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Guest article

Palm oil industry under fire as Indonesia’s haze drama continues

By Rick Beckmann & Kresna Panggabean , 09-Nov-2016
Last updated on 15-Nov-2016 at 09:02 GMT2016-11-15T09:02:54Z

Haze from Indonesia's forest fires last year spread to neighbouring countries, such as Krabi, Thailand, and has returned this year. © iStock/NuttKomo
Haze from Indonesia's forest fires last year spread to neighbouring countries, such as Krabi, Thailand, and has returned this year. © iStock/NuttKomo

Haze from slash-and-burn agricultural has returned to Southeast Asia this year. Is it enough to wait for regulators to bring the (mainly palm oil) culprits to justice? Asian resource legal experts Rick Beckmann and Kresna Panggabean enter the storm.

It’s happened again.

In August, haze from Indonesian slash-and-burn agriculture enveloped Singapore and wafted into Malaysia and up to Thailand. It was not as bad as last year, however.

The usual wave of complaints came from Singapore and the diplomatic spat started again.

Indonesia’s Minister of Environment and Forestry, Dr Siti Nurbaya Bakar, asked that Singapore focus on its own role in addressing the issue instead of “making so many comments”. She said that Indonesia has stuck to its side of the bargain in trying to avoid the recurrence of forest fires and in strictly enforcing the law. She is right.

Dr Siti has vowed to bring the culprits to justice – mostly palm oil plantation companies, some headquartered in Singapore.

Prosecutions and civil cases are underway.

In a ground-breaking decision, in August the South Jakarta District Court reportedly ordered PT National Sago Prima (NSP), a subsidiary of listed plantation giant PT Sampoerna Agro Tbk, to pay US $81 million (€73m) for forest fires on its plantation concession.

Apart from being the highest fine imposed for environmental liability, this was the first time an Indonesian court used the concept of strict liability in an environmental case.

In other words, NSP was found liable even though there was no evidence that it had caused the fires. Courts have previously often thrown out cases on the basis of lack of evidence, or tended to impose considerably smaller fines.

The decision is reportedly upon appeal. Dr Siti promises more prosecutions to come.

Forest fires and haze have been a problem in Indonesia for at least two decades. The ASEAN (Association of South East Asian Nations) Agreement on Transboundary Haze Pollution was signed in 2002, and Indonesia finally ratified it in 2014. Admittedly, a little bit late.

The Agreement requires Indonesia to actively be involved in efforts to mitigate air pollution, on both a national and an international basis.

It looks like this is happening. ASEAN members have reportedly now set out a roadmap to control haze.

A major cause of the recurring fire and hazing crisis is clearing of peatland, which is much more flammable than mineral soil.

In January this year, the Peatland Restoration Agency (PRA) was established. PRA’s main task is to prevent fires in peatland areas and restore peatland areas which have been gutted by forest fires.

PRA’s initial target is to restore 2m hectares of damaged peatland by 2020. While this is a modest target compared to the total damaged peatland areas, it is a starting point. Indonesia has an estimated 20.6 million hectares of peatland.

Haze in an Indonesian forest. © iStock/chokchaipoomichaiya

A moratorium on issuing permits in primary forests and peatland has been in place since 2011. Initially for two years, it was extended in 2013 and, in May this year, it was extended again for two more years.

President Joko Widodo announced in April a total ban on the issue of new palm oil plantation concessions, wherever they are located. While the ban was aimed at environmental protection and indicated that action was being taken to reduce forest fires, an inevitable side-effect will be to increase the value of existing concessions.

It is understood that the ban will be lifted in 2021, when a Presidential Instruction has been issued. A draft of the instruction was already in circulation at the time of writing.

Regulation alone does not prevent forest fires

As the recurrence of the haze crisis this year has shown, mere regulations alone do not prevent forest fires. For the most part, the fires are extinguished by rainfall. Management of soil water levels is a starting point

Meanwhile, there have been rumblings from Singapore that the government may take action against companies causing the haze.

Singapore’s Transboundary Haze Pollution Act was enacted in 2014. The act makes it an offence for any entity to engage in conduct, or to condone conduct, causing or contributing to haze pollution in Singapore. There may be criminal or civil consequences.

The act purports to be extraterritorial, in other words, Singapore may prosecute companies for acts which took place in Indonesia.

This has been a sore point between Singapore and Indonesia, with the Indonesian Government labelling the law as an invasion of sovereignty.

Haze is not the only reason the palm oil plantation industry is under fire in Indonesia.

In 2013, moves were made to tackle monopolies in the plantation industry. A new restriction was put in place for Indonesian plantation holdings for “groups of companies”. Previously, while holdings of single companies were regulated, larger corporate groups, potentially consisting of numerous  entities, were not.

The restriction limits CPO holdings to a maximum of 100,000 hectares per “group of companies”, while double that area is permitted in Papua and West Papua. Listed companies are exempt, despite the green movement having labelled them some of the worst offenders.

'Wait-and-see investment'

Kresna Panggabean

In a step to reduce excessive foreign domination, a new plantations law was issued in September 2014, following various nationalistic laws in the commodities sector. The early drafts of the law restricted foreign shareholdings in Indonesian plantation companies to 30%. If foreigners already hold more than 30% of the shares, they would have been required to sell down to local interests.

Rick Beckmann

Ultimately, the final law did not include the 30% restriction. Rather, it left foreign shareholding restrictions to be dealt with by a further implementing regulation. This was meant to be issued within two years from the date of the law, although there is no sign of it yet.

Meanwhile, a new draft law, the first exclusively dealing with palm oil, is also doing the rounds.

The wait-and-see approach to investment in the Indonesian palm oil industry is likely to continue.

 

Rick Beckmann is a senior foreign counsel specialising in mining and resources at TNB & Partners in association with Norton Rose Fulbright Australia.

Kresna Panggabean is special counsel at TNB & Partners.

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