The Pulp Invasion:
The international pulp and paper industry in the Mekong Region
by Chris Lang

This report was produced in 2000-2001 for World Rainforest Movement, looking at the current state of the pulp and paper industry in the Mekong Region: Thailand, Laos, Cambodia and Vietnam

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This report was produced in 2000-2001 for the World Rainforest Movement, looking at the current state of the pulp and paper industry in the Mekong Region: Thailand, Laos, Cambodia and Vietnam. The research covers the extent of plantations and their social and environmental impacts in the region, the role of the various institutions in supporting the expansion of industrial plantations, and the patterns of local resistance to ecological damage and loss of livelihood. It was written to encourage debate on the issues raised about the pulp and paper industry and the development of industrial plantations in the Mekong Region.

The aim of the report is not to provide "solutions" or "recommendations" but to support the rights of communities to make their own decisions over the management of their rivers, farmlands and forests.

Introduction:

The last ten years has seen a massive increase in the area of fast-growing tree plantations in the Mekong region. Proponents of plantations often justify them on environmental grounds such as reforestation, or to prevent soil erosion or flooding, or to reduce pressure on native forests, or to alleviate poverty, or to combat global climate change. However, the main beneficiary of fast-growing tree plantations is the pulp and paper industry. As the area of plantations has increased, more and more villagers in the Mekong region have seen their forests, fallows and grazing lands replaced with eucalyptus, acacia and pine monocultures.

The large-scale pulp and paper mills in the Mekong region were all built on the advice of northern consultants, funded with northern "aid" and supplied with northern machinery. In addition to a cheap supply of wood, paper production requires huge amounts of chemicals, water and energy. In the Mekong region many of the paper and pulp mills have resulted in high levels of pollution, releasing thousands of polluting substances into nearby rivers, including dissolved chemicals and wood particles.

A range of actors works to support policies supporting the promotion of such plantations, including the World Bank, the Asian Development Bank (ADB), export credit agencies, bilateral aid agencies, forestry and engineering consultants, forestry research organisations, suppliers of pulp and paper making machinery, industry associations and alliances and even some NGOs.

Perhaps the most notorious forestry consulting firm is the Finnish company, Jaakko Poyry. Since 1958, when Dr Jaakko Poyry founded the company, it has grown to become the world's largest forestry and engineering consulting firm, with 4,500 employees. The company is responsible for more than 350 pulp and paper mill projects, in 100 countries around the world. In the Mekong region Poyry has worked for Siam Pulp and Paper, Phoenix and Advance Agro in Thailand. In Laos, Poyry worked on the ADB's "Industrial Tree Plantation Project". In Vietnam, Poyry played an important role in the development of the Bai Bang pulp and paper mill and recently worked on proposals for a new pulp mill in Kontum province.

The impacts of fast-growing tree plantations and of pollution from pulp and paper mills have often been devastating for local communities, their forests and their rivers. In Thailand, farmers have formed networks with NGOs to protest against the spread of eucalyptus plantations, particularly in the northeast of the country. In Cambodia, villagers concerned about losing their community forests have petitioned the government and held meetings with government officials. In Laos, villagers have declared land as communal grazing land and forest in defiance of the company attempting to enclose the land as fast-growing tree plantations. Many of Vietnam's plantations have been damaged by grazing, fire or simply cut down by villagers who need the land. What the government and its advisers see as "barren land" or "degraded land" is in fact often already being used by villagers.

CAMBODIA

In Cambodia, there are to date few areas of monoculture fast-growing tree plantations. However, the institutional support for plantations is already in place.

In recent years, the World Bank and the Asian Development Bank have been involved in rewriting Cambodia's Land Law and Forest Law. The World Bank-supported Draft Forestry Law fails to differentiate between plantations and forests and states that a forest can be "natural or planted". This deliberate confusion between a crop of planted trees and a forest or woodland helps the promotion of plantations in the country. In effect it allows companies to continue logging. Simply by claiming to be in the process of "reforesting", they can disguise the reality: the destruction of villagers' community forests, grazing land, commons and fallows, to be replaced by even-aged stands of one of two species of fast-growing (often alien) trees.

