Importance of Warehouse Inspection Procedures

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Importance of WarehouseInspection Procedures
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Value of Law No. 9

• Proactive Approach to Protect the Integrity of
  the Indonesian Agricultural Markets
• Verses
• Todays World Conditions in the Financial Markets

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CoFTRA WarehouseInspection Procedures

• Legal Review of the Warehouse Operator - Business
  Entity
• Financial Review of the Warehouse Operators
  Certified Financial Statement for Real Assets in
  Comparison to Storage Obligations to Depositors

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CoFTRA WarehouseInspection Procedures

• Assure Control of Warehouse Facilities
• Condition and Appropriateness of Warehouse
  Facilities
• Inventory and Assessment of Stored Grain Quantity
  and Quality
• Determination and Documentation of Grain Storage
  and Contract Obligations

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CoFTRA WarehouseInspection Procedures

• Review and Evaluation of Record Keeping System
• Compliance Review of Law No. 9 Requirements
• Assessment of Warehouse Operators Business
  Practices
• Provide Proactive Training Education

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CoFTRA WarehouseInspection Procedures

• Inspections Conducted on an Unannounced Basis
• 3 month cycle at the Beginning
• Consistent Frequency and Rotation
• (2 Visits in a Row)
• Risk Based (Statistically Sound)
• Preparation of Examination Reports and Corrective
  Actions

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CoFTRA WarehouseInspection Procedures

• Maintenance of Audit History
• Central File
• Comprehensive Examination Review and Follow-Up
• Referral for Compliance Actions
• Compliance and Corrective Action Directives and
  Reviews

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CoFTRA WarehouseInspection Procedures

• Maintenance of Operational History
• Central File
• Disciplinary Actions and Operational Restrictions
  

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Warehouse Integrity

• All Storage Depositors Treated Equally
• No Favoritism
• Fees/Tariff Publicly Posted for All to View
• Prevent Illegal Activity
• No False Records
• No Fraud/Criminal Activity

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CoFTRA Organization

• 3 Fundamental CoFTRA Legs
• Legal Staff
• Financial Staff
• Field and Central Office Inspection Staff
• All 3 Legs Work Together !

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Three Key Items to Remember

• Indonesia Has a System to
• Prevent Losses
• Manage Losses
• Improve its System Based Upon Your
  Recommendations

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Role of PERFORMANCEGUARANTEES
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Performance Guarantee

• Purpose Protect
• Storage Depositors
• Integrity of Warehouse License System (Warehouse
  Operators)
• Financial Integrity of a Negotiable Instrument -
  Warehouse Receipt (Just like Cash)

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Performance Guarantee

• Purpose Protect (cont.)
• Agricultural Market Liquidity
• Bank Lending in Indonesian Agriculture
• Must be Cost Effective Indemnity Solution

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World History

• History Shows Us Every Warehouse Receipt System
  has been Tested
• There is Only 1 Chance to
• Succeed or Fail

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World History

• There Has Never Been
• A Warehouse Receipt System
• That Recovered and Operated Again
• Without a Performance Guarantee System

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Performance Guarantee

• Law No. 9 Must Have the Ability to Recover From
  Warehouse Failures
• Provide depositors 100 Financial Coverage of
  Storage Obligations
• Example Rice/Corn Warehouse
• Example Cocoa/Coffee Warehouse

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Financial Assurance

• Corn/Rice Warehouse 6,000 MT
• Storage Capacity x Commodity Value Total
  Depositor Storage Value
• 6,000 MT x 4 Million Rupiah/MT 24 Billion
  Rupiah
• 6,000 MT x 400/MT 2.4 Million

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Financial Assurance

• Cocoa/Coffee Warehouse 6,000 MT
• Storage Capacity x Commodity Value Total
  Depositor Storage Value
• 6,000 MT x 30 Million Rupiah/MT 180 Billion
  Rupiah
• 6,000 MT x 3,000/MT 18 Million

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Indemnity Fund

• Initial Funding Provided by
• Government Guarantee
• Government Borrowing Authority (Repay with
  Interest)
• Repayment?
• Assessments Collected from Warehousemen on Actual
  Amount of Commodity Stored Monthly?

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Indemnity Fund

• Suspend Collections When a Maximum is Reached
• Restart Assessments When a Minimum is Reached
• Different Fund AND Contribution Rate for Each
  Commodity
• Patty Rice/Milled Rice/Corn
• Cocoa/Coffee

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Indemnity Fund

• Indemnity Fund Management
• Board of Directors
• All Interested Parties Represented
• CoFTRA Provides Operational Management
• Claims Management
• Claims Approved by the Board