What could $1Bn buy in Indonesia’s forestry sector?
by: Gareth Phillips, Managing Director, Sustainability and Forestry
The Norway – Indonesia REDD+ Partnership is a courageous move by one of the world’s wealthiest nations to put their money where their mouth is, possibly motivating others in the process, but have they bitten off more than they can chew?
The Indonesian moratorium on handing out new concessions was delayed and is weaker than many would have wished: It neglected to include 46 million ha of secondary forests; though we hear the funds are to be managed by a ‘special agency’, the underlying assets are managed by the Ministry of Forests, not an altogether trusted institution. Also, there is currently no role for the private sector, which is a major weakness considering that many concessions are owned and operated by privately owned companies with very few reporting obligations.
The only way forward for Indonesian forests, and the vast carbon and biodiversity reserves they hold, is to join the modern world of commerce. USD1bn would be a good start, but not if it ends up in the hands of the wrong people.
Indonesia’s President Yudhoyono has committed to reduce GHG emissions by 26% and is relying on significant savings from the forestry and land-use sector, notably from REDD+ projects. The first stage of the Partnership was to establish a moratorium on the award of new concessions. This was five months late in arriving, allowing oil palm companies to load up on concessions to tide them over the two year “famine”; excludes secondary forests (which constitute a large proportion of Indonesia’s forests and contain vast amounts of carbon and biodiversity) and fails to reference two key ministries involved in land use decisions – the Ministries responsible for agriculture and mining. Could the Indonesian Government have done better? Definitely.
Subsequent phases of the Partnership involve capacity building, developing an infrastructure for monitoring and reporting, and finally actual payments for verified reductions in emissions of CO2 coming from changes in forest management. Chances of success? Well, I am sure many things will be achieved but I doubt whether it will hit the 26% reduction target.
The reason for my pessimism is that the Partnership excludes any direct involvement with the private sector, or at least the right part of the private sector, thereby relying entirely on the commitment and competency of the Government. Recent past experience with the Clean Development Mechanism, where Indonesia ranks alongside Cambodia indicates the Government’s poor record at getting the best value from international commitments. The poor start on the moratorium suggests a similar weakness.
The scope for foreign investment into forestry in Indonesia, and hence transparency is limited by three factors: (1) the historical issues around how concessions were obtained (often in complete ignorance of or deliberate denial of existing land tenure rights); (2) unsustainable harvesting practices and (3) the regulations which restrict foreign investments in concessions to listed vehicles or Indonesian companies.
Until these issues are addressed, forest management in Indonesia will remain in the hands of domestic private companies without reporting obligations and immune to international pressures to reform.
If some of this money were available in the form of grant funding to a) compensate investors for settling land tenure issues; b) convert existing management practices to sustainable management and c) help re-capitalize forestry companies via a change of ownership and listing on a stock exchange, then foreign investment would enter the sector bringing new and enhanced management standards. REDD+ markets have a role, but much can also be achieved through simply improving the management of assets.
So while Norway is to be commended for its brave efforts, the private sector must be brought into play. Houston, Houston, Do You Read?
