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New Law on Plantation Business in Indonesia

Law No. 39 of 2014 on Plantation (“Plantation Law/2014”) has been registered and immediately comes into effect on 17 October 2014. It has been issued to replace and revoke the Plantation Law No.18 of 2004 which is no longer suitable with the dynamics and legal needs of the public and is deemed unable to give an optimal result and added value on national plantation business.

The scope of regulation of Plantation Law/2014 are including the planning stage of plantation, land using, seeding, plants cultivation, plantation business, processing and marketing of plantation products, research and development, plantation’s data and information system, human resources development, financing of plantation, foreign and direct investment on plantation, guidance and supervision, and public participation (Article 4, Plantation Law). However, due to the wide scope of the Plantation Law/2014, this article will only discuss the Plantation Business.

A. Plantation Business

Plantation Business is a business that produces plantation goods and/or services. It can be conducted in all Indonesian territory by domestic businessman and foreign investor. The foreign investor can be in a form of legal entity or individual, however the foreign investor must in a cooperation with domestic plantation businessman by establishing an Indonesian Legal Entity ( Article 1 paragraph (3) Plantation Law/2014).

There are 3 types of Plantation Business: 1) Cultivation; 2) Product Processing; and 3) Plantation Services. A plantation company will be permitted to conduct a Cultivation and Product Processing businesses after acquiring the Rights on Land and/or Plantation Business Permit.

Whilst, the Plantation Services business only can be established in the area of self-reliant public plantation in which the Product Processing business is not yet existed. The establishment of it also requires a Rights on Land and Plantation Business Permit beforehand (Article 41 paragraph (1), Article 42,Article 43, Plantation Law/2014).

B. Plantation Business Permit

The following requirements should be met in order to acquire a Plantation Business Permit (Article 45, Plantation Law/2014):

  1. Environmental Permit;
  2. Conformity with the Regional Spatial Layout Plan;
  3. Conformity with Plantation Plan;
  4. The completion of facilities, infrastructures, system and control mechanism of plant pests (if want to conduct a Cultivation business);
  5. Fulfill 20% of its needed total material which is managed by itself (if want to conduct a Product Processing business).

A Plantation Company which conducts a Cultivation business with a certain wide scale or a Product Processing business with a certain factory capacity is obliged to have a Plantation Business Permit which is issued by Indonesian government as follows:

  1. If the plantation area is located in an area that crosses several regencies/cities, the Plantation Business Permit is issued by Local Governor;
  2. If the plantation area is located within a regency/city, the Plantation Business Permit is issued by the the Regent/Mayor;
  3. If the plantation area is located in an area that crosses several provinces, the Plantation Permit is issued by the Minister. (Article 47 paragraph (1), Article 48 paragraph (1) & (2), Plantation Law/2014).

A Plantation Company which has acquired the Plantation Business Permit must submit an annual report regarding its business development at least once a year to the issuer of the Plantation Business Permit and the Minister. Further provision of the requirements and procedures on granting Plantation Business Permit are stipulated under a Government Regulation (Article 48 paragraph (3) & (4), 49, Plantation Law/2014).

C. Plantation Business Partnership

To empower Plantation Business, Plantation Company forms a plantation business partnership which is mutually beneficial, responsible, appreciative, strengthened and interdependent relationship among the farmers, employees, and communities around the plantation area. The partnership as aforementioned may be in a pattern of supplying the production facilities supply, production, processing and marketing, share ownership and others supporting services. Further provision on Plantation Business Partnership is regulated under a Government Regulation (Article 57, Plantation Law/2014).

A Plantation Company which has owned a Plantation Business Permit or a Plantation Business Permit for Cultivation must facilitate the development of public plantation at the the least 20% from its own cultivated plantation. The facility to develop public plantation can be conducted via a credit schemes, profit sharing schemes, or others forms of financing which are agreed and must in accordance with the laws and regulations. The obligation to facilitate public plantation development must be conducted within 3 years since the Right of Cultivation is given and must be reported to the central and regional governments. Failure to comply with those requirements is punishable by an administration sanction in a forms of (Article 58 and 60, Plantation Law/2014/2014).

  1. Financial penalty
  2. Temporary freezing of plantation business activities, and/or
  3. Revocation of Plantation Business Permit

D. Transitional Provision

A Plantation Company which has conducted plantation business before the registration of the Plantation Law/2014 and has not owned a Plantation Business Permit, is obliged to have the Plantation Business Permit at the latest 1 year since the effective date of the Plantation Law/2014.

Moreover, a Plantation Company which has conducted plantation business and has owned a Plantation Business Permit which is no longer in accordance with the Plantation Law/2014, is given 5 years since the effective date of the Plantation Law to perform an adjustment (Article 114 paragraph (1) & (2), Plantation Law/2014).


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