A government regulation issued in 2016 requires logging companies to restore peat with protected status in their concessions, mostly in Sumatra, and prohibits them from developing on it.
But activists say this prohibition threatens a massive supply shortfall for two of the world’s biggest paper producers, which they warn could push the companies to source wood from unprotected forests in other parts of Indonesia.
Asia Pulp & Paper (APP) and Asia Pacific Resources International Limited (APRIL) face a supply crunch of up to 30 percent and 25 percent respectively, according to an analysis by NGOs.
Both companies dispute this finding, saying their supplies remain secure even as they seek to boost their output.
JAKARTA — A logging prohibition in Indonesia aimed at protecting peatlands threatens a supply crunch for two of the world’s biggest paper producers that could drive them to source wood from as-yet-untouched forests elsewhere in the country, a recent study indicates.
Suppliers of pulpwood, typically acacia, to Asia Pulp & Paper (APP) and Asia Pacific Resources International Limited (APRIL) are subject to an Indonesian government regulation that prohibits them from clearing peat forests with protected status, such as those with peat layers deeper than 3 meters (10 feet) and those that contain high biodiversity. The regulation, issued in 2016, also stipulates the conservation of at least 30 percent of all peat domes — landscapes where the peat is so deep that the center is topographically higher than the edges. Newly conducted spatial analysis shows that this type of peatland accounts for a combined 12,000 square kilometers (4,600 square miles) of these suppliers’ concessions — an area half the size of Vermont — located mostly in Sumatra.
The study was carried out by a group of NGOs trying to verify whether the companies were complying with the regulation to conserve these deep-peat areas of their concessions.
“We don’t know whether the peat concessions that should be protected have actually been rehabilitated or not,” Syahrul Fitra, a researcher with one of the NGOs, Auriga, told Mongabay. “We can’t access the work plans for conservation submitted by the companies to the government, and thus we don’t know what the companies are doing.”
So the NGOs overlaid a government map of peat areas onto maps of the pulpwood concessions reportedly supplying wood to APP and APRIL. Their analysis showed the suppliers’ total concessions spanned 41,000 square kilometers (15,800 square miles), over a quarter of which constituted peat forests that should be protected.
These affected zones represent 30 percent of the plantation area in APP’s supply chain, and 25 percent of APRIL’s, according to the analysis.
Protecting them from being cleared for planting pulpwood would therefore be “likely to have significant negative impacts on each group’s overall wood fiber supply,” the study says.
But in trying to protect areas of deep peat, the government regulation may inadvertently push the suppliers to clear forests elsewhere for their plantations, the study says. This includes the vast and mostly intact natural forests of Papua, in Indonesia’s far east, where oil palm growers are already clearing the land after having depleted much of the forests in Sumatra and Borneo.
Feeding the mill
The potential supply crunch thrown up by the peat protection regulation comes as both APP and APRIL look to ramp up their pulp output.
APP opened a massive new pulp mill in southern Sumatra’s Ogan Komering Ilir (OKI) district at the end of 2016, rated at maximum capacity to process 2 million tons of pulp a year. The company said it could feed the mill entirely through its own pulpwood plantations without having to rely on outside suppliers. But a 2016 analysis by various NGOs show APP’s overall demand for wood fiber in Sumatra could rise by more than 50 percent.
APP’s current planted area, then, even under a high-growth scenario, won’t be sufficient to supply the company’s new mill and two older ones, with the company projected to face an annual shortfall of 3 million cubic meters (106 million cubic feet) of plantation wood.
And that was before it was revealed that the new mill had actually been approved for a much higher maximum capacity: 3.25 million tons a year
This has stoked fears among environmental activists that APP will have to source its supplies from natural and peat forests to feed the mill, as the company’s demand could increase by 85 percent if production at the OKI mill ramps up to the full 3.25 million tons.
For its part, APP says it will not resort to clearing rainforests even after the OKI mill is operating at full capacity. It says it’s committed to its forest conservation policy (FCP) that espouses zero deforestation. Under the pledge, APP says it won’t accept timber sourced from the clearing of peatlands and rainforests.
Auriga’s Syahrul questioned APP’s commitment, saying the company faced a supply shortfall even before taking into account its suppliers’ concessions affected by the peat protection regulation. The coalition’s analysis identified more than three-quarters of concessions in South Sumatra supplying wood to the OKI mill are on peatlands.
Their spatial analysis shows that the largest areas overlapping with the peat protection zone are those surrounding the OKI mill, comprising nearly half of the land expected to be planted with pulpwood to serve as the mill’s fiber supply base.
