final report private sector partnership consultancy

FINAL REPORT

PRIVATE SECTOR PARTNERSHIP

CONSULTANCY

Development of Private Sector Partnerships for

Sustainable Livelihoods in Katingan-Kahayan Landscape

JULY 18, 2017

This publication was produced for review by the United States Agency for International Development. It was prepared

by Tetra Tech ARD.

USAID LESTARI Final Report: Private Sector Partnership Consultancy – March 18, 2017 P a g e | 2

This publication was written by Ross Jaxx and supported by the USAID LESTARI program.

This publication was prepared for review by the United States Agency for International

Development under Contract # AID-497-TO-15-00005.

The period of this contract is from July 2015 to July 2020.

Implemented by:

Tetra Tech

P.O. Box 1397

Burlington, VT 05402

Cover Photograph: Rubber farmer drying rubber..


FINAL REPORT

PRIVATE SECTOR PARTNESHIP CONSULTANCY

Development of Private Sector Partnerships for Sustainable Livelihoods in Katingan-Kahayan

Landscape

July 18, 2017

DISCLAIMER

This publication is made possible by the support of the American People through the United

States Agency for International Development (USAID). The contents of this publication are

the sole responsibility of Tetra Tech ARD and do not necessarily reflect the views of USAID

or the United States Government.


TABLE OF CONTENT

List of Tables and Figures .................................................................................................. 6

List of Acronyms ................................................................................................................. 7

1. Executive summary ........................................................................................................ 8

2. Introduction ................................................................................................................... 10

3. Low-Emissions Development Strategy: Choosing Winners ...................................... 11

A. Translating A Low-Emissions Development Strategy To The Katingan-Kahayan

Landscape ..................................................................................................................... 11

B. Potential Economic Sectors For Green Enterprise Focus .................................... 12

1. Community forestry: most potential for realizing LESTARI’s goals .......................... 13

2. Rubber sector: demonstrate results and engage additional partners ...................... 13

3. Fisheries sector: difficult to address LESTARI’s impact measurements .................. 15

4. Rattan sector: lack of market demand .................................................................... 15

5. Ecotourism: much to build on in Central Kalimantan ............................................... 16

4. Social Forestry And Green Enterprise Development.................................................. 17

A. The Opportunity To Make Social Forestry A Pillar Of Green Enterprise

Development In Indonesia ........................................................................................... 18

B. Strategic Position Of LESTARI Project For Social Forestry Investment .............. 21

C. Social Forestry: A Key Competence Demonstrated In the LESTARI Project ....... 22

5. Examples Of Investment And Partnership Models For Social Forestry .................... 25

A. Background: The Legacy Of Exploitation Of Forest Communities By The Private

Sector And A New Paradigm ....................................................................................... 25

B. Enabling Investment And Asset Investment Framework ...................................... 26

C. Examples Of Possible Partnerships For Social Forestry ...................................... 27

1. Off-take agreement ................................................................................................ 27

2. Share cropping model ............................................................................................ 28

3. SME support .......................................................................................................... 29

4. Joint venture partnership ........................................................................................ 29

5. Sustainable landscape investment ......................................................................... 30

6. Next Steps: Private Sector Engagement In Social Forestry ....................................... 32

1. Inventory of activities for social forestry investment .................................................. 34

2. Feasibility framework analysis for social forestry investment in the kk landscape ..... 34

3. Internal process for social forestry investment in kalteng ......................................... 35

4. Market LESTARI’s role to facilitate investment in social forestry .............................. 36

5. Private sector outreach and engagement for sfi in kalteng ....................................... 37

6. Private sector partnerships and investments ............................................................ 38

7. Conclusion .................................................................................................................... 39


Annexes ............................................................................................................................. 40

Annex A: Scope Of Work: Private Sector Partnership Consultant ............................ 40

Annex B: Elements Of Social Forestry Project Appraisal ......................................... 41

Organizational .............................................................................................................. 41

Technical & Financial.................................................................................................... 42

Sustainability ................................................................................................................ 42

Annex C: Draft STTA Sow For “Green Enterprise Feasibility Analysis Framework For

Social Forestry: Sub-Sector Approach” ....................................................................... 43

Annex D: List Of Private Sector Companies Forestry Concessions In The Kk

Landscape ...................................................................................................................... 45

Annex E: Rubber Sector Consultancy Report, 2016 .................................................... 47


LIST OF TABLES AND FIGURES Table 1. Potential sector for Green Enterprise Investment and Partnerships ................. 13 Table 2. Area Eligible for Social Forestry Licensing in the LESTARI KK Landscape ..... 19 Table 3. Alignment of a Social Forestry Investment with LESTARI’s Expected Results . 21 Table 4. Social Forestry Licensing Currently Supported by the LESTARI Project .......... 22 Table 5. The Investment Framework ............................................................................. 27 Table 6. Proposed Near Term Activities to Enhance Private Sector Engagement in Social Forestry, Central Kalimantan ......................................................................................... 33 Table 7. Possible Sub-Sectors and Tradeable Products for Private Sector Partnerships34

Figure 1. Translating Elements of LEDS to LESTARI Priority Operations ...................... 12 Figure 2. Categories of Lands Eligible for Social Forestry in KK Landscape, Central Kalimantan .................................................................................................................... 20 Figure 3. Corporation Dominant Investment Paradigm .................................................. 26 Figure 4. A New Investment Paradigm for Social Forestry ............................................ 26


LIST OF ACRONYMS BFL Basic Forestry Law

BLU Badan Layanan Umum BMP Best management practices CSR Corporate social responsibility GAP Good agricultural practices GDP Gross domestic product GGGI Global Green Growth Institute GHG Greenhouse gas GoI Government of Indonesia HA Hectares HD Hutan Desa HK Hutan Kemitraan HKm Hutan Kemasyrakatan HP Hutan Produksi HTR Hutan Tanaman Rakyat IDR Indonesian Rupiah KFCP Kalimantan Forest Carbon Partnership KK Katingan Kahayan KUBK Kelompok Usaha Bokar Karet LEDS Low emission development strategy NAP PT Nagabuana Aneka Piranti NTFP Non-timber forest products PIAPS Map of Indicative Sites for Social Forestry PPP Public private partnership PT BSI PT Bridgestone Indonesia REDD+ Reduces Emissions from Deforestation and Degradation RMU PT Rimba Makmur Utama RPJMDes Village medium term development plans SFI Social Forestry Investment SME Small & medium enterprise SPV Special purpose vehicle STTA Short term technical assistance USAID United States Agency for International Development WRI World Resources Institute WWF World Wildlife Foundation


1. EXECUTIVE SUMMARY The objective of this Private Sector Partnership Consultancy was to “broaden and strengthen

the development of partnerships between communities and private sector companies for

green enterprises.” Green enterprises have minimal negative impact on the global or local

environment, community, society, or economy—it is a business that provides co-benefits to

communities and private sector partners, whilst not damaging high conservation value areas,

causing deforestation, or furthering peatland degradation.

Over the last year, the USAID LESTARI Project has expanded the sustainable production

practices of rubber farmers through the Rubber Farmer Cooperative Groups (KUBK) in

Pulang Pisau District to new groups and new areas of Sebangau Kuala Sub-District. The

main indicator that the KUBK model is delivering value to the private sector partner and also

improving the livelihoods of the farmers is the volume of Clean Rubber Slabs (Bokar Bersih)

sold through the KUBKs to the rubber processing firm. As more farmers join KUBKs and

upgrade their rubber output, the LESTARI Project should anticipate increased private sector

investment and additional firms joining Public-Private Partnership agreements with

LESTARI. The next firms to join may be rubber processors. Under LESTARI, the activity is a

continuation from IFACS and also expands the engagement to on-and off-farm techniques,

strengthens the institutional capacity for connecting KUBK to BUMDES, and integrates the

model in the village development plans.

In addition to rubber, this consultancy analyzed several other commodity and economic sub-

sectors to determine which ones have the most potential as green enterprises. The key

criteria of the analysis are its positive effect on local livelihoods, the potential for community

engagement, the potential to attract private investment, and probability to bring more land

area under better management, i.e. management that reduces deforestation and emissions

of greenhouse gases (GHG). This analysis was limited to the LESTARI Project area in

Central Kalimantan Province, known as the Katingan-Kahayan (KK) Landscape. The

analysis concluded that private sector partnerships with Community Managed forest areas

would be the best model for improving management of high value areas in the KK

Landscape. In fact, each community managed forest unit that receives a license should be

viewed as a candidate to become a green enterprise.

Community managed forests, known in Indonesia as social forestry, is a widespread

approach in the tropics to conserve forest areas, reduce GHG emissions, and to improve

local livelihoods—all qualities used to describe Green Enterprises. By involving local forest

users in management, social forestry is promoted to benefit both livelihoods and forests. The

social forestry movement is currently underway in Indonesia with the government targeting

12.7m hectares of State forests to be put under community control of communities in the

coming years. Nearly 430,000 ha in the KK Landscape alone has been indicated as

available for social forestry, of which 185,518 ha (42%) is classified as peatland.

The LESTARI Project is currently assisting communities to attain social forestry licenses in

the KK Landscape. This puts the LESTARI Project in a strong position to help communities

to overcome barriers in partnering with private sector companies. The LESTARI Project


possesses valuable knowledge on the strengths and weaknesses of community-based

institutions, their leadership and their aspirations and priorities. This insight will enable

LESTARI to facilitate private sector partnerships with community based, social forestry rights

holders.

The principle activities for LESTARI to undertake in the coming months to increase private

sector investment and engagement through Public-Private Partnerships are the following:

1. Evaluate the results from the Rubber Development work via the KUBK model. If

volumes of Bokar Bersih are increasing, start approaching additional rubber

companies for support, funding and a PPP agreement. If Bokar Bersih volumes are

stagnant or not increasing, review the approach and make corrections. In parallel, the

institutional strengthening must be intensively conducted. This strengthening will

support the technical assistance in producing better quality product, operationalize

KUBK, supporting the link to BUMDES & RPJMDes.

2. Decide on a mechanism to support Social Forestry Investment (SFI). This mechanism

may be a combination of technical assistance and small-grant funding.

3. Develop a rapid feasibility assessment tool for economic activities associated with

Social Forestry licenses. This tool will enable LESTARI Project staff to size up

potential investment opportunities, and it will also help sharpen the thinking of

communities.

4. Establish a private sector board of advisors, with one company from the main

economic sub-sectors in the KK Landscape. This board of advisors will be a resource

and point of contact for the Private Sector Engagement officers.

5. Using the rapid feasibility assessment tool, LESTARI will be able to complete

Investment Briefs, that quickly and easily identify feasible activities for investment and

private sector partnerships

6. Co-organize an Investment Panel at the annual Social Forestry Conference in Jakarta

to raise awareness of LESTARI’s efforts to stimulate partnerships and investments

along with communities in sustainable forestry activities.

At the same time, the LESTARI Project should continue to develop contacts and

relationships with key firms with sub-sectors expertise that would be interested to source

materials from and invest in social forestry license holders. LESTARI should invite these

companies and sub-sector contacts to become involved in the early stages of feasibility

analysis such Green Enterprise concepts that may involve private sector partnerships or

investment. This is the best way to quickly evaluate, accept, or reject concepts, and it would

be the best way to see that the private sector engagement work of LESTARI leads to signed

Public Private Partnerships and real investment in Green Enterprises.


2. INTRODUCTION The objective of Private Sector Partnership Consultancy was to “broaden and strengthen the

development of partnerships between communities and private sectors companies for green

enterprises.” In the first four months from February to June 2016, the consultant focused on

existing green enterprise activities in the Rubber Sector. The second period of the

consultancy from July 2016 to early 2017, the consultant focused on analyzing additional

economic sub-sectors that may also results in Public-Private Partnerships that foster green

enterprise development. The next tasks were to identify the barriers to green enterprise

development, and then to describe the near-term and medium-term strategy for overcoming

those barriers, with technical assistance and funding of a Public Private Partnerships. This

final report summarizes the work and findings of this study.

This report presents a strategy to the USAID LESTARI Project to focus its private sector

partnership activities to community controlled forest resources in Katingan-Kahayan (KK)

Landscape of Central Kalimantan. Community controlled forest, or social forests, have the

largest potential in reducing greenhouse gas (GHG) emissions and habitat destruction in the

KK Landscape. Community controlled forest meet the basic requirements of a green

enterprise. Therefore, LESTARI Project should focus its private sector partnership efforts on

those companies and investors that share common interest with community based, social

forest rights holders. The LESTARI Project is already well positioned to promote and secure

investments in social forestry in the KK landscape.

