Malaysia palm oil firm denies breaching Indonesia's forest ban

* Calls allegation preposterous
* Says stopped a contractor from an unauthorised clearing
* Says has clearance from authorities
Niluksi Koswanage Reuters 20 Jun 11;

KUALA LUMPUR, June 20 (Reuters) - Malaysian palm oil firm Kuala Lumpur Kepong (KLK) denied on Monday it had breached Indonesia's two-year forest clearing ban on the first day it was signed to law, calling the allegation by an environmental group "preposterous".

But Malaysia's third-largest listed planter said it stopped an "over eager" contractor from making an unauthorised clearing of a small logged over area that is a small part of one of its concessions in Borneo island.

London-based Environmental Investigation Agency (EIA) said last week they had evidence that KLK burnt peat forest under a moratorium zone in central Kalimantan province in Borneo -- a key region undergoing rapid estate expansion.

There appears to be more scrutiny on palm firms after Indonesia, in a concession to planters, revealed a list of exemptions to its much delayed two-year forest moratorium on logging that came into effect on May 20.

"Existing concessions with valid licences are exempted from the moratorium and be allowed to continue," KLK's plantations director Roy Lim told Reuters in an emailed statement.

"KLK has long abandoned using fire to clear land for new planting or replanting. Our policy and practice is zero burning for such activities."

Lim added KLK had obtained a plantation business permit in 2009 for more than 6,000 hectares (14,830 acres) in Kalimantan province on Borneo that EIA based its report on, implying it had clearance from the authorities well before the forest ban came into effect.

"Notwithstanding, the unauthorised clearing of a small logged over area by our over eager contractor (about 70 hectares) has been halted pending further verification due to the lack of clarity."

KLK shares were down 1.3 percent on Monday, lower than the broader market although analysts attributed this to general weakness in regional markets.

GREATER SCRUTINY

Malaysian and Indonesian planters have come under scrutiny over the past two years by green groups for expanding their estates at the expense of forests and peatlands -- climate warming acts that these companies often deny.

Indonesia is seen as a key player in the fight against climate change and is under intense international pressure to curb its rapid deforestation rate and destruction of carbon-rich peatlands.

Norway and Indonesia signed a pact in May last year under which Jakarta promised to impose the moratorium. In return Norway vowed to pay $1 billion, based on Indonesia's performance in achieving long-term goals to slow deforestation.

But green groups have criticised sovereign wealth funds for investing in palm oil companies that they say have a track record of destroying the environment, while at the same time funding Indonesian moves to reduce deforestation.

KLK is a part of the $550 billion portfolio for a Norwegian sovereign wealth fund, which EIA and its Indonesian partner Telapak says has profited from deforestation.

A Norwegian finance ministry official said this year the fund will keep investing in Southeast Asian planters but may exclude firms that severely damage the environment. (Editing by Ramthan Hussain)