LAWMAKERS are looking to restrict foreign ownership of plantations to no more than 30 per cent, as the country tries to maximise land usage, protect indigenous people and tighten environmental controls in the sector.

A new draft bill drawn up by members of the Parliament aims to open up the sector to smaller, local players. But it would also discourage foreign investment just after the nation has set an ambitious goal of raising its palm oil output by a third to 40 million tonnes by 2020.

Foreign ownership of Indonesian plantations is currently set at a maximum of 95 per cent. As well as simplifying Indonesia's complex rules on land use, the new proposed law may also make it easier to prosecute businesses responsible for Southeast Asia's annual "haze" season.

"It's a bombshell and has snuck in under the radar, and as far as I know, without consultation with the industry," a source said.

"There will clearly be a decline in new foreign investment. I would think there will be a decline in the capital value of plantations."

Foreign plantation firms currently operating in Southeast Asia's largest economy include Golden Agri-Resources and Wilmar International, Sime Darby Bhd and Cargill.

Limiting foreign ownership in palm firms to 30 per cent would hinder the flow of overseas capital needed to develop and modernise the industry, said Fadhil Hasan, executive director at the Indonesian Palm Oil Association.

The government has introduced a series of nationalistic rules for commodity exports, including palm, cocoa and mining, in an effort to boost domestic processing industries and boost the value of its exports.

The Parliament is looking to finish discussions on the draft bill with the government soon and expects it to be approved before the new administration is in place, said Gamal Nasir, director general of plantations at the agriculture ministry.

If the draft bill becomes law, it would be retroactive for companies that already own plantations, said Herman Khaeron, a lawmaker and vice-chairman of the parliamentary committee for agriculture, forestry, fisheries and maritime.

But this interpretation was rejected by agriculture ministry and industry officials.

Firms would be given five years to comply with the new bill and those that refused to comply may face fines, temporary suspensions or the revoking of licences. Reuters