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4-Traders Homepage  >  Equities  >  SINGAPORE EXCHANGE  >  Golden Agri-Resources Ltd    GAGR   MU0117U00026

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Indonesia Bans New Palm Oil and Mining Operations

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04/15/2016 | 10:46am CET

JAKARTA?Indonesia will temporarily bar new palm oil and mining operations to help protect the country's vast tropical forests following international criticism over its environmental stewardship.

A spokesman for Indonesian President Joko Widodo said on Friday that the ban would likely take effect this year and last for an undetermined time.

The moratorium would halt new permits for palm oil and mining operations, both mainstays of Indonesia's economy. Mr. Widodo suggested growers could double production on existing lands if they farmed more efficiently.

Foreign officials and environmental activists have criticized Indonesia for the rapid loss of its tropical rainforest, mainly on the islands of Sumatra and Borneo, much of it tied to land conversion to support palm oil and pulp production. Dry-season fires used by farmers and companies to clear forest and scrublands regularly send toxic smoke billowing throughout the region, raising air pollution levels in neighboring countries such as Singapore, Malaysia, Thailand and the Philippines.

Mr. Widodo vowed during and after global climate talks in Paris last year to improve Indonesia's record on its rain forests.

Environmental group Greenpeace welcomed the news but expressed skepticism about its implementation because the ban's authority rests on a presidential decree, which carries less weight than a law. The group pointed to a current ban on palm oil licenses in peatland and some forest areas that it says isn't adequately being enforced.

"We have learned from weak enforcement of the existing moratorium that a presidential instruction lacks teeth," said Kiki Taufik, forest campaigner for Greenpeace in Indonesia.

The moratorium would come as Mr. Widodo struggles to restore Southeast Asia's largest economy to higher growth rates amid slack demand from China and budget cuts it has imposed. The economy grew by 4.7% last year, greatly underperforming the rate of growth it enjoyed a few years ago during a commodities boom.

Palm oil has grown into a $20 billion export industry in Indonesia, fed by a global boom for the edible oil used in products from toothpaste and candy bars to cleaning products. Growers want to expand from production of 32.5 million metric tons of palm oil last year to 40 million by 2020, an effort they have said requires adding millions of hectares of lands for production.

The Indonesian Palm Oil Association said it was still seeking details about the plan and highlighted the importance of the industry for export earnings and millions of jobs.

"The palm oil sector is a strategic sector that contributed to exports (of almost) $19 billion in 2015, and this figure is much higher than foreign exchange from exports of oil and gas," the association said.

Golden Agri-Resources, the world's second-largest palm oil company and a unit of Indonesian conglomerate Sinar Mas, supported the government's move. "Any government initiative that is focused on intensification over land expansion is to be applauded," said its spokeswoman Anita Neville.

Ms. Neville said that the company's yields are already among the sector's highest, but that the challenge is to spread capacity gains among millions of smallholders.

Mining experts said the move wasn't immediately a cause for alarm and said that a steadily extending moratorium in forest areas had led most companies to understand that forests are effectively off limits. Many companies in sectors like coal have meanwhile cut back due to low global prices and demand.

Supriatna Suhala, executive director of the Indonesian Coal Mining Association, said the moratorium would allow the government to improve governance and monitoring and help reduce illegal mining.

"In the situation of prolonged low prices of mining products due to significant oversupply, presumably a lot of (our) members will agree with the policy," he said.

Write to Ben Otto at [email protected]

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