INDONESIA

Help Stop Massive Pulp Mill in Sumatra

DOWN TO EARTH ACTION ALERT

YOUR HELP IS NEEDED TO INFLUENCE GOVERNMENTS AND INVESTORS

Down to Earth has only just received news that the massive PT TEL paper pulp mill in South Sumatra is to be funded by a syndicate of foreign banks and export credits from Europe, North America and Japan. The agreement for nearly US1billion was signed in March. PT TEL involves a number of Barito Pacific subsidiaries, President Suharto's daughter Tutut and Japanesecompanies (see DtE issue 32).

Mature rainforest, local people's plantations and farms are being destroyed to make way for the paper pulp mill at Tanjung Enim and the industrial timber estates to supply it. Local communities have been forced off their land with little compensation and no alternative means of making a living.

Their problems are likely to increase once production starts. Indonesia's 65 paper pulp mills have an appalling environmental record. Communities' complaints that their health is suffering and their livelihoods devastated by air and water pollution caused by waste disposal are ignored by the companies and the government.

Indonesian NGOs and local community groups want help from international NGOs to stop the PT TEL development. It may be too late to get investors to withdraw from the newly-signed agreement, but it is important to put pressure on our banks, investment companies and governments so that they do not renew or extend their financing. As no Indonesian banks are involved, the syndicated loan has taken nearly 2 months longer than anticipated to arrange (suggesting problems) and project development will now take place 'step by step' we have more opportunity to act.

PLEASE READ THE FOLLOWING ARTICLE FROM THE JAKARTA POST 15TH MARCH. IF YOUR GOVERNMENT OR A COMPANY FROM YOUR COUNTRY IS INVOLVED IN THE SYNDICATE, WRITE TO THEM ASKING WHY THEY ARE SUPPORTING PTTEL AND URGING THEM TO RECONSIDER THEIR DECISION.

WE WOULD APPRECIATE COPIES OF YOUR LETTERS, THEIR REPLIES AND ANY FURTHER INFORMATION. DO PHONE/FAX OR E-MAIL TO DISCUSS WHAT FURTHER ACTION WE COULD TAKE.

Some background information from DtE issue 32 is attached below. Letters to your Trade and Industry or Foreign Affairs Ministries might stress that governments which have signed Agenda 21 at the 1992 Rio Summit should not be using public funds through export credits to support unsustainable development. Letters to banks and investment companies may be more effective if you use financial rather than environmental/moral arguments.

PT TEL is not a sound investment because:

The Indonesian regime is highly unstable. There is widespread resentment against Suharto's government which has ruthlessly suppressed all official forms of opposition. There is no obvious successor to the 75 year old President. The transition period for a new leadership is likely to be long and characterised by conflict between the military and the democracy movement.

The Indonesian regime is corrupt. At the highest level, sudden decisions on taxes, levies, exports/imports and foreign investment are made without consultation. These are often based on potential benefits to Suharto's family and business associates rather than rational economic criteria. At lower levels, decisions about contractor companies, personnel and operating procedures are routinely determined by the business connections of administrative and military officials.

Indonesia's paper pulp industry is heading for trouble. The government's stated aim of Indonesia becoming the world's largest paper producer is founded on national pride, not reality. With 65 mills on stream and government approval for a further 16, there is overcapacity in the pulp industry. Industrial plantation estates cannot meet existing demand. Indonesian and international environmental groups are strongly opposed to all developments in which mature tropical rainforests are turned into paper pulp.

World pulp and rayon prices are subject to sharp falls. Major pulp and paper producer Asia Pacific Resources International Holdings Ltd (APRIL) made a $US8.84 million loss in the three months to September 1996 compared with a profit of $15.2 million in the same period in 1995. The Indonesian-owned group, which controls PT Inti Indorayon Utama and PT Riau Andalan Pulp and Paper, blamed the loss on a slump in world prices. Blended pulp averaged $446 a ton during the third quarter, down from $835 in the same period in 1995. (Source: Jakarta Post 20/11/96)

JAKARTA POST article 15th March 1997:

BARITO SUBSIDIARY GETS $991m TO BUILD PAPER MILL

PT Tanjung Enim Lestari Pulp and Paper, a subsidiary of PT Barito Pacific Timber, secured a US$991 million syndicated loan yesterday (14/3/97) from 25 foreign banks to finance the building of its pulp mill near Palembang, South Sumatra.

