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PREFACE
APP is one of the world's largest pulp and papermaking companies as well as the largest financial
nightmare in Asia. Any company that knows about the background of APP will never dare to become involved
lest that it be sucked into APP's financial black hole. From large-area illegal logging to incompetent and
irresponsible financial management, scandals always follow this company. APP is one of the most notorious
forest destroyers in the world. For a long time, vast Indonesian primeval rain forest has been exploited to the
brink of extermination. It was not until October 28th, 2004 that APP decided to suspend the logging of Sumatran
HCVF in Indonesia by the relentless efforts of local environmental protection organizations.
However, from the 1990s on, they have turned their logging target to the natural forests in south China.
During the short period of one year beginning from August 2002, Sinar Mas Group-APP China carried through
its so-called "planting forests on barren lands" program, beginning with the enclosure of a huge forest-pulp
base of 27,500,000 mu in Southern Yunnan province. However, according to statistics, of its 27,500, 000 mu
base, only 5,183,000 mu, which is only 20% of its area, is suitable for planting forests. In July and September
2004, in two Greenpeace field surveys, it was discovered that the company was logging in natural forests.
In this report, we have made an objective and meticulous analysis of the problems existing in the Yunnan
eucalypt forest-pulp-paper integration project executed by Sinar Mas Group-APP China, which mainly include:
The logging of large-area natural forests, which is against the Forest Law and "The National Natural
Forest Protection Project";
Large-scale planting of eucalypts will bring about severe damage to biodiversity in Yunnan;
The transportation procedures of woodland and timber are not in accordance with the relevant regulations,
which lead to the loss of state-owned assets and damage to the legal interests of forest farmers.
Beginning from 2002, because of the worsening reputation of Sinar Mas Group-APP China, the world has
started to refuse the commercial intrusions of APP. Due to its previous foul financial records and contemporary
circumstances, the expansion plan of APP China cannot be understood. Then what does this expansion mean
for China?
This report has unmasked the truth of Sinar Mas Group-APP China transgressing international institutions
and seeking substantive profits at the cost of ecological calamity. Greenpeace hopes to use this to warn the
concerned departments about the crisis that might occur in Yunnan.
Please save the forests in Yunnan and prevent Sinar Mas Group from further enclosing woodland and
destroying the forests in China!
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Contents
1. Preface
2. Who is APP? 3
History 3
A debt-ridden behemoth 4
3. Expansion in China 7
Background 7
Hainan 7
Biodiversity in Yunnan 10
The Yunnan eucalypt forest-pulp-paper integration project by Sinar Mas Group-APP China 11
Conclusion 17
Special thanks:
to Greg Higgs, Bing Liu, Sohan Ko, Patrick Anderson, Alex Ryan, Ginting
Moxuan, Bai Yunwen; the contribution of Global Witness, Robin Hood and
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1 Who is APP?
History
The origins of Asia Pulp & Paper (APP) can be traced back to 1984 when the Sinar Mas Group of Indonesia,
controlled by the Wijaya family, started operating Indah Kiat Pulp & Paper in Riau Province on Sumatra Island, Indonesia.
Ten years later, in 1994, Sinar Mas founded APP to consolidate its pulp and paper assets, including Indah Kiat. APP was
incorporates in Singapore, and listed on the New York Stock Exchange (NYSE) in 1995. By 2000, it was the largest paper producer
in Asia outside of Japan.1
Indonesia China
From its initial public offering (IPO) in April 1995 to American Depositary Receipts (ADRs) issued in 1997 and 1999, APP had
raised US$1 billion. On top of this equity, APP frequently issued bonds, syndicated loans, and was pursued aggressively by
investment banks. Meanwhile, analysts Salomon Smith Barney and Morgan Stanley Dean Witter gave highly optimistic recommenda-
ever. In fact, due to a guaranteed cheap tropical wood supply in Indonesia and plenty of deferred taxes (subsidiary Indah Kiat paid
no taxes in the 1990s, totaling over $358 million by 2001)3, APP soon became one of the world's lowest-cost producer of pulp and
paper.4 The company brazenly expanded in Indonesia, and moved into China in 1996. By the end of 1999, it had dozens of facilities
in Indonesia and China, and it was selling its products to over 60 countries.5
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A debt-ridden behemoth
In the 1990s, APP looked like the most successful pulp and paper companies in Asia. But the dream was too good to last. The
company started to lose money. Higher operating costs, major accounting errors, and an unmanageable debt drove its share price
down. From August 2000 to February 2001, the ADRs on the New York Stock Exchange (NYSE) fell from $5.02 to $0.17 per
billion debt, considered to be the largest debt in the world's emerging markets.7 This includes $6.7 billion in Indonesian dept and
$7.2 billion of Chinese debt. Overall, APP owes hundreds of creditors around the world, including in banks, export credit agencies,
pension funds and individual bondholders. Half a year later, on October 25, 2001, APP was delisted from the NYSE. It is now trading
on OTC8 under the symbol "APUUY" and at the time of writing of this report, it was hovering around USD$0.04 a share. APP's shares
are currently so worthless that even the largest public shareholders own no more than a thousand dollars or so.9
Naturally, many lenders are not happy with the prospect of losing millions or billions of dollars while APP merrily continues its
expansion. While some companies, such as Japanese Kanematsu Corporation, have essentially written off their debt10, most
companies are fighting back. Two US hedge funds, Gramercy Advisors and Oaktree Capital Management, have taken legal measures
in an attempt to seize some of APP's Indonesian assets.11 More recently, the US Export-Import Bank, along with other fund managers,
have pursued legal action against APP12, complaining that the company is planning to expand its operations in China before it begins
repaying its debt.13 In various lawsuits in the US, APP has been accused of false and misleading financial statements and press
releases, as well as the group's failure to disclose currency swap contracts. At the same time, Singaporean police conducted a
lengthy criminal investigation into APP, though the findings were never made public.14
The situation is very messy. APP Indonesian subsidiary PT Lontar Papyrus launched lawsuits of its own against APP's
creditors; subsequently, the New York Supreme Court issued restraining orders against Lontar Papyrus. "APP's continued attempts
to avoid its corporate obligations through the Indonesian courts have to stop," said Melissa Obegi, Associate General Counsel for
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Oaktree Capital, "APP's filing suit after frivolous suit, but doesn't help the country attract much-needed investment capital." 15 In
September, 2004, two Indonesian district courts separately invalidated a total of over $1 billion in bonds sold in 1994 and 1995 by APP
subsidiaries Indah Kiat and Lontar Papyrus,16 a move which may appear to protect APP in the short term, but may very well
discourage future foreign investment in Indonesia overall.
The controversy was symbolized once again on September 20, 2004, when Oaktree Capital Management and Gramercy
Advisors seized APP's booth at the international School, Home & Office Products Association (SHOPA) trade show in Orlando,
Florida. 17 APP was narrowly able to reopen their booth due to a legal technicality,18 but the actions of Oaktree and Gramercy
represent some of the bitter attitudes towards APP in the investment community.
industrial wood extraction is illegal.19 For 2003 the Forestry Department's annual allowable cut for the nation's forests was set at
6.9 million cubic meters. 20 This was dwarfed by an estimated 80 million cubic meters that were logged to feed the nation's ply, pulp
and saw mills and for illegal export.21 More conservative estimates still show that over half of the wood supply in Indonesia is from
illegal sources (50-70 percent in 2000). Overall, illegal logging is said to have destroyed around 10 million hectares of forest.22
With Indonesia having one of the highest rates of illegal logging in the world, and APP being its largest pulp producer, it would
be hard to believe that APP is not also a partner in crime. APP of course denies all such allegations, stating that "all wood source that
Based on careful mapping, WWF has demonstrated that APP wood supplier Mapala Rabda logged illegally inside the Bukit
Batu Nature Reserve.24
APP logged illegally in Mapala Rabda by logging three months past a permit had expired, and by logging 370 percent above
Alliance Riau, consisting of three local NGO networks - WALHI, JIKALAHARI and ORNOP Association Riau, found strong evidence
that wood illegally harvested within Tesso Nilo was delivered to APP in July 2004. 27
More generally, APP has been clearing forests with more than 20 m3/hectare of commercially valuable wood, a process which
is illegal under Indonesian law, and a minimum of 30% of APP's wood in general is of questionable origin. 28 WWF has amassed such
a huge volume of evidence29 that it seems incredulous that APP would even try to dispute their clear involvement in illegal logging.
