Jumat, 13 Mei 2011

Approach and Strategy for Developing Oil Palm Plantation in Indonesia

The hybrid of the oil palm tree which produces the crude palm oil (CPO) has certain unique features not found in other vegetable oil crops. Among these features is that the oil palm is a highly productive crop and its main product oil and many by-products are versatile in their uses.
The palm oil yield is 6.20 tons of vegetable oil/ha per year in terms of CPO and palm kernel crude oil (PKCO). Other vegetable oil crops have lower yields. Soybean has an oil yield of only 0.4; rapeseed 1.5; and sunflower 1.2 t/ha per year (Table 1). This means that one has to plant 12 ha of soybean to produce the amount of vegetable oil produced in a hectare of oil palm. In like manner, one needs to plant 4 ha of rapeseed, 5 ha of sunflower, or 4 ha of coconut trees to produce the volume of vegetable oil produced in just a hectare of oil palm trees. New generations of planting materials of oil palm in the form of ramets developed jointly by MPOB and SH Biotech in Sabah shows potential yield of 10.0 tons of oil/ha per year. Among the vegetable oil crops, palm oil is the cheapest.

Table 1. Productivity and percent contribution of various vegetable oil crops.
Crops
Oil Yield/ha
Percent World Production
1. Palm Oil
6.20
35
2, Soybean
0.40
27
3. Rapeseed
1.50
15
4. Sunflower
1.20
8
5. Coconut
1.50
4
6. Others

11
TOTAL

100

As a perennial crop, oil palm trees grow fast and is early maturing; the first fruit matures in just 24 months after field planting as compared to four to five years for coconut trees. Oil palm trees remain productive for 22 to 30 years when the newly developed dwarf hybrids are used for planting. Palm oil is much easier to grow than the coconut trees in terms of culture and processing for oil. As a perennial crop it is less affected by climate change compared to the annual vegetable oil crops. It also helps mitigate climate change as it is a heavy sink of CO2 in the atmosphere and induce higher rainfall.
Palm oil is versatile, 80% is used for food, 19% for oleochemicals and 1% for biofuel. Palm oil is a healthy oil known for reducing obesity, the reason why many food processors in USA mix soybean oil with palm oil to help overcome obesity. Palm oil reduces the amount of bad cholesterol and improves human sight due to its high amount of Vitamins A and E. The by-products resulting from the processing of fresh fruit bunch (FFB) to oil is now found useful in the production of quality organic fertilizer and generation of biogas and electricity.

The leaves and trunks can be processed cheaply to produce quality papers and biodegradable plastic products such as lunch boxes and other products thereby replacing in the market the non-biodegradable synthetic plastics which are very destructive to the environment. It is predicted that the second generations of biofuel will come from the processing of oil palm biomass – empty fruit bunches, trunks and leaves. The technology is now available and found highly profitable.

Figure 1. Mass Balance
The success in the production of this highly productive and versatile crop made many countries producing rapeseeds, soybean and other vegetable oil crops apparently threatened. Governments of these countries are suspected to fund NGOs involved in anti-palm oil expansion in the ASEAN as an indirect trade war. Manageable problems brought about by increase in palm oil production such as deforestation, apparent pollution of rivers by palm oil processing waste, health problem and reduce biodiversity, loss of habitat for the orangutans are being blown-out beyond proportion and fed to the media which reach the Philippines. These problems are now effectively addressed by palm oil producing countries. For example, the Indonesia sustainable palm oil (ISPO) was created to address concerns in Indonesia
While production of palm oil is carried out in tropical Asia, Africa, and Latin America, 90% is produced by three members of the ASEAN, namely: Indonesia, Malaysia and Thailand (Table 2). This is because high productivity of oil palm is concentrated in the tropical zone; within 10o North or South of the equator, where the whole of Malaysia, Indonesia, part of Thailand, and Mindanao, Philippines are located. Among these countries, Thailand has the least area suitable for palm oil production – less than ½ of the Philippines. Palm oil can be grown in many parts of the tropical world but not as productive as when grown within 10o North and South of the equator.

Figure 2.

Table 2. Leading countries in the production of palm oil in terms of area and production in 2009.

COUNTRY
PRODUCTION
PERCENT OIL PRODUCTION
AREA (Ha) (1000)
CRUDE PALM OIL (CPO) PRODUCTION (MT)
1. Indonesia
7,500.00
24,500
49%
2. Malaysia
4,500.00
18,600
37%
3. Thailand
625.00
1,500
4%
4. Nigeria
460.00
850
2%
5. Colombia
390.00
810
2%
6. Others
1,126.00
3,077
6%
TOTAL
14,601.00
49,337
100%

Given the strong demand for palm oil, where will the future production come from? The Indonesian government has a vision of becoming the “best sustainable palm oil producer in the world”, with the objective of producing 40 million tonnes of palm oil by 2020, of which 50 percent would be for food and 50 percent for energy (Jiwan, 2009). This means national production would have to double in the next 10 years. Greenpeace (2009) estimated that to meet this demand, an additional 300,000 hectares of new land would have to be planted with oil palm annually.
In view of limited land availability, the expansion of oil palm in Malaysia is expected to slow, particularly in Peninsular Malaysia and Sabah. However, the Sarawak State government has recently announced that it is opening large tracts of land for oil palm cultivation. This will increase the national land area under oil palm from 4.67 million ha to 5.4 million ha. (Wong, 2010).
Other countries are expected to expand their planted areas to meet rising global demand. Thailand is expected to increase its oil palm area by 80,000 ha per year until 2012 (Dallinger, 2010 pers.com). There are reports that Chinese companies are negotiating for extremely large tracts of land in DR Congo and Zambia (Economist, 2009) for establishment of oil palm plantations. Similarly, Malaysian companies are looking at similar expansion in Brazil, in the Amazon basin. Malaysia and Brazil has set up a joint venture to open up about 100,000 hectares for oil palm in Brazil. (New Straits Times, 2009). There is also substantial interest in expanding the limited areas of oil palm presently growing in West Africa.
Expansion of the industry on this scale is cause for considerable concern among many stakeholders, particularly local communities which may be affected by these developments and NGOs.

