The government and the House of Representatives have agreed to prioritise the Bill on Palm Oil's enactment in 2017. This is despite the fact that the bill has been subject to criticism, particularly from environmental activists, who argue that there is no urgency for its enactment, as most of the provisions are already contained in the Plantation Law (39/2004).
Regardless of the controversy surrounding its enactment, the bill contains a number of key provisions, which are discussed below.
Different palm oil licences will be issued depending on the applicant's business activities:
- a palm oil plantation business licence will be issued for palm oil plantation cultivation;
- a palm oil industrial business licence will be issued for palm oil product processing; and
- a palm oil trading business licence will be issued for palm oil trading.
Palm oil product processing may be carried out separately from or together with palm oil cultivation.
Palm oil business and trading activities require:
- a location permit;
- an environmental permit;
- conformity with the respective region's spatial plans; and
- conformity with the palm oil master and strategic plans.
The bill is more detailed than the Plantation Law with regard to the above requirements. However, it is unclear why a location permit is required for trading activities.
Under the bill, medium and large-scale palm oil companies with a licence must:
- cooperate with small-scale palm oil companies, employees and the surrounding community; and
- facilitate the development of a palm oil plasma plantation.
Land for cultivation
The bill provides details on the use of mineral and peat land for palm oil cultivation. It mirrors the Plantation Law with regard to the maximum size of an area that can be cultivated, which is 25 hectares for small-scale businesses and 100,000 hectares for large-scale businesses.
The bill stipulates the following targets for palm oil plantation companies that have obtained a plantation business licence and the land for their activities:
- at least 30% of the land must have been cultivated within three years from the issuance of the licence;
- at least 50% of the land must have been cultivated within five years from the issuance of the licence; and
- all of the land must have been cultivated within eight years from the issuance of the licence.
The bill requires foreign investors in the palm oil business to cooperate with domestic investors by establishing an Indonesian limited liability company. It states that the foreign shareholding ownership will be further regulated in a specific government regulation. Whether a new foreign shareholding ownership limit will be set remains to be seen. At present, a 95% limit applies under the Negative Investment List.
Under the bill, foreign shareholders of palm oil companies which have become public companies must divest their shares in compliance with the maximum foreign ownership restriction within three years (presumably from the bill becoming law). There are no provisions regarding the divestment procedure and the percentage of shares that must be divested.
The bill divides the palm oil processing industry into:
- the cooking oil industry;
- the organic basic chemical industry; and
- the derivatives industry.
The bill adopts the provision of the existing plantation regulation which stipulates that 20% of palm oil processing companies' raw material must come from their own palm oil plantation. This means that a palm oil processing company cannot be an independent company and must integrate with a palm oil plantation.
To guarantee the quality of palm oil and the products resulting from its processing, the bill includes provisions regarding the standardisation of palm oil cultivation and processing in accordance with Indonesian national standards.
All products resulting from palm oil processing must be registered with the Ministry of Industry. It is unclear why registration must be done through the Ministry of Industry rather than the Ministry of Agriculture.
Export duties will be imposed for the exportation of palm oil, crude palm oil and derivative products. These duties will be competitive in view of the requirements of the exporting countries and the proceeds will be used for, among other things, palm oil research and development and the promotion and marketing of the country's palm oil commodities.
The exportation or importation of palm oil seeds requires a permit from the minister of agriculture. All imported palm oil seeds must meet the minimum technical requirements and quality standards. Palm oil seed certification must be obtained from the Ministry of Agriculture in accordance with national and international standards.
Incentives for investors
The bill provides a range of incentives to palm oil investors. To be eligible for the incentives, an investor must meet the applicable conditions, including with regard to employee numbers, technology transfer and environmental sustainability.
The facilities and incentives available to qualified investors include:
- an income tax reduction;
- an import duty exemption or relief for capital goods and machinery;
- an import duty exemption or relief for raw or supporting materials for production purposes, within a certain period and on fulfilment of certain requirements;
- a value-added tax exemption for a certain period;
- accelerated amortisation;
- land and building tax relief; and
- product marketing support.
At present, the government and the House of Representatives are deliberating the bill. If passed, the government must issue implementing regulations within one year from the bill becoming law.
This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.