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he House of Representatives on Monday passed the plantation bill, which sets stricter rules on foreign ownership in the plantation sector so as to prioritize smaller local investors.

The limitation is to have no specific percentage value, although the House'€™s Commission IV has previously demanded a 30 percent foreign ownership cap.

Instead, the law allows the central government to limit direct foreign investment in Indonesia'€™s growing plantation sector, notable for its palm oil, of which Indonesia is the world'€™s number one producer and exporter.

Foreign ownership in the plantation sector will be capped through government regulations (PPs). The limits, according to the new law, are to be based on the type of crop, the size of the producing company and certain geographical conditions.

A strict foreign ownership cap would discourage foreign investment in the upstream plantation sector, but a less stringent one, made general by the new law and specified by a PP, would be acceptable, according to the Agriculture Ministry'€™s director general for plantations, Gamal Nasir.

'€œIf foreign ownership were restricted to 30 percent, foreign investors would lose interest in investing in Indonesia and would look to other countries with more open investment rules,'€ said Indonesian Palm Oil Producers Association (Gapki) executive director Fadhil Hasan.

Gapki and the Agriculture Ministry, however, agreed on the final terms of the law that left the foreign ownership cap for the government to decide in a PP.

The existing foreign plantation companies will be required to comply with the new law after their period of licensing of rights to cultivate land (HGU) has ended, the law stipulates.

Plantation business groups as well as the Agriculture Ministry had previously voiced criticism of the bill, expressing concern that it would hurt the business climate for plantation firms and growers. Indonesia aims to raise its palm oil output by a third to 40 million tons by 2020.

'€œIt seems to me unfair if our country has invited foreign companies to invest in our plantation sector, then suddenly restricts their ownership. It could damage the domestic industry, because foreign investments often want majority ownership,'€ said Gamal.

The new law also regulates the scope of plantation areas and land concessions according to a number of variables, such as the type of crop grown, the company'€™s factory capacity, the area'€™s population density and certain geographical conditions. These points too will be detailed in PPs.

The central government will also have the right to turn over state-owned forests and abandoned plots of land to plantation owners. But the law also requires plantation owners to conduct discussions with indigenous residents over plots of lands to be acquired.

In order to develop the sector, the law also encourages cooperation in research and development between foreign and domestic individuals, businesses and universities, as well as between central and regional administrations.

Firms have been given five years to comply with the new law.

While praising some points of the law, such as the foreign ownership restriction, Indonesian Rubber Association (Gapkindo) chairman Daud Husni Bastari said the law did not properly support smallholders and criticized the lack of measures to mainstream the smallholder basis of plantation management. (gda)