Suitability of Land
Land suitability for oil palm cultivation has been well known such as Soil classes with different degrees of suitability are well researched. Terrain and soil type limitations must not be overlooked in new oil palm plantation development as they would influence the cost of production as well as the ecology of the area as in the case of peat lands. Marginal land particularly in sub-optimal climatic zone should be avoided as the long term prospects of profitability cannot be assured.  Cost of plantation development and subsequent cost of production on marginal land and climate zone are invariably high, making return to investment unattractive in the long run.
The country of Indonesia is a huge archipelagic nation whose extent is roughly 3,200 miles east to west and 1,100 miles north to south.  It encompasses over 10,000 islands. The five main islands of the archipelago are Sumatra, Java, Borneo, Sulawesi, and Western Papua. The islands of Borneo and Western Papua are shared with other nations.  Borneo (also known as Kalimantan) is shared with Malaysia and Brunei. Western Papua  (also known as Irian Jaya) shares the island of New Guinea with Papua New Guinea. In Indonesia, the province is the highest tier of sub-national government. The island of Sumatra consists of the provinces of Daerah Istimewa Aceh, Riau, Jambi, Bengkulu, Lampung, and North, South, and West Sumatra.  Indonesia's region of Borneo is called Kalimantan, while Malaysia's region of Borneo is called East Malaysia. On Borneo there are four Indonesian provinces, they are East, South, West and Central Kalimantan
The fasted expanded palm oil area were in North Sumatra, Riau, and South Sumatra (Sumatera Selatan) on the island of Sumatra. On the island of Borneo, were conducted on the province of West Kalimantan (Kalimantan Tengah).  Palm oil producing areas have slowly expanded since the early 20th century when the palm was first introduced. The island of Sumatra has long been the largest producer. The oldest large-scale plantations were first established in 1911 on Aceh and North Sumatra province. Since those early days, palm plantation development spread south and to the other areas of Indonesia. The highest producing provinces on Sumatra, are North Sumatra, Riau, and South Sumatra.  Even though the bulk of Indonesia’s production remains on Sumatra, 70 to 80 percent according to some sources, rapid expansion is occurring on the island of Borneo; the second largest producing area in Indonesia. In recent years, there has been a growing expansion of palm oil plantations on the island of Borneo—particularly in Central ,West and East Kalimantan.  Important, but secondary areas of expansion are Sulawesi and Western Papua  (or Irian Jaya).  Even with the expansion areas, Sumatra will continue to be the leading production center for the foreseeable future. 
Figure 3. Palm Oil Plantation in Indonesia



Table 3. Areas of Oil Palm Plantations in Indonesia






2006
2020 (Projected)
No
Province
Area (Ha.)
Area (Ha.)
A
Sumatra


1
Nanggroe Aceh Darussalam
222,389
340,000
2
Sumatera Utara
1,093,033
1,000,000
3
Sumatera Barat
489,000
500,000
4
Riau
1,486,989
3,000,000
5
Jambi
350,000
1,000,000
6
Sumatera Selatan
416,000
1,000,000
7
Bangka Belitung
112,762

8
Bengkulu
81,532
500,000
9
Lampung
145.619
500,000
B
Java


12
Jawa Barat
3,747
-
13
Banten
17,375
-
D
Kalimantan


14
Kalimantan Barat
349,101
5,000,000
15
Kalimantan Tengah
583,000
1,000,000
16
Kalimantan Selatan
391,671
500,000
17
Kalimantan Timur
303,040
1,000,000
E
Sulawesi


18
Sulawesi Tengah
43,032
500,000
19
Sulawesi Selatan
72,133
500,000
20
Sulawesi Tenggara
3,602
500,000
G
Papua


21
Papua
40,889
500,000





Total
6,059,441
19,840,000







Climate and Soil Requirements

It is generally known that the following conditions promote maximum Palm growth :

-     humid tropical lowland climate
-     evenly distributed precipitation of 1750 to 3000 mm per year, distributed evenly over the year (i.e. with no very marked dry  season).
-     A mean minimum temperature of 20o – 23oC and a mean maximum temperature of 28o – 32oC which is peculiar to tropical countries is best suited. If the temperatures falls below this, particularly at night to say below 19oC bunch development is affected and yield reduced. Growth in young seedlings stops at temperature below 15oC.
-     Constant sunshine amounting to at least 5 hours per day over all the months of the year and as much as seven hours per day during some months .
-     High atmospheric humidity and high CO2 concentration. Oil Palm can be grown on a wide range of soils, the best being the coastal alluvial clay, riverine and coastal alluvial and soils of volcanic origin.

Extension of oil palm plantation in Indonesia grows very fast. It is estimated more than 6,10 million hectare of oil palm plantation in 2007, that spread out at several climatic conditions, from very wet to slightly dry zone.  Climatic condition is one of the important factors determining oil palm productivity, besides other factors such as genetic planting material and agronomic management practices. 
One parameter that commonly used to represent climatic condition is water deficit. Water deficit is a result of a complex interaction between elevation, dry month, rainfall and sun radiation.  Planters have known a significant effect of water deficit per year was not suitable for oil palm because its productivity will drop by 54 – 65 % so that this area is not economically feasible. Areas with no water deficit is desirable for oil palm, but water deficit less than 200 mm still excellent for oil palm.  Water deficit of 200 – 300 m is light constraint for oil palm, while area with 300 – 500 mm water deficit is a marginal land for oil palm plantation ( Caliman & Southworth, 1998 ).
The oil palm development is estimated still increased for the next decade due to the increasing demend of palm oil for domestic market and export purposes.  However, development of the oil palm to marginal land, in term of climate and soil fertility, is unavoidable.  Therefore, the purpose of this research is to provide information on agroclimatic suitability class and agroclimatic zones of oil palm in Indonesia.  The importance of this information are :

1)    Low average temperature ( < 18 oC)  that will inhibit plant metabolisms  such as carbohydrate tranport and flowering
2)    Cloud formations on the windward sides of the hills reduce sunshine considerably (Williams and Hsu, 1970).
3)    Most of the areas are dominated by hilly topography that restrict agronomic management and harvesting, so that it will reduce oil palm production.  In addition at high altitude we have to face soil and water conservation problems.

