Foreword. investors. Dr. Sofyan A. Djalil Coordinating Minister for Economic Affairs Republic of Indonesia

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3 Foreword The government has developed a National Forestry Plan (RKTN) , a macro indicative planning framework used as a reference for infrastructure plan, investment, and other businesses that are integrated in different geographic scales, timelines, and forestry functions. In reality, however, there is a discrepancy between what has been incorporated in the RKTN and the actual conditions. This will consequently delay the infrastructure development or business investments, of which many parties will incur losses. At the same time, this also raises concerns on the sustainability of the environment. Therefore, in developing infrastructure or other investment activities in forest area, the application for borrow-to-use forestry permit (IPPKH) and forest status alteration is crucial. Although the procedures of application submission for IPPKH and forest status alteration are clearly regulated, the investors still encounter different degrees of obstacles throughout the process. Based on the collected case studies, the required timelines to complete the process investors. This investor guideline is developed as a reference for relevant stakeholders to accelerate the process of obtaining approval for forest status alteration, by providing comprehensive information to investors regarding the procedure of forest status alteration, case studies for partial and provincial forest alteration, as well as the key lessons learned. By applying the lessons learned documented in this investor guideline, the investors can expect to apply an effective acceleration mechanism thus minimize costly missteps in the preparation stage of investment implementation. Dr. Sofyan A. Djalil Coordinating Minister for Economic Affairs Republic of Indonesia

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5 Acknowledgement This Investor Guideline was developed as part of the Technical Assistance for Strategic Planning, Debottlenecking and Fast Tracking MP3EI and MPA Projects Implementation (Phase II), which was funded by the Japan International Cooperation Agency (JICA). The Coordinating Ministry for Economic Affairs (CMEA) wishes to express its appreciation and gratitude to JICA for its support in developing the investor guideline, which is expected to contribute to the acceleration of infrastructure development and investments in the future while also managing the environment sustainably. This Investor Guideline was crafted by a team of consultants from Tusk Advisory, which was led by Ms. Shuhaela Zen and Ms. Irene Tsjin and supported by Mr. Nicholas Morris, Ms. Britt Doornekamp, Mr. Wilson Kurniawan, Ms. Yovita Adisresti and Ms. Amanda Djojonegoro. This team was guided by a CMEA Streering Committee led by Mr. Luky Eko Wuryanto (Deputy Minister for Infrastructure and Regional Development Coordination) and supported by Mr. Wahyu Utomo (Expert Staff of Regional Development), Mr. Abdul Kamarzuki (Assistant Deputy Minister for Spatial Planning and Regional Development) and Mr. Enoh Suharto Pranoto (Secretary of the National Council of Special Economic Zone). a series of one to one interviews with the relevant stakeholders and practitioners from both the public and private sectors. The CMEA takes this opportunity to also express its appreciation to the following individuals and the institutions they represent, for their time and their valuable inputs, which was central to understanding the key issues and bottlenecks in the development of this investor guideline: 1. Mr. Fritz H. Silalahi [Director of Infrastructure Investment Planning, Investment Coordinating Board Republic of Indonesia (BKPM)] 2. Mr. Nurul Ichwan [Deputy Director for Manufacture Industry Promotion, Investment Coordinating Board Republic of Indonesia (BKPM)] 3. Mr. Chaerudin Mangkudisastra [Head of Sub-Directorate of Forest Spatial Planning for Area II, Directorate of Forest Planning, Ministry of Forestry] 4. Mr. Yayat Surya [Head of Sub-Directorate of Alteration of Forest Function and Status for Area I, Directorate of Conservation and Forest Area, Ministry of Forestry] 5. Mr. Yusliando [Head of Division for Regional Infrastructure and Development, East Kalimantan Provincial Development Planning Agency (Bappeda)] 6. Mr. Ahmad Muzakkir [Head of Sub-Division for Regional Infrastructure, East Kalimantan Provincial Development Planning Agency (Bappeda)]

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7 TABLE OF CONTENTS CHAPTER 1 INTRODUCTION 2 CHAPTER 2 NATIONAL FORESTRY PLAN (RKTN) CHAPTER 3 INDONESIAN FOREST STATUS ALTERATION POLICIES 10 CHAPTER 4 CHANGING LEGAL STATUS OF FOREST 14 CHAPTER 5 CASE STUDIES 46 CHAPTER 6 KEY LESSONS LEARNED 52 CHAPTER 7 USEFUL CONTACTS IN INDONESIA 54

8 CHAPTER 1 Introduction 2 CHAPTER 2 National Forestry Plan (RKTN) Investor Guideline Forest Status Alteration (Forest Area To Area For Other Uses) CHAPTER 3 Indonesian Forest Status Alteration Policies CHAPTER 4 Changing Legal Status Of Forest

9 CHAPTER 5 Case Studies CHAPTER 6 Key Lessons Learned CHAPTER 7 Useful Contacts In Indonesia 1.1 CATEGORY OF LAND IN INDONESIA All land, water and natural resources in Indonesia are designated as either within forest area (kawasan hutan) or non-forest area (Areal Penggunaan Lain, APL). According to the Law No. 41 of 1999 on Forestry, forest status alteration falls under the jurisdiction of the Ministry of Forestry (MoFe) whilst non-forest areas fall under jurisdiction of the local district government (provincial and regency/city). 1.2 FOREST CLASSIFICATION AND FUNCTION Indonesia s forests cover 60% of the country s total land area, making it the third country to have the largest forest area in the world. Indonesia s forests are important both for local livelihoods and for the national and regional economy. Main Function Production Forest Hutan Produksi Protected Forest Hutan Lindung (HL) Conservation Forest Hutan Konservasi (KK) Limited Production Forest Hutan Produksi Terbatas (HPT) Permanent Production Forest Hutan Produksi Tetap (HP) Convertible Production Forest Hutan Produksi yang dapat Dikonversi (HPK) Generates both wood and non-wood forest products through selective cutting system. Generates both wood and non-wood forest products that can be done through cutting system. Generates both wood and non-wood forest products but spatially reserved for either forest area or development other than forestry. - Protects life-supporting systems for hydrology, seawater intrusion, and maintains soil fertility. Natural Reserve Kawasan Hutan Suaka Alam (KSA) Nature Conservation Area Kawasan Hutan Pelestarian Alam (KPA) Preserves animal and plant biodiversity as well as its ecosystem, also functions as an area for further segregated into wildlife reserve and nature reserve. Protects life-supporting systems, preserves biodiversity and sustainable utilization of natural resources and their ecosystems.the categories: (1) national park; (2) botanical forest park; and (3) natural park. Hunting Parks Taman Buru Designated as a tourist hunting area. Source: Law No. 41/1999 on Forestry and Law No. 5/1990 on Conservation of Natural Resources and Ecosystem 1.3 DISTRIBUTION OF FORESTRY AREA IN INDONESIA In 2013, Ministry of Forestry recorded the total forest area in Indonesia as million Ha. Table 2 and 3 provide the detailed breakdown of forest areas under each classification. Investor Guideline Forest Status Alteration (Forest Area To Area For Other Uses) 3

10 CHAPTER 1 Introduction CHAPTER 2 National Forestry Plan (RKTN) CHAPTER 3 Indonesian Forest Status Alteration Policies CHAPTER 4 Changing Legal Status Of Forest Forest Area (Million Ha) Percentage Limited Production Forest (HPT) % Permanent Production Forest (HP) % Convertible Production Forest (HPK) % Protected Forest (HL) % Conservation Forest (KK)* % Total % Source: Forestry Statistic 2013, Ministry of Forestry * only covers land area There are some provinces that have large areas of convertible production forest (HPK), including Riau (2,856,020 ha), Central Kalimantan (2,543,535 Ha), Maluku (1,326, Ha), Papua (4,116,365 Ha) and West Papua (2,291, Ha). No Province 1 Nanggroe Aceh Darussalam 2 North Sumatera Forest Area Limited Permanent Convertible Protected Production Production Production Forest (HL) Forest (HPT) Forest (HP) Forest (HPK) Total Forest Area For Other Conservation Area Uses (APL) Forest (KK) 141, , , ,824, , ,388, ,321, , ,035, , ,297, , ,742, ,500, West Sumatera 233, , , , , ,342, ,886, Riau 1,541, ,893, ,856, , , ,121, ,508, Riau 164, , , , , , , Archipelago 6 Jambi 261, , , , , ,107, ,775, Bengkulu 173, , , , , , ,080, South 214, ,711, , , , ,422, ,245, Sumatera 9 Bangka - 432, , , , ,016, Belitung 10 Lampung 33, , , , ,004, ,379, Jakarta , West Java 190, , , , , ,943, Banten 49, , , , , , Central Java 183, , , , , ,851, Yogyakarta - 13, , , , East Java - 782, , , ,357, ,442, Bali 6, , , , , , West Nusa Tenggara , , , , , ,20 4 Investor Guideline Forest Status Alteration (Forest Area To Area For Other Uses)

