Bumitama is an Indonesian oil palm plantation company which cultivates oil palm trees and produces crude palm oil CPO. It was established in by the Harita Group with its first acquisition of land in Central Kalimantan. Bumitama owns over , hectares and has planted , hectares of oil palm trees, primarily in Central and West Kalimantan. His son, Lim Hariyanto Wijaya Sarwono president and chair of Harita Group ,  took over and moved into the timber business as a log dealer. He built a small factory and began manufacturing plywood in In , Bumitama was established by the Harita Group with its acquisition of 17, hectares in Central Kalimantan and the company began its plantation business two years later.
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However, the company has recently made serious moves towards addressing these issues, positioning itself to avoid some of the largest risks. Download as PDF. Warding off Sustainability Risk. BAL:SP , a rapidly growing palm oil company. Continuation of such practices places the group at serious risk of losing its two major customers.
As of early , both companies have adopted stringent sourcing policies that disqualify third-party suppliers who engage in deforestation, peat development and social exploitation. In the months since, Bumitama has taken several steps that may mitigate some of the worst risks. In this report, CRR reviews how Bumitama accumulated its sustainability risk profile over the years, and assesses the potential financial consequences should the group fail to duly address its sustainability risk exposure.
An earlier version of this report was sent to Bumitama Agri for review, and this final report integrates information from its response. Though that amount has fallen over the past six months, it is still on the medium-high range for palm oil companies. Over 80 percent of recorded contested land can be settled through established government and RSPO procedures, which require that the company reserve significant budget for land compensation.
Around 14, ha are however more seriously contested, as due to a recent Supreme Court ruling rights are lost over 7, ha and 7, ha of forestland could be reclaimed by the Ministry of Forestry. Additionally, Bumitama may lose rights due to overlapping claims with other companies, especially mining interests not linked to the Harita Group.
However, Bumitama has yet to help resolve two significant land conflict cases involving smallholder schemes in Central Kalimantan. In order to resolve unauthorized forestland occupation of almost 40, hectares, Bumitama has sought amnesty for 32, hectares. If approved by the Ministry of Forestry, the company will be required to finance forest restoration at an estimated cost of USD While significant, this cost is likely to be bearable by the company.
We estimate it may have to settle with RSPO an area of 20, hectares, just for forest cleared between and Bearing in mind the forest types cleared, we estimate the compensation at USD 30 million in cash value.
Compensation may also be settled in kind on its own land bank or through restoration projects elsewhere. Bumitama had recently announced that it would set aside an additional 8, ha of High Carbon Stock forest and peat land that would contribute to a settlement. Depending on its ability to cut its existing contracts with external FFB suppliers, the company could regain some profitability in Sustainability to Secure Sustained Market Access.
Although Wilmar and other trader-refiners with third-party supplier policies do not disclose contract suspensions and cancellations, the financial implications of such measure represent a powerful threat to numerous plantation groups. For a pure grower like Bumitama, the impact of contract cancellation would be especially devastating. The group has:. Bumitama is in the process of finalizing its review and reformulation of its sustainability policy, which is scheduled to be published in late Bumitama is working to become an industry leader, but the company has yet to resolve a variety of issues within its remaining contested land bank.
The company is likely to have to surrender more land bank because of non-compliance with law, in addition to RSPO and market requirements. Bumitama Agri Ltd. In addition, Bumitama and IOI operate several joint ventures together. With revenues of USD The development of key financial figures and financial ratios of Bumitama Agri is further discussed in section 3.
Bumitama reports a total land bank of , hectares in three Indonesian provinces: West Kalimantan, Central Kalimantan and Riau. At the end of , Bumitama had planted , hectares with oil palms see Table 2. According to government regulations governing the development of plasma plantations, the smallholders sell their oil palm fruits for a fixed price to the company for further processing.
Because this area is not fully available for future plantings as it includes areas designated for conservation, roads and buildings, the potential to expand the planted area is smaller.
In , Bumitama Agri aims to plant 8, hectares. In , Bumitama Agri processed 2. This resulted in an annual CPO production of , metric tonnes, up In the medium and longer term, yields are expected to increase as its plantations mature and reach peak production.
For , no sales figures per customer are available but Bumitama Agri revealed that its two main customers i. The company issued The remaining shares were in the hands of other institutional investors see Figure 2. This makes the company into one of the key pillars of the Harita Group, a conglomerate founded by the Hariyanto family, which is primarily engaged in bauxite and nickel mining and presently investing in alumina and nickel smelters 13 , logging and wood processing.
Both companies are listed on the main market of Bursa Malaysia. As a summary of all land-related issues described in previous sections, section 2. Finally, section 2. Deforestation and orangutan habitat. According to satellite imagery analysis by Chain Reaction Research, an area of about 20, ha has been deforested in the period within the land bank of Bumitama Agri, with the Central Kalimantan plantations of PT Hatiprima Agro 4, ha and PT Karya Makmur Bahagia 3, ha as main examples.
