investigative report on app's forest destruction in yunnan

8/9/2019 Investigative Report on App's Forest Destruction in Yunnan

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Investigative Report on

APP 's Forest Destruction in Yunnan

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Investigative Report on

APP 's Forest Destruction in Yunnan


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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!

Campaign Director of Greenpeace China

Lo Sze ping

November 2004


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Special thanks:

to Greg Higgs, Bing Liu, Sohan Ko, Patrick Anderson, Alex Ryan, Ginting

Longgena, Jens Wieting, Takahiro Kohama, Liu Haiying, Yue Yihua, Li

Moxuan, Bai Yunwen; the contribution of Global Witness, Robin Hood and

other international environmental protection organizations on this report.

Contents1. Preface

2. Who is APP? 3

History 3

A debt-ridden behemoth 4

APP and illegal logging 5

The world doesn't want APP products 5

The future of APP 6

3. Expansion in China 7

Background 7

Hainan 7

4. The forests in Yunnan are in danger 10

Biodiversity in Yunnan 10

The Yunnan eucalypt forest-pulp-paper integration project by Sinar Mas Group-APP China 11

27,500, 000 mu eucalypt plantation project of Sinar Mas APP in Yunnan 12

5. Conclusion and Requirements 17

Conclusion 17

Greenpeace calls to action 17

Appendix 1: Cases of Sinar Mas Group destroying Asian forests 19

Case 1 The destroyer of Indonesian tropical rainforests 20

Case 2 Illegal plantations in Cambodia 24

Eyeing the rest of Asia 25

Appendix 2: Case studies of plantations and eucalypts 27

Appendix 3: Other materials on APP, Sinar Mas Group 31


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1Who is A PP?

His to ry

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

APP Struct ure as of September 2004

ChinaIndonesia

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-

tions for investment.2

Though the Sinar Mas Group lost its family-owned bank in the wake of the Asian Economic Crisis, APP remained as strong as

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 -r idden 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

share.6 APP was on the verge of bankruptcy.

In March 2001, only two months after being threatened with delisting from the NYSE, APP stopped paying its global US$13.9

billion debt, considered to be the largest debt in the world's emerging markets.7 This includes $6.7 bil lion 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

APP Stock s Pr ice chart for 5 years [source: Reuters]


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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.

APP and i l legal logging

Today, the forestry industry in Indonesia is out of control in regards to corruption and illegality. Up to ninety per cent of all

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

is used by APP retains legal documents."23

On the contrary, there is solid proof that APP is directly implicated in illegal logging. WWF Indonesia's Forest Crimes Unit has

uncovered the following well-documented cases of illegal activity:

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

the legal maximum volume. 25

APP purchased wood illegally from the proposed Tesso Nilo National Park as recently as in April 2004.26 Forest Rescue

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. 28WWF 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.

The w or ld doesn ' t w ant APP produc ts

Companies that have stopped buying from or plan to boycott APP

Ricoh: (Japan)

Office Depot: (USA)

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

unsustainable logging in Sumatra, Indonesia.30

In August 2004, the large German paper merchant Metro agreed to stop buying copy paper from APP, due to a campaign by the

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

There is hope yet that APP can be stopped.

The fu tur e of APP

Since defaulting on its loans in 2001, APP has made deals with some of its debtors. However, it has continuously put off a full

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

manipulating the vote that led to the debt-for-equity swap.35

Uncertainty around the future of APP is enormous. The company has an unprecedented debt - billions of dollars of which may

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

future of China's natural forests.


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Hainan: Investment of US$1.3 billion. Pulp mill capacity of 1,100,000 ADT. Land for plantations: 200,000 hectares.

Yunnan: Land for plantations: almost 2 million hectares.

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

3.1 million tons. Land for plantations: 600,000 hectares.

