Asia Pulp & Paper

Rapid Growth
Indonesian pulp production capacity grew from 606,000 to 4.9 million metric tonnes per annum between 1988 and 1999, while the paper industry's processing capacity rose from 1.2 million to 8.3 million tonnes per annum8. As a result, Indonesia suddenly moved into the ranks of the world's top 10 producers.
Razed Forest
This massive growth in capacity was not matched by efforts to secure a sustainable supply of raw materials. As a result, of the 100 million m³ of wood estimated to have been consumed by the pulp industry between 1988 and1999, only 8 per cent was harvested from plantations9. The rest has been mostly sourced by clear cutting rainforest (cutting down all the trees).

As a result, the pulp and paper industry in Indonesia has been responsible for the destruction of 835,000 hectares of highly biodiverse (rich in wild animals and plants) rainforest10. Virtually all this area was cleared to supply wood to four large mills, including APP's Indah Kiat mill. The pulp and paper industry will depend upon clearing rainforests to supply their pulp requirements for at least the next 7 years and possibly much longer11.

Illegal Logging
Industry statistics indicate that Indonesia's pulp mills processed approximately 50 million m³ of wood during the period 1994/5 to 1998/99. Of that figure, less than 30 million m³ can be accounted for as originating from licensed forest, pulp plantations or imported wood chips. These figures suggest that Indonesian pulp producers may have obtained 20 million m³, or 40 percent of the wood consumed during this period from illegal sources12.

Poor financial Regulation
The use of financial 'markup' practices - that is the artificial inflation of the cost of an investment project - has allowed some pulp and paper producers to secure much larger amounts of financing for their projects than they actually need.

Debt Driven Expansion
APP's process of resolving outstanding debts to foreign creditors has been linked to further expansion of their processing operations13. APP has for example financed its growing debt in part by raising more finance to support new expansion of its pulp and paper facilities. Such a vicious circle of debt-driven destruction has directly led to forest destruction.

Even with a growth in timber volume sourced from plantations over the next few years, by 2005 Indah Kiat will still be sourcing no more than 50 per cent of the companies timber needs from plantations. A drop in the planting levels in 1998 and 1999 means that even this inadequate level may drop in 2006/200718.

It is also estimated that Arara Abadi, an affiliated company of Indah Kiat that supplies most of its logs, is likely to exhaust its legal supply of timber from its own and nearby natural forest concessions by 200119.

Subsidiaries of Indah Kiat are reported to have been granted logging permits by the forestry ministry covering tens of thousands of hectares of swamp forest in Riau despite the fact that a 1990 Presidential Decree prohibits exploitation of this type of forest. 20

Forest Fires
It is estimated that during the massive fires of 1997/98 over 3.3 million hectares of forest were destroyed in Indonesia, including parts of 17 protected forest areas. The smog affected over 70 million people in the region and the economic cost has been calculated at US$10 billion. Up to 80 per cent of the big fires were assessed to have been started by plantation companies clearing land21.

In 1997 Arara Abadi / Indah Kiat was named by the Forestry Department as one of 176 companies whose concessions had been affected by fire, based on monitoring from 1 August to 15 September 1997. It is reported that Arara Abadi's wood use licence was temporarily suspended on October 3rd for failing to submit reports proving that they had not started fires in their area22.

Social Conflict
Indah Kiat: A large part of the forestry concession held by Arara Abadi is land traditionally belonging to the local Sakai people. It is reported that Indah Kiat has seized and clear cut over 3000 hectares of the Sakai peoples forest gardens.23

According to various reports, employees of Arara Abadi were involved in serious clashes with the villagers of Betun Village, Pangkalankuas sub-district, in Riau Province on 3 February 200124 . According to those reports, at least five villagers were injured in the clashes, two seriously, and 52 people were detained by Arara Abadi security forces before being handed over to local police. These villagers were subsequently released following representations by the Pelelawan community leaders and Non-Governmental Organisation representatives. It is believed that the clashes resulted from an attack on the villagers following their blockade of the road through the village leading to the pulp plant's feeder plantation. The blockade occurred as a result of community frustration at the damage being caused to the forest.

