Palm oil firm pays 'precedent-setting' fine for unauthorized land-clearing in Indonesia

by EM News February 28, 2012
A subsidiary of agribusiness giant Cargill has paid a $1 million fine for clearing land for oil palm outside its concession, a move that could serve as an important example for palm oil developers operating in Indonesia, according to Greenomics-Indonesia, a Jakarta-based environmental group.
Palm oil firm pays 'precedent-setting' fine for unauthorized land-clearing in Indonesia

Land-clearing for oil palm in Sumatra.

Rhett A. Butler, Mongabay News

The fine was levied on Cargill subsidiary PT Hindoli after the company notified local authorities and the Ministry of Forestry that it had accidentally cleared about 2,000 hectares of land beyond the boundary of its formally licensed area in South Sumatra Province. The clearing, which took place in 2005, involved agricultural land that was still zoned as "forest" by the Ministry of Forestry even though it lacked exploitable timber.

"No forest clearing was involved in this situation," Cargill told "Cargill inadvertently planted palm beyond the boundary of our licensed area, on agricultural land. When we realized this, we notified the government agencies and paid the appropriate fine."

The final settlement was held up for more than six years due to overlapping claims over the area cleared and differing approaches between the Ministry of Forestry and the State Audit Board (BPK-RI) in calculating damages. Ultimately, the higher of the proposed fines — 9.66 billion rupiah (just over $1 million) — was assessed by the BPK-RI based on the estimated value of the timber had the land been forested.

Despite the delay, Cargill's decision to pay the fine based on the BPK-RI assessment, which is legally binding, but often ignored in Indonesia, sets an important example for plantation developers, says Elfian Effendi, executive director of Greenomics.

"Greenomics has reported to top government officials on Cargill's compliance in this case as a great example of best practice in the plantation sector," he told

"Greenomics hopes that this Cargill's compliance will generate billions of dollars in timber compensation payments that must be paid by other palm oil companies that have cleared forest illegally (or have lacked sufficient permits), leading to the lost of huge timber volumes compared to the Cargill's case."

BPK-RI has estimated timber losses from illegal clearing of millions of hectares of land at more than $36 billion across Indonesian Borneo alone.

Greenomics is now pushing the Roundtable on Sustainable Palm Oil (RSPO) to consider whether or not a company is in compliance with BPK-RI assessments as grounds for membership in the body. The activist group says some prominent Indonesian RSPO members have outstanding complaints from the BPK-RI.

"Palm oil production in concessions that should be frozen, according to the BPK-RI, clearly does not constitute sustainable palm oil production, but rather an 'expansion' of state and environment losses," said Greenomics and Indonesia Corruption Watch in a report released jointly this week. "Greater public participation [is] required to ensure BPK-RI’s recommendations are acted upon."

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