APP plantation projects in China

Ex pansion in China

Backg round

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

the beginning of APP's most aggressive expansion phase in China.By the end of 1999, APP was the largest producer of tissue paper in China. It also became one of the largest manufacturers

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

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

2


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Sinar Mar Group-APP China Hainan m i l l Cossal ter

begin to operate in November 2004. With a capacity of over 1 million tonnes/year and its associated investment of US$ 1.3 bill ion, it

will be the biggest pulp mill in China. Norwegian-based Aker Kvaerner as supplied the pulp line machine, which will be the largest

single-line unit in the world.41

APP's interest in Hainan province originates in 1995 when it established Sinar Mas Hainan Pulp and Forestry Ltd (SMHP). In

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 prooffrom 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

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 yearof 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.45As 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

Total Planted in 97, 99,00 & 2003 APP's overall plantation target

D o e s C h i n a H a v e a C o m p a r a t i v e A d v a n t a g e f o r G r o w i n g P u l p w o o d ? - 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


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Biodivers i t y in Yunnan prov ince

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.

British famous scholar on biodiversity and natural protection from Oxford

University N. Myers, etc published an article called Biodiversity hotspots

for conservation priorities 47issued on Nature 2000.Vol. 403. In this article,

25 global hotspot areas of biodiversity are listed. southwest China is one

of them, which has an area of wild vegetation of 80 104km2

and ranksninth in the world. The India-Burma hotspot area consisting of the whole

Indo-China Peninsula, most parts of Yunnan, southeast of Tibet, Guangxi,

southern Guangdong and Hainan, has an area of 206 104km2 and is

the biggest hotspot area of bi odiversity i n the world, among which, about

30 104km2 in Yunnan, about 3/4 of the total area in Yunnan, lies in

and accounts for about 14.6% of the India-Burma hotspot area protracted

by Myers. (See the above chart)

about 3/4 of the total area in Yunnan, lies in and accounts for about 14.

6% of the India-Burma hotspot area protracted by Myers. ( See the above

chart)

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".

3

Dense Forest in S imao,Yunan Greenpeace 2004. 7


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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 euc alypt forest -pulp-paper integr at ion projec t b y 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.

A P P' s E uca lyp t p lan ta t ion in Y unnan Ju l y , 2004 Greenpeace Qi anma i v i l l age i n Lanc ang, S i mao, Y unnan


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"Put an end to large-scale logging in

principle means that it is forbidden to change

natural forests into artificial forests. New

logging ways which have less negative

impact such as cutting, planting and logging

or ecological logging should be promoted

in order to keep the area of natural forests

and the stability of natural forests system."

----- the State Forestry Administration's suggestion on the restrict manage-

ment of natural forests logging, the State Forestry Administration, forest asset

issue number, 2003, 223

Unit: 10000 mu

N o t e : * 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.

R e s o u r c e : 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.

Statistical Area Total Area Area of Afforestated Land Non-forestLand

Total Forested Land Thin Forest Land Bush Land Immature-forestLand Land Usable for Afforestation

Total 2641* 2051.8 1108.1 40 316.4 69 518.3 589.2

% 77.7 42 1.5 12 26 19.6 22.3

Simao Project Area 1091* 831.6 720.7 2.6 44.5 23.8 40 259.4

Wenshan Project Area 550 320.2 55.4 11.4 60.9 6.2 186.3 229.8

Lincang Project Area 1000 900 332 26 211 39 292 100

Statistics about the Various Land Areas of the Drafted Woodland Planting in Yunnan by Sinar Mas Group

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

2 7 ,5 0 0 , 0 00 mu e u c a l y p t p la n ta t i o n p ro je c t o f S in a r Ma s-APP in Yunnan

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 l ie : p lant ing forest s on barren land

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

The impac t o f l a rge -sca le p lan t i ng euc a lyp t s on t he b iod i ve rs i t y i n Yunnan

Eucalypt belongs to the Myrtaceae group, which was originally

found on the continent and neighboring islands of Australia in 1770. It

was first introduced into China's Guangxi Province in 1890 and was

then spread to 17 provinces, cities and autonomous regions in southern

China. China has now become the second largest eucalypt planting

country after to Brazil.

