At the sidelines of POC 2014: (1) on new Indonesia regulations (update)

Khor Reports was at POC 2014 to find out about some big issues discussed on the side-lines  Here are some topics that we think might be of broader industry interest in the near and medium-term:

(1) Indonesia's new regulations affecting agriculture and palm oil.

The number one producer of palm oil in the world has been making some speedy and decisive changes in policy in the last few years. A key example was the deployment of the new biodiesel policy. We heard from sources that this happened within a short time frame in September 2013; at a time when the Rupiah faced great pressure on the back of worries over the country's current account deficit. Several speakers at POC 2014 talked about how this game-changing policy is having repercussions by significantly shifting product spreads and more.  

The advancing proposal for a 30% foreign equity ownership limit (news: http://www.investor.co.id/agribusiness/deadlock-pembahasan-30-saham-asing-di-perkebunan/75538 on revision of Law No. 18 Year 2004 on Plantations) in Indonesia was talked about. Could this happen before the end of the current Presidential term this year?

Is there a precedent for this? Khor Reports looked at the Indonesian Horticulture Law. USDA [1] reports that "the bill restricts levels of foreign ownership in horticulture related businesses to a maximum of 30 percent. Currently the bill does not specify any timeframe that will be provided to foreign investors to scale back their respective levels of ownership. However, the Head of Commission IV stated in the House of Representatives that any foreign investors with more than 30 percent ownership in any Indonesian horticultural enterprise would be provided with a four year grace period to adjust their level of ownership for compliance with the new horticultural bill."

[1] Date:11/5/2010, GAIN Report Number: ID1031, Report Highlights: Indonesia’s House of Representatives passes a new Horticulture Bill on October 26, 2010.

Bottomline: If this comes about, and read together with the 100,000 hectare land ceiling on additional palm oil areas, this seems to point to foreign-owned plantations in Indonesia seeking public-listing of their Indonesia operations.

Please also read Khor Reports' Palm Oil Newsletter #5 which covers the hectarage ceiling topic (snippet below, here): http://khorreports-palmoil.blogspot.com/search?q=newsletter+5

 

Updated 9pm, 6 March 2014 for Indonesia newslinks above and here:

http://nasional.kontan.co.id/news/asing-semakin-mendominasi-ekonomi-indonesia; "...the oil palm plantation sector where about 40 percent of the 8.9 million hectares of oil palm plantation controlled by foreigners..."

http://nasional.kontan.co.id/news/asing-dibatasi-bermain-di-hortikultura-1