Indonesia Paper Industry

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  • Topic: Pulp and paper industry, Plantation, Forestry
  • Pages : 9 (2990 words )
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  • Published : April 29, 2013
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New round of pulp and paper expansion in Indonesia: What do we know and what do we need to know? Prepared by Krystof Obidzinski and Ahmad Dermawan Introduction Since the late 1980s, Indonesia’s pulp and paper industries have expanded rapidly to push the country into the ranks of the world’s top 10 producers. Indonesia’s pulp production capacity grew from 606,000 to 7.9 million metric tons per year between 1988 and 2010, while the paper industry’s processing capacity rose from 1.2 million to 12.2 million tons per year. In the same period, pulp production has increased from 368,000 to 7 million tons, and paper production increased from 930,000 tons to 10.5 million tons (APKI 1997, Ministry of Industry 2011). In 2010, pulp and paper products generated US$5.7 billion in export earnings. The industry accounts for approximately 1 percent of Indonesia’s GDP. In 2010, the industry provided approximately 250,000 jobs excluding those in the timber plantation subsector (Ministry of Industry 2011). Despite the economic potential, literature sources indicate some long standing structural problems in the pulp and paper sector. Since its establishment in the late 1980s, the pulp and paper industry has been heavily reliant on the natural forest for timber (Barr 2001). The high growth that has occurred in the pulp and paper industry has proceeded far more rapidly than efforts to secure a sustainable supply of raw materials through the development of pulpwood plantations (Cossalter 1998). To date, Indonesia’s pulp mills have relied heavily on unsustainable and much of which is obtained through the clear-cutting of natural forests. As of 2010, key pulp and paper producers in Riau, Sumatra, sourced more than half of their raw material from the conversion of natural forest (IWGFF 2011). Although extensive timber plantation development programs have been implemented over the years, the supply of timber available from these plantations remains to be insufficient. As a result, the pulp and paper industry has been associated with negative environmental impacts. The development of timber plantation has often been carried out by displacing forest communities, resulting in conflict (Human Rights Watch 2003). The growth of Indonesia’s pulp and paper industries has involved an aggregate capital investment of at least US$16 billion by 2010 (Ministry Industry 2011). The fact that Indonesian companies have made investments on this scale without first securing a legal and sustainable raw material supply, however, suggests that many of these projects carry a substantial degree of financial risk. To a significant degree, Indonesian pulp and paper companies have been motivated to invest such large sums in high-risk projects because their owners have been able to avoid much of the financial risk involved. The Indonesian government has provided substantial capital subsidies to pulp and paper producers, including the provision of pulpwood fiber at costs well below its stumpage value. The government’s weak regulation of the nation’s financial system has enabled pulp and paper companies to employ a variety of illegal practices to obtain discounted finance. Also, international financial institutions have helped Indonesian producers to borrow billions of dollars from offshore investors without rigorously assessing either the long-term viability of those firms’ fiber supplies or the legality of their financial practices (Barr 2001).

Long term vision of Indonesia’s forestry sector and the role of pulp and timber plantations

Despite these shortcomings, the pulp and paper and timber plantation sectors are seen as the corner stone of the future of Indonesia’s forestry sector. Indonesia’s National Long Term Forestry Plan envisages that by 2025 timber plantations will cover 14.5 million hectares and will annually produce

over 300 million m3 of timber (Ministry of Forestry 2006). A large part of this volume is expected to support the growth in the pulp and paper...
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