RAPP Faces Massive Layoffs, Financial Losses After Ministry Voids Key Work Plan

April Group has entered exclusive talks to acquire Brazilian pulp maker Lwarcel Celulose. (Photo courtesy of RAPP)

By : Muhamad Al Azhari | on 8:13 PM October 19, 2017
Category : Business, Corporate News

Jakarta. Riau Andalan Pulp and Paper, or RAPP, the operations unit of global pulp and paper industry leader Asia Pacific Resources International, better known as April, said an investment of about a Rp 100 trillion ($7.4 billion) could be under threat and tens of thousands of jobs at stake after the Ministry of Environment and Forestry invalidated a key work plan for ground operations in the company's concession areas.

Top executives at RAPP explained during a press conference in Jakarta on Wednesday (19/10) that a letter signed by Environment and Forestry Minister Siti Nurbaya on Oct. 16, 2017, has invalidated its 10-year work plan and its annual work plan for 2017.

"For now, we don't have any other choice but to obey the minister's decision. We have high hopes and confidence that the government would consider the larger implication of this decision – from employment to the economic impact of our business activities," April Group corporate affairs director Agung Laksamana told journalists.

The minister's letter effectively ceased all of the company's upstream operations in its 480,000-hectare concession areas in the districts of Pelalawan, Kuantan Sengingi, Siak, Kampar and Meranti Island in Riau province.

Agung said about 4,600 people employed in the company's industrial forest concessions and transportation services will be placed on leave gradually.

There are also 1,300 factory workers who will be furloughed in the next few weeks. He said RAPP may be forced to terminate contracts with its suppliers and supporting industries, which employ about 10,200 workers.

Work that had to be ceased include seeding, planting and the harvesting and transportation of acacia and eucalyptus logs, which are used in the company's pulp- and paper-production process.

RAPP, which operates a 1,750-hectare manufacturing complex in Pangkalan Kerinci in Riau, is one of the world’s largest integrated pulp and paper mills in the world. The complex produces 2.8 million tons of pulp and 1,1 million tons of paper annually and sells its products in more than 75 countries.

Regulatory Challenges

The company has been struggling with regulatory challenges for years, especially related to the use of peatland, which covers half of its concession area.

According to Agung, the Ministry of Environment and Forestry asked RAPP to change its 10-year work plan to align it with the government's new peatland protection framework, as mentioned by a ministerial decree issued this year to provide technical details related to the implementation of Government Regulation No. 57/2016.

In short, industrial forest concessionaires must cease operations in areas the minister earmarks for conservation.

The minister has offered a land-swap scheme for industrial forest concessionaires to compensate them for the loss of cultivated land.

"The latest ministerial decree requires us to revise our 10-year work plan. We had a work plan approved by the previous administration in 2010 and is still valid until 2019," Agung said.

The problem with the ministry's request, Agung said, is that when a map drawn up by the ministry and the Peatland Restoration Agency (BRG) is synchronized with the company's map, it appeared that half of its concession areas are earmarked as peatland protection areas.

"The ministerial decree also contradicts PP No. 57, which says concession holders can operate until existing concession permits expire. We have our permits to operate for the next 25 years; they haven't expired," Agung said.

The ministry then issued RAPP with two warning letters, first on Sept. 28 and again on Oct. 6 before finally invalidated the company's work plans.

"With our work plan invalidated, we now only operate with our remaining wood stocks in our warehouse. Like it or not, we will have to lay off workers and cut contractors and vendors," Agung said.

Environment and Forest Ministry spokesman Djati Witjaksono has confirmed the invalidation of RAPP's paperwork for ground operations.

"They have been given a deadline and they didn't comply," he said, declining to elaborate further.

Agung said the ministry's request placed the company between a rock and a hard place, as if it followed the regulation, it would have lost half of its concession areas, while the government's land-swap scheme does not seem promising.

"The land could be anywhere, even in Papua, or Sulawesi. It doesn't make sense. According to our calculations, the plantation area should not be further than 100 kilometers from the factory to be economically viable," he said.

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