The large-area introduction and planting of eucalypts was once

good for forestation, vegetation cover and the supply of industrial raw

materials to southern China. However, over time and due to the expand-

ing scale, especially the large-area planting of a single species of tree,

a series of problems arose, including numerous ecological problems

such as soil retrogression caused by excessive use of soil fertility and

Food and Agricultural Organization of the United States concludes

in file number 59 made in 1985:

"We reaffirm in particular that eucalyptshould not be planted in large scale

before a meticulous and accurate

estimation of the social and economical

situation and the balance of advantages and

disadvantages. We'd better make a

systematic examination and cognizance of

the local ecological environment and the

need of inhabitants".

U n i t : 1 0 0 0 0 m u

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.

Afforestation planning area of Sinar Mas Group

Actual barren land area usable for afforestation


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14

The s tump and t runk of eucalypt t ree lef t af ter been c lear cut down Ju l y , 2004 Greenpeace i n Lancang, S i mao, Y unnan

Art ic le 39 of the Stat e Forest Law of China, states:

Who secretly logs forests or other trees should compensate the loss according to the law; The

administrative departments of forestry will order to replant ten times the number of trees logged

illegally, confiscate or sell off the trees logged illegally, and fine three times to ten times the value

of the trees logged illegally.

Who secretly logs forests or other trees should abide by the order of the administrative depart-

ments of forestry to replant five times the number of the trees logged illegally and to hand in the

fine of two times to five times the value of the trees logged illegally.

For those who refuse to replant the trees or don't replant trees according to related regulation, the

administrative department of forestry will replant the trees for themand the illegal woodmen will have

to pay the cost.

For those who secretly or illegally fell forests or other trees and whose conduct has become a crime,

they should be punished under the criminal law.


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15

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

resource. This will further put national ecological safety in danger.

"Agricult ure, rural areas and farmers" issue brought to a head by 27,500,000 mu euc alypt bases

The 27,500,000mus eucalypt fast-grown-trees base project has repeated the

same problems during development in other regions. The local financial situation has

improved; the economic safety and social stability of the whole country are in

greater danger.

The "Agriculture, rural areas and farmers" issue is considered the most impor-

tant problem by the central government and is put in the first and foremost position

by the Yunnan provincial government. However, while attracting merchants and

investment to this project, farmers have been deprived of some legal rights and

interests and they must bear the burden. Although planting eucalypts will benefit the

farmers in the short term, it will probably bring the return of poverty for some

farmers, the bankruptcy of some medium and small-scale enterprises, redundan-

cies and social instability in the long term. All these will put various levels of govern-

ments in a difficult situation.

There are f ive major problem s:

Information is not open and the procedures are illegal

The report of the Forestry Bureau of Yunnan province points out that because

the woodland and woods that are controlled by the government are changing and

the forest resources of the government are not investigated by units that are able to

carry out forestry investigation planning, the interests of the owners of forest rights

cannot be assured. No common people participate in the project. The rights, duties

and interests of the people are not clear. Whether they would like to be involved or

not is not clear, either.

The contracted rent is too low, which damages the interests of the

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

"At present, the situation of various

policy put into effect about the coun-

try assisting farmers and imbursing the

village communities should be put

into the content of opening up the

village affairs in time, such as the com-

pensation and distribution of land

confiscation, the contracting of the

flexible land and "barren lands, slopes,chimbs and bottomlands" in villages,

the right and debt of the village

community, tax and fee reform and

the policy of reducing and relieving

the agricultural tax, the "one affair, one

discussion" preparation of money and

labor in the village, new-type village

cooperation medical care, the direct

allowance of planting crops, the real-

ization of the money and objects of

quitting agriculture and backing to

forestry,. Anything else that the farm-

ers require to be made public should

be made public".

opinions about improving and perfecting the system of

opening up the village affairs and democratic manage-

ment General Office General Office of the State Council

(June 22ed, 2004)


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16

Local Turpent ine col lec t ing July, 2004 Greenpeace in S imao, Yunnan

Mas Group is RMB40 per mu over 50 years (equal to RMB0.

