[Kabar-indonesia] 1 of 3: A Study of UFS Wood Chip & Paper Pulp Mills in Kalimantan

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Down-to-Earth - International Campaign for Ecological Justice
in Indonesia / September 2006

NO CHIP MILL WITHOUT WOOD

A Study of UFS Projects to Develop Wood Chip and Paper
Pulp Mills in Kalimantan, Indonesia

By: Betty Tio Minar With additional information from
Liz Chidley Editing:Adriana Sri Adhiati & Carolyn Marr

Many people helped in preparing this report. Our
thanks go to Hamsuri,Yasir Al Fatah, Nur Baiti Rahmi,
Fitriansyah, Rafiuddin, Rani 'Ranjoed', Berry N.
Furqan, HR Budiman, Udiansyah Ph.D, the village heads
of Tanjung Seloka & Alle-Alle, SM Budiman, the people
of Alle-Alle and Tanjung Seloka, Christian Purba,
Markus Ratriyono, Acknowledgements

LPMA Borneo Selatan,Walhi South Kalimantan, CAPPA and
Global 2000 for their support in providing data and
other information. Special thanks go to ForestWatch
Indonesia (FWI) for maps and other technical
assistance.

We are also grateful to Marcus Colchester for helping
to organise the structure of the report and toYuyun
Indradi and Rivani Noor for their comments on and
contributions to earlier drafts.

DTE appreciates the support of the following
organisations in the research and publication of this
report: CAFOD, Caritas Australia, Cordaid, HIVOS,
Netherlands Committee IUCN and OXFAM.

This report was published with grant from NC-IUCN

A Bahasa Indonesia version is also available, entitled
'Tidak Ada Chip Mill tanpa Kayu'

Down to Earth 59 Athenlay Rd London SE15 3EN England
Email: Website: Campaigner: Tel/fax +44 (0)19536 00075
Email: Tel/fax +62 (0) 813 1682 7125 Email: Tel/fax:
+44 (0) 16977 46266 dte at gn.apc.org
http://dte.gn.apc.org dtecampaign at gn.apc.org
dteindocamp at gn.apc.org

Cover photo: Haem-LPMA. Beach in Alle-Alle village
Down to Earth - the International Campaign for
Ecological Justice in Indonesia - is a UK-based
campaigning organisation which works to support
vulnerable communities to secure a just and
sustainable future.

This work is rooted in a commitment to human rights,
particularly the collective rights of communities to:
: land security for rural communities and the
recognition of indigenous peoples' customary rights to
land; peoples' right to participate fully in the
planning and governance of their communities and
assets; the right of communities to a clean and safe
environment for their own survival and well-being.

Our work aims to ensure that decision-makers
particularly governments, international institutions
and multinational companies - are held accountable for
actions that impact on these rights.

NO CHIP MILL WITHOUT WOOD A Study of UFS Projects to
Develop Wood Chip and Paper Pulp Mills in Kalimantan,
Indonesia

Contents

Summary Boxes Maps Tables Appendices Bibliography  

A. Introduction 
B. From MHB to UFS 
C. Forests in Danger
D. Minimal Transparency 
E. The Chip Mill Port 
F. PT Kiani Kertas Takeover Plans 
G. International Action 
H. Conclusions 

I. Recommendations 

Box 1 United Fiber System 
Box 2 Jaakko Pöyry 
Box 3 Wood Chip Mills 
Box 4 Industrial Tree Plantations - a Flawed Policy 
Box 5 Threatened: Meratus Forests 
Box 6 The People Who Pay the Price 
Box 7 Kiani Kertas 
Box 8 Kiani Kertas' Bad Debts 
Box 9 Banking on Paper 

Map 1 Location of UFS Projects in Kalimantan \
Map 2 Map 

Table 1 UFS Projects in Indonesia 
Table 2 Data on UFS Projects 
Table 3 South Kalimantan Data 
Table 4 Estimate of Area
Required for Pulp Project Supply
Table 5 Timber Demands of Wood Processing Industries 
Table 6 UFS Projects in Kalimantan 

