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Paper giants’ expansion plans raise fears of increased deforestation in Indonesia

Activists warn that these plans could lead to increased deforestation of natural forest and peatlands in Indonesia to plant the pulpwood trees needed to meet this capacity, exacerbating the annual fire season.

Activists are warning of “severe environmental and social risks” from plans by two of the world’s largest paper companies to significantly expand their operations in Indonesia.

Both Asia Pulp & Paper (APP) and Asia Pacific Resources International Limited (APRIL) have been linked with the degradation and burning of carbon-dense peat forests in Sumatra and Kalimantan, the Indonesian portion of the island of Borneo. There could be even more forest clearing and fires — and the thick, choking haze that results — if the companies expand their pulpwood plantation footprints, says Sergio Baffoni, senior campaign coordinator at the Environmental Paper Network (EPN).

“It seems that the pulp and paper companies are using the Government’s well-intentioned efforts to stimulate job growth by expanding their mills in a way that will contribute to respiratory health problems for millions of Indonesians,” he told Mongabay. “Job growth is crucial, but so is clean air to breathe.”

Those government efforts refer to the hugely controversial slate of deregulation known as the omnibus law on job creation, passed amid widespread protests last year. The law dismantles environmental and labor protections across a range of industries, including the pulpwood industry.

APP said in a statement that its planned expansion is “in compliance with the government’s policy to increase environmentally based investment” under the omnibus law, while APRIL said expanding its mill operations would “demonstrate that growth can be decoupled from deforestation.”

Muhammad Hairul Sobri, director of the South Sumatra provincial chapter of the Indonesian Forum for the Environment (Walhi), said the pulp and paper industry appeared to be exploiting the favorable climate under a business-friendly government. For one thing, the omnibus law offers tax breaks to companies in the industry, which allows them to allocate more funding for business expansion. The law also facilitates the building of infrastructure to support the industry, Hairul added.

The expansion plans have triggered fears among environmentalists that more rainforest and peatland areas will be cleared for new acacia and eucalyptus plantations to feed the increase in demand for pulpwood.

This in turn will exacerbate the recurring fire season in Indonesia, which has sickened millions of Indonesians over the past decade from the haze, Baffoni said.

APP

APP’s expansion plan centers around its massive pulp mill in Ogan Komering Ilir (OKI) district, South Sumatra province.

Even when the mill was operating at its initial production capacity of 2 million tons of bleached hardwood kraft (BHK) pulp per year, critics were already worried that it would boost APP’s demand for pulpwood. A 2014 analysis by various NGOs estimated that APP’s overall demand for wood fiber in Sumatra could rise by more than 50 per cent if the OKI mill reached full production capacity.

In 2020, the mill surpassed that capacity, producing 2.45 million tons of BHK pulp from around 10.6 million tons of wood. APP now reportedly plans to increase the mill’s capacity to 7 million tons of BHK pulp and 700,000 tons of mechanical pulp per year.

This means the mill will require an estimated 30.1 million tons of wood every year, three times what it currently goes through.

Environmentalists have questioned where APP will get this additional pulpwood.

The environmental impact assessment report, known locally as an Amdal, for the planned expansion of the OKI mill indicates sources for about half of that demand. With no public clarity on where the rest of the pulpwood will come, green groups warn the mill’s expansion could lead to the clearing of more natural forest and peatland.

In a letter addressed to APP’s business partners, a coalition of 33 NGOs pointed out that the plantations from where APP currently gets its pulpwood already have fundamental problems. The lands on which some of them sit are also claimed by local communities, with at least 107 villages or communities known to be in active conflict with APP as of 2020.

APP also remains heavily reliant on plantations established on peatlands; more than half of the planted area from which it sources pulpwood constitutes high-carbon peatlands. When peatlands are drained for industrial plantations, the soil begins to emit carbon into the atmosphere through a process that can only be stopped by restoring it to its naturally water-logged state.

Cultivating pulpwood plantations on drained peatlands releases on average 100 metric tons of CO2 per hectare per year. And best-practice water management only reduces those emissions by 20 per cent at most, according to tropical peat experts.

When peatlands are drained, they become more flammable, and their burning increases emissions exponentially.

According to a 2020 report by the EPN, APP’s suppliers and sister companies were involved in massive forest and peat fires throughout Indonesia in 2015, 2018, 2019 and 2020. The coalition said the plantation concessions of the top three wood suppliers to the OKI mill were among the worst burned areas in Indonesia’s devastating 2015 and 2019 fire seasons.

Collectively, the area of burned area under APP suppliers’ concessions between those years was 329,000 hectares (813,000 acres), double the size of London.

