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Jakarta Post

Businesses breathe sigh of relief on new law

  • The Jakarta Post

    The Jakarta Post

Jakarta   /   Fri, October 3, 2014   /  08:31 am

Plantation industry players breathed a sigh of relief as the House of Representatives canceled a plan to cap foreign ownership in local plantation firms at 30 percent.

The new plantation law, passed by lawmakers earlier this week, stipulates that foreign ownership in plantation companies would be limited, albeit with an indefinite percentage value.

The government has the final say on the limitations based on the type of crop, the size of the producing company and certain geographical conditions to be further detailed in government regulations (PPs).

Tofan Mahdi, public relations head at the publicly listed palm oil producer Astra Agro Lestari, said the firm welcomed the new law, especially as it scrapped the specific 30 percent cap for foreign ownership.

Indonesian Palm Oil Producers Association (Gapki) executive director Fadhil Hasan also welcomed the new law as it handed over the determination of the cap level to the government.

'€œWe expect the government regulations to also [limit foreign ownership based on] the type of commodities or crops,'€ he told The Jakarta Post.

The government earlier this year issued a revised Negative Investments List (DNI) in the plantation sector, which allows foreign ownership of up to 95 percent for any plantation business with a land size of more than 25 hectares.

For horticultural businesses, however, foreigners can only own up to 30 percent, regardless of land size.

The foreign ownership cap was intended to channel foreign investments into larger areas of business in the plantation sector, while local companies could still be advantaged by being allowed to own smaller sizes of land, according to Fadhil.

'€œThe regulation encourages foreign investments to enter larger businesses in the plantation sector because certain types of commodities need larger economies of scale in order to be more efficient,'€ he said.

Understanding the government and the House'€™s intention to protect local and smaller companies, Togar Sitanggang, chairman of the Indonesian Oleochemical Manufacturers Association (Apolin), said most domestic plantation firms were either owned by foreign-listed companies or controlled by one or more foreign shareholders.

Expensive financing from domestic banks was the main reason that forced local plantation firms to be listed abroad or to find foreign suitors, said Togar, who is also a senior manager at biofuel maker PT Musim Mas, citing Golden Agri-Resources Ltd., which owned Sinar Mas Agro Resources and Technology (SMART) and Bumitama Gunajaya Agro of the Singaporean-listed Bumijaya Agri Ltd. as examples.

'€œThe companies choose the option to be listed abroad because they need to find cheaper loans. That is why the government and House should strengthen the economy and push the interest rate down before thinking to limit foreign ownership,'€ he added.

Bambang Aria Wisena, a plantation expert who spent years in the sector, echoed Togar'€™s opinion that the state'€™s support of the plantation industry would work better in the form of low interest rates and better infrastructure to boost the economy.

Recently, Agriculture Minister Suswono said the next administration under president-elect Joko '€œJokowi'€ Widodo would find
a fair solution regarding the foreign ownership cap, citing the law'€™s requirement for all plantation companies to provide 20 percent of their area to local plasma farmers as an example.

'€œThe plasma requirement will help foreign plantation companies provide benefits for local people,'€ he said. (gda)

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