Elephant Forests on Sale
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Elephant Forests on Sale Rain Forest loss in the Sumatran Tesso Nilo region and the role of European banks and markets A report commissioned by WWF Germany with support from WWF US Written by Rob Glastra, AIDEnvironment, Amsterdam, Netherlands Editors Martin Geiger, WWF Germany Produced by octopus media, Dreieich, Germany Designed by dülk.mediadesign, Neu-Isenburg, Germany Graphics by WWF Indonesia AREAS Riau Project First edition March 2003 © 2003 WWF Deutschland Titelbild: © WWF Table of Contents Summary . .4 Acknowledgements . .7 1. Introduction . .8 2. Profile of the Tesso Nilo forest . .10 3. Major threats . .13 3.1 General overview . .13 3.2 Industrial clear-cutting for pulp plantations . .13 3.3 Oil palm plantations . .15 3.4 Illegal logging . .16 4. Main players behind the threats . .18 4.1 Indonesian government agencies . .18 4.2 Indonesian companies . .19 4.2.1 Paper & Pulp Companies . .19 4.2.2 Oil palm companies . .30 4.2.3 Timber Companies . .30 4.2.4 Links between sectors and companies . .31 5. WWF’s position and actions . .32 6. Recommendations by this study . .34 7. References . .36 Notes . .37 ANNEX 1 – Imports of pulp and paper products . .42 ANNEX 2 – Banks’ responses . .43 ANNEX 3 – Position papers . .45 List of abbreviations: APP Asia Pulp & Paper Company Ltd. HCVF High Conservation Value Forest APRIL Asia Pacific Resources International HPH(k) Hak Pengusahaan Hutan (kecil) Holdings Ltd. HTI Hutan Tanaman Industri AREAS Asian Rhino and Elephant Action IBRA Indonesian Bank Restructuring Agency Strategy IKPP Indah Kiat Pulp & Paper BHK Bleached Hardwood Kraft IPK Ijin Pemanfaatan Kayu CIFOR Center for International Forestry MoF Ministry of Forestry Research MTH Mixed Tropical Hardwood CPO Crude Palm Oil NYSE New York Stock Exchange DBH Diameter Breast Height PKM Palm Kernel Meal FFPCP Forest Fire Prevention and Control PKO Palm Kernel Oil Project RAK Riau Andalan Kertas FoE Friends of the Earth RAPP Riau Andalan Pulp & Paper FWI Forest Watch Indonesia RGM Raja Garuda Mas Group GFW Global Forest Watch SGS Societé Générale de Surveillance JV Joint Ventures TNPA Tesso Nilo Protected Area WWF Deutschland 3 Summary This report focuses on the forces that Tesso Nilo’s values and threats more and more people enter the forest threaten the Tesso Nilo forest in Riau to extract timber. province on the Indonesian island of The Tesso Nilo Forest Complex in Riau > Fires used for clearing that jump con- Sumatra. Covering an area of almost has one of the highest levels of plant di- tainment lines and damage surround- 200,000 ha, the Tesso Nilo forest ap- versity ever recorded by scientists any- ing forests. pears to be the largest remaining where on earth and supports popula- stretch of lowland tropical rainforest tions of Sumatra’s threatened elephants on the island. Covering half a million and tigers. Lack or absence of effective International trade links ha only two decades ago, today it law enforcement, in part due to the stands like an island in an ocean of chaotic decentralisation process started Indonesia’s logging and plantation in- plantations. It has both extremely after the fall of president Suharto, is dustries produce timber, pulp, paper high plant diversity and extremely considered to be the major enabling and palm oil for the rapidly expanding high levels of threat. This document factor. global market. Europe is a major cus- has been prepared for WWF Ger- tomer. Riau ranks third among 27 many by AIDEnvironment. It is Primary threats to the Tesso Nilo forest provinces, supplying 12.5% of the based to a large extent on data pro- are: country’s non-oil & gas export value, vided by WWF’s Asian Rhino and > Industrial clear-cutting for pulpwood mostly based on industries that depend Elephant Action Strategy (AREAS) plantations to supply two giant pulp on forest conversion. Riau Project which has worked on- mills: RAPP and IKPP. In 2000, the Over 50% of the stationary paper site since 1999. The report presents two mills consumed half of Indone- wholesale supply business in the United the status of the Tesso Nilo forest as sia’s or double (!) of Riau’s legal Kingdom may contain Indonesian paper of the end of 2002, elaborates on the wood supply and accounted for from Asia Pulp and Paper Ltd. (APP), forces that threaten this forest and around 60% of Indonesia’s total pulp quite possibly coming from its plant the landscape in which it resides. It production. The mills have to operate near Tesso Nilo. Among European explains how Riau-based wood and at capacity to pay back the huge debt countries importing Indonesian pulp, palm oil companies threaten the re- their construction cost, but they cannot Germany ranks 5th. The web site of the maining forests and discusses the operate at capacity with the timber National Agency for Export Develop- global markets that drive their activi- legally available from natural forests ment