Legal framework for forest management and timber trade of Indonesia

Forest governance

Forestry Law No.41/1999 is the primary legislative instrument that governs forestry in Indonesia. Before 2015, forest areas were classified into 2 categories based on its status, the first is state forest (hutan negara) and the second is forest subject to rights (hutan hak).

With the reformation on forestry sector in 2015, the Indonesia government has issued a decree namely Ministry of Environmental and Forestry regulation No. P.32/ 2015 where forest areas are classified as:

1. State forest (hutan negara)
2. Forest subject to rights (hutan hak)
3. Indigenous forest (hutan adat)

The government recognizes that forest areas can fulfil 3 distinctive functions:

1. Conservation
2. Protection
3. Production

Based on its function, there are three main administrative forest categories for state forests in Indonesia:

1. Production Forest (Hutan Produksi), the most common type with sub-categories such as:​
1. Permanent Production Forest, (Hutan Produksi Tetap - HP). The Permanent Production Forest has characteristics such as less steep slopes, less sensitive soil types and less precipitation intensity, which taken together dictate these areas may be selectively logged in a normal manner.
2. Limited Production Forest, (Hutan Produksi Terbatas – HPT) refers to those parts of the Production Forest with specific characteristic such as steep slopes, sensitive soil type and high precipitation intensity which, taken together, dictate that these areas be logged less intensively than is permitted in the permanent production forest.
3. Convertible Production Forest (Hutan Produksi yang dapat di Konversi – HPK) refers to those parts of production forest that is permissible to be converted to other non-forestry land use.
2. Protection Forest (Hutan Lindung – HL)  e.g. for watersheds
3. Conservation Forest (Hutan Konservasi – HK) which includes Nature Reserves, Nature Conservation areas and Hunting Parks (KSA/KPA/TB).

The definition of those 3 forest categories are stipulated in a government regulation Peraturan Pemerintah Republik Indonesia Nomor 44 Tahun 2004 mengenai Perencanaan Hutan along with criteria of each forest.

All timber production from state forest both natural forest and plantation can only be designated in the production forest. Under Regulation nr. 6 from 2007, with its recent revision (Peraturan Pemerintah Republik Indonesia Nomor 3 Tahun 2008) obliges all concession holders that want to produce timber within the state forest (natural forest and plantation) to develop 10-year forest management plans and annual operational plans. IHMB (Inventarisasi Hutan Menyeluruh Berkala) or Periodic Comprehensive Forest Inventory will be the basis to determine annual harvest level by considering standing stock potency of forest stand and growth of commercial species at a particular size of forest area. Technical guidance to develop the Periodic Comprehensive Forest Inventory can be found in Regulation P.33 from 2014.

As above mentioned, only forest areas designated as production forest timber production is allowed. Both concession license holders of natural forest and plantations must follow the sylvicultural system set by the government, as stipulated in Ministry of Forestry regulation P.11/2009.  Ministry to ensure aspect of sustainability in managing the state forest is complied.

Legal rights to harvest

STATE FOREST (HUTAN NEGARA)

Any entity that intends to do timber production, whether in natural forest or plantation forest with production function, must possess a concession license granted by the government. For natural forest the permit is 55 years maximum with a possible extension, whilst a plantation permit is granted for 100 years maximum without any exception for an extension.

For land conversion permit license holders (Izin Pemanfaatan Kayu – IPK), based on government regulation Nr. 6/2007 the validity of the license is only for one year without any possibility of extension.

Once a business entity is granted a permit from the government then it’s obliged to develop a 10-year Forest Management Plan (Rencana Kerja Izin Usaha Pemanfaatan Hasil Hutan Kayu/RKUPHHK) based on a Periodic Comprehensive Forest Inventory (Inventarisasi Hutan Menyeluruh Berkala - IHMB), and an Annual Operational Plan (Rencana Kerja Tahunan - RKT).

For IPK (Izin Pemanfaatan Kayu) /land conversion permit license holders, the licensee is only obliged to develop an Annual Operational Plan (Rencana Kerja Tahunan - RKT) based on merchantable standing stock.

License holders also need to comply with several international conventions such as CITES, IUCN, CBD and national regulation, such as Undang-Undang Nomor 5 Tahun 1990 tentang Konservasi Sumberdaya Alam Hayati dan Ekosistemnya for the protection of flora and fauna where license holder is restricted to harvest, keep and/or sell protected species under no circumstances.