“If it’s true that APP’s existing suppliers must restore their concessions located within protected areas, then the suppliers won’t be able to meet the demand from APP because almost half of their concessions are affected,” Syahrul said.
“So according to our analysis, the OKI mill will be heavily affected” by the regulation, he added.
APP has downplayed the concerns, saying it has sufficient supply to meet projected demand at its mills through at least 2020. It says it has improved yields by cutting waste and cloning the most productive tree species for its plantations.
Importing wood chips is also an option, the company said in a response to questions from Mongabay. “This allows us to purchase responsibly managed plantation wood chips from South East Asia and Australia to maintain adequate supplies of wood chips,” it said.
APP has added 35 new suppliers since March 2018, according to its FCP monitoring website, including chip mills in Malaysia, Australia and Thailand. Fifteen of them were added in 2019 alone. The company says it’s taking on new suppliers to mitigate fluctuations in demand and local supply and to ensure future supply.
Syahrul, though, said this onboarding of dozens of new suppliers only “affirmed our suspicion that APP doesn’t have enough supply.”
Elim Sritaba, APP’s director of sustainability and stakeholder engagement, said the company could guarantee a sufficient fiber supply because it sources more than 96 percent of its fiber from existing suppliers. Only 2.5 percent of its fiber comes from one-time suppliers — the sole component of its supply chain for which supplies can’t be guaranteed in the long term — while the rest is sourced from community plantations under long-term partnerships, Elim said.
“Even if we can’t secure the 2.5 percent fiber supply, we can just adjust our production,” she told Mongabay. “The question of whether there’s enough supply or not is merely about business. Recently we shut down our OKI mill because our pulp stock was too high and also for maintenance.”
Syahrul said this in itself raised more questions. Seventy percent of the $2.6 billion tab for the initial phase of the OKI project was financed through loans from Chinese state-owned banks. The initial loan from China Development Bank has been described as “one of the largest financings ever signed between Indonesian and Chinese interests.”
Activists like Syahrul say APP’s ability to pay off those loans depends on the profitability of the OKI mill, and thus APP may have no choice but to operate the mill at full capacity to service that debt within the 12-year tenure.
APP, though, says paying off the loan “is not the responsibility of any single mill, but a shared responsibility borne by APP as a group,” and that to date the OKI mill is operating profitably below a threshold of 2.8 million tons a year.
Fiber for fashion
Syahrul has raised similar concerns about APRIL, whose parent company, Royal Golden Eagle (RGE), needs a growing supply for plant fiber as it expands into the textile industry in Indonesia.
At its Kerinci complex in Sumatra’s Riau province, where APRIL’s flagship mill is located, RGE recently built a large mill to produce viscose staple fiber (VSF) from plant cellulose. VSF is increasingly popular in the textile industry as a less water-intensive, and thus eco-friendly, alternative to cotton.
During the annual World Economic Forum in January, RGE director Anderson Tanoto said VSF could help the fast-fashion industry become more sustainable, touting it as biodegradable and “sourced from sustainably managed tree plantations.”
But the spatial analysis of APRIL’s suppliers shows the two concessions that have historically been the prime sources of pulpwood for the mill in Riau will be particularly affected by the peat conservation program.
The analysis found that a combined 2,383 square kilometers (920 square miles) of these two concessions, controlled by APRIL subsidiaries PT Riau Andalan Pulp & Paper (RAPP) and PT Sumatera Riang Lestari, fall within peat protection zones. Together, they represent 40 percent of the concessions of APRIL’s suppliers that should be protected, the NGO coalition says.
Like APP, APRIL has made corporate commitments to manage its plantation operations on drained peatland areas responsibly. But the coalition says both companies’ commitments need to be monitored through strict government supervision “to ensure that the peat protection zones within their licensed areas remain protected.”
Responding to the supply concerns about its new foray into the textile industry, APRIL said there wouldn’t be an increase in production capacity, and thus no increase in the group’s overall pulpwood requirements.
“Dissolving pulp production will be done within the current pulp production capacity of 2.8 million tons [annually],” APRIL said. “Volume will be periodically determined based on market demand.”
However, the coalition said the company had not released enough details about its expansion for independent analysts and civil society organizations to verify the claim.
APRIL said that while it couldn’t disclose its long-term wood supply plans because they were commercially sensitive, production capacity will remain at 2.8 million tons a year until at least 2025. Like APP, the company says it is also looking to increase efficiency and cut waste in order to boost productivity.
