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

Large scale land acquisition for agro-development in Papua, Indonesia: implications for policies and investment practices. Krystof Obidzinski, CIFOR. World Bank Conference on Land Policy and Administration Washington, D.C., 26-27April 2010. Structure of the presentation.

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

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  1. Large scale land acquisition for agro-development in Papua, Indonesia: implications for policies and investment practices Krystof Obidzinski, CIFOR World Bank Conference on Land Policy and Administration Washington, D.C., 26-27April 2010

  2. 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

  3. 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

  4. Proposed oil palm plantations

  5. 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

  6. Map of Mega-rice project in Kalimantan (Borneo)

  7. Map of Mega-rice project in Kalimantan (Borneo)

  8. 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)

  9. 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

  10. 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

  11. 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)

  12. 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…

  13. 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.

  14. 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

  15. 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

  16. Recommendations and research steps needed • 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

  17. Recommendations and research steps needed • 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

  18. This is the approx area of MIFEE concessions Back

  19. www.cifor.cgiar.org

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