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Approach and Strategy for Developing Oil Palm Plantation in Indonesia

The hybrid of the oil palm tree which produces the crude palm oil (CPO) has certain unique
features not found in other vegetable oil crops. Among these features is that the oil palm is a
highly productive crop and its main product oil and many by-products are versatile in their uses.
The palm oil yield is 6.20 tons of vegetable oil/ha per year in terms of CPO and palm kernel
crude oil (PKCO). Other vegetable oil crops have lower yields. Soybean has an oil yield of only
0.4; rapeseed 1.5; and sunflower 1.2 t/ha per year (Table 1). This means that one has to plant
12 ha of soybean to produce the amount of vegetable oil produced in a hectare of oil palm. In
like manner, one needs to plant 4 ha of rapeseed, 5 ha of sunflower, or 4 ha of coconut trees to
produce the volume of vegetable oil produced in just a hectare of oil palm trees. New
generations of planting materials of oil palm in the form of ramets developed jointly by MPOB
and SH Biotech in Sabah shows potential yield of 10.0 tons of oil/ha per year. Among the
vegetable oil crops, palm oil is the cheapest.
Table 1. Productivity and percent contribution of various vegetable oil crops.

Oil Yield/ha

Percent World

1. Palm Oil



2, Soybean



3. Rapeseed



4. Sunflower


5. Coconut


6. Others




As a perennial crop, oil palm trees grow fast and is early maturing; the first fruit matures in just
24 months after field planting as compared to four to five years for coconut trees. Oil palm trees

remain productive for 22 to 30 years when the newly developed dwarf hybrids are used for
planting. Palm oil is much easier to grow than the coconut trees in terms of culture and
processing for oil. As a perennial crop it is less affected by climate change compared to the
annual vegetable oil crops. It also helps mitigate climate change as it is a heavy sink of CO 2 in
the atmosphere and induce higher rainfall.
Palm oil is versatile, 80% is used for food, 19% for oleochemicals and 1% for biofuel. Palm oil is
a healthy oil known for reducing obesity, the reason why many food processors in USA mix
soybean oil with palm oil to help overcome obesity. Palm oil reduces the amount of bad
cholesterol and improves human sight due to its high amount of Vitamins A and E. The byproducts resulting from the processing of fresh fruit bunch (FFB) to oil is now found useful in the
production of quality organic fertilizer and generation of biogas and electricity.
The leaves and trunks can be processed cheaply to produce quality papers and biodegradable
plastic products such as lunch boxes and other products thereby replacing in the market the
non-biodegradable synthetic plastics which are very destructive to the environment. It is
predicted that the second generations of biofuel will come from the processing of oil palm
biomass empty fruit bunches, trunks and leaves. The technology is now available and found
highly profitable.
Figure 1. Mass Balance

The success in the production of this highly productive and versatile crop made many countries
producing rapeseeds, soybean and other vegetable oil crops apparently threatened.
Governments of these countries are suspected to fund NGOs involved in anti-palm oil
expansion in the ASEAN as an indirect trade war. Manageable problems brought about by

increase in palm oil production such as deforestation, apparent pollution of rivers by palm oil
processing waste, health problem and reduce biodiversity, loss of habitat for the orangutans are
being blown-out beyond proportion and fed to the media which reach the Philippines. These
problems are now effectively addressed by palm oil producing countries. For example, the
Indonesia sustainable palm oil (ISPO) was created to address concerns in Indonesia
While production of palm oil is carried out in tropical Asia, Africa, and Latin America, 90% is
produced by three members of the ASEAN, namely: Indonesia, Malaysia and Thailand (Table
2). This is because high productivity of oil palm is concentrated in the tropical zone; within 10 o
North or South of the equator, where the whole of Malaysia, Indonesia, part of Thailand, and
Mindanao, Philippines are located. Among these countries, Thailand has the least area suitable
for palm oil production less than of the Philippines. Palm oil can be grown in many parts of
the tropical world but not as productive as when grown within 10 o North and South of the
Figure 2.

Table 2. Leading countries in the production of palm oil in terms of area and production in 2009.



AREA (Ha) (1000)

1. Indonesia







2. Malaysia




3. Thailand




4. Nigeria




5. Colombia










6. Others


Given the strong demand for palm oil, where will the future production come from? The
Indonesian government has a vision of becoming the best sustainable palm oil producer in the
world, with the objective of producing 40 million tonnes of palm oil by 2020, of which 50 percent
would be for food and 50 percent for energy (Jiwan, 2009). This means national production
would have to double in the next 10 years. Greenpeace (2009) estimated that to meet this
demand, an additional 300,000 hectares of new land would have to be planted with oil palm
In view of limited land availability, the expansion of oil palm in Malaysia is expected to slow,
particularly in Peninsular Malaysia and Sabah. However, the Sarawak State government has
recently announced that it is opening large tracts of land for oil palm cultivation. This will
increase the national land area under oil palm from 4.67 million ha to 5.4 million ha. (Wong,
Other countries are expected to expand their planted areas to meet rising global demand.
Thailand is expected to increase its oil palm area by 80,000 ha per year until 2012 (Dallinger,
2010 There are reports that Chinese companies are negotiating for extremely large
tracts of land in DR Congo and Zambia (Economist, 2009) for establishment of oil palm
plantations. Similarly, Malaysian companies are looking at similar expansion in Brazil, in the
Amazon basin. Malaysia and Brazil has set up a joint venture to open up about 100,000
hectares for oil palm in Brazil. (New Straits Times, 2009). There is also substantial interest in
expanding the limited areas of oil palm presently growing in West Africa.
Expansion of the industry on this scale is cause for considerable concern among many
stakeholders, particularly local communities which may be affected by these developments and
Suitability of Land
Land suitability for oil palm cultivation has been well known such as Soil classes with different
degrees of suitability are well researched. Terrain and soil type limitations must not be
overlooked in new oil palm plantation development as they would influence the cost of