Per this consultant’s Scope of Work (Annex A), this report will provide guidance on activities

to be carried out in the near-term and the mid-term that will lead to the development of PPPs

in support of community forest enterprise in the KK Landscape that serve well established

and sustainable markets.


3. LOW-EMISSIONS DEVELOPMENT STRATEGY: CHOOSING WINNERS

A. Translating a Low-Emissions Development Strategy to the Katingan-Kahayan Landscape The KK Landscape in Central Kalimantan province spreads across the boundaries of three

administrative districts (Pulang Pisau, Gunung Mas, and Katingan) and the municipality of

Palangkaraya. This landscape is of high conservation value encompasses the entirety of

Sebangau National Park and a portion of Bukit Baka Bukit Raya National Park, each

teaming with biodiversity including large populations of orangutans.

Over 30% of KK landscape is covered with carbon rich peat-lands and mangrove forests,

which is now threatened by extensive draining and land use conversion from peat-swamp

forests to agriculture. During the dry season, the drained peatlands become parched. They

are easily set ablaze producing far reaching haze that causes respiratory illnesses to

residents throughout the SE Asia region and releases massive amounts of CO2, a climate

changing GHG, into the global atmosphere.

The LESTARI Project, working with local authorities, seeks to bring 2.1m HA of the KK

Landscape under improved management (i.e. reducing deforestation, wild fires, and loss of

biodiverse habitat). The project also seeks to increase investment and private sector

partnerships in green enterprises in economic sub-sectors that support a Low Emissions

Development Strategy (LEDS). LEDS favor economic sectors that are not carbon intensive

or large emitters of GHG. The chosen sectors need to have meet these following key

performance indicators:

(1) maximize the area brought under improved management,

(2) promote low-carbon industries and technologies,

(3) maximize the number of poor people receiving livelihood co-benefits,

(4) and maximize the number of private sector companies partnering with and investing in

communities.

This needed to be translated then to the measures and activities that are undertaken as part

of LESTARI’s operation. (Figure 1)


Figure 1. Translating Elements of LEDS to LESTARI Priority Operations

Elements of LEDS Operational Priorities for LESTARI

GHG Emissions Reductions Land under improved Management: reduced deforestation and peatland fires

Economically Sustainable Proven Economic Sub-Sector in the Landscape

Productive Ecosystem Services Adoption of sustainability certifications, GAP, and/or BMP

Inclusive and Equitable Co-Benefits to poor households

Economically and Socially Resilient Private sector partnerships, participatory, good governance systems

Priority Sub-sectors need to be those that have the most impact on land area. This would

include agriculture, forest management, plantations, and supply chains that source

commodities from across the landscape, e.g. rubber. For the second element, sustainability,

we accept prima facie that a long-standing economic activity has passed the test of time.

However, that is not to say that that existing industries will always be sustainable. They need

to adopt appropriate management practices (BMP, GAP and sustainability certifications).

Hopefully such practices lead to productive ecosystem services, such as improved

watershed catchment or preservation of biodiversity. A successfully LEDS must be inclusive

and equitable, hopefully benefitting large numbers of people, especially poor residents.

Finally, the economic and social resilience of any LEDS would be built on the foundation of

broad-based participation of stakeholders. This includes private sector partnerships and

investments, and the involvement of communities.

Altogether, we can see that LESTARI Project is well designed and fits well with the elements

of a low-emission development strategy in the KK Landscape.

B. Potential Economic sectors for Green Enterprise Focus Using data from LESTARI and research and analysis from several other projects such as the

Kalimantan Forest Carbon Partnership (KFCP) and the Global Green Growth Initiative

(GGGI), the consultant analyzed the most prevalent economic sub-sectors that fit the LEDS

elements and high potential for private sector partnerships. Based on this analysis, a short-

list of the principal commodities and economic sub-sectors that are already proven in the

landscape are listed in the left column in Table 1. The following columns measuring their

potential importance to LESTARI’s main goals. These are:

(1) #HA under improved management or conservation,

(2) # of people benefitting from the activity,

(3) IDR value of possible investment by the private sector as part of a Public-Private

Partnership, and

(4) clearly defined private sector partners or possible partners that can be engaged in a PPP

within the project timeframe.


Under each of these metrics, the consultant estimated the probability of these sectors having

a significant role are described in more detail following the table.

Table 1. Potential sector for Green Enterprise Investment and Partnerships

Main Sub-Sector

Activities

Improved land

Management (HA)

Investment

(IDR)

Livelihood Co-Benefits

(# People Reached)

Private Partnerships

Notes on Private Sector Partnerships

Social Forestry (HD)

■

16,000

□

CSR

□ □ Not market oriented. CSR

Social Forestry

(HTR, HKm)

■

141,000

■ ■ ■

E.g. PT NAP in Pulang Pisau. Need better case

Rubber □

6,000

■

665m

■

3,000

■

PT Insan Bonaf. Need to show results to scale

Fisheries ■

44,000

□ ■ □ Look to WWF to promote

Rattan in Katingan (with WWF)

□

□ □ ■

IKEA is partner but no market

Ecotourism □

1,000’s

□ ■

■ Link with current efforts

■ = Highly Likely; □ = Less Likely

1. Community Forestry: Most Potential for Realizing LESTARI’s

Goals

The commodity category is Social Forestry has a few types, Hutan Desa (HD), Hutan

Tanaman Rakyat (HTR) and Hutan Kemasyrakatan (HKm). The HD has high potential for

conservation, but less for private sector investment. The HTR and HKm classifications are

rated very high. In terms of possible area in the KK Landscape to be possible registered as

HTR, and the possibility of significant private sector investment that could benefit large

numbers of people and to bring significant areas of land under improved management and at

the same time, supported with co-management agreements of the various social forestry

schemes. The process for private sector engagement is further elaborated in Section V

below.

2. Rubber Sector: Demonstrate Results and Engage Additional

Partners

LESTARI Project has been promoting the KUBK Model of rubber sector development in

Pulang Pisau District for several years, going back to the predecessor IFACS Project. This

activity is well under way with detailed workplans and near and mid-term targets of reaching

3,000 rubber producing households with benefits of receiving a higher price for their rubber


through Good Agricultural Practices. This will bring 6,000ha under improved management

with the assumption that each farmer manages 2HA of rubber plantation. LESTARI has

already entered a Private Sector Partnerships (PPP) with the rubber processing firm, PT

Insan Bonafide of Banjarmasin. The Bank of Indonesia is also a signatory partner on this

activity.

The rubber sector has good potential for more private sector investment and new partners.

The consultant has attached his previous report (Annex E), that provides a detailed workplan

for the LESTARI Project on how to continue to develop the rubber sector.

It is important is that the LESTARI activity demonstrates a measurable result of the project.

The key results to be demonstrated are (1) increasing volumes of clean rubber slabs

(BOKAR Bersih) being sold by farmer groups (KUBK) to the rubber processing partner, and

(2) increased prices and sales revenue to farmers that are participating in this program. This

is a key performance indicator, and should be watched and reported on regularly. If the

volume is increasing well, then there will be proof enough to attract additional private sector

investment and partnerships. If this volume of Bokar Bersih being sold through KUBKs is not

increasing or stagnant, then LESTARI Project needs to reevaluate the direction and viability

of the KUBK model.

It is the consultant’s opinion that after 6-9 months of monitoring results of the Smallholder

Rubber activity, that success will be verified. In that case, the LESTARI Project may begin to

approach other Rubber Sector companies for additional support and investment. Priority

companies to be targeted would the end users of rubber, i.e. tire manufacturers that also are

customers of PT Insan Bonafide and have demonstrated a willingness to invest in improving

their natural rubber supply chain down to smallholders.

In parallel, the institutional strengthening must be intensively conducted. This strengthening

will support the technical assistance in producing better quality product, operationalize

KUBK, supporting the link to BUMDES & RPJMDes.

LESTARI Project’s value proposition to them are the following: (1) successfully upgrading

smallholder rubber production and on path to scaling up with more support, (2) cleaner

production is feeding into the tire company’s supply chain, (3) LESTARI is demonstrating

shared benefits to smallholders, (4) cleaner production is also part of improved forest and

landscape protection (5) improved operationalization of KUBK and build the link to BUMDes.

These companies include the following in order of priority:

1. PT Bridgestone Indonesia (BSI): Per BSI’s CSR and sustainability reporting, they

have already supported smallholder rubber producers with training on production and

post-harvest processing and providing free seedlings near the location of their

plantations in Sumatra and South Kalimantan. BSI has also donated over Rp. 1 billion

to BOS for Orangutan conservation in East Kalimantan. They are customer of PT

Insan Bonafide, and if the rubber work of LESTARI Project is making good progress

and resulting in larger volumes of Bokar Bersih, then LESTARI Project should seek an

introduction through Pt Insan Bonafide.


2. Michelin Corporation: In the past, they have supported donations of smallholder

rubber seedlings for farmers in East Kalimantan and to also support maintaining

biodiversity in Kalimantan. They are customer of PT Insan Bonafide, and similar as to

PT BSI above, the LESTARI Project should seek an introduction through PT Insan

Bonafide if the results justify.

3. PT Gajah Tunggal Tbk: This company reports that they provided Rp. 11.1 billion for

CSR activities in 2015, which included a “one employee one tree” program to green up

their factory campus. GT is one of Indonesia’s largest tire manufacturers. It needs to

be confirmed that they are customers of PT Insan Bonafid.

3. Fisheries Sector: Difficult to Address LESTARI’s Impact

Measurements

Fisheries are already a substantial economic sector in Pulang Pisau, contributing 8.1% of

the district’s GDP in 2013. In 2007 Pulang Pisau had the largest share of Central

Kalimantan’s fishery production (15,889 tons or 18%) and its key commodities were tiger

shrimp, vanamei shrimp, milkfish and crab. The district has significant potential for further

developing its aquaculture sector with roughly 86,000 ha of brackish water and pilot

schemes already operating in Kahayan Kuala sub-district.

WWF Central Kalimantan has been running a fisheries development program for 4 years

and that has reached thirteen villages through five fishing groups in Katingan District. The

five fishing groups sell their catch through a central marketing cooperative, for which Pak

Dadang of WWF has value chain data, such as quantity and type of fish sold.

Most of the fishing sector in the KK Landscape is wild catch. This can be improved by

introducing better sustainable practices, such as not using electrocution to stun fish or other

chemical agents (e.g. formaldehyde) to assist fish preservation. These improved practices

will have less negative effects on the ecosystem (i.e. area under improved management)

and human health (i.e. co-benefits to residents). Table 2 includes data that improved fishery

sector may benefit 44,000ha of land under improved management. This is the area that the

GGGI study cited as wetland mangrove swamp area on the coast of Pulang Pisau District

that is at risk of rampant fish and shrimp farm development.

Fishery development will need to involve aquaculture practices, such as producing locally

favored fish called Papayu, for which a model already exists in Kapuas District. However,

these systems require management expertise and investment, most likely external

investment. The fisheries sector is highly fragmented and any private sector partners, e.g.

fish and seafood distributors from Banjarmasin, would be unlikely to invest in community

managed and owned fishery production facilities because their suppliers may side sell at any

time. From the point of view of developing public-private partnerships, the consultant see

little scope for the LESTARI Project in the fisheries sector.

4. Rattan Sector: Lack of Market Demand

Rattan grows wild and is also cultivated in the Katingan District in the KK Landscape. WWF

has been leading an effort for several years, with financial support from IKEA, to promote

rattan production as part of livelihood strategy that would help maintain a corridor between

Sebangau National Park in the south of the KK landscape with Bukit Baka Bukit Raya to the


North. Per WWF Palangkaraya staff, this project has not achieved its intended results

because the market price for rattan in the region is less than what the farmers and rattan

harvesters are willing to accept. IKEA agrees to fund this project as part of a CSR or

environmental conservation strategy, but IKEA is not willing to intercede with their rattan

suppliers to increase the price offered to rattan harvesters in the landscape. Outside of this

ongoing activity with IKEA, the consultant sees little opportunity for more private sector

engagement. Also, unless the market demand increases and price increases, there is little

scope for rattan to provide livelihood benefits or to play a role in improving land management

in any sustainable way or at scale.

5. Ecotourism: Much to Build on in Central Kalimantan

In January 2016, newspapers across Indonesia reported that the LESTARI Project would

help Indonesia to “achieve the balance between economic development and green growth,”

especially as it relates to Ecotourism. A Google search of “Ecotourism and Central

Kalimantan” shows over 15,000 results. Clearly, there is great interest and activity on

ecotourism in Central Kalimantan and a committed role of LESTARI to see that develop well.