Figure 4. Elevation of Indonesia

Tabel 4. Agroclimatic Zone


Climate and Soil Requirements

It is generally known that the following conditions promote maximum Palm growth :

     Rainfall of 1750  mm to 3000 mm, distributed evenly over the year (i.e. with no very marked dry  season).
     A mean minimum temperature of 200 – 230C and a mean maximum temperature of 280 – 320C which is peculiar to tropical countries is best suited. If the temperatures falls below this, particularly at night to say below 190C bunch development is affected and yield reduced. Growth in young seedlings stops at temperature below 150C.
     Constant sunshine amounting to at least 5 hours per day over all the months of the year and as much as seven hours per day during some months .
     High atmospheric humidity and high CO2 concentration. Oil Palm can be grown on a wide range of soils, the best being the coastal alluvial clay, riverine and coastal alluvial and soils of volcanic origin.

Agroclimate Suitability Class
Based on several climatic components and their intensity, the criteria used to determine Agroclimate suitability class is presented in Table 5.

             Table 5. Agroclimate suitability class for oil palm (Siregar et., 1998)
Class
Suitability
Criteria
S1
High suitable
Optimal (normal) ; none or one light limitingfactor
S2
Moderate suitable
More than one light limiting factor or one moderate limiting factor
S3
Marginally suitable
More than one moderate limiting factor
N
Not Suitable
One or more strong limiting factors


Tabel 6. 

Land Use
Land acquisition is a major business decision that requires informed technical inputs social analysis and realistic valuation and forecast.  There is a real danger of unwise decision by company just to jump into the wagon of expansion and/or due to  host of other reason.

Figure 5. Effective Land Evaluation



Licensing Plantations in Indonesia

When the modern state of Indonesia was established, a large number of plantations established by colonial authority already existed. However, in accordance with Law No. 86 of 1958 regarding Nationalization of Dutch Companies, these plantation companies were taken over by the Government as state-owned companies. The law was further regulated by Government Regulation No. 2 of 1959 regarding Law Enforcement Principles on the Nationalization of Dutch Companies. This government regulation set out criteria for the kinds of Dutch companies that should be nationalized and established the nationalization procedure.54 Further regulations were issued listing the companies thus taken over by the State. For example, pursuant to Government Regulation No. 2 of 1959, the government issued Government Regulation No. 4 of 1959 on Nationalization Criteria of Dutch Tobacco Agriculture/Plantation Company, which listed some 38 tobacco companies that should be nationalized.

Prior to the Basic Agrarian Law (BAL ) of 1960, these plantation companies’ rights over land were defined by Dutch laws as rights of Erfpacht and Consessie. Under the BAL, however, Erfpacht rights were converted into maximum 20 year leaseholds on State lands, while Consessie rights holders could apply to confi rm their concession rights. If such rights were not applied for, or the applications did not comply with the requirements of the Agrarian Minister, they would lapse after a maximum of fi ve years.55 As far as this study could determine, there are no longer any plantations in Indonesia claiming rights in land under Dutch law.
Most large oil palm plantations have been established in Indonesia under the BAL by which companies are awarded temporary rights of exploitation or cultivation for periods initially of 35 years extendable for 25 years. These tenures, known as Hak Guna Usaha (HGU), and corresponding HGB (Hak Guna Bangunan) for constructing buildings such as mills, are considered equivalent to leaseholds on State lands. Acquisition of these rights is regulated by a number of further laws, which set out the conditions and procedures under which HGU may be issued and plantations licensed.

Ministerial Decree of Agriculture No. 786/Kpts/KB.120/10/96 regarding the Licensing of Plantation Businesses firstly defined Plantation Businesses as cultivation activities and Plantation Industries as industries processing plantation products, both of which are to be regulated and developed subject to the authority of Minister of Agriculture. Under the decree, Plantation Businesses must acquire a Permanent Permit for establishing plantation crops or a ‘Permit of Plant Type Alteration’ if they decided to change the crop type. Plantation Industries require a Permanent Permit and an Expansion Permit. Authority to issue such permits was delegated by the Minister of Agriculture to the Directorate General of Plantations for all plantation licenses for lands covering more than 200 ha. However, for plantations that cover 25 to 200 ha., the authority to issue a permit was delegated to Provincial Governors.

All such licenses were issued subject to the companies first securing Location Permits (ijin lokasi) for the preparatory activities required to set up plantations and plants. Once armed with these permits, companies may acquire the rights of utilization and exploitation of the land (Hak Guna Usaha – HGU) from the Agrarian Ministry. However, these licenses may be revoked: if the company fails to adhere to the regulation stipulated in the license, varies the location, changes the crop type, or expands the crop area without permission; if the HGU is revoked or expires; if the license is returned to the issuing authority or; if the company violates public orders or existing laws and regulations.

In March 1999, the Ministry of Forestry and Estate Crops released a regulation that limited plantation concession sizes. In this regulation, tree crop plantation development area was set at 20,000 hectares in any one province, and up to a maximum of 100,000 hectares in the whole country for a given company.

