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Preventing the Risk of Corruption in REDD+ in Indonesia

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Preventing the Risk of Corruption in REDD+ in Indonesia WORKING PAPER Preventing the risk of corruption in REDD+ in Indonesia Ahmad Dermawan Elena Petkova Anna Sinaga Mumu Muhajir Yayan Indriatmoko Working Paper 80 Preventing the risk of corruption in REDD+ in Indonesia Ahmad Dermawan Elena Petkova Anna Sinaga Mumu Muhajir Yayan Indriatmoko Working Paper 80 © 2011 Center for International Forestry Research All rights reserved Dermawan, A., Petkova, E., Sinaga, A., Mumu Muhajir, M. and Indriatmoko, Y. 2011 Preventing the risk of corruption in REDD+ in Indonesia. United Nations Office on Drugs and Crime and Center for International Forestry Research, Jakarta and Bogor, Indonesia. Cover photo by Daniel Murdiyarso CIFOR Jl. CIFOR, Situ Gede Bogor Barat 16115 Indonesia T +62 (251) 8622-622 F +62 (251) 8622-100 E [email protected] www.cifor.org Any views expressed in this publication are those of the authors. They do not necessarily represent the views of CIFOR, the authors’ institutions or the financial sponsors of this publication. Contents Abbreviations v Acknowledgements vii 1 Introduction 1 2 REDD+ in Indonesia 3 3 REDD+, corruption and anti-corruption efforts in Indonesia 6 3.1 The potential for corruption in REDD+ 6 3.2 The forestry sector and anti-corruption efforts 7 4 REDD+ policymaking 12 4.1 Framework strategies and long-term reforms 12 4.2 Forest land use 13 4.3 Rights and tenure 15 4.4 Limiting forest conversion: The moratorium 17 4.5 Risk of corruption in REDD+ policymaking 18 5 Improving coordination 21 5.1 Coordinating agencies and efforts 21 5.2 Risks for REDD+ related to coordination 22 6 Climate finance 23 6.1 Climate finance in Indonesia 23 6.2 Experience with management and distribution of forest funds in Indonesia 24 6.3 The role of banks in the Reforestation Fund 26 6.4 Learning from finance in forestry, climate and the environment 27 6.5 Risks related to REDD+ finance 28 7 REDD+ benefit sharing 29 7.1 Distribution of REDD+ revenue and benefits 29 7.2 Lessons and risks for benefit sharing in REDD+ 32 8 The REDD+ project implementation framework 34 8.1 Forest concessions and licensing 34 8.2 Risk of corruption in REDD+ licensing 35 9 Forest revenues and reconciliation of accounts 38 9.1 Report reconciliation across scales 38 9.2 Risks of corruption in REDD+ accounting 39 10 Conclusions and recommendations 42 11 References 46 Annexes 1 REDD+ pilot project in Aceh 57 2 REDD+ pilot project in West Kalimantan 59 3 The legal and institutional landscape : Implementing UNCAC in Indonesia 61 4 PPATK minimum standards for banks 70 5 List of participants in the consultation meetings 71 List of tables, figures and boxes Tables 1 REDD+ readiness in Indonesia: Policy and institutional framework 4 2 Distribution of REDD+ revenues amongst actors 30 3 Forest concessions in Indonesia 34 Figures 1 Allocation and distribution of forest revenues 25 2 Flow of reports on taxes and fees 40 3 Corruption risks and outcomes in the REDD+ readiness phase 43 Boxes 1 Challenges to anti-corruption initiatives in Indonesia: The case of the KPK 9 2 Curbing corruption in the forestry sector: High-profile cases involving PEPs 10 3 The Reforestation Fund 26 Abbreviations AFD L’Agence française de développement French Development Agency AF Amazon Fund APHI Asosiasi Pengusaha Hutan Indonesia Indonesian Association of Forest Concession Holders APL Areal penggunaan lain area for other uses Bappenas Badan Perencanaan Pembangunan Nasional National Development Planning Agency BPK Badan Pemeriksa Keuangan Supreme Audit Board BPN Badan Pertanahan Nasional National Land Agency BUMN Badan Usaha Milik Negara state-owned companies CCPL Climate Change Programme Loans CDM Clean Development Mechanism CER certified emission reductions COP Conference of the Parties (to the UNFCCC) CSO civil society organisation DNPI Dewan Nasional Perubahan Iklim National Climate Change Council DR Dana Reboisasi Reforestation Fund FAO Food and Agriculture Organization of the United Nations FATF Financial Action Task Force FCPF Forest Carbon Partnership Facility FFI Fauna & Flora International FPIC free, prior and informed consent GCCA Global Climate Change Alliance GHG greenhouse gas GoI Government of Indonesia HPK Hutan Produksi Konversi Conversion Production Forest ICCTF Indonesia Climate Change Trust Fund IFCA Indonesian Forest Climate Alliance IGIF Indonesia Green Investment Fund IHPH Iuran Hak Pengusahaan Hutan Forest Concession Fee vi Ahmad Dermawan, Elena Petkova, Anna Sinaga, Mumu Muhajir and Yayan Indriatmoko IPK Ijin Pemanfaatan Kayu Timber Use Permit IUPHHBK-HT Ijin Usaha Pemanfaatan Hasil Hutan Bukan Kayu – Hutan Tanaman non-timber forest product collection permit in plantation forests IUPHHK-HA Ijin Usaha Pemanfaatan Hasil Hutan