During the 1990s, the government allocated a series of large scale logging concessions which reduced villagers' access and rights to forests, and caused massive damage to the forests themselves. NGOs have documented these problems and, as a result, logging concessions have become more and more controversial. In January 2002, the Cambodian government suspended all logging concession operations. In addition to the logging concessions, however, the government has recently granted land concessions covering vast areas of Cambodia. These land concessions provide the concessionaires with control of land and in at least one case the purpose seems to be the establishment of huge areas of fast-growing tree plantations.

In 2000, the government awarded a concession for Cambodia's first large-scale tree plantation to the Pheapimex Group, one of the largest and most destructive logging companies in Cambodia. Pheapimex's concession covers 300,000 hectares of "spare forest" land in the provinces of Kampong Chhnang and Pursat. Pheapimex plans to plant eucalyptus and acacia trees and to build a pulp and paper mill.

Villagers in Ansa Chombok commune in Pursat province have protested to the government, in an attempt to prevent Pheapimex from destroying 6,800 hectares of forest near their village. In February 2001, villagers travelled to Phnom Penh to try to persuade the government to halt the planned plantation. In March, a meeting between government officials and villagers took place in Ansa Chombok commune. NGOs continue to work with villagers, for example in Pursat province to create a forest protection society aiming to establish legally villagers' right to forests for gathering and other purposes.

LAOS

As in Cambodia, the area of fast-growing tree plantations in Laos is currently small. However, before the Asian economic crisis in 1997, several Thai companies were interested in establishing plantations in Laos to feed pulp and paper mills in Thailand.

Today, the ADB is the most influential actor in the development of fast-growing tree plantations in Laos. A Tropical Forestry Action Plan (TFAP) carried out with funding from UNDP, FAO, ADB, World Bank and SIDA was approved by the Lao government in December 1993. Among the recommendations made under the TFAP was the introduction of industrial tree plantations. Soon after the TFAP was completed, the ADB funded a study on establishing plantations of fast-growing trees for the production of industrial wood for export. Since 1994, the ADB has been running its US$11.2 million "Industrial Tree Plantation Project" in Laos, covering three provinces and aiming to establish 9,600 hectares of commercial fast-growing tree plantations. Phase one of the project is planned to run until 2003.

Jaakko Poyry Consulting AB (Sweden) and Burapha Development Consultants (the Lao based subsidiary of Silvi Nova, a Swedish forest industry company) shared the US$1.5 million contract for consulting services on the project. One of Poyry's reports for the project states that the aim is to "develop a model to implement the policy of growing high yielding tree plantations on unstocked forest land and eroded land by the private sector." The same report defines "unstocked forest" as "previously forested areas in which the crown density has been reduced to less than 20% because of logging or heavy disturbance" and "abandoned 'hai' [swidden fields] and disturbed stands with a crown density of less than 20%". This definition allows companies to describe villagers' community forests, grazing lands, fallow land, regenerating forest areas and fields as "unstocked forest" which they can then convert to fast-growing tree plantations.

In Bolikhamxai province BGA Lao Plantation Forestry, a company funded by the ADB project, has cleared dense secondary forest and replaced it with monoculture eucalyptus plantations. BGA aims to establish around 50,000 hectares of fast-growing tree plantations, mainly of eucalyptus, in Bolikhamxai and Khammouane provinces. The company also plans to build a wood chip mill, to export chips to Japan, and eventually to build a pulp and paper mill. Jaakko Poyry carried out the feasibility study for the BGA project.

Without the subsidies BGA is receiving from the ADB, it is unlikely that it would be able to carry out its plantation work. In 2000, the company received 70 per cent of its expenses in the form of concessionary loans from the ADB.

In addition to supporting companies establishing plantations, the ADB is helping to shape the policy framework in Laos to promote plantations. For example, in 1999 ADB commissioned Fortech, an Australian forestry consulting firm, to produce a report entitled, "Current Constraints Affecting State and Private Investments in Industrial Tree Plantations in the Lao PDR". Fortech's report recommends that the Lao government should support plantation development, through, for example, rewriting the forestry law, appointing a plantation investment coordinator, preparing a step-by-step guide for potential investors in plantations in Laos, publishing marketing information and building new roads in "key plantation development regions". Despite the fact that these recommendations would involve changes to Lao law and considerable expense, only the executive summary of the report is publicly available.

