THINKING beyond the canopy Large scale land acquisition for agro-development in Papua, Indonesia:...

THINKING beyond the canopy

Large scale land acquisition for agro-development in Papua, Indonesia: implications for policies and investment practices

Krystof Obidzinski, CIFORWorld Bank Conference on Land Policy and Administration

Washington, D.C., 26-27April 2010


Structure of the presentation

Large scale land acquisition in Papua – introduction What is MIFEE? Objectives of the MIFEE project Means of implementation Incentives for investors Discussion Recommendations and research steps needed


Large scale land acquisition in Papua – introduction

1980s and early 1990s – expansion of logging (51 units, 11 million ha)

Late 1990s, entry of timber plantations (Texmaco pulp project)

Stagnation until 2005; interest re-ignited by emergent biofuel boom

Vast targets for oil palm – up to 3 million ha Most plantations proposed in the Southern part of Papua By 2008, only one investment under way; the rest on hold

again (global financial crisis) In 2009, plantation investment reinvigorated under

MIFEE – Merauke Integrated Food and Energy Estate


Proposed oil palm plantations


What is MIFEE?

A mega agro-development project for food and energy production Under the control of the Ministry of Agriculture Ministry of Forestry crucial to make available the necessary forest

land Overall target area between 1.6 million and 2.5 million hectares “Feed Indonesia, then feed the world”… (Ministry of Agriculture,

3 April 2010) MIFEE became part of the 100 day agenda of the cabinet Special government regulation (PP) on food estate in preparation PP on special economic zone in this area, in preparation as well Similar to the (in)famous Central Kalimantan 1 million ha rice

project


Map of Mega-rice project in Kalimantan (Borneo)

Figure 1 Figure 2


Map of Mega-rice project in Kalimantan (Borneo)


Objectives of the MIFEE project

Increase food and energy production in Indonesia

• Rice by 10 million tons annually

• Sugar by 1.2 million tons per annum Self-sufficiency in rice and surplus for export Stimulate development in Papua Increase welfare of local population

• Employment

• Opportunities for local businesses Maximize the use of the land currently seen as “idle” Compensate for the loss of agricultural land in Java

(approx 100,000 ha per year)


Means of implementation

Massive undertaking. Consortia, JVs prioritized 20,000 ha land parcels for investors Government regulations on food estate development and

special economic zone Start-up investment approx. USD 600 million. Foreign

investment important Full development of the project will require several billion

USD . Indonesian and foreign lenders to figure prominently

The Ministry of Forestry will re-classify and release at least 1 million ha of forest estate


Incentives for investors

Financial benefits

• Tax holiday

• Reduced tax on land and real estate

• Reduction or exception from local fees and taxes

• Reduction /exclusion of value added tax

• Reduction of tax on imported goods

• No tax on materials considered operational supplies


Incentives for investors

Other benefits:

• Assistance with land acquisition

• Land concession rights valid for 60 yrs; extendable to 90 yrs

• Residual timber can be used as collateral for loans

• Residual timber can be cleared to generate capital

• Assistance with immigration matters Currently about 33 investors interested – Indonesian and

international (Japan, Brazil, US, EU, Middle East)


Discussion

MIFEE based on sweeping assumptions and limited information

Production targets How can this be done in a remote part of Papua?

Self-sufficiency in rice and surplus for export Is it possible? Is it economically sound? Does Indonesia possess the comparative advantage?

Large swaths of land in Papua are “idle” No current economic significance nor local ownership structure?

Economic development and welfare local people What exactly? GDP? What levels of employment? What terms of benefit sharing? What terms of investor-community cooperation? Land compensation? Etc…


Discussion

Impacts – important but information scant MIFEE region still 71% forested Deforestation likely as at least 1 million ha of forest estate to be

cleared If full 2.5 million ha cleared, 410 million m3 of timber will be

extracted valued at USD 12.7 billion-27 billion (source: Greenomics). GHG emissions Social impacts landowners are split on MIFEE; there is significant

opposition Nearly all MIFEE commodities are exotics. Will local communities

have opportunities to learn, participate, and not be marginalized? Tens of thousands of laborers will be needed. Can the influx of

migrants be managed well? Land compensation for local landowners so far woefully inadequate.


Discussion

Investment Risks Moral hazard. Environmental impacts and social implications

potentially significant. A possibility of illegal profiteering from timber (only) Due diligence of exceedingly high importance, especially in

connection to environmental and social impacts. Investors or funding agencies need to know inside-out the locations

and impacts of the projects they fund, not potential profits only. Disclosure of information. Limited so far by the government &

corporate sources


Recommendations and research steps needed

Agro-investment is important for the development of Papua and better livelihoods of local population

Allocate land so that minimal deforestation/degradation ensues• Prioritize “degraded land” category in Indonesia’s land use

system.

• Prioritize grasslands where available.

• Reduced MIFEE land targets (at least initially) to accommodate more rigorous land allocation process

• Consider land swaps and plantation mosaics for investment ventures



Facilitate investment that emphasizes local acceptance

Company-community agreements facilitated by key stakeholders (government, NGOs, private sector) to ensure openness, transparency, and fairness

Land acquisition agreements must be legally binding Compliance monitored by NGOs, communities, and local gov’t Transparent mechanism for transfer and distribution of land

compensation funds (facilitated by NGOs and local government)

Clear provisions for local employment Regulations in place to control the landuse by arriving migrants



Ensure that “serious investors” are part of the venture

Emphasis of not only benefits but also risks/impacts and a clear plan to minimize the latter

Significant amount of “own investment” Flexibility in terms of concession landcover and willingness to

consider non-forest land Sensitive to social acceptance and to social benefit

requirements


This is the approx area of MIFEE concessions

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THINKING beyond the canopy Large scale land acquisition for agro-development in Papua, Indonesia:...

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