InfoSAWIT, JAKARTA – Indonesia’s palm oil industry is facing what may be its most critical moment in the past decade. The government’s intensified forest-area enforcement campaign, carried out through the Forest Area Enforcement Task Force (Satgas PKH), is no longer limited to administrative corrections or regulatory sanctions. Behind the structured calculation formulas lies the most alarming threat for companies: bankruptcy.

Many companies are facing situations that appear unreasonable, where penalty values far exceed their total recorded assets. The consequences are clear—these sanctions are not merely heavy, but impossible to meet for many businesses.

From a Simple Formula to Shocking Figures

The administrative penalty scheme applied by the government is based on the Job Creation Law and its implementing regulations. The rate is around Rp25 million per hectare for oil palm plantations deemed illegally located inside forest areas.

The calculation formula appears simple:

violated area × duration of violation × penalty tariff

Yet the final outcome can silence boardroom discussions. The resulting fines are no longer in the hundreds of billions, but in trillions of rupiah.

In such conditions, a company that previously looked financially solid can collapse from a single official billing letter.

The Most Real Risk: Default and Mass Layoffs

Bankruptcy lawyer and court-appointed curator Yuli Swasono, S.H., M.H., CLA, said the biggest risk of the policy is payment failure that could trigger waves of mass layoffs.

“In situations like this, companies become unable to meet their obligations. The most real risk is default, which will almost certainly be followed by massive layoffs,” said Yuli in a statement received by InfoSAWIT, Monday (19/1/2026).

From a business law perspective, Yuli argued that paying a fine exceeding a company’s total wealth may even be irrational.

“Such payment violates prudence and accountability principles and could create conflicts of interest, where directors may face lawsuits or criminal charges for actions deemed harmful to the company,” she said.

The scale of the issue is reflected in circulating data. Dozens of palm oil and mining companies are said to have been subjected to penalties worth tens of trillions of rupiah. Some reports mention that 71 companies face fines totaling around Rp38.6 trillion.

The government has also projected that potential non-tax state revenue (PNBP) from forest-area enforcement could reach Rp100 trillion.

While such numbers may appear heroic in fiscal narratives, they become a nightmare for businesses—ready to explode at any time.

“When the state demands figures beyond economic logic, the consequence will almost certainly be mass default,” Yuli said.

A Retroactive-Like Burden Creates Extreme Legal Uncertainty

The situation becomes even more complicated as the fines are viewed as quasi-retroactive in effect. Many oil palm plantations have operated for decades. Some obtained permits from local governments, while others were established amid grey-zone spatial planning conditions that shifted over time.

When spatial policies changed and the area was later designated as forest zone, companies are forced to bear today’s legal consequences for the past.

“This creates extreme legal uncertainty,” Yuli said. “Businesses are not only punished for today’s actions, but also for policy history that was previously facilitated by the state.”

Bankruptcy is Not Just a Threat, It is a Mechanism Ready to Activate

Under bankruptcy law, the route toward insolvency can be swift once a debt becomes due and cannot be paid.

“In bankruptcy law, the mechanism is clear. If a debt is due and cannot be paid, then bankruptcy becomes a reality that must be faced,” Yuli said.

Once bankruptcy status is declared, all company assets are placed under general seizure managed by a curator. The state’s fine claims are not automatically prioritized for full payment, as they must share recovery proceeds with other creditors. The government is no longer the sole collector, but one party in a queue waiting for auction results—which often fail to cover all obligations.

Senior economist at the Institute for Development of Economics and Finance (INDEF), Bhima Yudhistira, warned that this situation is dangerous because palm oil remains an economic backbone in many regions.

“The palm oil industry is the backbone of regional economies. If mass bankruptcy happens, the impact will spread everywhere,” he said.

Bhima stressed that domino effects could trigger economic contraction in palm oil-producing regions. When companies collapse, mass layoffs reduce purchasing power, plasma Smallholders lose buyers for fresh fruit bunches, local governments lose tax and levy income, and supply chains become disrupted.

“This is a structural crisis, not just a corporate issue,” Bhima said.

Yuli added that in one large plantation company, social impacts could involve tens of thousands of people.

“This is not only about one business entity going bankrupt, but the collapse of an entire economic ecosystem,” she said.

When Enforcement Turns into a Social Threat

Ironically, a policy intended to strengthen governance and environmental compliance may instead create a new social crisis. A wave of bankruptcies could trigger mass layoffs, land conflicts, economic instability in production centers, and disruption across business ecosystems and Smallholders who depend on the industry.

According to Yuli, the government must differentiate between law enforcement and the destruction of a strategic sector.

“If the approach is purely fiscal and repressive, the state risks destroying its own industrial base,” she said.

She proposed mitigation measures such as installment payment schemes, restructuring obligations, or converting sanctions into environmental restoration programs. This would allow the state to maintain legal certainty and environmental improvements without killing the industry altogether.

The Time Bomb Keeps Ticking

Without realistic calculations of payment capacity, massive fines could become the fastest route to industry collapse.

“If the approach is only to punish without considering economic realities, the state is preparing the graveyard for its own palm oil industry,” Yuli said.

Indonesia now faces a policy paradox. Fines designed as deterrents may turn into a sledgehammer that strikes a national strategic industry. When paying means corporate suicide, legal mitigation is needed to provide breathing space and rational choices.

The time bomb continues ticking. What is at stake is not only corporate survival, but the future of regional economies across many of Indonesia’s palm oil-producing areas. (T2)