Ecotourism in Central Kalimantan is especially relevant to LESTARI’s green enterprise

because ecotourism is one of the relatively few ways to generate income and cash flow

because of well-preserved ecosystems that support a large diversity of flora and fauna, such

as the KK Landscape does. Outside of the National Parks, the most positive impact of well-

planned and successful ecotourism businesses would be in the area under community

management—i.e. Social Forestry. Just the name “Community Managed Forests” will

resonate well with the eco-tourists, who value ecological conservation and social justice.

Additionally, income from eco-tourism and the connections to such minded tourists will

incentivize communities to maintain their surrounding habitat and display their indigenous

cultures. This topic will be further discussed under the Sections IV and V below on Social

Forestry because an ecotourism activity would complement initiatives in Social Forestry.


4. SOCIAL FORESTRY AND GREEN ENTERPRISE DEVELOPMENT Community forest management, known as social forestry in Indonesia, is a widespread


local livelihoods—all qualities used to describe green enterprise development. By involving

local forest users in management, social forestry is promoted to benefit both livelihoods and

forests.

The effectiveness of this claim is difficult to evaluate and verify because of the large variation

of how social forestry approaches are applied, their management practices, and designs and

models applied within and between countries. (J. Lund, 2009). This is an area of inquiry that

requires ongoing research. Nevertheless, several studies give us reason to consider that

social forestry models are as good as, and in some cases, better than strictly protected

areas. A meta-analysis of published case studies regarding community managed forests

compared 40 protected areas and 33 community managed forests on their respective

performance in maintaining forest cover. Overall, this study found that community managed

forest retained more forest cover and had less variable annual deforestation rates than

protected areas. (Porter-Bolland, et al., 2012)

A subsequent case study in Madagascar found that the performance of community managed

forests there to reduce deforestation depended on the type of community forest use.

Community forests not allowing commercial forest use reduced deforestation rates and

community forests that allowed commercial forest use did not reduce deforestation. (R.

Rasolofoson, 2015) Clearly, the benefits of commercial practices on community controlled

forests must be weighed against the costs to both local society and the forest. If the

community has land tenure over an area with in-tact forest, the plan to manage that resource

and possible investment and partnership schemes would be different than if the community

secures tenure rights over a degraded and severely deforested area.

A 2014 study by the World Resources Institute (WRI) and Rights and Resources Initiative

found that strengthening community forest rights was an essential strategy to reduce billions

of tons of carbon emissions whilst securing the livelihoods of millions of poor people living on

the forest margins (WRI, 2014). The study found rural communities and indigenous groups

that have government-recognized rights to forests contain 37b MT of carbon. Satellite

imagery of forestlands in Latin America found that the rates of deforestation in communally

held lands were as much as 350 times lower than outside those lands. The report

recommended securing land rights for forest-based communities as a strategy for national

leaders, ministers, and climate negotiators to reduce carbon emissions.

Joko Widodo, the President of Indonesia, appears to have heeded this call for securing land

rights of forest communities. During his Presidential campaign in 2014, he promised to give


communities living in or near the great “forest zones” greater access by granting them land

use rights. He publicly announced a target that 12.7m hectares of State forest lands to be

allocated to community control by 2020.

Since taking office in 2015, the process of allocating state forest lands to community

management has been slow with only 500,000 hectares allocated until the end of 2016.

However, the government recently passed a new forestry regulation (P.83/2016 PERMEN

LHK) in December 2016 that is meant to streamline the process for applying for a social

forestry license, whether it be a production forest, village forest, or customary forest. Instead

of requiring a minimum of 2-years before for a community could secure forest management

rights, it will now be possible to achieve the same in as little as 3-months. From 2017

forward, there will be increasing areas of State forest lands brought under community control

and management. It remains to be seen if communities will be able to manage these vast

forest resources in manner that supports their livelihoods while maintaining forest cover and

reducing GHG emissions.

A. The Opportunity to make Social Forestry a Pillar of Green Enterprise Development in Indonesia The LESTARI Project, starting in 2016, has taken a role in assisting local communities in the

KK landscape of Central Kalimantan to secure social forestry rights. To date, LESTARI

Project has worked with eight village groups in Pulang Pisau District to secure Hutan Desa

(Village Forest) access rights over some 9,000ha within their village boundaries. The Social

Forestry component of the LESTARI Project has been successful in helping local

communities to establish village level institutions for oversight and then securing the forest

tenure rights under Indonesia’s social forestry law. However, that has been the extent of the

assistance to date. This raises the question: after communities attain social forestry rights,

then what do they do? In many cases, the communities lack capital, expertise, and market

access to get any benefits from the forest resource.

LESTARI has the capacity and mandate to assist communities that hold social forestry

licenses to engage with the private sector and potentially form green enterprise partnerships

with the private sector that will bring in investment, know-how, and markets for the benefit of

local communities while also reducing GHG emissions.

LESTARI is supporting the Government of Indonesia’s policy to reduce GHG emissions and

conserve biodiversity in carbon rich and biologically significant forest and mangrove

ecosystems. The project employs several tools, approaches and partnerships to fulfill this

role, all of which are categorized into Three Technical themes:

1. Forest and Land Use Governance

2. Conservation Co-Management

3. Private Sector Engagement

Private Sector Engagement, the purpose of this assignment, takes an integrated approach to

the development of livelihoods, responsibilities of environmental governance, and shared

roles in co-management of natural resources. Within the current and planned activities of the

LESTARI Project, there is no greater opportunity for and need of private sector engagement


and investment than in Social Forestry. This is especially the case for the KK Landscape,

where a comprehensive survey of potential areas of social forestry has been recorded in the

Map of Indicative Sites for Social Forestry (or PIAPS in Indonesian). The establishment of a

PIAPS is a foundational step towards designating areas eligible for social forestry licensing.

Table 3 below provides a summary analysis of the different classifications, locations and

intended purposes of the areas designated a potential area of social forestry in KK

landscape.

Table 2. Area Eligible for Social Forestry Licensing in the LESTARI KK Landscape

District Type of Social Forestry License Average Area per

Location (HA) Combined Area (HA)

Pulang Pisau

1 State Production Forests for Social Forestry 625 19,374

2 Released to the Communities 1,670 39,045

3 Peatland without License 1,956 140,855

Sub-total 199,274

Katingan

1 State Production Forests for Social Forestry 1,248 107,316

2 Process of Obtaining Hutan Desa (HD) 181 1,454

3 Released to Communities 427 9,820

4 Peatland without License 850 33,955

Sub-total 152,545

Gunung Mas


2 Process Obtaining Hutan Desa (HD) 273 2,190

3 Process Obtaining Community Forest (HKm) 364 1,817

4 Reserved for Village Plantation Forests (HTR) 616 13,564

Sub-total 59,099

Palangkaraya


2 Process Obtaining Community Forest (HKm) 1,153 3,458

3 Released to Communities 822 3,291

4 Peatland without License 765 10,708

Sub-total 18,763

Total Hectares Eligible for Social Forestry 429,681

Source: PIAPS for Central Kalimantan, November 2016

The PIAPS for Central Kalimantan lists approximately 430,000ha belonging to about 400

parcels of land in the KK Landscape eligible to come under local community management.

Pulang Pisau District has the largest area designated as eligible with 199,274ha followed by

Katingan District with 152,545 ha, Gunung Mas with 59,099ha, and Palangkaraya with

18,763ha. The individual parcels size varies greatly ranging from 1HA in Manteren I village,

Pulang Pisau to as large as 33,000ha in Sebangau Kuala Sub-district, Pulang Pisau.


The PIAPS of November 2016 describes the lands eligible for social forestry across

approximately five classifications. (Figure 2) The first designation (HD and HKm in Process)

recognizes that the land in questions is under process to be licensed to the management of

a village, HD, or to a community group, HKm. (2%). There another Social Forestry

classification specific to Gunung Mas District reserved specifically for licensing as

Community Plantation Forests, or HTR. (3%) The third classification, forest released to

communities, is forest lands that have already been turned over to community management

(12%). It is not clear from the data which Social Forestry license applies in these cases: HD,

HKm, or customary forest rights, Hutan Adat.

Figure 2. Categories of Lands Eligible for Social Forestry in KK Landscape, Central Kalimantan

The only categorization that is common across all districts is State Production Forest (Hutan

Produksi) that is eligible to be put under community management (39%). Without further

information, it is understood that in accordance with Forestry Law 41/1999 this nearly

170,000ha of Hutan Produksi is already part of a commercial industry license, public or

private, and that it may only be licensed to communities as a People’s Production Forest

(HTR) or as a Company-Community Partnership (Kemitraan) where the land is.

Lastly, the largest category of land (42%) available for Social Forestry licensing is peatland,

which is important for its carbon stock and conservation value. This category dominates

eligible land available for Social Forestry in Pulang Pisau, which is a priority district for

LESTARI Project’s social forestry work.

It is still not certain how many of these 400 parcels in the KK landscape will in the end be

processed for a social forestry license and come under community management.

Nonetheless, the LESTARI Project will continue to assist communities to secure rights to

forest resources. There is the opportunity to help the communities to develop livelihood

options on these forest parcels, and where appropriate attract partnerships for further green

enterprise investment. LESTARI Project is positioned to facilitate private sector investment in

8.919 13.565

52.157

169.524

185.518

HD and HKm in Process HTR Reserve Forest Released to Communties

HP for Social Forestry Peatlands w/o License

Hectare of Land Eligible for Social


social forestry--starting from community mobilization, to village institution establishment, to

land tenure licensing, all the way to business planning and seeking private sector

partnerships and investment. We will address the types of social forestry licenses and

possible investment and private sector partnerships in Section V.C below.

B. Strategic Position of LESTARI Project for Social Forestry Investment A well-executed private sector investment in a community controlled forest would support the

mandate and expected results of the LESTARI Project. Table 3 shows that a private sector

partnership in support of a social forestry green enterprise, would contribute very well to

seven out of eight of the expected results of the LESTARI Project.

Table 3. Alignment of a Social Forestry Investment with LESTARI’s Expected Results

Expected Project Result of LESTARI Relevant Impact of Community Forestry

Investment

1 At least 41% of total CO2 equivalent emissions reduced from land use, land use change and deforestation averaged across all landscapes within the project scope

High. Potential community managed forest has large above and below ground carbon stocks—management of those forest lands will matter greatly and may be improved with social forestry

2 At least 8.42 Million hectares of primary or secondary forest, including orangutan habitat, under improved management;

High. Community managed forests will have primary and secondary forest, and will host many species. Furthermore, community engagement will emphasize conservation.

3 Management of at least six conservation areas improved, resulting in the conservation of valuable orangutan and other key species habitat, and the reduction in poaching of threatened and endemic species;

Less relevant. Target conservation areas in conservation reserves, not eligible for social forestry licenses. However, such license areas may still contain high conservation value areas.

4 At least ten public-private partnerships (PPPs) promoting low-emissions conservation oriented development established;

High. A PPP would be a useful and appropriate tool to facilitate investments towards a green enterprise in community controlled forests

5 Funding leveraged from public and private sources, representing co-investment in project outcomes;

High. Remember that in addition to private sector investment, social forestry rights holders may contribute as well

6 Increased commitment of key private sector, government, and community stakeholders regarding the positive benefits of conservation and sustainable use of forests and the species they encompass;

High. The existing Social Forestry approach of LESTARI builds local community and government commitment to sustainable uses of the forest and the species they encompass. A private sector engagement would build on that.

7 Policies, laws, regulations, and procedures in support of low emission development and forest

conservation and management increased,

promulgated, and enforced at all levels; and

High. The work of LESTARI to engage private sector for Social Forestry investment may raise issues for government policy reform or enforcement.

8 Models for successful integration of district, provincial, and national low emissions development and forest conservation strategies developed and shared at all levels of government and with other key stakeholders.

High. The GoI is pushing an ambitious agenda with Social Forestry licensing. Any success or lessons learned by LESTARI will be closely followed and quickly imitated across many other landscapes in Indonesia.


LESTARI Project is also well positioned to originate, facilitate, and execute private sector

partnerships with the community managed forest resources. The following sections review

LESTARI’s current and planned activities in Social Forestry, which is the logical starting

point for private sector engagement with community managed forest resources. There is an

opportunity for LESTARI to enhance the capacity of communities to develop their forestry-

based local businesses through partnerships with forestry and other private sector

companies.