11 CHAPTER 5 Case Studies CHAPTER 6 Key Lessons Learned CHAPTER 7 Useful Contacts In Indonesia Forest Area Limited Permanent Convertible Total Forest Area For Other No Province Protected Conservation Production Production Production Area Uses (APL) Forest (HL) Forest (KK) Forest (HPT) Forest (HP) Forest (HPK) 19 East 197, , , , , ,686, ,081, Nusatenggara 20 West 2,116, ,097, , ,306, ,441, ,168, ,530, Kalimantan 21 Central 3,317, ,881, ,543, ,346, ,608, ,697, ,602, Kalimantan 22 East 5,067, ,090, , ,867, ,741, ,952, ,752, Kalimantan 23 South 126, , , , , ,779, ,922, Kalimantan 24 North Sulawesi 208, , , , , , , Gorontalo 251, , , , , , , Central 1,372, , , ,310, , ,964, ,481, Sulawesi 27 Southeast 466, , , ,081, , ,326, ,324, Sulawesi 28 South Sulawesi 494, , , ,232, , ,118, ,445, West Sulawesi 336, , , , , ,107, , Maluku 894, , ,326, , , ,923, , North Maluku 666, , , , , ,515, , Papua 5,961, ,739, ,116, ,815, ,736, ,368, ,162, West Papua 1,849, ,844, ,291, ,651, ,741, ,377, , Total 27,686, ,897, ,525, ,917, ,995, ,022, ,642, Source: Forestry Statistic 2013, Ministry of Forestry Investor Guideline Forest Status Alteration (Forest Area To Area For Other Uses) 5

12 CHAPTER 1 Introduction CHAPTER 2 National Forestry Plan (RKTN) CHAPTER 3 Indonesian Forest Status Alteration Policies CHAPTER 4 Changing Legal Status Of Forest 6 Investor Guideline Forest Status Alteration (Forest Area To Area For Other Uses)

13 CHAPTER 5 Case Studies CHAPTER 6 Key Lessons Learned CHAPTER 7 Useful Contacts In Indonesia 2.1 NATIONAL FORESTRY PLAN (RENCANA KEHUTANAN TINGKAT NASIONAL, RKTN) Based on Ministerial Regulation P. 49/Menhut-II/2011, the government of Indonesia has developed a National Forestry Plan (Rencana Kehutanan Tingkat Nasional, RKTN) for the period The RKTN is a macro indicative planning framework used as a reference to construct infrastructure, investment, and business in different geographic scales, timelines, and principles of forestry areas. It is intended that the establishment of RKTN can result in a well-planned and structured institutional transformation for the sustainability of the forests. Almost all provinces are revising their spatial planning, which includes designation of production forests for other development purposes. RKTN is intended to provide direction for forest management through a sustainable and fair use of forest resources, multifunctional potential of forests for society, as well as provincial, and regional levels by This will be based on the principle of optimization and stabilization of forest areas, improvement of productivity and value of forest resources, community participation in forest management, forestry research and technology institutions, as well as optimization of the comparative advantages of Indonesian forestry. As a national indicative planning instrument, RKTN has 6 criteria for macro spatial functions:(1) conservation areas;(2) protection areas of natural forests and peat lands;(3) rehabilitation areas;(4) areas for large-scale forest management;(5) areas for small-scale forest management; and (6) non-forest areas. Table 4 provides all of the 6 criteria of macro spatial functions. Table 4. Criteria for Determining Spatial Function in RKTN and Forest Utilization in Indonesia No Spatial Function 1 Conservation area Criteria All conservation areas and proposed conservation areas. Utilization To be utilized for conservation of forest resources while considering the economic, social and environmental aspects as well as the utilization, protection and preservation aspects. 2 Protection area of natural forests and peat lands Protected forests with primary, secondary, and mangrove forest cover. Protected forests and production forests, which are peat land areas with depth of 2 meter or above and no existing forest permit holders. To protect the forest ecosystem and peat land as well as to supply carbon. Further utilization should be in line with the main purpose. The scheme of carbon trading can be planned based on this spatial function. 3 Rehabilitation Area 4 Area for largescale forest management Forest areas within critical watershed areas and mining areas. Forest areas that have forest permit holders, as well as production forests with the forest cover of primary forest, secondary forest, plantation, bush and arable land without any permit holder and with areas of more than 7,500 ha. To accelerate forest rehabilitation due to its location within the critical watershed and postmining areas. If the rehabilitation process is completed, then it can be utilized based on its function and utilization plan. To be utilized for large-scale forestry management (corporation) with various schemes, such as Business License to Use Timber Forest of Natural Forest, Plantation and Ecosystem Restoration (IUPHHK-HA/HT/RE). Investor Guideline Forest Status Alteration (Forest Area To Area For Other Uses) 7

14 CHAPTER 1 Introduction CHAPTER 2 National Forestry Plan (RKTN) CHAPTER 3 Indonesian Forest Status Alteration Policies CHAPTER 4 Changing Legal Status Of Forest No Spatial Function 5 Area for smallscale forest management Criteria Forest areas that have communitybased forest permit holders as well as production forest or protected forest with the forest cover of secondary forest, plantation, bush and arable land without any permit holder, with areas of less than 7,500 ha, and located about 0-10 km from residential areas. Utilization To be utilized for small-scale forest management (community) with various schemes (HTR, HKm, HD). In this area, community can increase their roles and accesses to the forest resources. 6 Non-forest area Convertible production forests with forest cover of primary forest and secondary forest, more than 2 meters of non-peat land area, and without forest permit holders. This forest area is used for community forests The process will be based on existing forestry regulations. Source : Ministerial Regulation P. 49/Menhut-II/2011 Current Analysis of Forest Area (Utilization Plan) in 2011 The Ministry of Forestry produced analysis on the indicative utilization area of national forests as per spatial functions, presented in Table 5.The areas presented in the Table 5 was the forestry areas as per April Spatial Function Table 5. Analysis of Forest Spatial Function per HPT HP HPK HL KK Conservation area Protection area of natural forest and peat lands Rehabilitation Area Area for large-scale forest management Area for small-scale forest management Non-forest area Total forest area Total Source : Ministerial Regulation P. 49/Menhut-II/ Investor Guideline Forest Status Alteration (Forest Area To Area For Other Uses)

15 CHAPTER 5 Case Studies CHAPTER 6 Key Lessons Learned CHAPTER 7 Useful Contacts In Indonesia Forecast Analysis of Forest Area (Utilization Plan) in 2030 The Ministry of Forestry has forecasted the forest area utilization plan in 2030 by taking into account the increased needs of forests for non-forestry sectors (transmigration, plantation, agriculture, etc.), community forests, and provision of residential land. The total forest area that is going to be converted to non-forest area is expected to reach million Ha. As a result forest area that can be managed and utilized effectively are million Ha or 85% of all existing forest areas, as illustrated in Table 6. Spatial Function Table 6. Analysis of Forest Area Spatial Function per HPT HP HPK HL KK Conservation area Protection area of natural forest and peat lands Forcasted to become HP Rehabilitation Area % of the remaining function to become HP Area for large-scale forest management % of the remaining function to become HP Area for small-scale forest management % of the remaining function to become HP Total Total forest area Total non-forest area Source: Ministerial Regulation P. 49/Menhut-II/2011 Investor Guideline Forest Status Alteration (Forest Area To Area For Other Uses) 9

16 CHAPTER 1 Introduction 10 CHAPTER 2 National Forestry Plan (RKTN) Investor Guideline Forest Status Alteration (Forest Area To Area For Other Uses) CHAPTER 3 Indonesian Forest Status Alteration Policies CHAPTER 4 Changing Legal Status Of Forest

17 CHAPTER 5 Case Studies CHAPTER 6 Key Lessons Learned CHAPTER 7 Useful Contacts In Indonesia 3.1 HIERARCHIES OF FOREST STATUS ALTERATION POLICIES IN INDONESIA When public or private sector initiates a project, the targeted project area often overlaps with a forest area. Consequently, it requires the project owner to either obtain a Borrow-to-Use Forest Permit (Izin Pinjam Pakai Kawasan Hutan, IPPKH) or approval for forest status alteration from the Ministry of Forestry. This investor guideline focuses on the second scope, which is forest status alteration. In Indonesia, the forest status alteration involves three interrelated laws: Law 26/2007 on Spatial Planning, Law 32/2009 on Environmental Protection and Management, and Law 41/1999 on Forestry. Spatial planning refers to how the government manages the distribution of population and activities in spaces of various scales including forest area. Effective spatial planning will have an impact on the economic growth and development of the country. At the same time, every activities needs to take into account environmental protection and management so as to prevent environmental damage. Therefore activities in the forest area requiring alteration of forest status must be properly managed to maintain forest sustainability. Figure 1 provides a list of laws and regulations that are related to the forest status alteration process, organized in a descending order based on their hierarchies. The contents of the laws and regulations will be elaborated in Chapter 2 and Chapter 3 respectively. BOX 1 BOX 2 Law 26 / 2007 on Spatial Planning Government Regulation No. 26/2008 on National Spatial Planning Ministry of Public Works Regulation No 11/PRT/M/2009 on Guidelines for Substantive Approval on Determination of Regional Regulation on Provincial and Regional Spatial Planning and its Detailed Plan Law 32 / 2009 On Environmental Protection and Management Government Regulation No. 27/2012 on Environmental Permit Ministry of Environment Regulation No. 9/2011 on Guideline of Strategic Environmental Assessment Ministry of Environment Regulation No. 16/2012 on Guideline for the Preparation of Environmental Documents Law 41 / 1999 On Forestry Government Regulation No. 10/2010 on Procedures for the Alteration of Purpose and Function of Forest Areas Ministry of Forestry Regulation No. P. 32/Menhut-II/2010 on Exchange of Forest Area Ministry of Forestry Regulation No. P. 33/Menhut-II/2010 on Procedures for Relinquishment of Convertible Production Forest Area In order of legal hierarchy in Indonesia Ministry of Environment Regulation No.5/2012 on Types of Activities/Projects Requiring Environmental Impact Assessment (EIA) Ministry of Forestry Regulation No. P. 36/Menhut-II/2010 on Integrated Team for Alteration of Forest Purpose and Function Figure 1.Hierarchies of Forest Status Alteration Policies in Indonesia Box 1 : Provides the sources of legal authority. Law No. 12/2011 on Establishment of Laws and Law (Undang-Undang) to Regional Regulation (Peraturan Daerah). Box 2 : Provides Ministerial regulations that specify technical standards for policies enacted by the legal hierarchy from Law/Government Regulation/ Presidential Regulation. Investor Guideline Forest Status Alteration (Forest Area To Area For Other Uses) 11

