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Cablegate: U/S Jeffery Visits Sumatra

VZCZCXRO0327
RR RUEHCHI RUEHDT RUEHHM
DE RUEHJA #2740/01 2710008
ZNR UUUUU ZZH
R 280008Z SEP 07
FM AMEMBASSY JAKARTA
TO RUEHC/SECSTATE WASHDC 6477
INFO RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS
RUEHKO/AMEMBASSY TOKYO 0873
RUEHBY/AMEMBASSY CANBERRA 1271
RUEHWL/AMEMBASSY WELLINGTON 1821
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RHMFIUU/DEPT OF ENERGY WASHINGTON DC
RUEHRC/USDA FAS WASHDC

UNCLAS SECTION 01 OF 02 JAKARTA 002740

SIPDIS

SIPDIS
SENSITIVE

DEPT FOR A/S HILL AND EAP/MTS
TREASURY FOR IA-BAUKOL
SINGAPORE FOR BAKER
DEPT PASS USTR FOR DBHATIA AND DKATZ
COMMERCE FOR 4430/GOLIKE
ENERGY FOR A/S HARBERT, CUTLER AND GILLESPIE

E.O. 12598: N/A
TAGS: ECON PGOV EINV SENV ID
SUBJECT: U/S Jeffery Visits Sumatra

1. (SBU) Summary. During a September 12 visit to Sumatra, U/S
Jeffery visited the Palm Oil Research Center and toured its model
biofuel production facility. He also met with the Governor of North
Sumatra Rudolf Pardede and his economic team. He took an aerial
survey of plantations and the Leuser ecosystem area, and discussed
Sumatra's important biodiversity and sustainable development
practices with non-governmental organizations. End Summary.

Palm Oil Abundant in Sumatra
----------------------------

2. (U) During his September 12 visit to Sumatra, U/S Jeffery
reviewed the challenges in the important biodiversity area of the
Leuser Ecosystem with Consul General Sean Stein. Stein noted that
two years ago there was 1.2 million hectares of oil palm estates in
North Sumatra alone. Because of record palm oil (CPO) prices,
however, the amount of oil palm under cultivation has increased
rapidly to approximately 1.6 million hectares over the last two
years. Riau, Jambi, and South Sumatra provinces have seen similar
increases as well.

3. (U) The sky-high CPO prices which have driven producers to plant
more oil palm have, in the near term, made bio-diesel production
economically unfeasible. Stein said that industry insiders tell him
that two conditions are needed for biofuels to be financially
viable: high oil prices combined with rock bottom feedstock prices.
At the present time, however, international oil prices are nowhere
near high enough to for biodiesel production to take off. In the
current environment, many producers, Stein added, have shelved plans
to build biodiesel plants of their own.

4. (U) In the medium term, biodiesel's prospects are less clear.
New oil palm plantations take 3.5 years to begin producing oil. As
million of hectares of new oil palm comes on line, the downward
pressure on prices may be enough to shift the economics back toward
biodiesel production.

5. (U) At the Indonesian Oil Palm Research Institute, U/S Jeffery
was told that CPO contributed about 1.5% to GDP in 2004 and
comprises 60% of Indonesia's estate crop, creating jobs for 4.8
million families. Sumatra is the best location for oil palm trees
and most CPO is exported. Palm oil is not a native to Indonesia.
The seeds were imported from Africa in 1848. Mike Griffiths,
Coordinator for Conservation and Rehabilitation at the Regional
Agency for the Leuser Ecosystem noted that palm plantations do not
bring high quality jobs, but rather minimum wage manual labor.

Palm Oil and Conservation:
Finding the Balance
--------------------------

6. (SBU) The Roundtable for Sustainable Palm Oil (RSPO) is an
initiative bringing together palm oil producers, buyers, and the NGO
community to discuss ways of minimizing the industry's negative
impact on the environment. Only three of Indonesia's major palm oil
producers are actively taking steps to implement's RSPO's vision for
sustainable palm oil. Each of those companies has significant
American or European ownership. Among the steps these firms are
taking is limiting plantations areas to no more than a fixed percent
of any ecosystem, not planting on hillsides or river banks, and
processing waste and effluents responsibly. These companies also
put in wildlife corridors for Sumatra's important species, including
the Sumatran tiger, rhino, rare birds, the Sumatran orangutan and
many others.

7. (U) The Roundtable for Sustainable Palm Oil has made the ethics
standards for CPO so high, that only the large companies can comply.
The Roundtable requires that no high value conservation forest be
cleared and that indigenous peoples have informed consent before any
palm plantations are developed. Lowland and peat forests and swamps
are among the areas most at risk.

8. (U) Dr. Ian Singleton, Director of Conservation at the Sumatran
Orangutan Conservation Programme, notes that Southeast Asia has two
thirds of the world's peatlands and Indonesia has 56% of Southeast
Asia's. ASEAN is developing a strategy for peatland management.
However, Sumatra's lowland and peat forests are already almost gone,

JAKARTA 00002740 002 OF 002


and the existing peat swamps - home to the largest remaining groups
of Sumatran orangutan - are threatened. About 7300 orangutans in
Sumatra remain in eleven populations which require urgent
protection.

9. (U) Dr. Singleton's facility, like others in Sumatra and
Kalimantan, rescues orangutan who have been injured or captured and
prepares them to return to the wild. Their "patients" are almost all
refugees from lost habitat. Of the other animals they treat and
return to the wild, the majority were captured and kept as pets,
usually by members of the military or police, which are supposed to
be preventing wildlife trafficking.

Meeting with North Sumatra Governor Pardede
-------------------------------------------

10. (SBU) Governor Rudolf Pardede and his economic team welcomed U/S
Jeffery, noting that North Sumatra is a diverse province of 12.5
million population comprises of eight ethnic groups following
multiple religions: 60% Muslim, 35% Christian and 5% other
religions. Palm plantations bring $2.5 billion in revenue per year
and the province's GDP growth rates, at 9%, was higher than the
national rate. The Governor noted that 85% of credit in the
province goes to corporations. North Sumatra attracts a lot of
investors, getting the fifth highest rating for investment climate
in the country this year. However, the lack of electricity is a
serious problem and another 1,000 megawatts capacity is needed to
promote growth. Noting the growth in the plantation sector, the
Governor seeks to increase productivity per hectare rather than
expanding overall land use.

11. (U) U/S Jeffery cleared this cable.

HUME

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