Felda’s high replanting cost invites scrutiny

By Lee Wei Lian, The Malaysian Insider

KUALA LUMPUR, Aug 4 — The RM2.4 billion in replanting costs incurred by plantation giant Felda has raised eyebrows among industry observers who are sceptical the amount is part of the reason for federal agency’s dwindling cash reserves.

Prime Minister Datuk Seri Najib Razak last month dismissed claims that Felda was bankrupt, explaining that among other things, the agency had spent RM2.4 billion to replant oil palm trees and on living costs from 2005 to 2009 as part of its reinvestment efforts.

The reason for the scepticism is that other companies tend to report replanting costs far below that of Felda. Plantation sector analysts also note that due to high commodity prices in recent years, planters have tended to put off replanting to take advantage of the windfall.

It is estimated that the production cost for one tonne of palm oil is about RM1,000 while it has been trading at above RM2,500 a tonne in recent years, closing at RM2,562 per tonne yesterday.

However, as a measure of replanting costs,  Sime Darby Berhad spent about RM497 million during the same period on replanting while IOI Corporation Berhad spent about RM90 million.

When contacted, Felda Holdings Berhad declined to comment and referred The Malaysian Insider to Deputy Minister in the Prime Minister’s Department Datuk Ahmad Maslan.

Ahmad clarified that the RM2.4 billion replanting costs were for the period 2004 to 2009 and included the cost of living for settlers as well as advances on production.

But Najib went on record on June 30, 2009 to tell the Dewan Rakyat that Felda had allocated RM80 million for schemes involved in replanting oil palm and RM11 million for rubber for that year alone.

It is understood that the Malaysian Palm Oil Board (MPOB) has also allocated RM200 million last year for replanting programmes with small holders outside the Felda palm oil schemes.

About half of Felda land is owned by settlers, and the rest by Felda and its subsidiaries. Ahmad also said that there is no breakdown available solely for replanting costs, which makes it difficult to compare Felda directly to other oil palm majors.