lists four Dutch companies as im- ty. It concludes with strategies and clearings and plantations. This dis- porters of Indonesian paper, one of recommendations that might be able crepancy has become a major driving them is a world leader in graphic board. to ensure the survival of this unique force behind the illegal logging in the Two years ago, the Finnish paper gi- forest. province of Riau. ant UPM-Kymmene bought Asia Pacif- > Industrial and community-based legal ic Resources International Holdings and illegal forest clearance for oil Ltd. (APRIL) share of a large paper Forest loss on Sumatra palm plantations to supply palm oil mill in China and became the sole own- mills with local, regional, national er. APRIL is a Singapur-based Holding Between 1990 and 2002, Sumatra lost and international customers: Wood company which owns also the pulp gi- over 60% of its remaining lowland from the clearings supplies pulp, ply- ant RAPP that is active in Riau forest through conversion to settle- wood and saw mills. Province. This was followed by an ments, oil palm and pulpwood planta- > Legal and illegal logging for local, re- agreement between the two companies tions and other forms of agriculture. At gional, national and international use: that made UPM-Kymmene the biggest this rate of deforestation, according to The province has a concentration of customer of RAPP. The companies also the World Bank, Sumatra is expected to wood-based industries, including ply- have financial ties, a UPM-Kymmene lose its last lowland forests by 2005. wood mills, moulding factories and granted APRIL a US$ 121 million loan Demand for timber of all types has put hundreds of legal and illegal saw- in 1999. enormous pressure on Riau’s forests. mills. Some 80% of the Tesso Nilo Foreign financial institutions have Demand for land for oil palm planta- forest continues to be managed by financed to a large extent the strong ex- tions has been very high, making Riau four logging companies. Illegal log- pansion of pulp & paper and oil palm Indonesia’s leading province for land ging is very common in Tesso Nilo. companies operating in Tesso Nilo and area under this crop. As a result, more the surrounding forests in the province than 1,7 million hectares in this Secondary threats are: of Riau, by helping them to issue shares province alone had been deforested by > Encroachment after forests are and bonds, by buying their shares and the mid 1990s, 29% of Riau’s original opened by construction of roads and bonds, by providing loans, and by ex- forest land. Especially its lowland and corridors to facilitate log extraction. tending credit guarantees. Especially peat forests are heavily threatened by > Poaching of wildlife after access to with respect to the financing of the gi- small and large-scale forest conversion. the forest is eased by new roads and ant IKPP pulp mill in Perawang, a large 4 WWF Deutschland number of German financial institutions practices in adjacent lands would need partnership with government authorities played a significant role. IKPP is the to be made more compatible with con- and other stakeholders. most important Indonesian subsidiary servation needs, such as allowing of the Singaporean company Asia Pulp wildlife movements and protecting wa- • Riau’s pulp and paper industry & Paper (APP), which has been en- ter supplies and watershed functions. should protect the High Conservation gaged in complicated negotiations on WWF-AREAS Riau’s ultimate vision is Value Forests within their concessions the restructuring of its giant US$ 13.4 a three million ha multiple-use conser- and those of all their suppliers, operate billion debt since March 2001. Three vation landscape that includes five pro- within the limits of clearly defined legal German financial institutions, Deutsche tected areas. and environmentally and socially sus- Bank, HypoVereinsbank and Hermes While a certain momentum for the tainable wood supply plans, and ensure Kreditversicherung, are actively in- protection of Tesso Nilo started build- sound forest stewardship in plantations volved in these debt restructuring talks. ing up in the past two years, threats to from which they source fibre for paper. The debt restructuring negotiations cen- the forest remain strong, however. ter on determining the cash flow IKPP Dozens of illegal sawmills receive end- • Financial Institutions and Banks can generate and how much of that cash less truck loads of illegally cut timber who invest in the pulp and paper in- should be repaid to the creditors. IKPP every day, tiger poaching is rampant, dustry in this region should ensure that generates a lot of its cash by pulping and communities are converting small their investments are not being used to mixed tropical hardwood forests. The forest patches into oil palm plantations. support the conversion of HCVF or the negotiations of the creditors therefore Threats to the wider Tesso Nilo land- violation of traditional land rights.