3/1/06 (South China Morning Post) - There is intense controversy around a plan to cut and clear a huge swathe of virgin forest in Indonesia to create the world's largest palm-oil plantation, which China may finance.

The plan's defenders - including Indonesian President Susilo Bambang Yudhoyono - say it will bring jobs, services and better living standards to people in Kalimantan, the Indonesian part of Borneo. They claim it will enable the government to curb illegal logging and protect the remaining tropical forest.

Opponents of the scheme argue that the highland zone initially chosen for planting oil palms is not well suited to their cultivation. They include environmentalists, the Indonesian Palm Oil Producers Association, and local farmers and fishermen in the affected region. Opening the area, they say, would see it stripped of commercially valuable trees by logging companies, damaging watersheds, rivers and the region's rich biodiversity.

The area earmarked for the project is near the border with Sarawak, Malaysian Borneo, where 14 of Kalimantan's 20 major rivers originate. Under the scheme, Indonesian state-owned firms would build a series of palm-oil plantations and processing plants linked by roads. The plantations would cover 1.8 million hectares, about two-thirds the size of Belgium.

Some Indonesian officials claim the new project could eventually produce more than 10 million metric tonnes of crude palm oil a year, worth about US$4.6 billion. This is about one-third of current global consumption, which is some 30 million tonnes.

Palm oil is used in a wide range of daily products, including soaps, chocolate bars, ice cream, ready-to-eat meals and margarine. It is the biggest vegetable oil crop after soya beans. Malaysia and Indonesia are the major producer countries, accounting for over 80 per cent of world supply. Demand for palm oil has almost doubled in the past decade and seems set to rise even faster in future, as more of it is used to make biofuel - an increasingly popular additive to make petrol supplies stretch further in an era of high oil prices.

There is growing demand for palm oil in China, the world's third-largest importer. It wants to secure supplies for the future. On a state visit to Beijing in July, Dr Susilo spoke to President Hu Jintao about helping to develop the new plantations as part of an effort to increase bilateral trade and investment. The next month, Indonesian Vice-President Jusuf Kalla signed a financing deal worth US$8 billion with the state-owned China Development Bank for the Kalimantan project.

But since then, opposition to the project has gathered strength. Purwo Susanto, an official in the Indonesian office of the global conservation group WWF, said: "This plan endangers many crucial areas: the forests, the rivers and, especially, the rich biodiversity in Kalimantan." The WWF released the project's official documents to the press. They revealed that it would be situated mostly in the highlands along the 850km border with Sarawak, between 1,000 and 2,000 metres above sea level.

At that altitude, critics say, the oil palms would not be productive or cost-effective. They want the government to encourage more oil palm cultivation in lowland parts of Kalimantan. The Forestry Ministry says nearly 6 million acres of forest - mostly at lower altitudes - in Kalimantan have already been cleared for palm oil plantations that never materialised. The critics want to know why.

The fate of the China-supported project is expected to be decided next year. Indonesian officials say they will conduct a final study then, to weigh the environmental, social, economic and security costs and benefits.

Michael Richardson is a visiting senior research fellow at the Institute of Southeast Asian Studies in Singapore. This is a personal comment.