18 CHAPTER 1 Introduction CHAPTER 2 National Forestry Plan (RKTN) CHAPTER 3 Indonesian Forest Status Alteration Policies CHAPTER 4 Changing Legal Status Of Forest 3.2 LAW NO. 26/2007 ON SPATIAL PLANNING Based on Law No. 26/2007 on Spatial Planning, there are three levels of spatial plans based on administrative areas and these are prepared in the following order: national, provincial and regency/city level. All of the spatial plans have to refer to the spatial plan(s) of higher hierarchies. For example, provincial spatial plans have to refer to the national spatial plan whilst regency/city spatial plans have to refer to both national and provincial spatial plans. Spatial plans are valid for 20 years and should be reviewed every 5 years. The national spatial plan was made and enacted through Government Regulation No. 26/2008. Law No. 26/2007 Article 3-5 states that there is a need to adjust spatial planning for all provinces in Indonesia to realize a safe, comfortable, productive and sustainable national spatial plan based on archipelago and national security. One of the main functions of spatial planning by region concerning conservation areas and cultivation areas, where the conservation area includes conservation forest, peat lands and watershed area (Daerah Aliran Sungai, DAS), while the cultivation area includes production forest and community forest area. In particular, Article 78 paragraph (4) states that: : a. Government Regulation on National Spatial Planning should be adjusted not later than 1 year 6 months after this law is enforced. b. All provincial regulations on Provincial Spatial Planning should be prepared and adjusted not later than 2 years after this law is enforced. c. All regency/city regulation on Regency/City Spatial Planning should be adjusted not later than 3 years after the law is enforced. Currently, most provinces in Indonesia are in the process of adjusting spatial planning, and proposing forest status alteration that follows the procedure outlined in the Law 41/1999. Any approval on forest status alteration has to be integrated in the provincial spatial planning 3.3 LAW NO. 32/2009 ON ENVIRONMENTAL PROTECTION AND MANAGEMENT Every activity within forest area essentially has to take into account the principle of environmental protection and management so as to be in line with sustainable development. In achieving a more sustainable development, government and project owner are obligated to conduct the environmental management and protection as stipulated in the Law No. 32/2009. Among the instrument for prevention of environmental destruction are spatial planning, strategic environmental assessment (Kajian Lingkungan Hidup Strategis/KLHS), environmental permit, etc. Based on the article 19 of the Law No. 32/2009, every region s spatial planning has to based on the strategic environmental assessment or KLHS. KLHS is developed to ensure that sustainable development is used as the fundamental principle and being integrated into the region s development. Since forest status alteration is correlated with the adjustment of spatial planning, the strategic environmental assessment is key instrument in the development or evaluation of existing spatial planning. 3.4 LAW NO. 41/1999 ON FORESTRY In relation to the proposed forest alteration for the adjustment of provincial spatial planning, it should go through a process regulated in Law No. 41/1999 on Forestry. In particular, Article 19 states that: 1. The forest area can be altered for other purpose and function in order to maintain the balance of environmental, social, cultural and economic forest purpose and function shall be determined by the Government based on the assessment result of integrated and technical teams. 2. The forest alteration in paragraph (1) that has 12 Investor Guideline Forest Status Alteration (Forest Area To Area For Other Uses)

19 CHAPTER 5 Case Studies CHAPTER 6 Key Lessons Learned CHAPTER 7 Useful Contacts In Indonesia value (Dampak Penting, Cakupan Luas dan Nilai Strategis, DPCLS), will be determined by Government with the approval of House of Representatives (Dewan Perwakilan Rakyat, DPR). 3. Provisions on procedures of alteration for forest purpose and function as referred in paragraph (1) and (2) are regulated by the government regulation. As the implementation of Article 19, Government Regulation No. 10/2010 has been established on Procedures for the Alteration of Forest Purpose and Function, as amended by Government Regulation No. 60/2012 on Amendment of Government Regulation No. 10/2010. According to this regulation, the forest area is an area that is stipulated by the Ministry of Forestry, whereas to ensure its legality, the regulation establishes a fourstep process that the MoFe must follow in designating forest areas. The four-step process entails designation of forest areas, boundary determination of the forest areas, mapping of the forest areas, and stipulation of the forest areas. Investor Guideline Forest Status Alteration (Forest Area To Area For Other Uses) 13

20 CHAPTER 1 Introduction 14 CHAPTER 2 National Forestry Plan (RKTN) Investor Guideline Forest Status Alteration (Forest Area To Area For Other Uses) CHAPTER 3 Indonesian Forest Status Alteration Policies CHAPTER 4 Changing Legal Status Of Forest

21 CHAPTER 5 Case Studies CHAPTER 6 Key Lessons Learned CHAPTER 7 Useful Contacts In Indonesia 4.1 GOVERNMENT REGULATION NO. 10/2010 ON PROCEDURES FOR THE ALTERATION OF FOREST PURPOSE AND FUNCTION This chapter provides an overview of Government Regulation No. 10/2010 and Government Regulation No. 60/2012 on the Procedures for the Alteration of Forest Purpose and Function. Principally, these regulations are intended to regulate alterations to forests, which should be based on the principle of sustainability of forests by taking into account the This is to maintain the balance of the environmental, Based on the regulation,the procedure of forest alteration can be categorized into two : 1. Partially, which can be done by2 methods: exchange of forest and relinquishment of convertible production forest; 2. Provincial level, which is aimed to support the government initiative on the provincial spatial planning for all provinces in Indonesia. preceded by integrated team research, consisting of competent government agencies and other relevant stakeholders as regulated by Ministerial Regulation P. 36/Menhut-II/2010 on Integrated Team for Alteration of Forest Purpose and Function. In addition, alteration of forest planned for non-forest area is part of policy/ program planning that has to be aligned with the strategic environmental assessment (KLHS). For impact on environment, climate and national interest, it is categorized into the alteration of the area that has (DPCLS). Figure 2 provides the guideline on what conditions constitute having DPCLS impacts. Upland/Watershed Area (DAS) (HPT, HP) Percentage of Forest Area to DAS < 30% Forest Area is reduced to <30% 3. Critical DAS 1st priority - Dominasi slopes <45% - Soil very sensitive to erusion Laland/Delta (HP, HPK) 1. Swamp area 2. Mangrove 3. Peat land 4. Forest area reduced to < 30% Alteration of forest 1. Dominated slopes<45% Significant Impact, Wide Coverage and Strategic Value (DPCLS) Small Island (HPT, HP, HPK) Forest area reduced to <30% Percentage of forest area vegetative cover to the province area <30% KSA/KPA to APL HL to APL Investor Guideline Forest Status Alteration (Forest Area To Area For Other Uses) 15

22 CHAPTER 1 Introduction CHAPTER 2 National Forestry Plan (RKTN) CHAPTER 3 Indonesian Forest Status Alteration Policies CHAPTER 4 Changing Legal Status Of Forest To understand in detail on the procedures of partial and provincial forest alteration, Table 7 provides the comparison of type of forest subject to alteration and requirements, before an applicant submits to Ministry of Forestry. Alteration of Forest Status Factor Partial Exchange of Forest Relinquishment of Forest Factor Permanent Production Forest Limited Production Forest Convertible Production Forest Conservation Forest Protected Forest Production Forest Eligible applicant Minister Governor Minister Governor Governor Regent/Mayor Regent/Mayor Head of Business Entity (BUMN, BUMD, Private sector, Cooperative) Head of Organization/Agency Head of Business Entity (BUMN, BUMD, Private sector, Cooperative) Head of Organization/ Agency Eligible activities Development of non-forestry activities that is permanent in nature. For example, Dam, Cemetery, Education, Public Safety, Public Hospital and Community Health Center, Central/ Local Industrial Building, Seaport, Airport, Railway, Station, Public Market, Regional Development, Agriculture, Plantation, Fishery, Animal Husbandry, and Sports Facility.. Development of important non-forestry activities. Eliminates the enclave in order to facilitate forestry management. Improve the forest boundary. 16 Investor Guideline Forest Status Alteration (Forest Area To Area For Other Uses)

