MOVING FORWARD WITH THE JURISDICTIONAL APPROACH IN INDONESIA - Tropical Forest Alliance
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MOVING FORWARD WITH THE JURISDICTIONAL APPROACH IN INDONESIA UPDATE FOR JA PROPONENTS APRIL 2018 Dear Colleague, We are pleased to send you the latest of a series of informal, periodic updates to share information within the growing “community of practice” that includes individuals and organizations interested in the “jurisdictional approach” (JA) to transforming land use practices in Indonesia, with a particular focus on the palm oil sector. Providing support to that community is one of the objectives of a modest project supported by the David and Lucile Packard Foundation as part of the Climate and Land Use Alliance (CLUA) in Indonesia. This message includes a brief note on our insights from discussions that we held in February during a field trip to Ketapang, West Kalimantan, and a highlights (attached) from a discussion on fiscal policy reform to incentivise forest and peatland protection at the level of sub-national jurisdictions. You will also find various updates from other initiatives and links to useful resources that have come to our attention in the past several months. We welcome your feedback and suggestions for items to be included in future updates. With warm regards, Frances Seymour Leony Aurora francesjseymour@gmail.com leonyaurora@gmail.com
UPDATE FOR JA PROPONENTS: APRIL 2018 2
RECENT JA DEVELOPMENTS
In December 2017, Lingkar Temu Kabupaten Lestari (LTKL the green district platform) and the Round-
table on Sustainable Palm Oil (RSPO) signed a joint declaration committing to move towards sus-
tainable palm oil within LTKL member jurisdictions, including independent smallholders. Efforts would
include sustainable palm oil certification, the integration of conservation into agricultural practices,
potentially through the implementation of the Essential Economic Zone and High Conservation Value
approaches. A follow-up discussion was held in January 2018 to discuss the development of a joint
action plan for 2018-2020.
Also in December 2017, the East Kalimantan Government issued a Provincial Regulation on Sustain-
able Plantations. According to the latest draft of the regulation1, producers managing sustainable
plantations will receive “incentives and ease of business” and local government will support jurisdic-
tional certification for sustainability. Details on these policies will be set under further provincial-level
regulations.
In early February, the project team joined a trip organized by the Packard Foundation/Climate and
Land Use Alliance (CLUA) to Ketapang, West Kalimantan, one of three districts that has been cho-
sen for particular emphasis in CLUA’s Indonesia Initiative strategy. The trip was facilitated by staff
of Flora and Fauna International (FFI). The itinerary included visits to village forests, meetings with
NGOs, and a meeting with local government officials. Insights of relevance to the jurisdictional
approach include the following:
• Although FFI and other proponents have achieved remarkable success in helping communities
gain legal recognition for village forests, continued support is necessary to assist communities to
complement those rights with sustainable livelihood options. Many such options – such as eco-
tourism development and payments for environmental services – require coordinated policy and
planning at jurisdictional scales. In addition, overlapping claims among villages and commercial
entities require jurisdictional-scale conflict resolution before such options can be pursued.
• More generally, local NGOs perceive the need for collective action to build on their local-level
activities, and complement their on-the-ground work with strengthened policy-level engagements
to promote improved land-use planning and implementation at the district level.
• Local government officials are aware of adverse international attention to the deforestation
and peatland conversion caused by expansion of palm oil conversion, and are interested in
actions that could be taken to avert the threat of boycotts and other threats to market access.
They emphasized their view that NGOs should focus on assisting economic development in the
district. However, they are supportive of ideas around fiscal policy reforms that would reward
conservation efforts.
On 8 Feb. 2018, LTKL held its annual meeting in Jakarta, at which the forum decided to accept seven
districts, i.e., Ogan Komering Ulu (OKU), Musi Rawas, and Banyuasin in South Sumatra province,
Ketapang in West Kalimantan, Gorontalo in Gorontalo, and Luwu Utara and Bantaeng in South
Sulawesi, as new members. This brings the total LTKL membership to 15 districts.
1 The regulation is not yet available online. It is common in Indonesia for there to be a lag of several months between issuance of government
regulations and their availability online.
UPDATE FOR JA PROPONENTS: APRIL 2018 3 On 9 Feb. 2018, Packard Foundation/CLUA in collaboration with LTKL convened a meeting to discuss fiscal policy reform to reward forest and peatland conservation. Such reform would provide financial incentives to sub-national jurisdictions to lower emissions from the land-use sector. The discussion, a follow up to a meeting held in October 2016, was attended by a small group of individuals and organisations working on the issue. The discussion was enriched by the perspectives and insights from representatives of Sigi, Sintang, and Kapuas Hulu districts, which share a commitment to forest protection. An official from the Ministry of Finance contributed a presentation on possibilities for environmental fiscal policy reforms (see Annex). Overall, there was a consensus that fiscal policy reform would respond to many of the challenges currently faced by districts committed to sustainable land use and that new government policies and instruments are opening new possibilities for such reform. While there are challenges associated with the various options, participants agreed that further collaboration on this agenda is warranted, and that LTKL and its member districts and other organizations represented in the discussion have key roles to play in moving the agenda forward. A brief report summarizing highlights of the discussion is in the Annex. In February, Unilever became the first consumer goods company to disclose all of its palm oil sup- pliers, comprising more than 300 direct suppliers and over 1,400 mills around the globe, allowing a new level of monitoring by independent parties. Unilever’s next target is to source only palm oil that is traceable down to the plantation level, including plantations managed by independent small- holders, by the end of 2018. A small group of organizations led by Conservation International (CI), UNDP, Mars, IDH and TFT are in the early planning phases of a new collaboration, building on existing district-level initiatives, to develop sustainable commodity value chains and create business and livelihood opportunities in North Sumatra and Aceh. This effort, currently referred to as the Coalition for Sustainable Livelihoods, is aiming to scale up livelihood and conservation interventions through strategic collaboration and joint action in support of key government policies. The collaboration is linked to the themes and pri- orities identified in the emerging National Action Plan for Sustainable Palm Oil. The target regions represent key production areas for palm oil that flows into North Sumatra refineries, as well as for other commodities such as cocoa, coffee, rubber, and other crops that are essential to strengthen- ing livelihoods in palm oil producing landscapes. The effort is supported in part by the GEF Good Growth Partnership. PUBLICATIONS, VIDEOS, AND OTHER RESOURCES • Jurisdictional Approaches to Sustainable Land Use in Indonesia: What is it, why pursue it and how to build one, Gary Paoli and Blair Palmer, Nov. 2017. The paper sharpens and updates a selection of concepts introduced in a previous report on JA. • Update Report II, Draft of Presidential Instruction on the Moratorium and Evaluation of Palm Oil Licenses and Increase of Palm Oil Productivity, Yayasan Madani Berkelanjutan, January 2018 (see Annex, in Bahasa Indonesia). The publication provides analysis of a draft decree for a three-year moratorium on palm oil licenses, which is expected to be issued in the near future. The palm oil license moratorium may task the Ministry of Environment and Forestry to postpone the release of forest area for palm oil and mandate the establishment of a special team under the Coordinating Ministry for the Economy to oversee its implementation.
