Export credit finances destructive, debt-laden projects

Down to Earth No. 49, May 2001

A new NGO report has drawn attention to the role of export credit lending agencies in pulp and paper mills and other projects in Indonesia, which have led to increased deforestation and abuse of people's rights. Export credit lending agencies (ECAs) based in industrialised countries fail to require even minimal environmental standards when backing projects, according to the report published in February by the Indonesian NGO, Bioforum, and the US-based organisation, Environmental Defense.

The report is part of an international campaign to push government-backed export credit agencies designed to promote overseas investment to develop social and environmental guidelines. It includes four case studies, the PT Tanjung Enim Lestari (PT TEL) pulp mill ; PT Riau Andalan Paper and Pulp (APRIL); Sinar Mas Group/Indah Kiat; and the Paiton power project.

The PT TEL pulp mill in South Sumatra, which started commercial production last year, is already causing serious pollution problems. Authors of the NGO report visited a village near the mill's waste disposal site where they found that adults and children who bathed in the water had developed skins ulcers since the mill's start-up. The mill's long history of social conflict involves PT TEL's sister company, PT Musi Hutan Persada which took over productive farm and local plantation lands belonging to local villagers for pulpwood plantations. Farmers who opposed the take-over were threatened by the local authorities and security forces.

A US$ 1.5 billion finance package was approved for the mill in 1994 by Canadian, Finnish, German, Japanese and Swedish ECAs. A further US$1.3 billion was agreed three years later. 
(For more details of the others involved in financing and background to the project see "Pulping the People".)



A five-day conference on the Indonesian pulp and paper industry and the role of export credit and insurance agencies was held in April in the Palembang, South Sumatra, near the PT TEL pulp mill.

One of the speakers, Togu Manurung of Forest Watch, said that about 90% of the raw materials used by the top ten national pulp and paper companies were taken from natural forests illegally.

The conference was organised by WALHI and NADI Palembang. 
(Indonesian Observer 5/Apr/01)


German backing for Indah Kiat's Riau mill protested

Another pulp project backed by ECAs - from Germany, the US, Canada, Sweden, Finland and Spain - is PT Indah Kiat Pulp and Paper's mill in Riau province, Sumatra. The mill has been fed by timber logged from natural forests amounting to 278,000 hectares over the past 12 years, according to the Centre for International Forestry Research (CIFOR). It has also been embroiled in conflict over land, pollution and using timber from illegal sources. In February PT Arara Abadi, the wood supplier to Indah Kiat's mill, supported by paramilitary and police forces, attacked the village of Betung. Fifty eight villagers were arrested and delivered to Kampar district police station, where they were charged with stealing wood. Local people's houses were destroyed and burned during the raid. The action followed years of conflict over the expropriation villagers' land for the company's 68,000 hectare timber plantation.

NGO activists protested against German backing for Indah Kiat when German President Johannes Rau visited Indonesia in February. A letter of protest signed by nine organisations, pointed out that the German export credit agency, Hermes Bürgschaften, had provided over a billion DM in guarantees to pulp and paper projects in Indonesia, including Indah Kiat, PT TEL and another conflict-ridden project, Riau Andalan. The organisations demanded that the German government "keep its promise to reform Hermes and refuse to guarantee projects that cause social conflict, destroy the environment or damage human health". They also urged Hermes to evaluate Indah Kiat's activities and help find solutions to the problems associated with the mill.

Indah Kiat is part of the Sinar Mas Group, owned by Asia's biggest paper and pulp company outside Japan, APP. APP, has become infamous as one of the most heavily indebted companies in emerging markets, owing an estimated US$13.4 billion. In March the company announced it was suspending payments to creditors while it undergoes an undefined period of debt-restructuring.

(IPS 21/Feb/2001; Export Credit Agency Finance in Indonesia, by Stephanie Fried, Environmental Defense, and Titi Soentoro, Bioforum, December 2000; Protest letter signed by AMAN, Bioforum, ForestWatch Indonesia, Hakiki, NADI, Pijar, Solidaritas Perempuan, Telapak and WALHI, February 21, 2001;Asian Wall Street Journal 28/Mar/01 & 9/Apr/01)