Despite dilemma, better prospects ahead
Khairil Anwar, Contributor, Jakarta
Since the end of 1999, the country's pulp and paper industry has been enjoying huge demand both from the domestic and international markets. Hence, plants are running at close-to-full production capacity.
Demand, which fell by about 30 percent during the country's economic crisis, has now increased again to 80 percent of the industry's total production capacity. The happy news is that in the near future the figure may exceed the available capacity.
Due to a shortage of raw materials -- mostly wood-based -- for the industry in many parts of the world, price increases are inevitable everywhere. In this difficult and challenging situation, the relevant companies are seeking alternatives as a way out.
One dilemma these companies face is to meet the current upswing in demand on the one hand while on the other trying to cope with not only diminishing raw materials but environmentalists and environmental institutions who admonish their "plundering of the forests".
The public outcry against PT Inti Indo Rayon can be cited as an example of community rejection of the activities of such companies. Therefore, it is now clear that raw materials other than the current wood-based ones could be the solution. Again, whatever the raw material, it should not create a new cycle of problems for the environment.
In the early 1990s, Indonesia was predicted by many, including the industry publication Asian Pulp and Paper Markets, as a new player which would soon join the major league. During that time, Indonesia was also seen as a lucrative place for foreign companies to invest in the industry.
Although the pulp and paper industry has grown significantly from way back in the late 1980s, reforestation seems to have been forgotten. Between 1988 and 1999, the total production capacity of pulp grew fivefold, while paper manufacturing increased seven times. About 24 million cubic meters of wood was required and clearly the natural resources were greatly affected.
Production was the main theme of the day, while preserving mother nature as the provider of the raw materials was nowhere on anybody's priority list. It was a party time, production and sales went sky-high, natural resources were still abundant and the country's economy was booming.
The good times, however, did not last long. The unexpected economic crisis and ensuing political upheaval in 1997 ended the party abruptly. The pulp and paper industry was no exception. Domestic as well as foreign investors adopted a "wait and see" attitude.
Economically, at least in the macroeconomic sense, the country is now gradually recovering. Likewise, the pulp and paper industry is also recovering. Being mostly export-oriented, meaning pegged to the fluctuating and frequently low prices on the international market, the domestic players are suggesting that the government should impose antidumping duties to protect the domestic market. They are not so worried about their export business as so far they have shown their prowess in the international arena, both as regards price and product quality.
Some time back, Indonesian manufacturers were alleged to be dumping their products in Australia. The Indonesian side made a strong defense and clarified the situation. This is an example of how competitive the industry's products are on the global market. At home prices are just as competitive. A short visit at a local wholesaler in Jakarta will instantly prove that.
Another piece of good news is that although some pulp and paper companies, including their plantations, are in the hands of the Indonesian Bank Restructuring Agency (IBRA) owing to the original owners' unpaid loans, not a single company has been forced to close down.
In fact, both IBRA and international lenders have allowed the same owners and managers to run the companies and even provided new loans for further expansion. This is to enable the companies to reschedule and pay back their loans. Another important reason is that these companies are seen as highly prospective businesses with the potential to produce healthy returns in the near future. They are also major earners that enrich the state coffers with huge sums of foreign exchange.
With the current economic recovery along with the companies' serious efforts to tackle both internal and external problems, brighter days seem to be in store.