CONTENTS

Summary

Acknowledgements

Background:
The Location
The Companies
The Indonesian palm oil sector
Local government
Local people
Land ownership

Concerns about impact of PT Agro Indomas:
Land claims
Forest destruction
Increased poverty
Decreased quality of life
Lack of appraisal and monitoring
Desecration of graves
Increased community conflict

Community demands

Conclusions

Recommendations:
For the PT AI case
For investment in any large-scale plantations

Appendices:
A   Chronology
B   Local NGO’s View Of The Problems
C   Company Attitudes Towards The Problems
D   Local Government Attempts To Resolve The Problems
E   CDC’s Policy Statements
F   GPS Readings
G   Palm oil in Indonesia
H   Potential oil palm developments in Kotawaringin Timur

Maps:
CDC in Kalimantan
Central Kalimantan
The Danau Sembuluh area

Photographs

Footnotes

An oil palm plantation developed with British and Dutch financing has taken the lands and the livelihoods of communities living near Lake Sembuluh in Central Kalimantan. The company responsible, PT Agro Indomas, is owned by Sri Lankan, Malaysian and Indonesian companies, with substantial investments from Britain’s CDC and the Dutch Bank, Rabobank. The scheme is currently managed by one of the Malaysian partners, Agro Hope Shd. Bhd.

This report provides evidence of how this oil palm development has failed to meet both investors’ ethical standards. CDC and Rabobank share responsibility for this situation. They have not ensured that they were properly informed, before or after their investment. As a result, they have misled the public, shareholders and NGOs by representing this as a scheme established on degraded grassland which would provide new jobs. On the contrary, this plantation has destroyed tropical forest valuable to local communities and to wildlife and deprived up to 1,000 people of their land and their primary means of support.

The development was agreed by government officials without local peoples’ prior knowledge or consent. Since Agro Indomas contractors started bulldozing crops and forest farms in 1995, the Dayak and Melayu people of four settlements have found their lives in upheaval. Their customary rights over the land have been denied. Some compensation was paid out but, as this process was riddled with corruption, there is a substantial number of outstanding claims. Villagers’ attempts to get fair compensation for the land and crops they lost have been time-consuming and unsatisfactory. A team set up by the local government to resolve these issues has been slow to act. Initial hopes that this would be a transparent, participatory process have been slowly eroded as the team consults more regularly with government departments and the plantation’s management than with local communities.

The Agro Indomas plantation was one of the first to be established in the Lake Sembuluh area. This development has increases pressure on local resources – already depleted by the previous logging boom. Local people are concerned about the impact of oil palm development on the rivers and complain of a reduction in fish, bushmeat and other non-timber forest products. They associate increased flooding and changes in the local climate with the expansion of oil palm plantations around the lake. They fear that the pesticides, herbicides and fertilisers used in large quantities on the PT Agro Indomas plantation will affect their health as the lakes and rivers are their only source of water for drinking and all domestic needs. The effect of agrochemicals on the aquatic ecosystems must also be taken into consideration as fish are an important part of the local diet.

DTE has strong evidence that Agro Indomas - or its contractors - continues to clear land by burning. This is a practice which is illegal under Indonesian law and which contributes to the annual “haze” or smoke-smog that hangs over the whole region. In some years such practices have led to millions of hectares of land being devastated by fires.

With traditional farming no longer an option for many families, local people are being forced to seek work on the plantation as low-paid wage labourers or turn to illegal logging to provide for their families. The other alternative is to become oil palm growers through a co-operative smallholder scheme attached to the plantation. Despite many promises, this scheme is not yet established and local people have not been properly informed about how it will operate. In other locations, such schemes have saddled farmers with substantial long-term debts and no guarantee of paying them off.

PT Agro Indomas and its Malaysian field management company have been evasive about their responsibilities over land procurement and land clearance. It is now taking an aggressive stance towards further community demands to provide alternatives for the livelihoods they have lost. Villagers are becoming increasingly angry that their grievances have not been seriously addressed by PT Agro Indomas – a situation that has led to instances of direct action against the company and could lead to more in the future. The company’s response has not been to carry out a thorough investigation, consult with the community on how to establish a good working relationship or to communicate its plans for the future, but to accuse local and international NGOs of stirring up trouble.

This report, prepared for submission to the CDC and DFID - its sole shareholder - exposes the gap between CDC’s view of its investment and what is actually happening from the local community’s perspective. We believe it is time for CDC to acknowledge the negative impacts of PT AI’s operations and turn its attention to ensuring that this project does address the needs of the local population. It must be emphasised that the community does not want the partner company, CDC or Rabobank to pull out of their investment. Rather, they want the investors, company and plantation managers to recognise that there are problems and to take real steps to rectifying these.

A change in operational culture for all the companies involved must take place so that decision-making is more transparent and accountable to local people. This will lay the foundation for a consultation process to address the social injustices and environmental damage this project has caused. In the process, CDC, Rabobank and PT Agro Indomas stand to benefit as a pioneers of good practice in an area where other plantation companies are just starting up. Nevertheless, this report raises serious questions about CDC’s pre-investment vetting and about whether – in view of the damaging social and environmental impacts – CDC should be investing in large-scale oil palm plantations at all.

ACKNOWLEDGEMENTS

This report has been compiled from information provided by a number of Indonesian and non-Indonesian organisations and individuals who have made field visits to, or gathered other information on, the PT Agro Indomas oil palm development at Danau Sembuluh. We thank all of them for their help. We would particularly like to thank the indigenous communities of Danau Sembuluh who were so generous with their hospitality, time and information during our own visits and apologise to them for any mistakes or shortcomings in this report.

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THE LOCATION

The PT Agro Indomas (PT AI) oil palm plantation is located in the Danau Sembuluh sub-district of Kotawaringin Timur of Central Kalimantan, in Indonesia. The estate is on flat or gently hilly land around the shores of Lake Sembuluh and the rivers that feed into it. The nearest town is Sampit, about an hour away by road. This is a booming frontier centre with a small airport and a deep-water port. Boats travel regularly between Sampit and Surabaya, the major port of East Java. The plantation is also accessible from Bangkal by speed boat across Lake Sembuluh.

Central Kalimantan is a huge, sparsely populated province covering 15,360,400ha. Even by the late 1980s, three-quarters of it was still covered with forest[1]. Much of the lowland forest has gone within the last decade due to logging, the expansion of plantations, transmigration, government projects (including the disastrous million hectare swamp forest mega-project) plus serious forest fires in 1994 and 1997. Tanjung Puting National Park, the only protected area of lowland forest in Central Kalimantan, lies just to the south-west of the Sembuluh lakes area.

Danau Sembuluh sub-district is nearly 250,000ha and has a total population of around 5,800. Administratively, it comprises 10 villages. The PT AI plantation was established on the private and customary lands of the indigenous people of four villages: Sembuluh I, Sembuluh II, Terawan and Bangkal, plus the hamlet of Lampasa[2].

Much of this area was designated Production Forest in 1967 and subjected to commercial logging during the 1970s. Companies were supposed to apply the Indonesian selective logging system (TPI) but, in the absence of any effective supervision, overlogging was common. According to local people, timber concessionaires stopped operating there in the late 1970s and much forest had substantially recovered. Nevertheless, the Forestry Department in Jakarta redesignated it as ‘Conversion Forest’ i.e. forest which could be cleared for large-scale commercial plantations.

PT Agro Indomas was the first oil palm company, in 1995, to move into the Lake Sembuluh area. More plantations are now being set up. Musi Rawas, a company from South Sumatra, started to clear land owned largely by the inhabitants of Lampasa people in 1998/9. To the south, Sawit Mas Nugraha Perdana, owned by a local entrepreneur, began operations this year on Lampasa and Sembuluh people’s land. PT Bina Sawit lies to the west.

THE COMPANIES

Pt Agro Indomas (PT AI) was established as a foreign capital investment company (Perusahaan Modal Asing – PMA) in 1995. It was originally set up as the Indonesian company PT Bohindomas Permai in 1985. PT AI is now owned by three Malaysian companies: Agro Hope Sdn. Bhd., Shalimar Developments Sdn. Bhd, and Cosville Holding Sdn Bhd, plus seven Indonesian entrepreneurs. The Sri Lankan group Carson Cumberbatch controls both the first two companies. PT Agro Indomas is now managed by Agro Hope Sdn. Bhd., which is a minority shareholder[3]. The Indonesian government granted it the rights to establish a 12,000ha plantation and to construct a 60 tonnes/hr palm oil processing plant. The permits run for 30 years from the start of commercial production.

Operations started in late 1995 with the establishment of a 25ha oil palm nursery. Planting began about one year later[4]. The majority of the concession area had been cleared and planted with oil palm by mid-1999. A grid of dirt roads divides it into 30ha blocks. By 1999, trees in the first blocks to be planted were starting to bear fruit. The annual yield is expected to be approximately 22 tonnes per hectare and the first oil shipments, from a new bulking station on the banks of the River Sampit, were due to take place in 2000[5].

The 12,104ha site includes purpose-built accommodation for 2,000 transmigrant workers. PT Agro Indomas (PT AI) has a site office within the concession area and representation in Jakarta, but its main office is at Sampit.

For Malaysian companies, the lower wages for agricultural workers in Indonesia, cheap land prices and the availability of transmigrant labour were important factors in their decision to invest in an oil palm plantation in Kalimantan. PT AI estate managers, Agro Hope Sdn. Bhd., have openly stated that they consider environmental issues, human rights and other ‘non-project finance related criteria’ to be a burden[6].

PT AI actively sought financing from sources which offered high status as well as competitive rates, hence its approaches to CDC and Rabobank International well before the East Asian financial crash. A minimum of US$40 million at 1997 prices was required to develop a 10,000ha oil palm plantation and a 60t/h palm oil mill[7]. CDC made an initial investment of US$14.4m in March 1999 and Rabobank provided a further US$10.3m later that year. This represents a substantial proportion of the total capital (estimated at US$43 million). These loans were intended to help PT AI finish plantings and to build the new mill and bulking station.

The Commonwealth Development International Development (CDC) was a British government body which provided long-term cheap financing to the private sector in developing countries. It became a private company in December 1999, but the British government (via the Department for International Development – DFID) still holds all its shares. CDC Groups plc will probably be floated on the stock market within the next two years. DFID is not in control of CDC’s operations or decision-making , but CDC has a statutory obligation to operate within the business principles agreed with DFID which contain clear ethical, environmental, health & safety and social policies (see Appendix E).

Rabobank is one of the largest banks in the Netherlands. The Rabobank Group includes Rabobank International and has a network of 112 offices in 35 countries. Rabobank International invests primarily in food and agribusiness. Rabobank and its various subsidiaries have provided or organised financing for a number of oil palm developments in Indonesia, including some owned by the London Sumatra and Bakrie Groups.

THE INDONESIAN PALM OIL SECTOR

There have long been close business links between the ruling political elites of Indonesia, Malaysia and Singapore, and the oil palm sector is no exception[8]. In Indonesia, the 1980s and 90s were a boom period for oil palm development. Global and domestic consumption of palm oil was rising and the Suharto government had made clear that it intended that Indonesia should overtake Malaysia as the top producer by the turn of the millennium. These plans were supported by the World Bank and other international financial institutions. Despite the apparent rivalry, Malaysia needed Indonesia to expand its own palm oil industry: it was becoming difficult to procure suitable land for plantations in Malaysia. By early 1997, the Indonesian Investment Co-ordination Board (BKPM) had approved over 600 oil palm plantations covering a total of almost 9 million hectares. Such large areas require large amounts of investment: 93 of these projects, covering 2.1 million ha, involved foreign investors; 71% were Malaysian[9].

The economic, political and ecological crises which struck Indonesia during 1997 slowed down the expansion of oil palm plantations and palm oil production[10]. Indonesian tycoons joined the rush to invest overseas during the Asian financial crash, while uncertainties over the political future of Suharto’s crumbling regime and increasing social unrest deterred foreign investors. The El Nino effect brought drought and exacerbated forest fires during 1997/8, thus decreasing production while, at the same time, global prices for crude oil palm fell.