23 CHAPTER 5 Case Studies CHAPTER 6 Key Lessons Learned CHAPTER 7 Useful Contacts In Indonesia Factor Type of eligible forest Exchange of Forest Alteration of Forest Status Partial 1. Alteration ensures that the forest area remains at least 30% of the river watershed area (Daerah Aliran Sungai or DAS), island and/or province with proportional distribution as well as maintains the viability of forest management. 2. Should the forest area be less than 30% of the river watershed area, island, and/or province with proportional distribution, the exchange of forest area with non-forest area shall be conducted at a minimum ratio of 1:2. In the case of sheltering the disaster victim and for limited public-interest causes, it shall be done at minimum ratio of 1:1. 3. If the size of the forest area of the province is more than 30% of the river watershed area, island and/or province with proportional distribution, the exchange of forest area with non-forest area shall be conducted at a minimum ratio of 1:1. 4. The replacement area shall meet the following requirements: Clear location, size and land boundary. Directly borders with an existing forest area. Located within the same river watershed area, island and/or province. Can be reforested using a conventional manner Clear of any land disputes and all forms of charges and claim rights Relinquishment of Forest Relinquishment of forest cannot be done in a province with forest area of less than 30%, unless using the exchange of forest mechanism. 1. Governor is required to integrate the proposed forest area to the revision of provincial spatial planning 2. Governor is required to conduct technical consultation with Minister in proposing changes in the designation of forest area 3. Further provisions on the procedure for technical consultation shall be regulated by Ministerial Regulation Has obtained a recommendation letter from the governor and regent/mayor. Validity Period of In-Principle Approval Maximum period of 2 years since the issuance date and may be extended 2 times (each for maximum period of 1 year). Maximum period of 1 year since the issuance date and may be extended 2 times (each for maximum period of 6 months). - Investor Guideline Forest Status Alteration (Forest Area To Area For Other Uses) 17

24 CHAPTER 1 Introduction CHAPTER 2 National Forestry Plan (RKTN) CHAPTER 3 Indonesian Forest Status Alteration Policies CHAPTER 4 Changing Legal Status Of Forest 4.2 PARTIAL FOREST ALTERATION EXCHANGE OF FOREST The procedures for exchange of forest are stipulated in Ministerial Regulation P. 32/Menhut-II/2010,, P.41/Menhut- II/2012 and P. 27/Menhut-II/2014 on Exchange of Forest Area. No Steps Days Stakeholders Application Submission 1) The applicant submits the application to the Minister of Forestry. It a. Administrative documents include: i. Application letter attached with the maps of the requested forest area and proposed replacement area at a minimum scale of 1:100,000; - Applicant ii. Location permit from the Regent/Mayor/Governor in accordance with the authority; iii. Business license in accordance with the applicable regulation; iv. Recommendation letter from the Governor and Regent/Mayor attached with the base maps of the requested forest area and proposed replacement area at a minimum scale of 1:100,000; If the applicant is the Governor, then the recommendation letter is from Regent/Mayor. If the applicant is Regent/ Mayor, then the recommendation letter is from Governor. Recommendation from Governor or Regent/Mayor should include approval on the requested forest and proposed replacement area taking into account technical 18 Investor Guideline Forest Status Alteration (Forest Area To Area For Other Uses)

25 CHAPTER 5 Case Studies CHAPTER 6 Key Lessons Learned CHAPTER 7 Useful Contacts In Indonesia No Steps Days Stakeholders Application Submission v. Applicant from central/local government has to include a statement letter that there will be no transfer of the requested forest area to other parties and its ability to comply with laws and regulations; and vi. Applicant from business entity/organization/agency has to include a notary deed that there will be no transfer of the requested forest area to other parties and its ability to comply with laws and regulations. vii. Applicant from business entity/organization/agency must attach the following additional documents: Tax number; Corporate establishment deed and amendment deed (if any); and Financial report for the last 2 years, which had been audited by public accountant. b. Technical documents include : i. Proposal, technical plan/master plan including the proposed replacement area and reforestation/planting; ii. Technical evaluation from Managing Director of Perum Perhutani if the requested forest area is within the Perum Perhutani s working area; iii. Satellite image of no later than 2 years on the requested forest area and proposed replacement area, along with a statement letter stating that the image result is correct; and iv. In the case of the exchange of forest is for disaster victim relocation, no satellite image is required. 2) Having received the disposition from Minister, the Director General of Forestry Planning will conduct assessments on the technical and administrative requirements. 15 Director General of Forestry Planning Investor Guideline Forest Status Alteration (Forest Area To Area For Other Uses) 19

26 CHAPTER 1 Introduction CHAPTER 2 National Forestry Plan (RKTN) CHAPTER 3 Indonesian Forest Status Alteration Policies CHAPTER 4 Changing Legal Status Of Forest No Steps Days Stakeholders Application Submission 3) requirements, the Director General of Forestry Planning will conduct assessments on the following aspects: 30 Director General of Forestry Business The function of forest area as per the appointed map and/or provincial determination and its amendments; Forest designation; Forest use permit; Forest utilization permit; and Requirement on replacement area. 4) the requirements, then the Director General of Forestry Planning issues a rejection letter on behalf of the Minister. Formation of Integrated Team and Forest-Exchange Team Research 5) administrative and technical requirements, Minister will form the Integrated Team and Secretary General on behalf of Minister will form Forest-Exchange Team. 6) The Integrated Team and Forest-Exchange Team will conduct research and report the result and recommendation to Minister. 7 Director General of Forestry Planning (on Minister s behalf) 37 Minister and Secretary General 180 Integrated Team and Forest- Exchange Team Issuance of In-Principle Approval on Exchange of Forest 7) Minister receives recommendation 7 Minister 8) After there is a decision by the Minister, the Director General of Forestry Planning is to: 10 Director General of Forestry Planning a. Propose the issuance of in-principle approval for forest exchange attached with requested forest map to Secretary General, in the case partial or all of the results and recommendations can be accepted; or b. Issue rejection letter (on behalf of Minister) for forest exchange, in the case all of the results and recommendations cannot be accepted. 9) The Secretary General proposes the concept of in-principle approval letter attached with the requested forest map to the Minister. 10) The Minister issues in-principle approval letter attached with the requested forest map. 11) In the case that based on Integrated Team s evaluation results Coverage and Strategic Value (DPCLS) potential, the Minister sends a request letter to the House of Representatives (DPR) for approval. 7 Secretary General 7 Minister 10 Minister 20 Investor Guideline Forest Status Alteration (Forest Area To Area For Other Uses)

27 CHAPTER 5 Case Studies CHAPTER 6 Key Lessons Learned CHAPTER 7 Useful Contacts In Indonesia No Steps Days Stakeholders Application Submission 12) The House of Representatives (DPR) reviews the evaluation results from the integrated team and sends a letter of approval or rejection to the Director General of Forestry Planning. 13) After receiving the letter from House of Representatives (DPR), the Director General of Forestry Planning is to: a. Propose the issuance of in-principle approval letter attached with the requested forest map to the Secretary General, in the case DPR approves the proposed forest area (partial or all forest area); or b. Issue rejection letter on behalf of the Minister, in the case DPR does not approve the proposed forest area. Not stipulated House of Representatives 10 Director General of Forestry Planning 14) Upon receiving the proposed in-principal approval letter, Secretary General proposes the concept of in-principle approval letter to the Minister. 15) The Minister issues the in-principle approval attached with requested forest map. 16) The in-principle approval shall be valid up to 2 years since the issuance date and can only be extended for two times, each for a period of 1 year. 17) The in-principle approval consists of obligations requiring the applicant to: 7 Secretary General 7 Minister - - Not stipulated Applicant a. b. Make and submit a statement letter in form of notary deed, stating that the applicant will: i. Bear all costs related to land boundary determination activities of the approved forest area and the proposed replacement area; ii. iii. iv. Provide the fee related to reforestation and plant management in the replacement area; Submit a Bank Guarantee Letter from a State Bank for reforestation and management (except for applicant from the central/local government); and Bear all costs for stumpage and provision of forest resources (PSDH) for plantations or PSDH and reforestation fund (DR) for natural forest of the requested forest area. c. Submit a guarantee letter in notary deed stating that in the case the replacement area is found to have defects at a later time, applicant shall replace it with another land area; and d. Tukar Menukar Kawasan Hutan, BATM) of forestry area. Investor Guideline Forest Status Alteration (Forest Area To Area For Other Uses) 21

28 CHAPTER 1 Introduction CHAPTER 2 National Forestry Plan (RKTN) CHAPTER 3 Indonesian Forest Status Alteration Policies CHAPTER 4 Changing Legal Status Of Forest No Steps Days Stakeholders Application Submission 18) The clean and clear area shall meet the following conditions: a. For parties who have the rights over the proposed replacement area, which has or has not been registered, shall be relinquished through compensation; b. For parties who have the rights over the proposed replacement area, which has been registered, shall be - - c. For parties who have the rights over the replacement area, which has not been registered (letter c/girik), shall be deleted from the village book list and map, attached with a statement not been registered. Extension of In-Principle Approval 19) before the expiration of the in-principle approval, the applicant can apply for in-principle approval extension to Minister with a copy to Secretary General, the Director General of Forestry Planning, Governor, and Head of Provincial Forestry Department. 20) Governor assigns the Head of Provincial Forestry Department to conduct an evaluation. 21) Head of Provincial Forestry Department conducts evaluation on extension of in-principle approval and reports the result to the Governor. 22) Governor reports the evaluation result to Minister (through Secretary General) with a copy to the Director General of Forestry Planning. 23) The Director General of Forestry Planning reports the technical evaluation for the extension of in-principle approval to Secretary General. 24) The Secretary General proposes the concept of approval or rejection letter regarding the extension of in-principle approval to Minister. 25) Minister issues approval or rejection letter regarding the extension of in-principle approval. - Applicant 5 Governor 30 Head of Provincial Forestry Department 10 Governor 10 Director General of Forestry Planning 7 Secretary General 7 Minister 22 Investor Guideline Forest Status Alteration (Forest Area To Area For Other Uses)

