Thursday, November 18, 2010

A portrait of deforestation in East Kalimantan, Indonesia

Author: Maria Monica Wihardja, CSIS

Indonesia has one of the highest rates of deforestation in the world. Illegal deforestation is currently rife, and the loss of government revenue associated with this illegality has been estimated at $US 100 million in East Kalimantan alone.

Deforestation is caused, in part, by land use changes resulting from cash-crop plantations and mining, particularly for coal in East Kalimantan. Recent increases in the rates of deforestation have occurred in three stages, and have been exacerbated by a number of policy developments and reforms.

The first stage of deforestation occurred when small-scale forest concessions were granted for collecting forest products—these grants were issued by a Forest Product Harvesting Permit (Hak Pemungutan Hasil Hutan or HPHH). Under Indonesia’s centralised government system, HPHH were issued by the Provincial Governor, whilst after decentralisation, the HPHH were issued by the head of a regency (the Regent), or the head of a city (the Mayor). The issuing of HPHH were a key driver of deforestation until 2002, when the authority of the Regent and Mayor to issue HPHH was withdrawn by the government through the Forest Ministerial Decree No. 541, 2002.

The second stage occurred from 2002 until 2005, when deforestation occurred mostly due to the expanding plantation sector, especially oil palm plantations. Recently, the multinational food corporations, NestlĂ© and Unilever, made an agreement with Greenpeace not to buy palm oil products, from the Indonesian palm oil producer PT Smart, a subsidiary of Sinar Mas—an Indonesian agribusiness conglomerate. This agreement was forged because of consumer and civil society pressure over environmental issues, such as the habitat loss of Orangutan — one of Indonesia’s most endangered and charismatic species. Greenpeace has also put pressure on Walmart to cease buying products from PT Smart, and has successfully lobbied HSBC to sell its shares in the subsidiary.

There are short-term socio-economic impacts resulting from the cancellation of palm oil contracts, such as the loss of employment in affected industries and the reduction of wealth flowing into rural communities — but these are insignificant when compared with the long-term benefits from reducing deforestation.

The third stage occurred from 2005 until present, this period has seen an increase in deforestation due to the expansion of small-scale coal mining.

This expansion has been driven by three factors.

First, changes to the land use legislation (Article 38 of National Law No. 41, 1999) allowed for mining on forested areas, including protected forests, through the issuance of a special permit (Borrowing and Using Permit) that is approved by the Minister of Forestry.

The Borrowing and Using Permit was granted to mining companies under the proviso that before the issuance of the National Law No. 41 they already held permits to mine in forest areas. Initially, there were only 13 companies eligible under this proviso, however, by May 2010, there were 54 permits issued in East Kalimantan alone. Out of the 54 permits, 53 permits were issued after the issuance of Government Regulation No.2, 2008, which set the tariff rate for exploiting non-forest products, including minerals and coal. This regulation was often perceived as an effort to ‘sell’ forest areas.

Second, the dramatic increase in the price of commodities prior to the global financial crisis increased mining in forested areas. The GFC depressed coal prices, but as of 2010, the coal price has rebounded, and this has seen an increase in investment in the mining sector. This investment has been supported by the central government, and local communities and indigenous communities have been willing to open up their land for mining.

Third, decentralising the issuance of mining concessions, combined with local direct elections gave rise to local capture and rent seeking. Mining permits became a political commodity to garner votes, and political campaigners and those who had access to the regent or mayor became brokers to interested mining investors.

Unless broad ranging policy reforms occur, and corruption is reduced, Indonesia will struggle to reduce levels of deforestation to locally and internationally acceptable levels — but these reforms will not occur overnight. For now, continued international pressure by civil society will be the most successful path of action.

Maria Monica Wihardja is an Associate Fellow at the Centre for Strategic and International Studies, Jakarta.


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