Thursday October 14, 2004 - PPB Oil Palms Bhd plans to aggressively expandits oil palm plantations in Indonesia while consolidating its activitiesin east Malaysia, said newly appointed managing director Khoo Eng Min.

The plantation investment arm of PPB Group Bhd has 13 plantations witheight crude palm oil (CPO) mills. Its total land bank of over 165,000ha islocated in east Malaysia, Central Kalimantan and West Sumatra, of which75,000ha has been planted.

Khoo said the company was in the final stage of negotiations to acquire anadditional 45,000ha in Central Kalimantan, bringing its total land bank inIndonesia to 123,602ha.

With such a sizeable hectarage under our wings, I believe PPB Oil Palmswill have plenty to chew, especially in Indonesia, for the next fiveyears, Khoo told StarBiz in an interview in Kuala Lumpur.

All will depend on how much we can plant. We intend to plant between10,000ha and 20,000ha per year and hope to achieve our target of 100,000haplanted in one contiguous block in Central Kalimantan over the next fiveyears,” he added.

Khoo said PPB Oil Palms was also setting up its first palm oil mill inSampit, Indonesia, which was slated to commission by the end of next year.Unlike the conventional sized mill of 30 to 60 tonnes capacity, PPB OilPalm is investing between RM30mil and RM35mil for its new 60- to 120-tonnecapacity mill.

Khoo Eng MinFor our Indonesian operations, we plan to have in total five CPO millsupon completing our planting programme in our current land bank, saidKhoo, who assumed the post about two months ago.

This year, the company is expected to produce close to 1.28 million tonnesin fresh fruit bunches (FFB), of which 1.16 million tonnes and 120,000tonnes would come from east Malaysia and Indonesia, respectively.

Its oil extraction rate (OER) up to September this year stood at 21.6%,which was higher than the national OER average of 19.92%.

According to Khoo, the company's medium- to long-term strategy would be toremain competitive.

We want to aggressively expand particularly in Central Kalimantan but thequestion of further expansion also depends on the availability of suitableland, location and size, cost and encumbrances, he said.

He said PPB Oil Palms would fine-tune its operations and rely more onmechanisation to improve efficiency and high-yielding clonal palms in itseast Malaysia operations.

As you know, CPO is the same, no matter the source. A producer with thecheapest cost (of production) will always turn out to be the clear winner,he added.

Khoo said PPB Oil Palms needed to expand, as land and labour were gettingscarce in Malaysia while the resources were still plentiful in Indonesia.

On its short-to medium-term strategy, he said the company would emphasiseon maximising its resources to enhance operation efficiency and loweringthe cost of production.

Going forward, Khoo stressed that PPB Oil Palms would maintain its currentmanagement style and corporate culture but will constantly look at ways toproduce CPO more efficiently.''

On PPB Oil Palms' high exposure to the volatility in CPO prices, Khoosaid: In our view, the most effective remedy against volatile prices is toproduce CPO at the lowest cost possible as the company's long-termsurvival depends on it.

He said the company's strategy had always been to produce CPO at thecheapest cost by ensuring that its resources, such as palms, humanresources and fixed assets, were exploited to their maximum potential.

In this regard, the company will do reasonably well even when the longterm CPO price hovers around RM1,000 per tonne, he added.

According to Khoo, the company has a practice of selling a proportion ofits CPO production forward to lock in at a certain price, especially whenprices are attractive and favourable.This proportion is flexible, depending on the offer price and our readingof the CPO market, he said.

To date, PPB Oil Palms has sold and committed at the RM1,600 to RM1,700per tonne level.

Khoo said the current CPO price seemed to be holding well at round RM1,500per tonne.

In my view, the price might firm or improve somewhat, as the first quarterof next year will be the low CPO production months, he said.