To stimulate the growth of the oil palm sector and palm oil exports, the new Indonesian government has further opened up the industry to foreign investors. This move was encouraged by the IMF which sees increased export revenues and foreign investment as essential parts of its economic recovery plan for the country. The Indonesian and Malaysian governments have been seeking to increase co-operation between Indonesian and Malaysian producers in order to push up the price of palm oil[11].

While government policies provide incentives for private investors to encourage investment in plantations, there are no matching policies to protect the interests of the local community or the environment. Around 2 million hectares of land were converted into oil palm plantations during the 1990s; most of this was lowland tropical rainforest[12]. Indonesia is the cheapest place in the world to produce palm oil. Labour costs are five times cheaper than in Malaysia and land prices four times cheaper. Plantation owners are likely to want to push costs down even lower to maintain their competitive advantage.

Burning is the cheapest way to clear land for plantations. In Malaysia, environmental controls are much tighter: a zero-burning policy is more strictly enforced. In Indonesia, plantation companies are still using fire to clear land, despite the public outcry at home and internationally when it was revealed that plantation companies featured prominently in the list of companies ‘named and shamed’ for the disastrous 1997 forest fires. One reason why the Malaysian government curbs protests about the smoke pollution which drifts over the country from Indonesia every year is that Malaysian companies in Sumatra and Kalimantan are also responsible for burning land[13].

LOCAL GOVERNMENT

Local authorities throughout Kalimantan are actively promoting the expansion of the palm oil sector. Foreign capital (especially from Malaysia) is being encouraged into ‘eastern Indonesia’, which includes Kalimantan.

The advance of large-scale plantations has been much slower in Central Kalimantan compared with neighbouring provinces of East or West Kalimantan as indicated in the table below[14]. Nevertheless, the potential expansion is considerable. Kotawaringin (the south–west corner of the province) is one of the prime areas because it is fairly flat, the soils are suitable and there are several large transmigration sites. Access is relatively easy via Pangkalanbun and Sampit for workers, supplies and export of palm oil. It is expected that Sampit will be the biggest crude palm oil (CPO) export centre in Kalimantan within a couple of years. Half the plantation concession areas in Central Kalimantan which have full or provisional approval lie in Kotawaringin Timur district – a total of 411,858ha, only 46,081ha of which have been planted[15]. 78 oil palm companies have applied for plantations; 25 have started operations and 5 more are due to start CPO production by late 2000[16].

	Central Kalimantan	West Kalimantan
Oil palm planted area (Local Agriculture Dept figures)
Immature	75,807ha	120,155ha
Mature	14,103ha	88,483ha
Total (early 1998)	89,910ha	208,638ha
Planned area
Area offered by Provincial Government	1,700,000ha	3,246,103ha
Area approved by the Ministry of Agriculture	1,751,000ha	4,001,600ha
Area to be planted (JICA estimate of suitable areas)	675,285ha	871,807ha
Area suitable for oil palm plantations (RePPProT, 1990)	3,281,000ha	2,306,300ha

By 2001 it is expected that 11 plantations will have built their own palm oil processing factories: PT. Agro Indomas, PT. Lestari Unggul Jaya, PT. Kridatama Lancar, PT. Musi Rawas, PT. Bina Sawit, PT. Kerry Sawit, PT. Uni Primacom, PT. Hati Prima, PT. Bumi Hutan Lestari, PT. Surya Barokah and PT. London Sumatra. These plants should be producing 737,100 tonnes of Crude Palm Oil (CPO) and 175,000 tonnes of Palm Kernel Oil by 2005, generating more than Rp100 billion in tax revenues for the district government. Hence the local authority’s interest in promoting the oil palm sector[17].

Recent local autonomy legislation also opens up the possibility of some degree of grassroots democracy[18]. Certain decision-making and financial powers will be devolved from central government and provincial governors to district authorities (kabupaten) and village assemblies (pemerintahan desa). Local representatives will be elected rather than appointed. Full implementation of the new laws and regulations is currently scheduled for mid-2001[19]. Even so, local decision-makers are not very accessible to the villagers in the PT AI plantation concession area, especially those on the far side of the lake from Bangkal. Sampit is the administrative centre for both the Kotawaringin Timur district (kabupaten) and Danau Sembuluh sub-district (kecamatan) levels of local government[20]. There is some talk that a new district (possibly to be called Kotawaringin Tengah or Seruyan) will be established in the near future. Danau Sembuluh may be one of the four or five sub-districts to be included. Local people do not know if or when this will take place or where the local government office may be located.

There are some signs that political change in Indonesia is even beginning to reach Danau Sembuluh. In the ‘old days’, local officials merely carried out the instructions of those further up the hierarchy. While at the upper levels of government, officials are still doing all they can to encourage plantations and foreign investment, some village officials in the Danau Sembuluh area are now standing up to plantation companies and siding with other members of the indigenous community in their demands. PT AI’s general manager has publicly complained about this ‘lack of support’ (see Appendix C).

THE LOCAL PEOPLE

“We are informed that the inhabitants do very little farming.” CDC, 2000[21]

Central Kalimantan has a low population density: on average 10 people per hectare. The population of Kotawaringin Timur is growing faster than areas to the north because it is low-lying but not swampy and the forestry, wood processing and plantation industries have attracted settlers.

Most traditional settlements are along the rivers or the shores of lakes. The indigenous populations of the villages in the PT AI concession area are mainly Dayak Temuan and Melayu, with smaller numbers of Banjarese (the main ethnic group of South Kalimantan) and some settlers (mainly from Java). The Dayak Temuan are predominantly Kaharingan - a traditional religion now officially sanctioned as a form of Hinduism - but many are Christian. Funerary statues and mausoleums can be seen in several settlements, notably in the village of Bangkal. The Melayu describe themselves as local communities which converted to Islam over a century ago. The inhabitants of Sembuluh, Terawan and Lampasa are mainly Muslim.

	Population	Households
Sembuluh I (including kampong Lampasa and Tabiku)	2,555	571
Sembuluh II	1,500 (approx)	300 (approx)
Lampasa	556	68
Terawan (including PT AI workers)	2,000 (approx)	500 (approx)

Until the advent of PT AI, the local community had a subsistence economy which was totally dependent on the surrounding natural resources. Most people followed a largely traditional way of life as forest farmers, clearing forest on a rotational basis to grow rice, vegetables, sugar, yams and bananas. They also planted fruit gardens and native rubber. Fish from the lakes and rivers and wild game from the forest were important sources of protein in the local diet. Cash-generating activities included tapping rubber, harvesting rattan, cutting timber, boat or canoe building and panning for gold in local rivers. A little coffee was grown as a cash crop[22]. Much local transport is still by canoe or, for longer distances, boats with outboard motors.

There is no clear distinction between the livelihoods of the Melayu and Dayak communities. They are all basically subsistence farmers who also practice agro-forestry. As they live by the lake or along rivers, fishing is part of the daily activities of men and women, but only for their own consumption[23]. In contrast to the CDC quote at the head of this section, local people describe fishing as occasional work (pekerjaan sampingan).

The main difference between the communities is in the customary and religious values. The customary guardians (kepala adat) play a leading role in Kaharingan societies, notably in maintaining cultural norms of behaviour and traditional controls on natural resource management. Religious (Muslim) values are also important amongst the Melayu in their daily activities but, although the Muslim clerics (ulema) are often influential decision-makers, there is no equivalent natural resource management control system. Nonetheless, both communities have sacred areas of forest where certain activities, such as tree felling, are taboo. One practical implication of these cultural differences is that it is difficult for these communities to speak with one voice about the impact of the plantation on their lives and about their demands to the company because the community leaders and decision-making mechanisms differ.

There have been primary schools in Bangkal since the colonial period, but there were few educational facilities in other villages until relatively recently. The nearest upper secondary school is still in Sampit. Sembuluh got a lower secondary school in 1976 and now has 8 primary schools. Terawan still only has a primary school. The primary school in Lampasa only opened in 1973. Consequently, illiteracy levels are high, especially amongst women and older people. This is relevant to the PT AI development in two key respects: firstly, many people cannot read documents about their rights to compensation; secondly, few locals can gain paid employment except as plantation workers.

LAND OWNERSHIP

“..recent claims have been made by non-local people who, the company feels, do not have a genuine case.” CDC, 2000[24]

Misunderstandings on the part of PT AI and local government officials about the nature of the indigenous community, its understanding of what ‘a village’ is and the traditional land ownership system have exacerbated the conflict between the company and the community. PT AI has refused to pay compensation to some claimants because the company apparently considers that people who are claiming compensation for forest land two or three kilometres from their homes are simply opportunists. On the other hand, local people feel insulted when the company labels their claims as ‘false’. They do not see why PT AI employees - who they consider educated and clever – cannot grasp the basic elements of a land tenure system which even young children used to understand.

The indigenous people have been living by and using the forests around the Sembuluh lakes for many generations. There are Muslim graves by Sembuluh lake which are well over 100 years old (see Photo 15). Customary law (adat) is still important in both Melayu and Dayak communities with respect to land. Traditionally, ‘land’ and ‘forest’ are interchangeable, as forests have long been used on a rotational basis for timber, other forest products and agriculture.

A village is much more than a dense cluster of houses. It includes the community’s customary lands which are considered to extend as far as the sound of a gong or a cock crowing can be heard (between 1-5km). Although some land is communally owned, much belongs to individual families. This land is not a single large field, plantation or patch of forest garden close to the family home; it usually consists of a number of small plots spread over a wide area which may be several kilometres from the main settlement. To the untutored eye it may look like ‘ordinary’ secondary forest or scrub. This land is not certificated. There are no maps and usually no written proof of any kind. Information about land ownership is passed down through the generations. Local people use features such as distinctive trees, rocks or streams as markers. Disputes of boundaries between family landholdings were apparently rare. Any traditional proof of ownership is difficult to establish once these natural markers have been bulldozed during land clearance and the whole area replanted with oil palms.

Lampasa and Terawan are relatively new settlements which have grown up as the population of Sembuluh increased. Terawan was formally established in the 1950s, while Lampasa was officially founded in 1967. However, there have been small settlements there for much longer as people used these and other places as temporary bases to open up forest clearings for cultivation and to plant and collect forest products. This is why there are close family links between the communities of Terawan, Lampasa and Sembuluh and, to a lesser extent, Bangkal. (Bangkal is on the other side of the lake and has more contact with Sampit than the other lake communities do). It also explains why people in Sembuluh or Terawan have land claims several kilometres from their present homes.

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In general, the impacts of large-scale plantation developments on indigenous communities are characterised by:

1. increased deforestation
2. increased poverty
3. increased conflict.

A:   LAND CLAIMS

“Local traditional leaders expressed satisfaction with the deal and have not subsequently complained” CDC, 2000[25]

1. Although some people within the indigenous community apparently gave up their land willingly, others state clearly that they did not. It was taken without their consent or they were coerced by the military authorities. As one villager put it: “Even if they had discussed things beforehand, we would not have wanted to give up our land where we’d planted coffee, rubber, rattan and various sorts of fruit trees”. Villager after villager in the four settlements complained that they only knew their land was to become part of the concession after their fields, forests or agro-forestry plots had been burnt and/or bulldozed. Initially, they were not too worried since most families had extensive land holdings scattered over a broad area. They did not imagine that all their land would be taken.

2. Local people say that PT Agro Indomas did not stick to its original plantation plan. The actual area planted takes far more of the land which is most important to traditional communities. The basis for this claim is that villagers have several versions of official maps. One shows that the area allocated for the plantation still left a little land for the community – notably fields and agro-forestry stands close to settlements and the rivers. Another map does not show any villages on it. The company has not provided a clear explanation of this contradiction.

3. There are questions about whether PT AI has taken more land than the 12,104ha officially allocated (Land Use Permit 12/HGU/BPN/98 6th April 1998). The main evidence for this is PT AI field staff who have mentioned figures of 16,000ha and 22,000ha to local people. The fact that the company (or its contractors) cleared all remaining vegetation, including forest, right up the water’s edge in several places and planted this with oil palms lends credence to claims that the company has used more land than it was legally entitled to.