Appendix 1 Structure of UFS
Appendix 2 
Appendix 3 Industrial Tree Plantations in South 
Kalimantan
Appendix 4 NGO Letter to Raiffeisen Zentral
Bank and Andritz AG 
Appendix 5 Letter to the Editor PT HRB's Industrial
Tree Plantations Forests on Pulau Laut Forest Cover in
South Kalimantan 

The development of a wood chip and a paper pulp mill
in South Kalimantan raises many questions and has
stimulated debate in a number of circles.

Indonesian and international civil society
organisations and researchers have concluded that
these projects, driven by the Singapore-based company
United Fiber System (UFS),are completely
unsustainable.

This report centres on a study of the wood chip plant
under construction at Alle-Alle on the island of Pulau
Laut in South Kalimantan. This project is associated
with various problems that have, so far, been largely
ignored by the relevant authorities.These include: :
There is a real risk of community conflict as a result
of the wood chip plant development.

Very little information has been made publicly
available by the Government authorities or the
company. The inevitable result is a breakdown in trust
within the community.

: Deforestation in South Kalimantan is already a
serious issue. The few areas where natural forest
remains, such as the Meratus mountains and Mt
Sebatung, are suffering from illegal logging.Natural
disasters,including landslides and floods, have become
an annual event in South Kalimantan as the land cannot
absorb the high rainfall.

: Pulpwood production from large-scale industrial tree
plantations ( ) in Indonesia has been low, partly due
to the lack of investment and funding from the
Reforestation Fund since the 1997 financial crash.
This is particularly so for most HTI in South
Kalimantan. Furthermore, UFS has been in a longrunning
dispute with the Indonesian Forestry Department over
ownership of the PT Hutan Rimba Banua plantation
concession.The company's claims that plantations will
feed its wood chip and a pulp plants it is planning to
build at Satui, on the coast of South Kalimantan are
not realistic,especially since UFS is trying to buy
and operate the Kiani Kertas pulp mill in East
Kalimantan. UFS' inability to provide data on the
potential source of timber supplies for these three
ventures indicates the likelihood that natural forests
in South Kalimantan and further afield will be
destroyed - legally or illegally to meet their needs.

The paper pulp industry is a major factor driving one
of the highest deforestation rates in the world in
Indonesia. The country's forests the third largest in
the world are disappearing at over 2.8 million
hectares/year.They provide and protect the livelihoods
of tens of millions of rural and indigenous people, in
addition to having high biodiversity.Some 70% of
logging is illegal, but large tracts of natural forest
are cleared legally to make way for pulpwood
plantations which cause ecological and social
problems. The Indonesian government has made many
public commitments nationally and internationally to
restructure Indonesia's wood processing industry and
eliminate illegal logging.

Conclusions&key recommendations:

There should be an immediate independent review of the
sustainability of timber supplies for all UFS's
developments. UFS must, as a matter of priority, work
on mitigating the environmental and social impacts of
its Alle-Alle chip mill and no permit should be issued
for the Satui pulp project.

In South Kalimantan, local economic development should
focus on sustainable communitybased forestry
operations, not large-scale pulpwood plantations and
woodchip or pulp mills. Local communities must be
involved in decision-making about forest resources.
Indigenous communities' prior, informed consent can
only be freely given if people have access to
information and help to interpret this before
decisions are made (the FPIC principle); this means
more transparency of information from companies like
UFS and government authorities.

More generally, all Indonesian wood chip and pulp
plants should be required to prove that their sources
of timber are legal and genuinely sustainable.No new
permits should be granted by central or local
governments to any pulp companies in Indonesia until
independent surveys show that this is the case.
Foreign investors;equipment
suppliers;engineering,forestry and risk consultants
should screen carefully for sustainability and not
invest in projects in Indonesia likely to cause
serious environmental damage, rights violations or
social conflict such as those of UFS in South
Kalimantan.