29 CHAPTER 5 Case Studies CHAPTER 6 Key Lessons Learned CHAPTER 7 Useful Contacts In Indonesia No Steps Days Stakeholders Application Submission 26) General of Forestry Planning (on behalf of Minister) and applicant 27) BATM consists of: a. Handover of documents of the proposed replacement area to be converted into forest area; b. Obligation for applicant to: i. Bear all the costs related to the land boundaries determination activities of the requested forest area and replacement area which have been designated as forest area by the Minister. 30 Director General of Forestry Planning(on behalf on Minister) and Applicant. - - ii. Provide the fee to conduct reforestation and plant management of the replacement area which has been designated as forest area; and iii. Bear all costs for stumpage and provision of forest resources (PSDH) for plantations or PSDH and reforestation fund (DR) for natural forest of the requested forest area based on the inventory result. Designation of Replacement Area as Forest Area 28) Based on the BATM, the Director General of Forestry Planning proposes the issuance of Ministerial Decree on the designation of the proposed replacement area as forest area, attached with the map to Secretary General. 29) The Secretary General conducts legal assessment and reports the concept of Ministerial Decree on designation of the proposed replacement area as forest area, attached with the map to Minister. 30) The Minister issues the Ministerial Decree on the designation of the proposed replacement area as forest area, attached with the map. 30 Director General of Forestry Planning 7 Secretary General 7 Minister Investor Guideline Forest Status Alteration (Forest Area To Area For Other Uses) 23

30 CHAPTER 1 Introduction CHAPTER 2 National Forestry Plan (RKTN) CHAPTER 3 Indonesian Forest Status Alteration Policies CHAPTER 4 Changing Legal Status Of Forest No Steps Days Stakeholders Application Submission Land Boundary of the Requested Forest Area and Compensation 31) Based on the BATM, the applicant is obliged to conduct land boundary determination of the requested forest area and inventory of the objects and infrastructure. Land boundary determination activities include a. The land boundary determination is held by Forest Boundary Committee. b. The land boundary can be performed by a competent consultant in measurement and mapping, under the supervision of Head of the Center for Forest Area Consolidation. c. The Head of Center for Forest Area Consolidation conducts determination by the consultant. d. Memo on Land Boundary (BATB) and land boundary maps, signed by Forest Boundary Committee. 180 Applicant, Forest Boundary Committee, Head of the Center for Forest Area Consolidation 32) The inventory is conducted by Head of Forestry Department in Province/Regency/City or the Managing Director of Perum Perhutani (if the forest area is within the Perum Perhutani s working area). 33) Based on the inventory result, the applicant is obliged to pay provision of forest resources (PSDH)for plantations and reforestation fund (DR) for natural forest of the requested forest area, of which the calculation mechanism shall be in accordance with the stipulated regulation. Not stipulated Not stipulated Head of Forestry Department in Province/ Regency/City, or Managing Director of Perum Perhutani. Applicant 24 Investor Guideline Forest Status Alteration (Forest Area To Area For Other Uses)

31 CHAPTER 5 Case Studies CHAPTER 6 Key Lessons Learned CHAPTER 7 Useful Contacts In Indonesia No Steps Days Stakeholders Application Submission Land Boundary of the Replacement Area and Reforestation 34) Based on the Ministerial Decree on the designation of replacement area as forest area, the holder of in-principle approval is obliged to conduct the land boundary determination of the replacement area, whereby: 180 Applicant, Forest Boundary Committee, Head of the Center for Forest Area Consolidation a. The land boundary determination is held by Forest Boundary Committee. b. The land boundary can be performed by a competent consultant in measurement and mapping, under the supervision of Head of the Center for Forest Area Consolidation. c. The Head of the Center for Forest Area Consolidation boundary determination by the consultant. d. Memo on Land Boundary (BATB) and land boundary maps, signed by Forest Boundary Committee. 35) After the land boundary determination of the replacement area is completed, reforestation will be conducted. 36) The reforestation may be conducted by the applicant and/or competent business entity in reforestation/planting such as stateowned enterprise in forestry industry. 37) The holder of in-principle approval is responsible for the success of reforestation up to the second year of management. 38) The holder of in-principle approval is obliged to submit a guarantee letter from a state bank for all costs related to reforestation and its management, to the Director General of Forestry Planning(on behalf of the Minister), except for applicants from the central/local government. Not stipulated Not stipulated Applicant - Applicant Not stipulated Applicant/third party Applicant Investor Guideline Forest Status Alteration (Forest Area To Area For Other Uses) 25

32 CHAPTER 1 Introduction CHAPTER 2 National Forestry Plan (RKTN) CHAPTER 3 Indonesian Forest Status Alteration Policies CHAPTER 4 Changing Legal Status Of Forest No Steps Days Stakeholders Application Submission 39) The Head of Provincial Forestry Department and the Head of Technical Implementation Unit of Ministry of Forestry conduct the evaluation and assessment of the reforestation. 40) In the case the applicant did not conduct or was not successful in the reforestation/planting, the Director General of Forestry Planning can order the bank to release the guarantee letter and appoint other party to conduct reforestation. Not stipulated Not stipulated Head of Provincial Forestry Department, Head of Technical Implementation Unit of Ministry of Forestry Director General of Forestry Planning Designation of Replacement Area as Forest Area and Relinquishment of Requested Forest Area 41) BATB and land boundary maps (requested forest area and replacement area) signed by Forest Boundary Committee is to be submitted by Head of the Center for Forest Area Consolidation to the Director General of Forestry Planning within 7 working days. 42) The Director General of Forestry Planning of PK proposes the issuance of Ministerial Decree on the designation of replacement area as forest area and relinquishment of the requested forest area, attached with map to the Secretary General. 43) The Secretary General conducts legal assessment and proposes the concept of Ministerial Decree on designation of replacement area as forest area and relinquishment of requested forest area, attached with map to the Minister. 44) The Minister issues Ministerial Decree on the designation of replacement area as forest area and relinquishment of requested forest area, attached with map. 7 Head of the Center for Forest Area Consolidation 30 Director General of Forestry Planning 7 Secretary General 7 Minister 26 Investor Guideline Forest Status Alteration (Forest Area To Area For Other Uses)

33 CHAPTER 5 Case Studies CHAPTER 6 Key Lessons Learned CHAPTER 7 Useful Contacts In Indonesia No Steps Days Stakeholders Application Submission In-principle approval Without DPCLS 293 days Total days (excluding activities in which the time frames are not stipulated) With DPCLS 303 days Extension of in-principle approval 69 days Issuance of Ministerial Decree (after 305 days Investor Guideline Forest Status Alteration (Forest Area To Area For Other Uses) 27

34 CHAPTER 1 Introduction CHAPTER 2 National Forestry Plan (RKTN) CHAPTER 3 Indonesian Forest Status Alteration Policies CHAPTER 4 Changing Legal Status Of Forest Applicant Submits application Director General of Forestry Planning (DG of PK) conducts technical and administrative assessment (45 days) Fulfills requirement? Secretary General (SG) Integrated Team or Forest Exchange Team Minister Figure 3. Process of Formation of Forest Exchange Team and Integrated Team and Submission of Recommendation In Exchange of Forest Mechanism 28 Investor Guideline Forest Status Alteration (Forest Area To Area For Other Uses)

35 CHAPTER 5 Case Studies CHAPTER 6 Key Lessons Learned CHAPTER 7 Useful Contacts In Indonesia Legend: Time is not stipulated in regulation No Issues rejection letter on behalf of Minister (7 days) Yes Forest area more than 2 Ha? No Forms Forest Exchange Team (37 days) Yes Conducts research and reports the results and recommendations to Minister (180 days) Forms Integrated Team (37 days) Investor Guideline Forest Status Alteration (Forest Area To Area For Other Uses) 29

36 CHAPTER 1 Introduction CHAPTER 2 National Forestry Plan (RKTN) CHAPTER 3 Indonesian Forest Status Alteration Policies CHAPTER 4 Changing Legal Status Of Forest Director General of Forestry Planning (DG of PK) Issues rejection letter (10 days) Secretary General (SG) No No Integrated Team or Forest-Exchange Team Recommendation Yes Approved? DPCLS? Yes Minister Receives Recommendation (7 days) House of Representatives (DPR) Figure 4. Process of In-principal Approval Issuance In Exchange of Forest Mechanism 30 Investor Guideline Forest Status Alteration (Forest Area To Area For Other Uses)

37 CHAPTER 5 Case Studies CHAPTER 6 Key Lessons Learned CHAPTER 7 Useful Contacts In Indonesia Legend: Time is not stipulated in regulation Issues rejection letter (10 days) Proposes the issuanceof in-principle approval (10 days) Proposes the concept of in-principle approval (7 days) No Yes Sends request letter to DPR for approval (10 days) issues in-principle approval (7 days) Reviews the research result Approved? Investor Guideline Forest Status Alteration (Forest Area To Area For Other Uses) 31