8 per mu each year). 55 All those participating in the project

considered the rent excessively low and reacted violently.

According to the Newsweek report, in Lancang County

alone, this kind of dispute occurred 57 times. 56

Previous forestry is affected. The incomes of farmers

has decreased and some farmers have even return to

poverty.

According to the calculation of the Forestry Bureau of

Lincang County, Simao City in Yunnan province, the forest-

planting task of the forest-pulp-paper integration project of

Sinar Mas Group can increase by RMB100 per capita.

However, along with the expansion of the local pulp and

Paper Company, many local Simao pines will suffer the fate

of being logged - Simao pines can bring continuing wealth to

local farmers. One Simao pine can be tapped five to six times

each month and farmers can continuously tap resin from it

for 20 to 25 years. The income of the 5,500 farmers who tap

resin is about RMB 7,000 per capita. When reminded of this,

some farmers cannot help crying. 57

Enterprise benefits and workers' interests are affected.

A report of the Forestry Bureau of Yunnan province mentions that the forest area of Simao City is only 23,690,800 mu.

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

redundancies and social instability.

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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17

Conc lus ion and Requirem ent s

Conclus ion

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 appea ls to ac t ion

To the Chinese government:

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

Yunnan province and reevaluate this project;

Resolutely prevent this APP plantation project in Simao City Yunnan; punish the destroyers of natural forests during the

execution of this project according to Article 39 of the State Forest Law.

TO ASIA PULP & PAPER (APP):

Greenpeace calls on APP to end its destruction of endangered forests around the world. To this end, APP must immediately:

Stop converting natural forests to plantations

End clear-cutting

End all illegal logging

Fully respect the rights of indigenous peoples and local communities

4


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19

Appendix 1:

Cases o f S inar Mas Group des t roy ing As ian fo res t s


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20

Case 1 The destroyer of Indonesian tropical rainforests

Backg round

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 GlobalForest 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

Sumatra is especially dire, in particular

the central province of Riau where APP

operates. According to WWF, 63 per-

cent of Riau was forested in 1990. Thisplummeted to 39 percent by 2002.5 The

World Bank, analyzing the rate of forest

loss, predicted that essentially all of

Sumatra's lowland forest would disap-

pear by 2005.6 The driving force is huge

overcapacity in the wood processing

industry. APP subsidiary Indah Kiat alone,

located in Riau, accounts for 40% of

Indonesia's pulp production. Today, eight

large forest blocks are remaining in Riau

and they are considered high conserva-

tion value forests (HCVF). 7APP and their

joint ventures have concessions in four

out of eight HCVFs (see the map).

In response to this crisis, environ-

mental and social groups across Indo-

nesia are calling for a moratorium on in-

dustrial logging. WALHI, the Indonesian

Map of High Conservation Value Forests (green) in Riau province, Indonesia, with APP and their join venture partners'

concessions overlaid in blue. Existing protected areas are shown i n red (proposed Tesso Nilo National Park, where WWF has

documented illegal logging, is area 6) [Source: WWF Indonesia]


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21

Forum for Environment, a coalition of 450 local environmental and social groups, has led the call for a moratorium. The Alliance 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.

APP des t roys anc ien t ra in fo res ts t o mak e room fo r p lan ta t ions

Indonesia's forests are in peril, and it is a well known fact that pulp mills in Indonesia rely on the clearcutting of natural

forests for their fibre supply. 8 APP is no exception: despite its use of acacia and eucalyptus plantations, it still consumes vast

quantities of mixed tropical hardwood (MTH).9 In fact, In 2002, three-quarters of APP's wood still came from natural forests.10

Ironically, APP and other companies claim that industrial tim-

ber plantations will help to take the pressure off of natural forests.

