South Kalimantan pulp plant to go ahead despite protests

Down to Earth No 56  February 2003

Dutch and Indonesian campaigners succeeded in persuading Akzo Nobel to cancel its plans to invest in a new pulp plant in South Kalimantan in January, three months after Indonesia's forestry minister withdrew the feeder plantation's licence. But a state-owned Chinese company has stepped in with a deal to fund 80% of the costs.

Akzo Nobel signed an agreement with Singaporean construction company Poh Lian in 2001 to build the plant which makes the bleaching agents for pulp processing. Friends of the Earth Netherlands (Milieudefensie) has been campaigning for this Dutch subsidiary of the Swedish chemical company Eka to withdraw since 2001. This is part of Friends of the Earth's international action against companies who are not taking their environmental responsibilities seriously overseas. Environmentalists stepped up the pressure late last year. On December 2nd, employees entering Akzo Nobel's head office in Arnhem had to pass the sound of chainsaws and the campaigners' 'jungle curtain'. Milieudefensie released a report on Akzo Nobel's involvement in the pulp plant plans that day.

This report, entitled Paper from Forest Giants, supports WALHI's call for a moratorium on industrial logging as the first step towards forestry sector reform in Indonesia (see Stop logging now!). The South Kalimantan branch of environmental NGO WALHI and community groups under the umbrella of 'Aliansi Meratus' have rejected the pulp plant plans, on the basis that similar plants elsewhere in Indonesia have brought environmental pollution and social misery. In a November press release, 27 environmental and mining advocacy groups demanded the Indonesian government immediately impose a moratorium on all forestry and mining activities in the forests of South Kalimantan.

The Akzo Nobel chemical plant represented about 8% of the total pulp factory investment. The two plants were to share water supply and waste water facilities to save costs. The Asian subsidiary of the French company Vivendi Water had signed up to build these. Water for the plant's operations will be taken from the River Satui and effluent will be dumped in it. The Swedish company IPK has done an environmental impact assessment, but has not made public the terms of reference or the results. There has been no independent environmental impact assessment for the pulp project.

Scandinavian connections

The withdrawal of Akzo Nobel was the second major blow for the controversial pulp plant project. By November 2002, shares in United Fiber had fallen 78%. Indonesia's forestry minister, Mohammad Prakosa, cancelled the feeder plantation's licence in late October and demanded the repayment of over Rp100bn in reforestation loans (approx US$10 million). PT Menara Hutan Buana (MHB) was one of 15 industrial timber estates (HTI) whose licences were withdrawn because companies had only planted a small fraction of the area allocated to them, despite government loans. MHB and PT Marga Buana Bumi Mulia (MBBM - a company established for the pulp plant) were owned by the stepbrother of former president Suharto. Probosutedjo is accused of manipulating Reforestation Funds to establish the plantation.

The original plan was that MHB sold its timber to MBBM to produce pulp for sale to Swedish paper marketing company Cellmark. The Indonesian companies were restructured due to the collapse of Probosutedjo's banking concerns in 1998 and, in January 2002, MHB's status changed to a company with foreign investment. Poh Lian, which took over MHB and MBBM, was itself taken over by Finnish, Swedish and Indonesian investors in April 2002 in a deal which took over two years to agree. Offshore investment companies based in the British Virgin Islands may also be involved. The new company, called United Fiber System Ltd, automatically gained the South Kalimantan plantation concession and pulp mill licence. The company is challenging the forestry minister's decision through the courts.

Scandinavian companies are heavily involved with this pulp project - as in all others in Indonesia. Tektroniks, a subsidiary of Cellmark, is a major partner in United Fiber System. According to newspaper reports, United Fiber is headed by Anders Lindman, a Finn who used to work for Cellmark. Svante Nyfors, another Finn who was a senior executive at the Indah Kiat paper and pulp plant in Riau during the 1990s, was appointed President Director of the 'new' MHB. The Swedish company AF-Industrins Processkonsult did the preliminary study to reassure international financers that the proposed pulp mill conformed to international standards on emissions of pollutants. Finnish-based international forestry consultants Jaakko Poyry carried out the project evaluation which underpinned the investments. Much of the equipment is likely to come from Scandinavia.

Boost from China

The pulp plant plans have been boosted by a contract signed between United Fiber and a Chinese state-backed company in mid-December. China National Machinery & Equipment Import & Export Corporation (CMEC) will pay 80% of the mill's construction costs. The new deal - worth US$780-863 million (depending on sources) - may influence the outcome of United Fiber's court action against the government over the plantation concession. Indonesia wants to improve economic ties with China as a means of tackling its economic problems. China is an increasingly important market for Indonesian timber (legal and illegal) and the paper pulp sector.

At the provincial level, South Kalimantan governor Sjachriel Dahman is determined the project will go ahead. He wants forestry minister Prakosa to allow PT Hutan Rindang Banua to supply the pulp factory. This is the new name given to MHB after reorganisation.

Pulping the forests

MHB's 268,000 ha plantation concession consisted of 5 main blocks in different parts of the province: Kintap, Riam Kiwa, Sebamban, Teluk Kepayang and Pamukan. The mill itself was to occupy about 340 ha at Sakupung Balaut, within the Sebamban area. Much of the concession is said to be grassland or scrub but, when surveyed in late 2001, there were still substantial areas of natural forest. The Pamukan block contained 20,000 ha of forest - some of high biodiversity value. All remaining forest in the concession, totalling nearly 50,000 ha, was to be clear felled and replaced with fast-growing plantation species - mainly acacia (A. mangium) which is not native to Kalimantan. MHB is taking legal action to get the forestry minister's decision reversed. The Jakarta court suspended the revocation of the plantation licence in November, until United Fibers' case had been heard.

Claims by the company and the local government that the pulp factory would be fed from plantations within South Kalimantan now look even more flimsy. Environmental and community groups fear that the project will encourage illegal logging in South Kalimantan. The pulp plant will need 2.8 million cubic metres of plantation timber a year to meet its annual production capacity of 600,000 tonnes per year. For the first few years at least, the new plant will have to pulp natural forest unless it can buy in pulpwood from other plantations. Forestry minister Prakosa has refused to issue any new HTI permits since last May.

Reducing the over-capacity of Indonesia's paper pulp industry is one of the main action points to protect Indonesia's forests which have been agreed by Jakarta and international creditors belonging to the CGI.

There is little doubt that pulp plants increase the pressure on Indonesia's rapidly diminishing forests. CIFOR researcher Chris Barr has estimated that only 10% of the timber used in Indonesia's six largest active pulp mills comes from plantations; 90% comes from natural forests (so called MTH Mixed Tropical Hardwood). Pulp plants in Sumatra have continued to use forest timber even after their plantations are sufficiently mature, preferring to keep them against the time when cheap supplies from clearing rainforests have been exhausted.

(Sources: AFX 13/Mar/02; Reuters 22/Apr/02, 13/Nov/02; email C. Barr May 2002; WALHI Kalsel 15/May/02; Republika 12/Nov/02; Jakarta Post 12/Nov/02; Radar Banjarmasin 13/Nov/02, 20/Dec/02; AFX-Asia 15/Nov/02; miningindo.com 19/Nov/02; Business Times 25/Dec/02; Friends of the Earth-NL press release 8/Jan/03)

An English summary of the report Paper from Forest Giants - Akzo Nobel's plans in Indonesia is available on FoE-NL's website at www.milieudefensie.nl. The full report is only available in Dutch.