PALMOILMAGAZINE, JAKARTA – The Indonesian government’s recent strong stance and law enforcement against oil palm plantations operating on forest land have triggered uncertainty and concern across the palm oil sector.
In the past few weeks alone, a special taskforce established to bring order to the industry has seized over 300,000 hectares of plantations across 19 provinces, citing alleged violations of forestry laws—many of them without judicial proceedings.
“We will transfer the seized plantations to the state-owned company PT Agrinas Nusantara,” said Major General Yusman Madayun, Head of the Taskforce, on March 17. Agrinas is the newly restructured state enterprise, formerly known as the engineering consultancy firm PT Indra Karya.
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Earlier, on March 10, the Attorney General’s Office also handed over 221,000 hectares of plantations in Riau—previously confiscated from private company PT Duta Palma for forestry law violations—to Agrinas. That particular case had already been resolved through legal channels.
But immediate confiscation of the oil palm estates by the special taskforce without going through the due process of law seemed legally dubious that could damage the business certainty in the palm oil industry that has become increasingly vital as a major source of food and renewable energy, employer and foreign exchange earner.
Yet more flabbergasting is the government’s decision last February to set up another state-owned enterprise, called PT Agrinas Palma Nusantara (Agrinas), specially to manage the confiscated plantations. This measure is totally inconsistent with the nationally praised government drive for improving the efficiency of its fiscal and economic management.
Setting up a new company without any experience and human resources trained in managing plantations not only will waste a lot of taxpayers’ money, it also may worsen the environmental damages which have in the first place been intended to be prevented with the confiscation of the illegal plantations.
Also Read: Indonesia Reclaims Over 1 Million Hectares of Palm Oil Land, Transfers to PT Agrinas Palma
Letting Agrinas start from scratch in recruiting skilled and trained plantation operations not only will take a lot of time and cost a lot of money, it also could expose the confiscated plantations to big risks of damages, including production losses.
Plantation management is rather complex because it is quite labor intensive and requires a large number of farm extension workers to guide and train workers. Its operations also must conform with so many laws and regulations.
Despite resiliency of the palm oil industry against perpetual operational challenges and market distortions, this drastic measure has posed as the most serious threats to the sustainability of palm oil industry in Indonesia. The abrupt takeover of sizeable well-managed and highly productive plantations operated by the best plantation firms may be counter-productive to meet the target of sustaining palm oil production growth.
Therefore, it is most imperative for the government to take precautionary measures to mitigate business disruptions and avoid unnecessary redundancy in palm oil industry.
It would have been much more efficient if the confiscated oil palm plantations were handed over to the holding company of state-owned plantation firms PT Perkebunan Nusantara.
PT Perkebunan Nusantara III holding company was established in 2014 to manage 14 SOEs which owned oil palm, tea, rubber, sugarcane, coffee and cacao plantations throughout the country.
The establishment of holding companies for plantation SOEs is part of a broader strategy to enhance the efficiency, profitability, and competitiveness of SOEs within similar business lines.
The holding company model allows for better oversight and more centralized management, which can enhance corporate governance practices. This structure can also make it easier to implement uniform standards across subsidiaries, ensuring that environmental, social, and operational guidelines are followed more consistently.
Through collective marketing efforts, better resource allocation, and a more robust bargaining position, these companies can compete more effectively, especially with large multinational corporations.
It is this line of idea that finally led to the recent establishment of Danantara, a superholding for all SOEs.
But since Agrinas has anyway been legally incorporated as a SOE and a retired military general has been appointed as its CEO, we suggest alternative business models to address potential negative impacts and prevent unnecessary repercussions.
The first is that Agrinas to tie up with PT Perkebunan Nusantara in recruiting directors, managers and workers and in initially managing the confiscated plantations. Agrinas will later directly manage the viable assets of plantation areas, such as the confiscated PT Duta Palma’s assets.
Since the confiscated oil palm estates are spread out in almost 19 provinces in Kalimantan, Sumatra and Papua and PT Perkebunan Nusantara also manages oil palm estates in various areas on the three major islands this holding company is in the best position in terms of operational efficiency and the availability of trained workers and management to operate those confiscated plantations.
We don’t foresee any bureaucratic or management hurdles for the suggested business models since both Agrinas and PT Perkebunan Nusantara are under the management of the newly established Danantara superholding.
The second model is Agrinas to tie up with the existing local private firms to establish a new independent management team to continue manage the day-to-day operations.
This model is applicable for managing the sizeable assets of more than 4000 hectares, adequate to as a supply-base of a palm oil mill seized from some parts of the private firms and are more viable to retain the operational alignment and integration with the existing management of the private firms.
The existing practice in oil palm cultivations will be maintained and the operational integrity remained uninterrupted while the new management team are being appointed. In the long run, Agrinas will independently manage the assets, but with a operational partnership with the local private firms.
The third alternative business model is applicable for the small size and scattered assets seized from the companies, where Agrinas entrust the management of the assets to the existing private plantation firms to fully manage the estates under joint venture arrangements.
The roles of Agrinas as the official land right owner is to focus on ensuring a steady flow of income from the profit-sharing arrangement of the confiscated plantations while assessing potential business development of the seized areas.
Employing the alternative business models and lean management system will enable the government to accommodate multiple interests and address potential ramifications of the controversial measures. (*)
Author: Edi Suhardi | Sustainability Analyst
Disclaimer: This article reflects the author’s personal views and is solely their responsibility.
