Indonesia losing billions from illegal logging

Indonesia lost nearly $9 billion in state revenue from unreported timber sales between 2003 and 2014, according to a recent, presidentially sanctioned investigation by the national antigraft agency into the country’s under-regulated natural resource sector.

The Corruption Eradication Commission (KPK) investigation effectively shined a light on the shadowy world of Indonesia’s timber sector, where inadequate reporting measures, corruption and suspect ties between local leaders, forestry officials and commodities companies hamper efforts to develop the country sustainably. It illustrates how the central government, despite repeated efforts, is struggling to clean up an industry where commodities companies have an outsized influence on the ground and official data tells only a small part of the story.

“The government does not have accurate data on the [country’s] natural resource wealth,” said Hariadi Kartodihardjo, a forestry researcher with the KPK who worked on the report. “Only private companies have data on the entire inventory of existing trees. The government relies on extrapolations from samples to reach their totals.”

The KPK discovered that unreported timber sales have dwarfed those reported by the central government during the 12-year period, with actual harvests totalling more than five times official tallies. According to the report, Indonesian auditors recorded 143.7 million cubic meters of timber harvested between 2003 and 2014, while an additional 629.1 million cubic meters vanished on the black market.

As a result, Indonesia lost an estimated $6.5-8.9 billion in potential state revenue from taxes and levies while unscrupulous timber companies pocketed a presumed $60.7-81.4 billion from blackmarket timber sales during the same period, KPK researchers found in their investigation.

Researchers estimated the size of Indonesia’s black market timber sales by comparing official figures with their own conclusions based on industry estimates and government data on concession clearing rates. Experts have long suspected that the country’s timber auditors were severely underestimating production figures, pointing to allegations of collusion between forestry officials and logging companies.

“This reflects how companies hide behind the weak law enforcement of this country,” Annisa Rahmawati, a forest campaigner at Greenpeace Indonesia, said of the KPK’s investigation. “The corruption is linked to the bad system of government. They think about getting their own profit at the cost of the nation and the people.”

The KPK declined to identify individual companies in the report, but one official explained that, based on prior evidence, both small-scale private operators and large multinational companies were likely involved in the illegal sale of Indonesian timber.

“Although the KPK did not study the companies, this can also occur in large companies,” Kartodihardjo said. “This is corroborated by [an earlier KPK study] which showed that bribery and corruption in the licensing [of forestry concessions] also involves major companies.”

The KPK’s investigation was conducted at the behest of President Joko “Jokowi” Widodo, who vowed to crack down on corruption in the country’s agricultural, mining and fisheries sectors during his first term in office, Kartodihardjo said. The agency’s findings will now be reviewed by relevant ministry officials before the central government decides on a course of action.

New names, same problems

Indonesia has faced repeated criticism over its failure to protect one of the world’s largest tropical rainforests. In 2011, then President Susilo Bambang Yudhoyono established a two-year moratorium on new permits to clear primary forests or drain carbon-rich peat bogs. But one year later, unreported timber harvests soared to nearly 80 million cubic meters while official figures illustrated a sharp decline in timber production, according to the KPK report.

Yudhoyono extended the moratorium in 2013 amid pressure from industry leaders to scrap it altogether. But he declined to close loopholes that allowed companies to continue clearing existing concessions and secondary forests. When Jokowi again renewed the moratorium during his first year in office, he too left its language unchanged.

Today, land clearing by plantation and mining companies continues to drive deforestation in Indonesia. The central government allows these companies to sell logs harvested in their concessions by granting them timber utilization permits (IPK). But weak government oversight and allegations of corruption in the permit process have effectively shifted the country’s most-destructive logging to the plantation sector, especially the oil palm industry.

Investigations into the troubling effects of Indonesia’s IPK scheme highlight how a sea change has occurred within the country’s forestry sector — and cast doubt on hypotheses that the industry’s near collapse in the late 1990s brought an end to the rapacious logging that characterized much of its activity under the Suharto regime.

Experts believe that during Suharto’s three-decade rule, which ended in 1997, Indonesia lost as many as 1.6 million hectares a year to deforestation as companies like Asia Pulp & Paper (APP) and Asia Pacific Resources International Limited (APRIL) chewed through existing tropical forests.

By 2000, the central government began to push agricultural companies to adopt the now widely used plantation model, a system meant to be more sustainable and less financially risky than clearing or selectively logging concession land. Both APP and APRIL have since committed to stop clearing forests and peatlands and are implementing their pledges to varying degrees of success.

Meanwhile, the country’s plantation sector grew sevenfold to 7.8 million hectares between 1990 and 2010, according to a 2014 report by London-based NGO the Environmental Investigation Agency (EIA). By 2012, Indonesia’s deforestation rate climbed in excess of 2 million hectares a year, eclipsing annual estimates from the Suharto years despite efforts to reform the forestry sector amid international outcry.

While previous investigations into the country’s timber sector uncovered evidence of unreported timber harvests in the past, experts said the earliest estimates focused on timber theft during the New Order. Environmental groups reportedly hoped this level of illegal logging was a symptom of Suharto-era corruption, but the investigations by the KPK and the EIA, as well as a report released earlier this year by Forest Trends and the Anti-Forest Mafia Coalition, raise questions on whether reform efforts have had a measureable impact on black market timber sales.

“You can’t say it’s improved since the New Order,” said Mouna Wasef, a researcher at the antigraft watchdog Indonesia Corruption Watch. “The ongoing conversion of forests into palm oil concessions and mines gives space for illegal activities that have the potential to cause significant losses to the state.”

The KPK’s Kartodihardjo was more direct in his assessment, explaining that “the conditions in the field are the same” as under the New Order.

“The only difference is the players have been replaced,” he said.