The Effects of Decentralisation on Forests and Forest Industries in

<strong>The</strong> <strong>Effects</strong> <strong>of</strong> <strong>Decentralisation</strong> on Forests and Forest Industries in Berau District, East Kalimantan
district’s economic growth in the years preceding
Indonesia’s 1997 financial crisis. During the fiveyear
period between 1993 and 1997, Berau’s gross
regional domestic product rose from Rp 280 billion
to Rp 675 billion, representing growth <strong>of</strong> 85% in
real terms (Bappeda and Kantor Statistik Berau
1998). A substantial portion <strong>of</strong> this increase was
associated with the construction <strong>of</strong> a 525,000-ton
pulp mill by PT Kiani Kertas and the expansion <strong>of</strong>
mining operations by PT Berau Coal. Other
important sectors in Berau’s economy include
agriculture, logging, wood processing, and the
collection <strong>of</strong> birds’ nests and turtle eggs. In recent
years, the district government has also sought to
promote further investment in mining, estate
crops, fisheries and tourism (Pemkab Berau 1997).
Berau’s economic growth has been facilitated by
the development <strong>of</strong> the trans-Kalimantan highway.
Built with World Bank funds over the last 20 years,
the highway has been extended from Balikpapan
in the southern part <strong>of</strong> East Kalimantan to the
province’s northern districts that border Malaysia.
<strong>The</strong> segments passing through Berau effectively
link Tanjung Redeb with Tanjung Selor, the capital
<strong>of</strong> Kabupaten Bulungan, 113 km to the north; and
with Samarinda, the provincial capital,
approximately 500 km to the south (Pemkab Berau
1997). While long stretches <strong>of</strong> the trans-
Kalimantan highway—particularly north <strong>of</strong>
Berau—have not yet been paved, the road
functions as an important artery for commercial
transportation and travel. Within Berau, paved
roads link Tanjung Redeb with the district’s other
main towns <strong>of</strong> Teluk Bayur and Labanan. Gravel
roads provide access to the western interior region
and to the southeastern coastal town <strong>of</strong> Talisayan.
Each <strong>of</strong> these is connected to an extensive network
<strong>of</strong> roads built by timber, plantation, and mining
companies. Altogether, Berau has 2,260 km <strong>of</strong>
company-built roads, and these serve as the main
channels for travel through much <strong>of</strong> the district.
Three major rivers run through Kabupaten Berau:
the Berau (292 km in length); Kelay (254 km); and
Segah (152 km). Each <strong>of</strong> these is navigable for
over 100 km. Collectively they play a vital
transportation role in the district’s internal and
external trade. Most <strong>of</strong> this trade passes through
Tanjung Redeb, which is located at the convergence
<strong>of</strong> the Kelay and Segah Rivers and has port facilities
for ships <strong>of</strong> up to 2,000 tonnes. <strong>The</strong>re, logs, lumber,
and coal are loaded on ships bound either for
domestic markets in Tarakan, Samarinda, and
Surabaya or for export markets in Malaysia and
Japan. Consumer goods brought in from other parts
<strong>of</strong> Indonesia are also unloaded in Tanjung Redeb or
transferred to smaller vessels, which then carry
them upriver into Berau’s interior regions.
1.3 Berau’s District Economy
Over the last decade, Berau’s economy has been
expanding rapidly. In 2000 and 2001, it recorded
growth rates <strong>of</strong> 12.57% and 5.72%, respectively
(Pemkab Berau 2001). Between 1993 and 2002,
Berau’s gross regional domestic product (GRDP)
increased by more than 260% from Rp 278 billion
to over Rp 738 billion (BPS Berau 2001; BPS Berau
2002). Indonesia’s economic crisis, which began
in 1997–98, has had only a limited effect on this
growth, as Berau’s economy is dominated by the
export-oriented primary sectors <strong>of</strong> agriculture 1 ,
mining and processing industries, with few
secondary or tertiary sectors (e.g. finance, real
estate) to speak <strong>of</strong>. Among the nine major sectors
shaping Berau’s economy in 2002, agriculture,
mining, manufacturing and processing industries
generated nearly 75% <strong>of</strong> the district’s GRDP (see
Table 2).
Although for much <strong>of</strong> its recent history Berau has
been a net importer <strong>of</strong> rice, agriculture and trade
have traditionally been the mainstay <strong>of</strong> the district’s
economy. Over the last ten years, however, their
combined contribution to district’s GRDP declined
markedly from 75% in 1993 to 36% in 2002. At
the same time, the contribution from mining and
industry increased dramatically. While in 1993
these sectors combined generated only about 6%
<strong>of</strong> Berau’s GRDP, their share rose to nearly 53%
in 2002 (BPS Berau 2002).
<strong>The</strong> decline in the significance <strong>of</strong> agriculture and
trade for the district economy has taken place as
a result <strong>of</strong> the intensification <strong>of</strong> coal mining by
PT Berau Coal, and the opening in 1997 <strong>of</strong> the PT
Kiani Kertas pulp mill. PT Berau Coal began
operating in Berau in 1983, continuing a coal
mining tradition in the district that dates back to
pre-colonial times 2 . <strong>The</strong> volume <strong>of</strong> coal deposits
currently exploited in the district is estimated to
4