4. PT AI’s management were aware from the start that compensation claims from local people would be a major cost for the company and rightly identified that “all such claims must be settled amicably”. However, the company readily accepted the government perspective that all forest land is state property. Its basic premise was, therefore, that only farmers with certificated land would be eligible for compensation for the land itself. Other land users would only be compensated for crops planted. Negotiations for land procurement were done through the government administrative system - the village heads (kepala desa) or sub-district heads (camat) – working in close association with company representatives. Compensation rates were governed by guidelines issued by the district administrator (bupati) in Sampit. Claims relating to customary rights and ownership laws were always referred to officials of the local Land Department (Badan Pertanahan Nasional – BPN,) also in Sampit.

5. All the permits from central and local government necessary for the PT Agro Indomas plantation were issued by the Suharto government or the interim Habibie regime well before Indonesia’s first democratic elections in 1999. On the surface, PT AI took a responsible approach by following standard Indonesian government practices. On the other hand, it should be realised that this system served the interests of the military regime and the business community. It was authoritarian, undemocratic and rife with corruption. The local community were not consulted whatsoever about their participation in such ‘development’ plans. All important decisions were made at central government level and implemented through the state’s vast local bureaucracy. Very rarely did decision-makers have any knowledge of local conditions or the indigenous communities’ priorities. The civil administration’s authority was backed by the muspika, a tripartite body comprising local government officials and members of the local military and police forces. Landowners who were unwilling to release their land for the plantation or who tried to demand more compensation were subjected to various forms of intimidation, including being labelled as supporters of the Communist Party or being anti-development. Commonly, village officials, the police and military gained financial advantage by acquiring land to which they were not entitled or taking a cut of compensation payments.

6. It must be emphasised that such practices are not exclusive to oil palm plantation developments or PT AI in particular. They were widespread in Indonesia during the Suharto era and are still prevalent in many sectors in Central Kalimantan where the reform movement and measures to abolish corruption, collusion and nepotism and to promote local democracy have hardly penetrated. Nevertheless, there are clear signs that PT AI is not moving with the times. Its attitude is very much that it is the duty of local officials to support the company (see interview with its Managing Director, Mohandas Nair, Appendix C). This does not bode well for the possibility of conflict resolution and will create problems for the company and for CDC/Rabobank as its backers in future.

7. Agro Hope and PT AI have given CDC and other parties the impression that only a small minority of the community is refusing to accept compensation and that the majority are satisfied with what they have been paid. CDC believes that these are non-local people who are fisher folk not farmers. These misunderstandings must be dispelled. There are now some 1,400 claims for land and crops (including traditional plantations/agro-forestry plots) outstanding against the company, covering 4,328ha; all of these are from indigenous people resident in the four settlements of Danau Sembuluh.

8. The communities of Sembuluh, Terawan, Bangkal and Lempasa claim to have lost approximately 5,000ha of their lands to the PT AI plantation. They have been seeking fair, full compensation since 1996. There are several unresolved issues relating to the compensation claims:

   • PT AI/Agro Hope claim to have paid out over Rp1bn in compensation to the community shortly after it moved in (See Appendix C).The local people acknowledge that PT AI has made at least one round of compensation payments, in two phases, but claim that the amount they received was substantially less. There are suspicions of manipulation by the company and/or local government officials over some compensation payments. The former sub-district head is implicated in many accounts.

   • Community representatives did not know how much was paid out by the company or received by claimants in Phase I. More than one local source reported that people were asked to sign (or put their mark on) a blank receipt and given the payment in sealed envelopes. The money was in small denomination notes so it looked a lot. They did not realise (until they were given completed receipts later) that these showed much larger amounts than they had actually received.

   • According to local government figures, Rp676,073,000 was paid out under Phase II in 1997. The details are shown below. Here again, several local people claim that PT AI’s records show payment of much larger amounts than individuals actually received.

     Settlement	Number of claims	Payments
     Terawan	338	Rp71,710,000
     Bangkal	106	Rp393,752,000
     Lampasa	342	Rp210,551,000
     TOTAL	786	Rp676,073,000

   • Local officials may have sold villagers’ land to the company. There was at least one such claim in Terawan where, in 1998, 300ha of someone’s land were handed over for money he never saw.

   • Around 500 people say they have never received anything. The company initially denied all knowledge of any further demands and declared that all valid compensation claims had been met. Community representatives explain that the data recorded by the company which formed the basis for compensation payments only covered land cleared at that point. As land clearance continued, more of their land was taken. The local people had not been told how much of their land would be used by the company. It seems that the company presumed its payments covered the total area to be taken while, in the community’s eyes, these payments were only for land which had been cleared so far.

   • Many local people, especially those above 40 years old, are unable to read and write. It is quite common for others with more formal education to write statements or letters on their behalf. The claimant cannot check the details of the letter. Any errors are taken by local government or company staff to be proof that these are false claims.

   • The company has demanded that the claimants’ data is rechecked. The locals say this is no longer possible as most of their boundary markers were removed during land clearance operations. Hence participatory mapping or GPS techniques cannot be used to support claimants’ cases.

   • There are undoubtedly at least a few false claims. A government investigation team has revealed some suspiciously large land holdings (500ha) or claimants who were under the legal age when land clearance took place.

   • The compensation rates used in 1997 were very low: they did not represent prevailing market prices, let alone the opportunity costs to local people. For example, a rubber tree is much more than a piece of wood: it generates income over a period of several decades.
     
     

     Empty fields	Rp50,000/ha
     Fields with crops	Rp250,000/ha
     Productive rubber trees	Rp5,000 each
     Immature rubber trees	nothing
     Rattan	Rp2,500/palm

     This tariff was set by the company in conjunction with the local government. There was no consultation and no negotiations were allowed. When some villagers at Sembuluh I objected to these prices, they were threatened by the local military. A soldier said these people were ‘preventing development’, would have to sign statements showing they had refused these compensation rates and would be immediately reported to the District Officer[26].

   • When members of the local community have pressed for compensation, PT AI referred the matter to the local government to settle it. More recently, apparently company staff have told local people they should pursue their claims through the local courts. This is no easy matter for people on low incomes who have little knowledge of legal procedures and who may be functionally illiterate.

B:   INCREASED FOREST DESTRUCTION

"The estate is situated on derelict grassland which had been previously cleared by the logging industry" CDC, 2000[27]

1. It is not disputed that the plantation concession area had suffered some forest damage and deforestation before PT AI started operations. The issue at stake is that the company wiped out all that remained, while CDC were led to believe that no forest had been destroyed in establishing the plantation. Local people say that the company given the timber concession took out all the biggest, most valuable trees, then stopped operations in the late 1970s. So for 20 years or more there had been no large-scale commercial logging.

2. There is strong evidence that PT AI has been directly involved in forest destruction through burning and other methods of land clearance. CDC asserted from the beginning of its involvement with PT AI that the plantation area was coarse grassland. It reaffirmed this in correspondence. However, the French consultant's photos which accompanied CDC's May 2000 letter and his statement about the vegetation cover in August 1996 show that significant amounts of forest remained. Even now, tree stumps and a few isolated durian trees can be seen amongst the vast expanse of oil palms (see Photo 10 and Photo 11). Agro Hope described at a Malaysian planters conference how the land was cleared by felling trees, burning and bulldozing. To say that the "estate was planted on degraded land dominated by lalang grass" is at best a half truth.

3. Local people interviewed were insistent that this plantation was not primarily established on coarse grassland or scrub. They were equally indignant about Roger Gillbank's inference that this grassland (Imperata cylindrica, called alang-alang in Bahasa Indonesia) was a result of land degradation due to the repeated use of fire by local farmers. They say there was only a little alang-alang before the company came. Villagers described how they manage their land carefully to avoid invasion by alang-alang because then it is useless for field or tree crops. Their explanation of the photos which accompanied CDC's May 2000 letter are that the photos were taken in an area which had only recently become alang-alang after PT AI had cleared the land the previous year.

4. Land covered with what outsiders might call sparse secondary forest or scrub is not useless to the indigenous community. Given time, even heavily logged or degraded forest can regenerate – either naturally or through rehabilitation measures. Such semi-natural forest fulfils very different economic, ecological and social functions from the artificial monocultures of large-scale oil palm plantations. The land is used for hunting, collection of firewood and medicines, building materials and various food products.

5. The official Environmental Impact Assessment commissioned by the company states that the whole concession area is 'forest land'. This study was carried out some two years after PT AI began land clearance operations, by which time at least 6,000ha of the land had been cleared. It is common practice for plantation companies to clear the most densely forested areas first, so they get some return on their investment by selling any commercially valuable timber which remains.

6. There is no doubt that much of Danau Sembuluh – like other logging and plantation concession areas in Kalimantan – was badly affected by the 1997/8 forest fires. PT AI's explanation that it was only burning to prevent farmers' fires spreading into its plantation is not acceptable because:
   • It had been illegal for companies to burn to clear land since 1994.
   • The forest it was burning was not all within its concession area.
   • Local farmers do not carry out uncontrolled burning. On the contrary, they have strict rules about how and when fire is used.
   • By contrast, contractors and transmigrant workers from Java do not have the same degree of experience in controlling fires in forest areas nor do they have the same motivation to prevent uncontrolled burning.

7. PT AI is still burning to clear land. Expanses of cleared land with heaps of burnt remains of trees can be seen along the R.Rungau above Terawan. Villagers say this was the remnants of a 200m band of their forest which until March 2000 had remained between a newly established plantation area and the river. They insist that this is deliberate company policy. It is apparently a regular practice and not an isolated incident. The most recent case in that area took place only two weeks before (see Photo 1 and Photo 2 and the GPS readings in Appendix F).

8. In the list of 176 companies accused by Forestry Minister Djamaluddin in 1997 of deliberately contributing to forest fires, 133 were plantation companies. The fact that PT AI was not specifically mentioned means little. That list was based on only a few weeks of satellite data at the height of the fires. Furthermore, the smoke was so thick in some parts of Central Kalimantan that it was not even possible to get accurate satellite images, let alone 'ground truth' the data.

9. Once plantation companies clear land, any remaining forest and the plantation areas burn much more easily. The same pattern is apparent in subsequent years. In April 2000 government officials were drawing attention to the role of plantation companies in causing the fires behind the annual smoke pollution which threatened parts of Indonesia - including Central Kalimantan - and neighbouring ASEAN countries.

10. In Indonesia there is there is generally a close association between deforestation and oil palm plantation developments. Many former logging concessions have had their status changed from 'Production Forest' to 'Conversion Forest'. The same conglomerates whose timber companies were guilty of overlogging, established plantation subsidiaries. They could then apply for permits to clear fell any remaining timber. This wood could be sold to plywood factories or paper pulp plants, sometimes within the same group.

11. There is no evidence so far that PT AI (or its predecessor PT Bohindomas) has such structural links to logging companies. However, it has undoubtedly benefited from the presence of legal and illegal logging as this degrades any remaining forest cover, making it easier to justify its 'conversion' to oil palm plantation, rather than its rehabilitation. Plantation roads have facilitated the transport of logs by truck to Sampit (previously access was limited to rivers or the lake). There are large numbers of illegal sawmills in the area, including at least one within PT AI's concession area (See Photo 13). These are not all covert, 'fly-by-night' operations – this example shows a semi-permanent building with heavy machinery by the lakeside.

12. The PT AI development has also contributed to a rise in illegal logging because it has consumed large tracts of forest land where the community formerly gathered forest products. Local people are now having to go further up into protected forest in the upper watershed areas to get forest products and timber needed to build traditional boats.

13. PT AI or its contractors have illegally cleared forest cover along river banks and the lake shores. Indonesian Forestry Department Decrees state that estate developers should leave 100metres of forest either side of major rivers; 50 metres along smaller rivers and 200 metres for lakes. These regulations have been violated in many locations on the PT AI estate. In some places, oil palms have been planted within 10 metres of the water.

14. CDC states that it would never invest in projects which 'destroy virgin forest' . This shows a profound lack of understanding of forest ecology and its social importance. It is arguable whether any rainforest in Indonesia is 'virgin' or wholly 'natural'. Experts from prestigious international forest research institutes based in Indonesia, such as CIFOR and ICRAF, have substantive evidence that all mature rainforest is in fact the product of long-term complex, subtle and sustainable interactions between indigenous communities living in and around these forests and their environment.