Kayu – Hutan Alam logging concession IUPHHK-HT Ijin Usaha Pemanfaatan Hasil Hutan Kayu – Hutan Tanaman plantation forests IUPHHK-RE Ijin Usaha Pemanfaatan Hasil Hutan Kayu – Restorasi Ekosistem ecosystem restoration concession IUPHHK-HTR Ijin Usaha Pemanfaatan Hasil Hutan Kayu – Hutan Tanaman Rakyat community plantation forests JICA Japan International Cooperation Agency KPK Komisi Pemberantasan Korupsi Corruption Eradication Commission LoI Letter of Intent (between Indonesia and Norway) MoF Ministry of Forestry MPR Majelis Permusyawaratan Rakyat People’s Consultative Assembly MRV monitoring, reporting and verification Nastra REDD+ National Strategy NGO nongovernmental organisation ODA official development assistance PEP politically exposed person PES payments for environmental services PPATK Pusat Pelaporan dan Analisis Transaksi Keuangan Financial Intelligence Unit PSDH Provisi Sumber Daya Hutan Forest Resource Rent Provision REDD+ reducing emissions from deforestation and forest degradation and enhancing carbon stocks R-PP Readiness Planning Proposal UKP4 Unit Kerja Presiden bidang Pengawasan dan Pengendalian Pembangunan Presidential Working Unit for Supervision and Control of Development UNCAC United Nations Convention Against Corruption UNDP United Nations Development Programme UNFCCC United Nations Framework Convention on Climate Change Acknowledgements This paper was prepared for the United Nations Office on Drugs and Crime in Indonesia. The authors would like to thank the Royal Norwegian Embassy in Jakarta for their financial support for this publication. The authors are indebted to a number of individuals who provided input and assistance for the report. We would like to thank all the participants at the consultation meetings held 22 December 2010 and 28 March 2011. Ajit Joy provided thorough feedback and comments on early drafts. We would also like to thank officials at the Directorate of Forest Production Development, the Forestry Research and Development Agency of the Ministry of Forestry, the Corruption Eradication Commission and the Supreme Audit Agency for providing feedback and useful material. We would also like to thank Sally Atwater and Imogen Badgery-Parker for their thorough editing of final drafts, and CIFOR’s publishing unit for typesetting and final preparation of the text. 1. Introduction Reducing emissions from deforestation and forest foremost, the government of Indonesia (GoI) and degradation (REDD) is a mechanism designed under its efforts in building the policies and institutions the United Nations Framework Convention on for REDD+, so that adequate steps can be taken Climate Change (UNFCCC) to enhance the role of to remove barriers and reduce risks. As Indonesia forests in curbing climate change (UNFCCC 2007). is at the forefront in REDD+ policy reform and The UNFCCC and its bodies have expanded the institutional design, it is hoped the analysis will also concept to include forest conservation and human inform other forest-rich tropical countries and the activities that increase carbon stocks, or REDD+ donor community. (UNFCCC 2007, 2009). REDD+ has the potential to alter the incentives for deforestation and land Given its purpose and scope, this paper pays use change and instead to encourage sustainable significantly more attention to weaknesses that forest management. can affect REDD+ than to Indonesia’s progress in curbing corruption and other associated crimes in Significant official development assistance (ODA) the forestry sector. It focuses on the readiness phase has already been committed to create the policy – when tropical countries are preparing for REDD+ conditions for REDD+ and demonstration projects implementation – because this is the period during in forest-rich tropical countries, including Indonesia. which policies, institutions, systems and processes The hope is that eventually ODA will be replaced are designed. These will influence the presence or by payments for reduced carbon emissions in a fully absence of risks and conditions for corruption in operational compliance market for forest carbon subsequent phases. credits. In the meantime, investors are acquiring – and governments are designating – large land areas in The paper is structured as follows. Section 2 preparation for a REDD+ regime. summarises the GoI’s main undertakings in preparing the country for REDD+. Section 3 Without binding international agreements under offers background information about Indonesia’s the UNFCCC in place, REDD+ is evolving as forests and governance, reviews the general risks a voluntary, bilateral or multilateral mechanism. of corruption in REDD+ and highlights efforts Unclear REDD+ rules, potential for significant to curb corruption, including the involvement of financial gain and weak governance in many of the banks in preventing money laundering. Section
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