Indonesia forest moratorium softens blow for planters

JAKARTA Fri May 20, 2011 8:16am EDT

1 of 4. An illegal logger cuts down a tree to be turned into planks for construction in a forest south of Sampit in Indonesia's Central Kalimantan province in this November 14, 2010 file photo. Indonesia's President Susilo Bambang Yudhoyono inked into law a two-year moratorium on new permits to clear primary forest, as part of a $1 billion climate deal with Norway, a presidential advisor on climate change said on May 19, 2011.

Credit: Reuters/Yusuf Ahmad

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JAKARTA (Reuters) - Indonesia revealed a long list of exemptions on Friday to a two-year moratorium on new permits to clear forest, a concession to the hard-lobbying plantation industry in the world's top palm oil producing nation that vexed green groups.

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 Southeast Asia's biggest economy.

"There was 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.

However, the moratorium will not provide compensation for firms unable to expand into protected land. It ordered a freeze on new permits to log or convert 64 million hectares (158 million acres) of primary forests and peatlands.

This is aimed at reducing greenhouse gas emissions from deforestation under a $1 billion climate deal with Norway, but the final version was a let down for environmentalists hoping for wider protection of carbon-rich peat and endemic wildlife.

"This is a bitter disappointment. It will do little to protect Indonesia's forests and peatlands. Seventy-five percent of the forests purportedly protected by this moratorium are already protected under existing Indonesian law, and the numerous exemptions further erode any environmental benefits," said Paul Winn of Greenpeace Australia-Pacific.

Norway's environment ministry declined comment on the moratorium. Officials said they were still studying the details.

But industry body the Roundtable on Sustainable Palm Oil (RSPO) praised the signing of the moratorium, as it targets annual 10 percent increases in green palm supplies.

"It is an affirmative step in the right direction that upholds the integrity of sustainable practices toward the production of palm oil, and reaffirms the country's commitment in this area," Darrel Webber, secretary general at the RSPO said in a statement.

President Susilo Bambang Yudhoyono on Thursday also signed a decree to allow underground mining activities in protected forests for 20 years, provided conditions such as an environmental assessment have been met, likely to further upset green groups but provide relief for miners such as Newmont, Eramet and Bumi Resources.

Yudhoyono's adviser on climate change, Agus Purnomo, said the forest moratorium will not hinder planters' expansion.

"There is no limitation for those who want to develop business-based plantations. We are not banning firms for palm oil expansion. We are just advising them to do so on secondary forests," Purnomo told a news conference.

Joko Supriyono, secretary general at the Indonesian Palm Oil Association (Gapki), told Reuters that uncertainty over the plan had slowed expansion last year to 300,000 hectares of palm oil plantations, from a minimum of 500,000 hectares in recent years.

"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," said Andreas Bokkenheuser, Singapore-based commodities analyst at UBS.

Shares of Indonesia-listed plantation firms mostly rose on Friday to outperform a steady Jakarta index. Astra Agro Lestari was up 0.6 percent and SMART climbed 6.3 percent, though Gozco fell as much as 1.3 percent.

Gozco's palm oil output is set 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.

NATIONAL SECURITY

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.

The exclusion of rice, sugar, oil, gas and power plant projects shows the importance of food and energy security to the government of the G20 member, aiming to feed the world's fourth-largest population and fuel GDP growth of more than 6 percent.

The country's efforts to achieve self-sufficiency served it well in the financial crisis, since a lack of reliance on exports -- unlike many Asian countries -- kept its economy growing and led to it becoming an investor darling on the brink of a coveted sovereign investment grade rating.

The country still surprised markets with bumper rice imports early this year, and relies on sugar imports. Firms such as top listed palm oil planter Wilmar and investment firm Rajawali Group are planning to grow sugar plantations in the lushly forested eastern Papua province.

The moratorium's long delay came as government ministries wrangled over how much forest to include, a symbol of the long-running tension between a nationalistic business old guard and more internationally minded reformers in the government.

The dispute showed how difficult it will be for Indonesia to reach a target of slashing emissions by at least 26 percent by 2020 while still spurring economic growth.

The moratorium was still seen as a step in the right direction for efforts to develop projects to cut emissions of climate-warming greenhouse gases, in the absence of an agreement on a new global climate pact following years of U.N. talks.

"There are a lot exclusions there but there is a conscience. It gives the basis from which they can build on to reduce their emissions," said Jonathan Barratt, managing director of Commodity Broking Services in Sydney.

(Additional reporting by Niluksi Koswanage in KUALA LUMPUR, David Fogarty in SINGAPORE and Alister Doyle in OSLO; Writing by Neil Chatterjee; Editing by Ramthan Hussain)

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