The reality couldn't be any more different. Millions of hectares of

natural forest in Indonesia have been destroyed in the name of

plantations, mostly Acacia mangium. As if this wasn't damaging

enough, in 75 percent of all cases, the plantations are never

actually planted.11 The reality is that APP will only stop clear cut-

ting natural forests once they have finished converting all their

tenures to monoculture plantations. Even then, they may still con-

tinue to source wood from natural forests clearcut by outside APP's Exca vator group in Indones ia t ropic al ra inforest WWF

I l l ega l l ogg ing a rea in Tesso N i lo WWF Indonesia


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22

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 convert ing. 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,

some of them reaching a height of 50 meters.

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

done nothing to solve the problem of illegal logging.18

APP and i l legal logging

Today, the forestry industry in Indonesia is out of control in regards to corruption and illegality. Up to ninety per cent of all

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

is used by APP retains legal documents."23

On the contrary, there is solid proof that APP is directly implicated in illegal logging. WWF Indonesia's Forest Crimes Unit has

uncovered the following well-documented cases of illegal activity:

Based on careful mapping, WWF has demonstrated that APP wood supplier Mapala Rabda logged illegally inside the Bukit

Batu Nature Reserve.24


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Where to get further information in English

www.wwf.or.id/tessonilo/Default.php?act=reports (WWF Indonesia. Various reports on efforts to stop APP from destroying the Tesso Nilo forest)

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.foe.co.uk/resource/reports/paper_tiger_hidden_dragons.pdf (Friends of the Earth. UK NGO)

www.hrw.org/reports/2003/indon0103 (Human Rights Watch. NGO. Report on human rights violations by APP and other companies. Click on

"Printer-friendly version" to download)

Indigenous inhabi tants WWF

APP logged illegally in Mapala Rabda by

logging three months past a permit had expired,

and by logging 370 percent above the legal

maximum volume. 25

APP purchased wood illegally from the

proposed Tesso Nilo National Park as recently

as in April 2004.26Forest Rescue Alliance Riau,

consisting of three local NGO networks - WALHI,

JIKALAHARI and ORNOP Association Riau,

found strong evidence that wood illegally har-

vested 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 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 evidence 29 that it seems

incredulous that APP would even try to dispute their clear involvement in illegal logging.

APP and human r i ght s abuse

Arara Abadi, owned by APP's parent Sinar Mas, is a major plantation developer in Indonesia. Like most plantation companies,

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

of the Sakai peoples' forest gardens.31


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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.

Backg round

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

referring to itself as the Green Elite Group.36

The scandal began in mid-March 2004 when the Green Rich/Elite Group brought logging equipment and workers to the northern

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

company were preventing workers from leaving the concession.

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

ignore the suspension order.

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.


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25

According to a company representative, the wood chips will be exported from the plantation site to China for pulp and paper

manufacture46.

Expans ion

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

2004 in Koh Kong Province49.

Eyeing the rest of Asia

For the most part, APP has been logging in the forests of Indonesia and China, and recent investigations have shown that they

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 andpaper 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

sign a 49-year timber supply lease for the project.50

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

Malays ia

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.


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26

1 Holmes, D. 2000. Deforestation in Indonesia: A view of the Situation in 1999. Jakarta, Indonesia:

World Bank. Draft Report of July 3.

2 Pak Boen M. Purnama, 2003. Sustainable Forest Management as the Basis for Improving the Role

of the Forestry Sector. Indonesian Department of Forestry.

3 The Brazilian Amazon is four times the size of Indonesia's forests. The annual deforestation rate in

the Brazilian Amazon in 2001/2002 was 2.55 million hectares. (www.panda.org/news_facts/

newsroom/press_releases/news.cfm?uNewsID=7651)

4 Holmes, D. 2000. Deforestation in Indonesia: A view of the Situation in 1999. Jakarta, Indonesia:

World Bank. Draft Report of July 3.

