The Indonesian Government and the House of Representatives have agreed to put the Bill on Palm Oil (the “Bill”) as a priority to be enacted in 2017. The Bill has been criticized particularly by environmental activists who argue that there is no urgency for its enactment as most of the provisions are already contained in Law No. 39 of 2004 regarding Plantation (the “Plantation Law”).

Regardless the controversy surrounding its enactment, here are the Bill’s provisions of note:

Licensing

  • Oil Palm licenses will be issued in accordance with the business activities, as follows:1. Oil Palm Plantation Business License for oil palm plantation cultivation;2. Oil Palm Industrial Business License for oil palm product processing; and3. Oil Palm Trading Business License for oil palm trading.
  • The Oil Palm product processing business may be carried out alone or together with with the oil palm cultivation business.
  • To engage in the oil palm business and in the oil palm trading activities, the following are required:

1. Location Permit;

2. Environmental Permit;

3. Conformity with the respective region’s spatial plan; and

4. Conformity with the palm oil master plan and strategic plan.

The Bill is more detailed regarding the above requirements than the Plantation Law. However, it is unclear why the Location Permit is required for the trading activities.

  • The Bill obligates medium and large scale oil palm companies which have obtained their license to (i) cooperate with small scale oil palm companies and with employees, and the surrounding community, and (ii) facilitate the development of an oil palm plasma plantation.

Land for Palm Oil Cultivation

The Bill stipulates the use of mineral land and/or peat land for oil palm cultivation. It adopts the stipulation of the Plantation Law regarding the maximum area, which is 25 hectares for small scale businesses and 100,000 hectare for large scale businesses.

  • The Bill sets the following oil palm cultivation targets for oil palm plantation companies which have obtained their plantation business license and the land for its activities:1. Three (3) years as of the issuance of the license: at least 30% of the land must have been cultivated;2. Five (5) years as of the issuance of the license: at least 50% of the land must have been cultivated; and3. Eight (8) years as of the issuance: the entire land must have been cultivated.

Foreign Ownership

  • The Bill requires foreign investors in the oil palm business to cooperate with domestic investor(s) 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 the moment, a 95% limit is set under the so-called Negative Investment List;
  • Under the Bill, the foreign shareholders of oil palm companies which have become public companies are required to divest their shares in compliance with the maximum foreign ownership restriction, within three years (presumably as of the enactment of the Bill into a law). There are no provisions regarding the procedure for the divestment and the percentage.

Palm Oil Processing Industry

  • The Bill divides oil palm processing industry into (1) cooking oil industry, (2) organic basic chemical industry, and (3) derivatives industry.
  • The Bill adopts the provision of the current plantation regulation that 20% of oil palm processing companies’ raw material must come from their own palm oil plantation. This means that an oil palm processing company cannot be an independent company and must integrate with an oil palm plantation.
  • To guarantee the quality of the oil palm and the products of its processing, the Bill stipulates provisions regarding the standardization of oil palm cultivation and processing in accordance with Indonesian national standards.

Palm Oil Trading

  • All products of oil palm processing must be registered with the Ministry of Industry. It is not clear as to why the registration is with the Ministry of Industry instead of with the Ministry of Agriculture.
  • Export duties will be imposed for exportation of oil palm, crude palm oil, and derivative products of amounts which are competitive with the requirements of the palm oil exporting countries. The proceeds from the export duties will be used inter alia for oil palm research and development and for promoting and marketing the country’s oil palm commodity.
  • Exportation or importation of oil palm oil seeds requires a permit from the Minister of Agriculture. All imported palm oil seeds must meet the minimum technical and requirements and quality standards. The oil palm seeds certification must be done by the Ministry of Agriculture in accordance with national and international standards.

Incentives for Oil Palm Investors

  • Oil palm investors will be provided with facilities/incentives. To be eligible for the incentives, an investor must meet the conditions, such as providing a good size of employment and technology transfer, and preserving the environmental sustainability.
  • The facilities/ incentives which are available to qualified investors are, among others:

1. Income tax reduction;

2. Import duty exemption or relief for capital goods and machinery;

3. Import duty exemption or relief for raw or supporting materials for production purposes within a certain period of time and upon fulfillment of certain requirements;

4. VAT exemption for a certain period of time;

5. Accelerated amortization;

6. Land and building tax relief; and/or

7. Product marketing support.

The Bill is currently being deliberated by the Indonesian government and the House of Representatives. If the Bill is passed, the Government must issue its implementing regulations at the latest of one year after the enactment of the Bill as a law.