production as well as the ecology of the area as in the case of peat lands. Marginal land
particularly in sub-optimal climatic zone should be avoided as the long term prospects of
profitability cannot be assured. Cost of plantation development and subsequent cost of
production on marginal land and climate zone are invariably high, making return to investment
unattractive in the long run.
The country of Indonesia is a huge archipelagic nation whose extent is roughly 3,200 miles east
to west and 1,100 miles north to south. It encompasses over 10,000 islands. The five main
islands of the archipelago are Sumatra, Java, Borneo, Sulawesi, and Western Papua. The
islands of Borneo and Western Papua are shared with other nations. Borneo (also known as
Kalimantan) is shared with Malaysia and Brunei. Western Papua (also known as Irian Jaya)
shares the island of New Guinea with Papua New Guinea. In Indonesia, the province is the
highest tier of sub-national government. The island of Sumatra consists of the provinces of
Daerah Istimewa Aceh, Riau, Jambi, Bengkulu, Lampung, and North, South, and West
Sumatra. Indonesia's region of Borneo is called Kalimantan, while Malaysia's region of Borneo
is called East Malaysia. On Borneo there are four Indonesian provinces, they are East, South,
West and Central Kalimantan
The fasted expanded palm oil area were in North Sumatra, Riau, and South Sumatra (Sumatera
Selatan) on the island of Sumatra. On the island of Borneo, were conducted on the province of
West Kalimantan (Kalimantan Tengah). Palm oil producing areas have slowly expanded since
the early 20th century when the palm was first introduced. The island of Sumatra has long been
the largest producer. The oldest large-scale plantations were first established in 1911 on Aceh
and North Sumatra province. Since those early days, palm plantation development spread south
and to the other areas of Indonesia. The highest producing provinces on Sumatra, are North
Sumatra, Riau, and South Sumatra. Even though the bulk of Indonesias production remains on
Sumatra, 70 to 80 percent according to some sources, rapid expansion is occurring on the
island of Borneo; the second largest producing area in Indonesia. In recent years, there has
been a growing expansion of palm oil plantations on the island of Borneoparticularly in
Central ,West and East Kalimantan. Important, but secondary areas of expansion are Sulawesi
and Western Papua (or Irian Jaya). Even with the expansion areas, Sumatra will continue to
be the leading production center for the foreseeable future.

Figure 3. Palm Oil Plantation in Indonesia

Table 3. Areas of Oil Palm Plantations in Indonesia




Nanggroe Aceh Darussalam



Area (Ha.)

Area (Ha.)



Sumatera Utara



Sumatera Barat









Sumatera Selatan



Bangka Belitung










Jawa Barat







Kalimantan Barat




Kalimantan Tengah




Kalimantan Selatan




Kalimantan Timur





Sulawesi Tengah




Sulawesi Selatan


Sulawesi Tenggara













Climate and Soil Requirements

It is generally known that the following conditions promote maximum Palm growth :

humid tropical lowland climate

evenly distributed precipitation of 1750 to 3000 mm per year, distributed evenly over the year
(i.e. with no very marked dry season).
A mean minimum temperature of 20o 23oC and a mean maximum temperature of 28o 32oC
which is peculiar to tropical countries is best suited. If the temperatures falls below this,
particularly at night to say below 19oC bunch development is affected and yield reduced. Growth
in young seedlings stops at temperature below 15oC.
Constant sunshine amounting to at least 5 hours per day over all the months of the year and as
much as seven hours per day during some months .
High atmospheric humidity and high CO2 concentration. Oil Palm can be grown on a wide range
of soils, the best being the coastal alluvial clay, riverine and coastal alluvial and soils of volcanic
Extension of oil palm plantation in Indonesia grows very fast. It is estimated more than 6,10
million hectare of oil palm plantation in 2007, that spread out at several climatic conditions, from
very wet to slightly dry zone. Climatic condition is one of the important factors determining oil
palm productivity, besides other factors such as genetic planting material and agronomic
management practices.
One parameter that commonly used to represent climatic condition is water deficit. Water deficit
is a result of a complex interaction between elevation, dry month, rainfall and sun radiation.

Planters have known a significant effect of water deficit per year was not suitable for oil palm
because its productivity will drop by 54 65 % so that this area is not economically feasible.
Areas with no water deficit is desirable for oil palm, but water deficit less than 200 mm still
excellent for oil palm. Water deficit of 200 300 m is light constraint for oil palm, while area with
300 500 mm water deficit is a marginal land for oil palm plantation ( Caliman & Southworth,
1998 ).
The oil palm development is estimated still increased for the next decade due to the increasing
demend of palm oil for domestic market and export purposes. However, development of the oil
palm to marginal land, in term of climate and soil fertility, is unavoidable. Therefore, the purpose
of this research is to provide information on agroclimatic suitability class and agroclimatic zones
of oil palm in Indonesia. The importance of this information are :

Low average temperature ( < 18 oC) that will inhibit plant metabolisms such as carbohydrate
tranport and flowering
Cloud formations on the windward sides of the hills reduce sunshine considerably (Williams and
Hsu, 1970).
Most of the areas are dominated by hilly topography that restrict agronomic management and
harvesting, so that it will reduce oil palm production. In addition at high altitude we have to face
soil and water conservation problems.
Figure 4. Elevation of Indonesia

Tabel 4. Agroclimatic Zone

Climate and Soil Requirements

It is generally known that the following conditions promote maximum Palm growth :

Rainfall of 1750 mm to 3000 mm, distributed evenly over the year (i.e. with no very marked dry
A mean minimum temperature of 200 230C and a mean maximum temperature of 280 320C
which is peculiar to tropical countries is best suited. If the temperatures falls below this,
particularly at night to say below 190C bunch development is affected and yield reduced.
Growth in young seedlings stops at temperature below 150C.
Constant sunshine amounting to at least 5 hours per day over all the months of the year and as
much as seven hours per day during some months .

