Jakarta, February 12, 2015. The rapid expansion of Indonesian oil palm plantations creates serious environmental and social problems: vast amounts of valuable forests are converted into plantations; habitats of protected species are endangered; significant greenhouse gas emissions are caused by peatland development; and many communities lose access to land which is crucial for their subsistence and to which they have held legal or customary rights for generations.
To solve these problems, the driving forces behind the strong growth of the palm oil sector – its owners and financiers – need to take their responsibility. The study which is being conducted by TuK INDONESIA and Profundo analyses the ownership and financing of 25 corporate business groups active in the Indonesian palm oil sector, which account for a large part of the existing plantations and which are developing very sizable landbanks into new plantations.
The study also reveals how the tycoons control the business in the palm oil sector and how they get funding to develop their businesses moving very rapidly, as well as financial institutions who provide financing to the tycoons.
Program Director TuK INDONESIA, Rahmawati Retno Winarni explained in her presentation: “there are 29 tycoons who control 25 business groups in Indonesian palm oil business, in 2013 at least they posses landbank (planted and unplanted) of 5.1 million ha of oil palm land. This is a huge number especially if compared to total planted are of 10 million hectares.
Of the land area that is owned by the tycoons, as many as 3.1 million ha (60%) were already planted and 2.1 million ha (40%) has not been planted. The rapid pace of oil palm plantation expansion and ease in land acquisition by these tycoons is facilitated by financial institutions, both domestic banks and foreign banks. With their support, tycoons able to do it that faster and more massive.
By January 2014, based on the figure of Otoritas Jasa Keuangan – Indonesia’s Financial Services Authority; domestic and foreign banks provided an outstanding loan of USD Billion for “Agriculture, Forestry and Hunting” Sector. This research identified a total of US $ 17.8 billion of new debt has been provided only to these 25 palm oil groups in the period of 2009-2013.
Bank Mandiri is the largest domestic banks providing these loans, while for foreign banks there are HSBC (United Kingdom) and OCBC of Singapore, she concluded.” Business in this sector has generated a lot of problems, ranging from human rights violations and land conflicts to environmental problems, on top of that, taxation issue has also become a big concern as it is detrimental to the State.
Wiko Saputra of Prakarsa explains, “Indonesia is ranked seventh in the illicit financial flows; palm oil industry has been one of the contributors, booking USD 3.82 Billion out of the total figure of USD 187.8 Billion; in the last 10 years.
Illicit financial flows are resulted from, among others: tax evasion and tax avoidance. The case of Asian Agri is one of the example. In 2014, tax revenue that can be collected is at 91.8%; the lowest over the last 25 years.”