Indonesia lawmakers draft bill to slash foreign ownership of plantations

Reuters | 15 August 2014

Indonesia lawmakers draft bill to slash foreign ownership of plantations

by Michael Taylor and Yayat Supriatna

Aug 15 (Reuters) - Indonesian lawmakers are looking to restrict foreign ownership of plantations to no more than 30 percent, as the top palm oil producer tries to maximise land usage, protect indigenous people and tighten environmental controls in the sector.

A new draft bill drawn up by members of Indonesia's parliament aims to open up the sector to smaller, local players. But it would also discourage foreign investment just after the nation has set an ambitious goal of raising its palm oil output by a third to 40 million tonnes by 2020.

Foreign ownership of Indonesian plantations is currently set at a maximum of 95 percent. As well as simplifying Indonesia's complex rules on land use, the new proposed law may also make it easier to prosecute businesses responsible for Southeast Asia's annual "haze" season.

"It's a bombshell and has snuck in under the radar, and as far as I know, without consultation with the industry," said a Jakarta-based financial advisor with an major international accountancy firm, who is not authorised to speak to the media.

"There will clearly be a decline in new foreign investment ... I would think there will be a decline in the capital value of plantations."

Foreign plantation firms currently operating in Southeast Asia's largest economy include Singapore-listed Golden Agri-Resources and Wilmar International, Malaysia's Sime Darby Bhd and Cargill.

Limiting foreign ownership in palm firms to 30 percent would hinder the flow of overseas capital needed to develop and modernise the industry, said Fadhil Hasan, executive director at the Indonesian Palm Oil Association.

Golden Agri-Resources and Wilmar were unable to give an immediate comment on Friday, while Sime Darby and Cargill could not be reached for comment.

The Indonesian government has introduced a series of nationalistic rules for commodity exports, including palm, cocoa and mining, in an effort to boost domestic processing industries and boost the value of its exports.

Indonesia's parliament is looking to finish discussions on the draft bill with the government soon and expects it to be approved before the new administration is in place, Gamal Nasir, director general of plantations at the agriculture ministry told Reuters.

Following elections last month, outgoing President Susilo Bambang Yudhoyono will be replaced by Jakarta governor and president-elect Joko Widodo in October.

During his campaign, Jokowi - as he is known - outlined a number of nationalistic agricultural policies, including boosting smallholder access to land ownership.

If the draft bill becomes law, it would be retroactive for companies that already own plantations, said Herman Khaeron, an influential lawmaker and vice chairman of the parliamentary committee for agriculture, forestry, fisheries and maritime.

This interpretation was rejected by agriculture ministry and industry officials.

Firms would be given five years to comply with the new bill, according to a copy of the draft seen by Reuters, and those that refused to comply may face fines, temporary suspensions or the revoking of licenses.

Last year, Indonesia, also a major pulp and paper supplier, introduced a regulation to restrict to 100,000 hectares the plantation area of new private palm firms. (Additional reporting by Rujun Shen in SINGAPORE, Anuradha Raghu in KUALA LUMPUR and Dennys Kapa in JAKARTA; Editing by Tom Hogue)

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