High atmospheric humidity and high CO2 concentration. Oil Palm can be grown on a wide range
of soils, the best being the coastal alluvial clay, riverine and coastal alluvial and soils of volcanic
Agroclimate Suitability Class
Based on several climatic components and their intensity, the criteria used to determine
Agroclimate suitability class is presented in Table 5.
Table 5. Agroclimate suitability class for oil palm (Siregar et., 1998)




High suitable

Optimal (normal) ; none or one light limitingfactor


Moderate suitable

More than one light limiting factor or one moderate

limiting factor


Marginally suitable

More than one moderate limiting factor

Not Suitable

One or more strong limiting factors

Tabel 6.

Land Use
Land acquisition is a major business decision that requires informed technical inputs social
analysis and realistic valuation and forecast. There is a real danger of unwise decision by
company just to jump into the wagon of expansion and/or due to host of other reason.
Figure 5. Effective Land Evaluation

Licensing Plantations in Indonesia

When the modern state of Indonesia was established, a large number of plantations established
by colonial authority already existed. However, in accordance with Law No. 86 of 1958
regarding Nationalization of Dutch Companies, these plantation companies were taken over by
the Government as state-owned companies. The law was further regulated by Government
Regulation No. 2 of 1959 regarding Law Enforcement Principles on the Nationalization of Dutch
Companies. This government regulation set out criteria for the kinds of Dutch companies that
should be nationalized and established the nationalization procedure.54 Further regulations
were issued listing the companies thus taken over by the State. For example, pursuant to

Government Regulation No. 2 of 1959, the government issued Government Regulation No. 4 of
1959 on Nationalization Criteria of Dutch Tobacco Agriculture/Plantation Company, which listed
some 38 tobacco companies that should be nationalized.
Prior to the Basic Agrarian Law (BAL ) of 1960, these plantation companies rights over land
were defined by Dutch laws as rights of Erfpacht and Consessie. Under the BAL, however,
Erfpacht rights were converted into maximum 20 year leaseholds on State lands, while
Consessie rights holders could apply to confi rm their concession rights. If such rights were not
applied for, or the applications did not comply with the requirements of the Agrarian Minister,
they would lapse after a maximum of fi ve years.55 As far as this study could determine, there
are no longer any plantations in Indonesia claiming rights in land under Dutch law.
Most large oil palm plantations have been established in Indonesia under the BAL by which
companies are awarded temporary rights of exploitation or cultivation for periods initially of 35
years extendable for 25 years. These tenures, known as Hak Guna Usaha (HGU), and
corresponding HGB (Hak Guna Bangunan) for constructing buildings such as mills, are
considered equivalent to leaseholds on State lands. Acquisition of these rights is regulated by a
number of further laws, which set out the conditions and procedures under which HGU may be
issued and plantations licensed.
Ministerial Decree of Agriculture No. 786/Kpts/KB.120/10/96 regarding the Licensing of
Plantation Businesses firstly defined Plantation Businesses as cultivation activities and
Plantation Industries as industries processing plantation products, both of which are to be
regulated and developed subject to the authority of Minister of Agriculture. Under the decree,
Plantation Businesses must acquire a Permanent Permit for establishing plantation crops or a
Permit of Plant Type Alteration if they decided to change the crop type. Plantation Industries
require a Permanent Permit and an Expansion Permit. Authority to issue such permits was
delegated by the Minister of Agriculture to the Directorate General of Plantations for all
plantation licenses for lands covering more than 200 ha. However, for plantations that cover 25
to 200 ha., the authority to issue a permit was delegated to Provincial Governors.
All such licenses were issued subject to the companies first securing Location Permits (ijin
lokasi) for the preparatory activities required to set up plantations and plants. Once armed with
these permits, companies may acquire the rights of utilization and exploitation of the land (Hak
Guna Usaha HGU) from the Agrarian Ministry. However, these licenses may be revoked: if the
company fails to adhere to the regulation stipulated in the license, varies the location, changes
the crop type, or expands the crop area without permission; if the HGU is revoked or expires; if
the license is returned to the issuing authority or; if the company violates public orders or
existing laws and regulations.
In March 1999, the Ministry of Forestry and Estate Crops released a regulation that limited
plantation concession sizes. In this regulation, tree crop plantation development area was set at
20,000 hectares in any one province, and up to a maximum of 100,000 hectares in the whole
country for a given company.
In line with the governments promotion of a peoples economy (ekonomi kerakyatan) the
Indonesian government has encouraged investors to cooperate with local farmers and
cooperatives in the ownership and operation of oil palm plantations through five new schemes
which offer incentives to both cooperatives and private enterprise. The program is extremely
complicated and few people, including government representatives at the provincial level, seem
to know how it will be implemented. Many plantation companies and new investors have

