B&A News Brief – New Regulation on Plantation Business Licensing

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As an endeavor of plantation sector development, the Minister of Agriculture recently issued Regulation No. 98/PERMENTAN/OT.140/9/2013 of 2013 concerning The Guidelines for Plantation Business Licensing (the “Regulation”) which came into effect on 2 October 2013. This Regulation repeals the previous Minister Regulation No. 26/PERMENTAN/OT-140/2/2007.
Certain key provisions as provided by Regulation are as follows:

TYPE OF PLANTATION BUSINESS
There are 3 (three) types of plantation businesses set out in the Regulation , they are: (i) the cultivation of plantation; (ii) the processing industry of plantation products; (iii) the plantation business which is integrated between cultivation and processing industry of plantation business.
Every foreign legal entity or individuals who wish to conduct plantation business are obligated to cooperate with domestic plantation business by establishing an Indonesian legal entity.

The Regulation provides that there are 3 (three) types of licenses need to be obtained by plantation company. License for the cultivation (Izin Usaha Perkebunan untuk Budidaya or “IUP-B”) is for cultivation of a plantation with an area of 25 (twenty five) Ha or more. For the plantation products processing industry including palm oil, tea and sugar cane, the business need to obtain license of plantation business for processing (Izin Usaha Perkebunan untuk Pengolahan or “IUP-P”). Moreover, the cultivation of palm oil with an area of 1,000 (one thousand) Ha or more, tea with an area of 240 (two hundred and forty) Ha or more, and sugar cane with an area of 2,000 (two thousand) Ha or more, are obligated to integrate with the plantation products processing industry and must obtain a license for the plantation business (Izin Usaha Perkebunan or “IUP”).

DIVESTMENT REQUIREMENT
A palm oil plantation company, which has obtained the IUP-P, is required to divest its shares to local farmer cooperation for a minimum of 5% (five percent) on the 5th year after the company is commercially operated; and is gradually increasing to a minimum of 30% (thirty percent) by the 15th year of operation.
The palm oil plantation company that does not fulfill this obligation will be given qntlistrative sanction from warning letter until the revocation of the IUP-P.

FACILITATION OF COMMUNITY PLANTATION DEVELOPMENT
A plantation company that is applying for the IUP-B or IUP-P with an area of 250 (two hundred and fifty) Ha or more is obligated to facilitate the development of the community plantation, which is at least 20% (twenty percent) of the total area of IUP-B or IUP-P. The facilitation must be completed within 3 (three) years along with the development of a company plantation.

This obligation does not apply to the legal entity in form of a Cooperative.

THE MAXIMUM AREA OF IUP-B AND IUP
The Ministry of Agriculture aims to limit the ownership of the plantations by one company or group of the plantation companies (two or more companies that are under the same management, financial relations or owned by the same person or legal entity) both for IUP-B or IUP. More information can be found below:

NoIUP – BIUP
CropsThe Maximum Area (Ha)CropsThe Maximum Area (Ha)
1Coconut40.000Palm Oil100.000
2Rubber20.000Tea20.000
3Coffee10.000Sugar Crane150.000
4Cacao10.000
5Cashews10.000
6Pepper1.000
7Clove1.000
8Cotton20.000

The above area limitation does not apply to State Owned Companies, Regional Owned Companies, Cooperatives and Go Public Companies.

THE CORPORATE SOCIAL RESPONSIBILITIES
Article 42 of the Regulation also stipulates that plantation companies shall implement corporate social responsibility.

ULAYAT RIGHT
In case the land used in the plantation business is derived from Ulayat Right (the right controlled by a customary law community), the plantation companies are obliged to hold a deliberation with the holder of Ulayat Right and to incorporate the deal between them in form of an agreement.

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For further information, please contact: [email protected]

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