This policy brief was published by Pemali South Sumatra with support by the Asia Foundation, and the UK Climate Change Unit with assistance from Epistema Institute. The opinions and findings expressed in this policy brief are those of the researchers involved and do not reflect those of the Asia Foundation, UKCCU or Epistema Institute.

1. 4
Researchers:
- Pandriadi - Syaiful Eddy
- Abdul Rohman - Idil Victor
- Nurkardina Novalia
Policy Implications
Applying a PPK-BLUD to Lakitan KPHP could improve forest
and land governance in the Musi Rawas district. Through a
PPK-BLUD model, the Lakitan KPHP is better able to imple-
ment good governance principles, including transparency, ac-
countability and participation. These governance improve-
ments provide greater opportunities for forest protection. Ap-
plying PPK-BLUD to Lakitan KPHP will not just reduce defor-
estation and forest degradation, but will also become a first
step for sustainable forest management. One of the first steps
to establish a BLUD is to produce internal policies that sup-
port good forest governance practices, such as minimal ser-
vice standards. The researchers predict that with the BLUD,
Lakitan KPHP will be more transparent, accountable and par-
ticipative.
Applying a PPK-BLUD systems in the Lakitan KPHP will also
allow room for forming partnerships with the government,
private sector and community. This means that the communi-
ty – who are considered by some to be ‘forest clearers’ – can
be included in the KPHP to protect and manage forests. This
would be more effective when compared with more repres-
sive efforts taken to curb the communities’ forest use. In other
words, there is the potential for local and regional economic
development if the Musi Rawas district government is able to
have Lakitan KPHP become a PPK-BLUD. Management of the
Lakitan KPHP as a PPK-BLUD will increase the Musi Rawas
district PAD, as it will lead to optimalised forest use.
Recommendations
1. Of several alternative financial management options for
Lakitan KPHP, the best management model is BLUD. This
system is able to maintain a balance between forest enter-
prises and protection and social forest use by empowering
communities.
2. Financial management with the BLUD model will run bet-
ter if the KPHP status is raised from UPTD to become
SKPD. By becoming a SKPD the KPHP is more independent
in basic budgeting and financial management. As a result,
the regional secretary organisation in the district Musi
Rawas can consider and propose so that the Lakitan KPHP
can increase its status from UPTD to become SKPD-BLUD.
3. For achieving the BLUD model for Lakitan KPHP the head
of the KPHP needs to form a team and elect a leader. The
team should consist of KPHP staff, as well as representa-
tives of the Forestry Agency, the Planning Body and the
Regional Development Agency (Bappeda), and legal and
organisational representatives from the Musi Rawas dis-
trict government.
4. The Musi Rawas District Head should form an assessment
team to establish a BLUD financial model that consists of
several elements, including the regional secretariat
(Sekda), a supervisory body (Bawasda) and Bappeda.
5. The District Head needs to release a District Head regula-
tion as a legal framework for the implementing a BLUD fi-
nancial management system, in line with valuation team
recommendations.
Publisher:
Pemali South Sumatra
Jl. Candi Angsoko II, No. 402-403
20 Ilir Palembang, South Sumatra
Map 2. Forest cover in the Lakitan KPHP
Cover Photo:
The Lakitan KPHP forest zone.
Photo by the Pemali South Sumatra research team.
This policy brief was published by Pemali
South Sumatra with support by the Asia
Foundation, and the UK Climate Change Unit
with assistance from Epistema Institute.
The opinions and findings expressed in this
policy brief are those of the researchers
involved and do not reflect those of the Asia
Foundation, UKCCU or Epistema Institute.
Supported by: Funded by:
Policy brief
Applying a regional public service financial management system
(PPK-BLUD) to the Lakitan production forest management unit (KPHP)
to increase regional revenues and protect forests
Vol. 1/2014
1
Applying a regional public
service financial
management system (PPK-
BLUD) in the Lakitan
KPHP can support forest
governance in the Musi
Rawas district.
