So far, Luhut has announced several policies he would take during his assignment, namely: (a) the government will audit all palm oil companies in Indonesia starting in June. The audit will cover the area of oil palm plantations owned by the company, possession of Right to Cultivate (HGU) and Right to Manage (HPL) land permits, to the production system; (b) the government will ask palm oil companies to relocate their head offices to Indonesia. There should be no palm oil company headquartered outside the territory of the Republic of Indonesia; (c) the government will carry out daily monitoring on data on the condition of domestic cooking oil industry in a strict manner and ensure domestic cooking oil is evenly distributed and at the specified price; (d) the government will ensure the distribution and supply of cooking oil in coordination with the National Police, TNI, Food Task Force, Maritime Security Agency (Bakamla), Customs and Excise Directorate General, Industry Ministry, and Trade Ministry, to carry out strict supervision against various potential abuses and smuggling of CPO and cooking oil.
The policies show that there seems to be a different perspective in looking at the root cause of the problem. Whereas Lutf and Airlangga tended to see the problem as that of distribution mechanism or system, for Luhut it is more about its implementation and supervision of cooking oil distribution as well as the control and management of palm oil. This last point even appears to be his main concern.
The urgency of palm oil industry audit
According to data from the Industry Ministry, there are 827 companies engaged in the crude palm oil (CPO) and crude palm kernel oil (CPKO) production in Indonesia. Meanwhile, there are 69 companies engaged in manufacturing cooking oil. Based on the 2020 directory of oil palm plantation companies published by Statistics Indonesia (BPS), there were 2,511 oil palm plantations in Indonesia, comprising of 163 state-owned plantations and 2,348 privately-owned based in Indonesia; the other 332 are foreign companies.
For example, PT Perkebunan Milano (Kebun Cabang Dua), is headquartered at PT Wilmar International Plantation in Medan, North Sumatra; PT Eastern Sumatra Indonesia (Bukit Maraja Estate) is headquartered at PT Tolan Tiga Indonesia in Medan; PT Musim Mas, registered as a foreign direct investment (FDI) is headquartered in Tanjung Mulia, North Sumatra; PT Sri Kuala (Kebun Tamiang), also an FDI, is headquartered at PT Minamas Plantation in Menteng, Jakarta.
Meanwhile, according to the official website of Musim Mas Group, the company is headquartered in Singapore and operates in 13 countries — Brazil, China, India, Italy, Malaysia, the Netherlands, Singapore, Spain, England, the US, Vietnam, and Indonesia. One of the large palm oil conglomerates that operates in Indonesia is the Wilmar Group. Although it is not clear where the head office is, according to its website the company lists Biopolis Road, Singapore as its contact address.
The government’s move put a spotlight on palm oil companies operating in Indonesia and their head office. Moreover, Luhut emphasized that a large-scale audit would begin in early June and all palm oil companies operating in Indonesia must be based in Indonesia. Luhut argued that other than to have clearer data, he is against the idea of palm oil companies having their headquarters overseas and paying taxes there while doing their business in Indonesia.
However, the Indonesian Palm Oil Association (GAPKI) Secretary General Eddy Martono said this is actually not a problem and would not have a significant impact or change how those companies meet their obligations for operating in Indonesia. Having an Indonesian legal entity does not necessarily mean that they must have their head office in Indonesia, he argued. However, he said, they must comply to taxation regulations in Indonesia.
GAPKI (Indonesian Palm Oil Association) voiced its support for the palm oil audit plan to create a clearer map of the industry from upstream to downstream so that policymaking in the future can be more effective and precise based on more accurate data.
Meanwhile, Palm Oil Farmers Union (SPKS) Secretary General Mansuetus Darto acknowledged that the urgency for palm oil companies to have their head office in Indonesia is only related to taxation and will not have an impact on the price and supply of CPO or its derivatives in the country.
So the question is, if it’s only a matter of taxes, then what is the urgency of the government’s plan to audit the industry and require them to have their head offices in Indonesia?
Without trivializing the benefits of corporate data availability and potential tax revenue, I also want to look at it from another perspective. Since the start of the cooking oil crisis, apart from demanding that the problem be resolved immediately, another popular narrative is the hope that the state does not succumb. The previous failures, which resulted in an apology from Minister Lutfi, has admittedly dampened that hope.
Hence, Luhut’s plans can be said to offer a “consolatory gimmick”. That the state has been cheated by the foreign capital interests. That the state refuses to surrender to the evil conspiracy and is rising up against it. And of course, sorting out the complex cooking oil issue is not a walk in the park. So the public is expected to be understanding that the domestic price and supply of cooking oil will not be wholly resolved in the immediate future. Smart!