Forestry Policy, Governance and Institutional Development in IndonesiaBy:

Bramasto Nugroho and Hariadi KartodihardjoProfessor at Faculty of Forestry, Bogor Agricultural University, Indonesia

Presenting at:

Seminar “Current Indonesia Forestry Policy and its Implementation”

Organized by Center for Southeast Asian Studies (CSEAS), Kyoto University

Tokyo, December 15th, 2016

Introduction

• Indonesia ranked to eight of the top ten countries in term of forest area (FAO 2016).

• It is no doubt that Indonesia has largest forest area in Southeast Asia and their roles in economy, social and environmental at local, national and international level (CSEAS Invitation Letter 20 October 2016).

• Beside those great potency, recently Indonesia also facing some problems in managing the forest resources like deforestation, declining in natural forest utilization business, forest governance, etc.

• This presentation will describe of Indonesian forestry, forest governance development, policy and institution improvement

2

Basic principles of law and regulation

The 1945 Constitution of the Republic of Indonesia; Art 33; Paragraph 3:

• The land, the waters and the natural resources within shall be under the powers of the State and shall be used to the greatest benefit of the people

Law 41/1999 regarding to Forestry:

• All of the forest in the country and the natural resources within shall be under the authority of the State for the greatest benefit of the people

Mastery of the forest by the state confers the authority to the government:

• To regulate and to govern all of the thing related to forest, forest area and forest products

• To determine status of certain area as forest area or non-forest area

• To regulate and to determine legal relationships among person and forest and to regulate legal actions relating to forestry

3

Indonesian Forest Areas

4Source: Indonesian Forest Area Statistic 2013, Ministry of Forestry 2014

Notes: CF = Conservation Forest; PF = Protection Forest; PPF = Permanent Production Forest; LPF = Limited Production Forest; CPF = Convertible Production Forest

Forest cover and rate of deforestation

5Sources: Forestry Statistic 2008; 2013; 2014; 2015Source: Forestry Statistic 2015

Small-holder private forest (SPF)(Hutan Rakyat ind.)

6Sources: Forestry Department and Center Bureau of Statistic (2004); Forest Establishment Unit Region XI and MFP (2009); Center of Forest Development Funding (2010)

SENGON (44%) TEAK (23%)

MAHAGONY (17%) LOCAL SAWN TIMBER INDUSTRY

Opportunities and challenges of SPF

Opportunities:• Mainly (± 90%) in Java that has

good road infrastructure• Domestic markets are developing• Competitive prices (relatively equal

with international prices) • Secure land (tenure) rights: illegal

logging can be minimized• Availability of micro credits from

Center of Forest Development Funding supported by MoEF

Challenges:• Dis-incentives policy and regulation

such as Timber Administration (fortunately has been solved through P. 85/2016 since Nov 2016)

• Immature timber cutting to fulfil farmer's immediate needs

• High dependency to the middle-man

• Generally land ownership of farmers are small (approximately 0.25 ha)

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Forest utilization scheme (Government Decree No. 6/2007 juncto N0. 3/2008)

Types of utilization:• Forest area utilization

• Environmental services utilization

• Timber and non-timber forest products utilization

• Timber and non-timber forest products collection

Permit holder subjects: • Individual (private)

• Cooperatives

• Indonesian Private Enterprises

• National State Enterprises (BUMN)

• Local Government Enterprises (BUMD)

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Forest utilization can be conducted using permit schemes or partnership schemes with Forest Management Unit (FMU)

Progress of Natural Forest Concession (HPH) and Industrial Forest Plantation (HTI)

9Source: Directorate General of Sustainable Production Forest Management, MoEF (2016)

Business situations of forest utilization

10Source: Directorate General of Sustainable Production Forest Management, MoEF (2016)

Problems in forestry business (Association of Indonesia Forest Concession Holders 2016)

• Domestic log prices were distorted cause of log export ban policy and vertical integration of forest and pulp and paper industry, especially for plantation forest species

• High production costs cause of large number and type of levy, the number of regulations and lack of infrastructures (especially in outside Java)

• Low industrial competitiveness cause of old machineries, high export taxes and low import taxes.