5 Japan Times (February 5, 2004) "Effort to curb Sumatra logging: WWF enlists importers, NGOs to

fund preservation"

6 World bank. 2001. Indonesia: Environment and Natural Resource Management in a Time of

Transition. Washington D.C. Report in PDF format available from the World Bank website,

www.wds.worldbank.org/default.jsp?site=wds

7 Jarvie, J., Dedy, K. and Jennings, S. (February 2003) "A Preliminary Assessment of High

Conservation Value Forests in Riau, Sumatra."

8 FWI/GFW. 2002. The State of the Forest: Indonesia. Bogor, Indonesia: Forest Watch Indonesia,

and Washington DC: Global Forest Watch.

9 Paperloop (June 14, 2004) "APP upgrades Indonesian pulp mills"

10 Far East Economic Review (April 11, 2002) "APP's Ambitious Plan for Sustainable Plantations"

11 FWI/GFW. 2002. The State of the Forest: Indonesia. Bogor, Indonesia: Forest Watch Indonesia,


12 Barr, C. 2000. "Profits on Paper: The Political-Economy of Fiber, Finance, and Debt in Indonesia's

Pulp and Paper Industries." In Christopher Barr, Banking on Sustainablility: A Cr itical Assessment

of Structural Adjustment in Indonesia's Forest and Estate Crop Industries. Bogor, Indonesia: CIFOR

and WWF.

13 Pers. comm. Longgena Ginting, WALHI, Indonesia.

14 Kompas (June 28, 2004), Kompas (June 29, 2004), Riau Pos (June 29, 2004). In WWF Indonesia,

"Government Plans to Sue Asia Pulp and Paper Over Forest Fires: Maps and Media Reports", July

11, 2004; The companies include Arara Abadi and Mapala Rabda, part of the Sinar Mas Group,

plus two other pulpwood suppliers to APP, Hamidah Hamidi and Sri Buana Damai.

15 Paperloop (October 13, 2004) "Court ruling on Indonesian forest fires delayed"

16 Spektrum der Wissenschaft 2004 (February 2004) "Brennende Regenw?lder." In Jens Wieting.

2004. Clearcut Paper: APP, APRIL and the End of the Rainforest in Sumatra's Riau Province.

Hamburg, Germany: Robin Wood.

17 WWF Indonesia, Press Release (October 12, 2004) "WWF welcomes APP's forest conservation

measures but wants more"

18 Ibid.

19 Greenpeace UK. 2003. Partners in Crime. www.saveordelete.com

20 Remarks By the Minister of Forestry of the Republic of Indonesia at the Twelfth CGI Meeting

Denpasar, January 2003. http://mofrinet.cbn.net.id/informasi/CGI/CGI_03/remarks_12th.htm

21 Reuters (January 28, 2003). "Restructuring Forest-based Industries of Indonesia"22 FWI/GFW. 2002. The State of the Forest: Indonesia. Bogor, Indonesia: Forest Watch Indonesia,


23 Asia Pulp & Paper (July 2004) "APP Responds to WWF Indonesia Reports on Illegal Logging"

24 WWF (June 8, 2004) "Legality of Timber Consumed by Asia Pulp and Paper's Mills in Indonesia:

January - October 2003" and WWF (July 13, 2004) "Analysis of APP Response to WWF Indonesia's

Reports on the Company's Involvement in Illegal Logging"

25 WWF (July 13, 2004) "Analysis of APP Response to WWF Indonesia's Reports on the Company's

Involvement in Illegal Logging"

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

Indah Kiat Pulp and Paper Mill in August 2003 and April 2004"

27 FRAR (September 2004) "Strong Evidence that PT Indah Kiat Pulp & Paper Received Illegal Wood

from Tesso Nilo in July 2004. "

28 WWF (June 8, 2004) "Legality of Timber Consumed by Asia Pulp and Paper's Mills in Indonesia:

January - October 2003"

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"

30 Human Rights Watch. 2003. Without Remedy: Human Rights Abuse and Indonesia's Pulp and

Paper Industry. Washington, London, Brussels. Vol. 15, No.1.