38 CHAPTER 1 Introduction CHAPTER 2 National Forestry Plan (RKTN) CHAPTER 3 Indonesian Forest Status Alteration Policies CHAPTER 4 Changing Legal Status Of Forest Applicant Fulfills obligation Conduct inventory and land boundary determination of the requested forest area (180 days) Head of the Center for Forest Area Consolidation Director General of Forestry Planning (DG of PK) Signs the Official Memo (BATM) on behalf of the Minister (30 days) Proposes the issuance of Ministerial Decree on the designation of the proposed replacement area (30 days) Secretary General (SG) Conducts legal assessment and proposes the concept of Ministerial Decree (7 days) Minister Issues Ministerial Decree on the designation of replacement area (7 days) Figure 5. Process of Ministerial Decree Issuance in Exchange of Forest Mechanism 32 Investor Guideline Forest Status Alteration (Forest Area To Area For Other Uses)

39 CHAPTER 5 Case Studies CHAPTER 6 Key Lessons Learned CHAPTER 7 Useful Contacts In Indonesia Legend: Time is not stipulated in regulation Conducts inventory and land boundary determination of the replacement area (180 days) Submits BATB and land boundary maps (7 days) Proposes the issuance of Ministerial Decree (30 days) Conducts legal assessment and proposes the concept of Ministerial Decree (7 days) Issues Ministerial Decree on the designation of replacement area as forest area and relinquishment of requested forest area (7 days) Investor Guideline Forest Status Alteration (Forest Area To Area For Other Uses) 33

40 CHAPTER 1 Introduction CHAPTER 2 National Forestry Plan (RKTN) CHAPTER 3 Indonesian Forest Status Alteration Policies CHAPTER 4 Changing Legal Status Of Forest RELINQUISHMENT OF FOREST The procedures for exchange of forest are stipulated in Ministerial Regulation P. 33/Menhut-II/2010 and P.28/Menhut-II/2014 on Relinquishment of Convertible Production Forest Area. No Steps Days Stakeholders Application Submission 1) administrative and technical requirements. a. Administrative documents include: i. Application letter attached with requested forest map at a minimum scale of 1:100,000; - Applicant ii. iii. iv. Location permit from Governor or Regent/Mayor in accordance with the authority; Business license for application required to have business permit that is in accordance with the applicable regulation; Recommendation letter from Governor or Regent/Mayor, attached with requested forest map at a minimum scale of 1:100,000; If the applicant is the Governor, then the recommendation letter is from Regent/Mayor. If the applicant is Regent/Mayor, then the recommendation letter is from Governor. Recommendation from Governor or Regent/Mayor should include approval on relinquishment of convertible production forest to non-forest area that is based on applicant s request and taking into account technical consideration v. Statement letter in the form of a notary deed (except for applicant from government), stating that it will: Oblige all the applicable regulations; No transfer of the in-principle approval without the approval from the Minister. Build farm for community that lives in forest area with minimum 20% of total relinquished forest and it can be utilized by company for farming. vi. Applicant from business entity/organization/ agency must attach the following additional documents: Corporate establishment deed and amendment deed (if any); Tax number; and Financial report, which had been audited by public accountant. 34 Investor Guideline Forest Status Alteration (Forest Area To Area For Other Uses)

41 CHAPTER 5 Case Studies CHAPTER 6 Key Lessons Learned CHAPTER 7 Useful Contacts In Indonesia No Steps Days Stakeholders b. Technical documents include: i. Proposal, technical plan/master plan signed by Minister, minister-level ii. by forestry department in province and regency/city, related institution in the province and regency/city and Head of the Center for Forest Area Consolidation; and iii. Satellite image of the requested forest area of no later than 2 years, along with a statement letter by the applicant stating that the image result is correct. 2) Upon receiving the disposition from the Minister, the Director General of Forestry Planning will conduct assessments on the technical and administrative requirements. 3) In the case the assessments on the technical and administrative reveal that it has assessment on the following aspects:; The function of forest area as per the appointed map and/or provincial determination and its adjustment; 15 Director General of Forestry Planning 30 Director General of Forestry Planning Forest designation; Forest use permit; and Forest utilization permit. 4) If the assessments on technical and administrative reveal that the application has rejection letter on behalf of the Minister. Issuance of In-Principle Approval of Relinquishment of Forest 5) If the assessment on forest function, designation and permit reveal that the application the issuance of in-principle approval letter attached with requested forest map to the Secretary General. 6) The Secretary General proposes the concept of in-principle approval letter attached with requested forest map to the Minister. 7 Director General of Forestry Planning Not stipulated Director General of Forestry Planning 7 Secretary General 7) The Minister issues in-principle approval letter attached with requested map. 7 Minister 8) The in-principle approval of relinquishment of convertible production forest (HPK) includes the obligation to a. Complete land boundary determination of the approved forest area (HPK); and b. Secure the approved forest area (HPK). - - Investor Guideline Forest Status Alteration (Forest Area To Area For Other Uses) 35

42 CHAPTER 1 Introduction CHAPTER 2 National Forestry Plan (RKTN) CHAPTER 3 Indonesian Forest Status Alteration Policies CHAPTER 4 Changing Legal Status Of Forest No Steps Days Stakeholders 9) The in-principle approval of relinquishment of forest shall be valid up to 1 year since the issuance date and can only be extended two times, each for a period of 6 months. 1 calendar year Applicant Land Boundary of the Requested Forest Area 10) Upon the issuance of in-principle approval, the Director General of Forestry Planning forest area. 11) The applicant conducts the land boundary determination, with the following conditions: a. Land boundary determination is conducted by Forest Boundary Committee as organized by the Head of the Center for Forest Area Consolidation; b. The land boundary determination can be performed by a competent consultant in measurement and mapping, and supervised by Head of the Center for Forest Area Consolidation; c. All costs related to land boundary determination is borne by the applicant; and d. (BATB) and land boundary maps, signed by Forest Boundary Committee in accordance with the applicable regulation. 12) Upon receiving BATB and land boundary maps, Head of the Center for Forest Area Consolidation reports to the Director General of Forestry Planning. Extension of In-Principle Approval 13) In the case land boundary cannot be completed within 1 calendar year, applicant can apply for an extension of in-principle approval at least 30 days prior to the expiration date of in-principle approval, to Minister with a copy to the Director General of Forestry Planning and Head of the Center for Forest Area Consolidation. 14) Head of the Center for Forest Area Consolidation reports to the Director General of Forestry Planning on the progress of land boundary determination. 7 Director General of Forestry Planning 1 calendar year Applicant, Forest Boundary Committee, Head of the Center for Forest Area Consolidation 7 Head of the Center for Forest Area Consolidation - Applicant 7 Head of the Center for Forest Area Consolidation 36 Investor Guideline Forest Status Alteration (Forest Area To Area For Other Uses)

43 CHAPTER 5 Case Studies CHAPTER 6 Key Lessons Learned CHAPTER 7 Useful Contacts In Indonesia No Steps Days Stakeholders 15) The Director General of Forestry Planning is to: a. Propose the concept of extension of in-principle approval to Minister (in the case that there is progress in the land boundary determination); or b. Propose the concept of rejection letter on the extension of in-principle approval to Minister (in the case that there is no progress of the land boundary determination). 15 Director General of Forestry Planning 18) Minister is to: 7 Minister a. Issue approval letter on the extension of in-principle approval; or b. Issue rejection letter on the extension of in-principle approval. Issuance of Ministerial Decree 17) Upon receiving the BATB and the land boundary map from the Head of the Center for Forest Area Consolidation, the Director General of Forestry Planning reports technical evaluation of relinquishment of forest area attached with the forest map to the Secretary General. 18) The Secretary General proposes the concept of Ministerial Decree on Relinquishment of Forest Area attached with the forest map to Minister. 19) The Minister issues Ministerial Decree on Relinquishment of Forest Area attached with the forest map. 30 Director General of Forestry Planning 7 Secretary General 7 Minister In-principle approval 59 days Extension of in-principle approval 29 days Total days (excluding activities that are not stipulated) 1 calendar year Issuance of Ministerial Decree (after the applicant of the Center for Forest 51 days Investor Guideline Forest Status Alteration (Forest Area To Area For Other Uses) 37

44 CHAPTER 1 Introduction CHAPTER 2 National Forestry Plan (RKTN) CHAPTER 3 Indonesian Forest Status Alteration Policies CHAPTER 4 Changing Legal Status Of Forest Applicant Submits Application Director General of Forestry Planning Conduct administrative and technical assessment (15 days) No Issues rejection letter on behalf of Minister (7 days) No Fulfills Requirements? Yes Conduct assessment (function, designation, permit) (30 days) Fulfills Requirements? Secretary General Minister Receives Application Head of the Center for Forest Area Consolidation Forest Relinquishment Mechanism 38 Investor Guideline Forest Status Alteration (Forest Area To Area For Other Uses)

45 CHAPTER 5 Case Studies CHAPTER 6 Key Lessons Learned CHAPTER 7 Useful Contacts In Indonesia Legend: Time is not stipulated in regulation Conducts the boundary determination (1 year calendar) Submits the Official Memo on Land Boundary (BATB) and maps (7 days) Proposes in-principal approval issuance to Secretary General Issues notification letter to complete land boundary determination (30 days) Reports the Official Memo on Land Boundary (BATB) and maps to Secretary General (30 days) Yes Proposes the concept of in-principal approval to Minister (7 days) Proposes concept of Ministerial Decree (7 days) Issues in-principal approval (7 days) Issues Ministerial Decree (7 days) Reports the Official Memo on Land Boundary (BATB) and maps (7 days) Investor Guideline Forest Status Alteration (Forest Area To Area For Other Uses) 39