UPDATE FOR JA PROPONENTS: APRIL 2018 4
• Public Consultation Report: National Action Plan (NAP),
Indonesian Forum for Sustainable Palm Oil (Foksbi), February
2018. Inputs fom the public consultation are expected to be
reviewed and incorporated in the final NAP to be endorsed
by the Steering Committee, which consists representatives from
the Ministry of Agriculture, National Development Planning
Agency (Bappenas), Coordinating Ministry of Economic Affairs,
and Ministry of Economic Affairs, and industry associations.
After endorsement, the NAP will be implemented in 18 palm
oil producing provinces in Indonesia.
• Forestry Sector Fiscal Instruments, Dr. Joko Tri Haryanto, Ministry
of Finance’s Fiscal Policy Agency, 9 February 2018 (see Annex,
in Bahasa Indonesia). The presentation was prepared for a
discussion on fiscal incentives held by Packard/CLUA and
LTKL (see above) and provides context and various options
to increase spending for environmental protection through
government budgets.
• Indonesia-India High Level Expert Exchange: Fiscal Mechanism
for Forest Conservation, Research Center on Climate Change
of University of Indonesia, February 2018 (see Annex). This
report highlights insights from a study tour of a group of 18
decision makers and researchers from Indonesia to India to
learn about the country’s recent move to include forest cover
Hutan adat di Sorong, Papua, terbabat as a criterion for budget allocation to states. The trip was
perusahaan untuk kebun sawit. Foto: Pemuda
Mahasiswa Iwaro/ Mongabay Indonesia supported by GIZ.
LOOKING AHEAD
• The Oslo Tropical Forest Forum – The REDD+ Exchange 2018 will be held 27-28 June 2018
in Oslo, Norway. More than 40 participants from Indonesia are registered to participate.
Several of the parallel sessions of the conference will focus on themes relevant to the jurisdictional
approach, including one entitled, “Subnational jurisdictions: The most promising scale for
success?”. The session and a background paper summarizing the state of play on the jurisdictional
approach is being prepared under the leadership of William Boyd of the Governors Climate and
Forests Task Force Secretariat. The paper, along with others being prepared for the conference
(including one on commodity supply chains, and another on REDD+ implementation at national
and subnational levels), will be posted on the conference website in June.
• Festival Kabupaten Lestari (Green Districts Festival) and field trips will be held on 23-27 July 2018
in Palembang and Musi Banyuasin, hosted by LTKL. The event will showcase member districts’
priority programs and include policy discussions on issues relevant to sustainable development
at the district level, aside from two-day field trips. For more information, write to kestri.ariyanti@
pslindo.org.
Photo by Kate Evans/CIFOR ANNEX
Highlights from Discussion:
Fiscal Incentives to Reward
Forest and Peatland Conservation
Jakarta, 9 February 2018
The David and Lucile Packard Foundation/Climate and Land Use Alliance (CLUA) in
collaboration with Lingkar Temu Kabupaten Lestari (LTKL) convened a meeting to discuss
fiscal policy reform to reward forest and peatland conservation. The focus on fiscal tools is
part of a wider “jurisdictional approach” (JA) to incentivise sub-national jurisdictions to
lower emissions from the land use sector. The meeting, a follow up of a convening in
October 2016, was attended by a small group of individuals and organisations working on
the issue, who shared their current perspectives and relevant activities. The discussion was
further enriched by the perspectives and insights from representatives of districts that share
a commitment to forest protection, namely Sigi and Sintang, which are members of LTKL,
and Kapuas Hulu. The meeting also benefited from the participation of an official from the
Ministry of Finance; officials from the Ministry of Environment and Forestry had expressed
their interest in participating, but were unable to attend due to scheduling constraints.
Overall, there was a consensus that fiscal policy reform would respond to many of the
challenges currently faced by districts committed to sustainable land use and that new
government policies and instruments are opening new possibilities. While there are
challenges associated with the various options, participants agreed that further
collaboration on this agenda is warranted, and that LTKL and its member districts and other
organizations represented in the discussion have key roles to play in facilitating and
contributing to further progress.
Highlights from the presentations and discussions in the meeting are provided below.
----
Next steps
LTKL, as a platform of green districts supported by network of development partners and
CSOs, can contribute to the development and promotion of fiscal incentives supportive of
sustainable land use. Possible actions include:
(1) With member districts and partners’ network, stategically engage relevant
ministries, including by finding champions in each ministry for this issue and
developing supporting platforms. In particular, LTKL could work with the Ministry of
Environment and Forests (MoEF) that is currently developing the general services
unit (BLU) to channel part of climate financing.
(2) Coordinate with Association of District Governments in Indonesia (Apkasi) to get
support for common messaging and policy recommendations promoted by LTKL to
meet district needs.
DISCUSSION ON FISCAL INCENTIVES TO REWARD FOREST CONSERVATION: SUMMARY HIGHLIGHTS 1
(3) Develop storylines that align district priorities and sustainable land use practices to
communicate within LTKL as well as to key stakeholders outside the platform.