In line with the government’s promotion of a ‘people’s economy’ (ekonomi kerakyatan) the Indonesian government has encouraged investors to cooperate with local farmers and cooperatives in the ownership and operation of oil palm plantations through five new schemes which offer incentives to both cooperatives and private enterprise. The program is extremely complicated and few people, including government representatives at the provincial level, seem to know how it will be implemented. Many plantation companies and new investors have therefore put off their plans to develop further plantations until government’s intentions about this regulation become clear.
Having realized that the industry is concerned about this regulation, the Ministry of Forestry and Estate Crops has gone to great lengths to reassure the plantation sector that the new investment schemes would only affect new investors, and would not affect existing plantation firms. But they have urged existing plantation firms to adopt these schemes, ‘because they will create a sense of belonging for the local people’ and ‘encourage the local people to protect plantation areas from looting, theft and damage’.

The Minister of Agriculture issued a revised Decree regulating plantations in 2007. The Decree set out further requirements for the management, control and development of at least 20 % of their area for local farmers or  cooperatives through flexible schemes that agreed by both parties. with the expressed aim of making plantation businesses more efficient, competitive and sustainable, in order to increase people' income and living standards, increase foreign exchange revenue, generate more raw material for industry, and promote employment.

The Decree also imposed additional conditions under which permits could be revoked including: if the company had not established itself on the land after three year; had not started planting after four years; did not manage the plantation professionally, transparently, participativelly, efficiently and effectively; did not sustainably manage natural resources; failed to carry our impact assessments; did not collaborate with cooperatives and small & medium scale industries; carried out land clearing using fire; failed to prepare a business plan and feasibility study; did not apply for permits to change crop types or expand the area or; did not report on business progress each semester. To assure the Ministry that companies had satisfied these requirements they had to comply with a complex series of permitting steps

Land rights

Land matters except for mining and forestry are under the jurisdiction of the National Land Agency (Badan Pertanahan Nasional - BPN) formed to administer all matters relating to the Basic Agrarian Law of 1960 such as the registration of land rights and the granting of rights and various permits to use the land.







There are three major types of land rights in APL (Area for other uses ) recognised under BAL: hak milik, hak guna and hak  pakai.

Hak milik  is an individual land property right granted in perpetuity under BAL and the owner can lease the land to others. The total land owned by a household can not exceed 22 ha. Only Indonesian nationals and statutory bodies (badan hukum) appointed by the government (e.g state banks, agro-cooperatives, religious and social non-profit making organisations) may acquire hak milik. This right should be registered and the holder given a certificate: in practice few smallholders in South Sumatra have registered rights .

Hak Guna Usaha (HGU) or The right of exploitation is the right to use state land for agriculture, fisheries, etc. Large company plantations are operated under an HGU that is granted for 25 to 35 years and can be extended for a further 25; a de facto 60 or 90 years. An HGU can be acquired by Indonesian nationals and by Foreign Company established under  Indonesian law and domiciled in Indonesia. No maximum land area is specified but the right must be recorded at the Land Registry Office. Land registered under HGU can be used as security for a mortgage and may be transferred to other parties – by sale, exchange or gift - with the permission of Head of BPN.

Hak pakai gives the holder the right to use a particular area of land that is held in either in state or private ownership. In practice, the right is scarcely used for private land since other titles, such as the right of lease or the right of land-pledging, play a greater role. Hak pakai is time limited and, in principle, can be transferred when no other regulations apply. Resident foreigners and foreign corporations with representatives in Indonesia can be awarded hak pakai. The right for private land to be registered is not realized as the implementing regulations do not exist.

Of the remaining two land titles, Hak guna bangunan is a title on land which gives its holder a right for a fixed period of time, on a construction built on land owned by another party, while Hak Penggunaan lain are rights of lease, share-cropping, lodging, landpledging, etc.

Challenges and Development Scenarios
The five key challenges for the Oil Palm Plantation Development  in Indonesia: (1) Land Legality , (2) increasing Tight labor situation, (3) Productivity gap, (4) Increasing Input Cost, and (5) Social Tension.
    Land legality.  In Indonesia, companies can apply to district (kabupaten) authorities for access to land. The process involves several permits and requires negotiation with local communities and individuals. An area selected for oil palm development should not involve primary forest ( Selected Production Forest,  Production Forest & Conversion Forest zone) and those with high conservation values. Logged over Conversion Forest zone can still be considered for oil palm development but fields located on those conversion forest shall have the “Forest release permit” from the minister of Forestry.

    Increasing Tight Labor Situation is the most serious constraint and presently the industry in others island of Jawa is highly dependent on workers from outside ( from Java, Lombok or Bugis). While efforts have been made to mechanise various field and mill operations, overall progress has been rather slow, particularly for harvesting fresh fruit bunches, the most labour-intensive operation.

    Productivity Gap. A major concern is the large gap between the actual production of palm oil per hectare and the crop’s genetic potential. The gap has been widening with time as plant breeders have continued to improve the inherent productivity of oil palm but the yields realised have remained static or even declined.

    Increasing Input Cost continues because of the increasing fertilisers price ,labour cost and land aqcuisition cost.

    Social Tension. The Indonesian oil palm industry faces social problem at every places in all parts of Indonesia, the main problem is the land itself. Competing land and resource claims are the basis of latent conflicts in all parts of Indonesia, and can easily turn into violent communal conflict.

    Environment. Increasing pressure from importing countries and various stakeholders requires the industry to take more positive action on promoting sustainable development. Bek-Nielsen (1995) stated that “whether we like it or not, we cannot avoid to pay attention to the environmental issues which have become of worldwide importance to this world focus”.

In addition to the above challenges, Company has raised concerns over increasing difficulty in maintaining discipline among the workforce and the shortage of dedicated executives and officers. These have a negative impact on the efficiency of plantation management.

