Will a new deregulation law ‘raise corruption risk’ in Indonesia’s forestry sector?

A pervasive lack of transparency will allow companies such as plantation operators to whitewash their illegal occupation of forests or take control of larger swaths of land than permitted, experts warned.

rainforest in Lake Sentarum National Park in West Kalimantan, Indonesia
A rainforest in Lake Sentarum National Park in West Kalimantan, Indonesia. Image: CIFOR, CC BY-NC-ND 2.0

A controversial new law that makes sweeping cuts to environmental regulations may also pave the way for greater corruption in Indonesia’s forestry sector, academics have warned.

An analysis of the so-called omnibus law on job creation — passed by parliament in October to cut red tape and make it easy for companies to invest and do business in Indonesia — uncovered 21 areas of potential risk for corruption, according to Hariadi Kartodihardjo, a forestry policy lecturer at the Bogor Institute of Agriculture (IPB).

Hariadi looked at drafts of implementing regulations for the law, which are currently being drawn up by the government, and found that they provide opportunities for officials and businesses to commit graft — even encouraging them to do so, in some cases.

He cited the example of a provision in the omnibus law that scraps a requirement that all regions in Indonesia maintain a minimum 30 per cent of their watershed and/or island area as forest area. Environmentalists have criticized this provision, saying it will lead to greater deforestation.

By doing away with this threshold and leaving it up to each region to determine what amount of forest area will be sufficient to prevent environmental degradation and natural disasters, the law is creating room for backroom dealing between developers and local officials, Hariadi said.

“I’m worried that there’s going to be negotiations,” he said. “If there’s no clear minimum percentage, then there are going to be negotiations. From time to time, we’ve been facing something like this.”

San Afri Awang, a forestry lecturer at Gadjah Mada University in Yogyakarta, also singled out this provision as one that needs to be fleshed out in the implementing regulation.

How do you ensure that the administrative sanctions [fines] aren’t the result of dealing? Will [the process] be open to the public? What’s the criteria? If there are none, then it’ll be negotiable.

Hariadi Kartodihardjo, forestry policy lecturer, Bogor Institute of Agriculture (IPB)

“The draft is not really clear, the formula is still vague,” said Awang, who also serves on a government-commissioned team tasked with gathering public input in the drafting process. “Therefore, this has to be really thought out.”

Sigit Nugroho, who oversees applications to degazette forest areas at the environment ministry, said detailed guidelines on how to calculate the minimum percentage will be included in a ministerial regulation that will itself be a follow-up to the implementing regulation for the omnibus law.

“If the [minimum] percentage of forest area hasn’t been determined yet [in the implementing regulation], then we’ll use the old 30 per cent stipulation,” he said.

Whitewashing illegal operations

Another controversial provision in the omnibus law will essentially allow plantation and mining companies operating inside forest areas to legitimise their operations. Under prevailing Indonesian law, these activities are prohibited inside areas designated as forest. Yet there are at least 3.37 million hectares (8.33 million acres) of oil palm plantations alone inside forest areas, or an area the size of the Netherlands.

The omnibus law gives these operators a grace period of three years to obtain the proper permits, including the degazetting of the forest designation, and pay the requisite fines, allowing them to resume their operations.

The risk of corruption arises if this grandfathering process isn’t done in a transparent manner, Hariadi said.

“How do you ensure that the administrative sanctions [fines] aren’t the result of dealing?” he said. “Will [the process] be open to the public? What’s the criteria? If there are none, then it’ll be negotiable.”

Hariadi added this provision could also widen the gap in land ownership between big companies and small farmers or Indigenous communities, and called for a size limit on the plantations eligible for the amnesty.

“It should be capped. The government can no longer give permits to oil palm plantations in forest areas to the same old corporate groups,” he said. “If that’s the case, they can accumulate millions of hectares of land, while others are deprived of their land rights. So there’s a problem of justice.”

Corruption and lack of transparency

What makes the omnibus law and its implementing regulations a springboard to greater corruption is the fact that they’re not designed to resolve the main problem hindering business and investment in Indonesia, which is corruption itself, Hariadi said.

The government and business associations in Indonesia say a tangle of overlapping and conflicting regulations is the top factor hindering investment, and the ostensible impetus for rolling out the omnibus law. But it’s not the main problem, according to Hariadi.

Citing various studies, he said investors are put off from doing business in Indonesia mainly because of government conflicts of interest, lack of transparency, and lack of accountability, among other things.

He called on the government to increase transparency by ensuring public information disclosure and using information technology, pointing to the issue of corporate ownership as an example. Most companies obscure the identities of their beneficial owners through a tangle of front and shell companies, often via offshore secrecy jurisdictions. In March 2018, President Joko Widodo issued an order giving all companies operating in Indonesia a year to disclose their beneficial owners to the government.

To date, however, there has been little progress on enforcing the new rule, according to officials and informed observers. Only 7,000 companies, out of more than a million registered in Indonesia, submitted the required information by the March 2019 deadline. Most simply copied and pasted the names listed in their original deeds of establishment, which in many cases are not the beneficial owners.

In the plantation sector, this problem of obscured ownership identity has manifested in the form of owners controlling more land than permitted by law through seemingly unrelated companies.

“Inside protected and production forests, the number of concession licenses is limited to two in a single region,” Hariadi said. He added that if a single individual controlled more than two concessions through different companies, then “the limitation on the number of permits is of no use.”

Yusran, a professor of forestry at Hasanuddin University in Makassar, agreed that valid and accountable data are crucial in the successful implementation of the omnibus law as intended.

“Data validity is very important to ensure that forest area conversion and land function conversion can be free from monopoly,” he said.

Yazid Nurhuda, the anti-crime director at the environment ministry, said his office would take this input into consideration. Ary Sudijanto, the ministry’s director of business environmental impact prevention, said he welcomed the calls for greater transparency in the forestry and plantation sectors.

“Looking forward, an information-based system will indeed be our backbone, not just for environmental impact assessments and environmental documents, but also for quality standards and reporting,” he said. “So the hope is that the public can know and participate more, and to prevent moral hazards.”

This story was published with permission from Mongabay.com.



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