C. Social Forestry: A Key Competence Demonstrated in the LESTARI Project The LESTARI Project already demonstrated the capacity to work with local communities to

secure their social forestry rights per government regulations. The LESTARI Project has

developed a means to evaluate communities and forest resources as part of applying for

social forestry licenses. In 2016, the LESTARI Project evaluated 15 villages and community

groups interested in securing social forestry licenses. From that original group of 15,

LESTARI Project selected seven applicants to work with. So far, four of the seven have

received a Hutan Desa license, and the remaining three are in the last stages of resolving

final mapping issues with neighboring State forest concessionaires. (Table 4)

Table 4. Social Forestry Licensing Currently Supported by the LESTARI Project

Village Area (ha)

Sub-District

Potential

Conservation Commodities, NTFP, and Economic

Activity

Tangkahen* 162 Banama Tingang

Carbon storage and sequestration

Wood, medicinal plants, ornamental plants, mushrooms, forest honey

Tumbang Tarusan

419 Banama Tingang


Wood, medicinal plants, ornamental plants, mushrooms, forest honey, tree crops, silvo-fisheries, ecotourism

Tambak 590 Banama Tingang


Wood, medicinal plants, ornamental plants, mushrooms, forest honey

Bawan 845 Banama Tingang

Ecological research, carbon storage and wildlife protection

Ecotourism,

Gohong Kahayan Hilir

Rattan, ecotourism, fisheries, and reforestation

Buntoi 7,025 Kahayan Hilir

Ecotourism, fisheries, forest honey and reforestation

Mantaren I Kahayan Hilir

Rattan, fisheries, and reforestation

Kalawa Kahayan Hilir

Rattan, fisheries, and reforestation

* According to the Social Forestry Team of LESTARI KalTeng, Tangkehen is a priority village to try out a social

forestry investment initiative.


The LESTARI Project social forestry facilitation approach earns trust of local communities.

Throughout this process, LESTARI Project staff and partners become intimately familiar with

the community leadership, and the economic and ecological potential of the forest area

under the community’s management. The LESTARI Staff and partners use transect walks of

the area targeted for licensing to ground truth the resources to conserve and areas of

potential economic activity in the social forest boundaries, per the community’s priorities. In

all current cases, a Hutan Desa (Village Forest) is the most appropriate.

LESTARI Project is thus strategically positioned to present opportunities to potential private

sector investors and to community forest leadership as well. LESTARI Project has the

requisite local knowledge and contacts to play a trusted facilitation role. By using the

following framework, LESTARI can use that ability help form private sector partnerships and

leverage investment that benefits the communities consistent with its green enterprise

approach. This is not to say that all Private Sector engagements are favorable. LESTARI

Project’s private sector engagement strategy should remain consistent with its participatory,

inclusive, and highly consultative processes. There are many cases where the desire to

increase private sector investment for political or local economic development purposes

drives a top-down process that the LESTARI Project may want to avoid. (See Text Box)

In addition to the risk of a social forestry scheme being mandated from top down, there are

also many economic and ecological risks. A key economic risk for communities in a

community forest plantation scheme (HTR) is that the investor or company will have very

strong buyer power, and then they will be able to dictate the terms of trade to the

communities. A local wood processor may have options to source raw material from a

number of areas, but local communities may not have the relationships to trade outside or

ability to transport their output to other buyers. This risk, to the community, can be mitigated

through sound negotiations and also establishing alternative buyers or markets for their

output in case the primary buying relationship is not satisfactory.

Top down Social Forestry Investment?

In late 2016, President Jokowi announced a new investment by a Java based furniture

and bare core manufacturing firm, PT Nagabuana Aneka Piranti (NAP) in Pulang Pisau

District. NAP planned to build a bare core processing factory that would source raw

material, Sengon (Albizia chinensis) logs, from community forest plantations (HTR)

there. Soon after this announcement, LESTARI staff observed the local forestry officials

in Pulang Pisau rapidly expediting institutional formation and social forestry licensing

activities with the local communities with the intention for them to plant Sengon trees.

Even if the intentions of President Jokowi and the local government staff intentions are

good, the process is top down and potentially flawed. It would better to develop local

community institutional capacity first before forcing an investment scheme on to

residents.

Source: LESTARI Project Documents


For ecological risk Central Kalimantan has large areas of peatlands and forested peatlands.

A substantial area designated for Social Forestry is also zoned as peatland. A risk is that

communities and private sector investors will further degrade these fragile peatland forests

through further drainage and inappropriate activities. This risk may be mitigated by the social

forestry license holder planning and using their concession according to best management

practices and according to the district government’s Mid-Term Development Plans (RPJM).

The LESTARI Project has activities focused on both of these areas, and the project is

currently playing a supporting role in its Social Forestry licensing activities to assure that new

license holders properly plan and license their lands to reduce damages to peatlands.

It is critical for LESTARI Project and potential partners to balance the desires and objectives

of the forest rights holders with the objectives of private sector partners and investors. The

next section of the report will provide further context and framework approaches to assist the

Private Sector Engagement staff of LESTARI to accomplish this task.


5. EXAMPLES OF INVESTMENT AND PARTNERSHIP MODELS FOR SOCIAL FORESTRY LESTARI Project is in an excellent position to mitigate this problem for Social Forestry

Investment. LESTARI has established trusted relationships with local communities, and is

well positioned to develop, evaluate and promote possible investment opportunities from the

ground up alongside the communities, rather than to see them imposed on communities

from the top down or from external power brokers, as often happens.

A. Background: the Legacy of Exploitation of Forest Communities by the Private Sector and A new Paradigm One of the challenges facing Indonesian forestry is the unfair distribution of forest utilization

both between the government and the people and between private companies and forest

communities. Often, when there are agreements or partnerships between local communities

and private sector companies, especially forestry companies, the company eventually

dominates the relationship and dictates terms and conditions to the local people. Out of this

dynamic comes mistrust and conflict.

The Basic Forestry Law (BFL) of 1967 declared in its statement of purpose that all forests in

Indonesia must be “protected and utilized for the welfare of the people.” This contradictory

expression provided the Indonesian government with wide latitude for exploitation of one of

the most ecologically diverse tropical ecosystems in the world, which was also home to

hundreds of indigenous cultures. The BFL of 1967 prohibited private or community

ownership of land, but it did allow concessions for state, regional, and private enterprises,

but not for individuals or communities. (Szczepanski, 2002) The BFL of 1967 provided the

legal basis for hundreds of domestic and international business corporations to exploit forest

resources “for the welfare of the people” to the extent that logging and other forest produce

constituted 3.5% of Indonesia’s GDP between 1992 and 1997. (Add source)

Under the resource led investment paradigm (Figure 3), supported by the BFL of 1967, the

driver is capital, seeking out a natural resource, in this case a forestry concession. The

interests of local communities are secondary, if there are benefits, they are assumed to be

“trickle down” benefits such as local community participation as laborers. In this investment

model, the forest policies focused on the trees and tended to neglect the human dimension.


Figure 3. Corporation Dominant Investment Paradigm

Because of reformasi, the BFL of 1967 was replaced by Law 41/1999, which provides the

major legal basis for community-based forest management practices. The Social Forestry

related laws that followed, were more people-sided, culminating in Ministry of Forestry

Regulation PerMen 83/2016, that provides a forest management models focused on the

empowerment of forest communities.

Social Forestry is a new investment paradigm (Figure 4). The driving force would be the

rights holder (i.e. community institution). After securing land tenure over forest resources, the

community rights holders turn their attention to managing that natural resource, (i.e. local

forest area), and to do that well, they will be seeking capital and partnerships, most often

with the private sector. LESTARI Project is designed to facilitate such partnerships.

Figure 4. A New Investment Paradigm for Social Forestry

B. Enabling Investment and Asset Investment Framework We have established already that a well-designed partnership between and a community

and private sector partner in social forestry enterprise could be model example of green

enterprise development. USAID LESTARI Project has the capacity, through a Public-Private

Partnership (PPP), to deploy financial resources and expertise to stimulate this kind of

investment. A PPP is a very suitable tool, and fits well within Impact Investment

Frameworks, that suggests the most appropriate way to characterize investments as an

“enabling investment” or “asset investment.” The enabling investment has the purpose to

create the right conditions (either via a grant or impact investment with expectation of some

return, however low). In summary, the enabling investment is a public good, which in turn

enable asset investment to create private assets. (Table 5)

Forest Rights Led Model

Manages

Rights Holder Natural Resource Capital &

Partnerships

Seeks

Resource Led Model

Capital Natural Resource Labor

Seek

s

Needs


Table 5. The Investment Framework

Type Enabling Investment Asset Investment

Investor USAID, Government (e.g. BLU)

Rights-Holders Philanthropists

Private Sector Companies

Forestry Equity Funds1

Vehicle LESTARI Project SMEs, Intermediaries

Product Purchase, Expertise

Capital Investment

Goal Green Enterprise Development

Be a “pioneer” community forest enterprise

Sustainable Supply Chain, Quality product

Risk-Adjusted return on capital

Means Grants, organization and institutional development

Seed money, sweat equity, demonstrating business model

Investment in product supply chain via purchase order, seedling provision

Value investment via equity or loans

Output Public Goods Private Assets

Source: (Elson, 2012)

The expected support of LESTARI Project for promoting both Social Forestry and Private

Sector engagement fits this model exceptionally well. The LESTARI Project has the

available means: institutional development for social forestry, organizational development of

community-forest management, policy support partners, and grants for enabling investment.

The community rights holders and possible backers and philanthropists invest sweat equity,

in-kind facilities, and their own capital to initiate this business model and make a proof of

concept that other social forest enterprises may follow. Together, this generates a public

good.

For the private asset investment, a forestry company, forest honey processor or other

company wishes to source raw material from a community forest. They may invest in the

supply chain, lend expertise on product production and post-harvest processing, and

advance funds for seedling production and land improvements. Finally, the role of equity

funds or other such investors is to inject more capital and possible expertise into the

enterprise. There are specialty funds focused on tropical forestry in Southeast Asia. The

result of this will be Private Assets.

C. Examples of Possible Partnerships for Social Forestry Several different investment models for Private-Sector Partnerships in social forestry exist

and are summarily described below, progressing from the most discrete to the most holistic.

1. Off-Take Agreement

This partnership establishes market access and demand. The social forestry rights holder

has an agreement, formal or informal, with a buyer of produce or commodity. The price may

be fixed or it may fluctuate per market prices. These agreements may involve advance

payment to incentivize the rights holders to produce the product being desired. The rights

holders’ advantage is an assured market. The buyers’ advantages from this agreement is a

1 E.g. New Forests Tropical Asia Forest Fund

https://www.newforests.com.au/


secure source of supply of product of a certain quality. This model may be the quickest to

implement because it may only require up-grading exiting value chains, and thus could also

immediately improve livelihoods. It also has scalability because it can be replicated across

many small-scale producers. To maximize the positive impact on the landscape, there

should be a sustainability code of conduct (e.g. third party certification). Such off-take

agreements may be the basis for more comprehensive partnerships to follow.

LESTARI Project role: Training forest communities and farmers on improved production or

post-harvest processing of the product. This may be for agricultural crops, non-timber forest

products, and/or timber, depending on the license. Also, supporting the organization capacity

building at the community level would be an appropriate public good.

Public Private Partnership Concept: The model for this is LESTARI’s PPP with PT Insan

Bonafide, the off-taker, for rubber.

2. Share Cropping Model

The share-cropping model involves a split in production income between the community

rights holders and the private sector partner (e.g. forestry off-taker). This model may include

a more significant investment on the part of the private-sector partner because the incentive

is well aligned between the rights’ holder and private investor by sharing the outcome or

revenues sometime in the future. The advantage to the rights holders is that a more

substantial investment at the outset in developing the livelihood carrying capacity of the

forest. Also, the investor may play an ongoing technical assistance role through to harvest.

The advantage to the private sector investor is the ability to develop a new supply of raw

materials from scratch, have a means to recover their investment whilst having an ongoing

relationship in the future. See Text Box for example in the KK landscape.

LESTARI Project role: training forest communities and farmers on improved production or

post-harvest processing of the product. This may be for agricultural crops, non-timber forest

products, and/or timber, depending on the license. Also, supporting the organization capacity

building at the community level, which should also include capacity to negotiate a good

contract.

Public Private Partnership Concept: The example of PT Abadi (see text box) is relevant

because the size of the land parcel, 600HA, is possible social forestry parcel size. Also, PT

Abadi extensively surveyed Central Kalimantan to find an area of privately held land (i.e.