Ricoh: (Japan)
Metro: (Germany)
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APP has a very bad reputation around the world. First, their investors complained. More recently, companies around the
world - in England, Germany, Japan and the US - are refusing to buy their products because they don't want to be implicated in APP's
destructive activities.
In the UK, there has been a noticeable trend by importers to avoid purchasing from APP after the NGO Friends of the Earth
released a report entitled "Paper Tiger, Hidden Dragons" in 2002. And in 2003, the most important Italian producer of graphic paper
was receptive to Greenpeace Italy's request to stop importing pulp and paper from Indonesia.
One of the first major companies to publicly shift was US-based Office Depot, the world's largest reseller of paper. The
company stated "that as of Jan. 19, 2004, Office Depot would no longer source product from APP", citing concerns over APP's
NGO Robin Wood.31 Later in the same month, during the Asia Forest Partnership conference in Indonesia, Ricoh and other Japanese
buyers announced their intention to boycott APP's products, after lobbying by WWF and other Japanese NGOs. Ricoh represents
20% of APP's $500 million exports to Japan.32
restructuring plan, which would spin off some of its Indonesian assets into separate companies. At the time of writing of this report,
there was still no restructuring plan in place.33
The situation in China is very different. In 2003, APP successfully spun off APP China through a debt-for-equity swap, giving
former creditors 99.9% of the shares in APP's Chinese assets, leaving APP with officially only 0.1% ownership of APP China. APP
still maintains some level of control, and the rumor is that the Indonesian Wijaya family (who control APP parent Sinar Mas) is currently
buying back APP China's debt at a discount.34Worse yet, New York-based Bondholder Communications has accused APP of illegally
never be repaid - and unresolved legal cases, not to mention environmental issues, which are discussed later in this report. APP is
Asia's biggest financial nightmare. It is an understatement to say that APP is risky company to invest in.
Despite APP's horrendous financial record internationally only one bank, the China Bank of Communications, refuses to lend
money to the company.36All other Chinese institutions seem to feel no sense of risk in supporting APP, giving the company essentially
a green light to expand in China. APP China Group even plans to list on the Shanghai stock exchange within two years.37 This seems
strange given the company's financial and environmental record. But even more atrocious is what this expansion means for the
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2 Expansion in China
Background
Outside of Indonesia, APP's most intensive area of investment has been in China. It began when APP established a holding
company in China (APP China Holdings Ltd.) shortly after the company was founded. APP's expansion in China was very fast in
1990s with the help of about US$1.7 billion in loans from China's domestic banks.
In February 1999, APP China Holding Ltd. Re-established itself in Shanghai as Sinar Mas Paper Investment (China) (SMPI),
based on the name of APP's parent company, the Sinar Mas Group. SMPI's legal representative is Huang Zhiyuan, the CEO of APP.
Though not called "Asia Pulp and Paper" anymore, for all intensive purposes it is the same company. The birth of SMPI in 1999 marks
of high quality paper and packaging products in China. By 2001, APP had five large mills in China, with an annual capacity of 1.2 million
tons of printing and writing paper, 0.5 million tonnes of packaging paper, and about 100,000 tons of tissue. APP's Gold East Paper is
today the second-largest paper mill in China.
Despite being in enormous debt and delicately balancing on the verge of bankruptcy worldwide, APP has continued to expand
in China in 2004. It is installing a new machine in Jiangsu (Gold East Paper), building a brand new carton board mill in Zhejiang (Ningbo
APP Paper, 25% owned by APP38), constructing a massive 1 million tone/year pulp mill in Hainan (described below), and is leasing
with plans to buy the Shanghai Xinlun Paper mill39 These investments total $3.1 billion, 70% of which has been financed by loans from
Chinese banks. One has to wonder how Chinese banks are so willing to finance APP at a time when no other banks in the world
would dream of doing so.
Before APP's debt crisis, the company operated five large tree farms in Hainan, Guangxi and Guangdong. It had contracts on
18 million mu (just over 1 million hectares) of forestry land, and had planted a little under 10% of it.40 In the heat of its debt crisis in
2001, APP's plantation project in Hainan was suspended and APP's entire business in China faced possible restructuring or
separation from APP. Ironically, however, in the same year APP suddenly began another wave of expansion in China. APP launched
Guangxi: Two projects with a total investment of 50 billion RMB (US$6.02 billion). Two paper mills with capacities of 1.8 million tons and
numerous plantation investment projects in Hainan, Jiangxi, Henan, Hunan and Yunnan, all of which are important forestry provinces
in China. APP's tactic is called "encircling land" in Chinese, meaning APP is trying to scramble for as much forestry and land resources
as it can get in China with hopes of being able to retain as much as it can after potential restructuring.
Hainan
APP has just finished construction of a brand new massive pulp mill in Hainan, called Hainan Gold Hai Pulp Co. Ltd., which it will
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begin to operate in November 2004. With a capacity of over 1 million tonnes/year and its associated investment of US$ 1.3 billion, it
will be the biggest pulp mill in China. Norwegian-based Aker Kvaerner as supplied the pulp line machine, which will be the largest
1997, APP created a joint venture called Hainan Jinhua Forestry Ltd. (JFL) whose aim was to construct the tree farm with a plantation
project of 3.5 million mu42 (about 200,000 hectares), approved by State Council. The intention was to plant enough eucalyptus to
supply the planned pulp mill.
Caijing Magazine conducted an investigation of APP's Hainan project in 2003 and came across some disturbing financial
information.43 In 1999, China's National Development Bank loaned 1.1 billion RMB to Jinhua Forestry. Soon after, when APP financial
crisis began in 2001, NDR cancelled its loans, and the SMHP project was put on hold. The project restarted in 2002 without first
paying off its debt, as required by different Chinese government agencies. SMHP claimed that the new investment funds to restart
the project came from APP's profits from its 11 other factories in China. If this were true, then there will be no problem to receive proof
from the State Administration of Foreign Exchange. However, proof was not forthcoming. In fact, Caijing Magazine's investigation
showed that SMHP attempted to transfer 400 million abroad in 2003, which was suspended because of the lack of a required profit
reinvestment certificate from the local foreign exchange bureau.
Caijing Magazine also discovered that APP has fewer plantations available than they claim. SMHP had stated its plantation size
is 4 million mus, but the official file of the National Development and Reform Commission records a figure of 3.5 million mu. Additionally,
the bureau of forestry in Hainan and Jinhua suggested to the Province to decrease the plantation from 3.5 million to 2 million mus, citing
the fact that some companies and farmers prefer to grow rubber and other plants, and the 700,000 mu of tree farm that planted by
SMPI before the debt crisis did not grow well. Today, many farmers do not support the project as they feel taken advantage of by
APP. The farmers thought they would be eligible for government subsidies available for natural forest regeneration program. In
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2004 Plantation target Total Planted in 97, 99,00 & 2003 APP's overall plantation target
Does China Have a Comparative Advantage for Growing Pulpwood? - The case of coastal Southern China .Presen-
tation given by Christian Cossalter, CIFOR at the 2004 International Forum on Investment and Finance in China's
Forestry Sector. Organizers: China National Forestry Economics and Development Research Center, State Forestry
Administration, Forest Trends and CIFOR. Beijing, September 22-23, 2004
reality, the plantations are an economical as opposed to an ecological forest and as a result the farmers may not receive their
benefits.
A combination of financial insecurity and poor of forestations means that there will be insufficient fiber for the Hainan pulp mill.
Caijing Magazine cites a 1998 report by the Chinese Light Industry Design School in Shanghai that state "the raw materials that are
needed for the production will be extracted by the existing natural forest in Hainan and other areas." The term "reforestation" is used
as an excuse to clear-cut the natural forest in Hainan. In fact, such forest destruction has already begun. Once again, Caijing
Magazine reports the shocking truth: people witnessing over 50 truck-loads of logs being taken out of Wu Zhi Shan City, yet no single
tree was planted until 2002. In Feng Shan Forestry Region, natural forests were logged. Jinhua's contractor even hired farmers to
clear-cut and burn forests. Furthermore, between 2001 and 2003, Jinhua caused 57 forest fires that affected 3,658 mu (over 200
hectares) of forest.
