Response from REA Holdings to Forest Peoples Programme Report On

21November 2013

Response from REA Holdings to Forest Peoples Programme report on

‘Conflict or Consent? The palm oil sector at a crossroads’

REA Holdings plc (“REA”) is committed to implementing international and industry standards of best practice, including the Roundtable on Sustainable Palm Oil Principles and Criteria, throughout its operations. The definition of best practice palm oil production has evolved considerably since the mid 1990’s when the group’s first palm oil subsidiary company, PT. REA KaltimPlantations (“REAK”), was established andkeeping pace with this change is challenging. REA welcomes constructive feedback from stakeholders, such as the case study produced by the Forest Peoples Programme (“FPP”) NGO consortium, as this can help the group to identify areas where improvements in its practices can be made. In recognition of the importance of the issues highlighted in this case study and the value to REA’s stakeholders of independent insight, a commentary from FPP and Sawit Watch based on the findings of this study was included in the group’s first sustainability report, which was published in July 2013.

In general, REA considers that the information contained in this case study provides a balanced account of the relationship between the group and the communities living in close proximity to REA’s operations.

REA is pleased that most of the communities interviewed as part of this study do not object to the presence of REA’s operations, stating that their access to land and resources has not been significantly affected, and acknowledge that they have benefited from the infrastructure and smallholder schemes REA has developed, as well as from the employment provided by the group.

However, the report correctly identifies many of the specific difficulties that REA has encountered when engaging with local communities and addressing customary land use rights. The group is acutely aware that its social license to operate is dependent on understanding and resolving these issues and adapting its procedures to ensure that good relationships with the communities living in the vicinity of its operations are developed and maintained.

REA continuesto dedicate significant time and resource to improving its relationships with the local communities and to resolving specific areas of tension and dissatisfaction. Whilst progress has been made, REA recognises that this is a continuous learning process and that some mistakes have been and will inevitably continue to be made.

REA’s view of the key issues and how they are being tackled is set out below. These resonate with many of the findings contained in the FPP report.

1)Village boundaries

The issue – there were no definitive maps to indicate village boundaries in the areas in which REA operates.

The background – the overlaps between REA developments and village lands have been unclear. Disputes between neighbouring villages over the precise location of their village boundaries have been common. One village, Hambau, believed (incorrectly as it turned out) that their village land overlapped an REA development. REA was informed by local government that it did not but, for a long while, Hambau was unwilling to accept the local government’s ruling.

The solution - REA believed that, although village boundaries were critically important to its dealings with all of the surrounding villages, it should not itself attempt to arbitrate on village boundary disputes. Responsibility for this lay with local government. After extensive discussions between the group and the local government over the last few years, the local government agreed to conduct joint surveys with the villages in order to negotiate and agree the location of village boundaries and to produce definitive boundary maps. Maps for the sub-districts of Kembang Janggut and Tabang, which encompass the REAK concession, were completed with the full agreement of all villages in late 2012/early 2013. These maps have greatly assisted REA in allocating the land available for plasma developments fairly between the various villages and in verifying claims for land compensation.

2)Developing plasma smallholder schemes

The issue – the development of plasma schemes has been slower than villagers would have wished, leading to frustration and distrust.

The background -REA has always encouraged the development of smallholder schemes as it believes that this is one of the most effective ways to share the economic benefits of its operations with the surrounding communities. Progress was however difficult in the early days as there was little or no historyoil palm cultivation in area before REA began its East Kalimantan operations in 1994. The group’s first semi-independent smallholder scheme (“PPMD”) was established in 2000, following the establishment of the group’s first palm oil mill at the end of 1998. Under this scheme, individual villagers with access to land formed co-operatives, which REA then provided with oil palm seedlings, fertilisers, herbicides and the technical assistance necessary to cultivate oil palm on their land. 1,561 hectares of PPMD plantings were established between 2000 and 2008.In 2009, when village land was made available for plasma schemes by cooperatives in Pulau Pinang, Bukit Layang and Perdana, REA set up and developed its first plasma scheme of some 1,350 hectares over a two year period.

In 2007, new legislation was introduced that required any company with a land allocation for oil palm development made after that date to provide land for smallholder oil palm plantingequal to 20% of the company’s oil palm plantings, such plasma plantingsto beowned and paid for by co-operatives from those villages whose land use rights overlapped with thecompany’s land titles.