(4) Implement sustainable land use policies and show measurable impacts, e.g. lower
fire incidence or emission reduction, to serve as success stories and proof of
concept.
(5) Support member districts and work together with Ministry of Finance to implement
green budget tagging and ensure that districts are efficiently allocating and spending
budget to support sustainable development vision, including through environmental
protection components.
(6) Explore the use of reforestation fund, green bonds, and other existing mechanims to
fund efforts related to sustainable land use in their districts.
(7) In light of the upcoming regional elections this year and general elections in 2019,
ensure that sustainable development becomes part of the public policy discussions
in the campaigns in the elections in member districts’ respective provinces as well as
in the national arena. This work should be conducted in collaboration with
development partners, CSOs and media.
Other follow-up actions identified by the group include:
Review some 300 indicators that are currently measured and reported by districts to
find existing indicators that are relevant to sustainable land use and can be utilised
to measure performance in that area. This process is currently being conducted by
Ministry of Domestic Affairs and Development Planning Minister (Bappenas), and
LTKL, after the discussion, has engaged with them on this.
Continue and support an informal platform to discuss fiscal policy reforms
supportive of sustainable land use in collaboration with the Fiscal Policy Agency
(BKF) at the Ministry of Finance.
In the absence of a long-term value proposition, find options for providing incentives
to push in the short term, including support from donors and the private sector for
activities necessary to realise the districts’ sustainability vision, particularly around
sustainable land use.
----
District perspectives
Challenges faced by districts committed to forest conservation include:
(1) No budget allocation specifically rewards or compensates for the costs for forest
protection and/or the opportunity costs of vast areas that cannot be developed.
According to one bupati, “Policy needs to be supported from above, but in the
context of budgeting, the central government only sees land and water, but not
forest cover.” According to a representative from another district, “conservation
districts” need special consideration and rules to overcome the perverse incentives
that currently apply.
(2) Reduced fund allocations from the national government and limitations in spending,
which is mainly directed towards infrastructure development. According to one
2 DISCUSSION ON FISCAL INCENTIVES TO REWARD FOREST CONSERVATION: SUMMARY HIGHLIGHTS
bupati, funding focused on infrastructure (rather than environmental protection)
“only develops the body, but not the spirit.”
(3) Uncontrolled expansion by smallholders into protected areas.
Other points included:
Even without incentives and special allocations from the central government,
committed districts have developed action plans to implement their sustainability
vision, complementing their own efforts with those of CSO partners and their
donors.
If and when tangible incentives to protect forest materialise, districts will be able to
do more to shift towards sustainable land use. Incentives could include (1) fiscal
transfer policies that are supportive of forest protection, e.g., from the special
allocation fund (DAK); (2) low-interest loans; and other mechanisms.
According to one bupati, “Even as we know that issuing concession licenses to
companies does not benefit a district in terms of adding significant revenue, we can
work with the companies to handle some of our people’s concerns, including health,
education, or energy through their CSR and other programs”.
Ecological fiscal transfer (EFT)
The Ministry of Finance recognizes that subnational jurisdictions have been given
environmental protection responsibilities without commensurate authority, and that budget
planning has often focussed on activities rather than performance, often leading to perverse
incentives. The Ministry has been trying to shift budget and fiscal policies to be more
supportive of environmental protection efforts and efficiency of use. These include:
(1) reviewing prevailing regulations on spending for environmental purposes to give
the authority to local governments to use their allocated budgets for such purposes;
(2) improving budget tagging to increase the effectiveness of spending to create
impacts;
(3) opening up the possibility for the reforestation fund (Dana Reboisasi) to be used
for fire prevention and social forestry programs;
(4) separating provisions within the special allocations fund (DAK) for forestry for
reforestation and conservation purposes;
(5) initiating the sale of sovereign green sukuk (Islamic bond) to test global interest
to fund green projects, including renewable energy, in Indonesia.
Other points included:
Several participants in the meeting suggested that the incentives to protect forests
and peatland must be significant and enticing enough for sub-national jurisdictions
to change from business-as-usual practices, and the EFT policies should be designed
to serve this function. However, it should be kept in mind, that although companies
may not contribute to district government’s coffers directly, they contribute through
other means, e.g. CSR programs and infrastructure development (see previous
section).
DISCUSSION ON FISCAL INCENTIVES TO REWARD FOREST CONSERVATION: SUMMARY HIGHLIGHTS 3
There was a discussion about the feasibility of including consideration for forest
and/or peatland areas that cannot be developed, i.e. a form of fiscal disability, in the
formula used to determine the general allocation fund (DAU) to sub-national
jurisdictions. There are challenges, including the need for parliamentary approval,
and the need to ensure that the indicators do not result in “double counting” of land
area. However, as a weighting of DAU would likely be the most significant of all ETF
allocations from the national government, it should be explored further. The
Research Center on Climate Change University of Indonesia (RCCC UI), supported by
GIZ, is currently conducting a study and simulation on the inclusion of forest cover in
DAU formula to see how it will affect allocations to sub-national jurisdictions.
Other EFT mechanisms from the national government could include specific
allocations, earmarked for certain activities/policy areas, for shared revenue fund
(DBH) and/or DAK. This has been done before for educational and health services.
Between sub-national jurisdictions, EFT could include transfers from the provincial
level to districts based on environmental indicators prioritised by the province, and
forms of Payment for Environmental Services (PES), e.g., to secure water supply.
There is also a proposal for the allocation of DID (regional incentive fund) to use
indicators of environmental outcomes.
The formula to determine the village fund (Dana Desa) allocation has been altered
to include a 20% weighting for “geographical impediments”. Although this is not an
EFT mechanism per se, it could indirectly translate into higher allocations for
forested areas, which have less infrastructure.
Government regulation on Environmental Economic Instruments (PP IELH)
The new Government Regulation no. 46/2017 on environmental economic
instruments is designed to internalise environmental aspects into economic
development planning, in addition to funding environmental efforts and creating
incentives and disincentives. See attached the Powerpoint presentation prepared by
Sonny Mumbunan from RCCC UI/WRI Indonesia.