Both in 10-years forest management plan (Rencana Kerja Izin Usaha Pemanfaatan Hasil Hutan Kayu/RKUPHHK) based on a IHMB (Inventarisasi Hutan Menyeluruh Berkala) or Periodic Comprehensive Forest Inventory and annual operational plan (Rencana Kerja Tahunan/RKT), the license holder for natural forest and plantation need to delineate protected areas such as river riparian, germ plasm conservation areas (Kawasan Pelestarian Plasma Nutfah - KPPN), community/indigenous sites (economy, religious and historical), permanent sample plots for growth and yield, wildlife preservation areas (kantong satwa), seed bank site (tegakan benih), etc.

Furthermore, prior to the initial operational/timber harvesting activities concession license holders must develop and implement an Environmental Impact Assessment, as set in Ministry of Environment Regulation Nr. 5/2012. This assessment also includes a Social Impact Assessment toward surrounding local communities. Potential impacts of forestry operations (in natural forest, plantations or during forest conversion) on the ecosystem, landscape, hydrology, species composition and wildlife habitat are studied.

PRIVATE FOREST (HUTAN HAK)

Legal rights to harvest in private forest (hutan hak) has less requirements as it is a private land and the size of the ownership is on average between 0.25 – 1 ha. The governance of private land is not within the Ministry of Environmental and Forestry instead it’s under National Land Agency (Badan Pertanahan Nasional/BPN). Act No 5/1960, is the basic agrarian legislation. Under the current SVLK-standard, legal rights to harvest in private land related to land ownership where there must be a record of ownership from the relevant authority.

Taxes and fees

For concession license holders operating in state forest, upon holding a valid license of a management rights it is obliged to settle a license fee (Iuran Izin Usaha Pemanfaatan Hasil Hutan Kayu - IIUPHHK) in accordance with government regulation Nr. 12/2014. This license fee is calculated differently from 3 different regions (Sumatera & Sulawesi; Kalimantan & Maluku and Nusa Tenggara & Papua) and incurred per year per hectare per license to the concession license holder. An additional fee applies to plantations if the concession license holder is converting natural forest to plantation with a clear-cut system with artificial regeneration called Sistem Tebang Habis Permudaan Buatan (THPB),  where the fee incurred is per license per hectare and per year.

For timber production from state forest, a concession license holder must settle 2 kinds of fees: Reforestation fund (Dana Reboisasi - DR) and Forest Resources Provision (Provisi Sumber Daya Hutan - PSDH). The fees incurred are based on 3 different diameter classes of roundwood:

1. Kayu Bulat (KB), diameter > 49 cm
2. Kayu Bulat Sedang (KBS), diameter 30-49 cm
3. Kayu Bulat Kecil (KBK), diameter < 30 cm

The fees vary per species group, such as Meranti (Shorea), Rimba Campur (Mixed Timber Species) and Kayu Indah (Fancy Timber Species) and per region (Sumatera & Sulawesi; Kalimantan & Maluku and Nusa Tenggara & Papua). Dana Reboisasi (DR) is set at a fix price in USD per cubic meter whilst forest resources provision (Prohutan visi Sumber Daya Hutan/PSDH) is incurred based on benchmark price times 6-10%.

For private forest, as it is an individual property, there are no requirements to pay any fees on timber production and the only applicable regulation is that the land owner must settle property tax (Pajak Bumi dan Bangunan - PBB) on an annual basis to the local revenue agency (Dinas Pendapatan Daerah  - Dispenda).

For communities, the requirements on taxes and fees are the same as for private forests.

Timber harvesting activities

STATE FOREST (HUTAN NEGARA) – natural forest

Referring to the recent Regulation for Timber Administration, Nr. P60 from 2016  and  P.43 from 2015. for natural forest (IUPHHK-HA) and forest conversion (IPK), prior to the development of Annual Operational Plan, the licensee must carry out a 100% pre-harvest inventory for merchantable species and tagged with a barcode label that specifies information such as compartment, tree number, species, diameter, tree height and tree position scanned with an Android handheld. The results of the pre-harvest inventory must be recorded electronically in an Inventory Report (Laporan Hasil Cruising - LHC) and uploaded it to the Ministry of Environment and Forestry Wood On-line Administration System (Sistem Informasi Peredaran Hasil Hutan / SIPUHH).

Once the tree is felled and extracted to the log landing, the licensee must scale and grade the timber, and record it electronically in a Scaling & Grading Report (Buku Ukur), then upload it to SIPUHH-database. As the measurement at the log landing is considered a final one, the uploaded data will be retrieved as a draft to settle applicable tax and royalties.

