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UP TO 49% FOREIGN CAPITAL TO BE ALLOWED IN CROP CULTIVATION ENTERPRISES

Posted on May 31, 2010 on 21:52:12 WIB

Prior to the release of the revised Negative Investment List (DNI), a list of closed and conditionally-open sectors for investment, the government has created an opening for foreign investors to participate in crop cultivation enterprises. Interested foreign investors will be allowed to have a 49% stake in Indonesian companies that are involved in crop cultivation, under Government Regulation No. 18 of 2010 on Crop Cultivation Businesses.

Law No. 12 of 1992 on the Crop Cultivation System has not addressed all possible forms of Foreign Direct Investment (FDI) into crop cultivation. What the Law states is that “any person or entity who uses, or prepares for use, land for crop cultivation purposes is obliged to follow procedures to prevent environmental damage.” The 2010 Regulation came into force at the end of last January as an implementation of the 1992 Law.

Suhartanto, the Head of the Sub Division of Land Management at the Ministry of Agriculture, said at a workshop at the Indonesian Palm Oil Plantation Business and Legal Conference in Jakarta (18/5), that although FDI can make up 49% of capital, this does not mean that the foreign investors would be able to run their own crop cultivation business.

Under Article 5 (2) of the 2010 Regulation, domestic investors will continue to receive preferential treatment. The majority of the capital has to come from within Indonesia. Additionally, foreign investors who are involved in crop cultivation must cooperate with Indonesian businesses that are engaged in a similar line of business. The operating company must be incorporated in Indonesia, under Indonesian law. And for cultivation of genetically modified crops, Government Regulation No. 21 of 2005 on the Safety of Genetically Engineered Biological Products has to be followed.

Crop cultivation is defined as a series of development and utilization activities of natural resources, which can employ capital, technological or other resources to improve the quality of the produce. The crop cultivation definition also includes restrictions, such at the type and the scale of the cultivation and the maximum area of land that can be used as well as changes in plant species, patterns of business, and limits on the utilization of services and facilities owned by the state.

The portion of foreign capital will also still be regulated by the forthcoming Presidential Regulation on the Negative Investment List. With the government promising to release the revised list in the near future. The business community is now closely following the developments to see whether the 49% allowance is retained.

The Extend of Land Areas and Permits The land area that can be used for the cultivation of crops is limited to 10 thousand hectares for private entrepreneurs. However, this limit can be avoided by investors wishing to invest in Papua, where the limit is 20 thousand hectares as long as local regulations are complied with.

These limits do not apply to state- and regional-owned enterprises. For which the maximum area is determined based on land availability, suitability, and environmental and conservation considerations.

The granting of business licences in the framework of capital investment regulations follows the framework set out by such regulations. Such a regulation can be found, among many others, in the Capital Investment Coordination Board (BKPM) Regulation No. 12 of 2009 on Guidelines and Procedures for Capital Investment Applications. The 2009 Regulation simplifies the procedure and expedites the process of obtaining the necessary permits.

However, the 2010 Regulation requires investors who want to obtain permission for crop cultivation, among other activities, to conform with the regency or city spatial plans if the relevant authority to issue the permit is the governor. Further requirements to obtain permission for crop cultivation include location licenses, a guarantee for the supply of raw materials, and a statement of cooperation with local crop cultivation businesses.

Business licences can be revoked if, in six consecutive months, no crop cultivation activity takes place. Other potential reasons for revocation are the transfer of the license, a change in crop type, location, or expansion of the business prior to securing the necessary permits. The investors are also required to submit reports on the technical activities being carried out, with licence revocation being a possibility if this requirement is not fulfilled.

Source: Hukumonline, 24 May 2010

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