- A top economist in Indonesia has been charged for his alleged role in helping palm oil companies export the commodity instead of selling it domestically — a practice blamed for a shortage of cooking oil in the world’s top producer of palm oil.
- The arrest of Lin Che Wei, who prosecutors allege was “involved in every palm oil policy,” also puts the spotlight on the state palm oil fund that he helped create and that disproportionately channels subsidies to many of the same companies implicated in the cooking oil scandal.
- President Joko Widodo has called for a thorough investigation to “find out who is playing a game here,” but the palm oil lobby has pushed back against what it says is a vilification of the industry — even threatening to stop producing cooking oil for the domestic market.
- The cooking oil shortage has battered domestic trust in Indonesia’s powerful palm oil industry, whose reputation abroad has long been tarnished by its links to deforestation, labor abuses, and conflicts with Indigenous and local communities.
JAKARTA — Prosecutors in Indonesia have arrested a prominent economist in an ongoing investigation into why the world’s top producer of palm oil is suffering a domestic shortage of cooking oil. This latest development also puts another offshoot of the country’s palm oil industry — biodiesel production — in investigators’ crosshairs.
Lin Che Wei, founder of economic policy think tank Independent Research & Advisory Indonesia, has been charged for his alleged role as a key fixer working behind the scenes to secure export permits for crude palm oil (CPO) producers from the Ministry of Trade. Prosecutors have already arrested and charged the ministry’s director-general for international trade, Indrasari Wisnu Wardhana, and executives from three major palm oil producers: the Permata Hijau Group, Wilmar Nabati Indonesia, and Musim Mas. They’ve also questioned several individuals from other companies and say more arrests are likely.
Prosecutors allege a massive conspiracy by corrupt officials and palm oil companies to allow the latter to sell CPO abroad and skirt their obligations to allocate a quota for the domestic market. International palm oil prices have been riding record highs in recent months, making it far more profitable for producers to export the commodity rather than sell it inside Indonesia, where the government has capped the CPO price.
Lin, a consultant or adviser to various government ministers going back to the early 2000s, played an outsized role in this conspiracy, prosecutors say. Supardi, director of investigations in the Attorney General’s Office, told local media that Lin was known to have communicated extensively with the other individuals charged in the investigation so far.
“We’re surprised by his position and role within the Ministry of Trade,” Febrie Adriansyah, the assistant attorney general for special crimes, told local media. “How was he able to be involved in every palm oil policy?”
That involvement includes his role in the creation of the state palm oil fund, known as the BPDP-KS, that has also come under scrutiny because of how it allocates subsidies to many of the same companies implicated in the cooking oil scandal.
Febrie said prosecutors also found flow of money from Lin to some individuals in relation to the conspiracy.
He said the Attorney General’s Office would disclose the identities of the individuals who received money from Lin to the public soon.
“I assure [you] that other parties who also enjoy money from the crime will get nabbed as well,” Febrie told local media.
‘Playing a game’
The shortage of cooking oil in Indonesia and persistently high prices when available have sparked widespread criticism of both the government and the palm oil industry. President Joko Widodo has weighed in, acknowledging the arrests in what he called “the cooking oil fiasco,” and calling for a thorough investigation “so that we can find out who is playing a game here.”
Suhardi Duka, a lawmaker from the opposition Democratic Party, called the arrests an “entry door to clean up the national palm oil industry from mafias and conspiracy actors who harm the country and the public.”
Mansuetus Darto, secretary-general of the Oil Palm Smallholders Union (SPKS), said there are still other big players in the industry that the government hadn’t investigated yet.
“There are some companies that don’t only produce palm oil, but also cooking oil and biodiesel,” he told Mongabay. “I’ve noted nine big companies [in the industry]. So far, there’s been only three companies [implicated]. This means the government needs to look into indications [of corruption] in other companies as well.”
Palm oil producers have fought back against what they see as attempts to vilify the industry.
Sahat Sinaga, executive director of the Indonesian Vegetable Oil Refiners Association (GIMNI), said he’s disappointed with the government’s decision to arrest and charge the three palm oil executives. Calling them his friends, he said they did nothing wrong, and were simply waiting at the Ministry of Trade office for their export permits when they were arrested on April 19.
While waiting, the executives took a selfie with Indrasari, the director-general of foreign trade, who was arrested along with them. Prosecutors are now relying on this photo as evidence that the palm oil executives had lobbied Indrasari to issue the export permits, Sahat said.
The authorities’ reliance on a selfie as evidence means the accusations against the palm oil executives are misplaced, Sahat said. And if the government insists on cracking down on the palm oil industry, cooking oil producers could refuse to stop making it, he added.
“[It’s like the government] is looking for all kinds of reasons [to implicate palm oil producers], even though they have been following the regulations,” he said as quoted by local media. “If that’s the case, we will back down from the subsidized cooking oil program.”
