Despite dilemma, better prospects ahead

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.