15. In Indonesia, as elsewhere in the world, there is concern in government, academic and NGO circles about biodiversity destruction. Genetic resources are lost as populations of organisms and numbers of species are reduced. Species and the ecological relationships between them are being lost before scientists have chance to study them.

16. The lowland forests of Central Kalimantan are under serious threat. Tanjung Puting National Park is the only protected area and even this forest is being degraded by illegal logging. Forest such as that which once surrounded the Sembuluh Lakes is the habitat for orang utans, proboscis monkeys, gibbons, clouded leopard, deer, civets, mouse deer, sun bears and up to two hundred bird species. Companies which clear forest for plantations are reducing the habitat of all these species and contributing to their extinction locally.

17. Companies may argue that secondary forest has little biodiversity value. It is true that species abundance and diversity is much less than in intact, mature rainforest, but this does not mean that secondary forest or even scrub is worthless and should be wiped away. At least 32 commercially important tree species and 20 species of medicinal plant have been identified in a preliminary study of forest gardens in one small location at Danau Sembuluh[28]. Secondary forest and scrubland are important wildlife habitats. Local people report that various species of deer, other mammals and birds common before the arrival of the oil palm plantation have now disappeared from the area.

C:   INCREASED POVERTY

"The estate will ultimately provide between two and three thousand new jobs" CDC, 1999[29]

1. The removal of thousands of hectares of land from local control, the destruction of the existing vegetation and its replacement by a monoculture of oil palm results in a decline in community incomes and a rise in the cost of living. In the mid-1990s, local people were making a reasonable living. They were largely self-sufficient in rice. In addition to their subsistence activities, they generated annual incomes in the order of Rp7.5 million (approximately Rp20,000/day or equivalent to US$3,000/year an exchange rates then). Some people earned more: a carpenter made Rp30,000 per day (over Rp10 million/year); one man made Rp20 million in a good year from a boat which transported goods in and out of the area. This was at a time when peasant farmers on Java earned under US$1,000/year.

2. Once their forests and land have gone, indigenous communities lose both their means of food production and income generation. People must pay – in cash – for food and other goods which they previously produced for themselves. Bushmeat has become scare and fish populations are falling. People cannot grow their own rice, vegetables and sugar. Commercially produced remedies must be purchased as many medicinal plants required for traditional health care are hard to come by. Forest farmers can no longer make a living by tapping rubber and collecting fruits, nuts and resins. Species of trees valuable to the local community for timber, fruits and other non-timber forest products - such as durian, nyatoh, jelutung, tengkawang, gembor and kayu ulin - which logging companies were not legally allowed to touch, were cut down by the company or its contractors when it clear felled any remaining forest before replanting with oil palms. Traditional boat builders, house builders and carpenters have been hard hit by steep increases in local timber prices and the loss of employment since the forests were cleared. Kayu ulin (a kind of ironwood) is particularly valued as it does not easily rot and can therefore be used for the supports for lakeside houses and for local boats. It was never common, but is now very scarce and must be bought in from up to 70 km away. Moreover, prices of all goods and transport have risen sharply since the onset of Indonesia's economic crisis in 1997.

3. Logging used to be an important income-generating activity for many local people - particularly, but not exclusively for Melayu communities. Some worked for logging companies, but most worked for themselves or middlemen based in port towns on major rivers or the coast, such as Sampit, Pangkalanbun and Kualapembuang.

4. This is a sensitive issue. On the one hand, the indigenous people do not consider this to be illegal logging. They see the forests as their customary lands, handed down to them through the generations. They consider they have the right to fell trees for their own needs, such as building homes and boats, plus making a little extra through supplying small amounts of timber to others. On the other, chainsaws - not saws and axes, have been used for the past twenty years – and not just locals are involved. Furthermore, there is a well-organised trade from the Sembuluh lakes area to Java and further afield.

5. Whatever the rights and wrongs of the situation, local communities are turning more and more to logging as the only means of providing for their families because increasing amounts of their land and traditional plantations are being allocated to plantations – including PT AI. They have also seen how first logging companies, then plantation companies have taken most of the forest and a 'free for all' is developing as people try to make the most of what is left. The large, commercially valuable trees were stripped out by timber companies during the 1980s and 90s from the more accessible areas. Local loggers are now going further and further up river to find timber and harvesting smaller trees from forest remnants between plantation concessions. It is possible that some are even logging forested hillside officially designated as 'Protection Forest', intended to protect watersheds and prevent erosion.

6. One obvious alternative form of employment for local people is to work for the plantation as labourers. However, the company originally justified bringing in 2,000-3,000 transmigrants (the estimated total workforce) on the basis that the area was so sparsely populated. The 1,000 or so families estimated to have lost their main source of livelihood once their land was taken over by the plantation company were not included in this calculation of 'new jobs'. Agro Hope, as PT AI's managers, do not want to rely on local labour who they see as unskilled, unreliable and difficult to train. In their opinion, transmigrants brought in from Java on five-year employment contracts are more amenable to a regular work regime. This system has the added advantage that it is easier to get rid of workers considered unsuitable.

7. CDC's assertion that Agro Hope/PT AI intended "to minimise the impact on the local population by ensuring that transmigrants return to their place of origin when no longer employed by the company" does not hold water. Most transmigrants cannot simply go home, because they do not have a home or a means of livelihood to return to. The problems of landless peasants, communities displaced by industrial or commercial developments and the impacts of the severe economic crisis on Java are well documented. There is a very real prospect that transmigrants no longer employed on the PT AI plantation will join the general labour pool in the area and occupy whatever land they can for subsistance farming or turn to illegal logging.

8. Wages for plantation workers in Indonesia are generally low. PT AI workers used to start on Rp6,500 –7,500 per day; this was recently increased to Rp10,500 per day. Currently, around 30 local workers (all women and children) are employed on a casual basis to weed around the oil palms . Villagers say that the company only took them on after the bridge incident (see p17). In comparison with other oil palm estate workers in Indonesia, PT AI workers are not badly paid. However, the fact remains that if one person is employed by the company his/her daily wages alone cannot support a family. As rough calculation, a local family with two parents and two children need an income of between Rp15,000 and Rp30,000 per day. This only covers their basic needs: food, electricity, diesel (for local transport), everyday clothes, school uniforms and books and minor medical expenses. It does not allow for other important things in life including hospital fees, visiting distant relatives, weddings, funeral, trips to Mecca (for Muslims) or the children's inheritance.

9. Another alternative is to cultivate oil palms through a plantation smallholder scheme. Indonesian plantation companies operated a nucleus estate & smallholder system until 1994 (NES or PIR). Private developers prepared plots of land for smallholders (usually transmigrants) who cultivated the oil palms under the supervision of the estate management. The estate then purchased oil palm fruits from the smallholders. A variation on this system was the Primary Co-operative Credit for Members scheme (KKPA) introduced in 1995 whereby local farmers got 2 hectare plantation stakeholdings operated through a village co-operative. Both systems have been heavily criticised, not least because they require local shareholders to take on substantial debt burdens through the bank credits needed to purchase fertilisers and other agrochemicals, plus financial support before the oil palms are productive. More recently, the government has proposed a range of new forms of 'partnership' between plantation companies and local communities, but it is far from clear how these are supposed to operate.

10. PT AI has apparently set up two KKPA co-operatives - Koperasi Sawit Danua Mas and Koperasi Cempaka Mas - and recruited some influential villagers to give them some legitimacy as community organisations. Even a former village official who is now on the community relations staff of a neighbouring plantation company could not explain how the KKPA stakeholder scheme worked or what the potential advantages and drawbacks may be. As yet, there are no other productive oil palm plantations in the immediate vicinity, so villagers cannot learn from other local people's experiences. They all use the (somewhat outdated ) term plasma to refer to any plantation shareholder scheme.

11. The majority of local people are confused. For some of them, plasma is literally the 'Promised Land': they think will get back some of their own land, be paid by the company, be able to continue growing their own crops alongside the oil palm and eventually become rich from selling palm oil. The company is reported to have told them they would make Rp1 million per month – split 40% for the company; 60% profit for themselves. Others say they will have to pay the company 75% of what they earn. Some have been told that plasma can support 540 oil palms per hectare. The Environmental Impact Assessment says that planting density will only be 136-138 trees/ha. They have no clear idea of the size of the loans that have to be repaid; what the loans were for; the prices they will receive for their produce; the costs of the scheme; or how long it will take them to repay the debts, especially since Indonesia's economic crisis affected interest rates and prices of goods. Nor do they realise that oil palms are only productive for a limited number of years and must then be replaced.

12. The inhabitants of Terawan, Lampasa and Bangkal were, on the whole, more ready to accept the plasma scheme than the people of Sembuluh. This may be because many lost their land several years ago and what compensation they received, if any, has now gone. However, so far none have yet received any plantation plots. The company has yet to announce where the plasma scheme will be or when it will start. Villagers do not understand why this is taking PT AI so long.

D:   DECREASED QUALITY OF LIFE

The development will "stimulate the local economy through support services which this agro-industrial complex will require" PT AI's Environmental Impact Assessment[30]

1. The cultural and psychological impact on the indigenous community of losing their land to the plantation company cannot be under-estimated. Land ownership and forest farming are integral parts of their way of life. Many people are now getting anxious about the future and ask: "How can we make a living? What will become of us? What will be left for our descendants?". Some are bewildered and depressed; others have become angry as they begin to realise the implications of their losses. This aspect of the plantation development has not been addressed by the company or its investors to date.

2. People are also upset about their loss of independence. They had taken pride in their communities' self-sufficiency. The loss of their subsistence farming and various income generating activities from the forest meant they had no other choice but to work for the company. They fear this dependency and possible exploitation by the company. They are also well aware of the irony that this is what the government calls 'development'.

3. A number of witnesses stated that, before PT AI came on the scene, wildlife and fish were abundant. Hunting and fishing were not people's primary occupations, but they were important regular sources of food. Now deer are rarely seen and fish catches are falling. A negative impact on people's diet and health is not noticeable yet, but is likely in future since the indigenous people do not keep livestock and, as incomes are low, they cannot afford to buy other protein sources.

4. The quality of the river water has declined. Before the plantation was established the river and lake waters were very clear. People said you could see right to the bottom of the lake. Now the rivers are brown with sediment, especially when it rains heavily - the result of soil erosion up stream and run-off from the oil palm plantation. The indigenous community's lifestyle is closely associated with the lake and rivers on which they depend for drinking water and water for all domestic needs. They also associate the muddy water with a decline in fish and shrimp populations.

5. Local people report that flooding of lakeside settlements and riperian forest has become more common in the past few years. This was particularly apparent in Bangkal in late 1999. They also complain that the local climate has changed – the days are hotter and the division between wet and dry seasons less predictable. They associate both these phenomena with the destruction of forests and the expansion of oil palm plantations.

6. There is a risk of water pollution from the oil palm plantation and the processing plant. Local people fear that waste from the processing plant will be discharged directly or indirectly into local streams and rivers which they use for domestic consumption and fishing. The villagers have not seen the company's Environmental Impact Assessment or its Environmental Management Plans.

7. Local people are already concerned about the impact on their health of the large amounts of fertilisers, pesticides and herbicides used on the plantation. They fear that, in an area of high rainfall, these chemicals will get washed into their water supplies – especially as oil palms have been planted almost to the waterline in places. They are also asking about the potential effects of these agro-chemicals on aquatic life, including the fish and shrimps which are daily items in the local diet.

8. Herbicides such as Round-Up are used to clear any vegetation remaining after land clearance. More herbicide is used later to get rid of the ground cover planted to prevent soil erosion and the invasion of Imperata sp. PT AI staff have told local people that they can drink water 2 days after spraying, but the locals have no idea when or where these chemicals have been used. In any event, they have no other source of drinking or domestic water. So they have no alternative but to continue drinking the water.

9. The locals report that they have suffered more illnesses in recent years, including colds, fevers, appetite loss and skin problems. They blame this on the plantation. These allegations are hard to substantiate as there is no conventional health care service or base line data on community health. These symptoms may reflect the psychological strain or increased poverty rather than any water pollution due to pesticides.

10. The oil palm processing factory will use substantial amounts of water from the River Rungan which feeds into the lake some 1-2 kilometres away. 1.5 cubic metres of water are needed to process each tonne of fresh palm fruit. This means a daily total of 2,400m3, since the throughput is 60 tonnes per hour and the factory will operate 20 hours per day. This could have a substantial impact on fish stocks and other aquatic life[31].