Introduction

United Fiber System Ltd (UFS or UniFiber), a
Singapore-based construction and property company, is
currently building a wood chip mill atAlle-Alle
village in Kotabaru district,Pulau Laut,(lit.Sea
Island) off the southeast coast of Indonesian Borneo.

1

1 More information onwood chip mills is given

FROM MHBTO UFS South Kalimantan is the smallest
Indonesian province on the island of Borneo, but has a
wealth of forest and other natural resources.Forestry
and mining companies are keen to get their hands on
its tropical rainforests.

A variety of stakeholders in the forestry sector have
watched with interest the development of the pulpwood
plantation company originally called PT Menara Hutan
Buana (MHB).

The company was established on 22 December 1994 as a
joint venture between PTWonogung Jinawi (60%),owned by
Probosutedjo (ex-president Soeharto's half-brother)
and PT Inhutani II (40%), a state-owned forestry
company .

PT MHB was granted a 268,585 hectare timber plantation
concession ( ) in South Kalimantan, by the Minister of
Forestry on 27 February 1998, to supply the paper pulp
industry (Decree No.196/KPTS-II/1998 ).

The concession covers the sub-districts of Riam Kiwa
in Banjar district (37,835 ha); Kintap (83,000 ha) and
Sebamban (65,000 ha) inTanah Laut district; and Teluk
Kepayang (62,500 ha) and Pamukan (20,250 ha) in
Kotabaru district - an area about the size of
Luxembourg or four times Singapore.

In December 2000, Inhutani II agreed to sell its
shares to Wonogung Jinawi for Rp44 billion (US$4.4
million).A year later, on 19 March 2001, all PT MHB's
assets were taken over by foreign investors - PT Anrof
Singapore Limited (ASL) and PT Shinning Spring - and
eventually transferred to Singapore-based United Fiber
System (UFS) (see Box 1).

Shortly afterwards (2 July 2002),the Indonesian
Ministry of Justice and Human Rights authorised the
company to register under the new name of PT Hutan 2 3
4 5 Hak Pengusahaan HutanTanaman Industri, HTI
Resources (SSR) Ltd Rindang Banua (HRB) (Decree No. C-
11987 HT.04.TH.2002).

In November 2002 the forestry minister publicly
announced that the permits of 14 HTI concessionaires,
including PT HRB, had been cancelled Ministerial
decree No. 987/KPTS-II/2002, issued on 24 October
2002, revoked the permit previously issued to PT
Menara Hutan Buana.The reason given was that company
ownership had been transferred without prior written
consent from the forestry department - even though PT
HRB was still considered to be technically and
financially sound .

An additional reason was that PT MHB inflated its
figures on the area planted with acacia in order to
get more money from the Reforestation Fund ( ). So the
Department of Forestry (representing the Republic of
Indonesia) demanded that PT MHB/HRB returned the
excess funding it received.

This caused a 'stand-off': UFS claimed the company
could only afford to repay the Reforestation Fund loan
from the proceeds of logging the PT HRB plantation
concession. However, it is illegal to log without a
permit and the Department of Forestrywould only
re-issue that once the company had paid its dues.

According to PT MHB, during 1994-1995 and 1996-1997,
the company replanted an area of 71,024 ha with
acacia.This did not match the findings of a survey
carried out by a team representing the forestry
department, anti-corruption agency ( ), stateowned
forestry companies (PT Inhutani) and land survey
co-ordinating agency ( ) in June 2001 which found that
only 41,212 ha had been replanted. By these figures,PT
MHB should only have received Rp95.4 bn (US$9.5
million), instead of the Rp144.4 bn (US$14.4 million)
it had claimed. This mark up cost the state Rp49 bn
(US$4.9 million) in public funds .