Importantly, inter-jurisdictional compensation/payments for environmental services
is placed under the wider umbrella of planning for development and economic
activities. This shows the potential for such compensation schemes to be part of
overal development planning, particularly relevant today as the National
Development Planning Agency (Bappenas) is developing the medium-term national
development plan for 2020-2024.
PP IELH can be used for Indonesia to attain its emissions reduction targets, which
include significant contributions from peatland and forest areas. The MoEF is
currently developing a BLU to channel climate financing, including from Norway for
reduced emissions from deforestation and forest degradation.
Although some of the regulations to implement PP IELH have already existed, many
still have to be developed – MoEF will need assistance to do this.
4 DISCUSSION ON FISCAL INCENTIVES TO REWARD FOREST CONSERVATION: SUMMARY HIGHLIGHTS
INDONESIA - INDIA
HIGH LEVEL EXPERT EXCHANGE
FISCAL MECHANISM FOR FOREST CONSERVATION
SEPTEMBER 4TH - 8TH 2017
Research Center for Climate Change
Universitas IndonesiaINDONESIA - INDIA HIGH LEVEL EXPERT EXCHANGE INDONESIA - INDIA HIGH LEVEL EXPERT EXCHANGE
CONTENT
4 Activities
5 Map
8 Summary and the follow up
Fiscal transfers in India and forest cover: Quotes from the
12 report of the Finance Commission of India
Comparing India with Indonesia: Indicators and weights
16 for fiscal transfers allocation
18 Testimonies
38 Profile of delegates
Published by:
Research Center for Climate Change University of Indonesia (RCCC UI)
Gedung Pusat Administrasi Universitas lt. 8,5 Kampus UI, Depok 16424
tel : (021) 7867222 ext. 100347, (021) 60878040
faks : (021) 71030606
Website:
http://rccc.ui.ac.id
In Cooperation with:
Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH
Forests and Climate Change Programme (FORCLIME)
Photo credits:
RCCC UI photo collection
Printed and distributed by:
RCCC UI
Contact:
Dr. rer. pol. Sonny Mumbunan
sonny.mumbunan@ui.ac.id
Jakarta, January 2018
2 3INDONESIA - INDIA HIGH LEVEL EXPERT EXCHANGE INDONESIA - INDIA HIGH LEVEL EXPERT EXCHANGE
Activities
NEW DELHI
• National Institute of Public
Day 1 Day 4 Finance and Policy (NIPFP) DEHRADUN
Monday, September 4th, 2017 Thursday, September 7th, 2017 • Ministry of Environment, Forestry
• Forest Research Institute (FRI)
and Climate Change (MEFCC)
• Arrival in New Delhi • Discussion with IORA Ecological Solutions • Forest Survey of India (FSI)
in New Delhi of India
• Visit Taj Mahal in Agra, Uttar Pradesh • IORA Ecological Solutions
AGRA
• Taj Mahal
Day 2 Day 5
Tuesday, September 5th, 2017 Tuesday, September 8th, 2017
• Return to Jakarta
• Travel to Dehradun in Uttharakand
• Visit to the Forest Research Institute (FRI)
• Visit to the Forest Survey of India (FSI)
Day 3
Wednesday, September 6th, 2017
• Travel to New Delhi
• Visit to the National Institute of Public
Finance and Policy (NIPFP)
• Visit to the Ministry of Environment,
Forestry and Climate Change (MEFCC)
of India
4 5INDONESIA - INDIA HIGH LEVEL EXPERT EXCHANGE INDONESIA - INDIA HIGH LEVEL EXPERT EXCHANGE 6 7
INDONESIA - INDIA HIGH LEVEL EXPERT EXCHANGE INDONESIA - INDIA HIGH LEVEL EXPERT EXCHANGE
INDONESIA-INDIA HIGH LEVEL EXPERT EXCHANGE ON FISCAL related activities along with other funding formulas developed and proposed by the FSI
schemes from domestic sources and overseas to the 14th Finance Commission. Some of the
MECHANISM FOR FOREST CONSERVATION: A SUMMARY were also discussed during the visit. Part of the proposed indicators and formula have underlaid
discussion included funding through transfers the mechanism for which funds to the states are
from the central government to the states to being allocated. Data quality of forest cover area
GENERAL INFORMATION transfers and revenue sharing between the
perform forest conservation activities. was another important point of discussion. Quality
national government and the states. The Finance
The Indonesia-India High-Level Expert Exchange data is critical in the integrity of fund allocation
Commission is formed every 5 years with Delegates also learned from the IORA Ecological
on Fiscal Mechanisms for Forest Conservation including data for forest cover performance
mandates outlined in the Terms of Reference. Solutions, an independent private research
took place from September 4 to 8, 2017. The for monitoring and evaluation purposes for the
institute in India. Together with the Forest Survey
delegates from Indonesia consisted of members VISITS TO NEW DELHI, DEHRADUN AND UTTAR transfer of funds in the following year. In addition,
of India, IORA Ecological Solutions developed
of the National House of Representatives, several PRADESH on the occasion at FSI the delegates gained
a set of indicators and instruments proposed
high ranking or senior officials in the Ministry of information regarding early forest fire warning
While in India, delegates visited, discussed and for more effective fiscal federalism for forestry
Finance, Ministry of Environment and Forestry, system in India developed by the institute.
exchanged information and views with experts at in India. In the proposal, IORA developed
and Ministry of National Development Planning
several institutions, particularly in New Delhi and indicators for high conservation value forests. FOLLOW-UP PLAN
(Bappenas), head and deputy head of forest-
Dehradun, Uttarakhand. Delegates also visited Delegates listened to the explanation of the
rich districts, and researchers from University The high-level expert exchange between
cultural monument of Taj Mahal in the northern instruments and indicators, and the evolution of
of Indonesia and member of the Indonesian Indonesia and India on fiscal mechanisms for
part of India, in Uttar Pradesh. policy proposals from the initial proposal which
Academy of Sciences (AIPI). They visited India for forest conservation plans for follow-up, especially
entailed several indicators to the final proposal of
the exchange. The Research Center for Climate In New Delhi, delegates visited the National in two areas.