APL), to purchase 200ha themselves and then to partner with surrounding farmers. An

additional benefit for a PPP under this model, especially on peat-lands, is that safeguards

could be put in place to ensure that the water levels are maintained to maintain the peat-

soils and mitigate against fires. Of course, the feasibility and appropriateness of any

cropping system to the local landscape and soil types should be verified.


3. SME Support

This partnership model involves the development of a Small or Medium Enterprise (SME) at

the community level that provides a service or product because of the social forestry license.

Examples of such SME’s may be a wild bee honey processing cooperative, an Ecotourism

business linked to forest, or a handicraft cooperative using raw material and natural dies

harvested from the forest. This model may be highly successful at the local level and well

suited to the idiosyncrasies of each location.

LESTARI Project role: The enabling investment would be to establish the community forest

governance institution and organizational capacity to manage the business at the community

level. Besides LESTARI there are several other public funding sources that are relevant to

this activity, such as the General Services Body (Badan Layanan Umum) or village level

enterprise funds (BumDes).

Public Private Partnership Concept: At the individual SME level, it will be difficult to attract

a private sector partner and investment on the scale that LESTARI Project is seeking unless

LESTARI can aggregate several SME opportunities under one PPP. This may be possible of

multiple communities offer multiple Ecotourism options that could be partnered with a private

sector promoter. Another example is for a federation of cooperatives or SME’s that produce

certain products (e.g. wild honey or handicrafts), will partner with a distribution and

marketing partner to help brand and market their production.

4. Joint Venture Partnership

This partnership will require a more direct involvement of the private sector partner/investor

that will probably wish to have substantial control in the operation. This partnership would

probably be best associated with a HTR license, with plantation of fast growing wood

species. With any such activity, the suitability and economic viability of the species and the

planting regime needs to be closely studied.

Share-Cropping in Pulang Pisau

The operator, PT Bumi Abadi, has partnered with a local farmer cooperative to develop

600HA of previously highly degraded peat-land that flooded in the rainy season and

repeatedly burned in the dry season. PT Abadi wants to develop a source of timber,

Jambon Merah. PT Abadi paid for the access infrastructure and water control measures

(canals and weirs), and land preparation, seedling production, and plantings of Jambon.

The cooperative members will care for the growth of the seedlings with on-site technical

support of PT Abadi. Overall, the expected investment is Rp. 20m/ha. At the first

harvest, six years hence, the revenues are expected to be Rp. 400m/ha split between

PT Abadi and the farmers, 80:20. The share split will be renegotiated then for the

second harvest.


The communities and a private sector party creates a partnership business entity or SPV

(Special Purpose Vehicle,), with shareholding reflecting the value of equity investment and

value of land holdings. A possible partner in this would be an investment fund manager (e.g.

Tropical Forest Fund). In this model, the community grants the use of the land to the SPV,

for which the community will receive a fair share of the revenues from sale of the wood. The

SPV will implement and run the planted forest project, including creation of a management

structure and employment and/or contracting local people/groups to implement the various

operational activities, e.g., nursery, planting, tending, performance monitoring, supervision,

fire teams, administration etc. The SPV Board of Directors will include members from both

community and private sector partners, but as for any company the Board representation

shall reflect the share proportions. Management committees will provide a forum for wider

community input and views. Revenues from sale of wood products shall be distributed per a

predefined company constitution. The advantage of this to communities would be a

significant investment and professional management of their forestry lands. They would then

share in the profits. The advantage to the investor is a professional managed forestry

plantation that meets their target risk adjusted rate of return. In most cases, such

partnerships will focus on a single commodity or product.

LESTARI Project role: LESTARI Project could stimulate interest of investment funds by co-

hosting or participating in a Social Forestry Investment Forum. This may coincide with the

Annual Social Forestry conference in Jakarta. Also, LESTARI may broker the correct

relationship with a private sector partner that meets the applicable safeguards for NRM

investment, e.g. IFC Performance Standards. LESTARI Project could play a role in assisting

the community and the investor/private sector partner to evaluate the feasibility of such as

SPV scheme. Some key concepts for evaluating the feasibility of such a project is included

in Annex B (attached).

Public Private Partnership Concept: The joint venture partnership may go far toward

meeting LESTARI’s goals of improving management of area of land and providing co-

benefits to residents. It is not without risk. The community and private sector investor need to

have a close business relationship operating in good faith. This is a matter of trust, and a

PPP may provide the mechanism for both sides to build trust first before entering the SPV.

5. Sustainable Landscape Investment

This type of partnership is the most comprehensive solution and possibly the most complex

of all possible partnerships. As the name implies, this partnership looks at the landscape as

integral whole from which can deliver different revenue streams plus non-monetary benefits,

such environmental services or carbon-credits as part of the REDD+ framework. There is

already of Sustainable Landscape Investment in Central Kalimantan, PT Rimba Makmur

Utama (PT RMU), an ecosystem restoration concession involving local communities and

outside investors and partners.

In other parts of the world, such as Latin America, investment funds have partnered with

community groups to improve the functioning of landscape within a social forest boundaries.

This is a growing area of interest and possible investment. Critical to its success is a strong

local partner that can speak on behalf of the community and an area of forest or land that

can support various activities that generate near, mid-term, and long-term revenue streams.



This type of partnership may be the most impactful in terms of meeting the sustainable

livelihoods and conservation priorities of LESTARI Project, however it has many challenges.

LESTARI Project role: Like in previous partnership models, public funding is justified to

support the capacity building of village level institutions. Landscape level investment may be

also especially impactful in there are high-value biodiversity or carbon stocks on the social

forest or immediately adjoining it. In that case, it would be justified for LESTARI Project to

either evaluate and the conservation value of such areas for the use in a REDD+ scheme or

other conservation value investment schemes. LESTARI Project’s grant mechanism and

USAID’s policy project, BIJAK, may also help to reduce the private sector risk of investing in

landscape restoration.

Public Private Partnership Concept: This partnership has the most potential to advance

the major conservation goals of LESTARI while encouraging investment in Green

Enterprises. Therefore, if there an interested investor or private sector partner, it would be

justifiable for LESTARI Project to reduce the risk of the initial assessment and feasibility of

any possible investment ecosystem restoration, such as that by PT RMU. A PPP may help

cover those initial costs of a private sector fund or company to investigate a possible

opportunity, or to invest alongside PT RMU, as an established ecosystem restoration project

in the landscape.

http://www.landscapes.org/wp-content/uploads/docs/London-white-papers/London-2016-WhitePaper-Risk-reduction-measures.pdf

http://www.landscapes.org/wp-content/uploads/docs/London-white-papers/London-2016-WhitePaper-Risk-reduction-measures.pdf


6. NEXT STEPS: PRIVATE SECTOR ENGAGEMENT IN SOCIAL FORESTRY

The following is a recommended list of activities and timeline for LESTARI’s Private-

Sector engagement in Social Forests. Most of these activities involve building the

capacity of LESTARI to evaluate community forests and make them investment

ready.


Table 6. Proposed Near Term Activities to Enhance Private Sector Engagement in Social Forestry, Central Kalimantan

Activity PIC 2017Qtr4 2018Qtr1 2018Qtr2 2018Qtr3 Later

1. Inventory activities as Social Forestry Investment (SFI) Opportunity. Ozzy, Lilik 1wk

2. Feasibility framework analysis for SFI opportunities in KalTeng

2.1 Draft SOW and recruit an economist consultant to eval. SFI Ross, Indira 1mo

2.2 Develop quick economic evaluation models for SFI opport. (1) Consultant 1mo 1mo

2.3 Train LESTARI Staff to use evaluation models of SFI Consultant 1wk

2.4 Test models on listed GE opportunities, Tangkehen Village Consultant and Ozzy 1mo

2.5 Feasibility framework model: SFI brief for Tangkehen Village Consultant and Ozzy 1mo

3. Process Development for Facilitating SFI in KalTeng

3.1 Integrate LESTARI’s Social Forestry staff (SFS) with PSS Indira/Lilik/Ozzy/Abi. 2wk

3.2 Economic feasibility evaluation data added to SF surveys Conultatnt/Ozzy/Lilik 1wk

3.3 Based on SFS surveys, PSS can prioritize SF villages for evaluation Lilik/Ozzy 3wk 3wk 3wk

3.4 Priority SFI locations are evaluated, reported in investment brief Ozzy/TBD 3wk 3wk 3wk

3.5 Investment briefs are shared with potential investors/partners Indira 1wk 1wk 1wk

4. Market LESTARI’s Role to Facilitate Investment in Social Forestry

4.1 LESTARI staff networking with social forestry investment initiatives Indira, Abidah, Nev XXX XXX XXX XXX XXX

4.2 Design a technical assistance and support mechanism for SFI Indira, Nev 2wk

4.3 Integrate the support mech. (3.2) with the feasibility model (2) Consultant 1wk

4.4 Co-Organize an investor’s panel at the Indo. Social Forestry Conf. LESTARI, MCAI 2wk 2wk

4.5 Present and publicize LESTARI’s support mechanism for SFI TBD 1wk

5. Private Sector Outreach and Engagement for SFI in KalTeng

5.1 Produce a Press Release on LESTARI’s SFI support mechanism Communications 1wk

5.2 Assemble an Industry Advisor Network for each possible activity Indira/Ozzy/Abidah 2wk 2wk

5.3 Periodic teleconference or meeting with relevant advisors Indira/Ozzy/Abidah xxx xxx xxx xxx xxxx

5.4 Brief advisors on results of feasibility analysis/seek their input Ozzy/Indira/TBD xxx xxx xxx xxx xxxx

5.5 Present Social Forestry Investment Briefs to Advisors,Qutrly Indira/Abidah/TBD 1wk 1wk 1wk xxxx

6. Private Sector Partnerships and Investments

6.1 Accumulate database of possible partnerships in SFI Ross/Indira/Abidah 1wk xxx xxx xxx xxxx

6.2 Combine results from (3) and (5) above, update always (4.2) Indira/Abidah/TBD 1wk 1wk 1wk

6.3 Continuously negotiate a PPP TA/Invest package for livelihoods Indira/Ozzy/TBD xxx xxx xxx xxx xxxx

USAID LESTARI Rencana Rinci Tata Ruang & Zonasi – 26 Desember 2016 H a l | 34

1. Inventory of activities for social forestry investment A product of LESTARI Project’s Social Forestry licensing activity is a list, or inventory, of

potential economic and revenue generating activities at the community level in Central

Kalimantan. LESTARI Project arrived at this list through its assessment of villages receiving

social forestry licenses (see Section III.C), where LESTARI staff conducted focus group

discussions with community members, observed current activities in the community, and

made transect walks of the forestry area to identify resources and potential activities. The list

of all potential activities should then be divided into activities primarily for home consumption

(or subsistence activities), and activities leading to tradable products. Tradable products will

then be evaluated for their potential to attract investment and form partnerships with private

sector players.

Either through its Social Forestry process described in Section III.C above or the Village

Medium Term Development Plans (RPJMDes), LESTARI Project will be able to know and

understand the potential livelihood activities for each Social Forestry area and the

communities’ priorities.

Given what we know about the KK Landscape, the potential and viable tradable products

identified by the communities or through the RPJMDes are limited. This makes it easier for

LESTARI Project staff, together with some sub-sector advisors and industry partners to

conduct preliminary feasibility assessments of the community’s plans. Table 7 is illustrative

list of tradable goods and activities in the KK Landscape that are relevant to the areas

undergoing social forestry licensing at the moment.

Table 7. Possible Sub-Sectors and Tradable Products for Private Sector Partnerships

Rubber

Palm Oil

Timber (wood products)

Horticulture

Forest honey

Medicinal plants

Fisheries

Ecotourism

Handicrafts

This list is a starting point from which the project would begin to assemble a method for

quickly evaluating the feasibility of different economic activities as either feasible, no-

feasible, or feasible with additional support.

2. Feasibility Framework Analysis for Social Forestry Investment in the KK Landscape The consultant proposes that LESTARI develop a simple and relatively quick means to

evaluate the economic and operational feasibility of the main tradable good sub-sectors

identified in the inventory exercise in step (1) above.

The framework will accomplish the following:

1. Provide direction to the Social Forestry and Private Sector Engagement team

members on what data to collect from the communities.


2. Using current benchmarks and common parameters for the industry (cost of

production, market prices, estimated market size, etc.), the framework will be able to

calculate the probable viability of a given activity.

3. The framework model will serve as a guide for community members to check their

assumptions, and also to inform them on the realities of the market.

