Double Whammy For Oil Palm Planters In Indonesia

Spooked by heavy penalties imposed on plantation companies linked to forest fires in Indonesia, oil palm planters are bracing for another round of forest fires given the rising number of hotspots in major oil palm growing areas in recent weeks.

Fire outbreaks in Indonesia, often occurring during the dry season, had caused a serious cross border haze crisis in South-East Asia.

“The annual forest fire has become a major risk factor for Malaysian and Indonesian oil palm planters operating in the republic,” says industry expert M.R. Chandran.

He tells StarBizWeek that Malaysian and Indonesian oil palm companies with large estate holdings and concessions particularly in Kalimantan, Sumatra and Riau are most susceptible to the annual forest fires.

“Many of these planters strictly adhered to the zero burning policy in their plantation management in recent years.

“However, in some incidences the fire actually started outside the boundaries of their plantations but later seen spreading back into these plantations.

“So big oil palm plantation companies do tend to get the bad rap for causing forest fires leading to the haze crisis,” explains Chandran.

During the dry season, oil palm smallholders from Sumatra and Kalimantan would start to slash-andburn as the fastest and cheapest way to clear up their land, which normally are adjacent to the big plantations land bank.

Furthermore, about 20% of oil palm plantations in South-East Asia are planted on peat land, which has high carbon content and can continue to burn under low moisture conditions. Sumatra, to date, has the largest oil palm plantations planted on peat at about 1.4 million ha, followed by Sarawak at 476,000 ha, Kalimantan at 307,515 ha and Peninsular Malaysia at about 215,984 ha.

Chandran expects big oil palm plantations operating in forest fires prone areas in Indonesia would need to fork out additional costs from RM10 to RM50 per hectare per year depending on the size of their respective hectarage.

This is in addition to the planters’ existing fire prevention budget, estimated at RM110-RM120 per ha for planting on normal land, and 25%-30% higher on peat land.

On Aug 11, the Indonesian court slapped oil palm planter Sampoerna Agro Tbk with a record fine of 1.07 trillion rupiah (US$81.62mil), the biggest ever to be handed down to a company linked to forest fires.

Sampoerna’s unit PT National Sago was found negligent in relation to forest fires on 3,000 hectares of its concessions in Riau in 2014.

Another planter PT Kalista Alam was also fined 366 billion rupiah in relation to fires in Aceh province last year.

So far, only one US$565mil forest fire lawsuit against a pulp and paper firm PT Bumi Mekar Hijau was rejected by the Indonesian court last year. To date, another five lawsuits are being pursued by Indonesian courts on similar charges.

Even Singapore which suffered the brunt of the forest fires and pollution from the haze crisis is planning to prosecute plantation companies in Indonesia for polluting the air in Singapore courts under the Transboundary Haze Pollution Act.

Ironically, some of these plantation companies were also listed on the Singapore Exchange. Thus given the severe penalties imposed on forest fires and the haze, Chandran says: “It is imperative for plantation managers on the ground to be extra vigilant and take all precautionary measures against any fire outbreaks in their operating units.

“Since fire outbreaks are a major risk factor, it would be prudent for plantation companies to also keep a watch on the community land within their own land concessions and surrounding properties and offer the smallholders or farmers some training and assistance in fire prevention.

“In this respect cooperation with local authorities is also essential,” adds Chandran.

Meanwhile, the US National Oceanic and Atmospheric Administration (NOAA) said some 97 hotspots have been detected in South-East Asia as of Aug 16 involving 77 in Kalimantan, 16 in Sumatera, 2 in Sabah and Sarawak, and 2 in Peninsular Malaysia, the highest so far in the last 30 days. NOAA warns that the trend is rising.

Chandran also says: “Active fires have been spotted in Kalimantan, though mainly confined to KLABAR (West Kalimantan) region at present.

“Reports indicate the region is experiencing dry weather conditions in the past week. Hot spots are also detected in Sumatra though the cause is not known yet.”

The monthly hotspot data indicates that July this year recorded 251 hotspots in total while in August (till Aug 16) so far has recorded 641 hotspots. For comparison, the highest hotspots recorded in August 2015 was recorded 321 in Kalimantan, 5 in Sumatra, 3 in Sabah and Sarawak and one in Peninsular Malaysia on Aug 19, 2015.

According to analysts, the rising number of hotspots has somewhat wiped out anticipation of a full blown wet weather La Nina this year. To date, the recent La Nina probability has receded, now at 58%, versus 65% in mid-June. “Only two of eight climate models exceed La Nina thresholds for an extended period, which could mean that if La Nina does develop, it would most likely be weak,” says RHB Research.