Oil palm investments opposed

Down to Earth No. 49, May 2001

The government's plan to expand oil palm plantations could founder because it fails to address the underlying question of community rights to farmland and forests.

Oil palm remains a central plank of Indonesia's economic recovery strategy despite growing social unrest arising from disputes over plantation land. Oil palm development is also widely accepted to be a major cause of forest loss in Indonesia, due to the policy of converting natural forests to plantations and because of the fires spread by the illegal practice of burning to clear plantation land. The rate of expansion of the area of land under oil palm has slowed down somewhat since the onset of the economic crisis in 1997. World palm oil prices have been low over the past year too, and Indonesian companies are hampered by difficulties in raising bank loans for new projects. However, as soon as prices rise again, investors from Malaysia and elsewhere, encouraged by the Indonesian government and its international creditors, are set to fuel another wave of land-clearing and forest-felling to make way for the crop.

What may check their progress is the still unresolved and underlying question of land and forest ownership. Existing plantation projects throughout the country are having to deal with communities demanding back land stolen during the Suharto era. On the other hand, in some areas plantation companies are finding it all too easy to persuade district and provincial heads to issue permits - with the introduction of regional autonomy, these authorities are desperate to raise local revenues. Companies then have few problems gaining the consent of local communities by promising benefits, such as access roads, which cash-strapped local authorities cannot provide.

In March a major oil palm investment deal was signed which all but ignores the land issue. Under the agreement the Malaysian plantation company, Guthrie, will pay the Indonesian Bank Restructuring Agency (IBRA) $350 million to take over 25 plantations that were formerly owned by the Salim Group, Indonesia's biggest conglomerate during the Suharto era. The plantations cover 265,777 hectares in Aceh, Jambi, Riau, South Sumatra, Central and East Kalimantan and Central Sulawesi. The cash-strapped Jakarta government is keen on the deal because money from the sale is destined to support the state budget and will contribute to IBRA's target of raising at least Rp 27 trillion (US$2.75 billion) for 2001.


Farmers' interests ignored

But the deal has been concluded over the heads of farmers whose land were taken for the plantations in the first place and who had originally been promised 70% of the land by the Salim Group. In April, minister for co-operatives and small businesses Zarkasih Nur said he would ask the company to allocate 10% of plantation land to the farmers along the lines of the 'nucleus-plasma' system, where the farmers cultivate plantation land as small-holders and sell the produce to the company. The Riau co-operatives group, Gakopri, had earlier pushed for 60% of the land to be managed by the farmers. The co-operatives, which are government-run organisations, had collected Rp 90 billion to take over part of the 105,000 hectares of Salim plantation land in Riau. The IBRA deal leaves them with no control or ownership of the land at all.

Guthrie itself has made a token effort to address the concerns of farmers and plantation workers involved in the projects. The company has promised it will allocate 10% in shares to plantation workers in 3-5 years, alongside a 20% public share offering.

The deal has also angered local governments which, under regional autonomy, are supposed to have more authority over investment projects in their areas. In Riau, where demands for the transfer of land to farmers has been loudest, head of the provincial parliament Chaidir commented: "If the central government still pushes aside local interests in selling the Salim land to Guthrie, …we'll guarantee there'll be problems for Guthrie here."

In Jakarta the sale agreement was delayed and debated for months before final approval was issued by IBRA. One major concern among parliamentarians was that the deal would give too much power over the oil palm sector to Malaysia - Indonesia's main rival in the business. Nationalist politicians and key Indonesian business figures sought to use the issue to their own advantage. Even after the signing, questions remained over the deal's validity. Opponents pointed out that it breaks a 1999 forestry and plantations ministry decree limiting the extent of land held by any one plantation company to 20,000 hectares in one province and 100,000 ha across the country. The 265,000 hectares bought by Guthrie is more than double this limit.

The company's supporters in the Indonesian government and business world argue that cancelling the agreement would deal a deadly blow to investor confidence in oil palm and deter other foreign companies from committing funds to Indonesian projects. However, it is equally likely that investors will be put off by the huge problems current projects are experiencing and the disruption that Guthrie's operations are likely to suffer if past land ownership and management problems are allowed to fester.

(Far Eastern Economic Review 26/Apr/01; Dow Jones Newswires 18/Apr/01; Suara Pembaruan 8/Feb/01; Kompas 14/Mar/01; Bisnis 19/Apr/01)


DTE reports on CDC oil palm plantations in Kalimantan

Plantation projects with unresolved land and other social and environmental problems are being financed by CDC, the British investment agency, which was privatised in late 1999. The UK government's Department for International Development currently still holds all of CDC's shares. DTE has been conducting research and advocacy work on CDC's two plantation projects in Central and West Kalimantan - reports on the problems at these projects, produced jointly with Indonesian NGO WALHI, will be available on our website: see campaigns page . An update on this work will be included in the next issue of the newsletter.


