Draft Agrarian Reform Law: Centralized Authority, 20% HGU Obligation, and Landholding Restrictions

The Draft Law on Agrarian Reform introduces a number of structural changes to Indonesia’s land governance framework. Among the most significant are the proposed establishment of the National Agrarian Reform Agency (Badan Reforma Agraria Nasional or “BRAN”) as a centralized agrarian authority, the imposition of a 20% redistribution or benefit-sharing obligation on holders of Right of Cultivation (Hak Guna Usaha or “HGU”), and restrictions on landholding and land ownership calculated cumulatively across business entities and their affiliates.

These three changes should be viewed in conjunction with Law No. 5 of 1960 on Basic Agrarian Principles (the “Basic Agrarian Law” or “UUPA”) and the existing agrarian reform framework under Presidential Regulation No. 62 of 2023 on the Acceleration of Agrarian Reform Implementation. If enacted, the Draft Law would shift the approach to agrarian reform from merely redistributing land and legalizing assets toward strengthening state authority, controlling the concentration of landholding, and increasing corporate obligations to distribute the benefits arising from land utilization.

1. Centralization of Agrarian Authority through BRAN

One of the key institutional changes under the Draft Agrarian Reform Law is the establishment of the National Agrarian Reform Agency (BRAN). Under the Draft Law, BRAN would be established as an independent body directly accountable to the President, with the authority to make cross-sectoral decisions on agrarian reform matters.

The establishment of BRAN is essentially intended to address issues arising where an agrarian conflict involves more than one ministry, regional government, business entity, or licensing regime. In such circumstances, dispute resolution may involve not only the status of land rights, but also business licensing, spatial planning, forest areas, plantations, mining activities, or community interests.

The Draft Law grants BRAN the authority to lead cross-sectoral decision-making and determine corrective measures in relation to agrarian conflicts. Under the Draft Law, such decisions may be final and binding upon the relevant ministries, regional governments, and business entities.

The corrective powers contemplated for BRAN are also relatively broad. These include reducing the area of land, adjusting land boundaries, and revoking certain administrative decisions. Parties subject to such decisions would be required to implement them within the period stipulated under the Draft Law.

In addition, BRAN is designed to have the authority to order a moratorium on land administration processes, including the issuance or transfer of land rights located in areas identified as locations of agrarian conflicts. BRAN may also order the cessation of activities in the field at conflict locations.

This approach would essentially strengthen the centralization of agrarian conflict resolution. Under the current regime, Presidential Regulation No. 62 of 2023 already gives an important role to the Minister of Agrarian Affairs and Spatial Planning/Head of the National Land Agency in determining agrarian reform objects, including objects originating from the release of forest areas and the settlement of agrarian conflicts. The Draft Agrarian Reform Law would expand this approach by establishing a dedicated institution with a cross-sectoral mandate.

2. 20% Obligation for HGU Holders

A change that could have a direct impact on businesses is the proposed redistribution obligation imposed on HGU holders.

The Draft Agrarian Reform Law provides that every HGU holder would be required to surrender at least 20% of the total HGU area as an agrarian reform object within a maximum period of one year from the date the Draft Law comes into force.

The surrendered land would subsequently be reorganized and planned by BRAN and then distributed to parties meeting the criteria for agrarian reform beneficiaries.

This provision differs fundamentally from the mechanism currently applicable under Presidential Regulation No. 62 of 2023. Under the current regime, agrarian reform redistribution objects include land originating from the release of forest areas, non-forest areas, and land arising from the settlement of agrarian conflicts. There is no general obligation automatically requiring all HGU holders to surrender 20% of their concession area.

Accordingly, if this provision is enacted, HGU holders would need to take the redistribution obligation into account as part of their landholding structure and long-term business planning.

3. Alternative 20% Profit-Sharing Mechanism

The Draft Law also provides an alternative where an HGU holder does not physically surrender the land. In such circumstances, the HGU holder would be required to provide 20% of the total profits generated from the utilization of the HGU land to communities surrounding the relevant area.

The benefit-sharing mechanism would be implemented through BRAN. BRAN would regulate the mechanism for managing and distributing the funds to beneficiary communities, with the funds required to be distributed no later than one month after being received by BRAN.

Accordingly, the 20% obligation under the Draft Law would not necessarily take the form of land redistribution. The Draft Law introduces two possible mechanisms: redistribution of part of the land or distribution of economic benefits generated from the utilization of such land.

For HGU holders, the distinction between these mechanisms may have different commercial implications. The surrender of land would directly affect the area available for business operations, while benefit-sharing would affect the economic profits generated from the relevant business activities.

4. Landholding Restrictions at the Business-Group Level

In addition to the 20% redistribution requirement, the Draft Agrarian Reform Law introduces structural restrictions on landholding and land ownership.

The Draft Law directs the Government to establish minimum and maximum landholding limits that are not calculated solely based on a single business entity, but cumulatively across the business entity and its affiliates.

This approach is significant because restrictions on landholding would no longer be viewed solely based on formal ownership by a single company. The structure of the corporate group, including subsidiaries and affiliated entities, may be taken into account in determining the total landholding.

The Draft Law also establishes an objective of reducing inequality in landholding, which would be measured, among other things, through a landholding Gini ratio with a maximum target of 0.30 in a particular region.

In determining these limits, the Government would be required to consider several factors, including the existing Gini ratio, land availability, population density, and spatial limitations at the provincial and regency/municipality levels.

This approach could affect companies with substantial land portfolios held through several entities within the same business group. Separate legal ownership would not necessarily eliminate the possibility of landholdings being assessed cumulatively if the Draft Law is enacted in accordance with its current draft.

