Hamud M. Balfas

Hamud M. Balfas – ABNR, Jakarta*

Before he left his office on 20 October 2014 and the new president was sworn in by the People Consultative Assembly (Majelis Permusyawaratan Rakyat/MPR), the former President of Indonesia, Susilo Bambang Yudoyono, signed several new laws and Government Regulations. The new laws that he signed include Law No. 39 on Plantation (“Law 39/2014” or the “Law”), Law No. 40/2014 regarding Insurance, new Copyright Law namely Law No. 28/2014 and Law No. 32/2014 on Maritime. All these laws were signed and enacted within five days before Yudoyono left his office.

Law 39/2014 was enacted to replace the old plantation law namely Law No. 18/2004 (the “Old Law”). The Law was introduced in the middle of the rise of nationalism sentiments in the country which have been clouded riots in many parts of the country alleging that the country was colonized by big plantation company that left its farmers with no land to grow.

Planning and Land Use

In addition to having more provisions/articles compared to the Old Law, the Law tried to introduce a more integrated national planning for plantation and empowerment and respect of the customary law and partnership with local people within the plantations.

The objective of the plantation planning is aimed to provide direction, guidance and control in order to achieve the objectives of establishment of plantations. The Law stressed that it means by a plantation is the national, provincial or the district/city macro-planning, not business planning or micro-planning that is made by plantation business operators. Plantation planning is prepared with reference to the following elements: 1
a.the national development plan;
b.the regional spatial planning;
c.the Land and climate suitability and availability of land for plantation business;
d.the environmental carrying capacity;
e.the plantation development performance;
f.the science and technology development;
g.the economic and socio-cultural condition;
h.global market condition and demands; and
i.the regional aspirations by holding paramount the nation and state integrity.

On the issue of the land plantation, the Law seems to have taken a new approach regarding the cultivation of the land acquired and owned by a plantation company. Unlike the Old Law, Law No, 39/2014 requires that a Plantation Company must farm the Plantation Land as soon as possible as provided below:2
a.within 3 (three) years of the entitlement to land tenure, a Plantation Company must farm the Plantation land of at least 30% (thirty percent) of the entitled land area; and
b.within 6 (six) years of the entitlement to land tenure, a Plantation Company must farm the whole area of the entitled land which is technically estate crop plantable.

If the plantation land is not farmed, the non-farmed plantation land shall be subject to expropriation by the state under the laws and regulations. The land that are farmed within the above may be subject to the abandoned land to which the Law further stipulates that in the event that there is a change in the status of the state forest areas or abandoned land, the Central Government may transfer the title deed to planters under the laws and regulations.3

With respect to the land that are subject to customary law and rights (hak ulayat), the Law provides that if the land needed for plantation business is hak ulayat land of the Indigenous People, a plantation business operator must enter into discussion with the indigenous people holding hak ulayat for agreement on land disposal and compensation.4 The hak ulayat itself is defined as the authority of the indigenous people to simultaneously organize the used of land, territories, and natural resources existing in the territories of the relevant indigenous people as a means of livelihood and for a living.5

Foreign Investments Issue

As in the case of the Old Law, Law No. 39/2014 does not only deal with plantation in a narrow term. The Law also addressed other sectors of the industry and therefore it defines the term plantation in the widest term as a any activity of management of natural resources, human resources, production facilities, equipment and machinery, culture, harvest, milling/processing, and marketing pertaining to estate crops. 6

Subject to its provisions, the Law still wants to attract more foreign investment in plantation business into the country as it still considers that the plantations serve important role and have huge potential in the national economic development to realize the prosperity and welfare of the people in a just manner. 7 However, the Law provides a mechanism that intends to make it more difficult for the transfer of ownership of a plantation company to a foreign investor as the transfer may only be possible upon approval from the Minister. The Law further stipulates that such an approval may only be granted in the national interest.8. The elucidation of Article 50 of the Law defines the “national interest” as an approach that aims to preserve the political, economic, socio-cultural stability and defense and security.] The mechanism is clearly intended to ensure that national interest on plantation industry is ensured and therefore prevent any past and current mistakes due to what some people considers as excessive control of the plantation business by foreign companies.

On the investment issue, the Law basically mandates the government to implement a pro-domestic policy in the plantation investment. Although, domestic and foreign investment is still considered equal, the Law expressly stipulates preference to domestic investment. For that purpose, the Law set forth that plantation business development shall give preference for domestic investment and that foreign investment is subject to limitation in the national interest and the interest of planters as well as be limited by types of estate crops, business scale, and condition of a certain area. 9
One important feature to note in the Law is corporate social responsibility of the plantation company that the Law mentioned as partnership (kemitraan). In that regard, the Law set forth that in order to empower Plantation Business, Plantation Companies shall enter into mutually beneficial, respectful, reliable, consolidating, and reliant partnership with Planters, employees, and communities living around the Plantations.10 The form of partnership may be made through the cooperation in:
i.provision of production facilities;
iii.milling/processing and marketing;
iv.shareholdings/shareownership; and
v.other supporting services which in this case could also be in the form of provision of transportation services to the local communities.
A Plantation Company holding a Plantation license/permit or a culture Plantation license/permit must facilitate the establishment of surrounding community farms of at least 20% (twenty percent) of the total estate area farmed by the Plantation Company. Establishment of such a surrounding community farms may be facilitated by credit system, sharecropping, or any other form of funding as agreed upon under the laws and regulations. the Law further stipulates that an obligation to facilitate the establishment of farms must be made within 3 (three) years of the entitlement of the right to farm. 11

No More Haze?

Concern over haze that recurring every year and originated from forest clearing in Sumatera and Kalimantan also becomes an important element that the Law addresses in its provisions. As part of handling this matter, the Law set forth that any Plantation Business Operator is prohibited from clearing and/or cultivating land by burning. Any Plantation Business Operator must have the land and farm burning controlling system, facilities, and infrastructure. 12

What other important provisions of the Law show how it wants to reduce land problems in the country by directing some of criminal provisions in the Law to the government’s officers (including ministers, governors, regents and mayors) to ensure that they do not manipulate their positions when it comes to implementing laws and regulations or causing loss to the public as a result of their authority. Criminal provisions related to granting of plantations’ permit over the indigenous right (hak ulayat) is one of such provisions. 13 Other criminal provisions are related to issuance of permits that are not in accordance with the intended land allocation or those plantation companies that clear and/or cultivate land by burning or companies that do not conduct environmental impact assessment or an environmental management effort and an environmental monitoring effort. 14*****

1 Article 6 of the Law
2 Article 16 of the Law
3 Article 11 section 2 of the Law
4 Article 12 of the Law
5 Article 1 section 5 of the Law
6 Article 1 section 1 of the Law
7 Preamble b of the Law
8 Article 50 of the Law. The elucidation of Article 50 of the Law defines the “national interest” as an approach that aims to preserve the political, economic, socio-cultural stability and defense and security.
9 Article 95 of the Law
10 Article 57 of the Law
11 Article 58 of the Law
12 Article 56 of the Law
13 Article 103 of the Law
14 Articles 106, 108 and 109 of the Law

* The author, Hamud M. Balfas is a lawyer with ABNR in Jakarta, Indonesia. He may be contacted at: hbalfas@abnrlaw.com. Hamud writes articles on various subject of the law extensively. He is also an author of a book on Indonesian Capital Market (Hukum Pasar Modal Indonesia), now in its second edition and co-author a book on Indonesian company law.

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