Indonesia:
World Bank/WWF experts look for new ways to subsidise plantations
Wherever industrial tree plantations
are planted in the South, governments provide a range of subsidies
to investors. In Indonesia, the government has handed out billions
of dollars for plantation development. The plantation and pulp
sectors have also received generous aid support. The World Bank
and the Asian Development Bank funded studies in the 1980s. A
range of export credit agencies helped finance the construction
of pulp mills.
During the 1980s, while vast areas of
Indonesia's forests were being destroyed by logging companies,
the Indonesian government set up a "Reforestation Fund"
financed by royalties collected from logging companies. Once the
logging companies had carried out their reforestation obligations
they could reclaim the money from the Reforestation Fund. Of course
most logging companies carried out no reforestation and simply
wrote off the payments to the Reforestation Fund. As a result,
the amount of money in the fund grew rapidly.
In the 1990s, the government changed
the Reforestation Fund to allow direct financing of industrial
tree plantations. But most of the money went to Suharto's family
and business cronies. The NGO Down To Earth notes that Suharto
used money from the fund for the State Aircraft Company and the
Southeast Asian Games. Between 1993 and 1998, more than US$5 billion
was lost from the fund. Many Reforestation Fund loans that did
go to industrial tree plantation companies became bad debts. Two
years ago, the Forestry Department rescheduled Reforestation Fund
loans. As a result, 14 plantations companies closed because they
could not repay the debt.
Companies drew up proposals requesting
funding for industrial tree plantations, but the areas planted
were far smaller than claimed. Between 1990 and 1997 almost US$1
billion was distributed from the fund, which should have paid
for five million hectares of plantations. Less than one-fifth
of this area was actually planted.
Earlier this year, the World Bank/WWF
Forest Alliance started a project with the Ministry of Forestry
aimed at developing "financial mechanisms that can help to
expand and accelerate plantation development". In an "activity
concept note" dated February 2006, the Alliance states that
the area of plantations in Indonesia needs to be "at least
doubled", in order to secure the future of the country's
wood processing industry (which is dominated by the pulp and paper
industry). The total capacity of Indonesia's pulp mills is almost
6 million tons a year. According to the Centre for International
Forestry Research, about 70 per cent of the wood consumed in these
pulp mills is mixed tropical hardwood from what's left of Indonesia's
forests.
Where plantations have been established,
it has been at huge environmental and social cost. For example,
in Riau province, 75 per cent of Asia Pulp and Paper's land is
peat swamp. The only way of establishing plantations is by clearing
the forest and draining the land.
An obvious answer would be to address
the structural problem of massive over capacity in the pulp sector
in Indonesia. Plantations are not even profitable. According to
the World Bank/WWF Alliance, "returns to plantations are
believed insufficient to attract commercial investment."
But the World Bank/WWF Alliance is determined to rescue the pulp
industry by finding new subsidies for more plantations.
The World Bank/WWF Alliance proposal
is a bean-feast for consultants. According to the February 2006
"activity concept note", the Alliance was to hire "expert
consultants" and pay them an average of more than US$2,000
a week.
These experts were to develop a strategy
and a plan. They were to look for financial institutions or mechanisms
to create incentives for plantations. They were to develop interim
results and hold workshops. They were to engage stakeholders.
They were to develop criteria and indicators, identify opportunities
and barriers and analyse future trends and likely market developments.
The experts were to determine "conditions
and interventions that will help to improve plantation financing
based on the principle of 'The right tree in the right place for
the right reasons, meaning the right end markets.'"
The experts were to "examine approaches
for identifying beneficiaries and financial mechanisms that will
enable resources to reach the right target groups, engaging in
the right activities (environmental, social and financial viable)
for the right reasons (informed and market responsive) with the
right financing."
The experts were to "focus on establishing
institutional means to ensure the right funds going to the right
projects based on the right information and right returns on investment
in the right time frame."
The experts were to be such experts
that they could do all this without the inconvenience of talking
to any communities affected by industrial tree plantations. The
World Bank/WWF Alliance "activity concept note" states
that "This feasibility study should draw on and synthesize
previous studies and analyses, rather than primary data collection."
With this project to subsidise the pulp
industry the World Bank/WWF Alliance shows where its loyalties
lie: with the pulp industry and against the people.
By Chris Lang, e-mail: http://chrislang.org,
www.chrislang.blogspot.com