On account of the drained peatlands and fires, it’s estimated that APP’s wood suppliers released approximately 430 million tons of CO2 equivalent (CO2e) over the five year period from 2015-2019, or an average of 86 million tons CO2e per year, which is more than neighboring Singapore’s total annual GHG emissions.

These problems, which still haven’t been resolved, will only be compounded if APP proceeds with its plan to expand the OKI mill, watchdogs say.

“The proposal to triple the mill’s pulp production will hurt efforts to control fire, reduce social conflict, and limit forest loss in Indonesia, while further undermining the country’s ability to meet its targets under the Paris Climate Accord,” the NGO coalition said.

It called on investors and buyers of APP’s products to stop doing business with the company. The top five institutional investors with current shareholdings in APP’s Indonesia-listed entities include Vanguard Group ($86 million); BlackRock ($65 million); Dimensional Fund Advisors ($48 million); Japan’s Government Pension Investment Fund, or GPIF ($20 million); and JPMorgan Chase ($13 million), according to the Forest & Finance database, which tracks investments in forest-risk commodities such as pulp and paper.

“These severe environmental, social and governance (ESG) risks represent material financial risks for investors and financial institutions exposed to OKI’s expansion plans and the broader APP and [parent organisation] Sinar Mas Group,” the coalition said in its letter.

It said investors and clients should only resume doing business with APP after the company produces a credible long-term wood supply plan for public review and fulfills its environmental and social commitments.

“Lack of a credible long-term wood supply for public review raises concerns that the planned expansion at OKI could lead to the destruction of rainforest in Kalimantan and Papua,” the coalition said.

APP response

APP said in a statement that the concerns raised in the letter are “allegations with no merit.”

“These claims are not new and have in fact been asked and answered in the past,” it added.

On the concern that the OKI mill expansion would lead to more forest and peatland clearance, APP said the company would continue to source from existing plantations as approved by the government, rather than establishing new ones. It also said it remains committed to its zero-deforestation pledge under its Forest Conservation Policy (FCP), which also contains a pledge to only use sustainably sourced fiber.

“APP and its pulpwood suppliers do not engage in deforestation, and no pulpwood from deforested sources have entered the APP supply chain since the implementation of the 2013 FCP,” APP said. “All our suppliers have undergone a Supplier Evaluation & Risk Assessment (SERA) process to ensure they comply with our sustainability commitments.”

But the NGOs point out that APP has in fact been linked to deforestation in the recent past. In 2018, an APP supplier, PT Fajar Surya Swadaya (FSS), was found to be clearing rainforest in Kalimantan. APP said it received the wood from FSS after an administrative lapse and had since quarantined the shipment.

In 2019, however, a follow-up report identified shipments of wood from FSS going to PT Sarana Bina Semesta Alam (SBSA), an APP-affiliated chip mill, in 2017 and 2018.

APP denied owning or controlling SBSA and said it had “no legal or financial connections or influence” over it. But an independent assessment by APP to clarify its links with pulpwood suppliers in Indonesia categorizes SBSA as a “partner.” It defines its partners as “plantation companies where APP companies have significant influence.”

In a 2017 investigative report, the Associated Press linked APP to forest-clearing operations in Kalimantan via PT Muara Sungai Landak (MSL), a company owned by two employees of Sinarmas Forestry, a sister organisation under the Sinar Mas Group, which had been cutting down forest in the region since 2014.

APP denied having any business relationship with MSL and said the latter wasn’t among its suppliers.

APP also said the proposed expansion of its OKI mill would not mean an instant tripling of the mill’s capacity. It said the expansion will occur over several phases, with no specific time frame, and in line with market demand for wood pulp.

Walhi South Sumatra’s Hairul said this doesn’t guarantee that the plantation area to supply the mill won’t be expanded.

“If the market demand turns out to be big, then APP will be forced [to expand its plantations] and the risks of land conflicts and deforestation will be high,” he said.

APP said the expansion plan is a contingency in its environmental impact assessment, and that the latter doesn’t flag any problems with it.

“More importantly, the environmental impact assessment for the planned expansion of OKI, which is referenced by these parties’ report is an independent assessment submitted to the government,” APP said. “And should there be an issue, it would be apparent in the assessment.”

But Hairul said this is also no guarantee that there won’t be an environmental impact, given that assessments like these in Indonesia are often done haphazardly. An independent analysis by Hariadi Kartodihardjo, a forestry researcher at the Bogor Institute of Agriculture (IPB), shows there are 32 potential areas for violations in the expansion process.

APP also refuted the allegations of peat fires and land conflicts cited in the coalition letter. It acknowledged that fires had broken out on its plantations, but denied starting any of them and said it had taken efforts to extinguish and prevent fires in its concessions.

