This
report reveals the damaging environmental and social impacts of Asia Pacific Resources
International Holding Ltd, otherwise known as APRIL, one of the biggest pulp and
paper companies in the world. It also examines the influential role played by
financial institutions and paper merchants in fuelling this damage. It provides
recommendations for urgent action to be taken by all these groups in order to
help bring an end to the destruction of Indonesia’s forests, one of the most precious
and threatened natural habitats on Earth.
Indonesia’s
Vanishing Forests
Indonesia’s forest ecosystems and species are disappearing
fast. Estimates of total original forest loss in Indonesia vary between 50 per
cent and 72 per cent. A World Bank study estimates that the deforestation rate
in Indonesia is higher than it has ever been at 2 million ha/year, representing
an annual loss of forest equivalent in area to the size of Belgium. This is the
same deforestation rate as Brazil and represents the highest national rate of
forest destruction in the world. A World Bank study estimates that unless logging
practices radically change, there will be no more commercially viable lowland
forest left in Sumatra by 2005 and none left in Kalimantan by 2010.
Illegal
logging in Indonesia
Illegal logging in Indonesia is rife. A study by
the UK Government funded Indonesia-UK Tropical Forest Management Programme concluded
that 73 per cent of all logging in Indonesia is coming from undocumented, and
presumably illegal, sources. The Indonesian government estimates that the trade
in illegal logs costs the country US$3 billion dollars per year. The military
relies on illegal activities, including logging, to raise at least half its operational
costs and the same could be true of the police. Indonesian pulp producers may
have obtained as much 40 per cent of the wood they consumed between 1994 and 1999
from illegal sources.
The
Indonesian Pulp and Paper Industry & Forest Destruction
Of the 120 million
m³ of wood estimated to have been consumed by the Indonesian pulp industry between
1988 and 2000, only 10 per cent was harvested from plantations. The rest has almost
entirely been sourced by clear cutting natural forest, resulting in the destruction
of over 900,000 hectares of highly biodiverse rainforest. The Indonesian pulp
and paper industry is running out of wood and facing a plantation based raw material
short-fall for at least the next six years and possibly far longer.
APRIL
Part of the Indonesian Raja Garuda Mas Group and owned by the business magnate
Sukanto Tanoto, APRIL is a Singapore held company. APRIL’s main pulp subsidiary
is Riau Andalan Pulp & Paper (RAPP), located in Riau Province on the Indonesian
island of Sumatra. RAPP began operating in 1995 and has now developed a pulp mill
with a capacity of 2.0 million tonnes per year, making it the largest pulp mill
in the world. AMEC, a UK construction multinational, has helped to design and
build the RAPP mill. APRIL’s main paper subsidiary is Riau Andalan Kertas. It
is also based in Riau and was integrated into the same site as RAPP in 1998. With
a capacity of 350,000 tonnes per year, APRIL is intending to bring its paper production
capacity up to 700,000 tonnes per year.
APRIL
and Forest Destruction
In production since 1995, the vast majority of the
fibre going to APRIL’s RAPP mill has been mixed tropical hardwood obtained through
the clearance of natural forest. In 2000, 100 per cent of APRIL’s fibre came from
cleared rainforest. In 2001, 80 per cent of its fibre was still sourced from cleared
rainforests. As a result, Friends of the Earth estimates that by the end of 2001
APRIL’s operations had already led to the destruction of 220,000 hectares of rainforest.
APRIL
admits that it will continue to depend upon clear-cutting natural forest until
2008, when it estimates its plantations will meet all its pulp capacity requirements.
Industry analysts vigorously question APRIL’s claims regarding its acacia tree
planting rates and some estimate that APRIL may be clearing rainforest well beyond
2008. By APRIL’s own estimates, it will be clearing an additional 147,000 hectares
of rainforest over the next six years.
There
are also strong indications that legal supplies of mixed tropical hardwood may
not be available within a commercial distance of the mill by 2005. As a result
of its unsustainable operations, APRIL is now running out of wood.
