Draft Bill Proposes to Limit Foreign Ownership of Plantations in Indonesia
Foreign ownership of plantations in Indonesia may be limited to a maximum of 30 percent if a new draft bill designed by Indonesian parliament is approved. This draft bill aims to encourage local participation within Indonesia’s plantation sector at the expense of foreign ownership. Currently, foreign ownership of plantations in Indonesia is set at a maximum of 95 percent. The draft bill also aims to simplify complex rules regarding land use, protect indigenous people, and will make it easier to prosecute companies responsible for forest fires.
Parliament and government will still need to discuss the draft bill further. A decision about the bill is expected before the new Indonesian government (headed by Joko Widodo) is inaugurated in October 2014. Widodo stated previously that he would like to encourage enhanced smallholder access to land ownership.
If approved, the new bill will certainly discourage foreign investments in Indonesia’s plantation sector. This would be a negative side-effect as the sector needs investments for further development and modernization. It remains unknown whether the new bill would be retroactive and thus affect foreign plantation companies that are already active such as Golden Agri-Resources, Wilmar International, Sime Darby and Cargill. These large companies are mainly engaged in the palm oil business. Indonesia is the world’s largest producer and export of crude palm oil (CPO). However, with a more protectionist approach and thus less foreign investment, it can jeopardize the country’s target to produce 40 million tons of CPO by 2020.
Similar to the new Mining Law (see below), companies would be given a five-year period to comply with the new regulations set in the bill. If companies do not comply then they can face penalties such as fines, suspensions and the revocation of permits.
This draft bill is in line with earlier implemented protectionist policies in the natural resources sector of Indonesia. Law 4/2009 on Mineral and Coal Mining, which impacted heavily on the country’s mining sector, also foresees larger domestic ownership. This law includes the controversial ban on mineral-ore exports (implemented in January 2014), forcing miners to process mining output domestically first (an effort to boost domestic processing facilities in order to generate more revenue by increasing the value of exports).