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Sampoerna Agro Mulls Making Biofuel from Sago
Ardian Wibisono | April 12, 2010

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PT Sampoerna Agro, the palm oil plantation company owned by the Sampoerna family, said on Monday that in the long term it might convert sago producer PT National Sago Prima into a biofuels company.

Sampoerna’s purchase of 91.85 percent of National Sago Prima for $12 million last February, through its subsidiary PT Sampoerna Bio Fuels, was revealed in its annual report to the Indonesian Stock Exchange (IDX) earlier this month.

Michael Kesuma, head of investor relations at Sampoerna Agro, said the acquisition was part of a strategy for the company to become a multi-plantation company.

“In the long term there is a possibility to convert the acquired business into a biofuel producer, but now we are still focusing our business on palm oil,” Michael said.

Based in Riau, National Sago Prima has 13,000 hectares of Sago already planted and a license to plant an additional 8,000 hectares.

Michael said that before it converts National Sago Prima to a biofuels producer it will continue producing sago for food. However, he did not give any time frame about when National Sago Prima might be converted to a biofuels producer.

“The market is quite big because sago is a staple food in eastern Indonesia,” he said. “It is also used as an ingredients in other food products.”

Several analysts expressed pessimism about the acquisition.

Ricardo Silaen, an analyst at PT Kim Eng Securities, wrote in a report quoted by Bloomberg that the investment was risky because Sampoerna Agro had no experience in the sago business.

It takes sago plants 10 years to be ready for first harvest, compared to four years for palm oil.

Last year, Sampoerna Agro posted a Rp 282 billion ($31.3 million) net profit, down 36 percent compared to 2008 due to higher-than-anticipated foreign exchange losses and lower-than-expected interest income.

Michael said this year the company will plant another 10,000 hectares of palm oil on top of its existing 95,000 hectares.

Sampoerna Agro shares closed up Rp 25 on Monday at Rp 2,725.