4. Lastly, this will capacitate the LESTARI Project staff to use up-to-date market

information in the analysis of feasibility.

The precise steps to help LESTARI Project to realize this task are as follows:

2.1. Draft a SOW and Recruit an Economist or Financial analyst to develop the feasibility

models. [A draft of the SOW is included in Annex 3 of this final report.]

2.2. The Consultant develops the appropriate data collection tools and excel spreadsheet

model to complete an initial economic feasibility model for each activity listed in the

inventory.

o The feasibility model should be done in order or priority, from highest to lowest;

highest being the model most likely to be in demand.

o The model should use local industry benchmarks (e.g. COGS, prevailing

market prices, size of the established market, etc) as part of the model

2.3. Consultant will train the relevant LESTARI Staff on this model

1) Relevant LESTARI staff should be participating from the outset to ensure that is

meets their needs and is well understood by them.

2) This model will also serve as a tool to engage private sector partners and

industry advisors (per Task 5 below)

2.4 The model will be tested first for Tangkehen Village.

1) Test the model as means to collect data from the community, as well as to

populate the model with secondary data that is available

2) LESTARI Staff to participate every step in the collection of relevant data and

the process of analysis

2.5. Feasibility Framework Model produces a Social Forestry Investment Brief on

Tangkehen village

1) Consultant will fashion a short investment brief to highlight the activities that

initially look economically feasible, demonstrate which activities are not

feasible, and to note any gaps in the data that make the feasibility analysis

incomplete.

2) The investment brief is a simple narrative of the findings from the feasibility

model and questionnaire. It is meant to start the conversation about the

investment and partnership opportunity.

3. Internal Process for Social Forestry Investment in KalTeng The three most important criteria in evaluating the feasibility of community based natural

resource management projects are (1) the certainty of ownership or control of the resource,


(2) the existence of a legal entity and governing body to represent the community’s interests,

and (3) the capacity and trustworthiness of the relevant community leaders. LESTARI

Project, through its social forestry activities, already have detailed and in-depth insight into

each of these factors at the community level. This is great information to help LESTARI

project to steer potential investment and partnerships to the communities with the best

capacity to manage such a relationship.

3.1. Take measures to ensure planning and communication between the Social Forestry

Team and the Private Sector Engagement team

3.2. Economic feasibility evaluation data added to SF surveys

1) As part of the Development of the Feasibility Analysis Model in Task 2 above,

review and update the data collection of the Social Forestry

2) Include the Social Forestry Team into the development of the economic

feasibility model as well. The model may also guide them to what data to

collect, and their experience may help improve the model’s assumptions

3.3. Social Forestry survey results help Private Sector Staff to prioritize SF villages for

more in-depth evaluation

1) The private sector staff still have the responsibility to complete analysis,

including field work and meeting with community members

3.4. The prioritization, fieldwork, and analysis is on-going responsibility of the private

sector engagement team.

1) An Investment Brief will be produced for each community feasibility assessment

that is determined to be feasible

3.5. Those assessments that result in feasible outcome, will be reading for external

presentation. These will be shared with advisor and potential partners (See Task 4-5

below)

4. Market LESTARI’s Role to Facilitate Investment in Social Forestry There is a growing effort to direct investment and technical assistance towards forest based

communities and more sustainable uses of forest. The LESTARI Project is very much part of

this effort. However, LESTARI’s role to facilitate investment in Social Forestry Schemes is

less defined or recognized, and this task is meant to improve that.

4.1. LESTARI Staff will be networking with regards to parties involved in sustainable

forest and social forest investment.

1) The purpose of this is learn the landscape and identify partners to work with. In

addition to the many local NGO’s, the relevant office of the Department of

Forestry, there are the following parties as well.

2) Tropical Investment Fund of New Forest, an Australian based investment fund.

They are not specialized in Social Forestry schemes, but their experience in

this may be helpful.

3) Althelia Ecosphere is an UK based investment fund designed to pair economic

and financial performance with premium social and environmental outcomes,


https://althelia.com/investment/guatemalan-caribbean-forest-corridor/


impacts and risk management. Their example of investing in a Guatemalan

landscape, along with communities, is highly relevant to LESTARI’s landscape.

A contact there is Adam Gibbon, Chief Technical Officers at

[email protected]

4) The Millennium Challenge Account Indonesia (MCAI) is currently supporting a

very large Social Forestry effort across Indonesia. Collaboration with the leader

of that effort, Tri Nugroho ([email protected])

4.2. Design a Technical Assistance and Support Mechanism for SFI

1) The LESTARI Project Management will need to agree on the technical

assistance and financial support package it can deploy to help SFI. This report

tries to provide the theoretical framework and practical models for this (see

Section V, above).

2) LESTARI Project is strongly positioned in the KK Landscape to be pro-active

and hands on to identify, develop, and promote a community managed forest to

investors and private partners.

3) Another model is that of Partnerships for Forests, which makes calls for

proposals from private sector, public sector and communities that can achieve

improved returns from sustainable forests and sustainable land use—very

much like the Green Enterprise focus of LESTARI. It’s a Five-year project

supported by DFID, also looking to invest in Indonesia, but lacks the local

contacts and field staff of LESTARI.

4) It is important for LESTARI Project to define Technical Assistance and Support

Mechanism so that it can be marketed to communities and possible investment

partners alike.

4.3. Integrate the Support Mechanism with the above Feasibility Assessment Framework.

Gaps identified during the feasibility analysis should be addressed by the Support

Mechanism.

4.4. Co-Organize an investor’s panel at the Indonesia Social Forestry Conference

1) LESTARI Project can elevate its visibility for SFI by helping to organize a panel

at the Annual Indonesia Social Forestry Conference

2) This would be an excellent opportunity to invite international attendees, and to

promote the Support Mechanism for SFI (4.5)

5. Private Sector Outreach and Engagement for SFI in KalTeng

5.1. Produce press release and briefing sheets/marketing material to explain the support

LESTARI Project will provide to communities and/or investors in more sustainable

forest management practices.

5.2. Assemble an Industry Advisory Network for all activities identified in Task (1) above.

1) In the near term, LESTARI Project should seek the assistance, in an advisory

capacity, of companies involved in relevant sub-sectors to help evaluate the

feasibility of concepts for private sector engagement.

https://partnershipsforforests.com/


2) LESTARI Project could name companies or sub-sector experts to a “Board of

Advisors for Social Forestry Partnership and Investment.” [Note, there should

be a Press Release around this naming as well.] An initial list of companies to

be contacted are provided in Annex D. A priority it given to companies in the KK

Landscape and those that are already working with LESTARI Project in some

way.

3) The immediate result of this is that LESTARI Project would have substantive

discussions with many potential private sector partners, and the companies

named to such a board would immediately be part of and have buy-in to this

process.

5.3. Periodic teleconference or meetings with relevant advisors

5.4. Brief industry advisors on results of feasibility studies.

1) When companies do participate as advisors in the initial feasibility review of

social forest investment concepts, the feasibility review itself will likely be more

focused to meet the needs of potential partners and investors.

2) LESTARI Project staff will quickly gain sub-sector insights to evaluate new

opportunities and assist in the capacity building of communities.

3) This would be the first audience to present the Investment Brief products from

Task 2.5 above.

5.5. Formally present the list of Social Forestry Investment Briefs to Advisors, Quarterly

1) There should be a quarterly listing of all feasibility studies and Community

Forest schemes. The entire investment brief does not need to be presented, but

a summary list to alert all advisory board members of the extent of LESTARI’s

activities over the previous quarter, that also may lead to additional

meetings/contacts/ interest

6. Private Sector Partnerships and Investments It should be no surprise that a partnership of substance and value is usually the result of a

long process. After going through the previous steps, the LESTARI Project should be at the

point of concluding partnerships that will truly make a difference in the landscape.

6.1. The first step and ongoing step is to understand which partners best fit the Green

Enterprise model promoted by LESTARI, and start building a database.

6.2. The ability of LESTARI Project to attract and work with private sector partners will to

better define that product or service that the LESTARI Project can provide. This will

be done accomplished by:

1) Integrating private sector partners, as Advisors, into the design process. Task 5

2) LESTARI Project aligning its internal processes (Task 3)

3) LESTARI Project developing a mechanism to support SFI (Task 4.2), that will

be flexible enough to meet the needs of partners as those needs are defined.

6.3. Continuously negotiate a Private Public Partnership (PPP) agreement to improve

livelihoods—A PPP is always on the table with potential partners and communities,

and it should ensure improved livelihoods and better conservation.


7. CONCLUSION The consultant believes there is substantial opportunity for the LESTARI project in facilitating

private sector partnerships and investment into the area of community managed social

forests. Using the outline of steps named above, LESTARI Project can begin to identify

potential social forestry green enterprises to attract investment and private sector

partnerships.


ANNEXES

Annex A: Scope of work: private sector partnership consultant [Insert Ross’ SOW for this consultancy here]


Annex B: Elements of Social Forestry Project Appraisal 2

Organizational

Socialization & FPIC for community

Define community aspirations

Define and proceed with licensing processes

Define conditions / responsibilities under the license for each party

Define limitations for private sector involvement (e.g., are foreign investors

permitted?)

Define potential roles & responsibilities of the partners

Define an appropriate vehicle / entity for a partnership business model

Describe a process for defining a fair equity proportion in the partnership business

The parties would be:

o Community (fixed):

land cash investment via allocation from village budget other village cash investment sources in-kind operational inputs (but I’d advise the partnership business should not

take that direction)

o Business (potential investor type A):

usually some capital investment (rarely commits 100% up-front, and maybe subject to revisions if economy declines)

often provision of material inputs (but I’d advise the partnership business should not take that direction)

individual businesses must be screened for selection; LESTARI should assist the HTR define some objective selection criteria

o Investment fund (potential investor type B):

capital investment (after investment decision 100% of funds are fully committed and escrowed for draw-down over the investment period)

investment period is usually restricted by fund policy; usually 10-14 years typically, will invest enough to ensure a controlling interest, but its negotiable will take close interest in governance, environment and economic

performance at very least will ensure presence at Board level, but usually also assign

experienced management team / advisers to a substantial almost always adhere to sustainability criteria, typically FSC criteria and

standards for wood and/or rubber plantations very strict legal compliance

o LESTARI

LSM role for technical, governance and facilitation support Justifications include:

2 Dave Nichol, Lestari Project Consultant, 2016.


- Livelihood improvement

- Community level capacity development

- Sustainable business model

- Clean and clear assignment of land use permits

- Establishment of woody crop that will sequester carbon above baseline;

periodic harvests for solid wood products is a relocation of the carbon

pool into long term uses not complete emission; Plantation area will be

replanted after each rotation

- The HTR land base and surrounding will be attended by active

workforce, protecting against fire and unlicensed exploitation

- Management comes under the KPH / KHG umbrella and hence will

comply with

- Local Government:

Support for national HTR programs Verification processes Licensing

Technical & Financial

land area and condition

species selection

silviculture regime

manpower availability

operation processes

operational resources available and needed

operational budget breakdown Rp/year

production estimate m3/year

revenue flow Rp/year

potential unit prices Rp/m3 (often in a schedule related to size and/or quality

criteria)

taxes imposed on the project

incentives available for the project

project analysis: discounted cash flow

Sustainability

impact assessment: economic, social, environment

risk analysis

“What if” analysis


Annex C: Draft STTA SOW for “Green Enterprise Feasibility Analysis Framework for Social Forestry: Sub-Sector Approach”

Background

Community managed forests, in Indonesia known as social forestry, is a widespread


local livelihoods—all qualities used to describe Green Enterprises. By involving local forest

users in management, social forestry is promoted to benefit both livelihoods and forests. The

social forestry movement is currently underway in Indonesia with the Government of

Indonesia targeting 12.7m hectares of State forests to be put under community control of

communities in the coming years. Nearly 430,000ha in the KK Landscape alone has been

indicated as available for social forestry, of which 185,518ha (42%) is classified as peatland.

The LESTARI Project’s is currently assisting communities to attain social forestry licenses in

the KK Landscape. This puts the LESTARI Project in a strong position to help communities

to overcome barriers in partnering with private sector companies, and the LESTARI Project

possesses valuable knowledge of the strengths and weaknesses of community-based

institutions and their leadership and their aspirations and priorities. The LESTARI Project

should leverage this insight to facilitate promote Private Sector Partnerships with community

based social forestry rights holders.

An early product of LESTARI Project’s social forestry licensing effort is a community

generated, field verified, prioritized list of potential economic and development activities. The

LESTARI Project staff, internally and through a group of sub-sector specialists, should be

able to conduct a simple initial feasibility analysis of the potential of high potential sub-

sectors activities at the community level.