 2 Kompas, 12 March 2001 Forestry Department, 2005
Walhi South Kalimantan, 2002 Kompas, op cit
Banjarmasin Post, 14 November 2002 Radar Banjar, 20
December 2002 Kompas, op cit 3 4 5 6 7

Different sources of information cite different
figures for the area replanted by PT MHB/HRB. One
local newspaper in South Kalimantan puts it at 44,335
ha , while a national daily quotes the estimate of
41,212 ha .

PT MHB says the company planted 75,758.43 ha between
1994/1995 and 1998/1999 .This is close to estimates of
78,571 ha by the South Central Kalimantan Production
Forest Project (SCKPFP).

UFS' forestry consultant, Jaakko Pöyry, states that
the replanted area was 60,601 ha in 2000,and fell to
58,896 ha in 2004 . It estimates that, by 2007, the
replanted area will have shrunk further to 58,307 ha
due to external factors, including logging by the
local 9 10 11 12 Bakorsortanal community and
overlapping concession permits (see Table 4).

However, field data fromWalhi South Kalimantan
indicates that,although the companymay have replanted
tens of thousands of hectares with acacia,only 15,000
ha are in good enough condition to be called an
industrial timber estate . 13 9 10 11 12 13
Banjarmasin Post, op cit Kompas, op cit PT Marga Buana
Bumi Mulia, 2003 Jaakko Pöyry, 2004 pers com,
protected

United Fiber System (UFS) was created when the
Singaporean construction company, Poh Lian Holdings
Limited, took over Anrof Singapore Ltd (ASL) inApril
2002.

ASL is a Mauritiuslisted holding company. It held 100%
of PT HRB and PT MBBM's shares either directly or
indirectly through its subsidiary, Shinning Resources
Ltd (SSR), registered in the British Virgin
Islands.After the takeover,Poh Lian changed its name
to United Fiber System to reflect its newbusinesses.

Tektronix Industries Ltd, also registered in the
British Virgin Islands but owned by individual
shareholders from Scandinavia, used to be ASL's
majority shareholder. Since the takeover,Tektronix
still owns 51% of UFS. Tektronix's owners are
directors or managers of CellMark, a Swedish paper
marketing company (seeAppendix 1).

UFS is listed on the Singapore stock exchange as a
public company with net assets of S$527,661,000
(US$330 million). It now has two main divisions:
forestry & pulp and construction & property. UFS'
forestry & pulp division holds the permits for the
268,585 ha industrial timber estate and a pulp mill.
It intends that the pulpwood will come from the PT HRB
plantation. UFS' auditors list S$339,000 (US$212,000)
of 'forest assets'.

The forestry & pulp division has added a further
production unit - the chip mill. On 26 September 2003,
UFS publicly announced it had set up a new company in
Indonesia called PT Mangium Anugerah Lestari (PT MAL)
as a subsidiary of its BOX 1 3 UNITED FIBER SYSTEM 3
Different sources of information cite different
figures for the area replanted by PT MHB/HRB. One
local newspaper in South Kalimantan puts it at 44,335
ha , while a national daily quotes the estimate of
41,212 ha .

PT MHB says the company planted 75,758.43 ha between
1994/1995 and 1998/1999 .This is close to estimates of
78,571 ha by the South Central Kalimantan Production
Forest Project (SCKPFP).

UFS' forestry consultant, Jaakko Pöyry, states that
the replanted area was 60,601 ha in 2000,and fell to
58,896 ha in 2004 . It estimates that, by 2007, the
replanted area will have shrunk further to 58,307 ha
due to external factors, including logging by the
local 9 10 11 12 Bakorsortanal community and
overlapping concession permits (see Table 4).

However, field data fromWalhi South Kalimantan
indicates that,although the companymay have replanted
tens of thousands of hectares with acacia,only 15,000
ha are in good enough condition to be called an
industrial timber estate . 13 9 10 11 12 13
Banjarmasin Post, op cit Kompas, op cit PT Marga Buana
Bumi Mulia, 2003 Jaakko Pöyry, 2004 pers com,
protected source Mauritius-registered Pacificwood
Investment Ltd (itself a subsidiary of SSR Ltd).

