(Sept 23): Indonesia’s passage of a new land reform law could increase risks for plantation companies and property developers by paving the way for new restrictions on corporate landholdings, according to analysts.

The law, passed by parliament on Tuesday, allows landholding limits to be applied cumulatively across affiliated companies, potentially tightening restrictions on large corporate landholdings, according to analysts at Citi and Phintraco Sekuritas in research notes. It also identifies categories of land that could be redistributed, including disputed and idle plots, they said.

However, its impact hinges on pending regulations that will set landholding limits, establish conflict-resolution mechanisms and define the specific powers of a new agency under the president that will oversee land reform, they said.

The law also requires holders of plantation land-use rights to surrender at least 20% of their land or make a profit-based payment in lieu, according to Citi. It remains unclear whether the new rules will apply to existing concessions, with the palm oil industry pushing for valid titles to be protected.

“The bite lies in the implementing regulations,” said Citi analyst Ferry Wong. “For plantation owners and property developers, the timing and content of these implementing rules, not the law itself, are things to closely monitor.”

Conflict between the state, companies and communities over land is a persistent problem in Southeast Asia’s largest economy, leading to legal disputes, business disruptions and violence. Attempts to address the problem stretch as far back as the early 1960s when a newly independent Indonesia tried to reconcile an inherited patchwork of colonial and customary land ownership regimes.

Under President Prabowo Subianto’s administration, the state has been seizing millions of hectares of land that it says is being used illegally, part of a significant tightening of oversight across the nation’s sprawling natural resources sector.

Farmers and indigenous communities have long pushed for the redistribution of land, with land control highly concentrated among a small number of holders.

The Agrarian Reform Consortium, an advocacy group that has pushed for reform for decades, similarly said implementation would determine the law’s effectiveness. “The law should also be a moment to correct the large-scale concentration of land control by corporations,” it said in a statement.

Parliament passed the Agrarian Reform Law during a plenary hearing in Jakarta, establishing the broad outlines of the reform plan. The government will prepare rules defining the powers of the land reform body, setting land ownership limits and governing the transfer of state property, Agrarian Affairs and Spatial Planning Minister Nusron Wahid said at the session.

“Agrarian reform does not stop at rearranging land control and ownership,” Wahid said. It must also ensure land becomes a source of livelihoods and prosperity, as well as a “foundation for sustainably improving people’s living standards.”

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