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February 06, 2018

Marketplace Advisory on Asia Pulp & Paper

In February 2013, Indonesia’s largest pulp and paper producer, Asia Pulp and Paper (APP), announced a “revolutionary” new Forest Conservation Policy: they would stop pulping natural tropical rainforests for paper, work to respect human rights and address the many land conflicts with local communities that their plantation expansion has created. Five years later some progress has clearly been made, but APP and its affiliates still have a long way to go. APP and affiliates are still causing major environmental and social damage, from peat fires to human rights abuses. In addition, contentious issues around transparency and accountability, as well as the pace and effectiveness of the implementation of its policies, continue to flare.

These points are underscored by a recent Associated Press (AP) investigation of APP and Sinar Mas Group’s (SMG) hidden control, using complex domestic and offshore corporate structures and other techniques, of a number of concessions currently and potentially intended to feed its massive new OKI pulp mill and other mills in Sumatra. Issues associated with these “hidden” APP/SMG concessions include the alleged logging of natural forests and failing to secure the free, prior and informed consent (FPIC) of communities for a concession that APP is now planning to bring on as a supplier.

The AP stories suggest that APP/SMG has falsely claimed a separation and lack of control between suppliers and potential suppliers and APP/SMG. APP/SMG has used these claims to its own advantage in numerous ways and in several forums–– from denying to the Singapore government and others its responsibility for some of the devastating fires in 2015, to misleading customers, government and others about the nature and extent of its social and environmental impacts, to negotiating in bad faith with independent certification bodies about the scope and nature of verification efforts to assure the company is implementing reform efforts and improving its performance.

The AP stories also bring into question the nature and veracity of APP/SMG’s disclosure of key information––much of it material––to financiers, shareholders, government and the public. These revelations raise questions about the ultimate beneficiaries of these secret relationships and may have significant regulatory and tax ramifications.  

APP/SMG’s misleading claims about its control of and links with wood suppliers and potential wood suppliers damage the trust the company has been attempting to rebuild with financiers, customers, government and others over the past several years, and, most recently, with its bid to end dis-association with the Forest Stewardship Council (FSC).

Consider two examples exposed by AP’s investigations:  

In the first, relating to a company named PT Muara Sungai Landak in Borneo and owned by two Sinarmas employees, the AP found “evidence [APP/SMG] is indirectly violating its no-deforestation pledge …. from drone photos and satellite images” and from “government records that track levies companies pay when cutting tropical timber” and show that since 2014 significant deforestation has taken place.

The second case profiled a company called PT Bangun Rimba Sejahtera (BRS) which secured a concession license to develop an Industrial Pulpwood Plantation on the small island province of Banka Belitung off South Sumatra in 2013. BRS has feigned independence from APP/SMG but in fact appears to have been set up by APP and Sinar Mas.

“In 2007 it was owned by Margaretha Widjaya, who was deputy CEO of Sinarmas Forestry from 2002 to 2008 and is a granddaughter of the Sinarmas patriarch. Corporate filings show that BRS was owned for years by two layers of holding companies that recorded their addresses as Sinarmas offices and whose top personnel and shareholders included Sinarmas executives.”

The BRS concession has been widely opposed by affected communities on whose traditional lands the license has been given. Just a few weeks ago, on January 19th, 2018, thousands of community members participated in a rally in front of the provincial Governor’s office calling on him to request that the BRS concession license be revoked by Indonesia’s Ministry of Environment and Forestry.    

In addition to misinformation about BRS links to APP/SMG, the BRS case––one of the first where APP is expanding and seeking wood to feed the OKI mill––shows that the free, prior and informed consent (FPIC) of many affected communities to BRS’s concession license and planned pulpwood plantation has not been given. In failing to heed community and local government opposition to the BRS concession, APP has violated its own sustainability commitments and, potentially, its legal obligations. Last March, APP was sent a letter from 60 Indonesian and international NGOs conveying concerns about community opposition to BRS. The letter has still not been answered by APP.

These findings by AP’s investigations paint a high risk picture for paper buyers, financiers and others, not only concerning deforestation and the denial of the rights of communities but for other expansion efforts being put into place by APP/SMG to feed the giant OKI mill. This is a wake-up call for financiers, buyers, governments, certification systems and communities alike.

Is APP/SMG reverting to the types of practices and impacts for which it has faced criminal charges, market pressure and disassociation from the FSC? Can the company be trusted to keep its word? The AP stories suggest a wider array of systemic governance problems that must be addressed prior to confidently doing business with this company.

We are calling on paper buyers, financiers and others to require that:    

  •      An independent investigation into the AP’s findings has been completed, which includes consideration of the legality, tax impacts, full disclosure of beneficiaries, APP’s misleading representations for stakeholder processes and which involves the Indonesian government.
  •      APP/SMG respect the rights of local communities in the BRS and other concession areas to free, prior and informed consent, including the right to say “no” to pulpwood plantations on their lands and that APP/SMG reject BRS as a supplier and gets BRS to withdraw from its license and the concession.
  •      APP/SMG publish information on all the communities that its operations affect, including information on the communities that APP claims it has resolved outstanding conflicts.
  •      APP/SMG fully disclose relationships and affiliations with current suppliers and with companies holding HTI licenses that are not currently supplying wood/fiber to APP mills but are potential candidates for expansion and have links with SMG, APP, current or former staff or have other APP affiliations.  

 

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  • commented 2018-02-08 03:17:59 -0800
    Is RAN the only NGO surprised by the ownership structures outlined in AP article? Such structures are put in place with all Indonesia-based corporations to flirt with the laws controlling monopoly. This has never had anything to do with “sneaky” fiber sourcing. (I’m afraid you’ve shoe-horned that into your story.) And, let’s forget the 2015 fires were caused by the 2015 El Nino and the locals clearing their allocated 2 ha. Blaming the fires on corporations like APP, Wilmar, etc. was an opportunity seized by the NGOs. It didn’t reflect the underlying cause of the fires, which was/is pretty unhelpful. I follow APP and have started to become bit of a fan, I must admit. So, I have my own biases to think about, but, for me, this article needed to recognize APP’s efforts more because there’s a bigger issue at play: why would any corporation now deal with the NGOs, if all they can expect after five years of investing in sustainability is more attacks? You’ll see from my name that I am of Indonesian descent so I must also admit to being a little protective of interference in Indonesian economic affairs from a US-based NGO, especially given this is largely about CO2 emissions and the US has dropped out of the Paris Agreement. Thanks