What much of this destruction comes down to is where this story began: Hainan Gold Hai Pulp Company. By its second year
of operation, this 1.1 million tonne capacity mill will require over 2.5 million tonnes of chips per year - over 12 times the current export
capacity of Hainan. In the best-case scenario, if APP is able to double its plantations in Hainan, Guangxi and Guangdong, and manage
the entire 240,000 hectares estimate sustainable (which itself is unlikely given the evidence uncovered by Caijing Magazine), then
it will still only be able to supply 72% of the fiber needs of the Hainan mill. 44
This fiber supply deficit is enormous, and may very well result in forest destruction in other parts of Asia and the Pacific Rim.
In fact, APP China has already begun importing woodchips from Australia and Southeast Asia in order to fill a fiber supply gap at the
Hainan mill.45 As WWF writes in a press release, "WWF is concerned that APP may yet again be opening a mill without first securing
a sustainable pulp wood supply. How will APP fill this supply gap? Will illegally harvested logs again play a role in supplying the
company's mills? Will APP again rely on clear-cutting natural forests?" 46
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3
Biodiversity in Yunnan province
As is known to all, Yunnan is the area in China that has the largest resource of wildlife varieties and the most abundant types
of ecosystem. It has preserved many rare, unusual or old species and has been recognized as one of the key areas which possess
the most important groups of biodiversity and is of global significance for the distribution of biodiversity.
The special location, unique natural geographical environment, complex ecosystem and diversified living conditions of Yunnan
support an abundant biological resource. Yunnan province covers an area of 394,000 km2, which accounts for 4.1% of the total
area in China. Seen from the known biological groups, Yunnan has more than 16,411 kinds of higher plants, which accounts for 46.
8% of the total number in China. It also has over 14,760 kinds of vascular bundle vegetation. 171 of these are listed as rare or
endangered plant species protected by the country, which accounts for 44.0% of the total number in China. The province has 1,836
kinds of vertebrate, which accounts for 55.35% of the total number in the country. Among the 335 kinds of high-risk protected wildlife
publicized in China, Yunnan has 243, which accounts for 72.5% of the total number in the country. About 20% of the total species
are unique to this region. The degree of richness and uniqueness of life forms in Yunnan ranks first 48 in China. Therefore, Yunnan
is called the "Vegetation Kingdom" or the "Animal Kingdom".
10
APP' s Eucalypt plantation in Yunnan July ,2004 Greenpeace Qianmai village in Lancang, Simao,Yunnan
Since Yunnan has an extremely special and complex environment, conditions and extremely abundant biodiversity, the biodiversity
in Yunnan has formed a complete and interlinked system. In this system, the biodiversity in every region has an important and special
function. This means that the loss or change of any part will bring about damage to the whole biodiversity system. Moreover, this
impact may start from one species, one community or the ecosystem. Later on, a series of chain reactions will follow. In the future,
the environmental change will become apparent. 49
The Yunnan eucalypt forest-pulp-paper integration project by Sinar Mas Group ---APP China
Sinar Mas Group started to cooperate with Yunnan provincial government in August of 2002. During the short period of one
year, Sinar Mas Group has enclosed a huge forest pulp paper manufacture base of 27,500,000 mu in Yunnan. An report from the
Forestry Bureau in Yunnan has pointed out that Sinar Mas Group plans to plant 12,000,000 mu forests in Simao City, 5, 500,000 mu
in Wenshan canton, 10,000,000 mu in Lincang City (in the table below) 50 The feasible research report and first draft report of the
project in the forests-planting areas of Simao City and Wenshan canton have been finished and the forests planting activity has been
started. Preparatory negotiation has been carried out in Lincang City and a few experimental demonstration forests have been
planted.
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Statistics about the Various Land Areas of the Drafted Woodland Planting in Yunnan by Sinar Mas Group Unit: 10000 mu
Note: * In June, 2003, when Sinar Mas Group entered into contract with the administrative office of Simao area, the forests base area has been increased to 12,000,000 mu. Thus the total area of
eucalypt forest-pulp-paper integration project in Yunnan by Sinar Mas Group has reached to 27,500,000 mu.
Resource: Report on The Situation of Forest-pulp-paper Integration Project in Simao City by Sinar Mas Group Appendix 2, the Forestry Bureau of Yunnan province, July 20th, 2004.
Sinar Mas Group has set up a fast-grown-trees company in the areas in the above plan to plant eucalypts. In 2003, Sinar Mas
Group planted 100,000 mu of eucalypts in Lancang County, Simao City. In 2004, the preparatory work of planting eucalypt fast-
grown tree of 3,260,000 mu in Lancang County, 30,300 mu in Ximeng and 64,600 mu in Menglian (all these counties belong to Simao
City) were finished. The planting has been partly finished. In Wenshan canton, 203,300 mu of eucalypts has been planted. Up to the
end of this year, Sinar Mas Group can plant a total of 724,200 mu of eucalypts.51
Facing the practice of "enclosing the land by riding a horse", 27,500,000 mu in Yunnan to build the eucalypt fast-grown-trees
base, what Sinar Mas Group claimed was that the entire forest-pulp-paper integration base contracted by it in Yunnan was all
"barren land (for planting forests); the whole of Yunnan is 100% barren land (for planting forests)".52
But in fact, as is shown in the following there was not so much barren land in the agreement signed by Sinar Mas Group and
Yunnan province. The work report of the Yunnan Forestry Bureau to the Yunnan provincial government points out that in the Simao
area "barren lands suitable for planting forests cannot satisfy the needs of the project. With the progress of the cooperation, Sinar
Mas Group wants to increase the pulp timber base area from 6,000,000 mu to 12,000,000 mu and the project scale became larger
and larger.
According to the forest resources of Simao, there are only 2,800,000 mu of land without forests. In order to plant a 12,000,000
mu pulp forest, we have to log the existing forest and plant new fast-grown-trees".53
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True lie: planting forests on barren land
When Greenpeace did research in Baogudi Village, Qianmai, Lancang County, Simao City, Yunnan Province, it discovered that
among the eucalypts planted in the eucalypt fast-grown-trees base by Jinlancang Co. affiliated to Sinar Mas Group, there were a
large numbers of stumps left after logging and trunks that had not been transported in time. The diameters of most of those trees
were over 5 centimeters.
Unit: 10000 mu
The stumps and trunks left after the logging of the eucalypt fast-grown-trees; article 32 of the State Forest Law of China states,
"In order to fell, one must apply for a felling license and fell according to the provisions of the felling license". However, according to
Newsweek's research and interview of Peng Qingzhi, who is in charge of Jinlanqiang Company, this company doesn't have a felling
licence.54
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The stump and trunk of eucalypt tree left after been clear cut down July, 2004 Greenpeace in Lancang, Simao, Yunnan
administrative departments of forestry will order to replant ten times the number of trees logged For those who refuse to replant the trees or don't replant trees according to related regulation, the
illegally, confiscate or sell off the trees logged illegally, and fine three times to ten times the value administrative department of forestry will replant the trees for them and the illegal woodmen will have
Who secretly logs forests or other trees should abide by the order of the administrative depart- For those who secretly or illegally fell forests or other trees and whose conduct has become a crime,
ments of forestry to replant five times the number of the trees logged illegally and to hand in the they should be punished under the criminal law.
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water, decreasing productivity, falling underground water levels, decreasing
biodiversity and a changing microclimate. The most serious of these is the decrease
in biodiversity.
The biodiversity of Yunnan is abundant. This kind of biodiversity in mainly
mountainous regions is different from that on the plains, such as the Leizhou Penin-
sula and Hainan Island. Sinar Mas Group's plan to plant a large-scale 27,500,000mu
eucalypt forest will obviously change the biodiversity in Yunnan. Ecological change
will affect species and inherited genes that are considered as a national strategic
"Agriculture, rural areas and farmers" issue brought to a head by 27,500,000 mu eucalypt bases
interests and they must bear the burden. Although planting eucalypts will benefit the
flexible land and "barren lands, slopes,
chimbs and bottomlands" in villages,
farmers in the short term, it will probably bring the return of poverty for some
the right and debt of the village
farmers, the bankruptcy of some medium and small-scale enterprises, redundan-
community, tax and fee reform and
cies and social instability in the long term. All these will put various levels of govern-
the policy of reducing and relieving
ments in a difficult situation. the agricultural tax, the "one affair, one
There are five major problems: discussion" preparation of money and
Information is not open and the procedures are illegal labor in the village, new-type village
The report of the Forestry Bureau of Yunnan province points out that because cooperation medical care, the direct
allowance of planting crops, the real-
the woodland and woods that are controlled by the government are changing and
ization of the money and objects of
the forest resources of the government are not investigated by units that are able to
quitting agriculture and backing to
carry out forestry investigation planning, the interests of the owners of forest rights
forestry,. Anything else that the farm-
cannot be assured. No common people participate in the project. The rights, duties ers require to be made public should
and interests of the people are not clear. Whether they would like to be involved or be made public".
opinions about improving and perfecting the system of
not is not clear, either.
o p e n i n g u p t h e v i l l a g e a f f a i r s a n d d e mo c r a t i c m a n a g e -
The contracted rent is too low, which damages the interests of the ment General Office General Office of the State Council
(June 22ed, 2004)
farmers and causes disputes.