Development Scenarios

Three development scenarios are analysed based on (a) Sustainable palm oil production entails legal scenario, (b) economically viable scenario (c) socially beneficial management and operations and (d) environmentally appropriate scenario. The conclusion is that only through a concerted effort to develop the area can balanced development occur that leads to regional economic growth, poverty alleviation as well as positive environmental outcomes. Planters should be committed to environmentally-friendly agricultural practices.
Nevertheless, recognising  the increasing important role that environment will play in the 21st Century, Planters shall adopt the following:
a. Undertakes the Environmental Impact Assessment (AMDAL) for all land development projects in Indonesia as required by national law. Mitigating measures are being implemented as required under this assessment.

b. Will support the RSPO’s effort in undertaking projects that will enhance the production and use of sustainable palm oil. These projects are divided into the following broad groups

• development of new plantations
• responsible investment in oil palm
• plantation management practices

c. Implementing and continuous improvement on the various Best Management Practices (BMPs) in Group Estates and Mills.
There is a general consensus that the Planters area can be developed in ways that would improve the welfare of local communities, create revenue for the Regency and conserve the forest and peat areas. This requires not only detailed knowledge of the biophysical conditions of the area and prioritising the conservation of the most sensitive areas (such as peat domes), but also a strong commitment by the Government of Indonesia at all levels.

Approach and Strategy for Developing Oil Palm Plantation

The strategic approach is based on three main pillars: (1) to speed up land legal permit for approval of plantation projects and maintain good relationships with the local community and  adat leaders, (2) focus on productive area scheduled for planting  and implement oil palm block management (BM), (3) to enhance yield and profitability, the effective use of inputs including fertilizer, and soil quality of intensively managed oil palm production systems through best management practices and (4) To assist planters in the identification, evaluation, and implementation of the Cost and Profitability Structure of the Oil Palm Production Process

An area selected for oil palm development should not involve primary forest ( Selected Production Forest & Production Forest) and those with high conservation values. Logged over Conversion Forest zone can still be considered for oil palm development but  fields located on those conversion forest shall have the “Forest release permit” from the minister of Forestry.

Base on Miniter Decree No. 376/Kpts-II/1998 stipulates that oil palm plantation developments can be approved in places the provincial land use plan (RTRWP) classifies as non-forest lands. However, the land use classification in the RTRWP prepared by the Provincial Government and the forest classification in the Forest Use Plan according to National Government (TGHK) still not match each other. Becauce of this, approval must be obtained from the national Ministry of Forestry and Plantations for release from forest land in order to convert from forest land, things may not necessary proceed as the provincial government expects.

If the trees from the convertion forest land (for which an application was made for the release from forest land) are to be logged (logging is necessary for site preparation) and used (sold), the company must apply to the provincial government for a wood use permit (Izin Pemanfaatan Kayu or IPK).

The intention of  Company here is to speed up this part of procedure for approval of plantation projects by pushing everything at the provincial level, because approval of release from forest designation at the national level is slow.

Figure 6. Flow of Process Permit



 
Obtaining Land Titles by PMA Companies
For a new prospective PMA company, which requires land to conduct its business, one crucial procedure must be followed in respect of land. This regards the processing of the Location Permit.
The Location Permit allows a PMA company to acquire the land needed for its operation, and also serves as license for the transfer of rights and for utilizing the land for its investment. The Location Permit must be obtained from the Head of District (Bupati) with jurisdiction where such land is located. Within 12 -36 months (depending the acreage of land) after the issuance of this Location Permit, the PMA company must proceed to relinquish the land from its original land owners. If the company had previously obtained a Location Permit then it needs to cautiously observe its Permit, as the compensated of the property should be in accordance with it. The investment license issued for the company also contains provisions on the land, if any, required for the intended investment.
Therefore, if the properties compensated by the company are more than the hectarage stated in its investment license, this will not be allowed unless the company first files an application with BKPM for a revision of its investment license to include a larger land area. A company, having obtained a decree granting its right in the land, will be expected to utilize the land in accordance with the terms of the decree and of its investment approval.
Please note also that there is a strong policy in Indonesia against foreign ownership or control of land. Hence, the PMA companies, while granted the rights in land necessary to make their projects viable, are not allowed to lease hold land beyond that which is actually
required and specifically licensed for their projects.

ENVIRONMENTAL MANAGEMENT
Environmental  management in Indonesia is regulated by Law Number 23 of 1997. The Law defines the management of the living environment as an integrated effort to preserve the function of living environment which includes the policy for the regulation, utilization, development, conservation, restoration, supervision, and control of the living environment.

AMDAL and Licensing
Any undertaking and/or activity causing a significant and important impact towards the environment must have an Analysis concerning the Environmental Impact Analisis (Mengenai Dampak Lingkungan , “AMDAL”) to obtain a license to conduct the undertaking and/or activity. Such license is given by the competent official in accordance with the legislative regulations in force. This license must set forth the conditions and obligations to conduct the efforts to control the environmental impact.
In the issuance of a license to conduct an undertaking or activities the following shall be observed :
·  the spatial lay-out plan;
·  the opinion of the community;
·  the considerations and recommendations of the competent official in connection with the  undertaking and/or activity.
The decision on the license to conduct such undertaking or activity is published. Without a decision on the license, anyone is prohibited to conduct a waste disposal to environmental media. The competency to issue or refuse a license application is with the Ministry of Environment. Any person is prohibited to conduct an importation of waste of dangerous and toxic material.