therefore put off their plans to develop further plantations until governments intentions about
this regulation become clear.
Having realized that the industry is concerned about this regulation, the Ministry of Forestry and
Estate Crops has gone to great lengths to reassure the plantation sector that the new
investment schemes would only affect new investors, and would not affect existing plantation
firms. But they have urged existing plantation firms to adopt these schemes, because they will
create a sense of belonging for the local people and encourage the local people to protect
plantation areas from looting, theft and damage.
The Minister of Agriculture issued a revised Decree regulating plantations in 2007. The Decree
set out further requirements for the management, control and development of at least 20 % of
their area for local farmers or cooperatives through flexible schemes that agreed by both
parties. with the expressed aim of making plantation businesses more efficient, competitive and
sustainable, in order to increase people' income and living standards, increase foreign
exchange revenue, generate more raw material for industry, and promote employment.
The Decree also imposed additional conditions under which permits could be revoked including:
if the company had not established itself on the land after three year; had not started planting
after four years; did not manage the plantation professionally, transparently, participativelly,
efficiently and effectively; did not sustainably manage natural resources; failed to carry our
impact assessments; did not collaborate with cooperatives and small & medium scale
industries; carried out land clearing using fire; failed to prepare a business plan and feasibility
study; did not apply for permits to change crop types or expand the area or; did not report on
business progress each semester. To assure the Ministry that companies had satisfied these
requirements they had to comply with a complex series of permitting steps
Land rights
Land matters except for mining and forestry are under the jurisdiction of the National Land
Agency (Badan Pertanahan Nasional - BPN) formed to administer all matters relating to
the Basic Agrarian Law of 1960 such as the registration of land rights and the granting of
rights and various permits to use the land.

There are three major types of land rights in APL (Area for other uses ) recognised under BAL:
hak milik, hak guna and hak pakai.
Hak milik is an individual land property right granted in perpetuity under BAL and the owner
can lease the land to others. The total land owned by a household can not exceed 22 ha. Only
Indonesian nationals and statutory bodies (badan hukum) appointed by the government (e.g
state banks, agro-cooperatives, religious and social non-profit making organisations) may
acquire hak milik. This right should be registered and the holder given a certificate: in practice
few smallholders in South Sumatra have registered rights .
Hak Guna Usaha (HGU) or The right of exploitation is the right to use state land for agriculture,
fisheries, etc. Large company plantations are operated under an HGU that is granted for 25 to
35 years and can be extended for a further 25; a de facto 60 or 90 years. An HGU can be
acquired by Indonesian nationals and by Foreign Company established under Indonesian law
and domiciled in Indonesia. No maximum land area is specified but the right must be recorded
at the Land Registry Office. Land registered under HGU can be used as security for a mortgage

and may be transferred to other parties by sale, exchange or gift - with the permission of Head
of BPN.
Hak pakai gives the holder the right to use a particular area of land that is held in either in state
or private ownership. In practice, the right is scarcely used for private land since other titles,
such as the right of lease or the right of land-pledging, play a greater role. Hak pakai is time
limited and, in principle, can be transferred when no other regulations apply. Resident foreigners
and foreign corporations with representatives in Indonesia can be awarded hak pakai. The right
for private land to be registered is not realized as the implementing regulations do not exist.
Of the remaining two land titles, Hak guna bangunan is a title on land which gives its holder a
right for a fixed period of time, on a construction built on land owned by another party, while Hak
Penggunaan lain are rights of lease, share-cropping, lodging, landpledging, etc.
Challenges and Development Scenarios
The five key challenges for the Oil Palm Plantation Development in Indonesia: (1) Land
Legality , (2) increasing Tight labor situation, (3) Productivity gap, (4) Increasing Input
Cost, and (5) Social Tension.
Land legality. In Indonesia, companies can apply to district (kabupaten) authorities for access
to land. The process involves several permits and requires negotiation with local communities
and individuals. An area selected for oil palm development should not involve primary forest
( Selected Production Forest, Production Forest & Conversion Forest zone) and those with high
conservation values. Logged over Conversion Forest zone can still be considered for oil palm
development but fields located on those conversion forest shall have the Forest release permit
from the minister of Forestry.
Increasing Tight Labor Situation is the most serious constraint and presently the industry in
others island of Jawa is highly dependent on workers from outside ( from Java, Lombok or
Bugis). While efforts have been made to mechanise various field and mill operations, overall
progress has been rather slow, particularly for harvesting fresh fruit bunches, the most labourintensive operation.
Productivity Gap. A major concern is the large gap between the actual production of palm oil
per hectare and the crops genetic potential. The gap has been widening with time as plant
breeders have continued to improve the inherent productivity of oil palm but the yields realised
have remained static or even declined.
Increasing Input Cost continues because of the increasing fertilisers price ,labour cost and
land aqcuisition cost.
Social Tension. The Indonesian oil palm industry faces social problem at every places in all
parts of Indonesia, the main problem is the land itself. Competing land and resource claims are
the basis of latent conflicts in all parts of Indonesia, and can easily turn into violent communal
Environment. Increasing pressure from importing countries and various stakeholders requires
the industry to take more positive action on promoting sustainable development. Bek-Nielsen
(1995) stated that whether we like it or not, we cannot avoid to pay attention to the
environmental issues which have become of worldwide importance to this world focus.

