Indorayon to resume pulp production

Indorayon to resume pulp production

JAKARTA (JP): The Cabinet decided on Wednesday to allow
PT Inti Indorayon Utama in North Sumatra to resume its pulp
production but ordered the publicly-listed company to permanently
shut down its rayon-making unit for environmental reasons.

State Minister of Environment Sonny Keraf said the Cabinet
banned the company from producing rayon fiber because a
government audit concluded that its production process caused
much more serious environmental damages than pulp production.

"This is a win-win solution," Sonny added in referring to the
imbroglio that forced Indorayon to stop production in late 1998
following strong resistance from local people who accused the
company of polluting the air and water in their community.

He emphasized that the government would impose tight
environmental rules on the company's pulp operations and would
closely monitor the affects of the operations on the environment.

According to Sonny, he submitted six alternatives to resolve
the Indorayon problem, and the Cabinet decided to choose the
sixth solution -- reopening of the pulp-making unit by itself.

"The government will conduct an environmental audit within one
year to determine whether the pulp plant will be allowed to
continue operations, be relocated to another area or be shut down
forever," he said in a joint media briefing with Cabinet
Secretary Marsilam Simanjuntak and State Minister of Regional
Autonomy Ryaas Rasyid.

Vice President Megawati Soekarnoputri presided over the weekly
Cabinet meeting at Bina Graha presidential office because
President Abdurrahman Wahid was on a two-day visit to Thailand
until Wednesday evening.

Sonny said the government soon would issue a regulation as the
legal basis for the resumption of operations by the company.

Asked when the company can effectively operate again,
Marsilam said, "Don't expect that the plant can resume operations
tomorrow. It needs a process."

Former President B.J. Habibie decided on March 19, 1999, to
suspend the company's operations in N. Sumatra following
prolonged protests from local residents for alleged environmental
damages. He ordered an independent audit, but it was only
recently that the audit was accomplished.

Located near Lake Toba, North Sumatra, the US$600 million
Indorayon pulp and rayon plant has an annual capacity of 240,000
metric tons of pulp and 60,000 tons of rayon fiber.

Indorayon is listed on the Jakarta Stock Exchange and in the
United States through American depository receipts.

The foreign shareholders, who jointly own 86 percent of
Indorayon, have threatened to file suit with the International
Center for the Settlement of Foreign Investment Disputes in
Washington D.C. against the Indonesian government for its
unlawful closure of the operation.

"Please, if they still want to take the case to international
arbitrage, we are ready for it," Sonny said of the shareholders'
threats.

Sonny urged Indorayon to launch intensive community relations
efforts to convince the local people of its desire to limit
environmental damages, warning that the company might face graver
consequences if it failed to win the hearts of the people.

"There are a number of people who have demanded total closure
of the plant and the government has partially fulfilled this
demand by the half closure," Sony said.

Indorayon has continued paying more than 6,000 employees
despite the production stoppage since late 1998 and as a result,
booked a total loss of $95.18 million last year, up from a
deficit of $46.2 million the year before.

Commenting on Freeport Indonesia's copper and gold mining
operations in Irian Jaya, Sonny said a government fact finding
team was expected to return on Wednesday to report the results of
its investigations of the American company's environmental
conduct and the recent accident that killed four workers.

"We may suspend Freeport's operations if the government
receives convincing evidence that it has polluted the environment
in its Grasberg mining area," he added.

Last Thursday, four workers subcontracted to Freeport were
swept away in a flood after a rock-waste containment facility
collapsed at the mine, causing the overflow of an adjoining water
basin.

He said he has reported the incident to the President and if
there is evidence of criminal malfeasance, the police will be
asked to investigate.

Local people and officials in Irian Jaya have demanded that
the government review Freeport's concession because of the
environmental damages allegedly inflicted by its operations and
allocate a portion of the company's shares to the local people.

Reports showed that Freeport Indonesia last year produced 1.4
billion ounces of copper and 2.4 million ounces of gold and made
a net profit of $100.8 million. (prb/byg)