INDONESIAN LEGAL TENURES & PERMIT



Forms of Tenure


Rights implications

Main beneficiaries

Limitations
Provincial Land Use Plan
 (Rencana Tata Ruang Wilayah – RTRW)
Zoning of Forest Area, non Forest Area and for others use
Companies
Issued by Local Goverment and Approved by Central Goverment. Plantation businesss can only be proposed in non forest area.
Forest Zone Consensus
(Tata Guna Hutan Kesepakatan - TGHK)
Zoning of Forest Area, non Forest Area and for others use. TGHK Shall be automatically expired if RTRW have already been approved by Central Government
Companies
Issued by Minister of Forestry and local Goverment. Plantation businesss can only be proposed in non forest area.
Area for Setlement and Others
(Kawasan Pengembangan Penggunaan lain-KPPL)
Plotting  of Settlement Area and related projects
Local Government
Issued by Minister of Forestry and local Goverment.
Production Area of Non Forest (Kawasan Pengembangan Areal Produksi non Hutan - KPP)
Plotting of Productive Area for non forest
Companies
Issued by Minister of Forestry and local Goverment.
Timber Estate
(Hutan Tanaman Industry - HTI)
Plotting of Timber Estate Area
Companies
Issued by Minister of Forestry and local Goverment
Transmigration Area
(Area Transmigration- T1)
Area has been decided and developed for Transmigration
Government
Issued by Minister of Forestry and local Goverment
Planned for Transmigration Area
(Area Transmigration- T2)
Area has been decided for transmigration project and planned to develop
Government
Issued by Minister of Forestry and local Goverment
Natural Reservation
(Konservasi Alam – CA )
Very Restricted Area
Government
Presidential Decree
Protection Forest
(Hutan Lindung - HL)
Very Restricted Area
Government
Presidential Decree
Limited Production Forest
(Hutan Production Forest - HPT)
Only for forest consession
Company
Issued by Minister of Forestry
Production Forest
(Hutan Produksi HP)
Only for forest consession
Company
Issued by Minister of Forestry
Right of ownership
(Hak milik) 
Transferable, right of ownership, may be used as collateral for loans
Individuals – not available to corporations or collectives

Land reverts to State if abandoned or is used ‘not in accordance’ with BAL (Basic Agrarian Law)
Right of exploitation/ cultivation
(Hak guna usaha)
Temporary (up to 35 years) can only be transfered with permit from the minister, right of exploitation/ cultivation
Companies
Only for areas over 5
hectares. Can only be
extended two times for a maximum of a further 90 years
Right to use  buildings
( Hak guna bangunan)
Temporary right to use (and construct) buildings
Individuals and Indonesian
corporations

Maximum term 50 years.
Subject to regulations
which do not exist.
Right of use
(Hak pakai)
Temporary right to use state Land
Individuals on State lands
Granted for a definite
term
Right of lease
(Hak sewa)
Temporary right to use House or Land
Individuals
Only available for
structures, not available
on State lands
Allocated Land
(Arahan Lahan)
The first step to get land for plantation
companies
Issued by District Level of National Land Agency ( BPN Kabupaten ) or by District Development Board ( BAPPEDA ) and signed by BUPATI)
Plantation Business Permit
(Ijin Usaha Perkebunan )
Temporary Plantation Permit Shall be automatically cancelled if no activity on projects during 2 or 3 years starting from the date of it issuance
Companies (Local or Foreign)
Issued by District Level of  Plantation Department ( DISBUN Kabupaten ) and signed by BUPATI . Maximum term 3 years Subject to regulations which do not exist.
Location  Permit (Ijin Lokasi)
Temporary Location Permit Shall be automatically cancelled if no activity on projects during 2 or 3 years starting from the date of it issuance
Companies (Local or Foreign)
Issued by Head of District ( BUPATI ) Maximum term 3 years Subject to regulations which do not exist.
Environmental Impact Analysis (Analisis Mengenai Dampak ingkungan AMDAL)
Project activity can not be started without AMDAL certificate  
Companies (Local or Foreign)
Taken by AMDAL Consultant  and must be approved by Environmental Regional Office (BAPEDAL)
Cadastral Survey
(Survey Kadastral)

Cadastral Map based on The Boundaries Survey and Land use (by local people) survey
Companies (Local or Foreign)
taken by The National Land Agency (BPN Province)
Compensation for land and vegetation
(Ganti Rudi tanah  dan Tanam tumbuh)
To Identified and to Compensate usage and cultivation land of local people
Companies (Local or Foreign)
Compensation for land and vegetation on individual basis and taken by Company

Provincial Validation Committee
( PANITIA B)
Panitia B Recommendation to Minister  of National Land Agency (BPN) for issuing Decree of HGU
Companies (Local or Foreign)
Panitia B which is responsible for totally verifying land data

Decree of  HGU
( SK.HGU )
Basic right for issuing Certificate of HGU and Land Tax (BPHTB)
Companies (Local or Foreign)
issued by Minister of National Land Agency (BPN) based on Panitia B recommendation.
Only for areas not excced than 20 000
Hectares per company in one province
Land Tax
(Bea Pemiilikan Hak atas Tanah dan Bangunan- BPHTB)
BPHTB = 5 % x NJOP x Size(Ha)
Companies (Local or Foreign)
Should be paid before issuing Certificate of HGU
Tax on Purchase Value of Land and Building
(Nilai Jual Obyek Pajak)
Tabel of NJOP
Individual or Companies
Value in Rupiah per m2 issued by National Tax Departement.