Hairul refuted APP’s denial, citing the case of PT Bumi Mekar Hijau (BMH), the biggest supplier to the OKI mill, which a court found guilty in connection to fires on 20,000 hectares (49,400 acres) of its concessions in 2014. The following year, another 63,000 hectares (155,700 acres) of its concession burned again.

Expert witnesses who testified for the prosecution concluded that BMH had deliberately set fire to its concession to clear vegetation.

“What more evidence do you want?” Hairul said.

And even if the fires weren’t deliberately started by APP suppliers, the fact that such large areas went up in flames points to APP not being capable of preventing its concessions from being burned, he added.

“It means there are huge risks [of fire], especially in peatlands, if they are planted with pulpwood trees,” Hairul said. “So if there are indeed huge risks and the company is not capable of managing [its plantations] so much so that they are burned, the peatlands should be returned to their original function [of water management]. Don’t plant [pulpwood trees on] them.”

APRIL

APP’s main competitor in Indonesia, Asia Pacific Resources International Limited (APRIL), also plans to expand its mill operations in Sumatra’s Riau province, home to its main pulp and paper subsidiary, Riau Andalan Pulp & Paper (RAPP).

The plan is to increase pulp capacity to 5.8 million tons per year and production of paperboard to 2.9 million tons per year.

“Our expansion plans will be subject to a number of local and national regulatory approvals and we are working through these,” APRIL told Mongabay in an email. “If approved based on current plans, the first phase of new production capacity will come on stream in 2025.”

Like with the OKI mill, activists have also questioned where APRIL will get the wood from to feed its mill. It’s estimated that the mill expansion, if fully implemented, would increase APRIL’s annual wood consumption in Indonesia by more than 50 per cent, and lead to the clearing of 120,000 hectares (300,000 acres) of natural forests every year to meet the increase in demand.

“This is a threat to our forests,” said Nursamsu, coordinator of Eyes on the Forest, a coalition of NGOs based in Sumatra. “Amid the onslaught of natural disasters due to forest destruction, like flood and land and forest fires, of course natural forest clearing will exacerbate climate change.”

APRIL said the expansion plan would not lead to deforestation as the company would not expand its current land concessions, adding that the plan complies with its sustainability policies. It cited a long-term wood supply assessment done by consultancy firm Indufor in 2019.

“The 2019 Indufor study confirmed that our long-term wood supply plan is based on a reliable and robust planning system,” APRIL said. “As such, our projections for fiber supply availability to support any planned expansion is realistic and credible.”

But critics say the study didn’t take into account the capacity increase, and thus didn’t consider whether the current supply was sufficient for any planned expansion. Critics also point out that the plan is opposed by local communities. According to the NGO Jikalahari, the expansion plan’s environmental impact assessment shows that 36 per cent of respondents are opposed.

APRIL said it’s fully committed to obtaining the free, prior and informed consent (FPIC) of local communities.

“We will continue to engage with the local communities to understand and address any further concerns they may have related to these plans,” APRIL said.

Jikalahari also cited the environment management plans (RKL) and environment monitoring plans (RPL), which note that the expansion plan would have a number of impacts, such as an increase in noise, disturbance to vegetation, decrease in groundwater quality and air quality, and disturbance to public health.

APRIL said possible impacts relating to water and air quality, public health, flora and fauna are all part of a very comprehensive environmental impact assessment process.

“The plans we submitted for government review satisfy the specified criteria for how we intend to address these possible environmental and social impacts,” it said.

Job opportunities

Both APP and APRIL tout their respective investments as creating jobs. But Baffoni of EPN said giving local communities access to land will create far more job opportunities than if the companies continue to manage the land.

“It is no surprise that APP presents its business expansion as something that will create new jobs,” he said. “The problem is, for each new job, it may delete many more: to feed its expanded mill, APP will need to at least double its plantations, using land that supports local communities’ livelihoods.”

Baffoni said APP employs roughly one worker per 30 hectares (74 acres) of concession. That same land would support 15 families if they’re growing oil palms, or 60 families if they’re practicing agroforestry, he said.

Walhi’s Hairul said APP currently controls 12 concessions spanning a combined 1.18 million hectares (2.92 million acres) — an area nearly the size of Connecticut.

If local communities are given access to manage these areas, with one household managing 1 hectare (2.5 acres), that would create at least 3.6 million job opportunities, he said — far more than the thousands touted by APP.

“If all lands are given to the people and managed by them directly, these lands must be protected, because if they’re degraded, it will reduce the productivity of the people,” Hairul said. “That’s why we reject big capital controlling natural resources.”

This story was published with permission from Mongabay.com.

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