E:    LACK OF PROPER APPRAISAL OR MONITORING OF ENVIRONMENTAL AND SOCIAL IMPACTS

"We screen new investments for conformity to our standards before committing ourselves"[32]

"We believe in……the economic benefits of a well-designed and well-monitored project in which the environmental and social impacts are carefully assessed and minimised"[33]

1. The PT AI development does not qualify on either count. The PT AI development was not 'well-designed'. The primary motivation was and is the financial return on the investment. No independent assessment of the potential environmental and social impact was ever carried out. The Environmental Impact Assessment (EIA; AMDAL) was carried out in 1997, two years after land clearance began. There was no community participation or consultation during the preparation of this EIA, which was commissioned and paid for by PT AI.

2. It is not at all unusual for EIAs to be carried out retrospectively in Indonesia. What makes this case noteworthy is that the EIA was completed in early 1998; together with the Environmental Management Plans it was approved by the Department of forestry and Agriculture in August 1998. This was a period of unparalleled political upheaval with two changes of government ministers and officials within six months as President Suharto was replaced by Habibie. Consequently, it is quite likely that this document was never properly read in Jakarta or Palangkaraya. There was no opportunity for public scrutiny of the report or discussion with stakeholders – including the local community and civil society groups - before it received official approval.

3. Neither has the PT AI development been 'well-monitored'. The Environment Management Plan (Rencana Pengelolaan Lingkungan) and Plan for Monitoring the Plantation and Processing Factory (Rencana Pemantauan Lingkungan Perkebunan dan Pabrik Pengeloaan Kelapa Sawit PT Agro Indomas) produced for the company required under Indonesian law are mere formalities. There is no external monitoring. Environmental Management Agencies (BAPEDALDA) in Indonesia are notoriously underfunded and lack effective powers. These are supposed to function on a provincial basis. It is not realistic, given the vast size of Central Kalimantan and the number of developments in the province with potentially important environmental impacts, that the local office will be able to visit PT AI and monitor its activities on a regular basis. In all likelihood, BAPEDALDA has not had any contact with this development since the EIA was completed in early 1998. Furthermore, unlike Java, Central Kalimantan does not have many universities or research institutions. The nearest Environmental Study Centre is 6 hours by road from the Sembuluh lakes area at the University of Palangkaraya.

4. PT AI did not supervise closely the work of its contractors in the field during land clearance. These were not local companies but contract companies from Java. Vegetation, including forests and local peoples' plantations, were cleared and planted to the lake shores and river banks. For example, oil palm has been planted within 20m of the lake at Teluk Sebakat (see Photo 12). This contravenes environmental regulations. In addition it contravenes CDC's account of land clearance policy: "If…riparian strips of indigenous vegetation are encouraged within the estate, the overall effect can be sufficiently diverse to avoid the worst problems of monoculture". Bulldozers cleared outside the concession margins. Even marshy areas (ayap; rawa tadah hujan) which local people used for wet rice cultivation were cleared and planted with oil palm (for example, marshes between Terawan and Lampasa). However, no action was taken by the company or the local authorities.

5. The sub-district officer (camat) of Danau Sembuluh, Djoni Ardi, and local police chief, Abdul Wakid, have apparently expressed their concern about potential pollution problems due to the large-scale use of fertilisers and pesticides on the oil palm plantation. They are also concerned about rise in the level of the lake and local rivers and the flooding problem this has caused. They have tried to discuss these issues with PT AI representatives, but the company seemed to be indifferent and has been unwilling to co-ordinate with the local government[34]. No proper base-line study has been carried on the ecosystems of the Sembuluh lakes and associated rivers by the company, local government or academic institutions[35]. It will therefore be difficult, if not impossible to assess accurately any impacts of the plantation.

F:   DESECRATION OF GRAVES

"CDC seeks to ensure that cultural property, such as grave sites, are properly mapped and respected in any such development"[36]

Seven graves were desecrated when PT AI or its contractors cleared community land. Four were totally destroyed; three are now in the middle of the oil palm plantation. Another 29 graves near a major access road for the plantation are the focus of a dispute with the company. Local people want to relocate this burial ground somewhere more suitable. The company has offered some compensation, but the villagers said that was not appropriate: to respect the dead needs a proper location, not money.

G:   INCREASED CONFLICTS WITH AND WITHIN THE COMMUNITY

"There are a number of sensitive issues that require close monitoring and open discussion with the stakeholders"[37]

1. PT AI and Agro Hope's attitude towards the local community and civil society groups has been at best indifferent and at worst confrontational. These companies have not, at any stage in their operations, talked direct and openly with the indigenous community about their plans. Indeed they seem to avoid such meetings or any discussion of environmental, social or human rights issues. Statements made by company representatives at international meetings and in the local press, put a clear emphasis on the company's profit motive. The Danau Sembuluh communities originally saw the company's presence in a very different light. Possibly conditioned by decades of government propaganda about 'development', they expected the company to support them; to provide their families with a good standard of living; to protect their environment. This mismatch in expectations lies at the heart of the conflicts.

2. Many people interviewed felt that the company had shown a lack of respect to the local community. These generally referred to cases where the company came in and took over land without any consultation. Some of the claimants have been nursing their grievances for several years. Specific examples of this 'lack of respect' included reports of land taken up to four years ago for which people have yet to receive any compensation; ripe crops which were bulldozed into the ground before people had any chance to harvest them; the destruction of valuable fruit and rubber plantations; the desecration of burial sites. Local people talk about broken promises to do with compensation and the plantation co-operative scheme.

3. The company insists that it has already paid out substantial amounts in compensation and cannot afford to pay out more. PT AI management claims that it has spent some Rp1.2 billion on compensation. This is the equivalent of US$170,000 out of a total investment of over US$40 million, for which the company got the use of some 12,000ha of land for 30 years. Local people point out that they have spent a good deal of time and money fighting for their rights. Some people may already have paid out more than they will probably get in compensation.

4. Local claimants suspect that the company is deliberately prolonging the compensation cases, for example by questioning the validity of some claims and insisting on having the data rechecked. As the company removed most of the traditional boundary markers some years ago during land clearance operations, this adds insult to injury. The company has not come up with any practical suggestions for criteria other than land certificates or other written records which it would consider valid in reassessing claims.

5. PT AI's approach has been that the local government should deal with the problems or claimants should pursue cases of disputed compensation payments or land claims through the courts. Local people consider this attitude is unreasonable and unhelpful. The situation is not helped by they cannot gain access to company records to help their cases. Company staff have told villagers that PT AI/Agro Hope did not keep detailed records showing how much compensation had been paid to which individuals and for which plots of land. This means that it is impossible for villagers to prove that the compensation intended for them was in fact given to others, or that local officials or other villagers may have taken a cut from the compensation.

6. The communities' hopes were raised when the local government set up the so-called Team of Nine to resolve the conflicts in 1998. In contrast with the pattern of investigations in the Suharto years, this team did not include representatives of the local military and police and operated in a more open way. For example, members of the local communities from Terawan, Bangkal, Sembuluh I and II have been invited to take part in some meetings. The Team of Nine (Tim 9) consists of :

   Doel Rawing	1st Assistant, Kotawaringin Timur District Government
   Gaul	District Land Office
   Gatin Rangkai	Local Agriculture Dept
   Manthil	District government official
   Usup Sulaiman	District government official
   H. Djoni Ardi	Danau Sembuluh Sub-district officer (camat)
   Gani Wijaya	PI AI representative
   Badoarjono	Village head Bangkal
   Ahmad Napiah	Village Secretary Sembuluh I
   Mu'. Minsyah	Village Head Terawan

7. The Team of Nine initiative has been a long, slow process. Over a year after it was established there were no tangible results. A big meeting, attended by members of the local communities and company representatives was held in early December 1999 following the Terawan bridge incident (see later). The local authorities decided to set up another team to make an inventory of all claims for compensation. This comprised members of the Local Assembly, technical staff from the land agency and agriculture departments and a local NGO. The Inventory Team spent some 20 days in the villages gathering data. Villagers had submitted this evidence by late February 2000. There are 1,400 claims from around 500 people. The next stage is to verify these, but it took 4 months for local officials even to send the data to the District Administration in Sampit for processing. Some villagers are beginning to lose patience.

8. Quite apart from the slow pace of the Team of Nine's progress, there is some dissatisfaction with its methods. The "spirit of reform" much heralded in Jakarta has yet to reach this part of central Kalimantan. The local administration still considers it appropriate to discuss plans or findings with government departments first, followed by the company. The community is only informed later, if at all.

9. Some members of the community are now desperate for compensation and despairing of official solutions. This makes them even more vulnerable. Outsiders have come to the area offering to negotiate with the company on their behalf in return for either a cut of any compensation paid out or cash up front. A negotiator from Sampit was successful in helping villagers at Bangkal get compensation from PT AI in 1997. On the other hand, a group from Palangkaraya which promised villagers it would act on their behalf has not been seen for six months. These interventions further divide the community as rumours abound about the payments received and promises made by various parties. Many people still put their trust in the Team of Nine, primarily because they cannot afford to do otherwise. The company is aware of these initiatives and accuses 'NGOs' of stirring up the community. This generates more suspicion and distrust and – deliberately or unintentionally - may help to keep out civil society groups whose genuine aim is to help protect the community's rights and local democracy.

10. A graphic illustration of how relations between the company and community are breaking down was the incident at Terawan in late 1999 where local people destroyed a bridge in PT AI's concession. The bridge was constructed by the company so its trucks could cross the River Rungau. When the water levels were high, there was only 0.5m clearance. The company had not responded to local people's requests to replace the bridge with a higher one. Local people had to wait overnight or several days until they cause pass downstream by boat. This cost them time and money as they could not get their timber and other produce to market. The bridge became a symbol of local people's resentment against the company. A burial ground only 30 metres from the bridge showed that this had been their community's land for generations. Now the company not only took their land and their forests, but prevented them from making a living by other means. In last December, some of them took chainsaws to the bridge in broad daylight. To the company and officials in Sampit, this was an act of wanton vandalism by troublemakers. To the protestors it was the only way they had to make the company take more notice of their needs, adhere to its promises and respect their rights.

11. It is a measure of the poor relations between PT Agro Indomas and members of the Danau Sembuluh community that other local people are now saying loud and clear that they do not want any more oil palm plantations in the area. The inhabitants of Tabiku (a settlement incorporated into Sembuluh I) refused to consider giving up their land to another oil palm plantation company which wanted to come into the area. Indeed, the local community were so opposed to the PT Salunuk Ladang Mas development that they marked their ownership of their customary lands by establishing rubber plantations on it. There have been a number of confrontations in Central Kalimantan this year. At PT. Sapta Karya Damai, the workers mess and a piece of heavy equipment were burnt; local people occupied PT Lestari Unggal's plantation concession and threats have been made to burn down other oil palm plantations in the area.

12. These incidents stimulated Kotawaringin Timor's district head, Wahyudi K. Anwar, to go to Jakarta in early September to find out what the bosses of the big palm oil companies wanted and to tell them to take their social responsibilities seriously. The companies are reported to be prepared to 'make a contribution towards local government revenues and community welfare' but expected the local authorities to play their part by ensuring security and enforcing the law. The previous week, Asmawi Agani, Central Kalimantan's governor visited a large oil palm plantation in Kotawaringin to boost company and local government morale.

13. Once concerns about the growing tensions between Agro Indomas and the community were expressed to the company's financial backers in Europe, the company and its investors have taken a more active interest in the problems – albeit behind the scenes. A senior manager from the Singapore office of Rabobank visited PT AI and the Danau Sembuluh plantation in May; Kuruvilla, of Agro Hope Shd Bdh and President Director of PT Agro Indomas went there a few weeks later; and CDC's Jakarta representative in August. It is not known whether these senior figures met with the government's Team of Nine investigators as well as the company. Local villagers and civil society groups knew nothing about the visits, which implies that no community meetings were held. PT AI cancelled an open meeting with local communities due to be held on July 6th saying that the local authorities had not approved it. The community was not notified that the meeting was cancelled and the local government denies that they did not approve it.

