Indonesia moratorium eases business and growth concerns

"Moratorium issued to protect primary forests, peatland" May 20, 2011 14:01 PM, The Jakarta Post,


President Susilo Bambang Yudhoyono on Thursday finally signed a policy banning the conversion of primary forest and peatland for two years as part of a government pledge to combat climate change through reducing deforestation..... With the presidential instruction, all local authorities should stop issuing forestry permits, including for plantation and mining companies eyeing businesses in primary forest and peatland areas.

“The moratorium will apply to 64 million hectares of forests across the country,” Agus Purnomo, the President’s aide on climate change issues, said.... However, most of the 64 million hectares .... is located in areas already protected by the 1999 Forestry Law.... “We are double protecting these protected areas since in fact many of these areas are still prone to deforestation. We hope the moratorium will help better protect the forests,” Agus said.

He said businesspeople could still expand into the 34 million hectares categorized as degraded forest areas.... The presidential decree still allows the exploitation of peatland with a depth of less than three meters.

Indonesia has the world’s third-largest expanse of forest with 120 million hectares of rainforest, 40 million of which are protected forest and conservation areas that cannot be exploited for commercial purposes.

According to a letter of intent with Norway, Indonesia is required to stop issuing new permits for exploiting natural forests and peatland within two years.... In return, Indonesia would receive money based on the total amount of carbon emissions reduced within the two years.

Indonesian Environmental Forum (Walhi) senior campaigner Teguh Surya said the government had betrayed its promise to protect forests by only banning the conversion of primary forests and peatland rather than all naturals forests.... “The President ignored input from civil society who care about conserving forests and threw its support to big businesses, such as palm oil plantations,” he told the Post.

The business reaction:

"I appealed to the government that non-forest areas should not be included in the moratorium," said Joko Supriyono, secretary general at the Indonesian Palm Oil Association (Gapki). "The impact of the moratorium, even though they postponed the signing, was uncertainty," he told Reuters. He said this uncertainty had led to expansion in 2010 of 300,000 hectares of palm oil plantations in the world's top palm oil producing nation, reduced from a minimum 500,000 hectares in recent years...." Source: Reuters news article.

"Presidential Adviser on climate change, Agus Purnomo said that there would be no new permits on 64 million ha of land in Indonesia. The silver lining is that the moratorium will exempt the extension of old permits, projects given permits in principle by the forestry ministry and issuance of permits to log onsecondary non-peatland forests or convert degraded land. The moratorium will also exempt projects for the development of energy supplies as well as a huge food plantation project in Papua province. We view this development positively as previously, there were worries that the new version of the moratorium may affect plantation companies with “Hak Izin Lokasi” land permits... which is obtained before the “Hak Guna Usaha” (HGU) permit is granted. HGU is land rights granted for 35 years and can be extended for another 25 years. Clearance of land is permitted with “Hak Izin Lokasi”...." Source: "Plantation Sector (Overweight): Indonesia signs moratorium on forest clearing finally," AmResearch, 20 May 2011.

Khor Reports comment:

a) The moratorium was due to start January 2011, but was delayed five months. It is a REDD+ effort to reduce greenhouse gas emissions from deforestation under a USD1 billion deal with Norway. There was widely reported disagreement between the ministries in Indonesia on how extensive the ban on forest clearing should be. The indicators were clear in recent months that a more pro-business stance would likely be adopted.

Businesses will be looking out for land bank:
i) Secondary forest lands for development, including:
34 million hectares categorized as degraded forest areas; and
Peatland with a depth of less than three meters.
ii) Land for development in Papua

b) In 2003, the Indonesian authorities estimated that the potential area for oil palm is 24.5 million hectares. By region, the recent planted (2009) and potential areas are: Sumatra 5.2 and 7.2 million ha (+2); Java 0.02 and 0.3 million ha (+ 0.28), Kalimantan 1.9 and 10.3 million ha (+8.4), Sulawesi 0.2 and 0.4 million ha (+0.2) and Papua 0.06 and 6.3 million ha (+6.24).

c) However, NGO pressures to reduce the rapid expansion of oil palm development in Indonesia have taken their toll. Indonesia's 2-year moratorium on deforestation starts May 2011. It prohibits development on primary forest and deep peat lands (but secondary forest and Papua is exempt from the restriction). The 2003 study likely included areas, which are now considered unsuitable for development for environmental reasons. The potential areas for Kalimantan and Sumatra could be revised down, but those for Papua remain intact.

d) Rapid oil palm development has raised the concern of deforestation in Indonesia. NGOs have been campaigning against new plantings in all types of forested areas and peat lands. While the pro-business outcome of the environment vs. development tussle (over the details of Indonesia's 2-year moratorium on deforestation) may not slow the pace of development by commercial estate owners, successful NGO campaigning with global palm oil buyers such as Nestle and Unilever may have an impact on the largest integrated plantation groups. So far NGO campaigning has been targeted at the top few.

The recent Golden Agri (Sinar Mas) - The Forest Trust deal is noteworthy. The oil palm giant promises not to develop lands with more than 35 tonnes carbon per hectare. Will such voluntary bilateral deals and the efforts of the RSPO hamper expansion efforts of only the largest public-listed groups, or will they extend their reach beyond these to have some real impact on the continued go-go expansion of oil palm hectarage?