In addition to the above challenges, Company has raised concerns over increasing difficulty in
maintaining discipline among the workforce and the shortage of dedicated executives and
officers. These have a negative impact on the efficiency of plantation management.
Development Scenarios
Three development scenarios are analysed based on (a) Sustainable palm oil production entails
legal scenario, (b) economically viable scenario (c) socially beneficial management and
operations and (d) environmentally appropriate scenario. The conclusion is that only through a
concerted effort to develop the area can balanced development occur that leads to regional
economic growth, poverty alleviation as well as positive environmental outcomes. Planters
should be committed to environmentally-friendly agricultural practices.
Nevertheless, recognising the increasing important role that environment will play in the 21 st
Century, Planters shall adopt the following:
a. Undertakes the Environmental Impact Assessment (AMDAL) for all land development projects in
Indonesia as required by national law. Mitigating measures are being implemented as required
under this assessment.
b. Will support the RSPOs effort in undertaking projects that will enhance the production and use
of sustainable palm oil. These projects are divided into the following broad groups
development of new plantations
responsible investment in oil palm
plantation management practices
c. Implementing and continuous improvement on the various Best Management Practices (BMPs)
in Group Estates and Mills.
There is a general consensus that the Planters area can be developed in ways that would
improve the welfare of local communities, create revenue for the Regency and conserve the
forest and peat areas. This requires not only detailed knowledge of the biophysical conditions of
the area and prioritising the conservation of the most sensitive areas (such as peat domes), but
also a strong commitment by the Government of Indonesia at all levels.
Approach and Strategy for Developing Oil Palm Plantation
The strategic approach is based on three main pillars: (1) to speed up land legal permit for
approval of plantation projects and maintain good relationships with the local community and
adat leaders, (2) focus on productive area scheduled for planting and implement oil palm block
management (BM), (3) to enhance yield and profitability, the effective use of inputs including
fertilizer, and soil quality of intensively managed oil palm production systems through best
management practices and (4) To assist planters in the identification, evaluation, and
implementation of the Cost and Profitability Structure of the Oil Palm Production Process
An area selected for oil palm development should not involve primary forest ( Selected
Production Forest & Production Forest) and those with high conservation values. Logged over

Conversion Forest zone can still be considered for oil palm development but fields located on
those conversion forest shall have the Forest release permit from the minister of Forestry.
Base on Miniter Decree No. 376/Kpts-II/1998 stipulates that oil palm plantation developments
can be approved in places the provincial land use plan (RTRWP) classifies as non-forest lands.
However, the land use classification in the RTRWP prepared by the Provincial Government and
the forest classification in the Forest Use Plan according to National Government (TGHK) still
not match each other. Becauce of this, approval must be obtained from the national Ministry of
Forestry and Plantations for release from forest land in order to convert from forest land, things
may not necessary proceed as the provincial government expects.
If the trees from the convertion forest land (for which an application was made for the release
from forest land) are to be logged (logging is necessary for site preparation) and used (sold), the
company must apply to the provincial government for a wood use permit (Izin Pemanfaatan
Kayu or IPK).
The intention of Company here is to speed up this part of procedure for approval of plantation
projects by pushing everything at the provincial level, because approval of release from forest
designation at the national level is slow.

Figure 6. Flow of Process Permit

Obtaining Land Titles by PMA Companies

For a new prospective PMA company, which requires land to conduct its business, one crucial procedure must be followed in respect of land. This
regards the processing of the Location Permit.
The Location Permit allows a PMA company to acquire the land needed for its operation, and also serves as license for the transfer of rights and for
utilizing the land for its investment. The Location Permit must be obtained from the Head of District (Bupati) with jurisdiction where such land is located.
Within 12 -36 months (depending the acreage of land) after the issuance of this Location Permit, the PMA company must proceed to relinquish the land
from its original land owners. If the company had previously obtained a Location Permit then it needs to cautiously observe its Permit, as the
compensated of the property should be in accordance with it. The investment license issued for the company also contains provisions on the land, if
any, required for the intended investment.
Therefore, if the properties compensated by the company are more than the hectarage stated in its investment license, this will not be allowed unless
the company first files an application with BKPM for a revision of its investment license to include a larger land area. A company, having obtained a
decree granting its right in the land, will be expected to utilize the land in accordance with the terms of the decree and of its investment approval.
Please note also that there is a strong policy in Indonesia against foreign ownership or control of land. Hence, the PMA companies, while granted the
rights in land necessary to make their projects viable, are not allowed to lease hold land beyond that which is actually
required and specifically licensed for their projects.


Environmental management in Indonesia is regulated by Law Number 23 of 1997. The Law defines the management of the living environment as an
integrated effort to preserve the function of living environment which includes the policy for the regulation, utilization, development, conservation,
restoration, supervision, and control of the living environment.

AMDAL and Licensing

Any undertaking and/or activity causing a significant and important impact towards the environment must have an Analysis concerning the
Environmental Impact Analisis (Mengenai Dampak Lingkungan , AMDAL) to obtain a license to conduct the undertaking and/or activity. Such license is
given by the competent official in accordance with the legislative regulations in force. This license must set forth the conditions and obligations to
conduct the efforts to control the environmental impact.
In the issuance of a license to conduct an undertaking or activities the following shall be observed :
the spatial lay-out plan;
the opinion of the community;
the considerations and recommendations of the competent official in connection with the undertaking and/or activity.
The decision on the license to conduct such undertaking or activity is published. Without a decision on the license, anyone is prohibited to conduct a
waste disposal to environmental media. The competency to issue or refuse a license application is with the Ministry of Environment. Any person is
prohibited to conduct an importation of waste of dangerous and toxic material.


Forms of Tenure

Rights implications

Main beneficiaries


Provincial Land Use Plan

Zoning of Forest Area, non Forest

Area and for others use


Issued by Local Goverment and

Approved by Central Goverment.
Plantation businesss can only be
proposed in non forest area.

Zoning of Forest Area, non Forest

Area and for others use. TGHK
Shall be automatically expired if
RTRW have already been
approved by Central Government


Issued by Minister of Forestry and

local Goverment. Plantation
businesss can only be proposed in
non forest area.