5. Restrictions on Landholding on Small Islands and Coastal Areas

The Draft Law also introduces restrictions on the granting of land rights in certain areas.

One of its provisions prohibits the granting of a single land right covering the entire area of a small island. The Draft Law also restricts the granting of land rights that directly border the coastline along the entire extent of the relevant land right.

These provisions indicate that agrarian reform under the Draft Law would not be limited to the redistribution of agricultural land, but would also cover the control of concentrated landholding in areas with specific characteristics, including small islands and coastal areas.

In practice, these provisions may be relevant to investment projects requiring large-scale landholding in coastal areas, including tourism projects, industrial estates, plantations, and property developments.

6. Relationship with the Basic Agrarian Law and Landholding Control Regulations

The restrictions introduced by the Draft Law should be read together with the principles established under the Basic Agrarian Law.

The Basic Agrarian Law has essentially granted the Government the authority to regulate landholding and land ownership, including establishing maximum and minimum landholding limits and carrying out redistribution to reduce inequality in landholding.

However, the Draft Agrarian Reform Law introduces a more specific dimension through the cumulative assessment of landholding by business groups and the use of the Gini ratio as one of the policy indicators.

At the same time, these restrictions should also be considered together with Minister of Agrarian Affairs and Spatial Planning/Head of the National Land Agency Regulation No. 18 of 2016 on the Control of Agricultural Landholding, which, among other things, establishes maximum limits on individual ownership of agricultural land based on population density.

Accordingly, if the Draft Law is enacted, companies would need to consider several layers of restrictions simultaneously, ranging from limits based on the type and use of land rights, location-based restrictions, to cumulative restrictions at the business-group level.

7. Strengthening of Corporate Liability

The Draft Agrarian Reform Law also introduces broader administrative and criminal consequences for corporations that obstruct the implementation of agrarian reform.

Corporations may face consequences for actions such as obstructing the agrarian reform process, manipulating land data, intimidating communities, or unlawfully controlling land that has been designated as an agrarian reform object.

Liability would not be limited to the corporation. Parties involved in decision-making may also be held accountable. Beneficial owners, controlling parties, or members of management who issue instructions resulting in violations may be subject to sanctions as provided under the Draft Law.

In addition to criminal sanctions against responsible individuals, corporations may be subject to additional sanctions, including confiscation of proceeds of crime, revocation of certain business licenses, suspension of business activities, and dissolution of the corporation.

This indicates that compliance with agrarian reform requirements could become part of corporate compliance, particularly for companies that own or control substantial areas of land.

8. Relationship with Agrarian Reform Implementation under Presidential Regulation No. 62 of 2023

The Draft Agrarian Reform Law does not exist in a separate legal framework. It is designed to interact with the agrarian reform mechanisms currently implemented under Presidential Regulation No. 62 of 2023.

The Presidential Regulation establishes criteria for agrarian reform beneficiaries, including individuals who are Indonesian citizens, at least 18 years old, and reside or are willing to reside in the area associated with the redistribution object.

The Presidential Regulation also provides that beneficiaries must use and cultivate the land in accordance with its designated use, comply with spatial planning requirements, maintain land productivity, and refrain from abandoning land obtained through agrarian reform.

In its implementation, land redistribution includes the identification of objects and subjects, measurement and mapping, determination of objects, determination of subjects, granting of land rights, and issuance of certificates.

With the Draft Agrarian Reform Law, this mechanism could receive an additional source of redistribution objects through the proposed 20% obligation imposed on HGU holders. At the same time, BRAN would become an institution with a greater role in determining and coordinating the process.

9. Implications for HGU Holders and Businesses

If the Draft Agrarian Reform Law is enacted in substantially its current form, HGU-holding companies would need to conduct a more comprehensive assessment of their landholding structures.

Such assessment would not only concern land formally registered in the company’s name, but would also need to consider the business-group structure, affiliated entities, land utilization, location of the land, and the potential application of redistribution or benefit-sharing obligations.

Companies would also need to consider compliance throughout the acquisition, management, transfer, and utilization of land. In this context, ownership documentation, corporate structure, business licenses, spatial-planning conformity, and actual land use may become important components in anticipating the implementation of a more integrated agrarian reform regime.

For investors considering the acquisition of an HGU-holding company, these developments are also relevant to legal due diligence. The status and area of the HGU, group ownership structure, history of agrarian conflicts, land-use compliance, and potential redistribution obligations should be reviewed as part of the transaction risk assessment.

Conclusion

The Draft Law on Agrarian Reform introduces changes that could potentially reshape the relationship between the State, land-right holders, and communities in the management of agrarian resources.

Its three principal elements are the establishment of BRAN as a centralized agrarian reform authority, the proposed 20% obligation for HGU holders through land redistribution or benefit-sharing, and restrictions on landholding that may be calculated cumulatively across business groups.

If enacted, these provisions would complement the existing regime under the Basic Agrarian Law and Presidential Regulation No. 62 of 2023, while expanding regulatory oversight and corporate obligations relating to landholding and land utilization.

For HGU holders and investors, the development of the Draft Law is important to monitor because it may affect landholding structures, concession economics, investment strategies, and corporate compliance requirements. However, as the Draft Law remains at the draft stage, its final substance, implementation mechanisms, and legal effects will depend on the legislative process and the provisions ultimately enacted.

This alert is part of a series examining recent developments in Indonesia’s agrarian and land regulatory framework. As the Draft Law remains under consideration, further developments should be closely monitored for their potential implications for HGU holders, land-intensive businesses, and investors in Indonesia. Please feel free to contact us should you wish to discuss these developments further.

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