Environment minister recommends Indorayon closure

Down to Earth No. 44, February 2000

The people of Porsea and environmental groups were delighted by Environment Minister Sonny Keraf's recommendation to the Cabinet on January 18th that PT Inti Indorayon's paper pulp and rayon fibre plant should be closed down or relocated. But their ten-year struggle against the pollution caused by this factory near Lake Toba in North Sumatra is far from over.

The battle-lines between supporters and opponents of the pulp mill were drawn long before the environment minister announced his review of controversial developments back in November. This includes Freeport's Grasberg mine, the Central Kalimantan swamp rice mega-project and the import of mud from Singapore, in addition to PT Indorayon (PT IIU) (see box, toxic imports section). The Porsea factory has been effectively closed since mid-1998 following massive protests from the local community and violent confrontations with local security forces (see DTE 38). The (then) president, Habibie, officially stopped production in March 1999. Local people report that the air quality is now much better; the stench from the factory has gone; rice production is higher than previous years; fish ponds are flourishing; and corrugated iron roofs are not attacked by corrosion.



A 'total audit' of environmental and social impacts ordered by Habibie's interim regime in 1998 has yet to start. The decision as to which independent consultants would carry out the audit was scheduled for September last year, but no announcement had been made by the new government as DTE went to print. Companies from Germany, the United States, Canada, Finland and Australia are said to be among the bidders.

In November, the Environmental Commission of Indonesia's House of Representatives (Komisi VIII DPR) advised the new government to revoke Indorayon's operating licence. Within a few days Minister of Trade and Industry Jusuf Kalla said PT IIU should start operating again. "Such a factory today will need US$1 billion investment to establish. The export value, which reaches about US$100 million a year, and the ability to absorb 7,000 workforce mean something to the state and the people". The minister has talked to the governor of the province and IIU's management about the possibility of dialogue to restore the confidence of foreign investors. Indorayon is a part of the Raja Garuda Mas conglomerate controlled by lndonesian businessman Sukanto Tanoto. Indorayon is 86% foreign owned. Listed on the Jakarta and Surabaya Stock Exchanges, it is also traded in the USA through depository receipts.

Meanwhile, Indorayon's management announced that the new government had given the company 'approval in principle' to resume production. It claimed that it could no longer wait for the independent audit since the closure had already cost the company nearly US$200 million in lost profits and operational costs. It promised to resume negotiations with the local community over their grievances and to donate one per cent of its production costs (some Rp5 billion - US$715,000) to community development projects. Indorayon's Director Bilman Philipus Butar said the company would set up local timber co-operatives to ensure the mill's supply of raw materials. The local assembly (DPRD) are said to be in favour of reopening given the importance of the pulp factory's contributions to employment and the local and national economy. From next year the administration will benefit directly from revenues generated by Indorayon under recent local autonomy laws.

The environment minister made a controversial visit to Porsea in mid-December during a local festival. Local authorities tried to dissuade Sonny Keraf for fear of kidnapping by protestors. Around 10,000 people gathered to celebrate the selection of a new president and new government, plus the introduction of laws giving more power to the local (district) administration, with traditional dances, singing and speeches. The minister attended the second day of the Toba gathering with the deputy governor of N. Sumatra and addressed a crowd yelling "Close down Indorayon!". However, he did not attend an Indorayon-sponsored seminar where he was expected as keynote speaker. Keraf was welcomed enthusiastically by local people as the first central government figure ever to have visited them and pleased the crowd by saying "Natural resources should be for the community". He told reporters that he would raise the PT IIU issue with President Wahid on his return to Jakarta, but stated that the right to close the pulp plant was not within his power.

A few weeks later, Keraf announced that Indorayon should be closed after a departmental review showed the company had violated environment department policies on pollution and toxic waste; had not implemented environmental management plans; and there had been no official verification of the 1996 environmental audit by international consultants Labat Anderson. The 1993 chlorine release incident also raised serious questions about the maintenance of equipment and health and safety compliance (see DTE 24). He said there was no need to conduct another audit. "The company can no longer be trusted with environmental concerns. They have broken so many promises," the minister told reporters. Keraf suggested Indorayon should be allowed to relocate its operations to another area subject to an environmental impact assessment for the new development. He explained that he is not 'anti-industry' but insists that industry must accept its environmental responsibilities.

Reaction to the recommendation for Indorayon's closure was swift and predictable. The company expressed shock and claimed the minister had based his decision on out-of-date information. Other members of the government, including the ministers for trade & industry and investment & state enterprises and the director general for chemical, agriculture and forestry industries, expressed fears about the message the Indorayon case sends to foreign investors. Trading in the company's shares was suspended on the Jakarta Stock Exchange the day after Keraf's announcement, but then reopened. Ignoring data from local communities and environmental NGOs and the evidence of their own eyes (and noses) about Indorayon's past and continuing pollution record, proponents of Indorayon all insisted that a definitive ruling could only be made once an independent audit proved the company violated Indonesian law. They also emphasised that Indorayon has all the necessary legal permits and is a legitimate, corporate taxpayer and employer – like many other major businesses sanctioned by the Suharto regime. They accuse Keraf of bowing to mob rule.

In the long-term, the pro-Indorayon forces are likely to win the day. Closing Indorayon would set a precedent for action against other companies which have violated environmental regulations and human rights principles with impunity for so long. In Indonesia's current economic climate, there is a very real possibility that Wahid's government will pay more attention to investor confidence than to the violation of environmental laws or the health of communities in the vicinity of industrial developments.

(Sources: Indonesian Observer 9/Nov/99, 25/Nov/99; Media Indonesia 23/Nov/99; Jakarta Post 2/Dec/99, 19/Jan/00, 20/Jan/00; Walhi N. Sumatra press release 12/Dec/99; Republika 14/Dec/99; Suara Pembaruan 29/Dec/99, 20/Jan/00; Bisnis 11/Jan/00,18/Jan/00)