Good news for planters, Indonesia drops foreign ownership clause in bill

PETALING JAYA: News of the Indonesian government dropping the controversial foreign ownership clause in the final version of its plantations bill has left observers unperturbed.

RHB Research analyst Hoe Lee Leng said she was generally positive that the clause was omitted.

The draft of the bill would have retroactively limited foreign ownership of plantations to no more than 30%, down from the current maximum of 95%.

“At the time of the draft bill, investors did react a little and sold down some shares. But in terms of operations, it pretty much stayed the same. There might have been a bit of a slowdown in terms of planting, but it was not that much of a significant impact,” she said.

Hoe added that earlier on, although most companies were concerned, they were not drastically trying to sell off their plantations.

To recap, Reuters yesterday reported that the Indonesian government had omitted the clause in the final version of the bill.

Instead, the bill that was approved aims to maximise land usage and open up the sector to smallholders.

Although the article on the limitation of foreign ownership in plantation companies had been removed, Indonesia could still make rules on the issue through government regulation, the report said quoting Gamal Nasir, the director-general of plantations at the agriculture ministry.

The omission was, however, expected due to rising concerns that it might expose the Indonesian government to legal action.

Kenanga Research analyst Alan Tan said the news was a “non-event”, unless a specific limit was put in place.

“We are still waiting to see what Joko Widodo’s stand on the issue is,” he added.

He said that in the long term, policy-making would remain as a risk in Indonesia.

Meanwhile, a representative from a plantation company stressed that the potential limitation was a non-issue.

If the government were to impose a limit on foreign ownership, it would have to be proposed as a bill first before it could become law.

“Right now, it hasn’t been proposed as a bill but I won’t go so far as to say that it won’t come next time round,” said Hoe.

“Widodo is known to be pro-business and pro-agriculture, so it doesn’t sound like something he would implement once he comes into power. That said, it’s not 100% definitive,” she said.

Plantation companies such as Sime Darby Bhd, Kuala Lumpur Kepong Bhd, IOI Corp Bhd, Genting Plantations Bhd, TSH Resources Bhd and IJM Plantations Bhd are among some that could have been potentially hurt by the limitation.

The new plantation law requires plantation companies to allocate 20% of their concessions to people who live in the nearby areas and to help them to plant their own plantations, according to Reuters.

To this regard, both Hoe and Tan said it was already being practised by plantations companies as part of Indonesia’s plasma scheme.

Companies will have five years to comply with the new law.