The solution –Whilst legal advice confirmed that REA was under no obligation to provide land for smallholder plantings on land allocated to it prior to the 2007 legislation, REA recognised that it should endeavour to meet the expectations of villagers,who had difficulty understanding why villagers adjacent to the newer oil palm developments were entitled to be given land for plasma plantings while they were not. Given the general shortage of agricultural land for oil palm development, however,it did take some time to identify and acquire landallocations suitable for plasma programmes relatingto developments on land allocated before 2007. The resultant delays, whilst unavoidable,undoubtedlysoured relations between REA and some of the localcommunities.

In addition to acquiring land in close proximity to REA’s plantations to accommodate pre 2007plasma developments, REAalso needed to agree with the government authorities the basis upon which the 20% plasma entitlements should be allocated to theindividual villages adjacentto REA’sland allocations. The 2007 legislation provided no specific guidance in this regard. The government supported REA’s view that each village’s share of the 20% allocation should be calculated pro rata to the area of overlap of that village’s land with REA’s plantings. It now recommends other oil palm plantation companies to allocate their plasma in this way.

REA is presently assisting villages in the formation of their cooperatives and in the preparation and vetting of the list of cooperative members. As the government has now agreed and finalised all of the village boundary maps, the overlap between the village land and REA’s oil palm plantings can be accurately measured and plasma land allocationsto individual villages finalised. The development of this land, which will be owned by the plasma co-operatives, is expected to start in early 2014.

3)Land compensation

The issue – villagers claim that, in certain instances, the land compensation to which they are entitled has not been paid by REA.

The background - the FPP case study refers to protests relating to community claims for outstanding land compensation. Compensation claims can remain outstanding for many different reasons and REA accepts that, in some of these cases, it has made mistakes. The mistakes have taken the form of unrecorded promises that were made by individual REA staff members but not subsequently followed through and of recorded promises that were overlooked and not met. The company has endeavoured to keep comprehensive records of all land compensation negotiations, agreements and settlements, but, perhaps inevitably given the size and complexity of land compensation issues, there have been occasional omissions and failures.

Furthermore, some compensation payments were made to intermediaries rather than to the individual entitled to the land compensation. These intermediaries were typically community representativesor community leaders entrusted with the distribution ofcompensation or individuals holding a legal power of attorney for a villager or group of villagers. It has transpired that, in some cases, payments made by REA to intermediaries were not properly distributed and, consequently, individuals did not receive the compensation to which they were entitled.

The solution–REA has progressively refined its practices and procedures in relation to agreeing and settling land compensation so as to correct weaknesses and improve transparency. In the event of a land compensation dispute with members of a village community, REA has for the last two years involvedthe local government authorities in a systematic and independent reviewof claims made and settlements proposed. REA has also involvedlocal government authorities in arbitrating between villagers with outstanding claims and intermediaries suspected of embezzling the settlementspaid to them by the company. Theauthorities have concluded that the substantialmajority ofclaims were properly paid by the company to intermediaries but thatthese payments were not passed on to the individuals concerned.

In cases where REA has been unable to settle a protracted dispute with an individual or a village, the local government authorities have been asked to mediate. Where mediation has not delivered a resolution, both parties have agreed to the local government authorities acting as arbitrator. The results of such arbitration have to date been accepted and respected.

4)Village Communications

The issue – information about REA’s activities and agreements reached with village representatives has not always been well communicated to the wider village community.

The background – REA accepts that it has been a mistake to rely on the village representativesto act as the conduit for its communication with the wider village community. Recent work commissioned by REA and conducted by external consultants to establish community perceptions of the group’s operations has made it clear that communication aimed at the village representatives has not been adequately transmitted to the wider community. This has caused REA to be seen by some community members as aloof and disinterested.

The solution - in an effort to improve communication between REA and the communities living in the vicinity of its operations, in 2012 the group revised the organisational structure of the departments that interface with local communities and increased the human resource applied to these activities. This has included: appointing a new Head of Corporate Affairs who has joined the REAK board of directors; creating a new plantation based position of Head of Villager Affairs to ensure better co-ordination between all departments that interact with the local communities; and expanding the network of village ambassadors to encourage more frequent, two-way dialogue between the company and the communities.

5)Conclusion

REA recognises that further work is needed to address fully the issues highlighted by the FPP report. However, significant progress has been made over the last two years.The group will continue to dedicate the resources necessary to ensure that any negative social impacts associated with its operations are mitigated and that the group’s contribution to the socio-economic development of the regions in which it operates is maximised.