46 CHAPTER 1 Introduction CHAPTER 2 National Forestry Plan (RKTN) CHAPTER 3 Indonesian Forest Status Alteration Policies CHAPTER 4 Changing Legal Status Of Forest 4.3 PROVINCIAL FOREST ALTERATION The procedures for provincial forest alteration are stipulated in Government Regulation No. 10/2010 on Procedures for the Alteration of Forest Purpose and Function and Ministerial Regulation P. 36/Menhut- II/2010 on Formation of Integrated Team For Forest Status/Function Alteration. No Steps Days Stakeholders 1) The applicant is obliged to complete the required documents: a. Proposed map of alteration of forest purpose and function at a minimum scale of 1:250,000 in the base map attached with - Applicant Technical assessment for the development of proposed alteration of forest purpose and function that is based on the availability of maximum map Spatial utilization plan b. Satellite image no later than 2 years that could portray the vegetation condition and the land cover on the proposed alteration of forest purpose and function; c. Map and Document of License or Permit: i. Forest utilization such as Business License to Use Timber Forest of Natural Forest (IUPHHK-KA), Business License to Use Timber Forest of Plantation Forest (IUPHHK-HT), etc. ii. iii. Forest use including the ones that is still in the process and that has been granted Borrow-to-use Forest Permit (IPPKH) for mining industry, infrastructure, public facilities, and other industries; and Forest purpose alteration including the ones that has been granted inprinciple approval and relinquishment of forest from the Minister, such as plantation, transmigration/relocation of communities, etc. d. Assessment result related to Alteration of Forest Purpose and Function of the requested forest; and 40 Investor Guideline Forest Status Alteration (Forest Area To Area For Other Uses)

47 CHAPTER 5 Case Studies CHAPTER 6 Key Lessons Learned CHAPTER 7 Useful Contacts In Indonesia No Steps Days Stakeholders e. Other supporting documents: i. Regional Development Planning Documents, including: a. Province in number b. The Provincial Medium Term Development Regional Working Unit (SKPD) for Strategic Planning (Forestry, Agriculture, Plantation, Public Works, Transportation, Energy and Mineral Resources, Social and Strategic Planning of Regional Land Agency); ii. Data and Spatial Plan Map of the proposed forest area. The alteration of forest purpose and function includes Location of residential area or land owned by community that either is entitled to the rights or not; Location of community s arable land; and business. iii. Data and biophysics map, such as type of soil, climate and/or rainfall in the last ten years, slope type and topographic, location distribution and peat land, and land cover (satellite image). 2) Upon receiving the application from Governor, the Minister conducts a technical assessment. Not stipulated Minister 3) Director General of Forestry Planning issues Decree on Formation of Technical Team. 4) Technical Team conducts assessment. Not stipulated 10 Director General of Forestry Planning Technical Team 5) Based on the result of technical evaluation, the Minister forms an integrated team. 17 Minister Investor Guideline Forest Status Alteration (Forest Area To Area For Other Uses) 41

48 CHAPTER 1 Introduction CHAPTER 2 National Forestry Plan (RKTN) CHAPTER 3 Indonesian Forest Status Alteration Policies CHAPTER 4 Changing Legal Status Of Forest No Steps Days Stakeholders 6) The integrated team conducts research and presents the assessment result and recommendation to Director General of Forestry Planning and related Echelon 1 within the Ministry of Forestry. 180 Integrated Team 7) Head of Integrated Team presents the report to the Minister with a copy of the Director General of Forestry Planning. Not stipulated Integrated Team 8) 30 Minister 9) If based on the evaluation of the integrated research that the proposed changes to forest areas has potential impact and/or environmental risks, the applicant shall carry out strategic environmental assessment. - Applicant 10) Minister presents the research result evaluated by Integrated Team to the House of Representatives to seek approval on the forest purpose alteration that have Not stipulated Minister House of Representatives Approval 11) House of Representatives reviews the assessment result. Not Stipulated 12) Upon receiving the letter from House of Representatives, the Director General of Forestry Planning is to: a. Propose the concept of Ministerial letter regarding the substantive approval on the draft of regional regulation regarding provincial spatial planning, to Minister; b. Propose the concept of Ministerial Decree regarding the alteration of forest purpose and function as well as the concept of Ministerial Decree regarding provincial forest area and provincial water, to Secretary General. House of Representatives 10 Director General of Forestry Planning 13) Secretary General presents the concept of Ministerial decree to the Minister 7 Secretary General 42 Investor Guideline Forest Status Alteration (Forest Area To Area For Other Uses)

49 CHAPTER 5 Case Studies CHAPTER 6 Key Lessons Learned CHAPTER 7 Useful Contacts In Indonesia No Steps Days Stakeholders 14) The Minister is to: a. Issue letter of the forest substantive approval on the draft of regional law regarding provincial spatial planning, or; b. Issue Ministerial Decree regarding the alteration of forest purpose and function and the concept of the Ministerial Decree regarding provincial forest area and water conservation. 7 Minister 15) Integrate Ministerial Decree into Provincial Spatial Planning. - Applicant Total days (excluding activities that are not stipulated) 251 days Investor Guideline Forest Status Alteration (Forest Area To Area For Other Uses) 43

50 CHAPTER 1 Introduction CHAPTER 2 National Forestry Plan (RKTN) CHAPTER 3 Indonesian Forest Status Alteration Policies CHAPTER 4 Changing Legal Status Of Forest Applicant Submits application Technical Team Conducts assessment Integrated Team Conducts research and present the result (180 days) Directorate General of Forestry Planning Issues decree on Formation of Technical Team (10 days) Receives technical assessment Secretary General Minister Conducts technical assessment Receives technical assessment Forms an Integrated Teams (17 days) House of Representatives 44 Investor Guideline Forest Status Alteration (Forest Area To Area For Other Uses)

51 CHAPTER 5 Case Studies CHAPTER 6 Key Lessons Learned CHAPTER 7 Useful Contacts In Indonesia Legend: Time is not stipulated in regulation Integrate Ministerial Decree into provincial spatial planning Proposes the concept of Ministerial letter regarding the subtantive approval on the draft of regional regulation regarding provincial spatial planning (10 days) Proposes the concept of Ministerial Decree (10 days) No Proposes the concept of Ministerial Decree (24 days) Conducts final evaluation of the research (30 days) Does the changes on forest designation have significant impact, wide coverage and strategic value? Yes Present the result to the House of Represntatives (DPR) to seek approval Receives letter from DPR Issues letter of the subtantive approval on the draft of regional regulation regarding provincial spatial planning, or issues Ministerial Decree (7 days) Conducts assessment of the research Investor Guideline Forest Status Alteration (Forest Area To Area For Other Uses) 45

52 CHAPTER 1 Introduction CHAPTER 2 National Forestry Plan (RKTN) CHAPTER 3 Indonesian Forest Status Alteration Policies CHAPTER 4 Changing Legal Status Of Forest 46 Investor Guideline Forest Status Alteration (Forest Area To Area For Other Uses)

53 CHAPTER 5 Case Studies CHAPTER 6 Key Lessons Learned CHAPTER 7 Useful Contacts In Indonesia 5.1 PARTIAL FOREST ALTERATION a. Exchange of Forest CASE STUDY 1: PT. A (a cement manufacturer) in Rembang Region, In 2012, PT. A was developing a cement plant in Rembang Region, Central Java, with a plant production capacity of 3 million tons per year. PT. A required the approval from Ministry of Forestry on the exchange of Mantingan production forest in Kajar and Pasucen villages. Phase 1 Application Submission Jan months Sep months Apr months Jun months May 2014 Total: 2 years 4 months The complete document was submitted on 11 September Issuance of Ministerial Decree SK No. 687/Menhut-II/2012 on the Formation of Integrated Team on 29 November Field study by Integrated Team during 8-16 January Submissions of research results and recommendations by Integrated Team on 18 February Issuance of In-Principle Approval S.279/ Menhut-II/2013 on 22 April Acara Tukar Menukar Kawasan Hutan, BATM) on 21 June Phase 4 Decree Issuance on Exchange of Forest Issuance of Ministerial Decree SK No. 643/ Menhut-II/2013 on Designation of Replacement area on 25 September Acara Tata Batas, BATB) for relinquishment and designation of forest area on 24 March Issuance of Director General of Forestry Planning Decree (on behalf of Minister of Forestry) regarding the designation of the replacement area to be permanent production forest on 17 April Issuance of Ministerial Decree on Relinquishment of Permanent Forest Area on 13 May CASE STUDY 2: PT. B (a cement In support of Tuban IV Cement Plant development, PT. B was targeting a 400 ha area of limestonemining area, which was located within the production forest in Tuban Region, East Java. Out of the 400 ha, there was 60 ha that required PT. B to conduct partial forest status alteration. To obtain the approval on exchange of forest, it was mandatory for PT. B to provide 120 ha of replacement area Apr years 9 months Jan years 9 months Oct 2013 Phase 1 Application submission Time line is not available. Total: 22 years 6 months (Excluding the time line for submitting application) Issuance of In-Principle Approval S. 540/ Menhut-II/91 on 13 April on 22 January Phase 4 Decree Issuance on Exchange of Forest Issuance of Ministerial Decree SK No. 84/ Menhut-II/07 on Designation of Replacement area on 8 May Investor Guideline Forest Status Alteration (Forest Area To Area For Other Uses) 47

