Investment in forestry, plantations at zero level

JAKARTA (JP): Virtually no new money has entered the forestry and plantation sectors the past two years because potential investors have been frightened off, an executive said on Tuesday.

Agribusiness Club secretary-general Tony Kristanto said the country's questionable security and the government's unfavorable investment policies combined to make investors hesitant to enter these sectors.

He said government regulations requiring investors to include the local community in the ownership of plantations and forestry estates were certainly discouraging.

This regulation, in addition to the uncertainty surrounding the security situation in the country, has deterred potential investors, according to Tony.

"I think foreign investors will not enter these sectors until security is established and the government is willing to review unfavorable regulations," he was quoted as saying by Antara news agency during a dialog on the forestry industry hosted by Harvest International.

Director General of Plantations Agus Pakpahan acknowledged the country had seen a drop in new foreign investment in the forestry and plantation sectors. However, he said the decline was mainly the result of foreign investors having difficulty securing soft loans to finance their investments, not due to changes in the government's investment policies.

He did not provide any figures on foreign investment in the forestry and plantation sectors.

In the view of most foreign investors, the policy requiring them to involve local residents in the ownership or management of plantations and forestry estates is a setback.

The current regulation requires timber companies to sell at relaxed terms at least 20 percent of their shares to cooperatives, hand over its plantation or factory to local residents after the company's concession period has ended and allocate a certain portion of their concession areas for locals to work on.

The regulation was issued early last year as part of the government's effort to provide local communities an equal opportunity to manage forest assets. According to the government, the involvement of local communities would help reduce conflicts between companies and residents.

A number of timber firms have been involved in heated disputes with local residents over ownership of the forest since Soeharto was toppled from the presidency in 1998.

Some residents have carried out illegal logging in companies' concession areas, while others have gone so far as to seize control of entire areas in their efforts to receive some sort of compensation from timber companies.

A number of foreign investors in the plywood industry have reportedly delayed contracts with local timber companies due to concern over the conflicts.

Over 50 timber companies in Irian Jaya, Kalimantan and Sulawesi were forced to halt their logging operations due to uncertain security and continued threats from locals.

Tony said the government should establish a profit-sharing mechanism in which timber companies would distribute a share of their revenue to local residents in return for their contribution to the companies' operations.

Agus, however, insisted the existing regulations were fine and that his office had not received any complaints from foreign investors.

He also said the government's policy was to protect the welfare of residents living near plantations and forestry estates.

Foreign investment projects must be able to bring benefits to the locals, Agus said. "Investment is important, but people's welfare is much more important." (cst)