Indonesia remains a draw for planters

WHEN the Indonesian Supreme Court overturned the acquittals of edible oil giant Wilmar International Ltd and two other major palm oil groups over allegations of misconduct in obtaining palm oil export permits in 2022, many companies with operations in the republic would have been unnerved.

Wilmar and its subsidiaries have been ordered to pay fines of US$709mil, much of which will come from the US$729mil security deposit the Singapore-based company paid up front.

The company accepted the decision, but insisted it acted legally and in good faith.

The ruling signals a tougher regulatory enforcement environment that many will have to get accustomed to and anyone thinking of seeking legal recourse there better have very sound grounds.

This is especially so as oil palm land confiscation by the Indonesian government has become a real concern for plantation companies and analysts covering these companies.

It’s one of the risk factors noted at the end or in the footnotes of research reports that could affect the valuations and outlook of the companies facing this possibility.

Names like Kuala Lumpur Kepong Bhd, Genting Plantations Bhd and SD Guthrie Bhd could see some of their land confiscated in Indonesia, but nothing like the 221,000ha seized from PT Duta Palma Group in Sumatra over a money-laundering case.

A Forest Area Reorganisation Task Force launched in February has confiscated some two million hectares of plantation land in forest areas without permits or in violation of land-use regulations.

More is likely to follow.

While some planters may question the legality, the country’s lure to planters most probably remains undiminished.

Wilmar’s decision to remain in the country, while still early, is a reflection of that. The company has some 150,00ha for oil palm, which many doubt it is in a hurry to sell.

Much of the palm oil it sells across the world is sourced from such land.

To be fair, the leadership of President Prabowo Subianto is also targeting illegal activities in mining, especially tin, in places like Bangka-Belitung islands, a major tin mining region.

There are reports that about 80% of tin from this area is mined illegally, resulting in substantial revenue loss for the government.

Much like plantation land, the confiscated mines and assets have been transferred to state-owned companies that are under the country’s sovereign wealth fund called Danantara.

So, while the plantation land and mining confiscations signal a greater role by the centre, it didn’t stop local companies like MKH Oil Palm (East Kalimantan) Bhd from buying 3,097ha of plantation land for about RM9.1mil in August.

In July, United Malacca Bhd took full control of its Indonesian plantation subsidiary PT Lifere Agro Kapuas for US$10mil.

A further test of Indonesia’s attraction as an investment destination for planters could come from the possible sale of its oil palm plantation business by an Indonesian listed entity.

Industry insiders say the group could be willing to part with its planted 90,000ha it has in Sumatra and elsewhere in the country for the right price.

Malaysian plantation groups will undoubtedly be keen too as land of that size is hard to come by due to the moratorium on opening up new land for oil palm in Malaysia and Indonesia.

Urbanisation and industrialisation are seeing many local plantation groups convert land to township and industrial park development, and also increasingly for green energy generation, mainly solar farms.

Indonesia’s plan to push forward with its biodiesel mandate of B50 by next year will likely support oil palm prices above the RM4,000 a tonne level and make brownfield upstream assets on sale very attractive.

Don’t be surprised if cash-rich local planters emerge as frontrunners for the potential sale by the Indonesian firm and other companies despite land confiscation issues looming in the background.