Forest management units (KPH) are being established in an
effort to support sustainable forest management. KPH also
provide opportunities for cooperative forest management ap-
proaches that can engage communities and international ini-
tiatives that support community and local economic develop-
ment. To achieve this a KPH needs to have flexibility in finan-
cial management, to ensure it operates optimally.
There are several financial management options for KHP,
these being as a Regional Technical Implementation Unit
(UPTD) with authority for budget use (UPTD-KPA) or as a Lo-
cal Government Working Unit for budget use (SKPD-PA). An
UPTD/SKPD can also have a Regional Public Service Unit
(BLUD) financial management system, or can become a local
government-owned enterprise (BUMD). Of these options, we
argue that the financial management system that most sup-
ports a KPH model is BLUD. With a BLUD system, a KHP is
able to consider business opportunities and allows greater
community involvement in forest management.
To date, no KPH has yet taken the form of a BLUD financial
management system, however several studies indicate that
state institutions that have applied the BLUD model, such as
hospitals and higher education institutions, have made im-
provements to governance, performance and provision of
services to the community. Our research recommends that
the Lakitan Model KPHP in the Musi Rawas district, South Su-
matra, should become an SKPD that is managed financially
using a BLUD model. Currently, the Lakitan KPHP is a UPTD
that functions as a KPA. Its financial management authority is
limited as it has to follow SKPD financial management proce-
dures set by the Forestry Agency.
There are at least three benefits to be gained from the Musi
Rawas district government approving the Lakitan KPHP to be
financially managed as a regional public service unit (SKPD-
BLUD). The first benefit of this arrangement is an increase in
the regional revenue (PAD) through optimising forest use in
the KPHP area. Through a BLUD model the Lakitan KPHP is
better able to draw on income from forest usage or to set up
business partnerships with third parties. This is different for
KHP under a UPTD-KPA or a SKPD-PA management system,
as these are only able to receive non-state revenue in the
form of levies. Secondly, a BLUD model provides an oppor-
tunity for protecting forests from the threat of deforestation
and degradation as well as improving community welfare in
and around the KPHP. Through this system, the Lakitan KPHP
Executive Summary

2. 2
is better able involve communities in forest management, de-
velop KPHP partnerships as well as to support communities
to protect forests from destruction – all of which provide po-
tential community welfare benefits. Thirdly, by becoming an
SKPD the KPHP will have more independence in budget de-
velopment and financial management over that of a UPTD.
Context and Issue
The Lakitan KPHP is an expanse of 76,776 hectares of forest
land, as set out in the Ministry of Forestry decree No. SK 790/
Menhut-II/2009. The KPHP consists of four forest production
zones (HP), which are: Lakitan Utara I HP (33,365 hectares).
Lakitan Utara II HP (3,850 hectares), Lakitan Selatan HP
(22,276 hectares) and Kungku HP (17,013 hectares).
In the 1970s, a large part of the area that is now the Lakitan
KPHP was managed by a company called Phala Wana Lestari
IV Ltd. The concession area covered Lakitan Utara I HP and
Lakitan Selatan HP. The company’s permits were cancelled
long ago.
Within the Lakitan KPHP area there are several business per-
mits for the utilization of forests for industrial timber planta-
tions and for community forest plantations. Aside from these,
surrounding the KPHP area there are also permits for using
the forest zone for coal and gold mining. A small part of the
mining areas overlap within the KPHP Lakitan area (map 1).
The Lakitan KPHP area is threated by deforestation and forest
degradation. The causes, amongst others, include allocation of
plantation and mining permits that overlap with the KPHP
zone. Based on data from the Forest Administration Agency
(BPKH), Palembang Area II, in 2013 the Lakitan KPHP’s forest
coverage was poor (Map 2). A large part of this area was
mixed dry land farming and also local settlements.