forest cover, one that is considered in the fiscal
Change at the University of Indonesia organized Institute of Public Finance and Policy (NIPFP) and
mechanism. (1) Understanding the possibilities and
the exchange with the support of the German obtained information and discussed with NIPFP
limitations, including opportunities and
Government through the GIZ FORCLIME (Forest Directors who were also members of the 14th The visit in Dehradun, in the State of Uttarakhand,
challenges, of introducing fiscal mechanisms
and Climate) Project. Finance Commission. The Finance Commission included two important and established forestry
for forest conservation as being applied
continued to propose forest cover as one of the research institutes in India. The Forest Research
India was chosen because of the country's in India into the very context of Indonesia.
indicators of the transfer allocation from the Institute (FRI), which is part of the Indian
fiscal innovations for forest conservation. In Conducting specific studies to evaluate
central government to the states. Delegates Forest Research and Education Council and is
India, states receive fiscal transfers as part of its options for instruments, indicator, weight and
gained exposure and understanding especially structured under the Ministry of Environment,
revenue sharing according to the area of forest of source of funds for fiscal transfers for forest
regarding arguments made from public finance Forest and Climate Change, represents one
each state. The national government distributes conservation purposes should be part of
that justifies the transfer mechanism for forest of the oldest forestry research institutions in
funds to state governments based on forest gaining better understanding.
conservation. Further, the future of fiscal the world. The Indonesian delegates visited
cover along with other social, economic and mechanism with forest cover indicator, whether (2) Convening series of meeting that will be
and enjoyed the collection of the FRI museum,
demographic indicators. In the allocation of fund, it will endure or not over time, was explained exhibiting wood collections, non-timber forest attended by representatives from forest-
forest cover represents 7.5% of overall weight during the visit to India’s eminent public finance products, pathology, entomology, and herbaria. rich districts and provincial governments.
(100%). With this new fiscal transfer scheme, it Institute. Delegates also had an overview of fiscal The delegates discussed with FRI directors and The meetings should serve as forum for
is estimated that states in India will receive an policy formulation and governance as well as scientists on the role that FRI have played in the discussion, awareness building, and knowledge
equivalent of 90 trillion Rupiah based on their about different roles of the Finance Commission, formulation of forestry policy in India. The roles sharing on fiscal fiscal transfer schemes for
forest cover. By 2020 that number is expected to the Ministry of Finance and the Prime Minister's for science-policy included the involvement of forest conservation. Building upon these,
increase to 160 trillion Rupiah. For a comparison, Office, in these fiscal matters. FRI researchers in the analysis for drafting of the representatives from sub-national governments
General Purpose Transfers (DAU) in Indonesia for Nationally Determined Contribution (NDC) of should meet with the central government and
Delegates visited the Ministry of Environment,
2017 was planned for 404 trillion Rupiah. India and specific roles of FRI in the analysis of line ministries and agencies to discuss about
Forest and Climate Change and held an informal
In the constitution of India, proposal to change fiscal policy for forestry sector. possibilities for an enhanced fiscal mechanism
discussion with staff and researchers at the
public finance mechanism are proposed by a ministry. Themes covered include activities in Forest Survey of India (FSI) is another institution and policies that will benefit these districts
Finance Commission to the Prime Minister who the forestry sector, both general and specific that delegates paid a visit during their time in and provinces, reasonable from public finance
then submits it to the Parliament for approval. measures such as wildlife conservation in Dehradun. They discussed with FSI Directors and perspectives, while meeting the central
The changes apply also to intergovernmental conservation forest areas. Funding for forestry- researchers on the forest-related indicators and government’s commitment to forest protection.
8 9INDONESIA - INDIA HIGH LEVEL EXPERT EXCHANGE INDONESIA - INDIA HIGH LEVEL EXPERT EXCHANGE 10 11
INDONESIA - INDIA HIGH LEVEL EXPERT EXCHANGE INDONESIA - INDIA HIGH LEVEL EXPERT EXCHANGE
FISCAL TRANSFERS IN INDIA AND FOREST COVER: QUOTES
FROM THE REPORT OF THE FINANCE COMMISSION OF INDIA
The 14th Finance Commission (or FC-XIV) was looking incentive based grant rewarding the therefore, we are designing our approach to
constituted by the President of India under States with forest cover and linking it to the transfers accordingly.’’ The States [the sub-national governments] have to be
Article 280 of the Constitution on 2 January quality of forests in a State. Forests and the enabled to contribute to this national endeavour [to meet
Paragraph 2.33, page 18.
2013. The commission was mandated to make externalities arising from them impact both India’s international obligations] and, therefore, we are
designing our approach to transfers accordingly.
recommendations for the period 2015-2020. the revenue capacities and the expenditure
n “Many States have raised concerns over
The following are relevant excerpts of the
declining revenue from forests due to the
Report published in 2014 by FC-XIV related
implementation of the National Forest Policy.
to fiscal transfers with forest cover indicator Analysis of the forest revenue shows that (…) the restriction n “(…) to give consideration to the need
The exploitation of forest resources, including
alongside considerations for fiscal (revenues on exploitation of forest resources resulted in an across the
felling of trees, can be carried out only on to balance management of ecology,
board reduction in forest revenues for States [that is, sub-
and expenditures) and social-economic (such as environment and climate change consistent
national governments] in nominal terms. the basis of a centrally approved, scientific
poverty and declining capacities to perform public with sustainable economic development
and sustainable regeneration plan. This, they
functions) issues. while framing our recommendations (…).