Purpose: Build capacity of LESTARI Project team and partners to conduct initial sub-sector

feasibility analysis for proposed Social Forestry investment and private sector partnerships.

Definition: Sub-sectors is defined here as the village or forestry based activity associated

with an industry (handicrafts) or service (ecotourism) or commodity (rubber, timber, forest

honey)

Tasks

1. Develop a framework analysis used by LESTARI Project staff and partners to evaluate

possible community based development proposals that may involve private sector

partners or investment. The framework would enable projects staff and partners to

arrive at the early determination of: viable. Not-viable, viable with conditions

a. Compile list of possible sub-sectors from LESTARI’s Social Forestry licensing

activities. Match this list to existing activities and businesses in these sub-

sectors to provide benchmarks

b. Using industry benchmarks in each sub-sector, compile a list of key criteria

and variables by which community based sub-sector development proposals


may be evaluated. Examples of such criteria would be Minimum Efficient

Scale (MES) for production or processing, quality standards for food products,

minimum logistical access needed (e.g. for extracting timber, access of

tourists).

c. Through which ever engagement method is most suitable (one-on-one

consultation, sub-sector workshops, etc.), confer with sub-sector companies

and experts to refine the and further develop the sub-sector Green Enterprise

assessment tool.

d. Encourage such private sector partners and advisors to remain involved in

the on-going evaluation process as new Social Forestry Green Enterprises

are founded

2. Using this initial framework, train LESTARI Project staff on evaluating several different

Social Forestry sub-sector development proposals as case studies. The results of this

will a better refinement of the “Green Enterprise Feasibility Assessment Framework”

3. Recommend a “champion” within the LESTARI Project consortium to lead the “Green

Enterprise Feasibility Assessment Framework”

Deliverables:

1. Sub-sector feasibility financial assessment models (Microsoft Excel), suitable for

village or Social Forestry level analysis. One for each main sub-sector of tradeable

goods or services. Up to 8 total.

2. Basic survey questionnaire needed to complete each feasibility models. These will

serve as guides for LESTARI Project field staff to collect the correct field data.

3. Research on relevant secondary data to populate and complete the feasibility models.

4. Training to relevant LESTARI Project staff to use and update the models.

5. Trial run of the feasibility models in one selected village to be selected by LESTARI

Project.


Annex D: List of Private Sector Companies Forestry Concessions in the KK Landscape

NAMA IUPHHK-HA SK IUPHHK-HA

KABUPATEN Nomor Tanggal (Ha)

2 3 4 5 6

Areal Seluruhnya di Wilayah Kalteng

PT. Bumimas Permata Abadi 656/Menhut-II/09 10/15/2009 47,700.00 Gunung Mas

PT. Carus Indonesia 94/Kpts-II/00 12/22/2000 72,170.00 Katingan

PT. Dwima Jaya Utama SK.267/Menhut-II/04

7/21/2004 127,300.00 Katingan, Gunung Mas

PT. East Point Indonesia SK.307/Menhut-II/2010

5/17/2010 50,665.00 Gunung Mas

PT. Fitamaya Asmapara 991/Kpts-VI/1999 430/Menhut-II/2006

10/14/1999 43,880.00 Katingan

PT. Gaung Satya Graha Agrindo 102/Kpts-II/2001 3/15/2001 49,950.00 Katingan

PT. Graha Sentosa Permai SK.381/Menhut-II/05

11/9/2005 44,970.00 Katingan

PT. Hasil Kalimantan Jaya 116/Kpts-II/2000 12/29/2000 49,500.00 Gunung Mas

PT. Hutan Domas Raya 78/Kpts-II/00 12/22/2000 99,870.00 Gunung Mas

PT. Hutan Mulya SK.265/Menhut-II/04

7/21/2004 51,000.00 Katingan

PT. Kayu Waja 81/Kpts-II/2000 12/22/2000 38,450.00 Katingan

PT. Meranti Mustika 1001/Kpts-VI/99 10/14/1999 45,530.00 Katingan

PT. Rangau Abdinusa SK.170/Menhut-II/09

4/14/2009 29,920.00 Katingan

PT. Rinanda Inti LESTARI 103/Kpts-II/2001 3/15/2001 30,160.00 Katingan

PT. Sarang Sapta Putra 188.45/466/2002 398/Menhut-II/06

6/5/2002 51,100.00 Katingan

PT. Sari Bumi Kusuma 201/Kpts-II/1998 2/27/1998 208,300.00 Katingan, Seruyan & Lamandau

PT. Sikatan Wana Raya 107/Kpts-II/2000 12/29/2000 49,400.00 Gunung Mas

Source: Department of Forestry, KalTeng, 2016

Other Private sector partners

Commodity Company Contact:

Forest Honey Madu Hutan Kalimantan Attn: Eddy Setyawan

Jl. Parit Haji Husin 2 Wanabhakti 2 No. 12 Pontianak - KalBar 78124

HP: 08164265265

Rubber PT Insan Bonafide See Ozzy

Ecotourism PT Wow Borneo Attn: Lorna Dowson-Collins

Jalan Barito No 11, Palangkaraya 73112, Indonesia

Tel: +62 536-322-2099


Commodity Company Contact:

Indecon Attn: Wita Simatupang

Jl. Tebet Timur Raya 22D Jakarta-Indonesia 12820

021 8378 6736

[email protected]


Annex E: Rubber sector consultancy report, 2016

1. Justification

LESTARI supports the Government of Indonesia to reduce greenhouse gas (GHG)

emissions and conserve biodiversity in carbon rich and biologically significant forest and

mangrove ecosystems. One of LESTARI’s key expected results is Public-Private

Partnerships (PPPs). This is expected to foster the private sector’s support and to broaden

impact, increasing economic benefits while reducing GHG emissions and deforestation. The

PPPs will help drive low emissions development (LED) alongside conservation in the six

targeted landscapes across Indonesia. One of those landscapes is the Katingan-Kahayan

Landscape, comprising Pulang Pisau, Katingan, and Gunung Mas districts; Palangkaraya

municipality; and Sebangau and Bukit Baka Bukit Raya National Parks, hereinafter referred

as the “Focus Area.”

Natural rubber cultivation is identified as a LED activity within a large part of the Focus Area.

Rubber tree cultivation brings the following desirable benefits: (1) livelihoods for residents in

the landscape, (2) source of raw material to the local rubber processing industry, and (3)

opportunity for better land management and protection against wild-fires, especially in

Pulang Pisau District.

The previous project, IFACS, had demonstrated a viable model to improve the rubber value

chain that provided the aforementioned benefits at scale. The key aspect of the model is that

rubber farmers are organized into rubber marketing groups called Kelompok Usaha

Bersama Karet (KUBK). The KUBK model also includes collaboration and partnerships with

rubber processing factories, input suppliers, and financial institutions that serve the needs of

rubber sector SME’s. This proposed activity will expand on the KUBK model in existing

areas, and also extend to new geographic areas and villages. The main goals and

achievable targets of this activity are the following:

Goals of the Rubber Green Enterprise Activity:

Goal #1: Improve the land use that reduces greenhouse gas emissions and

improves the habitat for biodiversity

Goal #2: Increase the output and quality of natural rubber production from

smallholders

Goal #3: Increase the level of income and livelihoods of natural rubber producers

Objective Targets for the Rubber Green Enterprise Activity:

Objective #1: Upgrade the production of 3,000 natural rubber farmers in the Focus

Area over the next 4.5 years, with initial activities for Y1 and Y2 in Pulang Pisau

District

Objective #2: Improve the production and land management practices on

approximately 6,000 HA of smallholder rubber plantations over the next 4.5 years

Objective #3: Support the formation of approximately 50 KUBKs to serve the input

supply, marketing, and technical assistance needs of their member farmers

Objective #4: Incorporate a fire management plan for each KUBKs


2. Description

The primary activity will be to upgrade the production of approximately 3,000 smallholder

natural rubber farmers, and to connect them to a rubber market that will differentiate rubber

on the basis of quality and offer a better price. The sub-activities are described in detail

below. A timeline for all sub-activities is provided in Annex 1 for 2 years (April 2016-March

2018). Annex 2 contains the list of five year targets, estimated costs covered the LESTARI

Project (Public) and from partner contributions (Private), and the expected economic benefits

they will produce.

a. Sub-Activity #1: Revitalize Existing KUBK’s in Pulang Pisau and Palangkaraya.

The LESTARI Team has conducted a survey of existing KUBKs in the landscape. The

highest potential, leading KUBK’s have been identified for additional expansion of

membership, thereby increasing the number of farmers reached by LESTARI.

These leading KUBK’s will also be the first KUBK’s to be planned for the fully integrated fire

management program. This will involve a fire risk mitigation strategy at the KUBK and village

level. These KUBK’s that meet basic management and organizational criteria, will be

proposed to receive a fire-fighting equipment from the LESTARI Project. The equipment will

be included in the asset inventory of the recipient KUBK, and they will be asked to provide a

fire season report on how the fire equipment had been used.

Expected Outputs:

1. No less than 4 KUBK’s are revitalized and begin to add new farmers to their

membership list and adopt an integrated fire management plan

2. Up to 4 KUBK’s qualify for fire-fighting equipment donated by LESTARI Project.

Resource Partner(s): Initially, it was expected that the Bank KalTeng would provide a

budget for up to 4 Fire Fighting Equipment sets of 30m IDR each and a SME Financing

Product suitable for the needs of KUBK’s. However, this assistance did not materialize

during the period of this consultancy. The Bank KalTeng interest did not materialize. The

LESTARI Project has prioritized Integrated Fire Management approach in all activities, and

thus provision of such capacity to the KUBK’s would be warranted.

b. Activity #2: Socialization of KUBK Model to Additional Rubber Producing Villages

and Training on Best Management Practices to farmers.

The LESTARI Project staff, in working with the project partner FIELD, have already identified

high potential villages for the expansion of the KUBK. There are 9 such villages chosen for

Pulang Pisau district in the first year. Project staff together with FIELD will raise awareness

to the rubber farmers in these communities about the effort of LESTARI and its private

sector partners to expand the KUBK model for upgrading smallholder rubber production. The

first phase of developing the model will be to enlist farmers for training in Best Management

Practices on improved rubber cultivation practices and post-harvest processing. This training

will follow an approved curriculum, and will be carried out by FIELD staff with additional

technical input from the Private Partner, CV Mitra Sidirepo.

Expected Outputs:

1. Nine new villages with signed lists of interested farmers to participate in training and

KUBK formation.


2. 500 additional farmers receive training on BMP for rubber cultivation and post-harvest

processing during the main growing/tapping season

Resource Partner(s):

1. FIELD will develop an SOW to include training of 500 rubber farmers on the agreed

curriculum over the period of May 2016-November 2016.

2. CV Mitra Sidirepo will provide an in-kind contribution of 5 technical staff in the field to

support training on the agronomic aspects of rubber cultivation.

Implementation Partner(s): FIELD, as part of their current SLA process in villages of

Pulang Pisau have already identified and partially mobilized rubber farmers. LESTARI

Project staff to coordinate and provide over sight.

c. Activity #3: Introductory training and promotion of better inputs for improved

rubber cultivation.

The main hindrance to farmers upgrading their rubber production is the poor use or lack of

use of suitable inputs to increase production and improve quality. Experience has shown that

with rational use of such inputs, farmers can boost latex output by over 40% and also

produce clump rubber that is consistent with the industry standard (SIR20). However,

farmers may not have access to such inputs nor knowledge on how to use them.

Furthermore, given the depressed prices of rubber now, farmers are even more risk averse

to investing in new technologies that they have not yet used and experienced the results.

Therefore, this activity is to provide a promotional price to the first 250 farmers that sign-up

for the training program for the following agricultural inputs distributed through the partner

CV Mitra Sidirepo.

CV Mitra Sidirepo’s field staff will provide demonstration and training on the use of these

products as part of their in-kind contribution in Activity #2 above. The promotional subsidy

will be paid for by Bank Indonesia as part of their program to assist the productivity of rubber

sector SME’s (i.e. smallholders). It is expected that the farmers, after having experiencing

the benefits of the improved production technology, will invest up to the full amount in the

future. The provision of inputs and the training of such inputs will occur over the main rubber

tapping months of June to September.

Expected Outputs:

1. Input packages made available and sold at a discount to 250+ farmers

2. All participating farmers receive training and have direct experience in observing the

benefits of the improved input package.