14. PT AI/Agro Indomas' main response to questions from civil society groups and its investors about problems between the plantation and the community has not been to address the community's demands, but to launch a public relations assault. This has included an attack in the local press by PT AI's senior manager on a Australian academic under the aegis of a reputable international research institution whom he accused of being part of a global business conspiracy to get investors to pull out[38].

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"We don't mind the company being here, but they don't do anything for us. If they paid some consideration towards our well-being, that would be fine. If they don't want to, we don't want them here. It would have been different if they had shown us some respect or taken some interest in the indigenous community when they first came here. They keep saying the compensation will be discussed next week, but it's always 'next week'"[39]

The indigenous communities' demands are remarkably modest. The majority are not demanding full recognition of their customary land rights and control of their traditional lands. These people do not want PT Agro Indomas to close down or sell out. Neither do they want PT AI's financial backers to pull out. What they are asking for is that the company and its investors meet their obligations to the community.

1. The local government and company must immediately make publicly available official maps showing definitively PT AI's concession area. A joint mapping team comprising mapping experts and representatives of the community, local government and company should determine the actual area cleared and/or planted. This should be funded by the foreign investors as a matter of priority.

2. The company and its contractors must stop clearing land outside the concession area, for whatever reason, and must not clear any more customary or private land within the concession area without the consent of the community and the traditional land owner. Areas of forest, agro-forestry or fields which were taken illegally must be rehabilitated/restored.

3. All compensation claims for land, fields, crops and trees must be validated and processed quickly and fairly. This must be an open, transparent process. The reasons for the delays in validating compensation claims must be made clear and immediate action should be taken to overcome the problems. The Team of Nine must report to the local community regularly and fully on progress. If the Team of Nine and the validation team cannot do this, another mechanism must be established with the agreement of all parties. An appeals procedure to review case evidence and decisions must also be set up with the agreement of all parties.

4. Compensation rates must be renegotiated. This must be a fair, open process. It must take into account the value of the land and crops (especially forest land and tree crops) to the indigenous community. These negotiations should be conducted directly between the company and its investors on the one side and community representatives on the other (chosen by the community in accordance with their culture/traditions). Local government representatives should mediate the negotiations but not determine compensation rates.

5. Burial grounds and graves must be respected. Oil palms must not be planted on these sites and must be removed. Compensation or fines payable under adat law must be agreed with the community and the families concerned, then paid promptly.

6. All burning to clear vegetation on or around the plantation by the company and/or its contractors must stop immediately.

7. The company must implement methods of oil palm cultivation which minimise the use of agro-chemicals with potential health hazards.

8. The local government must explain to the company and the local community about the environmental protection laws which apply to the plantation and the surrounding area. All parties should be clear about regulations pertaining to land clearance, burning, logging, use of river margins, use of pesticides and other agro-chemicals.

9. The company must explain clearly and honestly about its 'plasma' scheme – including the potential advantages, risks and areas of uncertainty. This is essential so local people can make an informed choice about whether the scheme should operate as currently planned or not and whether they - as individuals – wish to participate.

10. People who decide to take part in the existing KKPA must be allocated stakeholdings soon. These must be relatively near to the river and settlements so the farmers can tend their plots easily.

11. Some forest land must be left for the local community to make a living on. The older people do not have the skills required for plantation work and plantation pay is too low to support a family with only one wage earner.

12. The company and its investors must respect the indigenous people's rights, in particular, the right to a standard of living adequate for the health and well-being of the people and their families and the right to security for future generations. The company, its investors, the local government and the community must start an open dialogue about ways in which this can be achieved. The indigenous community must have the final say. This must result in a programme of real, practical measures and a schedule with targets for action and deadlines.

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It may be concluded that PT AI, its managers and its investors have made some serious mistakes which have had grave consequences – not least for the local communities and their environment. Putting on one side for a moment the details of the Agro Indomas case, the fundamental question is why CDC ever considered investing in oil palm plantations in Indonesia in the first place. There is ample evidence that companies investing in large-scale oil palm plantations are contributing to forest destruction and the dispossession and impoverishment of local communities. Investment companies, like CDC and Rabobank, should be more aware of the flexibility of Indonesia's 'permanent' forest estate. Natural forest can be reclassified for 'conversion' (i.e. clearance for plantations or agriculture) following intensive logging. The Sembuluh Lakes area is a case in point. Such financing institutions are promoting the conversion of natural forest into oil palm plantation by providing financing for companies which are 'diversifying' from logging into the plantation sector.

A second question is why, of the very many oil palm plantation companies in Indonesian, CDC chose to invest in a Malaysian company which is on record as considering environmental and social conditionalities on loans an unwelcome burden. CDC and Rabobank should have made greater efforts to establish the facts surrounding the PT Agro Indomas plantation for itself. Correspondence with CDC strongly suggests that the investors had relied heavily on reports provided by the company or second-hand sources. This is simply not acceptable in view of CDC's public statements about the emphasis the company places on good practice and concern for environmental and social issues.

By 1998, CDC had drawn up its statement of business principles and policies covering health and safety, environment, social issues and business integrity. Furthermore, according to CDC's Report and Accounts for the year, a survey of the whole portfolio was carried out to look for areas of non-compliance with CDC's social issues policy. The conclusion in that report was that "there were very few investments in the portfolio where a risk of non-compliance with any aspect of the policy was apparent." It is not revealed whether PT Agro Indomas was included in the exceptions.

The Agro Indomas development may well be a very efficient and profitably run oil palm plantation. However, its operations have been characterised by a lack of understanding about the way the indigenous people use their land, a lack of sensitivity about compensation demands and a lack of transparency between the company, the operational management and its investors as well as between these companies and the local community. It is not sufficient to blame these failures on the problems of working within the authoritarian regime which prevailed for so long in Indonesia. CDC announced its US$14.4 investment in PT Agro Indomas in August 1999 - over a year after the fall of Suharto. At that stage, Indonesia's press was reporting on land disputes all over the country, including Central Kalimantan. It is scarcely believable that CDC (or Rabobank) did not know that the plantation development in which they were investing had serious, unresolved community disputes.

In addition to the social issues there are serious environmental problems with the Agro Indomas plantation. The EIA was only carried out a couple of years after land clearance and planting of oil palms had begun. This raises the possibility that PT AI may even have commissioned the Environmental Assessment with a view to attracting investors rather than complying with Indonesian law. Moreover, the field visit which formed the basis for this report provides evidence that the plantation's managers or its contractors are still burning to clear land. What is more, the burning is mainly to clear forest outside PT AI's concession – apparently in order to prevent encroachment by local people. The illegal destruction of local people's property does nothing to contribute to improving community relations. It also begs the question as to why – if oil palm plantations are so beneficial to local economies – local people may even consider encroaching on what has become plantation concession land.

Even though CDC and Rabobank are investors in rather than the owners of PT AI, they should accept responsibility for the effects of their investment and exert all possible influence on their partners to improve their environmental and social record. It is very much in the company's own interests to do this for several reasons. Firstly, it is worth noting that the most prominent partners in this development are not the Indonesian companies but Sri Lankan, Malaysian, British and Dutch. As a foreign-financed company, PT AI and its financial backers are in a very sensitive position. On the one hand, the Indonesian government is encouraging foreign investment in order to kick start the country's sluggish economy. On the other, nationalist sentiments are running high and a foreign-backed company which has confrontations with the local community is more vulnerable to attack by the media, politicians and the public than one which is wholly Indonesian-owned.

Furthermore, community disputes can have a damaging effect on a company's ability to repay its loans. The confrontations between the plantations group LonSum and Dayak communities in East Kalimantan during 1999 are sharp reminder about importance of taking indigenous peoples' rights seriously. If open conflict with the community is to be avoided, there must now be reparations. Moreover, the problems in this specific case must not be repeated in the future at Danau Sembuluh or in other ventures in which this company or its investors may be considering.

Relations between PT AI management and at least certain members of the community are far from good, but the situation is not irreparable. Local people are not reclaiming their lands which have been taken by the estate, neither are they demanding that PT AI, Agro Hope, CDC or Rabobank withdraw from this development. The community wants dialogue with the estate managers. They want PT AI's investors to live up to their commitment about business integrity, social and environmental issues.

CDC, Rabobank and PT AI should regard this as an opportunity to become an example of good practice. This will require a fundamental change of perspective. The local communities and civil society groups must genuinely be respected as partners instead of treated as the opposition. At the same time, the investors must help the company to be commercially successful while taking on board its social and environmental obligations. There are no easy solutions. Much diplomacy will be needed to heal relations between different factions within the community and to change attitudes towards and within the company.

It is essential that CDC and Rabobank take a more proactive role in promoting business ethics with its partners. It must encourage constructive responses to potential problems; monitor what its partners are doing and – if this does not achieve the desired aims – not be afraid to invest further over a longer period until the goals are met.

A wide range of Indonesian non-governmental organisations and international agencies have good grassroots contacts and broad practical experience of the issues important to indigenous communities. Some of the best are located in West Kalimantan e.g. Pancur Kasih, IDRD and LBBT. Others are based in Jakarta/Java e.g. the Ford Foundation, FKKM, Bina Swadaya, ELSAM and RMI. These could be approached for advice and assistance to help the company in improving its relations with the local community and addressing their needs.

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A:    SPECIFIC TO THE PT AGRO INDOMAS/AGRO HOPE DEVELOPMENT

"Where breaches are identified, we will work with company management to achieve substantial progress towards compliance within a reasonable time frame"[40]

1. The investors must not press PT AI/Agro Indomas for a loan repayment rate which does not allow the development to meet the ethical principles to which they are committed. Shareholders might have to be prepared for a slower return on their investment than initially envisaged. The investors should also endeavour to change the perspective of local government officials who are pressing companies to reach maximum productivity solely in order to increase local revenues.

2. The plantation company and its investors must be transparent about past misunderstandings and injustices over land claims and compensation. Indigenous peoples' rights over their customary lands must be recognised.

3. The investors must encourage a change of culture in the company so that it makes more efforts to understand and respect the indigenous people and their perspectives – particularly their land rights and resource management systems and community decision-making processes. This requires more than just 'bringing in an anthropologist to find out how to get round it.' It involves setting up mechanisms whereby the company, its managers and investors have better methods of communication and conflict resolution with the local community.

4. The investors have a responsibility to bridge the gap in perspectives between PT AI and the local community over compensation rates. The company must recognise the community's opportunity costs i.e. the losses which people have suffered since they lost their property and the loss of earning potential from it, not just the commercial value of land per square metre at the time it was taken over or the value of timber in a tree.

5. The local people must also recognise that company is a commercial operation, not a charitable fund. However, PT AI can afford to spend more. The Rp1.2 billion compensation paid out so far amounts to only about 0.4% of the total project cost. For this very modest sum, the company has acquired the use of a large area of land for a long period.

6. The investors must insist that the company and its managers co-operate fully with the local government investigation and verification teams, or whatever mechanism is decided by all parties to be a fair means of replacing this method of resolving compensation issues. They should help the company to seek acceptable alternatives to settling disputes through the courts. The Indonesian judicial system is badly in need of fundamental reform. It is slow, corrupt, ineffective and expensive. It also puts indigenous peoples at a disadvantage compared with the company or local government who are far more experienced in pursuing claims through the courts.

7. As investors with ethical commitments to their shareholders and the community, CDC and Rabobank should be more proactive in obtaining independent sources of information about the plantation and monitoring the social, economic and environmental impacts on the local community. They should not rely on the plantation managers, owners or local government as their sole sources of information.

8. CDC/Rabobank should fund the proper mapping of the area actually occupied by PT AI's plantation and, as far as possible, the overlap with local people's lands. Illegally cleared forests, particularly along the rivers and lake shores must be restored.

9. Investors should fund a baseline study of the terrestrial and aquatic environment in and around the PT AI plantation and have independent checks on a monitoring programme to investigate potentially negative impacts. The company and community should participate in these programmes on an equal basis. Adequate funds must be allocated for preventing and treating any pollution. More research should be funded by CDC into organic agriculture.

10. The investors should seek out examples of good practice in co-operative oil palm plantation schemes (KKPA) – especially those in Kalimantan – and use this information to encourage PT AI/Agro Hope to set up an equitable system which meets the community's needs at Danau Sembuluh.