About $650 is from export credit agencies in Germany, Canada, Finland and Sweden, while $341 million is from commercial lenders in the United States, South Korea, Japan, Scotland and Austria. The bank syndication included AT&T Capital Corporation, Fuji Bank, Sumitomo Trust, Bank of Scotland, Bank Austria and Hanil Bank.

The president commissioner of Tanjung Enim, Prajogo Pangestu, said the loan would be used to develop a pulp mill with an annual capacity of 450,000 tons by the end of its first phase in 1999. Prajogo said the project would cost $1.2 billion of which 30% would come from company equity and the rest from the loans. Prajogo said that Germany's Klockner Industrie-Anlagen GmbH would be the turnkey contractor, while Nippon Paper Industries would operate the mill. The company said the loan agreement and other project related documents signed yesterday totalled $1.2 billion.

Prajogo, who also controls the publicly listed Barito Pacific Timber, said raw material for the mill would come from the 193,500 hectare industrial timber estate owned by PT Musi Hutan Persada. Musi Hutan Persada's estates were established as a joint venture between Barito Pacific's PT Musi Enim Lestari and state-owned PT Inhutani II (sic - other sources say Inhutani V).

The president of PT TEL, Jansen Wiraatmaaja, said the loan would have an interest rate of 8.5% and 9% and would mature in 12.5 years. He said the pulp mill's production would be entirely exported through Japan's Marubeni and Sweden's Cellmark. 70% would go to Asia and 30% to Europe. But the syndication said some of the pulp would be marketed locally. Jansen said the second phase of the project would increase the mill's production capacity to a million tonnes per year. He did not say when the second phase would begin.

He said PT TEL would also build an integrated paper mill, but this was a long-term project.

PT TEL is owned jointly by Barito Pacific (51%), Sumatra Pulp Corporation (33%) and President Suharto's daughter Siti Hardijanti Rukmana, through PT Tridan Satriaputra Indonesia (16%). Sumatra Pulp is owned jointly by Japan's Marubeni Corp, the Overseas Economic Cooperation Fund and Nippon Paper Industries.

The state minister of investment, Sanyoto Sastrowardoyo, who attended yesterdays signing ceremony, said Indonesia's paper pulp industry was bound to grow as national paper consumption increased. he said paper demand in Indonesia was growing by 13% a year. Economist Christianto Wibisono said it was odd that no national bank was involved in the syndication. "I think at the moment foreign investors are more confident about the long-term business climate in Indonesia. They are convinced that nothing bad will happen despite the coming general election," he said.

DOWN TO EARTH NEWSLETTER NO. 32 FEBRUARY 1997 (Reprint)

NGOS DEMAND HALT TO CONSTRUCTION OF PULP PLANT

Several dozen Indonesian environmental organisations, acting as the Network for Advocacy on Paper Pulp, have protested to the Indonesian government about a new giant paper pulp plant factory under construction in South Sumatra.

The plant, at Simpang Belimbing in Muara Enim district, is intended to be the biggest in S.E. Asia with an initial capacity of 500,000 tonnes of pulp a year, eventually rising to 1 million tonnes p.a. To put this in perspective, PT Indorayon's Porsea plant has an annual production of only 220,000 tonnes of paper pulp (see DtE 11, 17, 23, 24). This high-prestige project is part of Indonesia's plans to increase pulp and paper exports in order to reduce the economy's dependence on oil and gas. Indonesia's annual pulp production is expected to increase to 11.1 million tonnes by the year 2010 from about 2 million tonnes in 1995. Sixteen new pulp mills will add to the 65 already operating in the country.

The company which is targeted by the NGOs is Tanjung Enim Lestari - PT TELPP, a subsidiary of the Barito Pacific Group controlled by timber tycoon Prayogo Pangestu in which President Suharto's daughter Tutut is a major shareholder. The plant is being built in conjunction with companies from the Netherlands (John Holland, Ballast and Figro) and Australia (Theiss and Dames & Moore). Foreign investment is from Japan (OECF, Marubeni, Nippon Paper) with Morgan Grenville looking for other syndicate partners. The total investment is US$ 1 billion. Celmark (Sweden) and Marubeni (Japan) are to be the pulp distributors.

