Indebted pulp mills put heavy pressure on forests, wwf-cifor study shows

Jakarta-Indonesia. Indonesia’s largest pulp producers plan to clear nearly 500,000 hectares of natural forest in Sumatra by 2007, according to a recent study by the World Wide Fund for Nature (WWF) and the Center for International Forestry Research (CIFOR), based in Bogor, Indonesia. This would destroy some of the last stands of natural forest in Riau province, and would undermine the Indonesian government’s moratorium on forest conversion.

The study by CIFOR policy scientist Christopher Barr, entitled Banking on Sustainability: Structural Adjustment and Forestry Reform in Post-Suharto Indonesia, will be launched in Jakarta on Monday, February 11.

Barr’s report highlights a number of problems facing the pulp and paper industry. It argues that the industry’s 7-fold expansion since the late 1980s has proceeded far more rapidly than efforts to secure a sustainable supply of raw materials through the development of industrial pulpwood plantations (hutan tanaman industri, or HTIs). Of the 120 million m³ of wood estimated to have been consumed by the pulp industry during 1988-2000, only 10 percent was harvested from HTIs. According to Barr, “Indonesia’s largest pulp producers – the Sinar Mas Group and the Raja Garuda Mas Group — rely heavily on unsustainable sources of fiber, much of which is obtained through the clear-cutting of natural forests.”

Both conglomerates claim that by 2008, all of their wood will be coming from sustainably managed plantations. The WWF-CIFOR study projects that Sinar Mas and Raja Garuda Mas are likely to fall well short of these ‘sustainability’ targets. “Although these producers are now taking steps to bring HTI plantations online,” Barr claims, “the areas they have planted thus far are likely to supply no more than 50 percent of the wood the mills need.” In addition, both groups plan to clear large new areas of natural forest in Riau, in spite of the fact that the Indonesian government has maintained a moratorium on new forest conversion since 1998. Barr argues that “Both producers will face significant shortages of legally and sustainably harvested wood for at least the next seven years, and quite possibly well beyond.

Indonesian pulp and paper producers are also carrying very large amounts of corporate debt, as US$ 15 billion has been invested in the industry since the late-1980s. All four of the industry’s major producers – the Sinar Mas, Raja Garuda Mas, Barito, and Bob Hasan conglomerates have been forced to pledge much of their physical assets to the Indonesian Bank Restructuring Agency (IBRA) to cover their debts. The WWF-CIFOR study concludes that IBRA is likely to use public funds to write off at least 70 percent of these debts.

According to CIFOR Director General David Kaimowitz, “By writing off debts held by forestry conglomerates, IBRA will be giving these groups a substantial capital subsidy. This will place added pressures on Indonesia’s forests by encouraging the companies to under-value the forest resource. It will also further undermine the nation’s macroeconomic recovery by encouraging them to engage in high-risk practices.”

Agus Purnomo, Director of WWF-Indonesia, argues that three steps urgently need to be taken to improve the situation in the pulp and paper sector: “First, the Ministry of Forestry needs to firmly uphold its moratorium on conversion of natural forests. Second, Indonesia’s pulp producers need to allow an independent, public audit of their forestry operations, and transparent monitoring of their wood supply programme. Third, IBRA needs to hold forestry debtors fully accountable for their financial obligations – no haircuts should be given to companies that can pay their debts.”Jakarta-Indonesia. Indonesia’s largest pulp producers plan to clear nearly 500,000 hectares of natural forest in Sumatra by 2007, according to a recent study by the World Wide Fund for Nature (WWF) and the Center for International Forestry Research (CIFOR), based in Bogor, Indonesia. This would destroy some of the last stands of natural forest in Riau province, and would undermine the Indonesian government’s moratorium on forest conversion.

The study by CIFOR policy scientist Christopher Barr, entitled Banking on Sustainability: Structural Adjustment and Forestry Reform in Post-Suharto Indonesia, will be launched in Jakarta on Monday, February 11.

Barr’s report highlights a number of problems facing the pulp and paper industry. It argues that the industry’s 7-fold expansion since the late 1980s has proceeded far more rapidly than efforts to secure a sustainable supply of raw materials through the development of industrial pulpwood plantations (hutan tanaman industri, or HTIs). Of the 120 million m³ of wood estimated to have been consumed by the pulp industry during 1988-2000, only 10 percent was harvested from HTIs. According to Barr, “Indonesia’s largest pulp producers – the Sinar Mas Group and the Raja Garuda Mas Group — rely heavily on unsustainable sources of fiber, much of which is obtained through the clear-cutting of natural forests.”

Both conglomerates claim that by 2008, all of their wood will be coming from sustainably managed plantations. The WWF-CIFOR study projects that Sinar Mas and Raja Garuda Mas are likely to fall well short of these ‘sustainability’ targets. “Although these producers are now taking steps to bring HTI plantations online,” Barr claims, “the areas they have planted thus far are likely to supply no more than 50 percent of the wood the mills need.” In addition, both groups plan to clear large new areas of natural forest in Riau, in spite of the fact that the Indonesian government has maintained a moratorium on new forest conversion since 1998. Barr argues that “Both producers will face significant shortages of legally and sustainably harvested wood for at least the next seven years, and quite possibly well beyond.”

Indonesian pulp and paper producers are also carrying very large amounts of corporate debt, as US$ 15 billion has been invested in the industry since the late-1980s. All four of the industry’s major producers – the Sinar Mas, Raja Garuda Mas, Barito, and Bob Hasan conglomerates have been forced to pledge much of their physical assets to the Indonesian Bank Restructuring Agency (IBRA) to cover their debts. The WWF-CIFOR study concludes that IBRA is likely to use public funds to write off at least 70 percent of these debts.

According to CIFOR Director General David Kaimowitz, “By writing off debts held by forestry conglomerates, IBRA will be giving these groups a substantial capital subsidy. This will place added pressures on Indonesia’s forests by encouraging the companies to under-value the forest resource. It will also further undermine the nation’s macroeconomic recovery by encouraging them to engage in high-risk practices.”

Agus Purnomo, Director of WWF-Indonesia, argues that three steps urgently need to be taken to improve the situation in the pulp and paper sector: “First, the Ministry of Forestry needs to firmly uphold its moratorium on conversion of natural forests. Second, Indonesia’s pulp producers need to allow an independent, public audit of their forestry operations, and transparent monitoring of their wood supply programme. Third, IBRA needs to hold forestry debtors fully accountable for their financial obligations – no haircuts should be given to companies that can pay their debts.”

Top

CIFOR website usability survey

We're conducting research on our website and we'd love to hear from you about your experience on cifor.org. This will help us make improvements and prioritize new features. The survey should only take 5 minutes, and your responses are completely anonymous.

If you have any questions about the survey, please email us: cifor@cgiar.org

We really appreciate your input!

Start survey
I don’t want to participate
Remind me later