RPT-Indonesian province to halt palm, mining expansion

Thu Jan 31, 2013 10:22pm EST

* Regional governor aims to provide good investment climate

* East Kalimantan move highlights regional-central govt risks

* Doubts cast over whether regional governments can issue moratorium

By Michael Taylor and Yayat Supriatna

JAKARTA, Jan 31 (Reuters) - Indonesia's province of East Kalimantan has imposed a one-year ban on forest destruction, a governor on the island of Borneo said on Thursday, citing the need to curb mining and palm oil expansion and cut back on land disputes.

The move is a potential roadblock for investors in Indonesia, who already face a thicket of overlapping regulations at the provincial and federal levels.

But Indonesia, home to the world's third-largest expanse of tropical forests, is under international pressure to curb deforestation and destruction of its carbon-rich peatlands.

It is the world's biggest exporter of thermal coal and the top producer of palm oil, with estates growing palm sprawling across 8.5 million hectares and expected to add about 200,000 hectares a year.

"We have applied this moratorium policy for new permits on forestry, mining and plantation since several weeks ago and it will last for a year," East Kalimantan governor Awang Faroek Ishak told Reuters, without giving a specific start date.

"We will stop issuing new permits for forestry, mining and plantation business," he added. "However, companies that have got permits before the moratorium (began) can still continue their business activities as usual."

It was not clear if the ban covered land included under an existing nationwide moratorium in place since 2011.

Another reason for the 2013 ban was the 742 overlapping land cases and disputes in East Kalimantan between palm and mining companies or local communities, Faroek said.

"I am responsible for providing a conducive investment climate for investors," he added. "That's why we take this measure aimed at creating a conducive investment climate here."

East Kalimantan, recently ranked fourth among Indonesia's 33 provinces in terms of infrastructure development and quality of life, sits on about 40 percent of Indonesia's coal reserves or 8.5 billion tonnes.

Faroek, whose province produces about two-thirds of Indonesia's coal, has previously called for an output cap to promote sustainability.

REGIONAL VS CENTRAL GOVT

The East Kalimantan forest ban is a sign of the problems faced by investors in Indonesia. The central government shook up the resource sector last year with measures to tighten control by centralizing the licensing process and taxing ore exports.

Indonesia is also now deciding whether to extend a two-year ban on clearing forest that started in May 2011 and covers about a third of the country.

Provincial governments do not have the authority to issue a separate forest moratorium policy, said Tofan Mahdi, spokesman at Indonesia's largest listed plantation firm Astra Agro Lestari .

"The (national) forest moratorium will end in May this year but some NGOs and government officials propose to extend the forest moratorium," Mahdi said in a text message. "Some governors see this situation and take early action to support the extension."

Palm oil companies such as Astra Agro Lestari, Sime Darby , Wilmar International, Sinar Mas and BW Plantation, are some of the biggest in Indonesia and will contribute to the 27.5 million tonnes of production forecast for this year.

Kalimantan is the second largest contributor to Indonesia's palm oil production, with a share of 35 percent, after Sumatra, which has a 55 percent share, said Joko Supriyono, secretary general of the Indonesian Palm Oil Association.

Palm oil plantations now cover about 700,000 hectares of East Kalimantan and produce 2 million tonnes of output each year, Supriyono added. Many investors see Kalimantan as the best and easiest site for future expansion.

Provincial governor Faroek said the figure was 1 million hectares, out of permits issued covering 2.4 million.

Still, it could be several years before the effect of the ban shows up in production.

"If it goes through, the impact will come in four to five years down the road," said Alan Lim Seong Chun, research analyst with Malaysia's Kenanga Investment Bank. "Palm oil trees take a minimum of three years to bear fruit."

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