According to the memorandum between Sinar Mas Group and the Yunnan
provincial government, the contracted rent of the paper pulp forest bases of Sinar
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Mas Group is RMB40 per mu over 50 years (equal to RMB0.
poverty.
Paper Company, many local Simao pines will suffer the fate
According to the forest growth, the timber gathered recently in Simao is far from satisfying the demands of the forest-pulp-
paper integration project. Therefore, there will probably be insufficient work hours because of the shortage of raw materials.
The result may be either to log the forests in existence to plant new fast-grown-trees or to cut work hours, resulting in
The double-track system of purchase price again results in the loss of interests.
According to the Newsweek investigation, the protected purchase price of the government is nearly RMB300 per cubic
meter and the market price is about RMB470. If the forest base project of Sinar Mas Group in Yunnan province can be carried
out smoothly, only by on-selling timber, the company can make a profit of over RMB10 billion from the disparity between the
contract price and the market price. Moreover, during this process, the legal rights of the owners of forestry rights are violated.
In community forests, excepting the forestry centers that are part of the share-holding system, the logging index of commercial
timber is not realized by the owners of the forestry rights. Actually, the forestry farmers can only conform to the regulation of
the diameter of the trunks stipulated by the forestry industry and commercial enterprises and sell their indexes to the forestry
industry and commercial enterprises at the price of RMB40, 60 or 80 per cubic meter. 58
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4 Conclusion and Requirements
Conclusion
Greenpeace is concerned that the mistakes of APP in Indonesia will be repeated in China: the building of large-scale paper pulp
companies before an assured continuous raw material supply. However, the Chinese APP companies are following the same
disastrous road. This will surely lead to the result that APP depends on demolishing forests in China and other Asian regions to
satisfy its shortage of raw materials. Greenpeace believes that necessary action must be taken immediately while the situation can
still be controlled!
Greenpeace calls on the governments of China and of the Province of Yunnan to immediately implement a moratorium on APP's
plantation programme in Yunnan until it can be demonstrated that no more of the area's unique natural forests will be destroyed.
Greenpeace calls on the governments of China and of the Province of Yunnan to:
Immediately stop the 27,500,000 mu eucalypt quick-growing and abundant-yielding forest project of Sinar Mas Group of
Greenpeace calls on APP to end its destruction of endangered forests around the world. To this end, APP must immediately:
17
29 Also see WWF (July 13, 2004) "Analysis of APP Response to WWF Indonesia's Reports on the
NOTES Company's Involvement in Illegal Logging"; and WWF (July 13, 2004) "To Whom It May Concern"
30 Paperloop (February 27, 2004) "Office Depot ends paper supplies from APP over Indonesia logging";
1 Christopher Barr, CIFOR, "The Financial Collapse of Asia Pulp & Paper: Moral Hazard and also WWF, Press Release (February 20, 2004) "World Wildlife Fund takes APP logging issue to U.
Implications for Indonesia's Forests", presented at the Asian Development Forum-3, Bankok, June S. paper retailers"
12, 2001 31 Robin Wood, Press Release (August 25, 2004) "Robin Wood ¨¹berzeugt Metro: Handelskonzern
2 Fallon, R. "Asian Corporate Finance and Business Strategy: Asia Pulp and Paper Company, Ltd. will auf Papier aus Regenwaldzerst?rung verzichten"
" New York: Columbia Business School. Chazen Web Journal of International Business. Spring 2003. 32 Paperloop (September 8, 2004) "Japanese firms may boycott APP products"
3 Christopher Barr, CIFOR, "The Financial Collapse of Asia Pulp & Paper: Moral Hazard and 33 Paperloop (July 28, 2004) "APP to postpone creditor vote on revised debt workout"
Implications for Indonesia's Forests", presented at the Asian Development Forum-3, Bankok, June 12, 2001 34 American Forest & Paper Association (July 2004) "China's Subsidization of its Forest Products
4 Dillon, Chip, and Normal Waite. 1998. Asia Pulp & Paper 1Q deceptive - Earnings power still strong. Industry", p.51.
Salomon Smith Barney. 1 July. In Fallon, 2003. 35 Financial Times (June 18, 2004) "Votes of no confidence in APP saga: Mystery surrounds identity
5 APP 1999 Annual Report, Singapore, May 2000 of creditors who supported debt move"
6 Fallon, R. "Asian Corporate Finance and Business Strategy: Asia Pulp and Paper Company, Ltd. 36 American Forest & Paper Association (July 2004) "China's Subsidization of its Forest Products
"New York: Columbia Business School. Chazen Web Journal of International Business. Spring 2003. Industry", p.42.
7 The Jakarta Post (July 12, 2004) "APP hopes to reach full debt restructuring agreement soon" 37 The Standard (February 18, 2004) "APP China unit eyes listing"
8 OTC ("over-the-counter") equity securities include equities that are not listed or traded on Nasdaq, 38 Paperloop (January 21, 2004) "APP China looks to snap up Shanghai mill"
NYSE, or other national securities exchange. See www.otcbb.com 39 Paperloop (February 26, 2004) "APP China targets Shanghai exchange listing"
9 The Bank of New York website, www.adrbny.com/dr_ownership.jsp?cusip=04516V100, viewed 40 APP (June 10, 2004) " " www.app.com.cn/
September 10, 2004. disp_news_single.php?num_id=166
10 Kanematsu Corporation (April 12, 2001) "New Medium-Term Management Plan" 41 Paperloop (September 9, 2004) "APP China postpones startup of Hainan pulp plant"
11 Channel NewsAsia (November 13, 2003) "APP to fight moves by US creditors to seize Indonesian 42 on hectare equals about 15 mu
assets" 43 Caijing Magazine (October 23, 2003) " " ("Investigation of
12 Export-Import Bank of the United States, Press Release (October 29, 2003) "Ex-Im Bank Files APP's involvement in Hainan Province")
Lawsuit Against Asia Pulp & Paper; Suit Seeks Recovery of $104 Million" 44 "Does China Have a Comparative Advantage for Growing Pulpwood? The case of coastal
13 Channel NewsAsia (March 30, 2004) "Asia Pulp & Paper delays restructuring plan" Southern China". Presentation given by Christian Cossalter, CIFOR at the 2004 International
14 Paperloop (July 9, 2003) "Singapore wraps up criminal probe into Asia Pulp & Paper" Forum on Investment and Finance in China's Forestry Sector. Organizers: China National Forestry
15 PRNewswire (January 16, 2004) "Supreme Court of New York issues new temporary restraining Economics and Development Research Center, State Forestry Administration, Forest Trends and
order against APP" CIFOR. Beijing, September 22-23, 2004.
