Investment in forestry, plantations at zero level

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)