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Paper giant denies secretly owning ‘independent’ suppliers

A pulpwood plantation in Indonesia's Riau province. Photo by Rhett A. Butler/Mongabay

  • A new NGO report details the links between Indonesia’s Sinarmas conglomerate and its “independent” wood suppliers.
  • Sinarmas and its Asia Pulp & Paper arm argue that some of the links are normal, but deny others.
  • NGO investigators speculate that Sinarmas may have structured its operations to deflect blame for the fires that burn nearly every year in its suppliers’ concessions, or even to evade taxes.

One of the world’s biggest paper producers continues to deny that it secretly owns most of the companies supplying it with wood, despite mounting evidence to the contrary.

In the latest exposé of the corporate structure of Sinarmas, which is controlled by Indonesia’s billionaire Widjaja family, a coalition of NGOs last week mapped out the precise links between the conglomerate and its wood suppliers, first outed in broader terms last December by The Associated Press.

The NGO report — titled “Removing the Corporate Mask” — says dozens of individuals who “appear to be current or past employees” of Sinarmas and its Asia Pulp & Paper arm are also listed as directors, commissioners and shareholders of the supplier companies.

For years observers have speculated that Sinarmas has closer ties to its wood suppliers than it lets on. One motive for obscuring the alleged ownership links could be to deflect blame for the fires that burn annually across Indonesia’s vast peat swamp zones, sending toxic haze into neighboring countries. Plantation companies are often blamed for causing the fires, since they drain swampy land on a massive scale in order to prepare it for planting. This practice renders the peat highly flammable, creating the conditions for fire to spread.

Asia Pulp & Paper’s 33 declared suppliers in Indonesia control an area larger than Vermont. Much of this land burned in 2015, during one of the worst bouts of haze in recent memory. After a pair of Asia Pulp & Paper suppliers had their business licenses suspended by the Indonesian government over their alleged role in causing the fires, APP claimed the two companies were “independently owned and operated.” It was just one of many instances where the firm has made such an assertion.

NGO investigators are also asking if the conglomerate’s structure is designed to evade taxes.

“It’s likely this thing is aimed to conceal the identity of the real beneficial owners, to avoid paying tax and to collect funds for other economic purposes,” said Syahrul Fitra, a spokesperson for Auriga, one of the groups responsible for the report.

A peatland burns on Indonesia’s main western island of Sumatra in 2015. That year’s fires emitted more carbon than the entire U.S. economy during a two-month period, and sickened half a million Indonesians according to government statistics. Image by Rhett A. Butler for Mongabay.

In an interview with Mongabay, Asia Pulp & Paper executives did not deny their employees had been named as directors and commissioners of the supplier companies. On the contrary, they argued it was “normal” for APP employees to be “seconded” to the suppliers in order to provide technical support, although they said this practice had stopped in 2013.

“Some of our suppliers are saying, we’ve got the wood supply, we don’t have the technical expertise,” said Goh Lin Piao, Asia Pulp & Paper’s managing director. “So we said okay, we will allow some of our employees to work for you so that you then have the technical expertise to supply to us.”

The firm did contest another assertion in the report — the claim that of the eight individuals listed as owners of 24 of the suppliers, seven appear to have worked for Asia Pulp & Paper.

“None of them are current or former employees of APP,” a spokesperson said. “So why they’re linking, or [why] it says that, we are unsure.”

Lacking access to Sinarmas’ own registry of its employees, the NGOs based this part of their analysis on publicly available sources, including social network profiles and media reports. Data from these sources was matched with biographical information found in official corporate registry profiles of the suppliers published by the Indonesian government.

The coalition provided Mongabay with the names of these seven individuals, since the report only references their initials. A cursory Google search reveals frequent accounts of their employment by Asia Pulp & Paper.

For example, one of the individuals is identified in a Human Rights Watch report as a “field director” of Arara Abadi, a plantation company Asia Pulp & Paper acknowledges it owns. A second calls himself an Arara Abadi “manager” on LinkedIn. A third is described in multiple news articles as an Arara Abadi “director.”

