In
July 2010, US investor Todd Lemons and Russian energy giant Gazprom believed
they were just weeks from winning final approval for a landmark forest
preservation project in Indonesia.
A year later, the project is close to
collapse, a casualty of labyrinthine Indonesian bureaucracy, opaque laws and a
secretive palm oil company.
The Rimba Raya project, on the island of
Borneo, is part of a United Nations-backed scheme designed to reward poorer
nations that protect their carbon-rich jungles.
Deep peat in some of Indonesia’s rainforests
stores billions of tons of carbon so preserving those forests is regarded as
crucial in the fight against climate change.
By putting a value on the carbon, the
90,000-hectare (225,000 acre) project would help prove that investors can turn
a profit from the world’s jungles in ways that do not involve cutting them
down.
After three years of work, more than $2
million in development costs, and what seemed like the green light from Jakarta,
the project is proof that saving the world’s tropical rainforests will be far
more complicated than simply setting up a framework to allow market forces to
function.
A Reuters investigation into the case also
shows the forestry ministry is highly skeptical about a market for forest
carbon credits, placing it at odds with President Susilo Bambang Yudhoyono, who
supports pay-and-preserve investments to fight climate change.
Hong Kong-based Lemons, 47, a veteran of
environmentally sustainable, and profitable, projects, discovered just how
frustrating the ministry can be to projects such as his.
“Success was literally two months around the
corner,” he said. “We went through -- if there are 12 steps, we went through
the first 11 on time over a 2-year period. We had some glitches, but by and
large we went through the rather lengthy and complicated process in the time
expected.”
That’s when the forestry ministry decided to
slash the project’s area in half, making it unviable, and handing a large chunk
of forested deep peatland to a palm oil company for development.
The case is a stark reminder to Norway’s
government, the world’s top donor to projects to protect tropical forests, on
just how tough it will be to preserve Indonesia’s rainforests under its $1
billion climate deal with Jakarta.
Unlimited
corruption
The dispute has turned a spotlight on
Indonesia’s forestry ministry, which earns $15 billion a year in land permit
fees from investors. Indonesia’s Corruption Eradication Commission (KPK) said
last month it will investigate the granting of forest permits and plans to
crack down on corruption in the resources sector.
“It’s a source of unlimited corruption,” said
Chandra M. Hamzah, deputy chairman at the KPK.
Indonesia Corruption Watch, a private
watchdog, says illegal logging and violations in issuing forest use permits are
rampant. It estimates ill-gotten gains total about 20 trillion rupiah ($2.3
billion) each year.
A forest ministry official connected with the
U.N.-backed forest carbon offset scheme was sentenced in April to three years
in prison for accepting a $10,000 bribe to ensure an Indonesian company won a
procurement tender.
Wandojo Siswanto was one of the negotiators
for Indonesia’s delegation at the 2009 U.N. climate talks in Copenhagen,
despite being a bribery suspect. His case has highlighted concerns about the
capacity of the forestry ministry to manage forest-carbon projects.
The forestry sector has a long history of
mismanagement and graft. Former trade and industry minister Bob Hasan, a timber
czar during the Suharto years, was fined 50 billion rupiah ($7 million) for
ordering the burning of forests in Sumatra and then imprisoned in a separate
case of forestry fraud after Suharto was toppled from power in 1998.
In an interview in Jakarta, senior forestry
ministry officials denied any wrongdoing in the Rimba Raya case and criticized
the project’s backers for a deal they made with Russia’s Gazprom, the world’s
largest gas producer, to market the project’s carbon credits.
Internal forestry ministry documents that
Reuters obtained show how the ministry reversed its support for the project
after a new minister came in, and a large chunk of the project’s land was
turned over to a palm oil firm.
The case illustrates how growing demand for
land, bureaucratic hurdles and powerful vested interests are major obstacles to
conservation projects in Indonesia and elsewhere in the developing world.
That makes it hard for these projects to
compete and navigate through multiple layers of government with the potential
for interference and delay.
“We have systematically not been able to
demonstrate that we can complete the loop to turn projects into dollar
investments,” said Andrew Wardell, program director, forests and governance, at
the Center for International Forestry Research in Indonesia.
“Which is why the palm oil industry is winning
hands down every time.”
Showcase
project
The Rimba Raya project was meant to save a
large area of carbon-rich peat swamp forest in Central Kalimantan province and
showcase Jakarta’s efforts to fight climate change.
Much of the area is dense forest that lies
atop oozy black peat flooded by tea-colored water. Dozens of threatened or
endangered species such as orangutans, proboscis monkeys, otter civets and
Borneo bay cats live in the area, which is adjacent to a national park.
Rimba Raya was designed to be part of the
U.N’s Reducing Emissions from Deforestation and Degradation (REDD) program. The
idea is simple: every tonne of carbon locked away in the peat and soaked up by
the trees would earn a steady flow of carbon credits.