THAILAND

Thailand has the largest pulp and paper industry of the four countries looked at in this book. The industry has expanded to serve the needs of an ever increasing international market for pulp and paper, at the expense of Thailand's forests and people.

The pulp and paper industry in Thailand has been developed with the support of the Thai government and a range of international actors. Since the 1960s, the Thai government (with prompting from the World Bank) has promoted cash crops for export. In many ways, fast-growing tree plantations are simply another cash crop.

The Thai government's most brutal plan to promote the establishment of tree plantations started in 1991, when the then-military government launched the "Land Distribution Programme for the Poor Living in Degraded Forest Areas", a project known by its Thai initials as Khor Jor Kor. The project was to be implemented by the military's Internal Security Operations Command and aimed to evict 2,500 villages from reserve forests over an area of 2.24 million hectares in northeast Thailand. Thai and foreign companies would then be able to lease the land for eucalyptus plantations.

Massive pro-democracy protests in May 1992 in Bangkok forced the military government to resign. In the following months thousands of affected villagers protested throughout northeast Thailand and eventually farmers resettled under Khor Jor Kor were allowed to return to their land.

In the mid-1990s, the Finnish government funded the Thai Forest Sector Master Plan, which was carried out by Jaakko Poyry. Poyry's master plan was heavily biased towards the development of industrial forestry and the pulp and paper industry and recommended handing over four million hectares of farmers' land to private companies for tree plantations.

Thailand's pulp and paper mills have been built with international finance, often in the form of cheap concessionary loans. In the 1990s, three major new pulp mills started operations in Thailand: Siam Cellulose (1992); Phoenix II (1994); Advance Agro (1996). All three use technology and machinery from Northern countries to produce pulp.

Siam Pulp and Paper is part of the Siam Cement Group, Thailand's largest industrial conglomerate. Siam Pulp and Paper and its affiliates have a capacity of more than one million tons a year of pulp, paper and converted products. Jaakko Poyry won a contract in 1987 to plan a kraft mill, establish plantations and evaluate tenders and in 1989 Poyry provided advice on procurement for Siam Pulp and Paper. Kvaerner supplied pulping equipment to Siam Cellulose. After the economic crisis of 1997 caught Siam Cement with a debt of US$4.2 billion, the company hired McKinsey Consulting to get them out of the crisis. In 1999, Siam Pulp and Paper appointed Salomon Brothers as its investment banker. In early 2002, Siam Pulp and Paper took over Phoenix pulp and paper.

Phoenix pulp and paper's first production line started up in 1982. The consulting engineer for the 70,000 tons a year mill was the German-Austrian company, Klockner-Voest, and the pulping technology was supplied by the Swedish company, Kamyr. Jaakko Poyry acted as consultant for the second mill, which opened in 1994, bringing production to 200,000 tons a year. Phoenix II cost US$240 million and was financed in part by a loan of US$80 million from several Nordic banks, led by Leonia Bank of Finland. The Finnish government pays all the loan interest due to Leonia Bank. The loan was guaranteed by Finnvera, the Finnish Export Credit Agency, and the Industrial Finance Corporation of Thailand. A series of Nordic companies delivered machinery, equipment and services for Phoenix's mill, including Ahlstrom, Sunds-Defibrator, Nopon Oy, Valmet and Jaakko Poyry. Phoenix currently has plans to double its production capacity.

Advance Agro produces 430,000 tons of pulp a year. Jaakko Poyry produced a prefeasibility study and acted as engineering and construction management consultant. The mill cost US$650 million and the project's main backers were Bangkok Bank, Thai Farmers' Bank, Krung Thai Bank, the UK's Commonwealth Development Corporation, export credit agencies and the World Bank's International Finance Corporation. Barclays de Zoete Wedd was the international lead manager for an initial public offering in 1994. Sunds-Defribrator supplied pulping and bleaching technology and Kvaerner supplied a fibreline for Advance Agro. Mitsubishi of Japan supplied machinery for the plant.