have argued, has deprived the States with
large forest cover of an important source We recognise that States have an additional
needs of the States. We have noted that
of revenue. The States have suggested that responsibility towards management of
[The existing fiscal transfers recommended by the previous there is a need to address the concerns of
Finance Commission] had introduced a forward looking these structural limitations in realising the environment and climate change, while
people living in forest areas and ensure a
incentive based grant rewarding the States with forest cover creating conditions for sustainable economic
desirable level of services for them. At the
and linking it to the quality of forests growth and development. Of these complex
same time, it is necessary to compensate the
Forests, a global public good, should not be seen as a and multidimensional issues, we have
decline in the revenues due to existing policy handicap but as a national resource to be preserved and addressed a key aspect, namely, forest cover,
n “Our ToR [the Terms of Reference for the prescriptions. In our view, forests, a global expanded to full potential, including afforestation in degraded
in the devolution formula. We believe that a
14th Finance Commission or the FC-XIV] has public good, should not be seen as a handicap forests or forests with low density cover. Maintaining a green
large forest cover provides huge ecological
mandated us to consider the need to balance cover, and adding to it, would also enable [India] to meet its
international obligations on environment related measures benefits, but there is also an opportunity
management of ecology, environment and
cost in terms of area not available for other
climate change consistent with sustainable
economic activities and this also serves as
economic development. We recognize that States [that is, sub-national governments] have an additional
responsibility towards management of environment and an important indicator of fiscal disability.
this is a wide area with several dimensions. potential forest revenue should be taken
climate change, while creating conditions for sustainable We have assigned 7.5 per cent weight to the
We have approached it from the fiscal into consideration while assessing revenues
economic growth and development forest cover.”
perspective, in keeping with our primary of the States. Analysis of the forest revenue
mandate. The FC-XIII [the 13th Finance Paragraph 8.27, page 18.
shows that the receipts from these services
Commission that preceded the 14th Finance are extremely volatile and the restriction on
Commission] had introduced a forward but as a national resource to be preserved
exploitation of forest resources resulted in an
and expanded to full potential, including A large forest cover provides huge ecological benefits,
across the board reduction in forest revenues
afforestation in degraded forests or forests but there is also an opportunity cost in terms of area not
for States in nominal terms. Since the broad
Forests and the externalities arising from them impact both the with low density cover. Maintaining a green available for other economic activities and this also serves as
revenue capacities and the expenditure needs of the States.
trend in forestry revenue shows a decline, we
cover, and adding to it, would also enable the an important indicator of fiscal disability. We have assigned
(…) there is a need to address the concerns of people living in have projected this on the basis of the past 7.5 per cent weight to the forest cover.
nation to meet its international obligations
forest areas and ensure a desirable level of services for them. At trend growth rates.’’
the same time, it is necessary to compensate the decline in the
on environment related measures. We
recognise that the States have to be enabled Paragraph 7.24, page 81.
revenues due to existing policy prescriptions.’’
to contribute to this national endeavour and,
12 13INDONESIA - INDIA HIGH LEVEL EXPERT EXCHANGE INDONESIA - INDIA HIGH LEVEL EXPERT EXCHANGE 14 15
INDONESIA - INDIA HIGH LEVEL EXPERT EXCHANGE INDONESIA - INDIA HIGH LEVEL EXPERT EXCHANGE
COMPARING INDIA WITH INDONESIA: INDICATORS AND
WEIGHTS FOR FISCAL TRANSFERS ALLOCATION
The indicators and weights assigned for determination of the shares of taxes to the States in India
Weight (per cent)
Indicators
States
Population 17.5
Demographic change 10
Income distance 50
Area 15
Forest cover 7.5
TESTIMONIES
Source: Report of the 14th Finance Commission (2014)
The indicators and weights assigned for fiscal need calculation in the determination of general-
purpose transfers (DAU) to the Provinces, Districts and Municipalities in Indonesia
Weight (per cent)
Indicators
Provinces Districts/Municipalities
Population 30 30
Area* 15 13
Human Development 27 28
Cost 17 17
Regional gross domestic
11 12
products/capita
Notes: *Including marine area (40% and 45% for provinces and districts/municipalities, respectively). For general-
purpose transfers in 2016.
16 17INDONESIA - INDIA HIGH LEVEL EXPERT EXCHANGE INDONESIA - INDIA HIGH LEVEL EXPERT EXCHANGE
EVA SUNDARI
Member of National Parliament of the Republic of Indonesia, Commission XI on Finance, National Development
Planning, Banking, and Non-bank Financial Institutions (Komisi XI, DPR RI)
The component of forest cover like that in Indian fiscal transfers is certainly feasible to be included into
our DAU transfers (…) I would propose two strategies of implementation [for that feasibility]. The first
strategy is to build a strong political commitment, before we delve into technical details. And in that
regard, we do need a coherent legislation process, which is important as DPR RI is tasked to ensure that
no legislations are disorganized, especially for issue as central as climate change (…). Only if these were
in place then we could go further into details on how to integrate new indicators to the fiscal transfer
formula.
The second strategy should take a different approach. The government of Indonesia may adopt the new
indicators as we learned from India, incorporate them into our fiscal transfer formula and into our public
budgeting. People, as well as the legislation process and political commitment that I mentioned will fol-
low to that direction. Once adopted, I believe the way to community transformation and commitment to
climate change and forest conservation is best crafted by incentivizing the people (…).
As for the exchange to India, organizers were friendly and responsive, yet we can better organize this
by starting from looking at sort of thinking landscape before going into technical aspects. Organizers
should provide orientation for participants prior to the exchange.
EVA SUNDARI
Member of National Parliament of the Republic
of Indonesia, Commission XI on Finance, National
Development Planning, Banking, and Non-bank
Financial Institutions (Komisi XI, DPR RI)
18 19INDONESIA - INDIA HIGH LEVEL EXPERT EXCHANGE INDONESIA - INDIA HIGH LEVEL EXPERT EXCHANGE
VIVA YOGA MAULADI
Member of National Parliament of the Republic of Indonesia, Commission IV on Agriculture, Food, Maritime, and
Forestry (Komisi IV, DPR RI)
I gained a new perspective from India in terms of fiscal allocation for forest conservation. That is one
of the main, and unfinished, problems for the Government of Indonesia. According to the Law, forest
conservation is a responsibility assigned to the central government, yet forest goods are produced in
provinces and districts. Now why is forest degrading so rapidly? Why does forest no longer provide
additional economic benefits? First it is because local governments do not have enough money to pre-
serve their forests. They could not allocate money for forest conservation into their budget spending.
