Tunas Baru Lampung: Contested land and peat clearing could drive substantial value loss

April 19, 2018

Tunas Baru Lampung (TBLA) is an integrated palm oil and sugar cane company established in 1973. It was publicly listed on the Jakarta Stock Exchange in 2000. TBLA is a member of the Sungai Budi Group, which is one of Indonesia’s largest manufacturers and distributers of agricultural consumer products. As of January 2018, 46 percent of the company’s shares were publicly listed. TBLA’s oil palm landbank is estimated at 88,660 hectares (ha), located in South Sumatra and West Kalimantan. In addition, the company converted two plantations – PT Dinamika Graha Sarana and PT Bangun Nusa Indah Lestari – to sugar cane in 2017. TBLA aims to grow its plantations with 2,000-4,000 ha per year in addition to the 74,060 hectares already developed.

The company’s palm oil operations are vertically integrated. Besides its plantations, TBLA possesses three mills, two palm oil refineries, three processing facilities for soap and margarine and one biodiesel plant. Its two refineries are located in Lampung and Sidoarjo. They have processing capacity of 51,000 MT/year and 30,000 MT/year respectively.

Key Findings

  • An estimated 75 percent of TBLA’s landbank is contested. Since 2014, TBLA has cleared almost 7,000 ha of peatland and forest across its concessions and it has been involved in four reported social conflicts. TBLA’s total oil palm landbank equals 88,660 ha, of which 74,060 ha are already developed and planted with oil palm. The remaining 14,600 ha, 16.5 percent of the total landbank, are still covered with peat, peat forest and forest.
  • Several TBLA clients have engaged the company on sustainability issues. The issues raised by TBLA’s clients increase the likelihood of its suspension from the No Deforestation, No Peat, No Exploitation (NDPE) market. As a result, the company could be limited to supplying the ‘palm oil leakage’ market. Whereas its vertically integrated business model allows TBLA to circumvent trader/refiner NDPE policies, its sales to consumer goods companies with zero-deforestation commitments are at risk.
  • TBLA’s recent peat clearance violates Indonesia’s peat moratorium. The company faces regulatory risk from these violations at several plantations, in the form of fines, stop-work orders, loss of business permits and operational licenses, and loss of tender eligibility for subsidized biodiesel supply.
  • As a result of non-compliance with clients’ NDPE sourcing policies, 10 percent of TBLA’s revenues are at risk. Additionally, TBLA’s violations could result in a 1-year permit freeze resulting in a decrease of eight percent of its revenue. Jointly these negative effects could equal to 26 percent of TBLA’s equity value. The company may also face increased cost of capital in the future.
  • To mitigate potential revenue losses, TBLA may opt to restore its peat lands. TBLA might also need to set aside an additional 13 percent of its land for peat restoration. These two changes equals 16 percent of the company’s equity.

Download full report | Read TBLA’s response to the report, and our reply

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