Borneo Pulp & Paper: APP is engaged in a joint venture, Borneo Pulp & Paper, with Malaysia's state owned Sarawak Timber Industry Development Corporation to set up an acacia tree plantation and build an integrated pulp and paper mill in Bintulu, Sarawak.

The joint venture project has been given access by the Malaysian Government to more than 600,000 ha of land. As a result, up to 20,000 Iban indigenous people may beforced off their land. Although a local indigenous group estimates that over 60 per cent of the land belongs to the Iban people, the Government only recognises 28 per cent of the land as indigenous25.

The Iban recently won a landmark legal action in the High Court of Sarawak against Borneo Pulp & Paper26. In that action, the Iban claimed that they had native customary rights over certain parts of land that had been wrongly granted to BPP by the Government of Malaysia. The Court held that the Iban did have customary and native rights to the disputed land and held that those rights “were exercised in the disputed area by (the Iban) and their ancestors until they were prevented to do so by the total destruction of the trees by (BPP) for the purpose of planting pulp trees.”

The Court declared that the land title issued to BPP which included the disputed area was void. Two similar actions against BPP are proceeding in the Sibu High Court in Malaysia, having been brought by more than 20 other Iban communities.”27

The UK Chain of Indonesian Custody
An investigation by Friends of the Earth into the marketing of APP paper in the UK confirms that the company sells few APP branded products. Instead the focus is on selling un-branded paper to UK agents and distributors, for on-selling under those companies' own brands.

Wholesale stationery product distributors sell APP material to either retail stationery distributors or directly to customers themselves. It would appear that both the re-branded products and un-branded products sourced from APP do not even have country of origin labels. Using indirect marketing distribution ensures that theorigin of the paper is "unknown".

Environmental Green Wash
APP and its main distribution outlets are well aware of the sensitivity surrounding the issue of importing Indonesian paper and have worked hard to create an environmental persona for the company should its defences be breached. Brochures depicting ISO14001 certification (an international standard for environmental management systems) with references to plantation based forestry obscure for most the reality behind the APP story, that the majority of its paper has been sourced by destroying Indonesian rainforest.

Growth in Indonesian Paper Imports
An analysis of Indonesian pulp and paper exports to the UK by weight and value show that there has been a significant increase in recent years. Between 1995 and 1999, imports into the UK rose from approximately 10,000 tonnes to 85,000 tonnes28. By sourcing their raw material by clear cutting rainforest and avoiding the costs of setting up sustainable plantations, APP are able to provide their paper at very low cost and significantly undercut many of their competitors. This analysis backs up claims from industry sources that APP agents are trying to flood the UK with cheap Indonesian paper.

While it is extremely difficult to identify all the paper products in the UK made from APP paper, in-depth research has shown how this paper circulates in the UK market. The following companies and products have been identified as being involved in the import of APP paper into the UK. We should point out that it is not clear the extent to which any of the following are aware of APP's social and environmental record.

Robert Horne: The Robert Horne Group, with branches in 24 cities around the UK, presents itself as “the UK's leading paper merchant”. It claims in its environment policy that “we have adopted responsible environmental policies that go beyond statutory requirements and ensure that care of the environment is a fundamental consideration in all spheres of our operation.”29 This commitment is clearly in stark contrast to the reality of APP's destructive forestry practices.

Barclays Bank and NatWest have belonged to syndicates which have helped arrange loans of more than US$1 billion to APP and its subsidiaries.
As a result of their inadequate investigation and understanding of the Indonesian pulp and paper industry, combined with their substantial investment in those companies over a number of years, these financial institutions must accept their share of the responsibility for the destruction of the Indonesian rainforest. They must recognise that unless they take immediate action to address the environmental and social impacts of APP's operations, they will be knowingly facilitating further rainforest destruction and social conflict.