Most budget (up to 60 to 70 per cent) was spent on routine costs and the rest went to infrastructure
and development. Second it is the mindset, that is local government think that forest conservation is
the central government responsibility, and therefore not providing enough money at the local level for
forest conservation.
At the same time, at the central level, the allocation for forest conservation remains unclear. Most spe-
cific-purpose transfers (DAK) is being used for replanting, not specific for forest conservation. If the cur-
rent conditions continue to exist, I guess, first and foremost, deforestation will happen again and again
and at an alarming rate. Furthermore, forests will provide little additional economic and ecological ben-
efits for the communities dependent on forest, both inside and around forests, let alone helping con-
tribute to economic growth. In the 1970s, 1980s, forestry sector was a prima donna, alongside oil and
gas sector, and represented one of the largest tax and non-tax revenue sources. It has changed now.
I would suggest that the national parliament (DPR RI), Ministry of Finance, Ministry of Forestry and the
Environment, and experts from universities, those who share concern about forest conservation and
climate change, lead the way in managing forests. We should learn from, and to some degree, repli-
cate what successful in forest conservation concept is that is applied in other forest-rich countries. The
purpose of this is to reap economic and ecological benefits, both aiming at improving well-being and
economic welfare of Indonesia.
About the exchange and trip to India, I am surprised and very thrilled. I gained new knowledge, new per-
VIVA YOGA MAULADI
spective on how to integrate fiscal perspective and bureaucratic structure into the concept and policy
of forest conservation, in a synergized way. Member of National Parliament of the Republic
of Indonesia, Commission IV on Agriculture, Food,
Maritime, and Forestry (Komisi IV, DPR RI)
20 21INDONESIA - INDIA HIGH LEVEL EXPERT EXCHANGE INDONESIA - INDIA HIGH LEVEL EXPERT EXCHANGE
ABANG MUHAMMAD NASIR
Head (Bupati) of Kapuas Hulu District, West Kalimantan.
I am especially honored to be invited by the University of Indonesia to visit India because only three out
of hundred other districts in Indonesia were invited for the exchange and visit. Kapuas Hulu has been
struggling as a forested district and conservation district to get special funding from the state budget
allocated for forest conservation.
We went to Dehradun on the 5th of September 2017 and had meetings with forest survey and forest
research organizations there. I saw so many things there that are especially useful for Kapuas Hulu, my
district, where 51.5 per cent of its area are forest. I saw a strong commitment from the Government of
India. By “exceptional” I mean that the government has been able to calculate [the transfer to states] and
could establish a Finance Commission for the interest of many. From the trip, I saw a difference between
the Indonesian and Indian Government particularly in terms of their commitment for conservation area.
In Indonesia, communities living in forest or conservation areas cannot make ends meet, or worse, they
are left behind.
On the one hand, given the status of conservation district, such as that of Kapuas Hulu, options for de-
velopment are limited. For instance, certain forest area cannot be utilized by the people. Gold mining,
fisheries, and home construction materials such as forest timber are also underutilized. Infrastructure
development is also scarce. Without basic infrastructure, communities are left underdeveloped. On the
other hand, communities and people are willing and committed to protect and preserve forests. But
they do not seem to see any clear additional benefits from doing so.
It is my hope that all stakeholders, experts, and ministries, will create solutions for this issue. I hope per-
sonally that we will have innovations for all forest-rich districts across Indonesia. Additional financing
from the central government dedicated to the conservation districts will create benefits for them. And
so, if conservation districts receive transfers allocated based on their forest cover, I believe, the central
government will no longer need to do socialization to those districts to increase their awareness to pre-
serve their forests.
The trip to India was wonderful. First, as I mentioned, only three districts were invited for this occasion and
ABANG MUHAMMAD NASIR
it was an honor to Kapuas Hulu to be one of them. Second, this is an initial step and a sign of goodwill for
conservation district like Kapuas Hulu. Please let us know of any results and follow-ups from the trip. Head (Bupati) of Kapuas Hulu District,
West Kalimantan
22 23INDONESIA - INDIA HIGH LEVEL EXPERT EXCHANGE INDONESIA - INDIA HIGH LEVEL EXPERT EXCHANGE
MUHARRAM PENE SUPU
Head (Bupati) of Berau District, East Kalimantan
This is what I understood from the fiscal transfers as they are applied in India based on forest cover pre-
served and maintained by each state. Transfers to states are measured by certain index and that index
serves as an allocation mechanism that gives added value to the states. I think this is a positive attitude.
It shows that a country is concerned with preserving their forests. With ways of managing forest like this,
if this were implemented in Indonesia, we can expect that jurisdictions with a large area of forests will
maintain their forests to stay in condition as good as possible. The central government here creates a
policy that links between the additional value received by the districts and the transfers to districts from
state budget (APBN).
I am aware that this is a national policy. The process to design the policy, and the system that underlies
that policy, will certainly involve many stakeholders. The process of formulating policy in Indonesia is
perhaps different from that of India. I think it is worth considering that the delegates of this exchange,
along with partners like GIZ, can follow up on this and discuss about possibilities to rethink the existing
transfer allocation system. In my view, right now, if we take the general-purpose transfers (DAU) as an
example, it is distributed based on number of population, area cover, and economic potential of district.
We may want to add one more indicator, and that is forest potential.
If this kind of indicator is introduced into our fiscal transfer system, I believe, districts with large forest
areas would be keen to protect their forests. An example here is my district, Berau. With a total area
around 3.4 million ha and about 74 per cent of which belong to virgin forests, I think the opportunity is
there, and this should be possible, to get additional revenues through transfer system similar with that
in India (that is, forest cover as an indicator to allocate transfers). In the presence of such transfers, head
of districts will have to rethink, really hard, to decide on whether to accept any proposals from both do-
mestic and foreign investors to turn their forests, say, into plantations.