Profit from the sale of those credits would go
to project investors and partners, local communities and the Indonesian
government. That would allow the project to pay its way and compete with palm
oil farmers and loggers who might otherwise destroy it.
Rich countries and big companies can buy the
credits to offset their emissions.
By preserving a large area of peat swamp
forest, Rimba Raya was projected to cut carbon emissions by nearly 100 million
tonnes over its 30-year life, which would translate into total saleable credits
of about $500 million, Gazprom says.
It would also be a sanctuary for orphaned or
rehabilitated orangutans from elsewhere in Borneo. Rimba Raya teamed up with
the founder of Orangutan Foundation International, Birute Mary Galdikas, in
which OFI would receive a steady income from annual carbon credit sales.
It was the sort of project President Yudhoyono
and Norway have pledged to support. Yudhoyono has put forests -- Indonesia is
home to the world’s third-largest forest lands -- at the center of a pledge to
reduce greenhouse gas emissions by at least 26 percent by 2020.
He tasked a senior adviser to press for
reforms to make REDD projects easier and for greater transparency at the
forestry ministry.
Gold
standard
Rimba Raya was poised for success. It got
backing from the Clinton Foundation’s Climate Initiative, which helped pay for
some of the early costs. Gazprom invested more than $1 million.
It was the first in the world to meet
stringent REDD project rules under the Washington-based Voluntary Carbon
Standard, an industry-respected body that issues carbon credits. Rimba Raya was
also the first to earn a triple-gold rating under the Climate, Community and
Biodiversity Alliance, a separate verifier.
Companies including German insurer Allianz and
Japanese telecoms giant NTT pledged to buy credits from the project if it gets
its license.
In December 2009, the forestry ministry
tentatively named the now Indonesian-registered company PT Rimba Raya
Conservation the license holder for nearly 90,000 ha, contingent on it passing
an environmental impact assessment. It did so a few months later.
The ownership of PT Rimba Raya Conservation is
split 70 percent foreign and 30 percent Indonesian, with Lemons and business
partner Jim Procanik holding small stakes.
Lemons is CEO of Hong Kong-based firm
InfiniteEARTH, which is the developer and manager of the Rimba Raya project as
well as investment fund-raiser. Procanik, 44, is the managing director.
In June last year, Forestry Minister Zulkifli
Hasan asked for a map that would set the final boundary of the project,
according to a copy of the instruction seen by Reuters. This mandatory step
normally takes a few weeks. Once the map is issued, a project is eligible for a
license to operate.
But by September last year it was clear
something was wrong, according to Lemons. Despite repeated promises by ministry
officials, the final map had not been issued. No explanations were given.
“No one has ever said, ‘No’. So that’s
exhausting,” said Lemons.
What followed instead was a series of steps by
the forestry ministry that have resulted in the project being undermined.
A ministry review focused on conflicting
claims to the land by several companies belonging to palm oil firm, PT Best
Group.
PT Best, which is run by Indonesian brothers
Winarto and Winarno Tjajadi, had long coveted the peat land within the area the
forestry ministry set aside for the Rimba Raya project.
On December 31, 2010, PT Best was granted
6,500 ha of peat swamp land for palm oil development, next to a smaller parcel
of deep peat land granted a year earlier -- part of PT Best’s broader plan to
connect its palm oil plantations in the north with a port on the coast nearby.
The land granted last December was part of the original area set aside for
Rimba Raya.
The Tjajadi brothers declined several requests
by Reuters to comment.
The December allocation to PT Best came
despite assurances from Forestry Minister Hasan that he would not allow deep
peatlands to be converted for agriculture.
The allocation also came a day before a
two-year moratorium on issuing licenses to clear primary forests and peat lands
was due to start on January 1 this year. The moratorium is a key part of the
climate deal with Norway.
After months of delay, the forestry ministry
finally ruled that PT Rimba Raya was only eligible for 46,000 ha, a decision
that cut out much of the peatlands covering nearly half the original project
area.
Ombudsman
investigates
The case has now been brought before the
office of the Indonesian government’s Ombudsman. In an interview, senior
Ombudsman Dominikus Fernandes told Reuters he believed the forestry ministry
should issue the license to Rimba Raya.
“If Rimba Raya has already fulfilled the
criteria, there should not be a delay in issuing the license,” he said.
“This is a model project in Indonesia that
should be prioritized. If we don’t give an example on the assurance of
investing in Indonesia, that’s not a good thing.”
Officials from the forestry ministry, in a
lengthy interview with Reuters, said the area was given legally for palm oil
development because PT Best had claims to the land dating back to 2005.
Secretary-General of the ministry Hadi Daryanto
stressed the peatland areas originally granted to Rimba Raya were on a type of
forest called convertible production forest, which can be used for agriculture
but not REDD projects. Handing that nearly 40,000 ha to Rimba Raya would be
against the law, he said.
Yet in 2009, the ministry was ordered to make
the title switch for this same area of peatland so it could be used for a REDD
project. The instruction to immediately make the switch, a bureaucratic
formality, was never acted on.
