Site icon Conservation news

Indonesian court fines palm oil firm $18.5m over forest fires in 2015

Peat fire in Indonesia. Photo by Rhett A. Butler.

Peat fire in Indonesia. Photo by Rhett A. Butler.

  • An Indonesian court has fined a palm oil company $18.5 million for fires that destroyed 970 hectares (2,400 acres) of forest on its concession in Borneo in 2015.
  • The judgment is the latest in a growing number of cases where courts have taken a zero-tolerance approach that makes concession holders liable for any fires that occur on their land, regardless of whether or not they can be proven to have started the fires.
  • Observers have welcomed the verdict, but say the challenge now will be to compel the company to pay up. Since 2015 the government has won $223 million in judgments in similar cases, but collected just $5.5 million.
  • The company in the latest case, PT Arjuna Utama Sawit, is a supplier to Singapore-based Musim Mas Group, a major oil palm trader whose customers include consumer brands such Unilever. Musim Mas said it was seeking an explanation from PT Arjuna Utama Sawit.

JAKARTA — A court in Indonesia has ordered palm oil company PT Arjuna Utama Sawit to pay the equivalent of $18.6 million in fines and damages for fires on its land in Borneo in 2015, in the latest instance of a zero-tolerance enforcement approach against concession holders.

The fires razed 970 hectares (2,400 acres) of forest in Katingan district, Central Kalimantan province. The company, a supplier to Singapore-based Musim Mas Group — which has committed to a “no deforestation, no peat and no exploitation” (NDPE) policy to ensure the sustainability of its palm oil supplies — holds a concession to manage 16,600 hectares (41,000 acres) in the district.

The Indonesian Ministry of Environment and Forestry sued PT Arjuna Utama Sawit at the court in Palangkaraya, the provincial capital. On Oct. 23, the court found the company violated environmental regulations and ordered it to pay 99.6 billion rupiah ($7.1 million) in fines to the ministry and 162 billion rupiah ($11.5 million) for the environmental damages incurred.

Jasmin Ragil Utomo, the ministry’s director of civil litigation, welcomed the ruling, although the judgment awarded was less than the total $25.6 million in fines and damages that the ministry had sought. A lawyer for the company, meanwhile, told local media it would appeal the verdict.

The judgment, while far from the largest won by the state, is notable because it marks the latest instance of a growing push by the government and courts to take a zero-tolerance stance against companies with fires on their concessions. Rasio Ridho Sani, the environment ministry’s director-general of law enforcement, praised the Palangkaraya court’s use of the concept of strict liability, under which concession holders are responsible for any fires that occur on their land, regardless of whether or not they can be proven to have started the fires. The concept has been employed successfully in a number of cases since 2015, when fires razed 2.6 million hectares (6.4 million acres) of land — an area larger than the U.S. state of Vermont.

“The verdict shows that land and forest fire is an extraordinary crime,” Rasio said in a press statement. “Companies have to take responsibility for fires on their concessions.”

With Indonesia experiencing another scorching fire season this year, Rasio said the verdict was an important reminder that companies couldn’t evade liability no matter how long ago the burning occurred.

“Even if the land and forest fires happened a long time ago, they will still be prosecuted,” he said. “We can track traces [of fires] and evidence of past forest fires with the support of experts and technology.”

More fires broke out on PT Arjuna Utama Sawit’s concession again earlier this year, prompting the environment ministry to seal off the affected area.

Smoke rises from an oil palm plantation on a peatland in Sumatra. Image by Rhett A. Butler/Mongabay.

Trouble collecting

Winning a judgment is one thing; collecting the fines, though, could prove difficult. Prior to the PT Arjuna Utama Sawit, Indonesia had won judgments against nine companies in forest fire cases since 2015. Those companies were ordered to pay a combined 3.15 trillion rupiah ($223 million) in fines, but only one has paid its tab of 78 billion rupiah ($5.5 million).

Greenpeace Indonesia forest campaigner Arie Rompas said the government faced the same challenge this time around. He also called on the environment ministry to revoke the company’s permit immediately to prevent it carrying out any more activities, including burning, on the land.

Arie said Musim Mas, one of the world’s biggest oil palm traders whose customers include major consumer brands such as Unilever, should also be held responsible for the burning, given that it sourced some of its palm oil from PT Arjuna Utama Sawit. He noted Singapore’s transboundary haze pollution act of 2014 that allows the country to take legal action against locally registered companies or citizens who commit fire violations in other countries that result in pollution in Singapore. The 2015 fires led to haze spreading beyond Indonesia to Singapore, Malaysia and even Thailand.

Responding to the verdict, Musim Mas said it was carrying out an investigation in accordance with its grievance mechanism.

