Foreign investors watch for outcome of Indorayon case

JAKARTA (JP): Although Indonesia's pulp and paper industry remains attractive to foreign investors, they are monitoring the resolution of the PT Inti Indorayon dispute, the chairman of the Indonesian pulp paper association (APKI) said.

Muhammad Mansur told reporters on Wednesday that foreign companies were eager to invest in Indonesia's paper industry because of access to vast forestry resources, cheap labor, skilled workers and expanding Asian markets.

"But they are still waiting for conditions to improve, politically and economically," he said on the sideline of a hearing with the House of Representatives's Commission V on communications, transportation, public works, tourism, and public housing.

"They are also waiting for the government's decision about PT Indorayon," Mansur said, referring to the publicly listed pulp and paper producer with massive operations in North Sumatra.

"If Indorayon's case is not resolved through the court, they fear that their companies will also be forced to close. But if it is done through the court, they can accept the decision," Mansur said.

The government has come under strong public pressure to close the operation in North Sumatra as a result of claims that it has caused environmental destruction in the area.

The company, which manages a massive forestry concession spanning the regencies of Dairi, Simalungun, North Tapanuli and South Tapanul, has been out of operation since July 1998 pending an independent environmental audit of its activities.

Pressure grew further in January after State Minister of Environment Sonny Keraf recommended Indorayon's closure. Economic ministers in the Cabinet however quickly explained that the government would obtain a court ruling first.

A unit of Raja Garuda Mas Group, Indorayon's shares are listed in New York, hence the keen interest of foreign investors.

Mansur also painted a brighter picture for the industry this year, saying that exports should increase to 5 million tons from 4 million in 1999.

Exports thrived, especially in the Asia region, he said.

"We are ahead of other producing countries, like Brazil, because we are closer to Asian markets," he said, adding that Indonesia competed against Thailand, Korea and Japan for paper exports, while holding a monopoly in the pulp market.

Mansur predicted increased production capacity for pulp to 6.6 million tons from 4.9 million tons in 1999, and for paper, 10.3 million tons from 8.3 million in 1999.

He did not explain the sources of the additional capacity.

Mansur said domestic demand for paper had returned to normal after a sharp decline during the economic crisis in 1998.

He said domestic consumption of paper rose to 16.5 kilograms per capita this year from 5.5 kilograms in 1998. (10)