDR 56,727,924,750

6
IDR 282,460,500,000 IDR 54,994,905,000 IDR 34,119,839,250 IDR 193,345,755,750 IDR 106,340,165,663 IDR 87,005,590,088

Year Revenue Expense Tax (15%) Net Profit Investor share (55%) Owner Share (45%)

7
IDR 375,672,465,000 IDR 61,504,616,250 IDR 47,125,177,313 IDR 267,042,671,438 IDR 146,873,469,291 IDR 120,169,202,147

8
IDR 477,499,475,250 IDR 68,527,811,363 IDR 61,345,749,583 IDR 347,625,914,304 IDR 191,194,252,867 IDR 156,431,661,437

9
IDR 588,570,005,363 IDR 76,099,564,446 IDR 76,870,566,138 IDR 435,599,874,779 IDR 239,579,931,129 IDR 196,019,943,651

the price is subjected to be increased 5% every year

14

PALM OIL PLANTATION PROPOSAL EXPANSION PROJECT PLAN PT ABC PLANTATION

Year Revenue Expense Tax (15%) Net Profit Investor share (55%) Owner Share (45%)

10
IDR 686,665,006,256 IDR 83,169,015,648 IDR 90,524,398,591 IDR 512,971,592,017 IDR 282,134,375,609 IDR 230,837,216,407

11
IDR 720,998,256,569 IDR 87,327,466,431 IDR 95,050,618,521 IDR 538,620,171,617 IDR 296,241,094,390 IDR 242,379,077,228

12
IDR 757,048,169,398 IDR 91,693,839,752 IDR 99,803,149,447 IDR 565,551,180,198 IDR 311,053,149,109 IDR 254,498,031,089

Year Revenue Expense Tax (15%) Net Profit Investor share (55%) Owner Share (45%)

13
IDR 794,900,577,867 IDR 96,278,531,740 IDR 104,793,306,919 IDR 593,828,739,208 IDR 326,605,806,565 IDR 267,222,932,644

14
IDR 834,645,606,761 IDR 101,092,458,327 IDR 110,032,972,265 IDR 623,520,176,169 IDR 342,936,096,893 IDR 280,584,079,276

15
IDR 876,377,887,099 IDR 106,147,081,243 IDR 115,534,620,878 IDR 654,696,184,977 IDR 360,082,901,737 IDR 294,613,283,240

Year Revenue Expense Tax (15%) Net Profit Investor share (55%) Owner Share (45%)

16
IDR 920,196,781,454 IDR 111,454,435,306 IDR 121,311,351,922 IDR 687,430,994,226 IDR 378,087,046,824 IDR 309,343,947,402

17
IDR 966,206,620,526 IDR 117,027,157,071 IDR 127,376,919,518 IDR 721,802,543,937 IDR 396,991,399,165 IDR 324,811,144,772

18
IDR 1,014,516,951,553 IDR 122,878,514,924 IDR 133,745,765,494 IDR 757,892,671,134 IDR 416,840,969,124 IDR 341,051,702,010

15

PALM OIL PLANTATION PROPOSAL EXPANSION PROJECT PLAN PT ABC PLANTATION

Year Revenue Expense Tax (15%) Net Profit Investor share (55%) Owner Share (45%)

19
IDR 923,210,425,913 IDR 122,270,081,944 IDR 120,141,051,595 IDR 680,799,292,374 IDR 374,439,610,806 IDR 306,359,681,568

20
IDR 820,236,955,330 IDR 121,293,609,378 IDR 104,841,501,893 IDR 594,101,844,060 IDR 326,756,014,233 IDR 267,345,829,827

21
IDR 782,953,457,361 IDR 123,636,052,099 IDR 98,897,610,789 IDR 560,419,794,473 IDR 308,230,886,960 IDR 252,188,907,513

Year Revenue Expense Tax (15%) Net Profit Investor share (55%) Owner Share (45%)

22
IDR 657,680,904,183 IDR 122,001,155,433 IDR 80,351,962,313 IDR 455,327,786,438 IDR 250,430,282,541 IDR 204,897,503,897

23
IDR 604,244,330,718 IDR 123,997,446,087 IDR 72,037,032,695 IDR 408,209,851,936 IDR 224,515,418,565 IDR 183,694,433,371

24
IDR 453,183,248,039 IDR 121,579,407,445 IDR 49,740,576,089 IDR 281,863,264,505 IDR 155,024,795,477 IDR 126,838,469,027

25
IDR 285,505,446,264 IDR 118,609,571,324 IDR 25,034,381,241 IDR 141,861,493,700 IDR 78,023,821,535 IDR 63,837,672,165

Payback Period Payback period happens in TM 4 or in the 7th year after the early planting. NPV This palm oil expansion project NPV is predicted about IDR 1,467,488,143,909 (US$
159,509,581).

IRR
Rate of return from this expansion project estimated about 44% with the plant living 25 years.

16

PALM OIL PLANTATION PROPOSAL EXPANSION PROJECT PLAN PT ABC PLANTATION

APPENDIX

17