16 Paperloop (September 17, 2004) "Indonesian court invalidates APP bonds"; also Paperloop 45 Paperloop (March 25, 2004) "APP China sets startup date for massive Hainan pulp line"
(September 29, 2004) "Indonesian court invalidates another series of APP bonds" 46 WWF Indonesia, Press Release (October 12, 2004) "WWF welcomes APP's forest conservation
17 Paperloop (September 21, 2004) "APP creditors seize booth at US trade show" measures but wants more"
18 Paperloop (September 22, 2004) "APP reopens trade show booth after seizure by creditors" 47 N. Myers, R. A. Mittermeier, C. G. Mittermeier et al. "the hotpot areas of biodiversity that should be
19 Greenpeace UK. 2003. Partners in Crime. www.saveordelete.com protected in preference", Nature, 2000, Vol 403: 853-857
20 Remarks by the Minister of Forestry of the Republic of Indonesia at the Twelfth CGI Meeting 48 World Wide Fund For Nature, Summary of Chinese Biodiversity Protection, Bejing Chinese Forestry
Denpasar, January 2003. http://mofrinet.cbn.net.id/informasi/CGI/CGI_03/remarks_12th.htm Press, 1996. 199~213
21 Reuters (January 28, 2003). "Restructuring Forest-based Industries of Indonesia" 49 Yang Yuming, Hao Jiming, Pei Shengji, The Biodiversity and Its Protection in Yunnan, ( See: edited
22 FWI / GFW. 2002. The State of the Forest: Indonesia. Bogor, Indonesia: Forest Watch Indonesia, by Qian Yi, Hao Jiming) Environmental Science and Engineering Research, Beijing: Tsinghua
and Washington DC: Global Forest Watch. University Press, 2001.336-347
23 Asia Pulp & Paper (July 2004) "APP Responds to WWF Indonesia Reports on Illegal Logging" 50 the Forestry Bureau of Yunnan Province, Report on The Situation of Forest-pulp-paper Integration
24 WWF (June 8, 2004) "Legality of Timber Consumed by Asia Pulp and Paper's Mills in Indonesia: Project in Simao City by Sinar Mas Group Appendix 2, July 20th, 2004.
January - October 2003" and WWF (July 13, 2004) "Analysis of APP Response to WWF Indonesia's 51 Same as the above
Reports on the Company's Involvement in Illegal Logging" 52 Newsweek (July 12th, 2004) "Yunnan Forests are in Danger"
25 WWF (July 13, 2004) "Analysis of APP Response to WWF Indonesia's Reports on the Company's 53 The Forestry Bureau of Yunnan province, Report on The Situation of Forest-pulp-paper Integration
Involvement in Illegal Logging" Project in Simao City by Sinar Mas Group Appendix 2, July 20th, 2004)
26 WWF Indonesia Tesso Nilo Programme (June 16, 2004) "Monitoring of Illegal Logging Operations 54 Newsweek (July 12th, 2004) "Yunnan Forests are in Danger"
in Riau, Sumatra: Deliveries of Illegally Cut Wood from Proposed Tesso Nilo National Park to APP's 55 The Forestry :Bureau of Yunnan Province£¬Report on The Situation of Forest-pulp-paper
Indah Kiat Pulp and Paper Mill in August 2003 and April 2004" Integration Project in Simao City by Sinar Mas Group Appendix 2, July 20th, 2004.
27 FRAR (September 2004) "Strong Evidence that PT Indah Kiat Pulp & Paper Received Illegal Wood 56 Newsweek July 12th, 2004 "Yunnan Forests are in Danger"
from Tesso Nilo in July 2004. " 57 Same as the above
28 WWF (June 8, 2004) "Legality of Timber Consumed by Asia Pulp and Paper's Mills in Indonesia: 58 The Forestry :Bureau of Yunnan Province, Report on The Situation of Forest-pulp-paper
January - October 2003" Integration Project in Simao City by Sinar Mas Group Appendix 2, July 20th, 2004.
18
Appendix 1:
Cases of Sinar Mas Group destroying Asian forests
19
Case 1 The destroyer of Indonesian tropical rainforests
Background
Indonesia is an archipelago of 17,000 islands stretching from the waters off Malaysia to the island of New Guinea. Indonesia's
forests are home to ten per cent of the planet's diversity of plants and animals. Orangutan, elephants, tigers, rhinoceros, a thousand
species of birds, and thousands plant species are all part of the biological heritage of Indonesia. The archipelago is also home to
hundreds of indigenous peoples who have lived from and managed Indonesia's forests for thousands of years. For the last 30
years, however, the Indonesian Government has handed out logging, plantation and mining concessions covering the majority of
Indonesia's forests without regard for the rights of forest peoples or the environment.
Indonesia's forests are also some of the most threatened, with nearly three quarters already destroyed according to Global
Forest Watch. A few years ago, it was estimated that over 2 million hectares of forest are lost every year in Indonesia.1Current
statistics for deforestation are even more shocking with forest loss in Indonesia doubling during the 1990's to 3.8 million hectares lost
in 2000 alone.2 This is equivalent to six times the rate in the Brazilian Amazon.3 The remaining lowland forests of Indonesia will be
destroyed in the coming decade unless the logging industry can be bought under control.4
The situation on the island of
Indigenous Peoples of the Archipelago regards the current logging concession system as illegitimate and is calling on the Govern-
ment of Indonesia to scrap the concession system and uphold indigenous peoples' rights to their customary lands.
quantities of mixed tropical hardwood (MTH).9 In fact, In 2002, three-quarters of APP's wood still came from natural forests.10
actually planted.11 The reality is that APP will only stop clear cut-
ting natural forests once they have finished converting all their
tinue to source wood from natural forests clearcut by outside APP's Excavator group in Indonesia tropical rainforest WWF
21
suppliers.
One study estimates that in ten years between 1988 and 1999, pulp production caused the deforestation of 835,000
hectares. A third of this was deforested by APP subsidiary Indah Kiat Pulp and Paper.12 Indah Kiat accounts for most (80%) of
APP's pulp production in Indonesia.
Not only is it important to look at how much forests APP is destroying in Indonesia, it is also important to look at what kind
of natural forests they have been converting. In Riau, APP has already clear-cut most of the lowland forest they owned. Now,
much of the forests they clear are 20,000 year-old peat-swamp forests.13 Subsidiaries and affiliates of Indah Kiat are reported
to have been granted logging permits by the forestry ministry covering tens of thousands of hectares of such swamp forest
in Riau despite the fact that Regulation PP 47 (1997) concerning spatial planning, prohibits clearcutting of forests on peat depth
of 3m or more. These ecosystems are critical for biodiversity, with up to 120 tree species being identified in a single hectare,
Peat forests are also a massive carbon sink, having built up carbon for thousands of years in layers of peat up to 18
meters thick. This carbon sink risks being lost when APP drains water from such areas to prepare for plantations, and is
particularly released during forest fires. In fact, the 1997/98 forest fires in Indonesia originated for the most part from fires in
disturbed moist forests such as these (as of June 28, the government of Riau was planning on suing four companies related
to APP plus six others for having allegedly started these fires.14 As of October 13, Riau provincial court had still not made a
decision.15). The resulting CO2 emissions from these fires were the equivalent to 13-40 percent of the world emissions from
fossil fuels in the same period, and over 80% of it came from burning peat.16
WWF admits that APP has made some advances in late 2004, but it is quick to clarify that APP doesn't go nearly far
enough. Nazir Foead, the director of WWF Indonesia's Species Programme states that "APP's operations would still be
converting too much precious natural forest in Sumatra into paper. In essence, the promises APP made today are still too little
for Sumatra." 17 WWF adds that over 250 hectares of natural forest in Sumatra are cleared by APP every day, and APP has also
industrial wood extraction is illegal.19 For 2003 the Forestry Department's annual allowable cut for the nation's forests was set at 6.
9 million cubic meters. 20 This was dwarfed by an estimated 80 million cubic meters that were logged to feed the nation's ply, pulp and
saw mills and for illegal export.21More conservative estimates still show that over half of the wood supply in Indonesia is from illegal
sources (50-70 percent in 2000). Overall, illegal logging is said to have destroyed around 10 million hectares of forest.22
With Indonesia having one of the highest rates of illegal logging in the world, and APP being its largest pulp producer, it would
be hard to believe that APP is not also a partner in crime. APP of course denies all such allegations, stating that "all wood source that
Based on careful mapping, WWF has demonstrated that APP wood supplier Mapala Rabda logged illegally inside the Bukit
Batu Nature Reserve.24
22
APP logged illegally in Mapala Rabda by
forests with more than 20 m3/hectare of commercially valuable wood, a process that is illegal under Indonesian law, and a minimum
of 30% of APP's wood in general is of questionable origin.28 WWF has amassed such a huge volume of evidence29 that it seems
incredulous that APP would even try to dispute their clear involvement in illegal logging.
it focuses on Acacia. Arara Abadi is also the subject of many well-documented cases of human rights abuse.