Syahrul said APRIL was still exporting dissolving pulp, from which VSF is made, to its sister company in China, Sateri, which also produces the fiber, putting further pressure on its supply. In 2016, APRIL exported 90,000 tons of dissolving pulp to Sateri mills in China; export volumes increased to 240,000 tons in 2017 and an estimated 500,000 tons in 2018.
APRIL said it would reduce its exports to accommodate the demand from the Kerinci mill, targeted to produce 240,000 tons of VSF a year.
“Reducing exports aren’t that easy if there are long-term contracts,” Syahrul said. “And if they do reduce their exports, will it be by the same amount as the increase in demand due to their expansion in Indonesia? Or will they still need to increase their production? If it’s the latter case, then there’s a possibility they will open up new plantations or continue cultivating on peatlands.”
The tree from which APRIL derives its dissolving pulp is an acacia species, Acacia crassicarpa, grows best on peatland. Syahrul said this indicated the company would continue “cultivating in protected peat areas by planting Acacia crassicarpa based on the justification that the species is peat friendly.”
“But planting a species suitable on peatland isn’t the same as restoring peat,” he added.
The company said that “regardless of source, all wood supply that comes into APRIL’s mill must comply with our Sustainable Forest Management Policy. The safeguards for sustainable fiber production are well in place and independent audit shows we are upholding these commitments.”
The Ministry of Environment and Forestry says 67 pulpwood firms and 127 plantation firms that are required to protect and rehabilitate their peat concessions have already done so. In all, they have restored 31,000 square kilometers (12,000 square miles) of peat areas nationwide, according Karliansyah, the ministry’s head of environmental degradation mitigation.
He said the government’s Peatland Restoration Agency (BRG) had restored another 9,000 square kilometers (3,500 square miles), for a combined total that far exceeds a national target of restoring 24,000 square kilometers (9,300 square miles) of degraded peatlands by 2020.
But the NGO coalition disputes that claim, saying the 31,000-square-kilometer figure for the private companies cannot be independently confirmed. Syahrul said the government had failed to disclose detailed information on the implementation of the companies’ restoration plans or any follow up to the plans, which are required to be carried out immediately upon approval.
“We were surprised when we heard the number,” he said. “We can’t get the names of the companies, and so there’s no way for us to check the number. And that figure is only an aggregate, it only distinguishes between pulpwood plantations and palm oil plantations.”
Karliansyah said the ministry couldn’t publicly disclose the data for each company because of privacy concerns. Both APP and APRIL also declined to disclose their peat restoration plans, saying only the Ministry of Environment and Forestry had the authority to decide whether the documents should be made public.
APRIL said an ecosystem restoration program it launched in 2013 aimed to restore 1,500 square kilometers (580 square miles) of peat ecosystem on Riau’s Kampar Peninsula. APP said it had retired 70 square kilometers (27 square miles) of plantation land, an initiative announced in 2015. That area represents less than 1 percent of the peat concessions managed by the company and its suppliers as indicated by the NGO coalition.
APP’s Elim said the company had since 2015 retired more than the initially declared 70 square kilometers, but wouldn’t give a new figure, deferring again to the government. She said the focus of the peat protection initiative shouldn’t be on the total area restored, but on the quality of the restoration, especially the effectiveness of efforts to rewet drained peatlands.
“So we don’t want to focus on the number. That’s why APP always reports on forest fires” in its concessions, she said.
Syahrul said the government and companies should still disclose their peat restoration plans and progress to the public to allow for independent verification of their claims.
“Because if we’re talking about natural resources, we’re not only talking about the rights of the companies, but also the implication [of their businesses] on the greater public,” he said. “When these companies fail to restore their concessions and they start burning again, those affected will be the public.”
The secrecy surrounding companies’ peat restoration efforts also threatens to derail the wider move to restore peatlands nationwide, given that the largest area of such ecosystems falls within existing concessions.
Syahrul said it was also crucial to restore peat ecosystems as a whole, not partially, because fires could still spread from unrestored peat concessions to restored areas.
Government-restored areas, he said, “are connected to peat areas inside concessions. And if you truly want to restore a peat ecosystem, you can’t do it partially.”
For a government agency like the BRG to ensure the restoration initiative is effective, it needs access to companies’ full restoration plans documents, he added.
“It’s just wrong to see an institution established solely to restore peatland not be given access to that information,” Syahrul said. “The BRG can’t even monitor [peat restoration progress] if it’s located inside a company’s concession.”
Banner image: Fire set for peatland clearing in Riau Province, Indonesia in July 2015. Image by Rhett A. Butler/Mongabay.