• High tenurial conflict cause of un-clear forest boundary, local politics and customary (adat) claims

• Uncertainty of business cause of unclear and unclean of concession area, over lapped regulations and authorities

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Opportunity of investment in forestry sector

Foreign & domestic with sustainable raw material supply assurance:• Sawn timber industry with capacity

more than 2000 m3/year• Veneer industry• Plywood industry• Laminated Veneer Lumber (LVL)

industry• Wood chips industry• Wood pellet industry• Woody pulp industry

Fully (100%) allocated for domestic investment:

• Natural forest utilization

• Providing and trading of forest seeds and seedlings

• Utilization of water environmental services from the forest area

• Business in hunting and distributing of wildlife (flora and fauna) from natural habitats

12Source: Presidential Decree no. 44/2016 regarding to List of Restricted and Opened with some Requirements Investment

Timber products industry unit and intake capacity in 2016

13Source: Release Data for Semester I 2016, Directorate General Sustainable Production Forest Management (2016)

Not all of its installed capacity has been utilized

Production of timber industries and log consumptions in 2014

14Source: Forest Trends and Anti Forest Mafia Coalition (NGO) (2015)

Log production from various sources

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Comparing with total log consumptions by industry in 2014 it still any surplus of 2.21 Million m3, but the industry facing the continuity of raw material because there are any unsustain sources like:• Industrial plantation land

clearing • Forest conversion• Replanting wood from

plantation estates

Source: Directorate General Sustainable Production Forest Management (2016)

Indonesian timber products export

16Source: Center Bureau of Statistic (2014) Source: Directorate General SPFM (2016)

Timber products export to Japan

17Source: Forestry Commodities Export-Import 2014; Data and Information Center of MoEF (2015); SILK online Directorate General SPFM (2016)

Main issues on forest governance

In 2012 the main issues consist of:1. Weaknesses in forest

management at site level;

2. Forest area in open access circumstances;

3. Weaknesses in law enforcement; and

4. High transaction costs in forestry business

In 2014 the main issues consists of:1. Certainty over forest areas;

2. Equity in the management of forest resources;

3. Forest management transparency and integrity; and

4. Law enforcement capacity

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Transaction costs in forest business:the costs of employing resources and happen when the parties exchanging their power or authority

19Source: Kartodihardjo et al. 2015; Notes: 1 IDR = ± 0.008 JPY or 1 JPY = ± IDR 125

Forest governance index (FGI)

• FGI are increasing in all government level

• FGI of national (central) level is higher than provincial and district level

• The best province: Central Sulawesi; the worst: West Papua

• The best district: Banggai(Central Sulawesi); the worst Teluk Bintuni (West Papua)

• The worst FGI is in district level

20Sources: Forest, Land and REDD+ Governance Index 2012 (UNDP & MoF 2013); The 2014 Indonesia Forest Governance Index (UNDP & MoEF 2015)

Notes:• Acceptable score in 2012

was 5; in 2014 was 60• To make it comparable,

each score in each level of government divided by each acceptable score

Some causes of FGI improvement:

• Continuation of the moratorium on licensing in primary forests and peat land;

• Improvements in transparency and access to information (Law 14/2008 Public Information Openness);

• Providing more clarity on land status by accelerating forest gazettementand FMU;

• Reaffirming the protection and recognition of “indigenous forest” and promotion of “social forestry”;

• MOU with 12 concerned ministries and agencies initiated and supervised by Corruption Eradication Commission (KPK) who bore National Movement of Natural Resources Rescue (GN-SDA)

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Long journey of National Movement of Natural Resources Rescue (GN-SDA) (1)