Consider the situation of the indigenous Sakai people, for example. Arara Abadi established plantations on the land that they
traditionally used for subsistence farming. Through the use of armed guards, the villagers were forced from their land by Arara
Abadi, and beaten when they expressed their opposition.30 It is reported that Indah Kiat subsequently clearcut over 3,000 hectares
www.wwf.or.id/attachments/WWF_Statement_on_APP_13Jul04_.pdf
www.wwf.or.id/attachments/APP_buys_illegal_wood.pdf
www.wwf.or.id/attachments/Legality_of_timber.pdf
www.robinwood.de/sumatrarecherche (Robin Wood. German NGO. Click on "Report with photos and maps" at the bottom to download)
www.hrw.org/reports/2003/indon0103 (Human Rights Watch. NGO. Report on human rights violations by APP and other companies. Click on
23
Case 2 Illegal plantations in Cambodia
Overview
APP owns the Green Rich/Elite Group in Cambodia, via Indonesian subsidiary PT Arara Abadi and Indah Kiat Pulp and Paper.32
In early 2004 the Green Rich/Elite Group started operating tree plantations for pulp in Cambodia's protected areas. In clear
violation of Cambodian laws, but with the complicity of high ranking government officials, the company has started establishing an
acacia and eucalyptus plantation in the country's southwest Botum Sakor National Park, a peninsula off the Gulf of Thailand. This
plantation represents the first phase of a larger plantation, which the company intends to establish on an area covering almost one
third of Koh Kong Province and possibly many other areas in Cambodia.
Background
Mere weeks after the bloody 1997 coup d'etat the head of the ruling party, the Cambodian People's Party (CPP) was ap-
proached by Green Rich Co. Ltd. requesting a 150,000 hectare plantation in Southern Cambodia, mainly in three protected areas:
Botum Sakor National Park, Peam Kasop Wildlife Sanctuary and the Dong Peng Multiple Use Area.33 Days before a legitimate
government was voted in by the National Assembly (December 1, 1998), the caretaker government awarded the company a 60,200
hectare area in the three above mentioned protected areas and the Phnom Samkos Wildlife Sanctuary on November 25, 1998.34
In subsequent years, the Green Rich Group was poorly managed. It had gone bankrupt and according to officials, it sold its
concession to a new company.35 This appears to be substantiated by the fact that the company has changed names, currently
part of Botum Sakor National Park and started clearing the rear-mangrove Melaleuca leucadendra forest. The company lacked all the
legal required permits and had not conducted any of the environmental assessments mandated by law.37
Illegal activity continued. Throughout April and May 2004, workers were found holding in conditions of indentured labour.38
Workers also complained of deplorable living and working conditions, and in particular of lack of food.39 Despite clear violations of the
Labour Law and possible violations of the provisions on human trafficking, no charges were brought against the company. In May
2004 police and human rights workers were rescuing workers from the concession area, as armed security forces hired by the
Because of the negative publicity generated by local news articles and in particular the King's reaction to the allocation of a
National Park as a plantation "a scandal without name"40, on May 13, 2004 the Ministry of Environment ordered the suspension of the
company activities pending the filing of an Environmental Impact Assessment (EIA)41, threatening legal action in case of non-
compliance. Despite the suspension the company continued operations42. Even after receiving the suspension order the company
signed contracts with subcontractors for expediting clearing and road construction43, thereby demonstrating that the intent was to
In clear contradiction with the suspension order, the Ministry of Environment authorized planting on August 18, 200444. Planting
of acacia trees started in early September 2004.
At the time of writing, the company had still not filed an EIA with the Ministry of Environment, but activities were still fully
underway. Machinery for chipping wood is said to have arrived from Indonesia and is currently being installed at the plantation site45.
24
According to a company representative, the wood chips will be exported from the plantation site to China for pulp and paper
manufacture46.
Expansion
The allocation of land concessions in Cambodia has always been carried out in complete secrecy47, with reports of under the
table payments and conflicts of interest48. Ministry of Environment officials have claimed that their bosses (Chief of Department level)
have been paid as much as USD 100,000 by the company. Since March 2004 employees of the company have been alleging that the
company intends to expand the plantation to the 60,000 hectares. Throughout 2004 the company has carried out survey work in Koh
Kong and in neighbouring provinces, mainly Kampot, Kompong Speu and Sihanoukville municipality. Company representatives have
said that the company is seeking a land area in Kampot province in addition to the 300,000 hectares of forestland it applied for in April
are also active in Cambodia. Not surprisingly, APP is attempting to export their destructive forest practices to other parts of Asia as
well. Below is an introduction to some of the company's plans that have been made public.
Russia
APP China recently announced that is it conducting a feasibility study for the construction of a 1 million tonne/year pulp and
paper mill near the town of Lesosibirsk in Krasnoyarsk, Russia. A pulp plant would be operating by the end of 2006, with an
integrated paper mill to follow. According to spokesperson Viatchslav Khomiakov, the government of Krasnoyarsk is prepared to
The Novosti Gazette in Vladivostok is critical of these plans, citing already rampant illegal logging in region which is almost
impossible to stop. More importantly, at stake are vast areas of intact forests in the Russian Far East that environmental groups are
trying to protect.51
Malaysia
APP has been engaged in a joint venture, Borneo Pulp & Paper (BPP), together with Malaysian-owned Sarawak Timber Industry
Development Corporation, with plans for a 750,000 tonnes /year pulp mill in Bintulu, Sarawak, and an associated 600,000 hectares
of land.
Like its counterparts in neighbouring Indonesia, this project would replace large tracts of natural forests with acacia plantations.
It would also result in up to 20,000 Iban indigenous people being forcefully removed from their land.52 One Iban community has already
won a court case against BPP. The High Court held that the Iban have rights to their land, and it stated that they were prevented from
exercising their rights "by the total destruction of the trees by (BPP) for the purpose of planting pulp trees." 53
Like APP, BPP ran into financial trouble and many creditors demanded repayment of loans. In response, in May 2002, the
Malaysian state government of Sarawak revoked 200,000 hectares of land. The entire project is now on hold.54 For the time being,
the forests and the Iban people are safe from APP.
25
January - October 2003"
Notes 29 Also see WWF (July 13, 2004) "Analysis of APP Response to WWF Indonesia's Reports on the
Company's Involvement in Illegal Logging"; and WWF (July 13, 2004) "To Whom It May Concern"
1 Holmes, D. 2000. Deforestation in Indonesia: A view of the Situation in 1999. Jakarta, Indonesia: 30 Human Rights Watch. 2003. Without Remedy: Human Rights Abuse and Indonesia's Pulp and
World Bank. Draft Report of July 3. Paper Industry. Washington, London, Brussels. Vol. 15, No.1.
2 Pak Boen M. Purnama, 2003. Sustainable Forest Management as the Basis for Improving the Role 31 Walhi & YLBHI, "Mistaking Plantations for Indonesia's Tropical Forests", 1982, Pulping the South:
of the Forestry Sector. Indonesian Department of Forestry. Industrial Tree Plantations in the World Paper Economy, Carrere, "A Race to the Bottom", 1999.
3 The Brazilian Amazon is four times the size of Indonesia's forests. The annual deforestation rate in 32 Luke Reynolds, "Forestry Giant Lobbying for Huge Plantation", Cambodia Daily, Issue 99/29,
the Brazilian Amazon in 2001/2002 was 2.55 million hectares. (www.panda.org/news_facts/ September 15, 2004.
newsroom/press_releases/news.cfm?uNewsID=7651) 33 Letter from the Cabinet of Samdech Chea Sim for the Chinfon Group requesting more than
4 Holmes, D. 2000. Deforestation in Indonesia: A view of the Situation in 1999. Jakarta, Indonesia: 150,000 hectares for establishing a tree plantation, dated September 15, 1997, reference 884/
World Bank. Draft Report of July 3. 9 Khor Cho Sar 97.
5 Japan Times (February 5, 2004) "Effort to curb Sumatra logging: WWF enlists importers, NGOs to 34 Investment Agreement on Agricultural Development signed between the Minister of Agriculture,
fund preservation" Forestry and Fisheries, Tao Seng Hour and the Green Rich Co. Ltd. director Shen Shang Pang,
6 World bank. 2001. Indonesia: Environment and Natural Resource Management in a Time of dated 25 November 1998.
Transition. Washington D.C. Report in PDF format available from the World Bank website, 35 Interview with Deputy Chief of Environment Department of Koh Kong Province, April 10, 2004.
www.wds.worldbank.org/default.jsp?site=wds 36 Request letter from Vincent Chan, Director of the Green Elite Group for armed security for the Green
7 Jarvie, J., Dedy, K. and Jennings, S. (February 2003) "A Preliminary Assessment of High Rich concession, reference 17 Kor Hor Hor Ro, dated May 10, 2004.