APRIL's
logging sites are the natural habitat of numerous endangered species, including
the tapir (Tapirus indicus), the Sumatran elephant sub-species (Elephans
maximus) and the Sumatran tiger (Panthera tigris sumatrae). The conversion
of these natural rainforests into tree plantations inevitably leads to the reduction
of the area available to these species, thus making extinction increasingly likely.
APRIL
Clear-cuts World’s Most Biodiverse Lowland Rainforest
Investigations into
four areas of natural forest clearance in Sumatra demonstrate that APRIL’s operations
are driving the clearance of High Conservation Value Forest both within and outside
APRIL’s concessions. One of these areas is APRIL’s largest concession area, known
as the Pelalawan sector. Two of these rainforest areas are close to the Bukit
Tigapuluh National Park. The fourth is in an area of forest known as Tesso Nilo.
WWF researchers have discovered that this is the most biodiverse lowland forest
in the world, home to tigers, elephants, gibbons, tapirs and a staggering diversity
of plant life. A WWF investigation tracked 110 logging trucks from this rainforest
to the RAPP pulp mill in Riau. There are questions over whether APRIL has the
necessary legal permits for clearing this forest. These logging activities may
also be in contravention of a moratorium on forest conversion agreed between the
Indonesian Government and international creditors, including the IMF, in 2000.
WWF and local stakeholders are demanding that APRIL stops logging this area immediately
and are calling on the Government to fully protect the Tesso Nilo forest without
delay.
Land
Disputes
A study by the independent auditors SGS, commissioned by APRIL
in 1998, found that over 40,000 hectares of APRIL’s concession area has been claimed
by local communities. The area where the RAPP factory has been built is land claimed
by the indigenous people of Delik, Sering and Kerinci villages. As a result of
this dispute the legal representative of these villages was imprisoned for three
years. In another land dispute case at Lubuk Jambi village, a member of the community
is reported to have been stabbed to death during a protest in 1998.
APRIL
was until recently the manager of the Indorayon pulp and rayon plant, now known
as Toba Pulp Lestari, in North Sumatra. For several years, Batak communities living
near the mill voiced concerns over environmental damage associated with its operations,
including forest degradation and the release of noxious fumes. Violent clashes
between community members and security forces led President Habibie to announce
the temporary closure of the mill in March 1999. The mill remains closed due to
local opposition.
Marketing
of APRIL Paper & False Claims
In order to market its paper from
its RAPP factory, APRIL has set up a marketing subsidiary, APRIL Fine Paper, which
has established a global network of sales offices and distributors. The main brand
which APRIL sells under is PaperOne. In the UK PaperOne paper is sold by
an exclusive sales representative to the following paper merchants, most of whom
are members of the AIMS distribution group: David John (Papers) Ltd,
Davies Harvey Murrell, G F Smith, H V Sier Ltd, Ovenden
Papers, Rosefox Ltd, The South Wales Paper Company, Fulton
Paper & Frederick Johnston. It is not clear whether or to what extent these
companies are aware of APRIL’s impacts. The Finnish pulp and paper giant, UPM-Kymmene
is the biggest buyer of APRIL pulp for its Changshu paper mill based in China.
APRIL
would not be able to undertake its destructive activities without this market
support. These companies must therefore accept partial responsibility for supporting
the catastrophic damage that has occurred in recent years to Indonesia’s forests.
By associating themselves with such practices they have also underestimated the
reputational risk facing their businesses.
APRIL
has made false claims regarding the sustainability of its operations. It has claimed
for instance that the forests it is clearing are degraded and that its forestry
operations help preserve biodiversity. However, there is ample evidence that many
of the areas that are being cleared to supply APRIL, such as Tesso Nilo, are High
Conservation Value Forest.
Responsibility
of Financial Institutions
The exponential growth of Indonesia’s pulp and
paper industry has been fuelled by a massive injection of capital investment of
between US$12 billion and US$15 billion. This investment was made without financial
institutions ensuring that the pulp and paper companies receiving their investment
had secured a legal and sustainable raw material supply. As a result these financial
institutions took on a substantial if not inordinate level of financial risk.