31 Walhi & YLBHI, "Mistaking Plantations for Indonesia's Tropical Forests", 1982, Pulping the South:

Industrial Tree Plantations in the World Paper Economy, Carrere, "A Race to the Bottom", 1999.

32 Luke Reynolds, "Forestry Giant Lobbying for Huge Plantation", Cambodia Daily, Issue 99/29,

September 15, 2004.

33 Letter from the Cabinet of Samdech Chea Sim for the Chinfon Group requesting more than

150,000 hectares for establishing a tree plantation, dated September 15, 1997, reference 884/

9 Khor Cho Sar 97.

34 Investment Agreement on Agricultural Development signed between the Minister of Agriculture,

Forestry and Fisheries, Tao Seng Hour and the Green Rich Co. Ltd. director Shen Shang Pang,

dated 25 November 1998.

35 Interview with Deputy Chief of Environment Department of Koh Kong Province, April 10, 2004.

36 Request letter from Vincent Chan, Director of the Green Elite Group for armed security for the Green

Rich concession, reference 17 Kor Hor Hor Ro, dated May 10, 2004.

37 Solana Pyne and Luke Reynolds, "Minister Says Projects Won't Hurt Environment", Cambodia Daily,

Issue 02/30, September 17, 2004.

38 Kuch Naren and Luke Reynolds, "Worker's Search for Good Jobs Led to Abuse", Cambodia Daily,

Issue 11/29, May 13, 2004.

39 Yun Samean "Police Rescue Workers From Timber Company", Cambodia Daily, Issue 10/29, May

12, 2004.

40 Royal Messages 2004, "Mon 1er message pour le 9 mai 2004", www.norodomsihanouk.info

41 Letter signed Minister of Environment, Mok Mareth, dated May 13, 2004, reference #119.

42 Letter to Wildaid informing the NGO that the Green Rich land concession is approved by the

government and that the confiscated chainsaws are legally registered, dated April 2004, reference

043 Bor S'thor Khor Kor Kor.

43 Road construction contract signed between Huot Roath Sady, sub-contractor and Vincent Chan

of the Green Elite Group on May 19, 2004.44 Letter from Director of the Botum Sakor National Park to the director of Wildaid informing the NGO

of the Ministry of Environment's decision to authorize planting in the National Park, dated August

21, 2004, reference 50/04 BSNP.

45 October 22, 2004,interview with Green Elite sub-contractor.

46 Interview with financial officer Chin Vin Chhin, September 1, 2004.

47 "We also recognize that without improved governance, including more transparency, an enforce

able legal framework, and improved monitoring and oversight, we are not likely to overcome the

obstacles posed by corruption and a lack of capacity. We see bringing effective transparency,

enforcement, monitoring and accountability to forestry management as one of the toughest chal

lenges in Cambodia." World Bank Group, Cambodia: Independent Forestry Sector Review, World

Bank Comments and Proposals for Going Forward, October 18, 2004.

48 For example the deputy cantonment chief for Koh Kong provincial Forest Administration is the owner

of the Pailin Hotel in Koh Kong Town which is rented by Green Rich as office space. According to

hotel staff the premises are seldom used by the company. One Green Elite company representative

is Lieutenant Colonel Keo Vuthy who presents himself as the assistant to Major General Hing Bun

Heang, acting commander of the B70 Bodyguard Brigade and deputy chief of Cabinet of the Prime

Minister. The chief of cabinet being Lieutenant General Kun Kim, also deputy commander in chief

of the Royal Cambodian Armed Forces.