The Asian economic crisis in 1997 had a serious impact on the pulp and paper industry in Thailand. The value of the Thai baht collapsed, leaving companies with even higher debts. Companies looking for a way out of debt sold shares to northern firms. In 1998, Stora Enso bought a 19.9 per cent share of Advance Agro and New Oji bought a further 5.5 per cent of the company. Norske Skog took over the Shin Ho newsprint plant in Thailand.

After the economic crisis, exports increased further, partly as a way for companies to earn hard currency to repay debts and partly because domestic consumption fell. Siam Pulp and Paper exports around 50 per cent of its production to more than 40 countries. Advance Agro exports 70 per cent of its production, the two largest markets being China and Japan. Phoenix exports 60 per cent of its production to more than 25 countries including Europe, North America, Korea, Australia and Japan.

Villagers have protested repeatedly against the problems associated with fast-growing tree plantations. They have petitioned government officials, held rallies, spoken out at seminars, given television interviews, blocked roads, marched on government offices, ripped out eucalyptus seedlings, chopped down trees, stopped bulldozers and burned down nurseries and equipment. They have planted fruit trees, regenerated community forests on land reclaimed from eucalyptus plantations and explained to journalists the methods they use to preserve patches of community forests between their fields.

As a result of these protests, villagers have won some concessions from the government. In some cases, for example in Nong Yak village in Surin province, communities have grouped together to re-establish community forest on land reclaimed from a eucalyptus plantation.

VIETNAM

Vietnam has a large area of fast-growing tree plantations and a large number of small, mainly Chinese-built pulp and paper mills. There are 94 paper and board mills and 27 pulp mills, producing a total of about 360,000 tons of paper and board a year. Thailand's production capacity, for comparison, is 3.8 million tons.

Many of the plantations supposedly feeding these mills have very low growth rates and many are cut down before reaching rotation age. In Vietnam, according to an ADB report in 2000, "Very few of the plantations are economically viable". The country relies on imports of both pulp and paper, mainly from Russia and Indonesia.

In addition to the pulp and paper mills, wood chip mills around the coastal city of Danang produce chips largely for export to Taiwan and Japan. The pulp, paper and wood chip mills compete for raw materials. In the late 1990s, a Taiwanese company built a wood chip mill at Hai Phong and offered to pay more than the Bai Bang pulp and paper mill. Farmers cut down plantations and sold the wood to the new mill. However, after 18 months the wood chip mill closed as it could not guarantee a reliable supply of raw materials.

Support for plantation development and the expansion of the pulp and paper industry comes from within the government and from international "aid" agencies and their "expert" consultants. A Tropical Forestry Action Plan was carried out in 1990-91. TFAP consultants argued for an expanded pulp and paper industry and included on the TFAP "shopping list" was a US$25 million industrial plantations development project and a US$150,000 project to identify sites for industrial tree plantations.

In the last decade the Vietnamese government has had two major programmes aimed at promoting plantations: Programme 327 from 1992 to 1998 and the Five Million Hectare Reforestation Programme (5MHRP), which started in 1998. According to the World Bank, Programme 327 was a result of the TFAP.

Programme 327 was intended to "regreen the barren hills" and was supposed to plant 5 million hectares in 10 years. Under Programme 327, according to a World Bank-hired consultant, the area of natural forest decreased, plantation programmes had mostly failed, and rural development (supposedly one of the targets of the programme) in mountainous communities had stalled.

The government replaced Programme 327 with the 5MHRP. Of the five million hectares to be planted under the 5MHRP two million hectares is proposed to supply raw material for paper, pit-props for mines and timber. In other words, the government plans a further two million hectares of fast-growing industrial tree plantations. In December 1998, at the Consultative Group meeting in Paris, international aid agencies formed a partnership to support the 5MHRP, including: World Bank, ADB, FAO, World Food Programme, WWF, IUCN, UNDP, JICA and the governments of Finland, Sweden, Netherlands, Japan, Switzerland, Germany and Denmark. The total cost of the 5MHRP could be as much as US$2.5 billion.