The raw material for this giant plant should eventually come from Barito's plantations of fast growing species like acacia and eucalyptus in South Sumatra. Some plantations have been successfully established with technical assistance from the USA, Finland, Australia, Denmark, Sweden and Britain (DtE 10). Others have suffered from soil mineral deficiencies, pests and fire damage.

Existing paper pulp factories in Sumatra are experiencing shortages of wood supply as their feeder plantations are not sufficiently mature or extensive. To feed a plant this size will require 4.5 million cubic metres of wood peryear, thus increasing pressure on natural forests, traditional land rights and local people's private land.

One of the major local suppliers will be PT Musi Hutan Persada, a joint venture between another Barito subsidiary PT Enim Musi Lestari and the state-owned PT Inhutani II. This company featured in DtE 31 for the problems experienced by transmigrants associated with its Plantations for Industry (HTI) concession in Muara Enim district. The local Legal Aid Bureau, LBH Palembang, is representing local people who have lost their land and plantations of rubber and fruit trees to Barito Pacific Group companies with inadequate or no compensation. There is also evidence that mature rainforest is being felled by concession holders in order to establish HTI plantations which are supposed to be a means of reforesting 'critical' land.

Construction was due to start in January 1997. By Oct 1996 over half the 1250ha for the site plant had been bulldozed clear. This land was obtained by compulsory purchase, mostly from local farmers who derived a reasonable income for their families from rubber plantations they had established there. Some local people are refusing to give up their land and many compensation cases have not been settled yet. One group of rubber tappers from Muara Niru village said "If they take our land away, we might as well drink Baygon" (i.e. commit suicide by the common rural method of drinking insecticide).

An Environmental Impact Assessment (EIA) has been completed but, as the results have not been made public, local people and environmental NGOs are not sure what hazards may ensue. Much smaller chlorine-based paper pulp plants in N. Sumatra and Riau are causing substantial water and air pollution, traffic and social problems, so there are ample grounds for concern.

Eventually, most Indonesian NGOs want the Indonesian Government to force Barito Pacific Group companies to comply with the regulations on establishing plantations and to give fair compensation and alternative plotsof land to the people it displaces. If they do not do so, their HTI and HPH concessions should be withdrawn. These NGOs also want the authorities to halt the construction of paper pulp factories until the companies are willing to install chlorine-free technology and institute proper pollution monitoring and environmental control measures.

Meanwhile they demand:

That the Environmental Impact Asessment is re-done in an open way with opportunities for participation from the local community.

A halt to all PT TEL's operations until the EIA results are made publically available and show that the plant will have no negative environmental impacts.

To release information about the TEL plant to the public now, including details of its operations and and possible effects on the environment.

DOWN TO EARTH READERS ARE URGED TO SEND LETTERS OF CONCERN TO:

1. PT TELPP Jl. Ir H Juanda III No 17A-17B, Jakarta 10120, Indonesia

2. The Governor of South Sumatra Jl. Kapt A Rivat, Palembang, South Sumatra, Indonesia FAX 0062 711 357483

3. Nabiel Makarim The Environmental Monitoring Agency, Lt8 Gedung Arthaloka, Jl. Jend Sudirman No 2, Jakarta 10220, Indonesia FAX 0062 21 2511547

4. Sarwono Kusumaatmadja Ministry of the Environment, Jl. Medan Merdeka Barat No 15, Jakarta 10220, Indonesia

Source: Down to Earth is the Campaign for Ecological Justice in Indonesia

For further information about this and other issues, contact us at:

dte@gn.apc.org or dtecampaign@gn.apc.org

tel and fax 044 171 732 7984; tel (no fax) 044 1508 471413

The DtE quarterly newsletter subscription is 10 sterling (plus 1.5 sterling if paying by non-sterling cheque) payable to Down to Earth, 59 Athenlay Rd, London SE15 3EN, England.

Liz Chidley - DtE campaigns, 6 Matthews Close, Tasburgh, Norfolk NR15 1LJ, England

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