 
Oil Palm Plantation Business Permits

There are several steps for a company to receive the necessary permits to establish an oil palm plantation. According to Ministry of Agriculture decree no 26/2007, oil palm investors should register themselves with the Board of Investment, and acquire a Notary Statement for the establishment of the company and apply for a tax number. Then the company should submit a business plan to the local government (district level), which shows that the area planned for plantation development is in accordance with the provincial and district spatial plan. If the area overlaps with a state forest area, detailed calculations should be made concerning the overlapping jurisdictions, and the process will be transferred to the Ministry of Forestry to get permission for forest area conversion (conversion of land status from forest area to non forest area).
An overlap of forest area and planned oil palm plantation in West Kalimantan does not usually involve converting healthy forest to monoculture oil palm plantation, but more often concerns taking over secondary forest or agroforest lands that are possessed by IPs who lack formal rights to the land due to lack of procedures in state forest delineation46. In the process of plantation establishment, land conflicts with IPs shift from the forestry department to the national land agency (BPN).
EIA (Environmental Impact Assessment/AMDAL) documents based on relevant laws and regulations should also be presented which show any potential environmental impacts (biophysically and social) and the strategies to address those problems. The company should also declare that the land clearing process will not use fire, and present the company’s statement of intent to undertake partnerships with farmer cooperatives (accompanying the proposal).
Once the Plantation Business Permit (IUP) is issued, within two years the company or applicant is obliged to: carry out due acquisition of rights over the lands; realize plantation development and/or a processing unit, based on the feasibility study, the technical standard, and applicable provisions; install its facilities, infrastructure and systems for carrying out land clearing without burning; open land without burning and manage natural resources sustainably, establish facilities, infrastructure and systems to protect crops from fires and invasive organisms (OPT); conduct an Environmental Impact Assessment or Environmental Management and Environmental Monitoring based on applicable regulations; empower and develop the local community’s cooperative; and regularly report progress to the governor or Bupati (head of district).

Article 38 of the regulation stipulates administrative sanctions against companies as follows :

(1)   A company which has already got IUP, IUP-B, or IUP-P, as stipulated in Article 13, and held approval for land extension, alternate type of commodity, extension of mill capacity, or diversification of business as stipulated in Article 30 which has not carried out obligations as stipulated under Article 34 paragraphs a, b, c, e, f, g, and/or h, and has been given warnings at least three times in four months.

(2)   If the three warnings as stipulated in section (1) are not followed by company action to fulfill the obligations, the IUP, IUP-B, or IUP-P of the company is withdrawn and it is recommended to the relevant authority that its Bussiness Utilization Right (HGU) be revoked.

In reality, companies that have received IUP often start to establish the plantation and start land acquisition even though they are yet to acquire :

(1)   Letter from the forestry department as to whether the land in question is classified as a
        forest area or not.

(2)  Business Utilization Rights (HGU) from the national land agency (BPN) which clarifies that the land is free from conflict and based on state land.

(3) Approval of the Environment Impact Assessment (EIA) by the local government to address the social, economic and biophysical impacts of the oil palm plantation.

As the cases in this report show, Agriculture Ministry Decree no 26/2007 (see Figure 6 Plantation Business Unit (IUP) and Business Utilized Rights (HGU) Process) is just a paperwork procedure that in practice is not used to address the latent problems of overlapped claims of IPs over state forest land as well as other state lands that might be granted as HGU for oil palm plantation development. The decree does not protect IPs from the social, economic and biophysical impacts of having oil palm plantations close to or on their customary lands

Environmental Impact Assessment (EIA)

Environmental  management in Indonesia is regulated by Law Number 23 of 1997 and  since GOVERNMENT REGULATION NUMBER 27, YEAR 1999 , an Environmental Impact Assessment (EIA) or ANDAL is a mandatory requirement for oil palm plantation development in Indonesia that with the promulgation of Law No. 23/1997 concerning environmental management, it is necessary to introduce adjustment to Government Regulation No. 51/1993 concerning an environmental impacts assessment. According to those, an EIA is a mandatory requirement for the

(1)  development of agricultural estates or plantations covering an area of 500 hectares or more
(a)   from land under secondary or primary forests;
(b)   which would involve the resettlement of 100 families or     more; or
(c)   which would involve modification in the use of the land;

(2)  conversion of peat soil and other wetland areas into agricultural estates having an Peat layer less than 3 meter; (a) on a surface that has less than 3 meter depth and (b) the field has to have minimal 70% of such a layer (c) Decomposition level : sapric and hemic. Soil on the fibric state is not allowed to be cultivated with oil palm.

Smallholder Schemes

Local farmers are encouraged, and have been keen, to participate in the development of their rural areas, and thus also increase their individual wealth, by planting oil palm.
These schemes started in the mid- to late–1980s. The idea was to encourage smallholders living around the boundaries of large oil palm estates - often in government transmigration settlements - to develop 2 ha of their own palms. The government lent funds to the company to clear and plant the smallholder plots. The company, in turn, charged the farmer for clearing and planting as a repayable debt.
Smallholders plots are laid out as contiguous blocks with a road system and, to all intent, look identical to the adjacent ‘nucleus’ company estate. Formal ownership transfers to the smallholder 48 months after planting. The smallholder's debt is repaid from the profits he makes selling his FFB to the company-owned central fruit processing factory (palm oil mill).
There have been two similar schemes, PIR-Trans Inti/Plasma (1986’s) and, since 1995, Inti/KKPA which is a cooperative credit for members scheme channeled through the local Village Cooperative Unit (KUD). As noted earlier, the schemes involve some 500 000 smallholders on one million hectares of land.
No funds are presently available from Bank Indonesia to finance further KKPA schemes, which, in any event, have been criticized by the smallholders as giving them too large a debt and interest burden as the high development costs are charged to their account.
A rethink of smallholder / company partnership schemes is needed. One possibility would be for the companies to supply the oil palm seedlings to ensure genetic quality, while land clearing and drainage work is carried out by the smallholder to reduce his development costs. This, however, presents difficulties. Zero burn cultivation of 2 ha blocks is not feasible and even if cooperating farmers cleared their contiguous blocks by hand, they would almost certainly burn the debris as has been their practice for generations. Such burns would inevitably reflect on the associated company who would, rightly, deny responsibility but nevertheless be tarnished.

