Indonesia Minister Says Nestle Has ‘Right’ to Cut Off Sinar Mas

Achmad Sukarsono, Business Week 25 Mar 10;

March 26 (Bloomberg) -- Nestle SA’s decision to stop buying from Indonesian palm-oil producer Sinar Mas Group over deforestation concerns is “perfectly normal,” the country’s environment minister said, suggesting the government doesn’t plan to protest.

“That’s their right as a consumer,” Gusti M. Hatta said in an interview in Jakarta yesterday, speaking of Nestle’s decision. “If there’s a clear violation, then I would cut them off without mercy,” he said, adding an investigation into the country’s biggest maker of palm oil is ongoing.

Nestle’s dropping of Sinar Mas sparked calls for the government to speak out on behalf of the palm-oil industry, which produces the country’s biggest agricultural export by sales. The Indonesian Palm Oil Association last week said the Vevey, Switzerland-based company’s decision was “unfair.”

“We need intervention from the government because the impact could reach other palm oil companies,” Libria Sefita Dewi, a palm oil analyst at PT Mega Capital Indonesia, said in a phone interview. “The image of Indonesian palm oil producers could become so bad that a defense is necessary.”

Nestle’s action came after a Greenpeace report said Sinar Mas illegally destroyed rainforest areas that are a key habitat for orangutans.

Unilever NA suspended deliveries from Sinar Mas in December and U.S. food provider Cargill Inc. may stop doing business with Sinar Mas if a global trade body validates the Greenpeace report, the company said yesterday on its Web site.

‘Responsible Land Clearing’

PT Sinar Mas Agro Resources and Technology, Sinar Mas’s palm-oil unit, is “committed to applying responsible land clearing and the best practice of farming management in all of our plantations,” President Director Jo Daud Dharsono said by phone on March 17.

“It’s not fair if major companies such as Nestle and Unilever dropped supplies from Indonesian producers just based on one report,” Fadhil Hasan, executive director at the Indonesian Palm Oil Association told reporters in Jakarta on March 18.

The country’s palm-oil exports may rise to 18 million tons this year from 15.5 million tons in 2009, the Indonesian Palm Oil Association said Jan. 26. Sales reached $10 billion last year, the association said.

Coal Mines

Legislation that takes effect next month will give Indonesia’s Environment Ministry power to revoke business licenses and permits without having to go through police. The ministry will first use the new law to crack down on coal producers in Borneo “because there are companies that have built mines in forested areas without approval,” Hatta said, without naming them.

“Almost half” of more than 1,500 mines appearing in Indonesian Borneo in the past decade are illegal, he said.

Larger producers such as PT Bumi Resources and PT Adaro Energy “tend to be good” in managing the environment, Hatta said. Some businesses have “misinterpreted” the government’s intent to enforce the new law, Hatta said.

“We’ll give time” to the companies to deal with their environmental issues “although we’ll strictly monitor the progress,” he said.

Rules governing the oil industry will be clarified within a year, he said, and “tolerance” will be given to mature oil fields.

The energy ministry is seeking a three-year delay on enforcing existing environmental rules. Applying them immediately could lead to a 40 percent drop in oil and gas output, energy ministry official Evita Legowo said Feb. 24.

Southeast Asia’s biggest economy expects to produce 965,000 barrels of oil per day this year, compared with 949,000 barrels a day last year, according to energy-ministry data.