JAKARTA, June 28 (Reuters) - Growth in Indonesia's crude palm oilproduction is seen slowing over the next few years as refining capacityfails to keep pace with the expansion of areas under cultivation, industrysources said on Friday. Refining capacity is already beginning to lagplantation output due to the lack of investment in the expensive refiningsector since the Asian financial crisis of 1997."On the other hand, production of fresh fruit bunches is rising as newtrees planted before and during the crisis mature," Nafis Daulay, chairmanof the Indonesian Edible Oil Industry Association, told Reuters.Indonesia is the world's second largest palm oil producer after Malaysia.The sprawling archipelago's total area under oil palm cultivation isestimated to have gone up to 3.3 million hectares in 2001, from slightlyover two million hectares in 1995, the Indonesian Palm Oil ProducersAssociation said.Indonesia is expected to produce 9 to 9.2 million tonnes of palm oil in2002, compared with 8.3 million tonnes in 2001, it said.Exports were seen rising to 5-5.5 million tonnes, compared to 4.9 milliontonnes in 2001 as Indonesia pushes exports as output exceeds domesticdemand.Industry sources said the shortage of refining capacity was most acute inKalimantan -- the Indonesian side of Borneo island -- and in Sumatra andeastern Indonesia, where many plans to build refineries have been on holdsince the late 1990s.Ethnic conflict in Kalimantan, between indigenous people and migrants, andsecurity problems in Sumatra have also delayed the building of manyfactories."In my estimation, there was around one million tonnes of fresh fruitbunches wasted last year because they could not be processed," said oneplantation owner in North Sumatra.A Jakarta trader said: "When prices are low, smallholder farmers, who donot have their own mills, make no margin by taking their crop to otherpeople's mills so they let the bunches rot."Even the main growing of Sumatra, where around 240 refiners operate, facesa shortage in refining capacity during peak output months.Industry sources say Sumatra has around 2.15 million hectares of matureplantations which yielded some 44-45 million tonnes of fruit bunches lastyear.And in turn they add this amount of oil requires a refining capacity of10,300 tonnes/hour, while current capacity at the refineries is onlyaround 9,640 tonnes/hour.

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