Another lesson we can take from India is what we experienced in Dehradun. We saw firsthand there
one of the world’s largest, state of the art forest research facilities, the Forest Research Institute (FRI). It
houses almost all kind of timber in the world in their collection and has continued to do research since
1961. Indonesia’s forests are in fact as complex as that of India. Indonesia needs to have an independent
forest research institute, one whose focus shall be, among others, on financial mechanism that will help
MUHARRAM PENE SUPU
forest-rich jurisdictions maintain their forest at highest quality (…).
Head (Bupati) of Berau District, East Kalimantan
I should extend my highest appreciation for the organizers of the trip. Despite tight schedule and high
mobility, the organizers were quite extraordinary in preparing what was needed. Lodging, services, and
so on, was almost without problem. I hope this kind of event can continue in the future.
24 25INDONESIA - INDIA HIGH LEVEL EXPERT EXCHANGE INDONESIA - INDIA HIGH LEVEL EXPERT EXCHANGE
PAULINA
Deputy Head (Wakil Bupati) of Sigi District, Central Sulawesi
In my view, fiscal transfer scheme in India is just extraordinary. The Government of India seeks to en-
courage the states to maintain their forests through fiscal scheme. Sigi District, where I come from, has
74 per cent of its land is forest. We have no sea. We are protecting forests. But is seems that there is
no monetary value from conserving forests especially seen from local government. Human population
is growing but land for settlements is limited by forest areas. There is a growing impression that we, as
forest protectors, are getting no added value from protecting forests. There are some efforts carried
out now at the local level. We are reviewing reforestation programs. We have the program of Green Sigi.
Most of our territorial area is forested areas and in some selected areas we plant trees. We also plant
productive trees that provide added benefits for local communities.
India is exceptional. Its central government pay considerable attention to the states, especially forest-
rich states that keep and preserve their forests. The proof is the efforts that the government took follow-
ing the recommendations of the 14th Finance Commission. District like Sigi in Indonesia wants this kind
of fiscal transfer policy. We protect the forest and we get compensation for that. Do not give compensa-
tion only for districts that protect the sea, as it is now with our DAU transfers, because it will not be fair
to those districts without sea in their territory as the case in Sigi.
The trip to India was successfully organized. It was also fun. Participants obtained knowledge and I lis-
tened to the discussions. Now we will wait for the direction and policies from the central government. I
hope that this is a fruitful trip and we could follow suit as successful as in India.
PAULINA
Deputy Head (Wakil Bupati) of Sigi District,
Central Sulawesi
26 27INDONESIA - INDIA HIGH LEVEL EXPERT EXCHANGE INDONESIA - INDIA HIGH LEVEL EXPERT EXCHANGE
PURWIYANTO
Expert Staff to the Minister of Finance on State Spending, Ministry of Finance
Starting from visiting the Forest Research Institute and its museums, and then visiting the National I have never been in a trip like this before. This trip has opened my eyes. A country that looks like a less
Institute for Public Finance and Policy, I could see an important point from our visit to India, that is a advanced nation to me, it turns out, has a very high awareness about forest sustainability. And India has
paradigm. What is paradigm? It is a mindset, a common understanding and agreement in India, among started this since the 1930s. It was surprising to me, and I therefore really appreciate this trip. Indonesia
its citizens and policy makers, that forest is of paramount importance. They think that forest is a very should start getting as serious as India in protecting its forests. I was also amazed by the people I saw at
important component of global life, therefore it must be protected and preserved. They established a the FRI. These are highly educated, highly passionate people. I guess we could hardly find people like
set of actions to make forest both sustainable and beneficial. them in Indonesia. Just try to find PhD graduates who are willing to work at, and maintain, a museum on
They set forest cover as an indicator in allocating transfers from the central government to the states. daily basis.
The more a state preserves its forest, the more money it will get. As I learn their fiscal allocation formula,
apart from the presence of forest cover, I see another component that is taken into consideration in
determining the amount of fiscal transfers, and that is the goodwill from the states to participate and
contribute to maintaining the balance of nature at the global level. They create such a fiscal formula so
that people can benefit directly from forests. I believe the results are what we saw during the visit to
the museums at FRI. Furthermore, perhaps there is another factor that ensures its success but is rarely
mentioned. In their scripture it is said that, more or less, preserving the environment is very important.
So much about paradigm.
In terms of turning many aspirations into real implementation, I see India is quite advanced. For us in
Indonesia, we may need to set that paradigm. We need to have something like a forestry plan, like that
of RUEN for energy sector, and put “a paradigm shift” into the plan as one of highest importance, that
is, that approaching forest only as a source of state income (such as source of non-tax revenues) and as
development capital (cleared down only for its timbers) and to be compensated by revenues from refor-
estation fund (Dana Reboisasi, DR) are now just something of the past. We do need to shift the paradigm
to preservation and conservation. Only through such paradigm shift can forest provide benefits.
I cannot help but raise this question in India, what is the nature of the fund allocated for fiscal transfers?
Is it in the form of incentive or compensation? Should it be a compensation, then the amount of transfer
might not have to be larger than the opportunity cost of not utilizing forest. The government can just en-
force a ban on cutting down and exploiting forests. Should the fund be incentive, I personally think the
amount of transfer should be as much as or larger than the opportunity costs to be able to influence and
change behavior. In my opinion, the Indian fiscal transfer is a form of compensation. The government
enforces a law, the people obey it, and they get certain amount of transfers. Whether the Government
of India gives compensation an amount of as much as, or larger than, the opportunity cost is a different
discussion.
Our general-purpose transfers (DAU) formula must be evaluated. We need to see whether it needs a
PURWIYANTO
revision or improvement. The evaluation should be based on our own paradigm, however. I see that our
Expert Staff to the Minister of Finance
reforestation fund (DR) is an incentive to cut down forests. I believe that our paradigm is different with
on State Spending, Ministry of Finance
that of India. Another important concern is about the commitment of our institutions and policy makers.
In the near future all relevant stakeholders need to meet and begin to formulate what Indonesia’s new
paradigm towards environment and forest is. This new paradigm needs to be proposed and communi-
cated to the President. I believe things would be easier if it is coming directly from the President.
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