Monday, January 13, 2014

Landmark Indonesia ruling on peat infractions

The Indonesia palm oil sector is eyeing a recent court ruling as a land mark case on infractions in a peat area with illegal land clearance and illegal burning of vegetation. The case was brought by the Ministry of Environment against a company developing 1,000 hectares in Acheh. The fines include a payment for "losses to the state" of about USD 9.4 million, while a larger fine was for rehabilitating the land destroyed. Assuming the full 1,000 hectares was destroyed, the rehabilitation fine is equivalent to some USD20,707 per hectare.

Plantation operators will need to look at this in context, plus compare and contrast this to the RSPO HCV Compensation Procedure which has gone rapidly from proposal to "phased implementation" in 4Q2013 with targeted approval for implementation in Nov 2014. With the RSPO General Assembly membership numbers well known, any vote on the matter is considered a "done deal" i.e. there has been a consistent pattern of voting on initiatives that are "contrary" to the growers position. It is estimated that growers are about 15% of the RSPO membership.

In the RSPO HCV Compensation, the cost of peat land rehabilitation is put at some USD11,000 (based on one study, and with partial costing for a short duration i.e. not for the full cycle of oil palm which is the timing used by the RSPO). The basis / parameters of the RSPO and Indonesia MOE are little known, and they should be studied and compared on an "apple to apple" basis.

A crucial difference is that the Indonesia court ruling is on infractions, while the RSPO HCV Compensation is on entire new land concession areas which lack the appropriate HCV assessment documents i.e. there may not have been any other "infractions." The catch-all RSPO approach also requires growers to pay HCV Compensation on any future merger and acquisition deal involving land without acceptable HCV assessment documents. For the RSPO, the compensation fee will be calculated against the November 2005 status of the land. The Indonesia MOE basis needs to be understood too.

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