Conservation Value Forests in Riau, Sumatra." 37 Solana Pyne and Luke Reynolds, "Minister Says Projects Won't Hurt Environment", Cambodia Daily,
8 FWI/GFW. 2002. The State of the Forest: Indonesia. Bogor, Indonesia: Forest Watch Indonesia, Issue 02/30, September 17, 2004.
and Washington DC: Global Forest Watch. 38 Kuch Naren and Luke Reynolds, "Worker's Search for Good Jobs Led to Abuse", Cambodia Daily,
9 Paperloop (June 14, 2004) "APP upgrades Indonesian pulp mills" Issue 11/29, May 13, 2004.
10 Far East Economic Review (April 11, 2002) "APP's Ambitious Plan for Sustainable Plantations" 39 Yun Samean "Police Rescue Workers From Timber Company", Cambodia Daily, Issue 10/29, May
11 FWI/GFW. 2002. The State of the Forest: Indonesia. Bogor, Indonesia: Forest Watch Indonesia, 12, 2004.
and Washington DC: Global Forest Watch. 40 Royal Messages 2004, "Mon 1er message pour le 9 mai 2004", www.norodomsihanouk.info
12 Barr, C. 2000. "Profits on Paper: The Political-Economy of Fiber, Finance, and Debt in Indonesia's 41 Letter signed Minister of Environment, Mok Mareth, dated May 13, 2004, reference #119.
Pulp and Paper Industries." In Christopher Barr, Banking on Sustainablility: A Cr itical Assessment 42 Letter to Wildaid informing the NGO that the Green Rich land concession is approved by the
of Structural Adjustment in Indonesia's Forest and Estate Crop Industries. Bogor, Indonesia: CIFOR government and that the confiscated chainsaws are legally registered, dated April 2004, reference
and WWF. 043 Bor S'thor Khor Kor Kor.
13 Pers. comm. Longgena Ginting, WALHI, Indonesia. 43 Road construction contract signed between Huot Roath Sady, sub-contractor and Vincent Chan
14 Kompas (June 28, 2004), Kompas (June 29, 2004), Riau Pos (June 29, 2004). In WWF Indonesia, of the Green Elite Group on May 19, 2004.
"Government Plans to Sue Asia Pulp and Paper Over Forest Fires: Maps and Media Reports", July 44 Letter from Director of the Botum Sakor National Park to the director of Wildaid informing the NGO
11, 2004; The companies include Arara Abadi and Mapala Rabda, part of the Sinar Mas Group, of the Ministry of Environment's decision to authorize planting in the National Park, dated August
plus two other pulpwood suppliers to APP, Hamidah Hamidi and Sri Buana Damai. 21, 2004, reference 50/04 BSNP.
15 Paperloop (October 13, 2004) "Court ruling on Indonesian forest fires delayed" 45 October 22, 2004,interview with Green Elite sub-contractor.
16 Spektrum der Wissenschaft 2004 (February 2004) "Brennende Regenw?lder." In Jens Wieting. 46 Interview with financial officer Chin Vin Chhin, September 1, 2004.
2004. Clearcut Paper: APP, APRIL and the End of the Rainforest in Sumatra's Riau Province. 47 "We also recognize that without improved governance, including more transparency, an enforce
Hamburg, Germany: Robin Wood. able legal framework, and improved monitoring and oversight, we are not likely to overcome the
17 WWF Indonesia, Press Release (October 12, 2004) "WWF welcomes APP's forest conservation obstacles posed by corruption and a lack of capacity. We see bringing effective transparency,
measures but wants more" enforcement, monitoring and accountability to forestry management as one of the toughest chal
18 Ibid. lenges in Cambodia." World Bank Group, Cambodia: Independent Forestry Sector Review, World
19 Greenpeace UK. 2003. Partners in Crime. www.saveordelete.com Bank Comments and Proposals for Going Forward, October 18, 2004.
20 Remarks By the Minister of Forestry of the Republic of Indonesia at the Twelfth CGI Meeting 48 For example the deputy cantonment chief for Koh Kong provincial Forest Administration is the owner
Denpasar, January 2003. http://mofrinet.cbn.net.id/informasi/CGI/CGI_03/remarks_12th.htm of the Pailin Hotel in Koh Kong Town which is rented by Green Rich as office space. According to
21 Reuters (January 28, 2003). "Restructuring Forest-based Industries of Indonesia" hotel staff the premises are seldom used by the company. One Green Elite company representative
22 FWI/GFW. 2002. The State of the Forest: Indonesia. Bogor, Indonesia: Forest Watch Indonesia, is Lieutenant Colonel Keo Vuthy who presents himself as the assistant to Major General Hing Bun
and Washington DC: Global Forest Watch. Heang, acting commander of the B70 Bodyguard Brigade and deputy chief of Cabinet of the Prime
23 Asia Pulp & Paper (July 2004) "APP Responds to WWF Indonesia Reports on Illegal Logging" Minister. The chief of cabinet being Lieutenant General Kun Kim, also deputy commander in chief
24 WWF (June 8, 2004) "Legality of Timber Consumed by Asia Pulp and Paper's Mills in Indonesia: of the Royal Cambodian Armed Forces.
January - October 2003" and WWF (July 13, 2004) "Analysis of APP Response to WWF Indonesia's 49 Letter to the Minister of Agriculture, Forestry and Fisheries, signed Paul Yu, Director of Green Elite
Reports on the Company's Involvement in Illegal Logging" Group, dated 9 April 2004.
25 WWF (July 13, 2004) "Analysis of APP Response to WWF Indonesia's Reports on the Company's 50 Paperloop (September 21, 2004) "APP China flirts with major investment in Russia"
Involvement in Illegal Logging" 51 Novosti Gazette, July 15, 2004
26 WWF Indonesia Tesso Nilo Programme (June 16, 2004) "Monitoring of Illegal Logging Operations
in Riau, Sumatra: Deliveries of Illegally Cut Wood from Proposed Tesso Nilo National Park to APP's 52 Friends of the Earth. 2001. "Paper Tiger, Hidden Dragons: The responsibility of international
Indah Kiat Pulp and Paper Mill in August 2003 and April 2004" financial institutions for Indonesian forest destruction, social conflict and the financial crisis of Asia
27 FRAR (September 2004) "Strong Evidence that PT Indah Kiat Pulp & Paper Received Illegal Wood Pulp & Paper" London, UK.
from Tesso Nilo in July 2004. " 53 Ibid.
28 WWF (June 8, 2004) "Legality of Timber Consumed by Asia Pulp and Paper's Mills in Indonesia: 54 Paperloop (June 21, 2002) "Sarawak reclaims forest licenses allocated to Borneo Pulp & Paper"
26
Appendix 2:
Case studies about plantations and eucalypt
27
About plantations
The first thing that should be noted is that plantations are not forests. As Carrere and Lohmann write,
The two are radically different. A forest is a complex, self-regenerating system, encompassing soil, water, microclimate,
energy, and a wide variety of plants and animals in mutual relations. A commercial plantation, on the other hand, is a cultivated area
whose species and structure have been simplified dramatically to produce only a few goods, whether lumber, fuel, resin, oil, or fruit.
A plantation's trees, unlike those of a forest, tend to be of a small range of species and ages, and to require extensive and continuing
human intervention. 1
As the most common species used in plantations around the world in the past have been eucalyptus (38% of all plantations in
the early 1990s2), it is not surprising that eucalyptus has become a symbol of large-scale tree crops. It would be wrong, however,
to analyse the impacts of plantations by focusing only on eucalyptus. "The problem lies not in any particular species nor its unique
biological features, but in how it is used."3 For example, APP's current preference in Indonesia is to plant acacia instead of
eucalyptus. The resulting forest destruction, however, is almost identical. Likewise, pine plantations in Chile and South Africa have
That said, the following chapter focuses on eucalyptus plantations simply because the majority of documented case involve
this species. One company of great concern in China, Indonesia and other nearby countries is Asia Pulp & Paper (APP). It happens
that APP is growing mostly eucalyptus to feed its Chinese pulp mills. What is important to note is that regardless of what species APP
plants, the fact remains that large-scale plantations are often problematic. Of course, destroying ancient forests is also problematic.