The financial institutions responsible for funding Indonesia’s pulp and paper
sector must accept a large degree of responsibility not only for the failure of
the Indonesian pulp and paper industry to pay back its debts but also for fuelling
the destruction of Indonesia’s forests, one of the richest wildlife habitats on
Earth.
The
following financial stakeholders have a major stake in APRIL & its subsidiaries
and are in a position to exert a strong influence on its operations: Sukanto
Tanoto (Indonesia), Bank Mandiri (Indonesia), Bank BNI (Indonesia),
Indonesian Bank Restructuring Agency (Indonesia). Financial stakeholders
with a moderate stake and influence include: ING Barings (United Kingdom
/ The Netherlands), Bank Nasional (Indonesia), UBS Bank (Switzerland),
Bank Universal (Indonesia), UPM-Kymmene
(Finland). It is also noted that Barclays Bank (United Kingdom)
was arranging loans to APRIL in 1997 worth hundreds of millions of dollars. The
loan was never extended in the end due to the Asian economic crisis.
The
following financial stakeholders have a strong stake and influence on Toba Pulp
Lestari: Sukanto Tanoto (Indonesia), ABN AMRO Bank (The Netherlands),
Bank Nomura (Japan), Bank of New York (United States), Crédit
Lyonnais (France), FleetBoston Financial Corporation (United States).
Financial stakeholders with a moderate stake and influence include: American
Express Bank (United States), Crédit Suisse First Boston (United States
/ Switzerland), Fuji Bank (Japan), Sanwa Bank (Japan), Standard
Chartered Bank (United Kingdom), Sumitomo Bank (Japan).
Conclusion
The risks of ignoring the limits and value of sustainability by all parties
are all too evident. It has been a lose, lose, lose situation. APRIL is now facing
a serious financial crisis. It is renegotiating repayments on US$ 1.9 billion
in debt while facing a possible raw material shortage in the future. The global
pulp and paper industry is suffering from low prices and the financial institutions
are potentially facing massive losses. All these groups may also suffer irreparable
harm to their reputation. Perhaps the greatest losers though may be the indigenous
peoples of Indonesia who are losing their homes and livelihoods. There is still
time to act to minimise the damage but action must be swift and decisive.
RECOMMENDATIONS
APRIL:
- To
halt all logging activity in natural forest areas until an independent, public
and comprehensive forest quality assessment has been conducted to identify areas
of High Conservation Value Forest. To support protection of these areas.
- To
conduct an independent, public and transparent assessment of all land claims affecting
all areas where APRIL is sourcing timber and to stop logging in these areas until
the land claims have been resolved to the satisfaction of all stakeholders.
- To
reduce RAPP’s pulp processing capacity to sustainable levels.
- To
implement an independent, on-going monitoring system to demonstrate that the company
continues to operate and source its raw materials sustainably.
- To
stop all forest clearance in Tesso Nilo & support its establishment as a fully
protected area.
Financial
Institutions:
- To
support all the above recommendations as part of APRIL’s debt restructuring plan.
- To
not support any further development of pulp and paper operations in Indonesia
or Malaysia unless they are supported by independent, public and comprehensive
sustainability plans which ensure no High Conservation Value Forest is destroyed
and all local community rights are respected.
- To
adopt and fully implement a Forests Policy which ensures that no financial activities
destroy High Conservation Value Forest and that the rights of local communities
are respected.
- Improve
due diligence to fully assess the financial risks involved with the forestry sector
and to ensure that funds are not being provided for illegal or unsustainable practices.
Paper
Merchants:
- To
stop all purchases of APRIL PaperOne paper made in Indonesia until APRIL has implemented
the above recommendations.
UPM-Kymmene:
Friends
of the Earth Finland demands that the co-operation between UPM-Kymmene and APRIL
has to end unless it can be shown that APRIL:
- stops
clear-cutting of natural forests
- gets
a permit from local communities, including hunters and gatherers that are hard
to reach, for planting of open areas or already destroyed areas
- compensates
losses from past logging and construction of infrastructure to local communities
