Indorayon closure undecided

Down to Earth No. 45, May 2000

Environment minister Sonny Keraf says the fate of PT Indorayon's North Sumatra pulp mill will be decided by June at the latest. The long dispute has become another test case. How far is the Indonesian government willing to ignore community opposition to damaging projects in order to reassure foreign investors?

The arguments over what to do about the PT Indorayon pulp mill at Porsea, near Lake Toba, have become more heated in the weeks since January's recommendation by environment minister Sonny Keraf that it should be closed down. Other ministers in the Wahid government are opposed to the closure. In early May Keraf announced that intensive talks were taking place between ministers and that a government-sponsored environmental audit to prove damage caused by Indorayon's operations was underway at the mill.

Indorayon's management has said it has suffered hundreds of million US dollars in losses since its operations were suspended nearly two years ago. In March the company said it would sue Indonesia for unlawful closure at the International Center of Foreign Investment Disputes in Washington DC. The mill was temporarily closed in mid-1998 by then President Habibie due to public pressure, but the company's operating licence has not been withdrawn. (see DTE 44 and DTE 41 for more background).

Local people whose livelihoods have been badly affected by pollution from the mill, want it closed down for good. In February, tens of thousands of villagers protested at the district assembly (DPRD) and were promised that legislators would take a decision for or against the company in March - the result was a further recommendation to close the mill. A student rally in the North Sumatra capital, Medan, failed to secure a similar recommendation from the provincial assembly. A delegation from Toba Samosir district also visited Jakarta in March to argue the case for closure.

The main arguments for keeping the mill open are to avoid damage to foreign investment (Indorayon is 86% foreign-owned) and the loss of government income and local jobs. The recently sacked Minister for Industry and Trade Yusuf Kalla argued that the decision should be taken via the courts, as this would show foreign investors that Indonesia upheld legal certainty. Kalla's replacement, Luhut Panjaitan, has said he supports the closure of the Indorayon mill as had created environmental problems in the surrounding area.

There is no history of closing down large industrial operations like Indorayon on environmental, or any other grounds - such things were inconceivable during the Suharto era. Kalla admitted "we still don't have a policy regulating the closure of companies on charges of violating environmental standards." He said a new foreign investment law was being drafted which would include guidelines for these cases.

Final decision

President Wahid has said Indonesia will abide by the outcome of international arbitration in Washington. He said he could understand the people's demands for closing the factory but that he was also bound, as head of state, to honour international law and protect the interests of foreign investors. If the decision was in favour of Indorayon, Indonesia must allow it to resume operation, he said "but with our own conditions".

This essentially pro-industry stance accords with the government's position on the Newmont mine case and its general eagerness to reassure foreign investors concerned about public unrest and the security of their contracts. Environmental NGO WALHI which has campaigned against the mill for many years, says that the Washington decision is not binding and argues that closing the mill would prove Indonesia's commitment to sustainable development and to applying environmental laws.

(Source: Jakarta Post 14, 22, 17/Feb/00, 2/May/00; Straits Times 24/Apr/00; WALHI 27/Mar/00; Business Times 4/Apr/00 and others.)