Once tax and royalties has been settled, the licensee will be able to generate a Report on Timber Production (Laporan Hasil Produksi - LHP) then haul the logs to log yard. At the log yard, all logs will be stacked until the volume of the barge is reached. Prior to the shipment, the licensee needs to generate a Legal Transport Document (Surat Keterangan Sahnya Hasil Hutan - SKSHH) to accompany the timber during the shipment.

STATE FOREST (HUTAN NEGARA) –  plantations

Once the tree is felled and extracted to the nearest log landing, the concession must carry out Scaling & Grading either for each individual tree or grouped with the conversion of staple meter/weight. Further process is similar with natural forest where once the measurement is completed then it needs to be recorded in a Grading Measurement Report (Buku Ukur), then the concession has to settle applicable and relevant taxes & fees then the concession can generate a Production Report (Laporan Hasil Produksi - LHP). The production report is produced on a bi-weekly basis and as a basis to issue legal transport document called Surat Keterangan Sahnya Hasil Hutan (SKSHH).

PRIVATE FOREST (HUTAN HAK)

For private land, there is no requirement to carry out any pre-harvest activities. Once the tree is felled and transported for delivery, the timber needs to have a Legal Transport Document (Nota Angkutan). This document contains information such as name of land owner, species, volume, destination, location of harvesting site, etc. The land owner can obtain a copy of this document from the relevant authority at no cost and fill out this form manually, according to Regulation P.85 from 2016 and P.48 from 2017. However, to prevent the abuse of this document, the government limits the scope for the use of the Legal Transport Document. It can be used for all private land on Jawa and Bali. For timber export from private land on other islands, the scope is limited to 23 timber species: Jati (Teak), Mahoni (Mahogany), Nyawai, Gmelina, Lamtoro, Kaliandra, akasia (Acacia), Kemiri, Durian, Cempedak, Dadap, Duku, Jambu, Jengkol, Kelapa, Kecapi, Kenari, Mangga, Manggis, Melinjo, Nangka, Rambutan, Randu, Sawo, Sukun, Trembesi, Waru, Karet, Jabon, Sengon and Petai.

Land owners of private forest or community forest are not required to obtain an SVLK certificate (Sistem Verifikasi Legalitas Kayu) / Timber Legality Verification System certificate. Instead, another Supplier Verification Form (Dokumen Kesesuaian Pemasok - DKP) is considered as legal evidence adhering to SVLK.

Third parties’ rights

The amended Constitution 1945 paragraph 18B(2) explicitly recognizes the term “hukum adat” (customary laws) as part of “kesatuan-kesatuan masyarakat hukum adat beserta hak-hak tradisionalnya”. The Constitution clearly stipulates that “the State recognizes and respects traditional communities along with their traditional customary rights as long as these remain in existence and are in accordance with the societal development and the principles of the Unitary State of the Republic of Indonesia, and they shall be regulated by law.

The legal, regulatory and policy frameworks for land tenure,  ownership or community management rights of forest resources is set by the Constitutional Court Decision No. 35 of 2012 (MK 35) that recognizes customary forests (hutan adat) and their removal from the state forest estate. This means that customary forest can be registered as forest subject to rights (hutan hak) and allows indigenous people to exercise their rights to manage their own forests without having to worry about any development plan being imposed on those pieces of forest land. At the ministry level, the Ministry of Forestry also has issued a decree Nr. P. 32 from 2015 where indigenous forest (hutan adat) is one of the categories of forest areas in Indonesia and this regulation sets the rights and responsibilities of the owner of the indigenous forest.

Trade and transport

As above-mentioned transporting timber from the forest gate to the mill must be accompanied by a Legal Transport Document, a Surat Keterangan Sahnya Hasil Hutan – SKSHH in case of state forest and a Nota Angkutan in case of private forest. Surat Keterangan Sahnya Hasil Hutan (SKSHH) has an attachment of a log list called DKB (Daftar Kayu Bulat) that specifies barcode ID, tree species, length, diameter and volume.

If a concession license holder intends to deliver the timber to a different island then it is obliged to have an inter-island transport permit (Pedagang Kayu Antar Pulau Terdaftar - PKAPT).

Once the mill received the timber, it will process the timber. To export timber products, a manufacturer must hold a valid SVLK certificate and for each shipment the product must be accompanied with a V-legal document. To be able to receive a V-Legal document the exporter needs to hold a Forestry Industry Products Registered Exporters Certificate (ETPIK) issued by the Ministry of Trade. After issuance of the V-Legal document the exporter prepares an Export Declaration Document, which is submitted to Customs. Customs issues an Export Approval Document for Customs clearance.

FLEGT License

On 15 November 2016 Indonesia began issuing FLEGT licenses to verified legal timber products exported to the EU (for more information see Indonesia’s SILK