11. Studies should be carried out on the feasibility and acceptability to both the community and the company of mixed cropping within the plantation concession. The possibility of growing rubber and/or fruit trees in mixed plantings with oil palm should be investigated. Another alternative is intercropping of vegetables, beans and fruits between rows of oil palm in a variant of the Javanese tumpang sari practice. Any such innovations must be socially as well as economically and ecologically sustainable.

12. Investors and the company must take a broader view of community needs. The old-style 'community development' programme whereby a logging or plantation company was said to have fulfilled its social responsibility by providing a road, small mosque or football field will no longer suffice. Mechanisms must be set up to explore other understandings of local needs. Any initiatives must come out of genuine consultation with the local community, not a 'top-down' operation. One example may be for claimants who have received compensation to set up their own Credit Union to provide some income and more security for the future. Another possibility is to fund small-scale trials for local farmers to grow 'new' cash crops such as pepper, coffee or cocoa on a sustainable basis.

13. The investors and their partner companies must take local autonomy seriously. Investors need to encourage PT AI/Agro Hope to recognise and promote local democracy and community decision-making in the context of its operations.

In all these actions, CDC and Rabobank should encourage its partner company to seek advice from and the active participation of the local community, plus civil society groups with practical experience of the issues important to indigenous communities.

B:   INVESTMENTS IN LARGE-SCALE PLANTATIONS IN INDONESIA IN GENERAL

"We subscribe to the view that successful and responsible business is good for development."[41]

1. CDC should not engage in or given any financial support to any developments in Indonesia which involve – directly or indirectly – the conversion of any forest into large-scale plantations (i.e. over 100ha). Financial institutions with ethical policies like CDC and Rabobank should invest in companies and communities that aim to restore or maintain forests for sustainable uses.

2. CDC's stated policy of "never financing developments that are based on the clearing of virgin forest" is meaningless and must be changed. All forest – whether virgin or not – on which local communities depend for their livelihoods and which provides habitats for wildlife is valuable. The overriding principle must be that local communities' rights over their forests must be respected.

3. In all its activities, CDC must recognise the local people's rights and also protect natural resources. The whole community must be fully consulted and genuinely involved in any development from the initial (pre-planning) stages. Democracy in Indonesia is not yet at a stage where any investor or company should rely on negotiations with local or central government alone as sufficient to represent the indigenous communities' wishes.

4. New forms of 'partnership' with local communities must be explored, apart from government-style co-operatives. These could include shareholdings in companies, equivalent to the land and natural resources which local communities are investing in their developments.

5. The cost of fair compensation for any past injustices and/or rehabilitation due to previous mismanagement must be properly assessed and provided for as an integral part of the costs of any development. If these costs are too high to make the investment financially viable, the investment should not go ahead.

6. CDC must commission full, independent investigations into the impacts of any development in which it considering investing before deciding whether to go ahead. This should cover the impacts on the local community's rights as well as their local economy, social structure, culture and environment. It must not rely on local partners or government as sources of information. Procedures must be established to make the results available to the community and civil society groups while protecting commercial interests.

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Aug 1995	PT Agro Indomas established as a company; 12,000ha oil palm concession
Nov 1995	25ha oil palm nursery established
Late 1995	Land clearing started in Danau Sembuluh sub-district
1996	First claims made by local communities for land and crop compensation
Oct 1996	PT AI started planting oil palms on cleared land
March 1997	2,050ha of oil palm had been planted
1997	Compensation was paid out to three settlements in two phases
May 1998	Suharto steps down as President and is replaced by his Vice- President, Habibie
June 1998	People of Bangkal protested to local assembly. PT AI announced compensation.
August 1998	Environmental Impact Assessment for the plantation, commissioned by PT AI, is approved.
11/7/98	Bangkal community demonstrated at local assembly in Sampit rejecting compensation rates
Nov 1998	Representative of Sembuluh I village demanded compensation from PT AI
Feb 1999	Team of Nine set up by the district administrator to investigate problems
mid-1999	District officials asked Sembuluh I community to send details of their claims
18/5/99	C. Kal Governor asked Kotawaringin District Officer to report on community claims[42]
June 1999	All 11,900 ha of PT AI's concession area cleared and 10,060ha planted
23/8/99	CDC announced US$14.4 million investment agreement with PT AI
Oct 1999	Sembuluh villagers propose village plantation scheme to local agriculture dept
Oct 1999	The Tabiku community of Sembuluh I refuse to let another oil palm company have their land
8/11/99	Villagers chop down PT AI's bridge over the R. Rungan near Terawan.
7/12/99	Meeting between PT AI and the Sembuluh I community (facilitated by the 'Tim 9')
7/12/99	Inventory Team set up by order of the District Administrator
Feb 2000	Communities of Sembuluh, Lempasa, Terawan and Bangkal submit inventory of land
2/4/00	District administrator visited Sembuluh I
May 2000	Senior manager from Rabobank's Singapore office visits PT AI
June 2000	WALHI Kalteng/DTE visit to Sembuluh Lakes
early July 2000	Dead line for Team of Nine's decision on land claims - not met
6/7/99	Meeting between PT AI and local communities cancelled
August 2000	President Wahid's report to the 'Upper House' of Indonesian Parliament
Sept 2000	Kotawaringin Timur administrator visits head offices of oil palm companies in Jakarta.

APPENDIX B:    LOCAL NGO'S VIEW OF THE PROBLEMS

PT AGRO INDOMAS – BLESSING OR DISASTER FOR THE COMMUNITY?
(Original in BI)

Large-scale plantations owned by foreign companies seem to have become a trend in Central Kalimantan which began around 1984. It has been accompanied by another trend: land evictions and land seizures, local communities being cheated; environmental destruction. This creates now problems for local people. So said Imam Hanafi to our reporter at the office of Yayasan Tahanjungan Tarung – an non-governmental organisation concerned with the environment and human rights on Tuesday 20th July.

Their organisation carried out an investigation into PT Agro Indomas last December. The company, which operates in the Danau Sembuluh sub-district of Kotawaringin Timur, is a subsidiary of a Malaysian company Agro Hope which is supported by foreign investment from Britain's CDC and the Dutch Rabobank.

The problems they revealed include planting on local people's land without their consent; burning to clear land; planting to within 20m of the lake side; destruction of local people's fields and plantations; the use of chemicals (artificial fertilisers, rodenticides and dangerous herbicides); in addition to misleading the communities with promises of employment and other amenities.

Local communities are well aware of these effects and have stood up for their rights. They have been demanding compensation for their land and crops since 1996. The company has made some payments, but the issue has still not been settled.

Other impacts include an increased risk of flooding because the plantation has cleared more than 12,000ha of land around the Sembuluh lakes. There is also the risk of irreversible biodiversity losses.

Imam, who is the Mapping Co-ordinator, said that YTT is currently carrying out mapping programme in the Danau Sembuluh area. This is intended to strengthen the community's bargaining position.

"Community natural resource management must be the main focus. Natural resource management systems must be genuinely grounded in the local culture in order to create resource management models which really are orientated towards the community's needs and which improve the local economy in ways which take into account the indigenous potential, skills and culture", hopes Imam.

He added that indigenous peoples must be involved in decision-making about natural resource management. Ignoring the existence of indigenous communities could sow the seeds of conflict, particularly with the advent of local autonomy. "The pattern of development must be 'bottom up' – it must be genuinely grassroots-based. Not the 'top down' pattern which is still the paradigm of most government officials in Central Kalimantan even in this era of reform", he said.

He quoted a member of the local community from Sembuluh village: "If the local government wants to delay compensation payments for people's land and crops, it will not be long before local people start planning to take back their land and their property. If PT AI cannot replace the crops which it has destroyed, let us take the oil palm instead."

Imam urged the government not to close its eyes and ears to these issues.

NOTES
This article appeared in the local paper, Media Kalteng, 24/7/00.
YTT have also taken GPS readings at some sites in the PT AI concession area where the company has recently burnt to clear land and where oil palms have been planted very close to the banks or rivers and lakes, in contravention of the regulations.

PT AI'S HOPES OF FUTURE DEVELOPMENTS IN KOTAWARINGIN TIMUR
(original in BI)

"Business prospects in Kotawaringin Timur district are pretty good and will be even better if the local government provides a supportive climate for local businesses. The important issue right now for investors is to convince them (the local government) to safeguard businesses.

I have seen that the local population does not welcome the presence of plantations. This (attitude) must be quickly overcome because, if it is just left to go on like this it will hamper or delay financial returns for investors and this is not good for the region's image. Quite frankly, I used to have a very positive view of this area, but we have been disappointed by recent events – like the unresolved land compensation cases and the destruction of a bridge on the plantation.

It is not that we don't want to pay compensation, but we don't want unreasonable claims. Since PT Agro started its operations we have paid out Rp1.2 billion in land compensation, but claims are still coming in. Lots of people say they are landowners but they have no proper proof or no proof at all. To make matters worse, the village heads or sub-district officers in the area don't want to help us and even criticise the company. We don't know what to do now. It's a real shame that support from the upper echelons of government is not matched by support from below."

NOTE This interview with Mohandas Nair (General Manager PT Agro Indomas) appeared in the local newspaper Borneo, No 9, Medio January 2000

APPENDIX D:    LOCAL GOVERNMENT ATTEMPTS TO RESOLVE THE PROBLEMS

PT AGRO INDOMAS HAS NOT MET LOCAL COMMUNITY'S DEMANDS
(original in BI)

PT Agro Indomas (PT AI) has promised to settle the dispute with the people of Bangkal village in Danau Sembuluh sub-district over compensation for their land and crops taken for an oil palm plantation. However, the company has not fulfilled its promises.

A representative of PT AI, Mr Gani, made the commitment to meet the community's demands in front of the deputy district officer for Kotawaringin Timur, Andris P. Nandjan, and head of the local assembly Thamrin Noor at a meeting in Bangkal village.

Last Saturday, Bangkal's village leader told local government officials at Sampit that the local community would not accept the compensation proposed by the company until it accepted the community's data rather than its own as the basis for payments. The company's data is designed to minimise compensation payments, whereas the community had evidence of their real losses of land and crops. As well as differing over the amount of land for which compensation was due, the company and community did not agree about compensation rates for crop losses. The company has promised to pay out compensation on July 29th 1998, but the community will refuse to accept this unless it is in line with their demands.

The dispute between PT AI, a foreign-owned company, is a longstanding one. It came to a head when local people demonstrated at the Kotawaringin Timur Local Assembly on July 11th. The protestors hoisted banners across the street and threatened to stay there until the company agreed to meet their demands. The demonstrators dispersed after being addressed by the local assembly head, Thamrin and local police chief Lieut. Col. Ade Sudarma.

Thamrin and the deputy district officer for Kotawaringin Timur kept their promise to come to Bangkal and met with PT AI's repesentatives. But the compensation process agreed at that meeting has never been realised.

NOTES This is a summarised translation of an undated article from the local newspaper Pelita Pembangunan, Kapos (probably late July 1998).
Note that this dispute, which is still unresolved, was going on at around the time CDC was considering investing in PT AI. CDC announced a US$ 14.4 investment in mid-1999.

APPENDIX E:    CDC POLICY STATEMENTS

HOW WE DO BUSINESS?

At CDC Capital Partners how we do business is extremely important to us. So much so that we have developed a set of five guiding principles:

1. To be open and honest in all our dealings, while respecting commercial and personal confidentiality
2. To be objective, consistent and fair with all our stakeholders
3. To be a good corporate citizen, demonstrating integrity in each business and community in which we operate
4. To respect the dignity and well-being of all our people and those with whom we are involved
5. To operate professionally in a performance orientated culture and be committed to continuous improvement

• Business integrity
• Environment
• Occupational health & safety
• Social issues
• How do these policies affect my business

Our objectives here are:

• To exhibit honesty, integrity, fairness and respect in all our business dealings
• To enhance the good reputation of CDC
• To manage our affairs prudently and with due skill, care and diligence

ENVIRONMENT

To recognise that economic development results in environmental change. Sustainable development seeks to maximise the potential of environmental resources, to mitigate any adverse impacts, and where possible, to increase the supply of environmental assets.