A million hectares for Jambi

Jambi province, Sumatra, is one of a number of areas where the newly empowered regional government is pushing for major expansion in palm oil plantations. The provincial governor, Drs H Zulkifli Nurdin has announced plans to develop a million hectares of oil palm in the province by the year 2005. Last year, the provincial authorities threatened to cancel the licences of 49 plantation companies which had been allocated over 700,000 ha in Jambi but had not yet planted it with oil palm. In December, the Malaysia's ambassador to Indonesia announced that Malaysian companies were ready to take over around 356,300 ha of oil palm plantations in the province that current lease-holders had failed to develop.

Jambi currently has around 265,000 hectares of oil palm plantations, of which 200,000 ha were in production last year. About 320,000 tonnes of crude palm oil was produced by 13 processing plants with a total capacity of 640 tonnes per hour.

In January governor Zulkifli signed a Memorandum of Understanding with a US-British-Swiss venture capital consortium, Asian Jade Venture Ltd, based in Johor Baru, Malaysia. The agreement covered investments of US$500 million for oil palm plantations, downstream processing industries, a port, a new town and for the tourism and fisheries sectors.

The local environmental NGO, WALHI Jambi, has issued a statement rejecting the million hectare oil palm programme, arguing that it would destroy forests, and wipe out the sustainable livelihoods of communities living near the forests. WALHI has also accused the authorities of failing to indicate where the new plantations will be developed - and argues there isn't enough available land to develop such a large area. WALHI says that the focus should be on improving conditions and resolving conflicts between farmers and plantation owners at existing oil palm plantations. Roads are so poor that palm fruits can only be transported at high cost and farmers cannot afford agricultural inputs like fertilisers. In April the Indonesian newspaper Kompas reported that thousands of hectares of oil palm plants cultivated by around 70,000 farming families in a nucleus estate / smallholder scheme in Jambi were at risk because there was no affordable fertiliser available.

WALHI's press statements - and the apparent second thoughts of Asian Jade Ventures Ltd - have provoked a furious response from governor Zulkifli. He has accused the NGO of being anti-investment, anti-progress and anti-regional autonomy. The governor and his supporters are believed to be behind a campaign of intimidation, launched by suspect 'NGOs' calling for WALHI to be shut down. This has involved trucking 300 protesters to demonstrate at WALHI's office, and issuing statements of support for the governor's programme.


ADB-funded oil palm project

In February governor Zulkifli inaugurated a new palm oil processing project, run by state-owned plantation company PT Perkebunan Nusantara VI in Tanjung Lebar village, Muarojambi district. The project is being funded by the Asian Development Bank to the tune of US$6.7 million, with PT PN VI contributing Rp 2 billion. WALHI have questioned the status of the land used for the plant, which the government says is ‘idle land’, since this usually means former logging concessions or timber estate areas which should be reforested, not planted with oil palm. WALHI also points out that the ADB funding, in the form of a loan, is an added burden for the people of Jambi as it is they who bear the responsibility for repaying it.


Decentralisation only so far

The governor's reaction to WALHI's statements is an example of the widespread resistance among local government leaders to a more open, democratic way of government which requires consultation with local peoples and participation in decision-making about development projects. These emerging local elites are insisting strongly on the transfer of power from centre to regional governments - Zulkifli recently announced that the local administration was demanding an initial stake of 10% - 20% in every natural resources investment project in the area, with an option of increasing this to 51%. But the Jambi governor and his like-minded counterparts in other provinces and districts are less than willing to carry the decentralisation process any further - to ensure that people in their areas have a real say in what happens to their lands and livelihoods.

(Kompas 5/Apr/01; Suara Pembaruan 6/Dec/00, 26/May/00; WALHI Jambi Press release and chronology 9/Feb/01; Petromindo 19/Feb/01)

Foe Netherlands campaign

Friends of the Earth Netherlands has launched a campaign on the problems arising from oil palm development in Indonesia. They are focusing on the role of major Dutch banks (Rabobank, ING, ABN Amro and Fortis) in financing and supporting oil palm plantation companies. Last year Foe NL and Greenpeace wrote to the banks asking them to subscribe to a set of conditions for investment in oil palm:

  • no deforestation for new plantations;
  • no burning for new plantations;
  • respecting the rights and wishes of local communities in order to avoid social conflicts;
  • no violation of Indonesian law;
Negotiations have started with several banks and a signature postcard action launched.

Foe NL has also recently published a study of an oil palm plantation operated by PT Matra Sawit (a Sinar Mas/APP company - see also export credit article) in East Kalimantan. The study was conducted by the Dutch NGO AidEnvironment and the Kalimantan-based NGO, Puti Jaji. The study evaluates the plantation project - which has benefited from the financial services of Rabobank, ING Group and ABN-Amro since 1995 - against the four conditions above. None has been fulfilled. The company has cleared natural forests, used fire to clear land, failed to respect indigenous rights and broken Indonesian law. See the full illustrated report athttp://www.milieudefensie.nl/earthalarm