Indonesia forest moratorium softens blow for planters

Reuters News
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Posted: May 20, 2011 8:45 AM

By Olivia Rondonuwu and Michael Taylor

JAKARTA (Reuters) - Indonesia's government revealed on Friday a long list of exemptions to a two-year moratorium on new permits to clear forest, but said it would not provide compensation for firms unable to expand into protected land.

The moratorium, taking effect on Friday after a five-month delay, will exempt permits already given in principle by the forestry ministry and extensions of existing permits, as well as projects to develop supplies of energy, rice and sugar.

The exemptions were wider than expected after pressure from firms worried about expansion and a forestry ministry concerned about losing billions each year in revenue from chopping down forests in the world's top palm oil producing nation.

"There were lots of pressure on the Indonesian government from the palm oil industry about this ban since we bring in significant investments. Today's final details show that agreeable concessions have been made," said a Malaysian planter with assets in Indonesia, who declined to be identified.

Plantation and mining firms have been worried the ban will hit their expansion plans. The moratorium ordered a freeze on new permits to log or convert 64 million hectares (158 million acres) of primary forests and peatlands.

The moratorium is part of an effort to reduce greenhouse gas emissions from deforestation under a $1 billion climate deal with Norway, but the final version disappointed environmentalists hoping for wider protection.

Joko Supriyono, secretary general at the Indonesian Palm Oil Association (Gapki), told Reuters uncertainty over the plan had led to expansion last year of 300,000 hectares of palm oil plantations in the world's top palm oil producing nation, reduced from a minimum 500,000 hectares in recent years.

"Basically, it appears to primarily apply to the plantation and mining industry, while most other sectors seem to be excluded," said Andreas Bokkenheuser, Singapore-based commodities analyst at UBS.

"It won't put a lot of downward pressure on the (palm oil) sector. There is plenty of land available to plant palm oil or other crops. The land is there -- you can plant plantations in environmentally agreeable areas assuming there is access to infrastructure."

Shares of Indonesia-listed plantation firms mostly rose on Friday to outperform a steady Jakarta index. Astra Agro Lestari was up 0.8 percent and SMART climbed 6.3 percent, though Gozco fell 1.3 percent.

Gozco's palm oil production is expected to rise more than 30 percent this year and it has permits for 56 percent of its landbank, but expansion in the rest could be hit by the moratorium, an executive told Reuters on Thursday.

The forestry ministry has defined primary forest as forest that has grown naturally for hundreds of years, of which there is estimated to be around 44 million hectares in a sprawling tropical archipelago where illegal logging is common.

(Additional reporting by Niluksi Koswanage in KUALA LUMPUR; Writing by Neil Chatterjee; Editing by Ramthan Hussain)