As part of our developmental objective we therefore:

• encourage the efficient use of natural resources;
• seek investment opportunities where sound economic development is coupled with the protection and improvement of the environment;
• avoid investments where impacts on communities and the environment have not been properly considered and mitigated in their design.

SOCIAL ISSUES

To recognise that economic development results in social change and that, to be successful, development needs to be sustainable.

As part of our developmental objective we therefore:

• identify, through consultation, any negative social aspects of an investment and address the ways in which these might be mitigated;
• identify, through consultation, potential social benefits and determine how they might be enhanced to the mutual benefit of company and community; make investments in projects where the positive social impact outweighs any negative effects.

*Download not possible: technical fault reported

APPENDIX F:
GPS READINGS OF LOCALITIES WHERE BURNING HAD OCCURRED

Date	Code	Co-ordinates	EPE	Time (WIB)
8/7/00	037	49M0648902 UTM9722430	3,2	09.47.50
	038	49M0649421 UTM9722447	3,0	10.03.11
	039	49M0649843 UTM9722432	2,8	10.13.00
	040	49M0648521 UTM9724793	2,8	11.12.06
	041	49M0648865 UTM9724817	3,2	11.22.40
	042	49M0649046 UTM9724820	3,2	11.27.18
25/7/00	179	49M0653426 UTM9720418	3,3 162°,142°, 126°,119°	14.33.22
	180	49M0653460 UTM9720420	3,3 176°,146°, 132°,117°	14.34.12
	181	49M0653501 UTM9720421	3,3 186°,149°, 145°,114°	14.35.01

NOTES:
These points need to be plotted on a base map of the Sembuluh Lakes area which is still in transit from Indonesia.
The mapping team, from YTT – a local Central Kalimantan NGO – reported that some areas had been deliberately burned. In other places, trees are felled, heaped up using heavy equipment then burned. The burnt remains are then dumped outside the area to be planted.

APPENDIX G:    PALM OIL IN INDONESIA

(All figures from World Bank OED, April 2000, unless otherwise stated.)

Total area of palm oil plantation	3 million ha**
Area allocated to palm oil	8.7 million ha, BKMP 1997**
Applications for oil palm plantations (district level 1999)	32 million ha**
Productivity (1997)	3.37 tonnes CPO/ha
Pending applications from plantation companies	around 4.5 million ha
Area of forest converted annually for palm oil (1999)	330,000 ha
Area of oil palm plantation planted in 1997	266,565 ha*
Growth rate of oil palm plantation are per year (1967-97)	12%*
Employment in oil palm industry (1998)	Over 2 million people*
8 conglomerates control	2.1 million ha
Malaysian investments in oil palm	1.3 million ha
Oil palm companies implicated in 1997/8 forest fires	133 of 176 total
CPO production 1997	5.4 million tonnes*
CPO production 1998	5 million tonnes*
Estimated CPO production 1999	5.6 million tonnes*
Indonesian contribution to global palm oil supply	30% (second after Malaysia)*
Palm oil exports (1997)	2.9 million tonnes* worth US $1.4 bn + or - 49% of production **

* Casson A, 2000, The Hesitant Boom, CIFOR
** Wakker E, 2000, Funding Forest Destruction, Aid Environment

Destinations of Indonesian CPO exports (1997)*

Netherlands	44%
Spain	5%
Germany	12%
Greece	2%
Kenya	3%
Italy	9%
USA	2%
UK	1%

* Casson A, 2000, The Hesitant Boom, CIFOR

Area and CPO production by category, 1997

Province	Area (ha)	Production (tonnes)
Smallholders	813,175	1,292,829
Government Estate	448,735	1,800,252
Private Estate	1,254,169	2,287,366
Total	2,516,079	5,380,447

Land holdings owned by some Indonesian oil palm conglomerates, 1997

Holding Company	Group	Total land bank area (ha)	Total area planted (ha)
PT PP London Sumatra Indonesia Tbk	Napan Group	245,629	78,944
PT Bakria Sumatra Plantations	Bakria and Brothers	376,041	34,392
PT Golden Agri Resources	Sinar Mas Group	582,208	211,713
PT Astra Agro Lestari Tbk	Astra International	280,000	177,976
PT Asian Agri	Raja Garuda Mas	200,000	110,000
PT Salim Plantations	Salim Group	275,000	125,000
PT Socfindo	Socfin Group	47,777	37,180
PT Tolan Tiga	SIPEF Group	52,869	36,312
Total		2,059,524	811,517

APPENDIX H:
POTENTIAL OIL PALM DEVELOPMENTS IN KOTAWARINGIN TIMUR DISTRICT, CENTRAL KALIMANTAN

Company	Type	Commodity	Permit status	Concession area (ha)	Area cleared	Area planted
PT. Mineralbumi Reksa Perdana	large private plantation	oil palm	*	11,600	-	-
PT. Gema Mina Kencana	partnership	oil palm	*	15,500	-	-
PT. Rungau Alam Subur	partnership	oil palm	*	6,725	-	-
PT. Bandarain Internasional Industri	large private plantation	oil palm	*	1,600	-	-
PT. Lestari Unggul jaya	large private plantation	oil palm	*	13,500	-	-
PT. Indo Turba Timur	large private plantation	oil palm	*	9,750	1,465	674
PT. Salonok Ladang Mas	large private plantation	oil palm	*	12,715	-	-
PT. Uniprimacom	large private plantation	oil palm	*	7,300	2,811	2,491
PT. Salawati Makmur	large private plantation	oil palm	*	16,850	-	-
PT. Indorigunas Sakti	large private plantation	oil palm	*	14,500	-	-
PT. Rimba Harapan Sakti	large private plantation	oil palm	*	15,000	-	-
PT. Lawang Haring Perkasa	large private plantation	oil palm	*	10,000	-	-
PT. Karya Makmur Bahagia	large private plantation	oil palm	*	5,000	-	-
PT. Harapan Masawit Bangun Persada	large private plantation	oil palm	*	13,500	-	-
PT. Transindo Bhakti Pertiwi (Aspac Agroniaga)	NES	oil palm	*	13,750	3,600	3,600
PT. Bentang Tiara Pratama Perkarsa	large private plantation	aquaculture	*	5,000	-	-
PT. Jaya Citra Persada	large private plantation	oil palm	*	12,950	-	-
PT. Hati Prima Agro Corporation	NES	oil palm	*	4,850	2,080	362
PT. Samba Sakti Perkasa Estate	NES	cocoa	**	4,986	-	-
PT. Lestari Unggul Jaya	large private plantation	oil palm	**	5,400	925	925
PT. Teguh Ssampurna	large private plantation	oil palm	**	16,300	2,566	1,433
PT. Kridatama Lancar	large private plantation	oil palm	**	15,900	5,657	5,657
PT. Musirawas Citraharpindo	large private plantation	oil palm	**	7,790	4,685	4,462
PT. Bina Sawit Abadi Pratama	large private plantation	oil palm	**	17,780	16,974	8,547
PT. Surya Barokah	NES	oil palm	**	12,187	1,868	1,356
PT. Sapta Karya Damai	large private plantation	oil palm	**	13,135	5,000	3,884
PT. Mustika Sembuluh	large private plantation	oil palm	**	15,994	1,200	100
Koperasi Veteran RI	large private plantation	rubber	**	100	100	100
PT. Bangkit Giat Usaha Mandiri	large private plantation	oil palm	**	9,222	20	-
PT. Trimeru	partnership	oil palm	**	14,615	-	-
PT. Karya Maksur Bahagia	large private plantation	oil palm	**	12,706	300	2,500
PT. Suka Jadi Sawit Mekar	large private plantation	oil palm	**	7,152	-	-
PT. Windu Nabatindo Lestari	large private plantation	oil palm	**	11,550	2,000	1,100
PT. Karunia Lama Mentaya Jaya	NES	oil palm	**	10,380	50	50
PT. Bisma Dharma Kencana	large private plantation	oil palm	**	10,752	480	480
PT. Bumi Hutan Lestari	large private plantation	oil palm	**	14,929	3,500	1,300
PT. Agro Indomas	large private plantation	oil palm	**	11,930	10,004	7,060
PT. Tunas Agro Subur	large private plantation	oil palm	**	8,960	-	-
				411,858	65,285	46,081

* Governor's permission in principle
** Official Dept. of Forestry approval

June 2000, District Agriculture Office.

Back to contents

Footnotes

1. RePPProT, 1990, p110
2. The word village is used here in the official government sense (desa). The indigenous communities have their own understanding of villages (kampong). In government terms, these are often called hamlets or not even recognised as settlements.
3. John Kuruvilla of Agro Hope Sdn. Bhd. is President Director of PT Agro Indomas. He co-authored the paper below with Mohandas Nair, currently General Manager of PT AI.
4. Kuruvilla, KJ & Mohandas, NN, Challenges in Large-scale Oil Palm Planting in Central Kalimantan, a paper presented at the International Planters Conference, Malaysia, 21-22 May 1997
5. CDC press release 9/3/99
6. Kuruvilla & Mohandas, 1997 op cit.
7. Kuruvilla & Mohandas, 1997, op cit
8. Aditjondro, GJ, 2000, The Driving Force of Indonesia's Catastrophic Forest Fires, article for the inaugural edition of the Eco-Politics Journal, Department of Sociology and Anthropology, University of Newcastle, Australia
9. Wakker, E, Van Gelder, JW & Telapak, 2000, Funding Forest Destruction, AidEnvironment/Greenpeace
10. Casson, A, 2000, The Hesitant Boom: Indonesia’s Oil Palm Sub-Sector in an Era of Economic Crisis and Political Change, CIFOR paper No.29.
11. Casson, 2000, op cit
12. Telapak, Puti Jaji & Madanika, 2000, Planting Disaster, p6
13. When fires broke out again in early 2000, the Fires Management Director at BAPEDAL said 60% were on plantations. In Riau, 3 out of 10 companies involved in fires were Malaysian (Suara Pembaruan 8/3/00). The Malaysian-owned company PT Adei was said to have burned 1,500ha, but was not prosecuted.
14. Figures from an unpublished JICA study for BAPENNAS in early 1998
15. Kanwil DepHutBun Kalteng, April 2000
16. Borneo No.9/Medio Jan 2000 (local news article)
17. Borneo, No. 24 Tahun II Medio Sept. 2000
18. Regional Autonomy Acts Nos 22 & 25/1999
19. See Down to Earth No.46 August 2000 Special Issue on Regional Autonomy
20. The current bupati is Drs H.M Wahyudi Kaspul Anwar and the camat Drs H. Djoni Ardi.
21. Written comments from CDC to DtE 18/5/200. On the contrary, local people describe fishing as occasional work (pekerjaan sampingan).
22. A typical example of this lifestyle was provided by one of the claimants, Abd. Hasan. His written statement describes him as a native of Sembuluh who is a farmer and boat builder. PT AI took over his land at Terawan, located between the forest, R. Rungau, R. Bapilang and R. Patakan. He lost 300 clove trees, a cashew tree with 10kg of nuts; 3,000 rubber trees and 7,000 coffee bushes on a plot measuring 1,900m x 500m. He has never been paid any compensation for this land or asked to go to the company office to discuss his case.
23. A local of Terawan commented pithily: "If this is supposed to be a fishing village, how come there aren’t fishing nets and drying fish all over the place."
24. Written comments from CDC to DtE 18/5/2000
25. CDC written comments to DtE 18/5/00
26. This man has since retired and become a security guard for PT AI.
27. CDC press release 9/3/99
28. YTT survey, June 2000, pers.com.
29. CDC Press Release March 1999
30. ibid
31. AMDAL, 1998, op cit, pIII-8
32. CDC letter to DFID 17/6/99
33. Letter from CDC’s Chief Executive to DtE (18/5/00)
34. Telapak, unpublished, op cit
35. A team from the Indonesian Institute of Sciences (LIPI) identified around 50 species of fishes in the Sembuluh Lakes, some of which are endemic. YTT, pers.com.
36. CDC letter to DFID 17/6/99
37. CDC letter to DtE 18/5/00
38. ibid
39. Translation of statement by local inhabitant of Sembuluh village, June 2000
40. CDC letter to DFID 17/6/99
41. ibid
42. Letter 593.83/626/PEM

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