Eastern provinces oil palm plantations open to foreigners

JAKARTA (JP): The government still allows new foreign investment in oil palm plantations in eastern Indonesia, the minister of agriculture, Sjarifudin Baharsjah, said yesterday.

But foreign investors would be required to involve smallholders in their plantation projects under the nucleus and smallholder scheme to ensure locals benefited directly from foreign investment, Baharsjah said.

Under the scheme, the investor acts as the nucleus estate and agent of development for the smallholders, helping them develop their own crops (usually two hectares) and process and market their produce.

The eastern region covers the islands east of Bali.

Sjarifudin said the ban on new foreign investment in the palm oil industry was imposed only in the western region covering Kalimantan, Java and Sumatra, Sjarifudin said.

"Through the nucleus-smallholder estate scheme, the government intends to accelerate the development of the eastern provinces and to allow smallholders to benefit from the opening of oil palm plantations in their areas," Sjarifudin said at a meeting on investment opportunities in agribusiness in West Sumatra.

The government announced early this month a ban on new foreign investments in oil palm plantations because of the large areas already licensed to Indonesian joint ventures with foreign investors.

About 80 percent or 1.6 million hectares of oil palm plantations licensed to foreign investors are owned by Indonesian joint ventures with Malaysian partners.

Malaysia is currently the world's largest palm oil producer, followed by Indonesia.

Analysts have suspected the ban is aimed at protecting local big oil palm plantations and downstream palm oil businesses controlled by tycoons Eka Tjipta Widjaya and Liem Sioe Liong.

Analysts warned that the sudden restrictive measures made investors worry that similar rulings might be taken in other sectors.

Sjarifudin argued yesterday the ban was to promote investment in oil palm plantations in eastern Indonesia.

He expressed disappointment that only a few foreign investors had implemented the nucleus-smallholder estate scheme.

"The government considers the scheme the best method of plantation development," Sjarifudin said.

"Under the scheme, the farmers, besides owning small plots of plantations, also serve as workers at the big plantations," he said.

He acknowledged the ban had confused investors who were still processing their projects. Some of them had started land preparations and many others had yet to buy land.

The minister said the government would soon make an inventory of these projects before deciding which could proceed.

"But any decision we take will not cause investors to suffer losses," he said.

The opening of the eastern region to new foreign investment in the palm oil industry was welcomed yesterday by observers and businessmen.

Economist Firwan Tan from West Sumatra Andalas University said the policy should be followed by concrete steps to develop infrastructure in the eastern provinces.

The chairman of the Gemala group, Sofyan Wanandi, believed foreign investors would be willing to open oil palm plantations in the eastern provinces.

Investors would also be willing to implement the nucleus- smallholder estate scheme if the government could convince them of the scheme's objective, Sofyan said.

"My only regret is why the government had not clarified the policy on palm oil investment immediately after the controversy emerged," he said. (jsk)