Sahat told local media he had sent a text message to Putu Juli Ardika, the director-general of industry at the Ministry of Industry, to convey palm oil producers’ intention to stop producing cooking oil.
Activists have perceived Sahat’s statement as a threat.
“What I’m afraid now is the blowback [from the palm oil industry], such as companies no longer supplying cooking oil [to the domestic market],” Mansuetus said. “That could very well happen because the ones that got caught were big companies like Musim Mas and Wilmar, and they control the trade.”
If an industrywide stoppage occurs, Indonesia could get thrown from an oil shortage into a full-blown food crisis, given that the country is entirely dependent on private companies to produce cooking oil, Mansuetus said.
“There’s no state-owned enterprises [that produce cooking oil]. If these companies don’t produce [cooking oil], then we’re done,” he said. “These companies have the power to create social and political crisis because Indonesia’s dependence on them is very high.”
Sahat has since backtracked on his statement, claiming that he never issued a threat.
“There’s never any intention or plan from us to boycott the subsidized cooking oil program from the government,” he said as quoted by local media. “It’s such a pity that some media have provided information that’s not too accurate regarding GIMNI’s stance.”
Sahat said he made his previous statements because of concerns from cooking oil producers that they could be embroiled in the criminal investigation if they continue producing cooking oil for the domestic market. He said he had persuaded the concerned producers not to abandon the government program.
“I ask them to not be afraid as long as [they] operate in accordance with the regulations and government rules,” Sahat said.
Biodiesel: Different industry, same names
In addition to the cooking oil industry, lawmakers and activists are also calling for an investigation into the country’s biodiesel program, which blends fossil diesel with palm-based biofuel and aims to eventually phase out the use of conventional diesel.
The biodiesel industry is a key recipient of the state palm oil fund, the BPDP-KS, which was established in 2015. The money for the fund comes from export tariffs levied on palm oil producers for every shipment of CPO that they sell abroad. The money is meant to be reinvested in the industry for farmer training, research and development, replanting aging trees with newer and more productive ones, building infrastructure, and promoting palm oil.
But most of the money collected has gone toward biodiesel, both to subsidize producers and to artificially lower the price of biodiesel at the pump, to make it more competitive with conventional diesel. Between 2015 and 2021, the fund collected 139.17 trillion rupiah ($9.64 billion) in revenue, and handed 80% of it to biodiesel producers — and less than 5% to small farmers for a replanting program.
The allocation of the fund is overseen by Airlangga Hartarto, the coordinating minister for the economy, who is assisted by a steering committee of five palm oil executives, including Martua Sitorus, the founder of Wilmar, and Franky Oesman Widjaja, son of the late Sinar Mas Group founder Eka Tjipta Wijaja.
Airlangga’s ministry also employed Lin as an assistant to the minister from 2019 until March 2022.
“They [palm oil executives] are the ones who make the policy [for palm oil fund allocation], and they’re also the ones who benefit from it,” Mansuetus said of the allocation policy, calling it a conflict of interest.
He added that among the palm oil executives who often attended the committee meetings was Master Parulian Tumanggor, a board member of Wilmar and one of the three executives arrested in the cooking oil investigation.
Master (his actual first name) is not listed as a member of the committee, but claims to have often attended the meetings, according to investigative news outlet Tempo.
Wilmar is the world’s biggest palm oil trader, and also the biggest recipient of Indonesian government subsidies to the palm oil industry. In 2017, Wilmar received 55% of the total $530 million distributed by the government to five palm oil companies. The money came from the state palm oil fund, with Wilmar’s share triple the amount it had paid into the fund.
With the same names popping up in the alleged cooking oil export conspiracy and the apparent conflict of interest in the palm oil fund, with economist Lin the alleged linchpin, it’s crucial for the government to also launch an investigation into the fund, Mansuetus said.
“The actors and the network are the same,” he said. “The presence of palm oil executives in the [fund’s] steering committee heavily contributed to the injustice in the distribution of the palm oil fund.”
Lawmaker Suhardi said prosecutors should look into how much money each of the companies implicated in the cooking oil case received from the state fund. He added there was no transparency into how the fund was allocated.
Mansuetus said cracking down on corruption in the palm oil industry is necessary to improve the image of the commodity, which has long been tarnished abroad by its links to deforestation, and is now suffering domestically because of the cooking oil scandal.
“This [corruption] is a huge blow to palm oil companies, which have made improvements in some aspects, but are actually evil in their behavior,” Mansuetus said.
Banner image: Palm oil plantation on rainforest peatland in Central Kalimantan, Borneo, Indonesia. Image by glennhurowitz via Flickr (CC BY-ND 2.0).
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