Client Newsflash

New Plantation Law – No Foreign Shareholding Limit, Yet

On the night of Monday, September 29, 2014, the House of Representatives and the Government approved a draft bill on plantations, which will revoke Law No. 18 of 2004 on Plantations when it is signed by the president and given a number (becoming the “New Plantation Law”). In addition to laying a new general legal framework for the sector, the New Plantation Law will serve as the basis for further implementing regulations and policies. As of the date of writing, the bill had not yet been signed and numbered; however, we have the  latest copy of the bill, which we believe is the same content that will be ratified as the New Plantation Law.

♦  LIMITATION ON FOREIGN INVESTMENT STILL PENDING

Under the current Negative Investment List, foreigners may hold up to 95% of shares in a plantation company. The controversial draft bill most recently in circulation imposed a 30% foreign shareholding limit, with no grandfathering of existing PMA companies, who would have had only five years to divest their shares to an Indonesian party. (A similar structure was adopted in the 2010 Horticulture Law.) Transfer of shares to a foreign shareholder would have been subject to the approval of the Minister of Agriculture.

In the form passed by the House, however, the New Plantation Law is silent on the percentage of shares that a foreign party may hold. Instead, foreign shareholding limitations can be implemented through a future Government Regulation on the basis of: (i) type of plant, (ii) business scale, and (iii) certain area conditions.

♦  LAND UTILIZATION AND LICENSING

The minimum and maximum areas of land that may be licensed for plantation will also be stipulated in a  future Government Regulation. Currently, only the maximum holding of a company or group has been governed, through Minister of Agriculture Regulation No. 98 of 2013, (e.g., maximum of 100,000 hectares for oil palm plantations). It will be fascinating to see whether the area limits will be the same under the forthcoming Government Regulation.

Plantation companies must plant 30% of their estate within three years after receiving the Right to Cultivate (Hak Guna Usaha or “HGU”) and plant all technically plantable areas within six years. The Government has the right to acquire any unutilized (unplanted) estate if a company fails to fulfil the utilization requirements. Companies are prohibited to transfer HGU if it will cause them to fall below the minimum area.

Plantation companies must facilitate the establishment of at least 20% of their estate for local communities within three years after obtaining HGU; however, it is not clear whether such area must be within and/or outside the estate. The community area will be managed by the plantation company.

Plantation companies must obtain a plantation business license and subsequently HGU. Prior to obtaining the license “and/or” HGU, companies cannot conduct any plantation activities. This provision is ambiguous, as it is widely understood that the business license should precede HGU, and HGU should precede plantation activities. The use of “and/or” opens the possibility for land clearing to begin prior to obtaining HGU. The issuance of plantation business licenses must be in line with the spatial layout plan.

♦  TIMEFRAME FOR COMPLIANCE

Domestic plantation companies will have five years to adjust their businesses with the New Plantation Law. Foreign-owned companies, on the other hand, are not required to adjust with the new provisions until after  the HGU period expires, meaning, theoretically at least, that even if the Government decides to impose a foreign shareholding restriction, it will not apply to existing PMA companies holding HGU until the expiration of the land rights. It is unclear what is required for foreign-owned companies who have not obtained HGU.

♦  SANCTIONS

Violations can be imposed with administrative sanctions, fines, and/or imprisonment.

October 2, 2014


Disclaimer:
The foregoing material is the property of AKSET and may not be used by any other party without prior written consent. The information herein is of general nature and should not be treated as legal advice, nor shall it be relied upon by any party for any circumstance. Specific legal advice should be sought by interested parties to address their particular circumstances.


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