Still, Asia Pulp & Paper insists it has never employed these individuals. “For example, I left my previous job, I haven’t changed my LinkedIn profile to say that I am attached here right now,” a spokesperson said. “[The NGOs] have basically picked up public information and they have crafted this report. But at the same time they have put a disclaimer to say this has not been independently verified content.”

A drainage canal enters a peat forest being cleared to make way for a wood plantation in Sumatra. Image by Rhett A. Butler for Mongabay.

The muddle over the “independent” suppliers comes on the heels of a related controversy over other companies linked to Sinarmas.

In 2013, Sinarmas, under pressure from NGOs, promised that its Asia Pulp & Paper arm would stop clearing rainforest and peatland in Indonesia. Greenpeace, which had campaigned against the firm, agreed to partner with it to help it implement the pledge. Sinarmas’ palm oil arm made a similar commitment.

Last month, however, Greenpeace declared an abrupt end to the partnership, after it came to light that a pair of wood plantation companies in Indonesian Borneo with links to Sinarmas had been deforesting the whole time.

One of the companies, Muara Sungai Landak, is currently owned — on paper, at least — by an IT worker and an auditor at Sinarmas Forestry, a division of Asia Pulp & Paper. Another IT employee is listed as director of the company. Asia Pulp & Paper claims the employees went behind the backs of management to set up Muara Sungai Landak themselves. Two of the employees, it claims, left Asia Pulp & Paper several years ago, while the third has been fired for failing to disclose the conflict of interest.

The other wood plantation company caught deforesting in Borneo, Hutan Rindang Banua, is actually owned by a Sinarmas-branded mining company that in turn is controlled by the Widjaja family. The Asia Pulp & Paper executives acknowledged the company but said they had no control over it.

Greenpeace says the conglomerate never disclosed it had any companies that were still clearing forest for wood plantations.

A meaningful commitment, the NGO told Mongabay, would apply to Sinarmas’ entire land-based operation, not just to those companies that happen to operate under the APP trade name.

Goh Lin Piao, managing director of Asia Pulp & Paper, acknowledged that some parts of Sinarmas’ wood plantation business fell outside the scope of the no-deforestation pledge.

“I’m an executive in APP,” he said. “I look at it as I’ve got customers, I’ve got companies that I have control, and I can manage those companies. I can’t go to my shareholders or my shareholder’s uncle and demand that they do something. That’s just not something that’s in my control.”

Elim Sritaba, head of sustainability at Asia Pulp & Paper, said there was no one in charge of sustainability for the entire Sinarmas conglomerate.

Bastien Sachet, CEO of The Forest Trust, which Asia Pulp & Paper has hired to help implement the no-deforestation pledge, said he agreed the policy should apply to the entire conglomerate.

“As Greenpeace says, it’s one brand, Sinarmas,” he said. “So I guess what Greenpeace is pointing out is that there is a need for consistency across the values of the Sinarmas family or group. Which makes sense.

“I don’t think this was done with bad intentions … The question is why wouldn’t the Sinarmas brand lean entirely into the forest conservation policy. So we agree with that.”

In response to the revelations about its corporate structure, Asia Pulp & Paper says it will hire an auditor to “look into the shareholding of all forestry businesses in Indonesia to determine if any APP employees are involved in businesses that present a conflict of interest.”

“We hope this will put an end to unmerited aspersions once and for all,” the company said.

Tama Langkun, a researcher from Indonesia Corruption Watch, another of the NGOs, called on the government to intervene, namely by enforcing a new regulation requiring companies to disclose their beneficial owners within a year.

“I hope the government starts looking at this matter,” he said. “And this applies to other companies as well.”

Additional reporting by Hans Nicholas Jong.

Banner: A wood plantation in Sumatra. Image by Rhett A. Butler for Mongabay.

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