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IRIAN JAYA STILL OPEN TO NEW INVESTMENT IN TIMBER INDUSTRY.

A new presidential decree No. 96/2000, new investment is banned in timber processing industry including plywood plant and sawmills excepting in Irian Jaya. Irian Jaya (Papua) has large natural forest to supply enough logs.

Sawmills could be built in other regions but investors may not use log raw materials from natural forests. They have to develop industrial timber estates (HTI) to supply them with logs.

Timber processing industry in the country is facing growing difficulty in securing log raw materials especially after the government lifted the ban on log exports. Some plywood plants and sawmills in South Kalimantan are forced to bring in logs from other areas even import the material. PT Barito Pacific Timber brings in logs from Sulawesi and PT Kodeco Timber was reported to import the material from Brazil.

The government said it would raise the export duty on log to discourage exports. The forestry and plantation minister said imposing import barrier was easier than banning exports. Apart from being not in line with the letter of intent signed with IMF late 1997, export ban is also against the WTO rule.

Forests in Irian Jaya dominated by four large groups

Irian Jaya has the largest forest lands in the country. That province has 42.14 million hectares of forests and 31.14 million hectares of them are exploitable. Around 11 million hectares are productive forests. Conversion forests that could be exploited totaled 20.143 million hectares and the remaining 11 million hectares are protected forests.

Data at the forestry and plantation ministry showed that there are 60 forest concession (HPH) companies operating in Irian Jaya controlling all the 11 million hectares of production forests in that province. The companies secured the license under the government regulation No.6 in 1999. Around 80% of the forests were controlled by HPH companies affiliated to large company groups namely Jayanti Group, Barito Group, Alas Mandiri Group and Hanurata Group.

Table Forest concessions in Irian Jaya by company groups, 2000
Company group Concessions
 ('million ha)

Djajanti Group 3
Barito Group 2
Hanurata Group 2
Alas Mandiri Group 1
Others 2

Total 10



Source: Department of Forestry and Plantation/data Consult

Forestry and Plantation Minister Nurmahmudi Ismail said HPH companies in Irian Jaya have a total liability of Rp 25.4 billion in arrears including Rp 17.1 billion in reforestation fund (DR) and 8.3 billion of PSDH. Based on the Law No.25/1999, reforestation funds have to be handed over to the central government and 40% of the amount would be returned to the region.

Production target of natural forests 12.3 million cub. m.

The production capacity of natural forests are dwindling because of intensive exploitation and illegal felling of trees. Production target in 2001 is 12.3 million m3. In the past fiscal year ending March, log production target was 24.5 million m3 not including 5.5 million m3 of chip basic material.

Tree felling contract

The presidential decree No.96/2000 opemned an opportunity for domestic investment companies (PMDN) to operate as tree felling contractor in HPH areas. Based on a previous regulation, forest exploitation had to be done by HPH companies. This meant that they might not involve other companies in their activities. But it was known that many HPH companies illegally used contractors to do the job for them. For the government the new regulation legalizing the activities of the contractors would create a new source of income in tax.

Perum to be replaced by Forest Management Body

The forestry and plantation minister said his controversial plan to put all HPHs under Perum (public corporation with a social mission) is not yet final, but at least all agreed that HPH was no longer acceptable. Apart from being not in line with Law No. 41 of 1999, the old system is oriented more to forestry companies not to forest management.

But if the plan to put all HPH areas under Perum was seen as too centralistic, the system could be changed with Forest Management Body (BPH). BPH will have an assignment to increase the competitive edge of forest products, reduce transaction cost and increase economic growth. * * *
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Comment:IRIAN JAYA STILL OPEN TO NEW INVESTMENT IN TIMBER INDUSTRY.
Publication:Indonesian Commercial Newsletter
Article Type:Brief Article
Geographic Code:9INDO
Date:Aug 22, 2000
Words:693
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