Plotting of Settlement Area and

related projects

Local Government

Issued by Minister of Forestry and

local Goverment.

(Rencana Tata Ruang Wilayah


Forest Zone Consensus

(Tata Guna Hutan Kesepakatan

Area for Setlement and Others

(Kawasan Pengembangan
Penggunaan lain-KPPL)

Production Area of Non

Forest (Kawasan
Pengembangan Areal Produksi
non Hutan - KPP)

Plotting of Productive Area for non



Issued by Minister of Forestry and

local Goverment.

Timber Estate

Plotting of Timber Estate Area


Issued by Minister of Forestry and

local Goverment

Area has been decided and

developed for Transmigration


Issued by Minister of Forestry and

local Goverment

Area has been decided for

transmigration project and planned
to develop


Issued by Minister of Forestry and

local Goverment

Very Restricted Area


Presidential Decree

Very Restricted Area


Presidential Decree

Only for forest consession


Issued by Minister of Forestry

Only for forest consession


Issued by Minister of Forestry

Transferable, right of ownership,

may be used as collateral for loans

Individuals not
available to corporations
or collectives

Land reverts to State if abandoned

or is used not in accordance with
BAL (Basic Agrarian Law)

Temporary (up to 35 years) can

only be transfered with permit from
the minister, right of exploitation/


Only for areas over 5

(Hutan Tanaman Industry - HTI)

Transmigration Area
(Area Transmigration- T1)

Planned for Transmigration

(Area Transmigration- T2)

Natural Reservation
(Konservasi Alam CA )

Protection Forest
(Hutan Lindung - HL)

Limited Production Forest

(Hutan Production Forest - HPT)

Production Forest
(Hutan Produksi HP)

Right of ownership
(Hak milik)

Right of exploitation/

hectares. Can only be

(Hak guna usaha)

Right to use buildings

extended two times for a

maximum of a further 90 years

Temporary right to use (and

construct) buildings

Individuals and

( Hak guna bangunan)

Maximum term 50 years.

Subject to regulations

which do not exist.

Right of use

Temporary right to use state Land

Individuals on State

(Hak pakai)

Right of lease

Granted for a definite


Temporary right to use House or



(Hak sewa)

Only available for

structures, not available
on State lands

Allocated Land

The first step to get land for



Issued by District Level of National

Land Agency ( BPN Kabupaten )
or by District Development Board (
BAPPEDA ) and signed by

Temporary Plantation Permit Shall

be automatically cancelled if no
activity on projects during 2 or 3
years starting from the date of it

Companies (Local or

Issued by District Level of

Plantation Department ( DISBUN
Kabupaten ) and signed by
BUPATI . Maximum term 3 years
Subject to regulations which do
not exist.

Location Permit (Ijin Lokasi)

Temporary Location Permit Shall

be automatically cancelled if no
activity on projects during 2 or 3
years starting from the date of it

Companies (Local or

Issued by Head of District

( BUPATI ) Maximum term 3 years
Subject to regulations which do
not exist.

Environmental Impact
Analysis (Analisis Mengenai
Dampak ingkungan AMDAL)

Project activity can not be started

without AMDAL certificate

Companies (Local or

Taken by AMDAL Consultant and

must be approved by
Environmental Regional Office

Cadastral Survey

Cadastral Map based on The

Boundaries Survey and Land use
(by local people) survey

Companies (Local or

taken by The National Land

Agency (BPN Province)

(Arahan Lahan)

Plantation Business Permit

(Ijin Usaha Perkebunan )

(Survey Kadastral)

Compensation for land and


To Identified and to Compensate

usage and cultivation land of local

Companies (Local or

Compensation for land and

vegetation on individual basis and
taken by Company

Panitia B Recommendation to
Minister of National Land Agency
(BPN) for issuing Decree of HGU

Companies (Local or

Panitia B which is responsible for

totally verifying land data

Basic right for issuing Certificate of

HGU and Land Tax (BPHTB)

Companies (Local or

issued by Minister of National

Land Agency (BPN) based on
Panitia B recommendation.

(Ganti Rudi tanah dan Tanam


Provincial Validation

Decree of HGU
( SK.HGU )

Only for areas not excced than 20

Hectares per company in one

Land Tax

BPHTB = 5 % x NJOP x Size(Ha)

Companies (Local or

Should be paid before issuing

Certificate of HGU

Tabel of NJOP

Individual or Companies

Value in Rupiah per m2 issued by

National Tax Departement.

(Bea Pemiilikan Hak atas Tanah

dan Bangunan- BPHTB)

Tax on Purchase Value of

Land and Building
(Nilai Jual Obyek Pajak)

Oil Palm Plantation Business Permits

There are several steps for a company to receive the necessary permits to establish an
oil palm plantation. According to Ministry of Agriculture decree no 26/2007, oil palm
investors should register themselves with the Board of Investment, and acquire a Notary
Statement for the establishment of the company and apply for a tax number. Then the
company should submit a business plan to the local government (district level), which
shows that the area planned for plantation development is in accordance with the
provincial and district spatial plan. If the area overlaps with a state forest area, detailed