US$2,500,000 loan from Cornell Capital Partners
Sources: Jurgens et al, 2005 UFS
website,www.ufs.com.sg UFS, 26 Sept 2003 UFS, 2004
UFS, 2005 Financial Times.com, 4 July 2005 Zabao.com,
28 August 2005 Insinyur Kimia Online, 16 August 2005
WRM Bulletin, January 2006 Bisnis Indonesia, 14
February 2006                     In June 2005, UFS
also announced its intention to take over PT Kiani
Kertas in East Kalimantan, with Deutsche Bank leading
a consortium of investors. UFS said the deal would
give it a ready-made pulp mill and another source of
revenue.

Deutsche Bank eventually withdrew from the scheme in
January 2006 after pressure from international NGOs,
Robin Wood, Rettet den Regenwald and Global 2000
(Friends of the Earth Austria).

This did not, however, end UFS' hopes of becoming a
major player in Indonesia's pulp industry.

The company is currently actively seeking backing for
its investments in Kalimantan's forestry, pulp and
woodchip sector. When this report went to print, UFS
was on the brink of buying Kiani Kertas with a ,an
American investment company.

The majority of the concession area had been cleared
of rainforest even before the forestry department
issued the original permit for PT MHB/HRB.

Some of the forest destruction was recent:the Pamukan
sector was zoned for selective logging ( ) until 1997.

It is not clear how its status changed to become an
industrial tree plantation (HTI). Although many parts
have been invaded by elephant grass ( ), a substantial
amount of natural forest remains: 73,060 ha .

Of the 268,585 ha covered by the PT HRB concession,
approximately 87,000 ha overlaps with other
concessions, including the coal mining company, PT
Arutmin, and an oil palm plantation planned for
Kotabaru district under a permit issued by the
district head ( ). PT HRB has not delineated the new
plantation boundaries so,by early 2006,the total
useable area of the concession remains unclear.

HPH Imperata cylindrica bupati 14 15 After the
forestry minister revoked PT HRB's permit, the company
took the case to the state administrative court ( ) in
Jakarta, asking for the decree to be invalidated. PT
HRB won the first round.

The court declared that the forestry department had to
postpone implementation of its October 2002 decree
withdrawing the PT MHB/HRB permit (Verdict No.

209/G.TUN/2002/PUTB-Jkt) .The forestry department
appealed against this decision and the case went to
the Indonesian Supreme Court .

In October 2005, (then) UFS Chief Executive
Officer,Kishore Dass,announced to the Singapore Stock
Exchange that the Supreme Court had decided in favour
PTUN 16 17 14 15 16 17 Jurgens et al, CIFOR 2005 Walhi
South Kalimantan, 2002 Radar Banjar, op cit Antara, 25
August 2005

Jaakko Pöyry

Jaakko Pöyry (JP) is a Finnish forestry consultancy
involved in all aspects of Indonesia's timber
plantation sector. Set up in 1958, JP is a now a
consultant for the pulp and paper industry worldwide
with offices in 25 countries, including Sweden, UK,
France, Germany, Netherlands, Spain, Portugal, Russia,
Brazil, Argentina, Chile, Thailand, Indonesia,
Australia,NewZealand and the US.

JP's first involvement in global forest destruction
started in 1978, with the giant Aracruz Celulose
project in Brazil, one of the world's biggest pulp
producers. It has helped Aracruz expand its eucalyptus
pulp production to 2.8 million tonnes per year by
2005.

Jaakko Pöyry has become a major driving force in
shifting the production of wood fibre - the main raw
material for making pulp - from the North to the
South.Timber grows much faster in tropical countries
than in temperate zones. Moreover, there is cheap
land, low wages and lax environmental and social
control in many southern countries. Not surprisingly,
Indonesia is the world's cheapest paper pulp source.

