New Indonesian rules to have minimal impact


President Joko Widodo signed the instruction, which will last three years, on Wednesday. – Reuters photo

KUCHING: Indonesia’s move to stop issuing planting permits for three years is not expected to impact Malaysian-listed planters with operations in Indonesia as most of these companies have already cut down on new plantings of palm oil in compliance with terms under the Roundtable on Sustainable Palm Oil (RSPO).

The Indonesian government on Thusday issued a presidential instruction to place a moratorium on new permits for palm plantations for three years, as part of efforts to protect forests.

According to reports by Reuters, the instruction was signed on September 19, with aims to “improve governance of sustainable palm plantation, provide legal certainty, (and) guard and protect environmental preservation”.

The report also noted that the Indonesian government has already put in place a moratorium on primary forest and peat land clearing, which has been regularly extended since it was first implemented in 2011.

“Even without this ruling however, listed plantation companies with operations in Indonesia have already cut down on new plantings of oil palm due to slow approvals for New Planting Procedure (NPP) from RSPO,” the research arm of AmInvestment Bank Bhd (AmInvestment) said in a report.

In any case, the research team pointed out that Malaysian-listed plantation companies are also not supposed to plant forest or virgin forests with oil palm as this is not allowed by the RSPO.

“We believe that this ruling would affect private plantation companies in Indonesia more than the listed ones,” it added.

It also noted that while more than 10 years ago, the listed plantation companies used to plant about 5,000 to 10,000ha of oil palm each year but in the last five years, new plantings per company have dropped to less than 5,000ha per year.

“For instance, Genting Plantations Bhd planted less than 30ha in Indonesia in the first half of the financial year 2018 (1HFY18) pending RSPO approvals. Apart from RSPO issues, TSH Resources Bhd have also carried out minimal new plantings to conserve cash.

“IOI Corporation Bhd’s focus is on re-planting of ageing oil palm plantations in Sabah. Other companies have carried out minimal new plantings as their plantable landbank reserves in Indonesia are small.

“KL Kepong Bhd’s plantable land reserves in indonesia are about 8,000ha to 10,000ha while IJM

Plantations Bhd’s plantable land reserves are about 3,000ha to 5,000ha. Sime Darby Plantation Bhd’s

plantable land reserves in Indonesia are about 10,000ha,” AmInvestment explained.

Overall, the research team said: “In the long-term, this ruling would spur acquisition of plantation companies with landbank, which already has the Hak Guna Usaha land title in Indonesia.

“This would allow plantation companies to continue expanding oil palm plantations in the future. However, progress is still likely to be slow due to intense scrutiny from environmental organisations.”