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Study on Planning and Controlling System for Forest Area

(2010)

Study on Licensing System

in Forestry Sector (2013)

Study on Coal Mining

Businesses Policy (2011)

Study on Licensing System in Mining Sector

(2013)

2010 201320122011

MoU 12 Ministries and Agencies (2013)

Workshop on Acceleration of

Forest Gazettement

(2012)

Long journey of National Movement of Natural Resources Rescue (GN-SDA) (2)

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MoU Agenda of Forest Management Improvement in

Forestry State Enterprise in Java (4 findings; 111 action plan)

(2014-2017)

Study on Non-tax State Revenue for Forestry

Sector(2015)

MoU 27 Ministries and Agencies National

Movement of Natural Resources Rescue

(2015)

Study on Tax Management in Mining Sector

(2014)

Study on Sea Space Management

System (2014)

2014 20162015

Declaration of National Movement of Natural Resources Rescue (GN-SDA)

(2015)

AGENDA for Action Plan to improve Non-tax State Revenue

for Forestry Sector (6 findings, 76 actions plan)

(2016-2017)Study on Forest Management by Forestry

State Enterprise in Java (2014)

Presidential Decree No. 87/2016 about Working Group on Illegal

Levy Eradication

AGENDA 24 GOVERNORSfor better NRM governance

(2016-2017)

Agenda for improving forest management performance

Root problems:• No effective institutions to manage

state forest resources as CPRs. Without effective institutions CPRs will over exploited and destroyed (Ostrom 2008)

• Contractual arrangement can not bring concessionaires to behave sustainably and emerging high transaction costs

• Difference objectives between private (maximizing profit) and public (maximizing welfare)

Agenda:• Presenting effective institutions in site

level, both in term of institutional (rules of the game) structures as well as organization to enforce institutions

• Re-evaluation contractual arrangement policy

• Re-evaluation appointed actors to manage state forest resources

• Can FMU and Social Forestry programs that promoted by MoEFplayed roles to improve forest governance in Indonesia?

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Conclusions and recommendations:

• Forestry policy, governance and institutions are improving, but still need to be increased

• The main objectives of increment are:• To reach sustainable forest management for improving people welfares and

protecting the environments;• To minimize transaction costs and to combat corruption in forestry business;• To strengthen government capabilities in forest management at site level (through

FMU Policies);• To make forestry sector more attractive for investments, not just for corporates, but

also for the people living in and surrounding forest area to cope equity issues (through Social Forestry Policies);

• There is a need to strengthen provincial and district governmentcapabilities to reach Good Forest Governance in Indonesia

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Thank you very much

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References:

Association of Indonesia Forest Concession Holders (APHI). 2016. Road Map Pembangunan Hutan Produksi Tahun 2016-2045 (Road Map of Forest Product Development 2016-2045). APHI. Jakarta.

Food and Agriculture Organization of The United Nations (FAO). 2016. Global Forest Resources Assessment 2015: How are the world’s forests changing?. Rome.

Forest Trends and Anti Forest Mafia Coalition (NGO) (2015). Kesenjangan Persediaan Kayu Legal dan Implikasinya terhadap Peningkatan Kapasitas Produksi IndustriKehutanan di Indonesia (Gaps of legal timber supply and its implications on the increase in production capacity of forestry industry in Indonesia). Accessible at: www.eyesontheforest.or.id/attach/KAMH/kesenjangan persediaan

Kartodihardjo H., Nagara G., Situmorang A.W. 2015. Transaction Cost of Forest Utilization Licenses: Institutional Issues. JMHT Vol. 21, (3): 184-191.

Ostrom E. 2008. Institutions and the Environment. Journal of Institute of Economic Affairs. (September 2008): 24-31

UNDP & MoEF. 2015. The 2014 Indonesia Forest Governance Index. Jakarta

UNDP & MoF. 2013. Forest, Land and REDD+ Governance Index 2012. Jakarta