From Companies for Corporations
The distribution of plantation funds for rejuvenating individually-owned oil palm trees has been chaotic. It pales in comparison to the amount of money given to the biodiesel program.
A two-page letter was sent from Tiumang, Dharmasraya Regency, West Sumatra, to Jakarta in mid-May. The sender, the Bukit Jaya Village Unit Cooperative (KUD), was complaining about Rp1.4 billion of funds not being released to carry out oil palm tree rejuvenation activities on their land. “We suspect that the Dharmasraya Agriculture Office is attempting to obstruct this disbursement,” wrote Yusrizal, the Bukit Jaya KUD chairman who signed that letter dated May 14, 2020. “Because the rejuvenation work on the individually-owned oil palms at the Bukit Jaya KUD was not done by the contractor which had been recommended by the government office.”
When contacted on Wednesday, June 10, Yusrizal was reluctant to discuss the complaint. “That matter has been conveyed to the director-general of plantation and the BPDPKS (Indonesian Oil Palm Plantation Fund Management Agency),” he said. That letter from the Bukit Jaya KUD was addressed to the director-general of plantation at the agriculture ministry, with a copy going to the Chief Executive Officer (CEO) of the BPDPKS. They asked for assistance because those who worked on the rejuvenation of the oil palms had already demanded to be paid before the end-of-fasting-month Lebaran holiday.
An explanation was given by Edi Setiawan, secretary of the Bukit Jaya KUD. This cooperative which was established in Nagari Koto Beringin received Rp5.6 billion in grant assistance from the BPDPKS in October 2019. Those funds were allocated to rejuvenate 224 hectares of palm plantation managed by 87 farmers. The release of those funds was designed to be in stages as the work progressed.
The cooperative used a mixed approach to carry out the work for rejuvenating that plantation. A private contractor would do the heavy works, such as land excavation and cutting down oil palms. There are about 27,000 old palm trees which had to be cut down. The farmers would handle the lighter works, such as digging holes and planting. Two contractors, KRBP and BOS, came and offered their services. The cooperative agreed to work with KRBP.
The problems began in January. When reporting which company had been awarded the work, Edi said, a government official at the Dharmasraya agriculture office suggested the cooperative appoint BOS or another company. The cooperative paid no attention to this, and stuck with KRBP.
The agreement between the BPDPKS, the bank which distributes the grant, and the cooperative states that in order to release the funds it is sufficient for a counselor in the field to do verification and approval. It is this counselor who is an extension of the government office of agriculture or plantation in the area.
At the Bukit Jaya KUD, the agriculture office initially appointed Annas Nur Udin, a resident of Tiumang whose father is a member of the cooperative, as the counselor. Annas had previously verified two stages of the fund disbursement. “But not anymore as of April 6,” said Annas when contacted on June 12. Annas was transferred out and replaced by a new counselor. Annas later decided to resign and help his father with the farming.
This is where the problem with fund disbursement began. The new counselor for the oil palm rejuvenation program did not want to sign off on work progress. This was because, Edi explained, the Dharmasraya agriculture office stated that counselors no longer had the authority to sign and verify progress on plantation rejuvenation work.
Since then the release of funds has been in limbo. Cooperative officials finally used Rp60 million from their cash account to pay the farmers who had dug holes, planted, sprayed, and replanted the seedlings. The problem was, unlike contractors who can wait for payment due on work done, these farmers had already lost everything. The oil palms which were the source of their livelihoods have already been cut down. Meanwhile, the payment for the rejuvenation work which they depend on in the meantime has not arrived. “So we covered it with cooperative funds. This is so that farmers could have money on the Lebaran holiday,” said Edi. “The government office knows that we have written (a letter) to Jakarta.”
Contacted on June 12, Martin Effendi, head of plantation division at the Dharmasraya agriculture office, was reluctant to answer questions about the stalled disbursement of palm rejuvenation funds to the Bukit Jaya KUD. “Please confirm that directly with the office chief,” said Martin via text message. Martin then sent the telephone number of his boss, Darisman. However, that number could not be reached.