 
Most oil palm plantations are established on state lands and companies are later given a stewardship contract valid for 35 years with the possibility of extensions (HGU). This is based on Government Regulation no 24/ 1992 on HGU permits. These plantations, called Inti, are managed by state-owned companies as well as Indonesian and foreign companies that are given land lease permits over state lands or local communities land and Adat land. Companies involve local communities in oil palm plantations through a mechanism called Plasma.
The company will receive a lease land as Inti, which will be converted from individual land to HGU. The remaining two hectares will be certified through individual land titling (Hak Milik) in the name of individual owner, and will be charged by credit loan for the land clearing, planting materials, maintenance, road construction, and land certification. See Figure 7 Cycle of an oil palm plantation.

Figure 7. Cycle of an Oil Palm Plantation.



Local Community
Indigenous people’s rights

Adat law or Indigenous Law applies to the earth/land, water and the air as long as it does not contradict national and State interests, based on national unity and Indonesian socialism, and also the other related regulations within this Law and others, all in respect to the religious laws

 “indigenous” in Indonesian language Adat  refers to the cultural beliefs, rights and responsibilities, customary laws and courts, customary practice and self -governance institutions shared by an indigenous group prior to incorporation into a colonial or post -colonial state. Adat is location-specific and changes over time. Adat governs behavior between individuals as well as within and between families, communities and outsiders. It also governs the relationships between people and nature. It is interesting to note that adat leaders rarely use the term “indigenous” in Indonesian language as most Indonesians can claim to be indigenous. The distinction is that adat communities have maintained systems of local governance according to customary law as opposed to uniform and formal structures imposed by the central government.

Relationships

o   Maintain dialogue with relevant national/local authorities, either directly or through industry bodies, and seek active influence in national Government/industry/NGO partnerships and similar bodies.

o   Maintain good relationships with the local community and  adat leaders encouraging responsible use of the land and company facilities for amenity, social or traditional purposes.

o   Ensure that all transactions have legal standing.

Use Annual Reports and other means to enhance the company image through communicating the company’s high standards of social, human and environmental care.

The Priority Management

Pre-Project

Priority 1 -  Relationship with Local People

    Identification of specific areas of concern about local peoples’ communication methods which can be addressed through explaining the project  and partnership model.
    Identify opportunities and constraints facing local people needs surrounding area.
    Provide guidance on ways of partnerships’ model of the palm oil  project to provide assurances of good acceptance.
    Develop appropriate communicating method with local people  to improve degree of acceptance.

Priority 2 -  Relationship with Local Government

Immature Palms

Priority 1 –  Ground Cover

    Maintain proper ground cover vegetation
    Construct adequate control path
    Maintain proper circle weeding
    Pest & Disease Integrated Control

Priority 2 – Soil, moisture, and nutrient management

    Maintain frond placement in inter-rows and between palms
    Maintain fertilizer management
    Construct adequate drainage

Priority 3 – Canopy management

    Maintain proper pruning
    Remove abnormal and diseased palms
    Supply vacant planting points


Mature Palms


Priority 1 – Crop recovery

• Adopt a 9-day harvesting interval
• Maintain clean palm circles and clear access paths
• Construct harvesting platforms and harvesters’ bridges
• Collect loose fruit in bags

Priority 2 – Canopy management

• Maintain proper pruning
• Remove abnormal and diseased palms
• Supply vacant planting points

Priority 3 – Soil, moisture, and nutrient management

• Maintain frond placement in inter-rows and between palms
• Apply empty fruit bunches
• Maintain fertilizer management to support large, profitable yields
• Construct adequate drainage



Strategy of Higher Returns to Investment


In a sensitivity analysis,  a 10 per cent improvement in any of the four variables namely yield, costs, price and oil extraction ratio, did not improve IRR to any significant extent (slightly above 10 % ). However concurrent improvement by 10 per cent in all the four variables more than doubled the IRR from 8.05 to 17.9 per cent.  IRR increased to 14.9 per cent even with no increase in price. Based on these results we concluded that large improvements stem from many incremental developments, and attention to detail. Apart from price, the other three variables are influenced by management competency and inputs. Effectiveness at the operational level is implementation of Best Management Practices, thus vital. Also, company leadership at the highest level must focus on detail routine control.
BMPs are agronomic methods and techniques found to be the most cost effective and practical means to reduce the gap between actual and site yield potential and minimize the impact of the production system on the environment by using external inputs and production resources efficiently.

Specifically, the plantation shall focus on two major issues which are related to productivity and eco-efficiency. On productivity, it will emphasize on mill level and plantation level. The focal point will be on improving oil yields which can be achieved by increasing % Oil Extraction Rate (OER) and FFB yield. OER can be increased by improving quality of the fruit and mill extraction efficiency. FFB yield can be increased by improving genetic quality of planting material, age distribution of the plantation and farm management techniques. As a result, increase in productivity will increase business performance by reducing costs and improving margins.

For % OER, the programme should focus on improving mill efficiency through reduction of oil loss in production process. Although improvement in the genetic planting material will eventually have a significant impact on increasing oil content in the bunch, this is a very long-term issue that is well over the time frame of the programme. For FFB quality through Estate Management-supported Harvesing Cluster programme (Hanca Tetap), the harvester will be had appropriate fix area of mature palms which will allow to get only good quality (ripeness) supply to the mill.

For FFB yields, the focus should be on good planting materials and implementing best management practices that facilitate the planting programme for every estates. For oil palm plantations, inputs are usually both available and affordable and estates obtain seed with high yield potential from certified seed producers. Thus, the key to improved yields is in better agronomic management and estate organization and planning.

Management factors contributing to the gap between actual and maximum economic yield in oil palm plantations. A schematic flow sheet of management factors, is shown in Figure 6 :


The Priority of Management consists of three major phase :

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