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What does APP’s massive new pulp mill mean for the company’s “zero deforestation” policy?

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APP concessionOn 5 February 2013, Asia Pulp and Paper announced a Forest Conservation Policy. This included an immediate stop to clearing forest in any concessions controlled by APP and its suppliers. It was a dramatic change in policy for a company that is responsible for destroying vast areas of forest in Indonesia.

Part of the Widjaja family Sinar Mas dynasty, APP started its pulp operations in Sumatra in the 1980s. In the mid-1990s, APP expanded one pulp mill and built an enormous new pulp mill in Riau province, Sumatra. The company used “mixed tropical hardwood” from cleared rainforests as well as plantation timber to feed its pulp mills.

In 2006, WWF reported that “Since it began operations in the 1980s, APP has pulped close to a million hectares of Riau’s natural forests.”

Now APP is expanding its pulp operations once again. A year before APP announced its Forest Conservation Policy, the pulp and paper industry magazine RISI reported that

Asia Pulp and Paper (APP) is actively developing a large BHK market pulp mill to be located in south Sumatra. Details are not finalized, but the mill is expected to have a nominal capacity of between 1.5 and 2.0 million tonnes per year of BHK, making it the largest single pulp line in the world.

A new report by 12 international and Indonesian environmental organisations assesses wood supply and plantation risk for APP’s mega-pulp project, called PT OKI Pulp & Paper Mills. The report, “Will Asia Pulp & Paper default on its ‘zero deforestation’ commitment?” can be downloaded here (in English and in Bahasa Indonesia). The authors of the report are Wetlands International, Koalisi Anti Mafia Hutan, Woods & Wayside International, Hutan Kita Institute, WWF, WALHI, Eyes on the Forest, Auriga, Forest Peoples Program, Jikalahari, Elsam, Rainforest Action Network.

OKI pulp mill

Christopher Barr of Woods & Wayside International, one of the organisations that wrote the report, summed up the report for Associated Press,

“APP, while it has been presenting itself as a champion of zero deforestation, is building one of the world’s biggest pulp mills.
 
“There will be a great deal of pressure to ensure it receives adequate supplies of wood to keep it operating at full capacity. Our analysis shows the group’s existing planted area in South Sumatra is unlikely to produce the volumes of wood the mill is expected to consume at projected capacity levels.”

APP’s OKI pulp mill

APP’s two million tons per year pulp mill is planned to start up later this year. Financing for the project comes from China’s state-owned banks with US$2.5 billion in loans.

Recently OKI’s director said that APP plans to increase the mill’s capacity to 2.8 million tons per year. The pulp industry press reports that capacity could reach 3.2 million tons per year. That would mean an 85% expansion of APP’s total demand for wood.

The report analyses APP’s plantation concessions and asks two questions:

  • Will the group’s plantations produce enough wood to meet the demand of the three Sumatra pulp mills’ once OKI begins production?
  • And if Sinar Mas/APP’s plantations do not produce enough wood, will the group resume clearing natural forests?

The report finds a shortfall of plantation wood. APP’s plantation concessions in South Sumatra are at least 59,000 hectares short of the area needed to supply a 2 million tons per year pulp mill. The report states that,

APP has failed to disclose many essential details about its future wood supply despite its claims of “unprecedented transparency.” Instead, the company has offered blanket assurances that its suppliers will produce sufficient volumes of plantation-grown wood to meet the group’s long-term fiber needs and maintain its sustainability commitments.

Plantation risks

In 2015, fires raged through South Sumatra. The province was one of the worst affected in Indonesia. But the fires didn’t only damage forests. The report states that “a majority of the fires in the province occurred inside Sinar Mas/APP concessions”.

293,000 hectares were burned in APP’s concessions in South Sumatra, including 86,000 hectares planted with fast-growing acacia trees to feed the OKI pulp mill. That’s more than one quarter of the area planted with fast-growing pulpwood trees in South Sumatra.

According to the World Bank, the 2015 fires resulted in economic losses of US$3.9 billion to South Sumatra.

APP pulpwood

More than three-quarters of the plantation area is on drained peatlands, meaning that they are extremely susceptible to fires in the future. Over time, drained peatlands subside and are subject to flooding, leading to decreased productivity and eventually to plantations that are no longer viable. Half of Indonesia’s greenhouse gas emissions come from peatland deforestation and drainage.

APP’s monoculture plantations are threatened by pests and diseases. Parts of the concessions overlap with local communities’ land. APP’s suppliers face hundreds of land tenure disputes and social conflicts across Sumatra.

While APP could ship in plantation logs or wood chips from Kalimantan, or other countries such as Vietnam or Australia, this would increase costs. The report notes that,

For lenders, investors, and other financial stakeholders, the possibility
that the OKI mill could face higher than expected wood costs should raise questions about the mill’s overall cost competitiveness and profitability.

The land licensed to supply APP’s mill covers an area more than ten times the size of Singapore. Yet only a small number of jobs has been created. The report found that despite the large investment, the Indonesian government is likely to recieve only low tax and royalty payments from the OKI pulp mill.

The report concludes that,

With a capital investment over US$2.6 billion, APP’s construction of the OKI mega-scale pulp and paper mill in the peatlands of South Sumatra also effectively locks in high levels of annual carbon emission, potentially for decades to come. And especially in El Niño years, CO2 emissions from these sites can potentially reach globally significant levels, as they did in 2015.

 


PHOTO Credit: APP supplier concession in Riau, Sumatra, 29 May 2013, Eyes on the Forest.

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  1. Asia Pulp and Paper put out a press release today in response to the new report. “Whilst the new mill at OKI significantly increases APP’s production capacity, we have been clear that our FCP commitment takes precedence over maximizing our production.

    I suspect the authors of the report are looking for more concrete information about precisely where APP plans to source its raw material, rather than another blanket assurance that there’s nothing to worry about.

  2. A blanket assurance? Really? The FCP has been running for over 3 years.

    A key point here is that the eNGOs aren’t just passive observers in how this plays out. If the eNGOs start engaging with potential buyers to have APP classified as a risk once again, then this has the potential to change the dynamic for APP, forcing them down a route they’re not currently intending.
    In my assessment it HIGHLY UNLIKELY that APP is intent on reneging on its FCP, given the commitment it has shown so far and the damage it could do to its Western markets. Let’s not forget (as some evidently have) that APP has a lot of big levers it can pull to ensure it doesn’t break its FCP. For example, it can increase production at the OKI Mill at its own pace and it can buy in wood chips. They are big levers to control this situation with.
    This report does tell us one thing though. It is now apparent that APP was unlikely to be responsible for starting the fires in its Sumatran concessions in 2015. Still, our biases caused a misinterpretation of that situation too. There’s a lot at stake here. Can’t we all just think a bit more clearly before diving in? Some eNGOs’ efforts are becoming unhelpful and even counter productive, and I’m not surprised the MoEF is starting to clip their wings a little.
    Looking at the bigger picture, the big forestry companies across Indonesian are starting to tread a far more sustainable path they have in the past, and these improved practices are steadily filtering down to the suppliers. Let’s be careful not to drag them off that path.

  3. Climate change is causing the structure of global and national economic systems to change. Within a decade or so, the market for products made from the pulp which would be made at APP’s OKI mill will almost certainly be radically different and much smaller than that on which APP’s forecasts rely. The mill is likely to be a white (/bleached!) elephant – costly for Indonesia and state-owned Chinese investors.

    It is high time APP was questioned about its definition of HCV forest – referring to that land as HCV would be deceptive if the land defined does not include buffer zones and corridors sufficient to protect and sustain the gene pool.