Stakeholders in Indonesia's pulp and paper industry are concerned about the future of this industry after Indonesia's Environment and Forestry Ministry suspended the operational activities of Indonesia's second-largest timber company, Riau Andalan Pulp and Paper (RAPP), through a decree. RAPP is a unit of global pulp and paper industry giant Asia Pacific Resources International (APRIL). Meanwhile, APRIL is a unit of Singapore-based Royal Golden Eagle.
The Indonesian government took this decision on claims that RAPP is not complying with the country's peat protection regulations. Earlier, the Indonesian government had already issued two warnings to the timber firm. The new Environment and Forestry Ministry decree, however, means that RAPP's 2010-2019 work plan - which forms the basis for the timber company to carry out activities in its concession areas in Indonesia - has been declared invalid.
RAPP now states that the sudden decision to declare its long-term work plan invalid shows the weak level of legal certainty in Indonesia. Djarot Handoko, Corporate Communication Head at RAPP, emphasizes that his company always complies with regulations and had in fact submitted several revisions to the work plan after receiving two warnings from Indonesia's Environment and Forestry Ministry.
The problem started after Indonesia decided earlier in 2017 to prohibit the planting of acacia (pulpwood trees for paper production) on protected peat-land. However, about 60 percent of pulp and paper companies concession areas in so-called "industrial forests" involves peat-land (previously these companies had been given the green light to use this peat-land for their crops). Likewise, RAPP manages a plantation area of 480,000 hectares of fast-growing pulpwood trees. However, more than half of this area is planted on peat-lands.
The latest government regulation also states that "substitution land" can be accessed by companies whose concession areas comprise protected peat-land. Through the regulation, the government is required to provide such substitution land to the pulp and paper company in a gradual way, with clean and clear conditions, technically and economically adequate and located near the company's industrial site. Agung Laksamana, Corporate Affairs Director at RAPP, therefore says the government has to be committed to its own regulations too by providing substitution land to the company.
Ali Sabri, Operational Director at RAPP, said the government's move to suspend operations of the timber firm leads to a serious amount of layoffs. Still, the company can continue work at its factories as well as sales.
Business or Environment?
The reason why the Indonesian government has shifted its approach with regard the environment is the severe man-made forest fires that occurred on parts of Kalimantan and Sumatra between June and October 2015 (triggered by farmers' traditional slash-and-burn strategy). As a result some 11.3 million tons of carbon per day were released during that five-month period, while toxic haze spread to other parts of Southeast Asia (causing diplomatic tensions). Based on a World Bank calculation it caused Indonesia to experience damages estimated at 1.9 percent of GDP.
In 2016 Indonesian President Joko Widodo established a peat-land restoration agency with the purpose to restore around two million hectares of damaged peat-lands across Indonesia. Widodo also imposed a moratorium on new concessions in the palm oil industry.
Purwadi Soeprihanto, Executive Director at the Association of Indonesian Forest Concession Holders (APHI), says there are currently around 100 companies that have concession areas involving industrial forests on protected peat-land. He expressed his concern about the government's move to suspend RAPP's work plan. Besides the pulp and paper industry, it the palm oil industry, which also has plenty of concessions on peat-lands, may also be affected.
Poll Indonesia Investments:
Should the Gov't push for environmental protection at the expense of legal certainty?
Voting possible: -
- Yes, the government should prioritize environmental protection (47.7%)
- There should be a middle way (29.5%)
- No, the government should prioritize legal certainty (22.7%)
- I don't know (0%)
Total amount of votes: 44