Thu, 11 May 2000

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)