The complexity of the problem being faced by the Bukit Jaya KUD is a prime example of the reason for the low use of BPDPKS funds for oil palm rejuvenation. This is despite the fact that such work is the key to intensifying the national oil palm plantations. The total area of oil palm plantation land, which according to the government is 5.8 million hectares, only produces 2-3 tons per hectare, far below the claimed productivity of plantations owned by private companies of up to 8 tons per hectare. According to the records of the BPDPKS, from 2016-2029, only Rp2.65 trillion in BPDPKS funds were given for rejuvenation efforts. Meanwhile, Rp29.2 trillion of incentive funds were allocated for palm oil companies which produce biodiesel.
Eddy Abdurrahman, who has been CEO of BPDPKS for just three months, said that he has received a stack of complaints from oil palm farmers about funds for the rejuvenation program. “There are several areas which are obstructing oil palm rejuvenation,” said Eddy at his office at Graha Mandiri, Jakarta, on June 12.
A Supreme Audit Agency (BPK) audit report in February 2019 noted that the management of oil palm funds has not been optimal, particularly for the oil palm rejuvenation program. From 2015-2017, only Rp88 billion or about 0.39 percent of the oil palm funds had been released for rejuvenation work. The majority of the funds, 96.83 percent or Rp21.717 trillion, were used to subsidize the biodiesel program.
The BPK considers that the release of funds, which can take up to 10 months, is one reason why the objectives of the rejuvenation activities have not been achieved. On the other hand, the state auditor also noted that no time limit has been set for accountability, and as such the use of some of the funds remains unidentified.
Article 93 of the Plantation Law does not explicitly mention support of biodiesel as a part of the allocation for plantation funds. Plantation funds, which originate from levies on exports or other collections from companies, can only be used for human resources development, research and development, plantation promotion, the rejuvenation of plants, and plantation facilities and infrastructure.
The first BPDPKS CEO, Bayu Krisnamurthi, cited that the primary reason for the establishment of the BPDPKS in 2015 was to create a domestic market. One way of doing this was by applying a biodiesel policy, mixing fatty acid methyl esters (FAME) to diesel fuel—at that time it was still 15 percent and known as B15.
As the price of FAME was much higher than diesel fuel, a subsidy arrangement was set up. The budget for this was taken from collecting levies on the export of crude palm oil. The government, said Bayu, deemed that collections on the export of palm oil could be used for biodiesel because it fell under the category of promotion. “Those funds could be used to stabilize the market for plantation products. This is how those palm oil funds began to be used for biodiesel,” said Bayu, on June 9.
The challenges facing plant rejuvenation, according to Bayu, are more complicated. Much of the land of individually-owned farmland overlaps with forested areas. In such situations, the BPDPKS cannot release funds. There are also famers who are unwilling to have their oil palm trees replaced because they are worried about losing their income while waiting to harvest from the new oil palms.
The BPDPKS simplified the process to request rejuvenation funds by only involving the distributing bank. This bank also verifies the receipt of assistance and the progress of work. This method can run well because the distributing bank is usually the one which also gives loans to farmers or farmer groups which receive grants.
However, this strategy did not last long because the BPDPKS steering committee decided that the rejuvenation program had to be processed through the directorate-general of plantation as the executor of the Plantation Law. So, since 2017, the farmer groups which want to receive rejuvenation assistance—at that time Rp25 million per hectare for a maximum of four hectares—must submit requests through the regional government office which is then sent to the agriculture ministry.
In June 2019, the BPDPKS again simplified the process by launching the Online Individually-owned Oil Palm Rejuvenation (PSR). “There are trillions of rupiah of rejuvenation funds,” said Dono Boestami, a former BPDPKS CEO who launched the Online PSR, when contacted on June 9. “But we pay it out based on technical recommendations from the agriculture ministry and going through verifications.”
The matter of the realization of these rejuvenation funds are in line with BPK findings. From 2016-2018, of the Rp3.5 trillion rejuvenation budget, only Rp429 billion could be distributed. The distribution of such funds only increased in 2019, reaching Rp2.262 trillion.
When he was put in charge of the BPDPKS last March, Eddy was immediately given a target to help with the rejuvenation of 500,000 hectares of oil palm plantation in three years. To reach that target, the government has raised the amount of assistance to farmers from Rp25 million per hectare to Rp30 million per hectare.
Eddy promised to try and reach that target, including by using the Online PSR. He also plans to create easier channels for submission and verification which will cut down on regional authority. “But don’t expose this yet,” he said, laughing.