In 1984 Jaakko Pöyry was contracted by the World Bank
to carry out a study of Indonesia's forestry sector.
Four years later, the Asian Development Bank and
Indonesian government asked the company to study the
potential of the pulp and paper industry in the
country.

As a result, Jaakko Pöyry secured over 30 contracts in
Indonesia to plan or implement projects to supply the
pulp industry, using natural forests or pulpwood
plantations. The company has been involved in all
Indonesia's controversial pulp and paper developments,
including Indorayon/Toba Pulp Lestari and Riau Andalan
and now the Satui pulp plant plan.The company has also
been a broker for equipment supplies to these
factories.

Observations of pulpwood plantation and paper pulp
projects in Indonesia show that JP studies have
resulted in forest destruction and land rights
violations with no compensation for communities.

Currently, JP is the consultant for the pulp and chip
mill developments in South Kalimantan. It has
conducted a raw materials study for UFS' projects, but
the results failed to convince local, national and
international NGOs that UFS can source its
rawmaterials from plantations rather than from natural
forests.

In response to this opposition,UFS asked JP - assisted
by an independent consultant with public relations
expertise - to meet some of the NGOs.

The NGOs they wanted to meet on their short trip to
Indonesia in March 2006 included TELAPAK, Forest Watch
Indonesia (FWI),Walhi's National Executive (Friends of
the Earth Indonesia), Walhi South Kalimantan,
Community Alliance for Pulp and Paper Advocacy
(CAPPA), Indonesian Ecolabeling Institute (LEI),
SKEPHI, Conservation International (CI), TNC, CIFOR,
WWF and RainforestAlliance (Smartwood).

CAPPA,Walhi's national office and Walhi South
Kalimantan felt the meeting with JP would be pointless
without a decision-maker from UFS. As JP did not meet
this request,none of these NGOs took part.

In a meeting atTELAPAK's office on March 3 2006, JP -
represented by Maree Candish, Eulen Chew and Jonathan
Wootliff - explained that the purpose of meeting the
IndonesianNGOswas to: help UFS to understand
Indonesian civil society which, it felt, had raised
more complex issues than international NGOs; help UFS
identify which groups would help them rd     to
understand local problems;and understand which issues
UFS should focus on in dialogues with civil society.

They also wanted to be recommended to NGOs that
understood UFS' position and could inform the company
about what Indonesian NGOs wanted.

However, JP only seemed interested in collecting
information aboutNGOobjections to the South Kalimantan
pulp and wood chip mill plans. It gave no information
about UFS or where it would source its raw materials.
JP said it didn't have this information although, as
UFS' forestry consultant, it must have known. Clearly
UFS and its consultant do not want to reveal their
hand to NGOs and the Indonesian public.

  Sources: Jaakko Pöyry,1995 Hidayati,N ,2005 Notes of
meeting with Jaakko Pöyry,3 March 2006 Carrere,R &
Lohmann L,1996 CAPPAemail to JP,28 February 2006   UFS
now regards the case as over, and told its
shareholders that it "allows us to continue our forest
plantation activities to ensure a sustainable supply
ofwood to our planned pulp mill" .

The Supreme Court's decision means that PT HRB can
once again legally log within its plantation
concession, harvesting acacia and - if it so chooses -
natural forest. Forestry minister M. S. Kaban has so
far still refused to reissue a license to the
plantation company . But, whatever his opinion of the
court verdict, PT HRB now has the legal right to
resume operations based on the permit originally
issued to its forerunner,PT MHB.

Kaban is very keen to increase the forest sector's
contribution to local and national revenues,and pulp
and paper development is an important part of this.

Also, MIGA is consulting with UFS/HRB on the
management of the plantation, increasing the
likelihood that both the chip and pulp plants will go
ahead quickly.