“We have immediately reached out to Arjuna Utama Sawit for more information and are currently waiting for their response,” the company told Mongabay.

Peatlands buring in Indonesia in 2014 to make way for oil palm. Image by Rhett A. Butler/Mongabay.

‘Risky acquisition’

In its lawsuit against PT Arjuna Utama Sawit, the environment ministry had asked the court to prohibit the company from selling its assets or otherwise undergoing any kind of change in ownership. But the court rejected that request, leaving open the possibility that the company could be sold off without paying the fines.

Singapore-listed crushed limestone producer GCCP Resources recently announced a plan to fully acquire PT Arjuna Utama Sawit in a reverse takeover deal worth S$220 million ($162 million) that would see the Indonesian company take over the former’s board listing.

The acquisition is pending GCCP Resources’ due diligence on the financial, business and legal aspects of PT Arjuna Utama Sawit and approval from its shareholders.

But the acquisition could allow the owners of the palm oil company to evade responsibility for paying the fines, said Reynaldo Sembiring, the deputy director of the Indonesian Center for Environmental Law (ICEL).

“One of the methods of corporate crime is to shift responsibility,” he said. “It can be done in two ways: through a change in the board of directors, or through an acquisition.”

If GCCP Resources proceeds with the takeover knowing that there’s a court judgment against PT Arjuna Utama Sawit, “then it’s a risky acquisition.”

“[The assets] that it acquires could be seized by the state,” Reynaldo said. “And GCCP Resources will have no excuse for running away from its responsibility” to pay the fines after the takeover.

Regardless of the change in ownership of PT Arjuna Utama Sawit, the ultimate owners of the company still have to pay up, Arie said.

“The beneficial ownership has to be made clear so that they are legally responsible,” he said. “We have to target the owners, or the group, which must be held responsible.”

Reynaldo said there was a concern that PT Arjuna Utama Sawit could quietly sell off assets such as equipment pending the appeal. To prevent unknowing buyers from shelling out money for assets that could later be seized by the state, he said the environment ministry should work closely with local prosecutors and financial regulators to ensure no assets change hands.

He also called on the ministry to draw up plans for rehabilitating the burned areas. “The restoration plan will be the basis for how the fines will be utilized,” Reynaldo said. “As such it can be used to justify the monitoring of the company’s financial transactions and assets.”

Fires in Samboja, East Kalimantan. Image by Yovanda for Mongabay.

History of violations

The 2015 fires aren’t the only troubles in which PT Arjuna Utama Sawit is embroiled. In 2013, the Indonesian Forum for the Environment (Walhi) accused the company of violating a number of regulations by operating on peatland despite a government moratorium banning such practices.

Walhi also found out that the company hadn’t acquired a forest conversion permit, which is required to clear forests for oil palm plantations, or an environmental impact assessment. It also alleged the company’s operations had polluted a local lake.

“Based on our monitoring, this company has had a lot of problems since the beginning, when it started operating even though it didn’t have the necessary permits,” said Greenpeace’s Arie, who previously worked at Walhi and authored the report. “Furthermore, the company operated on peatland and on moratorium area.”

He added that fires on PT Arjuna Utama Sawit’s concession were a recurring event.

“Our monitoring indeed shows that the company burns [its land] every year,” Arie said. “Fire spots keep being detected, and because the concession is on peatland, clearing keeps happening.”

In 2017, a number of villagers reportedly confronted PT Arjuna Utama Sawit for allegedly seizing 300 hectares (740 acres) of their customary lands. The villagers also complained that the company hadn’t fulfilled a promise to allocate 20 percent of its concession for local farmers.

In 2019, U.S.-based environmental campaign organization Mighty Earth lodged a grievance report against PT Arjuna Utama Sawit at Musim Mas. It accused PT Arjuna Utama Sawit of clearing 33 hectares (82 acres) of forest and preparing to raze another 94 hectares (232 acres) between November 2018 and February 2019.

In April, Musim Mas engaged with PT Arjuna Utama Sawit to verify the allegations. PT Arjuna Utama Sawit told Musim Mas that the clearance area was outside of its concession.

Arie said the company shouldn’t have been allowed to start operating in the first place, given its lack of necessary permits. “The main problem is that the regulations aren’t enforced consistently, especially the regulation on peatland moratorium,” he said. “The company clearly operated without following the procedures, but instead the forestry ministry in 2013 decided to issue it with a permit to convert the peatland.”


Banner image: Peat fire in Indonesia. Image by Rhett A. Butler/Mongabay.


FEEDBACK: Use this form to send a message to the author of this post. If you want to post a public comment, you can do that at the bottom of the page.


Note: Mongabay Indonesia reporter Lusia Arumingtyas contributed to this report.

Exit mobile version