Omnibus Law is not an automatic legalization of illegal plantations

EoF Investigative Report / 03 June 2021

Between February and November 2019, EoF conducted a field monitoring of up to 5% of Riau’s illegal oil palm plantations without HGU in Forest Estate or APL (129,948 hectares) which are managed by 1 cooperative unit, 3 individuals (financial backers) and 39 companies including Adimulya, Astra, Darmex Agro, First Resources, Gama & Samsung, Hutahaean, Indofood, KLK, Pancaputra Ganda, Peputra Masterindo and Provident Agro companies (Table 1 & 2). Twenty-nine (29) of the 43 management units are in and around three high conservation value landscapes, Tesso Nilo and Bukit Tigapuluh with a national park each in their core areas, and the Bukit Batabuh Tiger Corridor. These are areas highlighted in the previous EoF reports as origins of supply chains of illegal FFB and tainted CPO. 23 out of the 43 entities managing the illegal plantations have their own or associated Crude Palm Oil (CPO) mills who process their illegal FFB (Table 3).

Of the 20 management units which do not have own/associated CPO mills, EoF selected 16 units for chains of custody investigations to find their downstream buyers. EoF investigations between May and November 2019 found that the illegal FFB from these units were bought by 15 CPO mills including those of Darmex, First Resources, Incasi Raya, Jhagdra, Mitra Agung Sawita Sejati and Royal Golden Eagle groups (Table 4). The mills included 5 repeat offenders highlighted by EoF’s 2018 “Enough is Enough” report. The First Resources mill (PT. Subur Arum Makmur 1 Senamanenek Mill) who has RSPO certification (Mass Balance Supply Chain Model), showing that the uncertified part of the mill’s MB products contains illegal FFB.

Between July and November 2019, EoF also tracked CPO trucks from 9 out of the 15 CPO mills above and found that the CPO tainted with illegal FFB were bought by 6 refineries of Darmex, First Resources, Musim Mas, Permata Hijau, Royal Golden Eagle and Wilmar. All except the Darmex refinery are RSPO members and have RSPO Mass Balance, Segregated and Identity Preserved Supply Chain Certificates (Table 5).

All the groups and their CPO mills and refineries listed in this report are common direct or indirect suppliers for many of the world’s key traders/users with zero deforestation commitments. In 2021, three years since we published our “Enough is Enough” report and after a common target year to achieve zero deforestation was missed by many global brands and traders. The majority of the world’s palm oil supplies continues to be tainted by FFB illegally grown in some of the last remaining habitats of critically endangered species like tigers, elephants, and orangutans and on flammable, carbon rich peatlands in Sumatra.

The scale of the legal issues that global buyers and sellers of the tainted product potentially face is huge, as mills and refineries that feed the tainted products into the global economy have known about the systemic legality issues for a long time. Knowingly, they have failed to tackle the issue trying to avoid the investments needed to clean up the system. Even today, and despite the proliferation of dashboards, annual sustainability reports and list of supplier CPO mills, the majority of mills and refineries in Indonesia do not trace the origin of their products to third party plantations, although they know this is the only way to identify and reject illegal FFB and tainted products.

Allowing illegal and unsustainable oil palm plantation management and trade also causes a big loss for the State. Riau province alone is estimated to lose potential tax revenue of IDR107 trillion ($7.3 billion) per year from its 1.4 million hectares of unlicensed, illegal oil palm plantations. How does the value increase if we consider all the environmental and social damages that the industry has been causing?

The Indonesian President committed on 14 April 2016 to conduct a moratorium on oil palm and coal mine license issuance and, in 2018, issued the Presidential Directives on Postponement and Evaluation on Palm Oil Plantation Licensing and Improvement on Palm Oil Plantation Productivity (“2018 Moratorium Directives”). Its successful implementation could be the light at the end of the tunnel to tackle the widespread illegality in the sector, protect and restore the ecosystems and environment, reduce annual fire, regional haze and massive greenhouse gas emissions.

However, two years after the issuance of the 2018 Moratorium Directives, the controversial Omnibus Law was issued on 2 November 2020 through the Law No. 11 of 2020 on Job Creation (Job Creation Law). The Job Creation Law is portrayed as a way to legalize illegal plantations managed by either business entities or individuals including smallholders. However, based on our legal analysis, EoF is of the opinion that the Job Creation Law is not a “get-out-of-jail-free card” for all illegal oil palm plantations. Considering the serious and known legality and environmental risks, EoF recommends global buyers to focus on making fast progress to implement their NDPE policies by tracing the origins of palm oil products to plantations and moving away from illegal plantations immediately, instead of waiting and hoping that the new laws will legalize their illegal material origins, as our analysis shows many are not eligible and even the ones that are will need to pay hefty fees and go through an arduous process.

EoF also hopes that this report provides useful inputs for the 2018 Moratorium Directive implementation so that all relevant ministries/agencies can uphold law enforcement against companies/individuals who manage illegal plantations and trade illegal products. There is still more work to do by the Government to reinforce the Job Creation Law and regulations especially to tackle illegal plantations to protect remaining natural forest and conservation areas for good. Our key conclusions and specific recommendations are included in the Conclusions & Recommendations section.