calculations should be made concerning the overlapping jurisdictions, and the process
will be transferred to the Ministry of Forestry to get permission for forest area conversion
(conversion of land status from forest area to non forest area).
An overlap of forest area and planned oil palm plantation in West Kalimantan does not
usually involve converting healthy forest to monoculture oil palm plantation, but more
often concerns taking over secondary forest or agroforest lands that are possessed by
IPs who lack formal rights to the land due to lack of procedures in state forest
delineation46. In the process of plantation establishment, land conflicts with IPs shift
from the forestry department to the national land agency (BPN).
EIA (Environmental Impact Assessment/AMDAL) documents based on relevant laws
and regulations should also be presented which show any potential environmental
impacts (biophysically and social) and the strategies to address those problems. The
company should also declare that the land clearing process will not use fire, and
present the companys statement of intent to undertake partnerships with farmer
cooperatives (accompanying the proposal).
Once the Plantation Business Permit (IUP) is issued, within two years the company or
applicant is obliged to: carry out due acquisition of rights over the lands; realize
plantation development and/or a processing unit, based on the feasibility study, the
technical standard, and applicable provisions; install its facilities, infrastructure and
systems for carrying out land clearing without burning; open land without burning and
manage natural resources sustainably, establish facilities, infrastructure and systems to
protect crops from fires and invasive organisms (OPT); conduct an Environmental
Impact Assessment or Environmental Management and Environmental Monitoring
based on applicable regulations; empower and develop the local communitys
cooperative; and regularly report progress to the governor or Bupati (head of district).
Article 38 of the regulation stipulates administrative sanctions against companies as
follows :
(1) A company which has already got IUP, IUP-B, or IUP-P, as stipulated in Article 13, and
held approval for land extension, alternate type of commodity, extension of mill capacity,
or diversification of business as stipulated in Article 30 which has not carried out
obligations as stipulated under Article 34 paragraphs a, b, c, e, f, g, and/or h, and has
been given warnings at least three times in four months.
(2) If the three warnings as stipulated in section (1) are not followed by company action to
fulfill the obligations, the IUP, IUP-B, or IUP-P of the company is withdrawn and it is
recommended to the relevant authority that its Bussiness Utilization Right (HGU) be
In reality, companies that have received IUP often start to establish the plantation and
start land acquisition even though they are yet to acquire :
(1) Letter from the forestry department as to whether the land in question is classified as a
forest area or not.

(2) Business Utilization Rights (HGU) from the national land agency (BPN) which clarifies
that the land is free from conflict and based on state land.
(3) Approval of the Environment Impact Assessment (EIA) by the local government to
address the social, economic and biophysical impacts of the oil palm plantation.
As the cases in this report show, Agriculture Ministry Decree no 26/2007 (see Figure 6
Plantation Business Unit (IUP) and Business Utilized Rights (HGU) Process) is just a
paperwork procedure that in practice is not used to address the latent problems of
overlapped claims of IPs over state forest land as well as other state lands that might be
granted as HGU for oil palm plantation development. The decree does not protect IPs
from the social, economic and biophysical impacts of having oil palm plantations close
to or on their customary lands
Environmental Impact Assessment (EIA)
Environmental management in Indonesia is regulated by Law Number 23 of 1997 and
since GOVERNMENT REGULATION NUMBER 27, YEAR 1999 , an Environmental
Impact Assessment (EIA) or ANDAL is a mandatory requirement for oil palm plantation
development in Indonesia that with the promulgation of Law No. 23/1997 concerning
environmental management, it is necessary to introduce adjustment to Government
Regulation No. 51/1993 concerning an environmental impacts assessment. According
to those, an EIA is a mandatory requirement for the
(1) development of agricultural estates or plantations covering an area of 500 hectares or
(a) from land under secondary or primary forests;
(b) which would involve the resettlement of 100 families or more; or
(c) which would involve modification in the use of the land;
(2) conversion of peat soil and other wetland areas into agricultural estates having an Peat
layer less than 3 meter; (a) on a surface that has less than 3 meter depth and (b) the
field has to have minimal 70% of such a layer (c) Decomposition level : sapric and
hemic. Soil on the fibric state is not allowed to be cultivated with oil palm.
Smallholder Schemes
Local farmers are encouraged, and have been keen, to participate in the development
of their rural areas, and thus also increase their individual wealth, by planting oil palm.
These schemes started in the mid- to late1980s. The idea was to encourage
smallholders living around the boundaries of large oil palm estates - often in
government transmigration settlements - to develop 2 ha of their own palms. The
government lent funds to the company to clear and plant the smallholder plots. The
company, in turn, charged the farmer for clearing and planting as a repayable debt.
Smallholders plots are laid out as contiguous blocks with a road system and, to all
intent, look identical to the adjacent nucleus company estate. Formal ownership

transfers to the smallholder 48 months after planting. The smallholder's debt is repaid
from the profits he makes selling his FFB to the company-owned central fruit processing
factory (palm oil mill).
There have been two similar schemes, PIR-Trans Inti/Plasma (1986s) and, since 1995,
Inti/KKPA which is a cooperative credit for members scheme channeled through the
local Village Cooperative Unit (KUD). As noted earlier, the schemes involve some 500
000 smallholders on one million hectares of land.
No funds are presently available from Bank Indonesia to finance further KKPA schemes,
which, in any event, have been criticized by the smallholders as giving them too large a
debt and interest burden as the high development costs are charged to their account.
A rethink of smallholder / company partnership schemes is needed. One possibility
would be for the companies to supply the oil palm seedlings to ensure genetic quality,
while land clearing and drainage work is carried out by the smallholder to reduce his
development costs. This, however, presents difficulties. Zero burn cultivation of 2 ha
blocks is not feasible and even if cooperating farmers cleared their contiguous blocks by
hand, they would almost certainly burn the debris as has been their practice for
generations. Such burns would inevitably reflect on the associated company who would,
rightly, deny responsibility but nevertheless be tarnished.
Most oil palm plantations are established on state lands and companies are later given
a stewardship contract valid for 35 years with the possibility of extensions (HGU). This is
based on Government Regulation no 24/ 1992 on HGU permits. These plantations,
called Inti, are managed by state-owned companies as well as Indonesian and foreign
companies that are given land lease permits over state lands or local communities land
and Adat land. Companies involve local communities in oil palm plantations through a
mechanism called Plasma.
The company will receive a lease land as Inti, which will be converted
from individual land to HGU. The remaining two hectares will be certified through
individual land titling (Hak Milik) in the name of individual owner, and will be charged by
credit loan for the land clearing, planting materials, maintenance, road construction, and
land certification. See Figure 7 Cycle of an oil palm plantation.
Figure 7. Cycle of an Oil Palm Plantation.