Nonetheless, the conversion of orangutan habitat represents a major international reputation risk to any company group that is associated with further endangering the species.
Since Bumitama Agri started clearing land in , it cleared potential or actual orangutan habitat for the development of the plantations of PT Karya Makmur Bahagia more than 9, ha , PT Windu Nabatindo Abadi more than 6, ha and PT Hatiprima Agro more than 5, ha , among others. Recently, the group has said that it has set aside land for conservation and restoration purposes.
In its response to the CRR draft-report Bumitama highlighted some recent deeds, often triggered by RSPO-complaints, with regard to the plight of orangutans. This has led to the relocation of five orangutans in the period December — April The company provides training to its patrol teams, to closely monitor the presence of orangutans in its land bank.
Bumitama sees no significant future risk on the orangutan issue. We estimate it may have to settle with RSPO an area of 20, hectares for forest cleared for the period alone. Compensation may also be settled in kind in situ or ex situ. On 12 September Bumitama announced that for five plantation subsidiaries it will set aside an additional area of 8, ha High Carbon Stock land this figure includes peat areas.
Impacts on climate change. The main impact on climate change from oil palm plantation companies concerns the development and drainage of peatlands.
Indonesian regulations do not allow for development of peat more than 3 meters deep. This fire was just one of several burnt locations in this concession area, one of which was located even very close to the estate office complex. In its response to the CRR draft-report Bumitama has confirmed the fire in Figure 7 as a sporadic incident.
According to Bumitama the fire occurred in an area of not more than 10 ha, and it was effectively extinguished in less than half a day. The company also stated it is a common practice for its plantation to have a watchtower and fire alert procedure, though it also stated to be in the midst of constructing a fire watchtower for PT LSM whilst land clearing already commenced some two years ago.
The company also stated that it regularly conducts fire-fighting training with the inclusion of communities in all of its operations.
In Indonesia, the management of the forestland estate falls under the statutory jurisdiction of the Ministry of Forestry. The Indonesian Forestry Act Nr. Government Regulation No. According to the recent land use designation maps, Bumitama had occupied 9, ha 7, ha after review by the company of land without applying for amnesty for these lands under Government Regulation As a result, CRR argued that the company is at risk of having this land revert to the state.
It could also face violations of various forestry laws for illegal encroachment into forest reserves. According to the company, this regulation recognizes land rights obtained before the land is re-designated into forestry area.
The company did not respond explain another ha reported, so CRR has still marked this land as contested. CRR has rechecked its sources, and has continued to find forestland within these plantations. Government Regulation 60 requires the group to identify, acquire and restore uncontested land bank in Kalimantan as compensation for occupying land without the required permits.
Overlap with mining concessions. The 10, ha, cited to in its prospectus, refers to the areas that may have mineral, based on a rough estimate by the company. In the case of PT LSM the mining company is in discussion with Bumitama to compensate for non-mining, according to the response by Bumitama.
Bumitama has not denied having overlaps with mining concessions for a total of 29, ha. The overlaps, especially the one on PT LSM, represent potential direct and indirect risks to the group. In Kalimantan, there are thousands of cases of overlapping land rights that need to be resolved by negotiation or through the courts, and these can incur significant costs. Illegal harvesting of fresh fruit bunches. Under the agreement, Bumitama Agri would:. Though clearing and planting began in , the plantation has never been legal.
Most of the concession area is located on Production Forest, a forestland category that cannot be legally occupied by oil palm companies unless its status is changed by the Ministry of Forestry. GMS never secured a forestland release permit over the land, and no environmental permit was ever issued by the provincial authorities either. In June , the concession area was scaled down from 18, ha to less than 3, ha. The 4, ha cultivated in the former PT GMS concession area remained without location and environmental permits, but Bumitama Agri nonetheless commenced land development and FFB harvesting.
Between and August , Bumitama Agri cleared some additional ha of land, including a nursery that is not even located within the old boundaries of PT GMS.
In March , the Ministry of Forestry revoked the forestland release permit for this plantation. Since then, in local courts, PT Hatiprima Agro successfully challenged the revocation of the forestland release permit and location permit.
However, the Indonesian Ministry of Forestry pursued legal action by appeal, and in July the Supreme Court ruled in its favour. In response to this changing legal course, Bumitama announced that it may file an application for a judicial review with the Supreme Court and an unlawful acts claim against the Head of Kotawaringin Regency.
This would however be done as a way to take parallel precautions. Bumitama prioritizes entering into a long term land lease agreement with the new license owner s of the Land, or a compensation deal with the new owner s for its assets located on the Land. According to the NGO, the company should immediately pick up and leave without conditions.
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