54 CHAPTER 1 Introduction CHAPTER 2 National Forestry Plan (RKTN) CHAPTER 3 Indonesian Forest Status Alteration Policies CHAPTER 4 Changing Legal Status Of Forest November Boundary to Ministry of Forestry on 1 April Issuance of Director General of Forestry Planning Decree (on behalf of Minister of Forestry) regarding the designation of the replacement area to be permanent production forest. Issuance of Ministerial Decree on Relinquishment of Permanent Forest Area on 21 October CASE STUDY 2: PT. E (a palm-oil South Sumatera PT. E obtained the approval on relinquishment of convertible production forest for 5,010 ha. This forest area was located in Muara Enim Regency, South Sumatera and would be used as a palm-oil plantation. - Jul 2010 Jul 2010 b. Relinquishment of Forest CASE STUDY 1: PT. D (a plantation company), South Sumatera PT. D has obtained its approval on relinquishment of convertible production area from Ministry of Forestry for 39,873 ha. This forest area was located in Ogan Komering Ilir Regency, South Sumatera, which would be utilized as a sugarcane plantation. 2 years 2 months Sep months Feb months Jul 2013 Total: 3 years Dec months Mar months Jun months Jan months Apr 2012 Total: 1 years 4 months Phase 1 Application Submission First application submission on 28 December Submission of complete documents on 7 March Issuance of In-Principle Approval S. 286/ Menhut-II/2011 on 15 June January 2012 Phase 4 Decree Issuance Issuance of Ministerial Decree SK No. 192/ Menhut-II/2012 on 25 April Phase 1 Application Submission Submission of complete documents on 19 July There was a delay as the requested forest area was designated as peatlands as per the issuance of Presidential Instruction No. 10/2011. The applicant did one-year ground study and result, the process of relinquishment of forest area can be continued. Issuance of In-Principle Approval S. 432/ Menhut-II/2012 on 28 September February Phase 4 Decree Issuance Issuance of Ministerial Decree SK No. 493/ Menhut-II/2013 on 11 July Investor Guideline Forest Status Alteration (Forest Area To Area For Other Uses)

55 CHAPTER 5 Case Studies CHAPTER 6 Key Lessons Learned CHAPTER 7 Useful Contacts In Indonesia 5.2 PROVINCIAL FOREST ALTERATION Proposed Forest Alteration Proposed Forest Alteration From forest area to APL/nonforest area Area (ha) 2,534,518 HPT 582,195 HP 1,689,617 HPK 25 HL 85,973 KK 176,708 From APL/non-forest area to forest area 172,830 HPT 15,760 HP 121,359 HL 21,705 KK 14,006 Change of forest function 625,326 HPT 482,778 HP 127,752 HL 14,796 Phase I Submission of proposed forest area There were 6 submissions : 1. No. 650/436/BAPP/2006 on 16 January No. 050/7825/BAPP on 17 July No. 611/110339/BAPP/2010 on 11 November No. 050/11001/Bppw-Bapp/2010 on 10 December No.522/11451/BAPP on 21 December No. 522/116571/BAPP/2010 on 31 December 2010 Phase 2 Decree Issuance for non-dpcls area Issuance of SK No. 554/Menhut-II/2013 by Minister of Forestry on 2 August 2013 for DPCLS potential Submission of Letter No. 469/Menhut-II/2013 to House of Representatives (DPR) by Minister of Forestry on 2 August Issuance of SK No. 718/2014 on Forestry Area in East Kalimantan on 29 August Final conclusion and approval by Commission IV of DPR on the Forest Area with DPCLS potential on 25 February Approved Forest Alteration Jan years 11 months Dec years 8 months Aug months Feb 2014 Total: 8 years 1 month Alteration From forest area to APL/nonforest area Wide Coverage, and Strategic Value (DPCLS) Potential Area (ha) HPT HP HPK 25 With DPCLS Potential From APL/non-forest area to forest area HL Change of forest function HPT HP HL 7677 Investor Guideline Forest Status Alteration (Forest Area To Area For Other Uses) 49

56 CHAPTER 1 Introduction CHAPTER 2 National Forestry Plan (RKTN) CHAPTER 3 Indonesian Forest Status Alteration Policies CHAPTER 4 Changing Legal Status Of Forest Proposed Forest Alteration Proposed Forest Alteration From Forest Area to APL/ non-forest area Area (ha) 35,832 HPT 22,428 HP 4,535 HPK 3,319 HL 5,550 From APL/non-forest area to Forest area 5,951 HPT 1,550 HP 2,316 HPK 2,048 HL 37 Change of forest function HPT 55,850 HP 14,161 HL 8,353 KK 17,031 Phase I - Submission of proposed forest area There were 2 submissions: 1. No. 522/Bapeda/422/XI/2008 on 9 December No. 910/Bapeda/050/IV/2009 on 27 April 2009 Phase 2 Decree Issuance for non-dpcls area Desk and Field study by integrated team from August to September Presentation of assessment result to Minister and Governor on 2 October Additional submission of proposed forest area on 6 October Final submission to Minister on 12 October Decree issuance for non-dpcls area undated. for DPCLS potential Submission to DPR on 15 October Approval by DPR undated Phase 4 Decree Issuance Issuance of Decree by Minister SK No. 324/ Menhut-II/2010 on 25 May Dec months Apr months Oct 2009 Total: 1 years 5 months - 7 months May Investor Guideline Forest Status Alteration (Forest Area To Area For Other Uses)

57 CHAPTER 5 Case Studies CHAPTER 6 Key Lessons Learned CHAPTER 7 Useful Contacts In Indonesia From Forest Area to APL/ non-forest area Area (ha) 22,605 HPT 13,779 HP 2,055 HPK 1,509 HL 5,095 KK 167 From APL/non-forest area to Forest area 3,787 HPT 1,055 HP 1,194 HPK 1,538 Change of forest function 55,553 HPT 8,265 HP 3,661 HL 28,603 KK 15,024 Investor Guideline Forest Status Alteration (Forest Area To Area For Other Uses) 51

58 CHAPTER 1 Introduction 52 CHAPTER 2 National Forestry Plan (RKTN) Investor Guideline Forest Status Alteration (Forest Area To Area For Other Uses) CHAPTER 3 Indonesian Forest Status Alteration Policies CHAPTER 4 Changing Legal Status Of Forest

59 CHAPTER 5 Case Studies CHAPTER 6 Key Lessons Learned CHAPTER 7 Useful Contacts In Indonesia 6.1 KEY LESSONS LEARNED i.. Good communication between the project owner, local government and the Ministry of Forestry is required prior to the start of project implementation. This is required to gain a better understanding of the process of forest alteration, establish trust and maintain a good ii. iii. iv.. The applicant needs to have a strong commitment incompleting the process. This can be shown by displaying initiatives in preparing required documents and replacement area.. During the process, the applicant is obliged to bear all the costs related to providing replacement area, land boundary determination, inventory fees, and facilitation of the integrated alteration process. Therefore, the applicant particularly for applicants from local government to allocate the amount in the regional budget (APBD).. For exchange of forest mechanism, providing a replacement area is one of the obligations the applicant needs to particularly for areas within Java Island. This is due to most of the lands have already been occupied by communities, requiring the applicant to offer a compensation fee in acquiring the land. Sometimes, the land acquisition process resolution process is time-consuming and needs is recommended that applicant has obtained the in-principle agreement from the Entitled Party to proceed with the compensation arrangements. As such, when the Ministry of Forestry approves the designation of the area as the replacement area, the compensation arrangement can be quickly completed v.. The applicant needs to ensure that the documents and requirements are consuming process of revision and re-submission. It is often the case that the applicant lacks good preparation of the documents. Therefore, it is crucial that the applicant be proactive in obtaining the most updated information on the required documents from the Ministry of Forestry. vi. Uncertainty over the process continuity For example, location permit approved by the previous Regent is not recognized or extended by the new Regent for no clear reason. It is best for the applicant to ensure that there is sustainable support from the government. vii. Regulations. Sudden changes in the government regulation can potentially delay the process, such as the Presidential Instruction No.10/2011 on the Improving the Governance of Primary Natural Forest and Peat Lands. Due to the issuance of this regulation, the Ministry of Forestry was instructed to postpone all the applications on the Issuance of Primary Forests. 6.2 PROVINCIAL FOREST ALTERATION i.. The applicant needs to have a strong commitment to process completion. This solutions when the application faces a bottleneck issue. ii. iii. iv.. In proposing the forest area, the applicant often submits multiple submissions. This delays the process as the evaluation assessment by Director General will be re-conducted for each revised submission.. Applicant needs to ensure that the documents and requirements are complete, particularly the masterplan/planning document and provincial Spatial Plan (RTRW). It is crucial the application be well-prepared prior to submission and that these documents are synchronized with the Regional Medium-Term Development.. Lack of budget often occurs at the regional level during annual revisions of APBD. As the applicant, the governor needs to allocate forest conversion activities (i.e land boundary determination and facilitations of integrated team) to sustain process continuity. Investor Guideline Forest Status Alteration (Forest Area To Area For Other Uses) 53

60 CHAPTER 1 Introduction 54 CHAPTER 2 National Forestry Plan (RKTN) Investor Guideline Forest Status Alteration (Forest Area To Area For Other Uses) CHAPTER 3 Indonesian Forest Status Alteration Policies CHAPTER 4 Changing Legal Status Of Forest