Vinapimex, the state-owed Vietnam Paper Corporation, has ambitious plans to expand the pulp and paper industry in Vietnam. In September 2001, Vinapimex announced a US$1.9 billion plan to build 16 new pulp and paper projects, with almost 700,000 hectares of associated plantations.

The expansion of the Bai Bang pulp and paper mill is top of Vinapimex's plans. The name Bai Bang was notorious in Sweden during the 1970s and 1980s. Bai Bang was the subject of parliamentary debates, newspaper articles, reports and wide public discussion. At a cost of around US$1 billion, the mill became Sweden's largest ever aid project and is possibly the most expensive pulp and paper mill in the world per ton of paper produced. In 1998, Sida produced a brochure celebrating 30 years of Swedish aid involvement in Vietnam. In it Sida explains who benefits from its aid: "Sweden has benefited a lot from development cooperation with Vietnam. Development aid has cleared the way for Swedish companies. The Bai Bang project with its many branches, has produced a lot of spin-off effects."

Today, Bai Bang appears not to be much of an issue, at least in Sweden. The proposed expansion was received with barely a murmur in Stockholm, despite the fact that funding for phase I is to come from the Swedish international aid agency, Sida, and the Swedish Export Credit Corporation, SEK. Vinapimex has signed contracts with Voith Paper and China's Sinochem to rebuild the plant. Another Swedish company, Elof Hansson, and a Japanese company, Marubeni, have won contracts to supply equipment. Elof Hansson leads a group of supplier companies which includes Metso Paper, Kvaerner Chemetics, Kvaerner Pulping, Purac, and AF-IPK.

In 1998, Vinapimex hired Jaakko Poyry Consulting to carry out a feasibility study for a 130,000 tons a year pulp mill in Kontum province, in the central highlands of Vietnam. Three years later the Vietnamese government approved a Vinapimex proposal to establish plantations to supply a new paper mill in Kontum. The government agreed to fund seven per cent of the US$240 million project. The remainder is to come from international official development assistance. To supply raw material to the mill, Vinapimex has already started planting trees and aims to establish an area of 125,000 hectares of fast-growing tree plantations. In addition, Vinapimex plans to use 38,000 hectares of natural forest to supply the mill.

There are at least four important ways in which the expansion of the pulp and paper industry in the Mekong region, as elsewhere in the South, is part of a global process. First, the advice that governments in the region receive about the industry comes from northern consultants. Second, the financing for the plantations and for the pulp and paper mills comes from the north. Third, the machinery and equipment that goes into the pulp and paper mills is supplied, developed and manufactured by northern firms. All three of these processes are often funded by multilateral or bilateral "aid" and export credits. Finally, a large percentage of the end product, paper, goes to markets in the north, where paper consumption is many, many times that of the countries in the Mekong region.

In Thailand, Phoenix's plans for expansion will only take place if the company can secure cheap international loans and subsidies from the Thai government. Rather than serving the needs of Thailand's rural communities, the expansion is to serve an export market and the demands of the international market for pulp.

The expansion of plantations in Laos is only possible because the ADB is providing cheap loans. Meanwhile, the Bank's consultants work to create the policy framework to enable the expansion of plantations.

In Cambodia, although many of the actors involved appear to be local (such as the government and the government's favourite logging company, Pheapimex) the World Bank and the ADB are failing to address the problems of logging concessions and the massive land concessions that the government has handed out in recent years. If Pheapimex does build its pulp mill, it is likely that the advice, machinery and technology will be supplied --with the support of export credits and aid-- from northern countries.

The Vietnamese government's five million hectare reforestation programme is supported by a wide range of international actors, including "aid" agencies and NGOs. Although the programme includes elements other than industrial tree plantations, one of the key aims is to establish two million hectares of plantations to serve the pulp and paper industry and other industrial processes.

This book is an attempt to give an overview of the processes and actors involved in promoting the pulp and paper industry in the Mekong region. The point is not to argue that everything about the pulp and paper industry is "bad", but to encourage debate on the issues raised about the pulp and paper industry and the development of industrial tree plantations in the Mekong Region. The aim of the book is not to provide "solutions" or "recommendations", but to support the rights of communities to make their own decisions over the management of the rivers, farmlands and forests.

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