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| Outcry as Jakarta tries to revive paper industry |
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2005/11/9
Buoyed by demand driven mainly by China and India, the Indonesian government is trying to revive investor interest in its pulp and paper industry, four years after it was rocked by the biggest emerging market debt default in history.
Indonesia wants to lure investors to build three pulp mills on the island of Borneo at a cost of at least $3 billion, according to government officials. The building of new mills would fulfill a longstanding government ambition of significantly expanding the Indonesian pulp and paper industry.
The plan faces stiff opposition, however, from environmental and forestry research organizations concerned about extensive logging of Indonesia's natural forests.
The sector was stalled by the 1997 economic crisis and a $13.9 billion debt default in 2001 by Asia Pulp & Paper, one of the biggest companies in the global industry. When the economic crisis hit, the government had plans for seven new mills on Borneo alone, according to the Center for International Forestry Research, based in Bogor, Indonesia.
The revival of efforts to attract investors comes as Asian countries, particularly China and India, are driving growth in global consumption of paper and cardboard for packaging.
Jaakko Poyry Group, a leading consultancy in the pulp and paper industry, expects demand in China to grow 5 percent a year from 2004 to 2020. North American, European and Japanese consumption will grow 0.6 percent annually over the same period, according to estimates by Jaakko Poyry, which is based in Helsinki.
Muhammad Lutfi, chairman of Indonesia's Investment Coordinating Board, confirmed that the government had started talks with domestic and foreign investors over the construction of a pulp mill in Kalimantan, the Indonesian portion of Borneo, which is shared with Malaysia and Brunei.
"I am chasing investors," Lutfi said in an interview.
"We now want to do at least another three pulp mill plants," he added.
Industry experts say Indonesia is ideally placed to meet Asia's growing appetite for pulp and paper products because of its proximity to China and India as well as its tropical climate. In Indonesia, hardwood plantations take about seven years to grow, compared with 25 to 30 years for the softwood plantations in North America and Europe.
But forest researchers and environmental activists say the industry is already running above its capacity because of a shortage of plantation timber.
Several studies by environmental and research groups accuse the pulp and paper industry and the government of failing to invest enough in plantation development and relying too heavily on natural forests.
"Indonesia's pulp industry is facing fairly significant shortfalls of plantation fiber already," said Christopher Barr, a researcher at the forestry center. "And until they work those out, it certainly raises concerns if new capacity comes on line and puts additional pressures on a resource base that is already stretched very thin."
A study by Barr estimated that only 10 percent of the wood harvested for the pulp industry from 1988 to 2000 was from plantations. He estimates that the industry still relies on natural forest for as much as three-quarters of its feedstock.
Lutfi, the investment board chairman, said "plantation forests will supply the feedstock" for the three proposed mills, of which two would be built in East Kalimantan Province and one in West Kalimantan Province.
Concerns over the environmental sustainability of the industry could discourage some investors, particularly from North America and Europe, amid pressure from environmental groups over Indonesian-sourced pulp or paper products. For example, International Paper, the world's biggest paper manufacturer, says it refuses to buy wood or pulp from Indonesia because of concerns about illegal logging and encroachment into natural forests.
"Because we have found no system in place to guarantee that wood coming from Indonesia doesn't originate in high-conservation forests, the only sensible solution is to avoid Indonesia as a wood supplier until steps are taken to protect the forests and return to sustainable forest practices," said Amy Sawyer, a spokeswoman for International Paper, based in Stamford, Connecticut.
But the Indonesian pulp and paper industry is highly competitive despite setbacks in recent years. The two industry leaders in Indonesia, Asia Pulp & Paper and Asia Pacific Resources International, owned by Indonesians but controlled by holding companies based in Singapore, have made large investments in paper and pulp mills in China and could expand further at home. In April, Asia Pulp & Paper resumed payments on its huge debt for the first time since the default in 2001 under a restructuring plan.
Some foreign investors are also likely to be attracted by the relatively cheap supplies of timber, which normally account for 60 percent of the cost of running a pulp mill. In September, the Indonesian forestry minister, Malam Sambat Kaban, said there had been expressions of interest from several foreign companies in investing in the pulp business, mostly from elsewhere in Asia. Korindo Group, a South Korean-owned company operating in Indonesia, announced in September that it would build a pulp mill near a forest concession it owns in Central Kalimantan Province.
A Singapore-listed company, United Fiber System, is well along with plans to build a pulp mill in South Kalimantan Province. Feasibility studies show that the mill could meet the company's timber demands entirely from plantation stock and "will consequently not use any wood raw material from natural forests," according to a statement on the company's Web site.
In a report released this year, Barr, the researcher, challenged that assumption and warned that the mill's construction "would compound the very significant problem of industrial overcapacity that exists in Indonesia's forestry sector."
Some other analysts, however, say the rapid expansion of paper and cardboard production in China will provide a ready market for Indonesian pulp exports and will be a significant lure for investors. Since 1990, annual production of paper products in China has risen by about 40 million metric tons. It is expected to rise further, to 75 million tons a year, within five years, said Jaakko Poyry, the consultancy.
China's growing appetite also could help underwrite healthy pulp prices in the longer term, although analysts say they have probably reached a cyclical high. The weekly PIX benchmark index quoted the price of hardwood pulp at $591 a ton on Tuesday, compared with lows of about $330 in 2001.
David Walker, Asia president of Jaakko Poyry, in Singapore, said the outlook for the Indonesian industry was good, but he emphasized the importance of continued plantation development by the government and mill owners.
"It certainly makes sense to expand the pulp industry in Indonesia," Walker said. "It's clear that it will be a very competitive exporter of pulp to the rest of the world, including China and India. So the interest by the Indonesian government is clearly to establish a really competitive plantation fiber base to support a globally attractive export industry."
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| Source:http://www.iht.com |
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