A Forest Concession is an initial permit issued to carry out mechanical logging in the natural forests based on Governmental Regulation No. 21/1970 on Forest Concessions and Permit for Collection of Forest Yields. The forestry silvicultural system was developed through the publication of the Indonesian Guide to Selective Logging, which was then revised to become Indonesian Selective Logging and Planting.
At the early stages of national development, the Government focused its policies on collecting as much foreign exchange as possible from forest extraction businesses outside of Java through log exports. The forests became the agent of development for three decades.


From 1969 to 1974, about 11 million ha of forest concessions were issued in just one province, that is, in East Kalimantan. Log production escalated to 28 million cubic meters. About 75 percent on this was exported.

The gross revenues from foreign exchange in the forestry sector escalated from US$ 6 million in 1966 to US$ 564 million in 1974. Wood was exported as logs to Japan (5.5 million m3/year), Australia (0.2 million m3/year), South Africa (4 million m3/year) and Europe (10 million m3/year).

In 1979 Indonesia became the largest tropical log producer in the world, commanding 41% of the global market segment (2.1 billion dollars). This volume was larger than the collective exports of Africa and Latin America (Gillis, 1988:43-104). All of this timber, both unprocessed and in the form of  plywood, was exported to a number of destination countries, such as Hong Kong, Japan, China, Australia, West Germany (at the time), France, Singapore, Benelux and England.

Also at this time, the forests took second place after oil as the largest contributor to the national economy.

In 1994, ten of the largest forest concession company conglomerates controlled 28.18 million ha (45 percent) of the forest concessions in the country . These companies then formed a cartel (Apkindo) that made Indonesia the largest plywood producer in the world and successfully increased the international price of plywood . The total income produced reached US$ 5.5 billion, equivalent to 15% of entire export earnings .

In 1995, about 585 forest concessions carried out logging on 62.5 million ha throughout Indonesia. They seized more than 62.5 million (49%) of natural forests in Indonesia which were thereafter termed “State forests”. About 28.18 million ha of them were controlled by just 10 companies.

In 1996, there were 445 forest concession holders covering an area of 54,060,599 hectares. Almost 50% of these were controlled by the same 10 companies. Nevertheless, in the mid 1990s, several of forest concessions were retracted. In a proportion of these cases, the forest concession holders had violated the law, while in other cases the tree stand value in the forest concession had deteriorated. Brown estimates that the total number of forest concessions had declined to 464 while the forest area under forest concessions had declined to 52 millions ha. In practice, the “retraction” of more than 100 forest concession licenses did not stop activities. Some forest concessions, whose 20 year contract period had ended, were shifted to five State-owned forestry enterprises (Inhutani I to V)., or were re-formed as a partnership between the private company and one of the State-owned companies.

It was in this period of joint logging that Soeharto made the forests both a tool and a gift for national rule.

This gift was given in the form of forest concessions, industrial plantations and plantations for Soeharto’s family, friends, and work colleagues, as well as to key members of the military and political elite, in order to guarantee their loyalty. Automatically, those who controlled the forests also had enormous wealth and influence.

The Government then issued regulations in regards to forest concessions that made it necessary for companies to apply for forest concessions in order to own or form relationships with other companies that owned timber processing factories. In this way, a small number of giant companies consolidated their domination, by controlling both upstream (forest concessions) and downstream (plywood industry) simultaneously.

The number of plywood factories in Indonesia increased from 21 in 1979 to 101 in 1985, while production increased from 624,000 m3 in 1979 to almost 4.9 million m3 in 1985, before doubling again to more than 10 million m3 in 1993. Almost 90% of plywood production that year was exported .

In mid-1998, only 39 million ha remained in the hands of private forest concession holders, while 14 million ha were managed by five State-owned enterprises. Some 8 million ha were under the control of State-private partnerships, and another 8 million ha were converted to non-forestry use . The Armed Forces (ABRI) also profited from this redistribution of forest concessions; their forest concessions increased almost two-fold, to a total 1.8 million ha (Brown, 1999:12, 40).

In 2004, the number of forest concession holders was only 279 companies. About 107 of these were declared inactive.

In 2006, with production in 57,620,301.69 ha of remaining forests, 303 companies were recorded as having logging permits (IUPHHK, which replaced HPH) that controlled 28,104,978 ha of forests.

Of the 303 Logging Permits in 2006, only 149 units were still active  with an area of 14,604,069 ha. The remaining 154 units (with an area of more than 17,381,534 ha) were declared inactive. The Government’s reasons included: permit-holding companies were unhealthy, unprofessional, had poor commitment, internal conflicts and other permit-holders only wanted to control the land as “rent seekers”.
Indonesia Forest
Tropical Rain Forest
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Meanwhile, influential external factors included the inconsistency between the central and local Governments, illegal logging problem, security aspects, business uncertainty, lack of incentives and excessive demands from the local community. Although companies verified these reasons, they also complained about the high costs of production due to the many tolls and levies, outside of official regulations, that had to be paid were not comparable to the costs of production. The Government will auction off these inactive forest concessions for transformation into industrial plantation zones. In 2007, the Government plans to increase the logging quota from 8.4 million m3 per year to 9.1 million m3 per year.
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