Threats of deforestation and forest degradation will continue
if plantation and mining is not governed adequately in Musi
Rawas. Population growth around the KPHP zone will in-
crease demand for land for settlements, presenting a poten-
tial threat for Lakitan KPHP.
2
Box 1.
Regional Financial Management
Regional financial management is determined by government reg-
ulation No. 58/2013. This regulation provides SKPD’s with budg-
etary management function. Heads of SKPD’s are civil servant
‘budget users’ that have control and authority over developing
work plans and budgets as well as to implement an SKPD’s budget.
The Technical Implementation Unit (UPTD) has the authority for
managing an SKPD. The Lakitan KPHP is a UPTD that functions as
a Budget User Authority (KPA). In terms of financial management,
KPA’s sit beneath an overseeing SKPD that controls its budget. As
a KPA, a UPTD does not have the authority to compose it’s own
budget. Lakitan KPHP budget, as it is a UPTD, is part of the SKPD
budget.
Aside from a budget user or KPA models, a SKPD or UPTD can be
run as public service financial management systems. In line with
the Ministerial Policy No. 61/2007, BLUD is a SKPD or UPTD
formed to provide public services to local communities in the form
of non-profit goods or services, and to operate based on principles
of efficiency and productivity.
An SKPD/UPTD that uses a BLUD financial management model is
considered to be an SKPD with PPK-BLUD or UPTD with PPK-
BLUD. BLUD’s financial management system is a flexible model
that allows freedom in business practices, enabling it to increase
its services to the community.
Map 1. Map of the Lakitan KPHP Area
Legend
Village
City
Forestry Permit
Plantation Permit
Mining Permit
KPHP area
District area
3
1 IRR is the level of return from business capital. IRR is feasible if it is higher than the level of bank interest. NPV is used for determining feasibility by comparing several alter-
native investments. An investment is considered feasible if the NPV is above zero. BCR forms a feasibility analysis by comparing an investment’s benefits with the cost or
losses. BCR is considered feasible if it is more or the same as 1. The payback period is the period of time needed to return the investment capital. The shorter this period of
time the better to reduce risks emerging.
Comparison of KPH financial management options
A SWOT analysis of the capacity of the Lakitan
KPHP to manage forests using a PPK-BLUD
model
Pemali researchers promote the BLUD financial management
system as the most suitable choice for Lakitan KPHP. The
BLUD system, as seen in the explanation in Box 1, is able to
bring together its function as a public service provider and
forest protection as well as obtaining profits from forest use.
This is not the case for the financial management models for
UPTD-KPA, SKPD-PA or BUMD.
The following SWOT analysis demonstrates that Lakitan
KPHP is able to become a BLUD:
Findings
 Currently the Lakitan KPHP is a UPTD run as a KPA. This
means that the KPHP has limited financial management au-
thority as it is dependent on the SKPD master budget, con-
trolled by the Forestry Agency.
 Based on a SWOT analysis (explained above) and the re-
sults of a business analysis, the Lakitan KPHP has the poten-
tial to become a PPK-BLUD. A business analysis identified
several supportive indicators. For example, the Lakitan
KPHP’s Internal Rate of Return (IRR) is 34%, its Net Present
Value is positive, and the Cost Benefit Ratio achieved a 7 rat-
ing, and the payback period1 can be fulfilled by the year
2020. All these financial indicators indicate that the Lakitan
KPHP has real potential to be managed as a PPK-BLUD.
 The Lakitan KPHP fulfilled all the requirements for a PPK-
BLUD, including the substantial, technical and administra-
tive requirements.
 There are two major benefits if Lakitan KPHP were to be
managed as a BLUD: benefits to the community and local
revenue as well as for sustainable forest management. In-
volving communities in forest management, for example
through the process of planting, maintenance and harvest-
ing, will benefit the local economy. Regional revenue (PAD)
can be raised through the KPHP by managing timber and
non-timber products sustainably.