49 Letter to the Minister of Agriculture, Forestry and Fisheries, signed Paul Yu, Director of Green Elite

Group, dated 9 April 2004.

50 Paperloop (September 21, 2004) "APP China flirts with major investment in Russia"

51 Novosti Gazette, July 15, 2004

52 Friends of the Earth. 2001. "Paper Tiger, Hidden Dragons: The responsibility of international

financial institutions for Indonesian forest destruction, social conflict and the financial crisis of Asia

Pulp & Paper" London, UK.

53 Ibid.

54 Paperloop (June 21, 2002) "Sarawak reclaims forest licenses allocated to Borneo Pulp & Paper"

Notes


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About p lanta t ions

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

been known to be equally problematic.

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

in the name of plantation development.

About euca lyptus

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:


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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

"productive" monoculture plantations of Eucalyptus.13

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


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APP eucalypt plantat ion in Indones ia Robin Hood

eventually went into debt and eventually lost their land.17 Numer-

ous other case are well documented in Thailand.18

Conclus ion

Perhaps the best way to conclude this chapter on euca-

lyptus is to cite the conclusions from the United Nations Food

and Agriculture Organisation (FAO) Forestry Paper 59. Written

in 1985, its conclusions are just as relevant today as they were

then:

We stress that eucalypt should not be planted, especially

on a large scale, without a careful and intelligent assessment of

the social and economic consequences, and an attempt to bal-

ance advantages against disadvantages. This can probably best

be done by a systematic examination of the ecological circum-

stances and of the needs of local people.19

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 ecolgicos de los eucaliptos [The Ecological Effect of Eucalyptus],

FAO Forestry Paper 59, FAO, Rome.


6 "An Assessment of the Allelopathic Potential of Eucalyptus" (May and Ash (1990): Austr. J.

Bot, 38: 245-254)

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.


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 ecolgicos de los eucaliptos [The Ecological Effect of Eucalyptus],

FAO Forestry Paper 59, FAO, Rome.

Notes


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Appendix 3:

Ot her m at er ia ls abou t APP, S inar Mas Group


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5

Pres ident and CEO:

Shareho lders:

As ia Pu lp & Pape r Company L td .

O T C B B :

Surabaya Stock Exchange (SSX):

Sa les in 1999 *****

Company webs i t es

Region Million US$ Percent

China (incl. Hong Kong) 1030 33%

Indonesia 521 17%

Rest of Asia 645 21%

European Union (EU) 377 12%

Rest of World (incl. USA) 562 18%

Oei Tjie Goan(Teguh Ganda Wijaya)

the Widjaya family are controlling shareholders (67% in 2001)

69 Loyang Drive, 118 Pioneer Road

Singapore 508958, Singapore 639598

Tel +65-6477-6118

Fax +65-6477-6116

Website www.asiapulppaper.com

E-mail [email protected]

APUUY (formerly listed as NYSE: PAP)

subsidiaries listed under symbols TKIM, LPPI, INKP, PIDL

APP www.asiapulppaper.com

China APP China www.app.com.cn

Gold East Paper www.goldeastpaper.com

Gold East Paper (USA) www.goldeastpaperusa.com

Gold Hua Sheng Paper www.goldhs.com.cn

Zhenjiang Dadong Pulp & Paper www.app-dadong.com/

Ningbo Zhonghua Paper www.zonghua-paper.com

Gold Hong Ye Paper www.ghy.com.cn

Jin Yu (Qingyuan) www.jti.com.cn

Yalong Paper Products www.yalongpaper.net

OPexpress www.opexpress.com

Jin Xin (Qingyuan) www.appjpi.com

Shanghai Xinlun Paper (not purchased yet) www.xinlun.com.cn

Other Paperline www.paperline.co.id

Pak 2000 www.pak2000.com

Sina r Mar Grou p ------- APP

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Sinar Mar Group APP China and aff i l iat ed Inc . Logo

34


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7

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.

investigative report on app's forest destruction in yunnan

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