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Indonesia permit payoff raises alarm about palm oil industry corruption

Mongabay - August 22, 2023

Hans Nicholas Jong, Jakarta – A million-dollar bribery case in Indonesia's Riau province, the country's palm oil heartland, has prompted calls for a wider investigation into corruption between business players and the local officials tasked with policing their operations.

Prosecutors at a court in Pekanbaru, the provincial capital, are seeking an 11.5-year sentence for Muhammad Syahrir, the former head of the Riau land agency, for allegedly taking bribes in exchange for renewing oil palm plantation permits. In the case at the center of the trial, they allege Syahrir solicited the equivalent of $228,000 in payments from PT Adimulia Agrolestari ahead of the company's right-to-cultivate permit, known as an HGU, expiring in 2024.

In all, Syahrir is alleged to have taken bribes, solicited and unsolicited, amounting to 20.9 billion rupiah ($1.36 million) from several palm oil companies during his tenures in Riau and before that at the North Maluku provincial land office.

The case is almost certainly not an isolated incident, with bribery widely perceived as part of the cost of doing business in Indonesia, said Raynaldo Sembiring, executive director of the Indonesian Center for Environmental Law (ICEL).

"The corrupt practice [of bribes for permits] is only just starting to be revealed in Syahrir's case," he said. "This case involves [the land agencies in] Riau and North Maluku. And there's a likelihood that it's also happening in other regions." He added, "So this is only the tip of the iceberg."

Hariadi Kartodihardjo, a lecturer in forestry policy at the Bogor Institute of Agriculture (IPB), agreed that Syahrir's case served as an indicator of the rampant corruption in Indonesia, also reflected in the country's Corruption Perceptions Index (CPI).

Indonesia's CPI in 2022 dropped by four points to 34 on a scale of zero (very corrupt) to 100 (very clean). This is the most drastic decline since Transparency International began publishing the annual CPI in 1995, and puts Indonesia in 110th place out of the 180 countries surveyed.

"With such a low corruption index, there's no honesty [in the bureaucracy]," Hariadi said.

Payoff for permits

Syahrir's case centers around his former position as the head of the provincial land agency, which gave him the authority to issue, renew or reject the permits required by companies in various industries, including palm oil.

He was arrested in December 2022 by investigators from the KPK, the national anticorruption agency, following the arrest of Frank Wijaya, the owner, and Sudarso, the general manager, of palm oil company PT Adimulia Agrolestari (AA). The company's HGU permit was due to expire in 2024, and if it failed to renew it, it would have to concede the land back to the state. Syahrir allegedly offered to expedite the process for a fee, to be paid in parts. Shortly after the first payment, of the equivalent of $82,000, the two parties were arrested. (Frank and Sudarso were sentenced in this past March to 26 and 14 months in prison respectively.)

But AA wasn't the only company from which Syahrir allegedly solicited bribes. Prosecutors in his ongoing trial have presented witnesses from 10 companies, including those operating in North Maluku province during the time Syahrir headed the land agency there.

Some testified that their companies paid hundreds of millions to billions of rupiah to process their permits under Syahrir. Ery Kurniawan, the sustainability manager at mining firm IWIP, which operates a nickel-processing facility in North Maluku, told the court his company had spent at least 422 million rupiah ($27,500) to process a permit to construct a new building. He added he didn't know where the money went.

A witness from another palm oil company, EDI, a subsidiary of the second-largest palm oil producer in Indonesia, PT Astra Agro Lestari, said EDI paid 1 billion rupiah ($65,300) to Syahrir in July 2021 to speed up the renewal of the HGU permit for its plantation in Riau. Ahmad Fahmi, a legal officer for EDI, testified that Syahrir initially asked for 5 billion rupiah ($326,300), before gradually lowering his price to 1 billion rupiah.

Syahrir denied taking any money from AA. But he admitted to "actively receiving" money from companies seeking to renew their permits or obtain new ones. But when asked by the court to name the companies, he claimed to have forgotten.

The 20.9 billion rupiah Syahrir is alleged to have taken "is not a small sum of money, so how can he forget where the money came from during those five years?" said Jeffri Sianturi, coordinator of Riau-based nonprofit Senarai, who has been monitoring the trial.

"We ask the prosecutors to charge the companies [as well]," Jeffri added.

Secrecy breeds corruption

Corruption cases like these will persist as long as HGU permits and the process of issuing them remain secretive, said Raynaldo, the environmental law expert.

One way to improve transparency and monitoring is to make the HGU data publicly available – something that successive courts have ordered the land ministry, which oversees the provincial agencies like the ones in Riau and North Maluku, to do for years now.

The information for each HGU permit includes details such as land boundaries, coordinates and the area of the concession, as well as the leaseholder's name.

The government has repeatedly refused to make these details public, citing various reasons, from intellectual property rights to national security. In 2015, Forest Watch Indonesia (FWI), an NGO, filed a lawsuit against the land ministry a bid to get the HGU documents published, and in 2017 the Supreme Court ruled in its favor, saying the documents constitute public information and must therefore be made publicly available.

In 2021, the State Administrative Court upheld the ruling, which means the government has exhausted all its avenues of appeal.

Yet the land ministry still refuses to release the HGU data, essentially defying the court's order. The country's ombudsman has also sent a written recommendation to the land ministry to release the information, calling the ministry's defiance a form of malpractice.

Proponents of greater transparency say concealing the HGU documents enables land-grabbing, with companies often laying claim to community lands without showing their concession maps. It also makes it impossible for the public to monitor any corrupt practices in the process of applying for or renewing the permits, Raynaldo said.

"The [government's] argument is that if the HGU documents are published, then it will trigger business competition, but that hasn't been proven yet," he said. "What's been proven is that there are practices of bribery and corruption in the process of issuing HGUs."

He said Syahrir's case should be the impetus for making the HGU data publicly available. "The government can't work alone," Raynaldo said. "It needs public monitoring so that corrupt practices can be detected."

Source: https://news.mongabay.com/2023/08/indonesia-permit-payoff-raises-alarm-about-palm-oil-industry-corruption