Local Community
Indigenous peoples rights
Adat law or Indigenous Law applies to the earth/land, water and the air as long as it
does not contradict national and State interests, based on national unity and Indonesian
socialism, and also the other related regulations within this Law and others, all in
respect to the religious laws
indigenous in Indonesian language Adat refers to the cultural beliefs, rights and
responsibilities, customary laws and courts, customary practice and self -governance
institutions shared by an indigenous group prior to incorporation into a colonial or post
-colonial state. Adat is location-specific and changes over time. Adat governs behavior
between individuals as well as within and between families, communities and outsiders.
It also governs the relationships between people and nature. It is interesting to note that
adat leaders rarely use the term indigenous in Indonesian language as most
Indonesians can claim to be indigenous. The distinction is that adat communities have
maintained systems of local governance according to customary law as opposed to
uniform and formal structures imposed by the central government.


Maintain dialogue with relevant national/local authorities, either directly or through industry
bodies, and seek active influence in national Government/industry/NGO partnerships and
similar bodies.

o Maintain good relationships with the local community and adat leaders encouraging responsible
use of the land and company facilities for amenity, social or traditional purposes.
o Ensure that all transactions have legal standing.
Use Annual Reports and other means to enhance the company image through communicating
the companys high standards of social, human and environmental care.

The Priority Management

Priority 1 - Relationship with Local People

Identification of specific areas of concern about local peoples communication methods

which can be addressed through explaining the project and partnership model.
Identify opportunities and constraints facing local people needs surrounding area.
Provide guidance on ways of partnerships model of the palm oil project to provide
assurances of good acceptance.
Develop appropriate communicating method with local people to improve degree of
Priority 2 - Relationship with Local Government
Immature Palms
Priority 1 Ground Cover

Maintain proper ground cover vegetation

Construct adequate control path
Maintain proper circle weeding
Pest & Disease Integrated Control
Priority 2 Soil, moisture, and nutrient management

Maintain frond placement in inter-rows and between palms

Maintain fertilizer management
Construct adequate drainage
Priority 3 Canopy management

Maintain proper pruning

Remove abnormal and diseased palms
Supply vacant planting points
Mature Palms
Priority 1 Crop recovery
Adopt a 9-day harvesting interval
Maintain clean palm circles and clear access paths
Construct harvesting platforms and harvesters bridges
Collect loose fruit in bags
Priority 2 Canopy management
Maintain proper pruning
Remove abnormal and diseased palms
Supply vacant planting points
Priority 3 Soil, moisture, and nutrient management
Maintain frond placement in inter-rows and between palms
Apply empty fruit bunches
Maintain fertilizer management to support large, profitable yields
Construct adequate drainage







In a sensitivity analysis, a 10 per cent improvement in any of the four variables namely yield,
costs, price and oil extraction ratio, did not improve IRR to any significant extent (slightly
above 10 % ). However concurrent improvement by 10 per cent in all the four variables more
than doubled the IRR from 8.05 to 17.9 per cent. IRR increased to 14.9 per cent even with no
increase in price. Based on these results we concluded that large improvements stem from
many incremental developments, and attention to detail. Apart from price, the other three
variables are influenced by management competency and inputs. Effectiveness at the
operational level is implementation of Best Management Practices, thus vital. Also, company
leadership at the highest level must focus on detail routine control.
BMPs are agronomic methods and techniques found to be the most cost effective and practical
means to reduce the gap between actual and site yield potential and minimize the impact of the
production system on the environment by using external inputs and production resources

Specifically, the plantation shall focus on two major issues which are related to productivity and
eco-efficiency. On productivity, it will emphasize on mill level and plantation level. The focal point
will be on improving oil yields which can be achieved by increasing % Oil Extraction Rate (OER)
and FFB yield. OER can be increased by improving quality of the fruit and mill extraction
efficiency. FFB yield can be increased by improving genetic quality of planting material, age
distribution of the plantation and farm management techniques. As a result, increase in
productivity will increase business performance by reducing costs and improving margins.
For % OER, the programme should focus on improving mill efficiency through reduction of oil
loss in production process. Although improvement in the genetic planting material will eventually
have a significant impact on increasing oil content in the bunch, this is a very long-term issue
that is well over the time frame of the programme. For FFB quality through Estate Managementsupported Harvesing Cluster programme (Hanca Tetap), the harvester will be had appropriate
fix area of mature palms which will allow to get only good quality (ripeness) supply to the mill.
For FFB yields, the focus should be on good planting materials and implementing best
management practices that facilitate the planting programme for every estates. For oil palm
plantations, inputs are usually both available and affordable and estates obtain seed with high
yield potential from certified seed producers. Thus, the key to improved yields is in better
agronomic management and estate organization and planning.
Management factors contributing to the gap between actual and maximum economic yield in oil
palm plantations. A schematic flow sheet of management factors, is shown in Figure 6 :

The Priority of Management consists of three major phase :