Resource Partner(s):

1. Bank Indonesia to provide funding of 300m IDR in the first year for the input promotion

subsidy.

2. CV Mitra Sidirepo will provide in-kind training and technical assistance


d. Activity #4: Demplot Establishment.

In every village where there is a new rubber farmer training group, a demonstration farm of

no less than 25 mature, producing rubber trees will be established. This will demonstrate the

effects of BMP for rubber production, including the use of improved inputs. In coordination

with LESTARI project staff and the FIELD trainers, CV Mitra Sidirepo will be responsible for

establishing the demplots, carrying out the improved management practices on those

demplots, and also provisioning the improved inputs for no less than 25 trees per individual

demplot for the entire training and production schedule (June-September 2016)

Expected Outputs:

1. Nine demplots established

2. Approximately 500 farmers have a chance to observe and to be trained on BMP of

rubber cultivation at these demplots

Resource Partner(s): CV Mitra Sidirepo establishes and maintain 9 demplots at the cost of

1m IDR each (9m IDR total).

e. Activity #5: Market Linkage Development and Outreach.

The key benefit of this program will be to link farmers to rubber buyers that will pay a better

price for higher quality natural rubber. There are several provincial and regional rubber

processing companies that will partner with LESTARI in order to improve their access to and

cooperation with KUBKs. In order to improve this linkage, the rubber processors will

participate in an outreach effort to rubber farmers and nascent KUBK’s to: (1) educate the

farmers on the rubber market and the quality of rubber they need to produce, and (2)

develop trust for a supplier relationship with the rubber processor. This will include a clear

and transparent pricing and grading system, and preferential treatment for KUBKs who

market sell to processors. For example, KUBKs do not need to queue at the factory, but go

to the front of the line.

As part of this, participating rubber processors will also host representatives of the KUBK’s

to their factories for a tour and further education on quality issues in the manufacturing

process. This will take place during the June-September training period of the new farmer

groups and nascent KUBKs.

Expected Outputs:

1. All KUBKs and farmer groups personally meet a senior representative of a rubber

processing partner

2. All KUBK’s have the opportunity to send representative(s) to tour a rubber processing

plant and to learn of the issues regarding quality in rubber value chain.

3. KUBKs that develop a good relationship with the rubber processors receive

preferential treatment for delivering their product to the factor, and they also receive

basic grading and measuring equipment needed for better QA at the KUBK.

Resource Partner(s): Rubber processing firm (PT Insan Bonafide) in the form of in-kind

support to educate the participating rubber farmers on the market, post-harvest processing,

and quality control; field trips to the rubber processing plant with transport and food/snacks

paid for by the factory; and, where possible, basic equipment for QA at the KUBK level.


f. Activity #6: KUBK Management Development and Strengthening.

In parallel to the farmer training activities in Activity #2 and #3, there will also be an effort to

develop and strengthen the village level institution of the KUBK. This will be done by

educating new farmer groups on the Standard Operating Procedures (SOP) of KUBKs that

was developed in the predecessor project, IFACS. LESTARI will hire a dedicated STTA to

oversee this activity, and to maintain regular support to the new and growing KUBKs to

assist them to implement the SOPs.

In addition, Bank Indonesia has qualified staff that have provided financial and organizational

management training for SME’s, which is relevant to the KUBK model. They will also provide

such periodic training seminars to the relevant staff of the KUBK. Measures of progress in

this area will include: how many farmer training group have selected KUBK leadership

positions? How many KUBKs have formally registered themselves as a Cooperative or

Village Level Enterprise (BUMDES)? How many newly formed KUBKs have already begun

to market rubber on behalf of their members, and of what volume?

Expected Outputs:

1. Number of KUBKs with elected leadership

2. Number of KUBK leaders that have received training in financial and organizational

management

3. Number of coordination meetings held with the KUBK representatives

Resource Partner(s): Bank Indonesia will provide dedicated consultants/technical advisors

for periodic training of KUBK leaders; LESTARI will provide a dedicated consultant to assist

KUBK to adopt the best management practices (i.e. KUBK SOPs) and to coordinate further

technical assistance to the KUBKs.

g. Activity #7: Fire Mitigation and Control Policies Adoption by KUBKs.

Wildfires pose the number one natural disaster risk to the KUBK and their members. It is

estimated that in 2015 wildfires destroyed or severally damaged 40% of the rubber growing

area in Pulang Pisau district. This phenomenon may reoccur on a more frequent basis from

more severe droughts and increased peatland degradation, which both lead to higher

probability of wildfires. Therefore, the KUBKs need to adopt plans to mitigate the risk that

wildfires will disrupt their supply chain pose risk to their buildings (i.e. rubber storage barns).

An integrated fire management plan needs to be part of the KUBK SOP and training

program to farmers. LESTARI staff will work to integrate such planning within the KUBK, and

also to include appropriate training to KUBK members.

Expected Outputs:

1. Each KUBK has a fire mitigation policy

2. Farmer members of KUBK have been educated on fire mitigation strategies for their

individual farms, and they have implemented these strategies. This will be verified

through sample field inspections

Resource Partner(s): LESTARI Palangkaraya team together with STTA to develop a fire

mitigation and contingency plan for KUBK and for smallholder rubber farmers.


h. Activity #8: Expansion to Include Additional Private Sector Partners in the KUBK,

Bokar Bersih Supply Chain activity.

The entire rubber sector of Indonesia is highly dependent on smallholder rubber and it is

plagued by the problem of poor raw (BOKAR) material coming from farmers. The KUBK

model, if successful, will result in a smallholder supply of BOKAR Bersih, which is valued by

the rubber processing industry for which they will pay a premium.

The expected results of the LESTARI Project are so much desired by the industry, that if

LESTARI Project can demonstrate that KUBK’s are successful in selling increasing volumes

of Bokar Bersih to the main partner, PT Insan Bonafide, then it should not be a problem for

the LESTARI Project to approach additional rubber companies, namely the downstream tire

manufactures that PT Insan Bonafide supplies, to enter into more PPP’s for more private

sector leverage.


Annex E: Memorandum Date: June 18, 2017

To: Indira Nurtanti, Private Sector Partnership Manager, LESTARI

Abidah Setyowati, Community Forestry Specialist

From: Ross Jaax, Consultant on Private Sector Partnerships

Subject: Background information on the Badan Pelayanan Umum (BLU) as funding source

for Community Forest Activities

In our meeting on June 2, 2017 in the LESTARI Project office when I presented my final

report, you asked me to provide more background information on the Public Service Board

(Badan Pelayanan Umum, BLU), and how it may be engaged to support communities that

hold social forestry licenses. It has been suggested in the literature that the BLU facility

could be accessed for funding and supporting cooperatives or community based, forest

management units. I found this role of the BLU, or more specifically the local unit, BLUD, to

be true. However, the application process and how to engage with the BLUD in Central

Kalimantan is not clear. It is my assessment that the BLUD may not be able to meet the

investment needs of forest based communities on a timely basis. However, there are several

other funding initiatives, both Indonesian and international, that have clear guidance for

applications and that may be better designed for investing in community based businesses

in the LESTARI landscape. I provide some basic information on them as well.

I present my supplementary findings in this memo.

The Public Service Board ("BLU") is governed by Government Regulation No. 23/2005 on

Financial Management of Public Service Bodies ("PP 23/2005") as amended by Government

Regulation No. 74/2012 on Amendment to Government Regulation No. 23/2005 on

Management Finance Public Service Agency ("PP 74/2012"). The BLU is part of the

movement to make government services more customer focused, oriented towards outputs,

and operating more like a business. The BLU regulations exempted many government

agencies that provide quasi-public services (e.g. hospitals and universities) from the general

state financial management provisions. This was meant to provide more flexibility in

providing these quasi-public services, and it was expected to incentive a better service

culture with better outcomes.

The BLU is primarily funded from the national government (APBN) and local government

(APBD) tax revenue and budgeting system. The BLU may be also funded from:

(1) Revenue derived provided services to the public.

(2) Specified grants obtained from the public or other entities can also be treated as

operational income that is treated in accordance with the designation.

(3) Revenues from partnerships the BLU may have entered into with other parties and /

or other businesses.


(4) Above mentioned revenue may be managed directly to finance BLU expenditures

pursuant with the BLU regulations. Revenue referred to above are reported as non-

tax state revenue of ministries / institutions or non-tax revenues of regional

governments. This is all included in the more complete BLU Authorizing Regulation.

For the purpose of defining the entity that is providing Layanan Umum, a Public Service

Board is a public-sector organization operated by central and regional government whose

main function is to sell goods and / or services to the public. Prior to being defined as a BLU

unit, these agency’s were known as the working unit (satker) which performed the task and

role of the government in the provision of public services (e.g. government run hospitals,

government universities, water utilities). According to its provisions, agencies that have been

assigned as BLU are managed as a non-profit with the focus on efficiency and delivering

outputs. Furthermore, BLU is a government agency that gained wider authority in terms of

organizational management, financial management and in terms of reporting and

performance accountability.

BLUs are grouped into 4 categories based on their type of service:

1. Education BLUs include universities under the Ministry of Education, polytechnics

under the Ministry of Health, High School under the Ministry of Transportation and

others.

2. Health BLUs such as central hospitals are under the Ministry of Health.

3. BLU Fund Management is a BLU formed to distribute credit with affordable interest to

cooperatives and non-banking financial institutions to increase economic activities of

the community. Note, this category is the most relevant to LESTARI project focus.

4. BLU Area / Region Manager is a government working unit that manages special

economic zones, such as Batam and Gelora Bung Karno Complex.

BLUD Background

The Regional Public Service Board (BLUD) is to improve the service and efficiency of the

budget according to the Minister of Home Affairs Regulation No. 61 of 2007 on Technical

Guidelines for Financial Management of Regional Public Service Agency. The BLUD is an

institution in the local government that provides services to the public, or quasi-public goods.

It is funded in part from the local budget, APBD and partly from revenue generated from

services provided, while still operating as non-profit.

A performance-based budgeting approach is used as set forth in Law No.17 / 2003 on State

Finance.

Substantive Requirements: SKPD conducting public services in the form of:

1. Provision of goods and / or services of public services to improve the quality and

quantity of public services;

2. Management of a particular region / region for the purpose of improving the

community's economy or public services; And / or

http://www.jdih.kemenkeu.go.id/fullText/2005/23TAHUN2005PP.htm


3. Management of special funds to improve the economy and / or service to the

community.

According to the Minister of Finance, Sri Mulyani, the BLU is a reform that gives public

sector managers more flexibility and hold them accountable for performance based results.

Going back to 2006, the central government has formed 182 BLUs in 22 Ministries /

Institutions. On average, a BLU revenue grew by 10-12 percent per year. More than 90

percent of the BLUs provide health and education services, the rest provide services to

support the financial capabilities of cooperatives, small, micro and medium enterprises

(MSMEs), industrial development support, socialization of research results and technology

development, and management of areas for accelerated development investment.

The latest information that I could find on local BLU (BLUD) in Central Kalimantan has been

for two hospitals, one each in Kotawringan Barat and Kotawringan Timur. Most recent data

were from 2014 on the Direktorat Jenderal Bina Keuangan Daerah. There was no

information regarding BLUDs supporting forest based community groups or cooperatives in

Central Kalimantan.

However, while looking for any information on BLUD’s supporting forest based communities,

I came across other funding and partnership sources that could work with Community Forest

enterprises. They are the following:

The Mitra dan Bina Lingkungan Program from the State-Owned Companies

(BUMN) provides up to IDR75,000,000 in low cost loans to SME’s and

cooperatives. The fund a wide range of categories of activities, including agriculture,

plantation crops, and environmental protection. More details can be found at the

website (http://infopkbl.bumn.go.id/index.php/home/index/50).

Peatlands Restoration Fund of Wetlands International. Just this last May, they

made a call for proposal to provides small, community-based grants that are

intended to support government restoration policies and contribute to long-term

reductions in greenhouse gas emissions from peatland. In its implementation,

Wetlands-Indonesia will coordinate with Badan Restorasi Gambut and KLHK, and

focus on 5 provinces, namely Riau, Jambi, South Sumatra, West Kalimantan and

Central Kalimantan. This looks like another possible source of financial and

technical support for the forest based communities in the Central Kalimantan

landscape.

~ END ~

http://infopkbl.bumn.go.id/index.php/home/index/50

USAID LESTARI

Wisma GKBI, 12th Floor, #1210

Jl. Jend. Sudirman No. 28, Jakarta 10210, Indonesia

Phone:+62-21 574 0565 Fax: +62-21 574 0566

Email: [email protected]