Indonesia’s House of Representatives (DPR) has passed a new plantations bill that aims to maximize land usage and opens up Indonesia’s plantation sector to smallholders. However, the retroactive clause that would limit foreign ownership to a maximum of 30 percent (from 95 percent currently) was dropped from the final version. This clause was highly controversial and would have been a major obstacle for foreign companies engaged in Indonesia’s plantation sector (such as Golden Agri-Resources and Wilmar International).
The approved bill requires Indonesian plantation firms to allocate 20 percent of the concessions to local residents and orders the firms to help locals planting their own plantations. Companies have been given five years to comply with the new law.
Although the controversial clause has been removed, government regulation can still set limitations to foreign investment. However, it is not expected that president-elect Joko Widodo (Jokowi), who will assume office on 20 October 2014, will limit foreign ownership in the country’s plantations sector. Incumbent President Susilo Bambang Yudhoyono also stated previously that he was against limiting foreign ownership in plantations as it would hurt the country’s investment climate further. Previously, Indonesia already implemented protectionist policies in the mining sector, leading to widespread outcry as legal certainty was undermined. Law 4/2009 on Mineral and Coal Mining stipulates larger domestic ownership in the mining sector and 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).