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The Chain: Revocation of Permits, Increased Biofuel Volumes Point to Significant Developments in Indonesia’s Palm Oil Sector in 2022

January 28, 2022

In the past month, there have been two significant developments in Indonesia’s palm oil sector: 1) the increased allocation for the country’s biodiesel program; and 2) multiple plantation companies — including oil palm plantation companies, together with industrial tree plantations and mining companies — have had their licenses revoked as a result of their concessions being considered “stranded land.”

At the end of 2021, the Indonesian government announced its list of suppliers to Indonesia’s state-owned biofuel companies and the total volumes allocated. The total volume allocated for 2022 is 10 million kiloltres (kL), a 6.4 percent increase versus 2021. The higher allocation is part of Indonesia’s long-term plan to increase its use of biodiesel. The plan was first launched in 2008 and initially designed as a mixture of one percent palm oil-based biodiesel and 99 percent diesel fuel (B1 policy), and the percentage of palm oil in the mix steadily increased to 30 percent in December 2019 (B30 policy). The government is targeting 100 percent biodiesel (B100), but that is unlikely unless capacity on existing plantations increases. Despite concerns over the impact of demand for palm oil as biofuel on Indonesia’s forests, the government has defended its plan as way to reduce dependency on fossil fuels.

Twenty-two refinery companies have been assigned biodiesel allocations, and they are the same company groups as last year. Most of the volume will be supplied by NDPE companies, while 13.3 percent of the supply (covering around 1.3 million kL) will come from non-NDPE companies. These include companies with well-documented deforestation issues: Jhonlin Agro Raya (Jhonlin Group) and Tunas Baru Lampung.

Revoked Permits

On January 6, 2022, the President of Indonesia announced that the government will revoke the licenses of more than 2,000 companies. The forestry and plantation permits revoked cover more than 3 million hectares of land. The licenses were revoked because the permit holder either failed to develop the concession areas according to the permits, diverted their permits to other companies, or violated regulations by conducting business outside of the permit areas. The announcement was part of the government’s effort to improve the governance of mining, agriculture, and forestry permits.

There are several factors behind plantation companies not developing the concessions. The reasons include: 1) issues with local people around the concessions that prevent or delay development; 2) the problematic issuance of permits, which may have come to light during the development process; 3) the companies were not able to fulfill mandatory requirements to allocate a percentage of the concession for smallholders; 4) companies intend to harvest and sell the wood rather than develop an agricultural concession; and 5) some forested concessions were not developed due to NDPE policies.

Several of the permits revoked belonged to companies with well-documented deforestation issues. The company Ciliandy Angky Abadi, which has been covered by CRR several times due to deforestation and corporate ownership issues, had nine concession permits revoked. Other revocations include PT Mulia Sawit Agro Lestari (Mulia Sawit Agro Lestari), PT Tirta Madu (Ciliandry Anky Abadi), PT Medco Papua Hijau Selaras (Capitol Group), PT Agrindo Green Lestari (Ciliandry Anky Abadi), PT Jhonlin Agro Lestari, and PT Kodeco Timber (Jhonlin Group).

What will happen to the revoked concession permits is not yet clear, but the government has said it would offer them to farmers and civil society organizations. Although there were no references to the Omnibus law during press conferences, the announcement is understood to be related to the implementation of Government Regulation Number 20 Year 2021. This regulation relates to the control of abandoned lands and is a derivative of Indonesia’s Omnibus law, which includes an article that says that “land or concessions rights and permits that are intentionally abandoned within two years of the permits issuance will be revoked and returned to the country.” The government regulation specifies that among the “land rights” referred in the regulation are cultivation rights (in oil palm plantations sector) and concession rights (in industrial tree plantations and mining concessions).

The article 180 in the Omnibus law replaces the previous Plantation Law Number 39 Year 2014 that regulated abandoned land under plantation permits. Formerly, plantation companies had to have 30 percent of their concessions cultivated within three years of the permit being issued, with full development completed after six years. The timeframe has now been shortened to two years.

Although the decision to revoke more than 2,000 licenses could be a positive development for agrarian transform, critics say the review process lacked transparency and it is unclear how the process will benefit communities. The Indonesian Center for Environmental Law (ICEL) argues that rehabilitation should be carried out in the permit areas as degradation has likely already occurred. It is also still unclear whether those companies will be held accountable for past mistakes.

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