26/04/2013 (The Sun Daily) - The move by the Indonesian government to limit foreign ownership of plantation land in the country is likely to see more local plantation companies venture into new markets such as Africa and Papua New Guinea (PNG) as part of their expansion plans, analysts say.

It was reported that the Indonesian Agriculture Ministry is revising the 2007 Ministerial Regulation on Plantation Permits, that would limit the total plantation area of new private oil palm firms to 100,000ha. The revision is said to protect small plantation firms from bigger players.

"I believe all (Malaysian) plantation companies are aware of this proposed ruling and thus, it is not expected to affect them. This (amendment) actually provides them an avenue to source for new markets to expand their plantation areas," an analyst at Inter-Pacific Securities Sdn Bhd told SunBiz yesterday.

He cited Kuala Lumpur Kepong Bhd (KLK) which had expanded to PNG in view of the increasing difficulty and expense to source suitable land both in Malaysia and Indonesia.

As of Sept 30, 2012, KLK had only 23,290ha of plantable land reserves, implying that it will run out of land in four to five years based on its new planting rate of 5,000ha to 8,000ha per year.

KLK recently bought 44,000ha of land in PNG, via its acquisition of a 51% stake in Collingwood Plantations Pte Ltd for US$8.7 million (RM26.86 million) to expand its oil palm plantation there.

However, CIMB Research analyst Ivy Ng believes that if the plan is implemented, it would be negative for planters as it would limit their ability to expand their landbank and estates in Indonesia.

"According to the news article, the ruling would only apply for new permits and may not affect land that the planters already own. If so, companies with existing large unplanted landbank would be the least affected and companies with low landbank reserves stand to lose out the most," said Ng.

Over time, she said this potential ruling may spur local plantation companies to expand into new markets like Africa and Papua New Guinea, venture downstream or return more money to shareholders via dividends.

"(Nevertheless,) we do not know the details on the proposed ruling yet. It is still preliminary," she said.

CIMB is maintaining its "neutral" recommendation on the plantation sector, pending more details on the proposed ruling.

A spokesman for Sime Darby Bhd, which is represented by its Indonesian subsidiary PT Minamas Gemilang, said it is unable to ascertain if the new regulation will have any impact on its expansion plans in Indonesia since it is still a work in progress.

"Sime Darby respects and abides by the laws of all countries in which it operates," he said in an email reply to SunBiz.

In Indonesia, Sime Darby has a presence in eight provinces with a total landbank of 299,262ha, out of which 204,846ha are planted with oil palm – representing about 68% of the group's total planted area there.

"To a certain degree, the revision may impact the future expansion of local palm oil firms," said Malaysia Palm Oil Association chief executive Datuk Dr Makhdzir Mardan.

"But let's look at it in a different angle. We can still improve the production through continuous research and development not only through expansion," he added.