* Aim is to initially protect about 40 mln hectares
* Official seeks to reassure investors over permits
* First tranche of $30 million by October
SINGAPORE, Aug 20 (Reuters) - Indonesia plans to initially protect less than half its remaining forest cover under a two-year ban forming part of a $1 billion deal with Norway aimed at fighting deforestation and carbon emissions.
The ban from 2011 on clearing natural forest has spooked palm oil and mining firms who fear it will crimp expansion and earnings. In a nation noted for corruption and the sway of its resources firms, the move will test resolve to use donor cash transparently.
"If we surrender to the negative forces, there is no solution," Agus Purnomo, the president's special adviser on climate change, told Reuters.
"But if we go with concrete action, step by step, if we go with the very minimum level of commitment and then expanding the commitment in the future, we will be able to do it."
He sought to reassure investors that firms holding legitimate licences to clear forested land would be exempted from the ban on the issue of new licences.
For the programme to succeed, it was crucial to start off small and then expand later, Purnomo said from Jakarta.
An exact definition of natural forest was not crucial, he said, but the aim was to initially protect much of the 40 million hectares (99 million acres) of primary forest that remains of about 100 mln ha (247 million acres) of total forest area.
"I would like to go with the minimum, say the real, natural primary forest, because we need to prove this initiative will work," Purnomo said from Jakarta.
Many details of the $1 billion deal are still to be worked out, officials say, including how to handle the Norwegian funds for a special agency and pilot projects.
Purnomo said the aim was to finalise the financing process next month with the initial funding of $30 million by October.
Indonesia faces international pressure to slow deforestation and the destruction of peatlands, which release vast amounts of planet-warming greenhouse gases when cleared or burned.
The country is now destroying about 1 million ha of forest a year and the ministry of forestry data says it still has about 100 million ha remaining, with government-controlled forest estate making up 71 per cent of Indonesia's total land area.
Primary forests cover roughly a third, with overlogged areas sprawling over another third, and other vegetation making up the rest, the Center for International Forestry Research says.
"We still have about 40 million hectares of good standing forest," said Purnomo, adding that the government would issue a map before January 1 of areas to be protected by the moratorium.
"So the suspensions will not be standing on their own but they will be attached with a map. That map will be the delineation of the area under the moratorium."
Companies with valid existing licences could in theory still go ahead and clear natural forest.
"In principle, yes," he said. "What's important is we will not issue the new licences. That's the spirit of the moratorium. And if those companies are afraid their existing licences will be affected, I would like to assure them they should not because it will not affect them."
But firms would be urged to use degraded land where possible.
Some firms' existing permits could be revoked, project head Kuntoro Mangkusubroto told Reuters on Wednesday, although Purnomo expressed doubts about this. [ID:nJAK540924] (Editing by Clarence Fernandez)
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