18 19 20 So this legal battle will probably now be
quietly forgotten.

>From the start, the PT MHB/HRB plantations were
intended to supply the main raw material timber - to
the paper pulp mill to be developed by PT Marga Buana
Bumi Mulia (MBBM). This company, now also a UFS
subsidiary,was established on 19 September 1996 to set
up and run a bleached hardwood kraft pulp (BHKP) mill
in South Kalimantan . It aims, initially, to produce
up to 600,000 tonnes per year of elemental
chlorine-free (ECF) pulp from supplies of 21 22 23
Acacia mangium .

- assisted by an independent consultant with public
relations expertise - to meet some of the NGOs.

The NGOs they wanted to meet on their short trip to
Indonesia in March 2006 included TELAPAK, Forest Watch
Indonesia (FWI),Walhi's National Executive (Friends of
the Earth Indonesia), Walhi South Kalimantan,
Community Alliance for Pulp and Paper Advocacy
(CAPPA), Indonesian Ecolabeling Institute (LEI),
SKEPHI, Conservation International (CI), TNC, CIFOR,
WWF and RainforestAlliance (Smartwood).

CAPPA,Walhi's national office and Walhi South
Kalimantan felt the meeting with JP would be pointless
without a decision-maker from UFS. As JP did not meet
this request,none of these NGOs took part.

In a meeting atTELAPAK's office on March 3 2006, JP -
represented by Maree Candish, Eulen Chew and Jonathan
Wootliff - explained that the purpose of meeting the
IndonesianNGOswas to: help UFS to understand
Indonesian civil society which, it felt, had raised
more complex issues than international NGOs; help UFS
identify which groups would help them rd     to
understand local problems;and understand which issues
UFS should focus on in dialogues with civil society.

They also wanted to be recommended to NGOs that
understood UFS' position and could inform the company
about what Indonesian NGOs wanted.

However, JP only seemed interested in collecting
information aboutNGOobjections to the South Kalimantan
pulp and wood chip mill plans. It gave no information
about UFS or where it would source its raw materials.
JP said it didn't have this information although, as
UFS' forestry consultant, it must have known. Clearly
UFS and its consultant do not want to reveal their
hand to NGOs and the Indonesian public.

- assisted by an independent consultant with public
relations expertise - to meet some of the NGOs.

The NGOs they wanted to meet on their short trip to
Indonesia in March 2006 included TELAPAK, Forest Watch
Indonesia (FWI),Walhi's National Executive (Friends of
the Earth Indonesia), Walhi South Kalimantan,
Community Alliance for Pulp and Paper Advocacy
(CAPPA), Indonesian Ecolabeling Institute (LEI),
SKEPHI, Conservation International (CI), TNC, CIFOR,
WWF and RainforestAlliance (Smartwood).

CAPPA,Walhi's national office and Walhi South
Kalimantan felt the meeting with JP would be pointless
without a decision-maker from UFS. As JP did not meet
this request,none of these NGOs took part.

In a meeting atTELAPAK's office on March 3 2006, JP -
represented by Maree Candish, Eulen Chew and Jonathan
Wootliff - explained that the purpose of meeting the
IndonesianNGOswas to: help UFS to understand
Indonesian civil society which, it felt, had raised
more complex issues than international NGOs; help UFS
identify which groups would help them rd     to
understand local problems;and understand which issues
UFS should focus on in dialogues with civil society.

They also wanted to be recommended to NGOs that
understood UFS' position and could inform the company
about what Indonesian NGOs wanted.

However, JP only seemed interested in collecting
information aboutNGOobjections to the South Kalimantan
pulp and wood chip mill plans. It gave no information
about UFS or where it would source its raw materials.
JP said it didn't have this information although, as
UFS' forestry consultant, it must have known. Clearly
UFS and its consultant do not want to reveal their
hand to NGOs and the Indonesian public.