The worst-case scenario, known all-too well by opponents of APP, is to destroy vibrant self-sustaining natural forests forever, all
About eucalyptus
Eucalyptus is very thirsty, and it is widely said to dry up water tables, which can clearly effect local ecology and human
populations. Even one of the biggest promoters of plantations, the United Nations Food and Agriculture Organization (FAO), is
beginning to accept that "plantation of eucalyptus in any deforested water catchments area substantially reduces the water
production of this source."4 Careful attention to how, where and in what volume eucalyptus is planted can mitigate such problems,
but such careful attention is unlikely to happen when companies such as APP undergo such aggressive planting campaigns.
Biodiversity is also a concern. On a broad scale, large plantations of a single (or few) exotic species are by their very nature
counter-productive to conserving biodiversity. As well, for many local animals, "a plantation is a desert, lacking food, shelter and
opportunities for reproduction."5 A more subtle effect of eucalyptus and certain other plantation species is called "allelopathy" which
is a chemical process that a plant uses to keep other plants from growing too close to it. This results in a suppression of ground
vegetation,6 thereby obviously affecting not only biodiversity, but the ability for villagers to grow subsistence crops near the tree
plantations.
Eucalyptus plantations are associated with many more negative side effects than can described here. There are volumes of
scientific studies available. Sadly, humans have been slow to learn from past mistakes, and these problems seem to repeat
themselves over and over across the globe. The following case studies (Brazil, India and Thailand) illustrate just how widespread
the problems are:
28
BRAZIL
Brazil-based Aracruz is the world's largest producer of bleached eucalyptus kraft market pulp. Unfortunately, its negative
effect on the environment and local populations is proportional to its size. The problems began in the 1960s, when Aracruz bought
an enormous area of land by employing violent actions to force thousands of indigenous people and subsistence farmers off their
land,7 mostly with no compensation.8 Throughout its first phase of tree planting, Aracruz then cut and burned over 50,000 hectares
of forest.9
Not surprisingly, the subsequent rapid eucalyptus planting dried up water sources: 156 streams disappeared during that
period, along with numerous wells and even a river. Joao Pedro Stedile of the Landless Workers Movement said "50,000 people in
the area used to eat fish every day. Now they eat fish no more; some fishermen have stopped fishing because there are so few fish
to catch."10
Greenpeace took notice of the events and just before the Earth Summit in 1992, Greenpeace activists symbolically closed
Aracruz' export port as a protest against the company's environmental and social record and its destruction of natural forests.
INDIA
Eucalyptus has invoked strong criticism from environmentalists in India because it is both water and nutrient intensive. Author
Vandana Shiva is particularly vocal, criticising the plantations for leading to water shortages in arid areas.11 Some critics dismiss
Shiva's arguments, claiming that the problems are rather human-induced (e.g. plantations being too large or in the wrong places,
rather than being a problem with the species itself),12 but such counter-arguments are meaningless because nearly all plantations
are in the end controlled by either governments or large corporations (e.g. APP) where human-induced problems are unavoidable.
Foresters in India claim, as do foresters elsewhere claim, that Eucalyptus reduces pressure on indigenous forests. However,
even the critics admit that in practice, so-called "unproductive" natural forests in India have been clear cut to make room for
Opposition to eucalyptus in India has been fierce. In this context, it is worth noting a positive outcome of this opposition. In 1985,
in Karnataka, India, the Federation of Voluntary Organizations for Rural Development in Karnataka (FEBORD-K) worked to stop the
World Bank-funded eucalyptus plantation projects in their area. The various agencies agreed with many of their requests (but not all)
and changed the species from eucalyptus to other multi-purpose species, thereby avoiding the negative effects of eucalyptus and
of monocultures in general.14
THAILAND
As already described in many other places, companies in Thailand routinely destroyed natural forest in order to plant eucalyptus,
often illegally selling the cleared timber in the process.15 Since its early days, however, plantation efforts have been met with much
resistance in Thailand, and the government has repeatedly reversed its decision on whether or not to allow or promote eucalyptus
plantations.16
Many communities suffered in the process. Villagers in Laemkowchan village, for example, are surrounded by eucalyptus
plantations used in a nearby pulp mill belonging to the Soon Hua Seng Group. Villagers used to grow rice, cassava and pumpkin, but
many sold parts of their land to the company. Soon, their rice was impacted. The eucalyptus dried up the land, and many farmers
29
eventually went into debt and eventually lost their land.17 Numer-
Conclusion
Perhaps the best way to conclude this chapter on euca-
then:
We stress that eucalypt should not be planted, especially
Notes
1 Carrere, R, Lohmann, L. 1996. Pulping the South: Industrial Tree Plantations & The World Paper
Economy. London and New Jersey: Zed Books.
2 Evans, Julian (1992) Plantation Forestry in the Tropics: Tree Planting for Industrial, Social,
Environmental and Agroforestry Purposes, Oxford: Clarendon Press.
3 Carrere (1996). Op. Cit.
4 Poore, D., Fries, C. (1985) Efectos ecol¨®gicos de los eucaliptos [The Ecological Effect of Eucalyptus],
FAO Forestry Paper 59, FAO, Rome.
5 Carrere (1996). Op. Cit.
6 "An Assessment of the Allelopathic Potential of Eucalyptus" (May and Ash (1990): Austr. J.
Bot, 38: 245-254)
APP eucalypt plantation in Indonesia Robin Hood
7 Miranda, Moema (1993b) 'Nas pontas do extremo: outras historias, outros tempos', Rio de Janeiro:
FASE/IBASE, April.
8 Federacao de Org?os para Asist¨¦ncia Social e Educacional (FASE) (1993) Inqu¨¦rito civil sobre
fomento florestal, Vit¨®ria: FASE.
9 Ibid.
10 International Agricultural Development 7/8. 1992. In Carrere (1996). Op. Cit.
11 Shiva, V, Bandyopadhyay, J, (1983): Eucalyptus - a disastrous tree for India. Ecologist, Vol. 13, No.
5, pp184-187, and Shiva, V, Sharatchandra, HC, Bandyopadhyay, J, (1983): Social Forestry - No
Solution Within the Market. Ecologist, Vol.12, No.4, pp158-168.
12 Lawbuary, J, "Eucalyptus Planting in 'Social Forestry' in India: Boon or Curse?"
13 Ibid.
14 Hiremath, S.R., Dandavatimath, P.G., Eucalypt Plantations and Social and Economic Aspects in
India.
15 Carrere (1996). Op. Cit.
16 Kittisiri, A (1996) "Impacts of Monoculture: The Case of Eucalyptus Plantations in Thailand", a paper
for the Monocultures: Environmental and Social Effects and Sustainable Alternatives Conference
in Songkhla, Thailand.
17 World Rainforest Movement (WRM), Bulletin No. 70, May 2003.
18 Kittisiri (1996). Op. Cit.
19 Poore, D., Fries, C. (1985) Efectos ecol¨®gicos de los eucaliptos [The Ecological Effect of Eucalyptus],
FAO Forestry Paper 59, FAO, Rome.
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Appendix 3:
Other materials about APP, Sinar Mas Group
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32
Sinar Mar Group ------- APP
Asia Pulp & Paper Company Ltd. 69 Loyang Drive, 118 Pioneer Road
Tel +65-6477-6118
Fax +65-6477-6116
Website www.asiapulppaper.com
E-mail investors@app.com.sg
Surabaya Stock Exchange (SSX): subsidiaries listed under symbols TKIM, LPPI, INKP, PIDL
Sales in 1999*
* Region Million US$ Percent
OPexpress www.opexpress.com
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Sinar Mar Group APP China and affiliated Inc. Logo
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Greenpeace is an non-profit global organization campaigning to ensure a just, peaceful, sustainable environment
for future generations. Greenpeace began in Canada in 1971 and today has a presence in more than 40 countries
across Europe, America, Asia and the Pacific. Greenpeace China was founded in 1997, aiming to push the
environmental protection, expose global environmental problems and force solutions, support the sustainable
development in China. To maintain its independence, Greenpeace does not accept donations from governments
or corporations but relies on contributions from individual supporters and foundation grants.
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