Govt may set up alternative forestry financing

Annisa S. Febrina, The Jakarta Post, Jakarta

With the goal of helping the ailing forestry industry, the government plans to set up an independent financing institution to revitalize and support timber-processing companies with fresh funds.

"The alternative financing institution will help provide the much-needed funding to revamp the industry's aging machinery," Ministry of Forestry director general of forestry production development Hadi Pasaribu said on Thursday.

Aging machinery is the reason for inefficiency in most timber- processing firms and most of the equipment is not suited for the increasingly smaller logs produced nowadays, Hadi explained.

The forestry ministry announced earlier in its assessment of the national timber industry that only 14 out of 140 registered companies showed fairly good financial and environmental performance.

However, most of the 14 best performing companies had an efficiency rate of some 50 percent, a joint study from environmental group Greenomics and Indonesian Corruption Watch (ICW) revealed.

A timber processing company with an efficiency rate of 50 percent can only process half of the raw material it consumes, leaving the rest as waste.

The same resource-based industry in developed countries, utilizing a newer generation of machinery, produces almost zero waste.

Hadi said that replacing the machines would cost millions of dollars.

Unfortunately, banks are reluctant to provide loans due to the industry's notorious environmental image, Greenomics executive director Elfian Effendi said previously.

"We have had discussions with the World Bank to help provide the starting fund through soft loans," Hadi added.

The bank's environmental division head was unavailable for confirmation on Thursday.

Other sources of startup funds will come from the ministry's forest rehabilitation funds, estimated to reach Rp 5 trillion (around US$500 million) this year. The forestry ministry collects a certain percentage of revenue quarterly from timber-processing companies to rehabilitate natural forests.

However, the reallocation of the fund will still need the approval of the House of Representatives.

The setting up of the financing institution is part of the government's effort to revitalize its forestry industry.

However, aside from solving the problem of financing, the companies themselves must made a commitment to restructure their businesses, Minister of Forestry M. S. Kaban said.

"They will have to start thinking about inviting investors and seeking alternative materials to timber," Kaban said, pointing to China and Malaysia that have begun using bamboo and other available resources.