  Sources: Jaakko Pöyry,1995 Hidayati,N ,2005 Notes of
meeting with Jaakko Pöyry,3 March 2006 Carrere,R &
Lohmann L,1996 CAPPAemail to JP,28 February 2006      
    et al 18 19 20 21 22 23 ArdiY, 1 December 2005
UFS,Annual Report 2005 TempoInteraktif, 1 December
2005 Jurgens et al, op cit UFS Pulp Division PT Marga
Buana Bumi Mulia, 2003

Sources: Jaakko Pöyry,1995 Hidayati,N ,2005 Notes of
meeting with Jaakko Pöyry,3 March 2006 Carrere,R &
Lohmann L,1996 CAPPAemail to JP,28 February 2006      
    et al 18 19 20 21 22 23 ArdiY, 1 December 2005
UFS,Annual Report 2005 TempoInteraktif, 1 December
2005 Jurgens et al, op cit UFS Pulp Division PT Marga
Buana Bumi Mulia, 2003

of the company .UFS now regards the case as over, and
told its shareholders that it "allows us to continue
our forest plantation activities to ensure a
sustainable supply ofwood to our planned pulp mill" .

The Supreme Court's decision means that PT HRB can
once again legally log within its plantation
concession, harvesting acacia and - if it so chooses -
natural forest. Forestry minister M. S. Kaban has so
far still refused to reissue a license to the
plantation company . But, whatever his opinion of the
court verdict, PT HRB now has the legal right to
resume operations based on the permit originally
issued to its forerunner,PT MHB.

Kaban is very keen to increase the forest sector's
contribution to local and national revenues,and pulp
and paper development is an important part of this.

Also, MIGA is consulting with UFS/HRB on the
management of the plantation, increasing the
likelihood that both the chip and pulp plants will go
ahead quickly.

18 19 20 So this legal battle will probably now be
quietly forgotten.

>From the start, the PT MHB/HRB plantations were
intended to supply the main raw material timber - to
the paper pulp mill to be developed by PT Marga Buana
Bumi Mulia (MBBM). This company, now also a UFS
subsidiary,was established on 19 September 1996 to set
up and run a bleached hardwood kraft pulp (BHKP) mill
in South Kalimantan . It aims, initially, to produce
up to 600,000 tonnes per year of elemental
chlorine-free (ECF) pulp from supplies of 21 22 23
Acacia mangium .

 The plan is to build the mill in the village of
Sungai Cuka in Satui sub-district,Tanah Bumbu on the
south-east coast of the province. It will cover an
area of 1,294.404 ha, of which 454.15 ha will be for
factory buildings,plus a buffer zone and town site .

Since last year's Supreme Court verdict, UFS has been
planning to start preconstruction work on the Satui
pulp mill as soon as its purchase of Kiani Kertas goes
through.Start up has been rescheduled for 2009 .

Meanwhile, UFS had created a new subsidiary called PT
Mangium Anugerah Lestari (PT MAL). On 22 24 25 April
2003, UFS' chairman announced plans to set up a US$39
million wood chip mill .On 24 December 2004, the
Singapore branch of Raiffeissen Zentralbank Österreich
AG (RZB-Austria) agreed to provide a US$21 million
loan for the project to complement the US$18 million
granted by China National Machinery and Equipment
Import & Export Corporation (CMEC).

Some equipment will be provided by the Austrian
company, Andritz AG . The chip mill project began in
August 2005,with land clearance.

The contract states that the South Kalimantan wood
chip mill will have a production capacity of 700,000
(bdt) per year. Estimated costs had increased by 2006
to US$45 million. The financing, construction of the
plant and its port plus the equipment supplied by CMEC
were all underway when this reportwent to press .

26 27 28 bone dry metric tonnes 24 25 26 27 28 Ibid
UFS,Annual Report 2005 UFS, 22 April 2003 UFS, 24
December 2004 UFS,Annual Report 2005   

-end/1 of 3... continues...

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Joyo Indonesia News Service
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