Rights groups, environmentalists aim to block funding for new Sumatran pulp mill

Rhett A. Butler, mongabay.com
November 16, 2012



A coalition of more than 60 civil society groups has warned bankers and insurers not to invest in a massive new mill slated for construction on the island of Sumatra. The NGOs say the mill will drive deforestation and increase conflict in a region already wracked with social and environmental problems.

In a letter sent to banks and other financial institutions last week, the European Environmental Paper Network (EEPN) asked financiers not to fund the new mill, which the coalition has linked to Asia Pulp and Paper (APP) and its parent conglomerate the Sinar Mas Group.

"The undersigned NGOs are very concerned about the threat any such new mill might pose to the remaining natural forests in Sumatra and beyond," the letter states, noting that APP has pulped more than 2 million hectares of forests in Sumatra since 19842. "Our concern is the environmental and social consequences of the massive destruction of natural forests that can be shown to be linked to past and current over-capacity in pulp milling plants in Indonesia. We would contend, however, that investment in further milling capacity that relies on natural forest or utilizes land without the free, prior and informed consent of affected communities carries considerable reputational hazard and economic risk to financial institutions."


Eucalyptus plantations east of Pekanbaru. © Greenpeace / Daniel Beltra

APP says the proposed South Sumatra mill would depend on fiber from "independent suppliers" not its own concessions, which it lacks in the province. The paper giant also says the new mill will not reply on mixed-tropical hardwood (MTH) which in the Indonesian pulp business only comes from natural forests.
APP has publicly denied links to the new mill, refuting a report from RISI, a paper industry publication, claiming that it was building the facility in South Sumatra. Media reports indicate that the project is backed by Sinar Mas Group, but APP has not responded to multiple requests for clarification on the project.

The mill will allegedly have a capacity of 2 million tons per year and cost some $3 billion. Sinar Mas recently secured a $250 million loan from an unspecified bank in Indonesia, according to the Investor Daily, a sign that the conglomerate may be overcoming investor concerns tied to its $13.9 billion default in 2001. EEPN is nonetheless highlighting APP's track record to dissuade potential investors.
    We would suggest that special caution is required in relation to Sinar Mas, APP and companies associated with them, in view of the economic risks of adding pulp production capacity in large increments despite manifestly inadequate pulp supplies outside of their continuing and increasingly controversial assault on natural forests.

    Financial institutions should particularly note the circumstances and consequences of the previous failure of APP’s business model, graphically illustrated when APP declared a moratorium on the servicing of $US 14 billion in debt in 2001 and was subsequently delisted from the New York Stock Exchange. Although many of the details remain unclear, this resulted in substantial and unresolved losses to financial institutions and investors.

    Much controversy still rages around this default. APP currently faces US court orders to pay back more than $900 million in defaulted debt to US creditors, but the company continues for various reasons to delay in complying with asset disclosure or payment orders. There are indications that environmental covenants agreed to with export credit agencies for the restructuring of debt have not been complied with, something that NGOs are continuing to pursue with the institutions concerned.
The letter concludes by urging financial institutions not to invest in the mill until APP and its affiliates demonstrate they have reformed their business practices.

"We would welcome your assurance that you would not be investing in or supporting any investment in increased pulp milling capacity by companies associated with the Sinar Mas Group."

APP did not respond to mongabay.com's request for comment on the letter.

APP sent the following statement regarding the pulp mill after this story was posted

Statement from APP - November 16, 2012

"As a business, Asia Pulp & Paper Group is always looking for new ways to grow and deliver more value to our customers, shareholders, and the communities in which we operate. Our goal is to be the largest and most respected pulp and paper company in the world, within the framework of the Sustainability Roadmap Vision 2020 which we published in 2012.

We do not engage in speculative commentary concerning our future expansion plans. We respect commercial confidentiality as a core principle of good business practice. At the same time, we also take very seriously the responsibility to inform stakeholders of new developments, when it is appropriate for those to be made public. APP is already on record as saying that any future development of our business must abide by the principles of our Sustainability Roadmap Vision 2020.

Among the most important of those are our commitment to protect High Conservation Value Forest (HCVF) across our entire supply chain and 100% reliance on sustainable plantation wood as raw material.”














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CITATION:
Rhett A. Butler, mongabay.com (November 16, 2012).

Rights groups, environmentalists aim to block funding for new Sumatran pulp mill.

http://news.mongabay.com/2012/1116-pulp-mill-letter-eepn.html