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
12
See footnote 10.
13
Confidential interview with a pulp mill engineer
employed by PT Kiani Kertas, Tanjung Redeb,
November 11, 2000. As this informant explained,
‘For a mill to run efficiently, it needs high levels
<strong>of</strong> coordination between raw material supply and
processing; proper use <strong>of</strong> machinery and the right
equipment in place; and spare parts on hand when
equipment breaks. Kiani has none <strong>of</strong> these.
Equipment is being pushed to the max. If the
normal life <strong>of</strong> a part is 3–4 months, Kiani pushes
it to 6–8 months. <strong>The</strong> problem is, you never know
when you are going to have a catastrophic
breakdown. Normally, when a part needs to be
replaced, a mill will run down its stocks to 30%
or less. In Kiani’s case, the mill is run until a part
breaks, then everything stops.’
14
This consortium includes former president
Suharto’s son-in-law, Prawbowo Subianto; Luhut
Pandjaitan, the former trade minister and
ambassador to Singapore; and Hendropriyono,
Indonesia’s current Chief <strong>of</strong> Intelligence.
21
Interviews at FP3ML <strong>of</strong>fice in Tanjung Redeb,
July-August 2000.
22
During the process <strong>of</strong> obtaining the IPPK permit,
FP3ML reportedly paid Rp 3 million to cover the
cost <strong>of</strong> the required field survey by District
Forestry Service <strong>of</strong>ficials and members <strong>of</strong> the local
police. <strong>The</strong> Forum also reportedly paid Rp 10
million to obtain the necessary recommendation
letter from the Bupati. FP3ML typically treated
these costs as an advance which would later be
recovered from the logging operations at the IPPK
site.
23
Since it began operating, Kiani Kertas has
obtained roughly 70% <strong>of</strong> the 1.5 million tonnes <strong>of</strong>
pulpwood that it consumes annually through the
import <strong>of</strong> logs and wood chips, with the remaining
30% being obtained from a variety <strong>of</strong> sources in
East Kalimantan (both in Berau and other districts).
It is not entirely clear what motivated the company
to begin exploring how it could obtain greater
volumes <strong>of</strong> wood locally. It is possible that it was
seeking ways to reduce its operating costs.
15
One ton <strong>of</strong> wood chips from Australia
corresponds to 1.64 m3 <strong>of</strong> wood (Neilson and
Flynn 2002:xvi).
16
This calculation is based on an exchange rate <strong>of</strong>
Rp 2,500 per US$, as was prevalent through much
<strong>of</strong> the 1990s prior to the collapse <strong>of</strong> the rupiah in
1997.
17
This assumes an exchange rate <strong>of</strong> Rp 8,500 per
US$.
18
Government Regulation <strong>of</strong> the Republic <strong>of</strong>
Indonesia Number 62, Year 1998 concerning the
Delegation <strong>of</strong> Part <strong>of</strong> the Government’s Affairs in
the Forestry Sector to the Region.
19
Beginning 2000, Berau authority started to charge
PSDH and DR taxes.
20
Surat Menteri Kehutanan dan Perkebunan No.
603/Menhutbun-VIII/2000, Mengenai Penghentian/Penangguhan
Pelepasan Kawasan Hutan,
Tanggal 22 Mei, 2000.
30