Plantations, poverty and power - Critical Information Collective

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company owners want profits to be realised. For example, a plantation company might sell wood fibre to
a related pulp mill at a highly inflated cost, in order to transfer profits from the pulp mill (which may
have, say, run up enormous debts which creditors are trying to reclaim by seizing the company’s profits)
to the plantation company, which formally at least is a separate company. If the pulp mill meanwhile
pours money in the form of interest-free loans into the plantation company this will also help hide the
profits.
CIFOR’s researchers, Romain Pirard and Rofikoh Rokhim, note that the prices of wood supply to APP’s
pulp mills increased in a “spectacular way” from 2001 onwards. APP explains that this is because the
company is increasingly using plantation wood, which is more expensive than clearcutting natural forests.
Pirard and Rokhim point out that the mills have transferred tens of millions of dollars to the wood
suppliers in recent years and that a more convincing reason for the wood price hike is the fact that during
the 1990s APP attracted investors by advertising the company’s access to very cheap raw materials from
native forests. After 2001, the agreements were changed: presumably so that the profits were transferred
from the pulp mills to the wood supplier companies. Although the wood supplier companies are also
controlled by the Widjaja family, they do not owe vast amounts of money to international investors. 246
The banks lending to the Widjaja family companies in the 1990s made little effort to investigate the
nature of the companies they were investing in. “When we approved the credit for millions of US dollars,
we just signed and never asked in detail about the risks of the business”, a former director of corporate
finance of a major financial institute told CIFOR’s researchers in an off-the-record interview in 2004. 247
The banks allowed APP to run up colossal debts, totalling an estimated US$13.9 billion. Even after the
Asian economic crisis, investors remained optimistic. “Asia Pulp & Paper: Here Comes the Cash Flow!”
exclaimed Morgan Stanley in November 1999. 248 When it became clear that APP was having difficulty
repaying its debts, investors continued to pour money into Widjaja family companies, including in the
pulp and paper sector, in the hope that some of the new debt would be used to repay existing debts. 249
Part of APP’s expansion was financed by Bank Internasional Indonesia, which is also part of the Sinar
Mas Group. In 1999, the bank ran into difficulties because of its non-performing loans. The amount of
loans that the bank gave to related parties was higher than allowed under Indonesian law. The case was
never brought to court and the Indonesian Bank Restructuring Agency (IBRA) took over the bank’s nonperforming
loans on behalf of the Government of Indonesia. IBRA ended up with US$1.3 billion of
APP’s debts. 250 Ultimately, Indonesia’s taxpayers have ended up bailing out APP. In November 2001, the
246 Romain Pirard and Rofikoh Rokhim (2006) “Asia Pulp & Paper Indonesia: The business rationale that led to forest
degradation and financial collapse ”, CIFOR, Working Paper No. 33, page 9.
http://www.robinwood.de/german/trowa/sumatra/appcifor2006.pdf
247 Romain Pirard and Rofikoh Rokhim (2006) “Asia Pulp & Paper Indonesia: The business rationale that led to forest
degradation and financial collapse ”, CIFOR, Working Paper No. 33, page 4.
http://www.robinwood.de/german/trowa/sumatra/appcifor2006.pdf
248 Romain Pirard and Rofikoh Rokhim (2006) “Asia Pulp & Paper Indonesia: The business rationale that led to forest
degradation and financial collapse ”, CIFOR, Working Paper No. 33, page 5.
http://www.robinwood.de/german/trowa/sumatra/appcifor2006.pdf
249 Romain Pirard and Rofikoh Rokhim (2006) “Asia Pulp & Paper Indonesia: The business rationale that led to forest
degradation and financial collapse ”, CIFOR, Working Paper No. 33, page 5.
http://www.robinwood.de/german/trowa/sumatra/appcifor2006.pdf
250 Romain Pirard and Rofikoh Rokhim (2006) “Asia Pulp & Paper Indonesia: The business rationale that led to forest
degradation and financial collapse ”, CIFOR, Working Paper No. 33, page 5.