Weak financials a key challenge

  • Business
  • Thursday, 11 Apr 2019

PETALING JAYA: Felda is now faced with the challenge of stabilising its current weak financial position, while pursuing the penerokas’ (settlers) socio-economic development agenda.

Felda’s current business financing model is burdensome to its settlers and has significant financial implications on the group itself, said the White Paper.

Therefore, a comprehensive improvement plan must be developed to help Felda return to its original role of developing land and taking care of the well-being of its settlers.

Under Felda’s replanting programme, the challenge is on the high replanting loan cost among the settlers.

The White Paper said that the cost of the oil palm and rubber replanting programme for each settler would require significant expenditure - a maximum of RM254,400 for the replanting of oil palm and RM88,000 for the replanting of rubber.

The cost is first borned by Felda and will be a loan repayable by the settlers within 15 years. In general, the settlers’ real loan after taking into account the replanting and farm produce during the replanting programme is only between RM120,000 and RM150,000, including the loan interest.

Settlers also have the Sara Hidup (SH) and Pinjaman Pendahuluan Hasil (PDH) loans - eight years for the cultivation of oil palm and six years for rubber cultivation.

The funding for Felda’s operational expenses was initially generated from its internal funds. But since 2009, Felda has taken up loans from financial institutions at interest rates ranging from 4.0% to 6.0%. Under the agreement, Felda will charge an interest rate of 6.25% on the settlers’ loans. However, the effective interest rate charged on settlers is only 3.8% and the difference in the interest rate is borne by Felda.

The Paper said Felda was now unable to make consistent payments for SH and PDH to the settlers due to its critical cash-flow problems. “The delay in this payment has caused dissatisfaction among the existing settlers and the new generation of Felda settlers.

“Another challenge for Felda is the management of settlers’ land undertaken in clusters with the plantation yields shared with settlers.

“The issues faced by Felda is when settlers opt to manage their own land and take over the plantation after replanting, and some do not even deliver their plantation yields to the Felda management.

“This situation has resulted in Felda not being able to make loan deductions through the settlers’ income statement, which further affects Felda’s cash flows,” the report said.

Felda also has to bear the high cost of rehabilitation when settlers resubmit their non-productive land to be re-managed by Felda. Depending on the condition of the settlers’ land, the rehabilitation cost is estimated around RM5,000 per ha-RM30,000 per ha.

Other challenges faced by Felda include senior settlers aged between 61 and 79 years old still relying on Felda to finance their replanting and receiving SH/PDH loans, unfinished inheritance deals should the settler die, and Felda’s high old age palm tree profile with decreasing yields.

Currently, the settlers’ plantation hectarage is about 405,317 ha, of which 69% or 280,451ha comprise of matured areas and some 8% or 31,956ha are 23 years and above, which need to be replanted.

The replanting cost for oil palm from 2003 to 2004 was estimated at RM4,500 per ha, and had jumped by over three times to RM14,000 per ha in 2019. Accordingly, the estimated cost, which involves the replanting of old oil palm trees, is about RM450mil for 32,000ha.

On Felda’s new generation housing project, the White Paper said Felda has developed 8,314 units of houses on over 38 project sites at a total development cost of RM1.65bil. Of these, only 1,498 units (18.0%) have been fully completed on eight project sites with 3,296 units (40.0%) on 12 sites having progressed in excess of 70.0%.

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