(Photo courtesy of RAPP/Reza Amirul Juniarshah)

Tougher Peatland Regulation: What Does It Mean for Pulp and Paper Industry?


OCTOBER 25, 2017

Jakarta. The state of peatlands around the world has come under spotlight, especially for the way it reflects the inexorable progress of climate change, especially the proliferation of forest fires and losses of biodiversity.

In Indonesia, peatlands are also home to plantations producing key commodities like palm oil, and pulp and paper.

President Joko "Jokowi" Widodo has been paying more attention to the protection and management of peatlands after Indonesia was condemned by the international community for failing to rein in forest fires in Sumatra and Kalimantan in 2015 that sent choking haze to several of its Southeast Asian neighbors.

A year later, the government took several concrete steps to protect peatlands all over the country and regulate their use, despite complaints from industry players who want to exploit every inch of peatlands in the country.

In January 2016, the government established the Peatland Restoration Agency (BRG) led by Nazir Foead, a former conservationist with the World Wide Fund.

The BRG is tasked with helping to restore peatlands in seven provinces: Riau, Jambi, South Sumatra, West Kalimantan, Central Kalimantan, South Kalimantan and Papua. The agency has set a target to restore around 2.1 million hectares of degraded peatland in those provinces by 2020.

Jokowi also signed Government Regulation (PP) No. 57/2016 in December last year — an amendment to the earlier Government Regulation No. 71/2014 — on the protection and management of peatland ecosystems.

JG Infographic JG Infographic

The Environment and Forestry Ministry has also released a number of regulations to provide technical details for governing cultivation activities in peat.
Specifically crucial for industrial forest concession holders is ministerial decree No. 17/2017, which provides a guide for companies to comply with the government's new peatland protection framework.

The pulp and paper industry has been roundly blamed for causing environmental disasters — forest fires, destruction of biodiversity — and social problems, such as conflicts over land ownership.

However, the industry also claims it has a significant stake in people's welfare and the Indonesian economy. The Jakarta Globe interviewed Aryan Wargadalam, chairman of Indonesian Pulp and Paper Association (AKPI) — which harbors the largest pulp and paper producers in the country, about the claim in an extended interview.

The following is an excerpt of the full interview:

Do you think the Environment and Forestry Ministry's decree No. 17/2017 hampers growth in the pulp and paper industry?

In the regulation, there are articles, the implementation of which could have a significant effect on the pulp and paper industry. The articles are:

1. Article 8E, verse 1: "If a cultivation ground has been transformed into peatland conservation area, it can be harvested only once [more] and cannot be sown again."

2. Article 8G, verse 1, verse 2 and verse 3: "If more than 40 percent of a block of land has been used or marked to become a peatland conservation area, a land swap deal can be proposed."

The pulp and paper industry needs a sustainable supply of wood. To provide for this, the government has allocated lands to be used as industrial forests. However, pulp and paper companies stand to lose their industrial forest concessions in the next few years if they sit on protected peatland area, after the Environment and Forestry Ministry issued decree No. 17/2017. As a result of the decree, wood supply is expected to dwindle by 40 percent-50 percent.

Implementation of the new peatland regulation will make it harder for companies to sustain their business since they stand to lose their source of raw materials. Possible impacts may include:

a. Potential losses in pulp production: 2.4 million tons per year (or $1.32 billion). b. Potential losses in paper production: 3.6 million tons per year (or $3.6 billion).

What regulations does the pulp and paper industry need to lead a sustainable business?

Investment in the pulp and paper industry has traditionally been integrated with investment in industrial forest, all of which needs a long-term vision and huge capital. It also requires high technology and a large number of workers. The output is exported to many countries and has contributed $5.4 billion in foreign exchange revenue.

The government should consider making pulp and paper industry more sustainable. Industrial forest concession holders, which operate on protected peatland area, should be allowed to implement the latest water management technology on peatlands to minimize carbon emissions and prevent forest fires.

The government should also show a willingness to revise articles in the peatland regulation which will reduce supplies of raw materials for pulp and paper companies.

The government needs to come up with free lands for the land swap deals. Converting plantations into protected peatlands should not reduce supplies of raw materials.

What do you think of the land swap deal as regulated by ministerial decree No. 17/2017? Will it work?

In principle, industrial forest concession holders are ready to relocate if they sit on protected peatland areas, as drawn by the government. But we also need the government to ensure the availability of "clean and clear" land for its land swap deals.

The land swap deal needs to be rolled out gradually so it does not disturb production schedules. Unfortunately, the government still has not come up with a clear map of replacement land for concession holders.

Concession holders need assurance that the replacement land the government offers has been cleared, and not subject to ownership disputes. The replacement land should also be located close to the company's manufacturing facilities.

What are APKI's advocacy strategies to push for more business-friendly regulations on peatland protection and management?

Since 2014, APKI, along with the Association of Indonesian Forest Concession Holders (APHI) and the Indonesian Palm Oil Association (GAPKI), have submitted input and proposals to the government on the draft peatland regulation.

APKI, on its own or in coordination with APHI and GAPKI, has also given input to government institutions supervising the pulp and paper industry, and to ministries that release regulations [on peatland protection and management], especially on articles that burden the pulp and paper industry.

How are the facts and figures of the local pulp and paper industry?

In 2016, Indonesia exported 3.4 million tons of pulp products worth a total of $1.5 billion. We also shipped 4 million tons of paper products worth $3.4 billion. According to government data on exports of forestry-related products in 2011-2016, pulp ranked third among other forestry-related products. The industry also employed 1 million people directly and another 1.1 million in related industries.

How big is Indonesia's pulp and paper industry in global terms?

According to data from [international consulting and engineering company] Pöyry, Indonesia is the world's 10th largest pulp producer with an annual production of 8.1 million tons and the biggest producer among members of the Association of Southeast Asian Nations. Indonesia contributes 3 percent of the total global pulp production.

Indonesia is also the sixth biggest paper producer in the world, producing 12.3 million tons of paper every year and contributes around 3 percent of global paper production.

Who are Indonesia's biggest competitors?

On paper, China is ranked first in the industry in terms of production, followed by the United States, Japan, Germany and India. Paper production in China in 2015 stood at 125 million tons.

Some paper products from China, cigarette and printing papers for example, compete head-to-head with Indonesian paper products in the domestic market.

What are our future challenges?

Indonesia is entering the digital era. Old paper-based media products, like newspapers and magazines, are being replaced by digital ones. The e-book market has grown rapidly.

Despite this, demand for paper products remains steady in the domestic market, especially from the country's print media companies.

According to a McKinsey & Company study, the market for papers used for graphics — newspaper, print media and paper for print — has shrunk gradually, but the market for paper used for paper board, wrapping, liquid packaging and tissues continues to expand.

What competitive advantages our pulp and paper industry has over other countries?

Indonesia is a pulp and paper producing country with many competitive advantages, one of them being the abundance of raw materials. This is what enables Indonesia to penetrate the international markets. All pulp and paper products from Indonesia are also guaranteed by the timber legality verification system (SVLK) certification. This government-endorsed certification is acknowledged in Europe since November 2016.

Do you think the government has been accommodating enough to help the industry?

The government's policy with regard to peatland management actually has accommodated what the industry really needs, especially the plantation and forestry industries. The article 45 in the government regulation No. 57/2016 says "business permits, or activities utilizing peatland ecosystem to remain valid until the permits expire."

Without the transitional period, the regulation can cause a dwindling of raw materials for the industry in the longer term. Regulation No. 57/2016 will reduce industrial forest concession areas by as much as 45 percent to just 1.35 million hectares. Around 1.1 million hectares in concession area will simply be lost.