In the Oct 2009 decree seen by Reuters, former
Forestry Minister H.M.S. Kaban issued the order as part of a broader
instruction setting aside the nearly 90,000 ha for ecosystem restoration
projects. Kaban left office soon after.
Indonesian law also bans any clearing of peat
lands more than 3 meters deep. An assessment of the Rimba Raya area by a peat
expert hired by Infinite EARTH showed the peat is 3 to 7 meters deep, so in
theory was out of bounds for PT Best to clear for agriculture.
For Lemons, 47, the mood has switched from
exhilaration to bitter disappointment. “We’ve been here every day pushing like
hell from every angle,” he said.
Procanik says the disappointment is personal.
“Todd and I have both invested what savings we had for our kids’ college
education in this project,” he said.
Gazprom is also upset.
In a letter dated June 16 to the Indonesian
government, the Russian firm criticized the ministry’s failure to issue the
license for Rimba Raya and threatened to abandon clean-energy projects in
Indonesia estimated to be worth more than $100 million in foreign investment.
The government has yet to respond.
Carbon
dreams?
Secretary-General Daryanto and Iman Santoso,
Director-General for forestry business management, said another major problem
was InfiniteEARTH’s deal with Gazprom, which was made in the absence of any
license.
“We didn’t know about the contract with
Gazprom. They had no legal right to make the contract,” Daryanto told Reuters.
Santoso described it as the project’s “fatal
mistake.”
Daryanto also questioned whether REDD would
ever work and whether there was any global appetite for carbon credits the
program generates, a view at odds with other parts of the Indonesian
government, which has been actively supporting REDD projects.
“Who will pay for the dream of Rimba Raya? Who
will pay? Nobody, sir!” Daryanto told Reuters during an interview in the
heavily forested ministry compound near central Jakarta.
Lemons said the Gazprom deal was explained in
person during a presentation of a 300-page technical proposal submitted to the
ministry to prove the project would be financially viable. Daryanto was among a
ministry panel that approved the proposal.
“One of their biggest concerns was whether
REDD could deliver the same revenues to the state as other land-use permits
such as palm oil, logging, mining. We were required to show contracts that
demonstrated we could pay the fees and annual royalties,” he said.
Gazprom, designated as the sole marketer of
carbon credits from Rimba Raya, said it had already agreed long-term sales
contracts with buyers at between 7 and 8 euros ($10 to $11.40) per tonne --
contingent on the license being issued.
“We’ve sold to four or five companies around
that price,” said Dan Barry, Gazprom Marketing & Trading’s London-based
global director of clean energy.
Gazprom became involved, he said, because it
was a project that looked to have official support. The Russian company agreed
to a financing mechanism that ensured the project’s viability for 30 years,
regardless of the price level of carbon markets.
Those markets, centered on the European and
U.N. carbon trading programs, were valued at $142 billion in 2010, the World
Bank says. National carbon trading schemes are planned for Australia and South
Korea, while California is planning a state-based scheme from 2013. New
Zealand’s carbon market started in 2008.
“If you ever want a successful REDD scheme,
you are going to have to have a process that people believe in,” Barry said.
“The Ministry of Forestry ought to be doing
everything it can to support a program that benefits forestry as opposed to
favor a program that’s there to cut it down and turn it into palm oil.”
“Ahead
of its time”
Kuntoro Mangkusubroto, the head of the REDD
task force in Indonesia who is also in charge of the president’s government
reforms unit, said the Rimba Raya case highlighted deep flaws in the
bureaucracy and the need for sweeping reforms to underpin the 40 other REDD
projects in Indonesia.
“The core concern is the trust in government
statements of readiness, and responsibility,” he told Reuters in an email.
“Even with the best of intentions, the unsynchronous action of the central
government’s ministry and the district government’s action is not conducive for
investment, especially in this new kind of venture.
“I can surmise that the case of Rimba Raya is
a case of a business idea that is ahead of its time. The government
infrastructure is insufficiently ready for it.”
Legal action was one solution to this case, he
added.
That is a path Lemons and Procanik may
eventually take but for now they have proposed a land swap deal with PT Best in
which the firm gives PT Rimba Raya 9,000 ha of peat land in return for a
similar sized piece of non-peat land held by PT Rimba Raya in the north of the
project near other PT Best landholdings.
PT Best rejected an earlier offer by Rimba
Raya of 9 percent of the credits from the project, Lemons said.
Based on recent satellite images, PT Best has
yet to develop the disputed 9,000 ha area.
The delays mean it is too late for Rimba Raya
to become the world’s first project to issue REDD credits. That accolade has
since gone to a Kenyan project.
“Our whole point here is to show host
countries that REDD can pay its way,” said Lemons. “And if it can’t pay its way
then we haven’t proven anything.”
In a sign a resolution could still be
possible, Ombudsman Fernandes, Forestry Minister Hasan and PT Rimba Raya are
scheduled to meet on Aug 19.
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