Investors want to develop $1.3b pulp and paper plant

Urip Hudiono, The Jakarta Post, Jakarta

A group of investors from India and Malaysia have offered to develop an integrated pulp and paper plant worth some US$1.3 billion on the Indonesian side of the timber-rich island of Borneo, the forestry ministry says.

Minister of Forestry Malam Sambat Kaban said on Tuesday that the joint Indo-Malay group of investors had recently submitted a proposal to his office for the development of some 300,000 hectares of forest, either in West Kalimantan or Central Kalimantan, into industrial forests for logging.

"We are currently studying their investment proposal, which will also include building a pulp and paper mill on the site," he explained, without saying who the investors were.

"We have also received a similar expression of interest from a group of German investors, although they have yet to submit a formal proposal."

He added that the study would be completed later this year.

The investment plan, Kaban added, is expected to encourage other investments in the country's forestry sector, as well as increase government revenues from the sector.

State revenues from the sector during the first half of the year amounted to Rp 1.41 trillion (some $144 million), more than double the Rp 591.7 billion in revenues booked during the same period last year.

In the revised 2005 budget, the government expects revenues from the sector to reach Rp 2.71 trillion in reforestation fund contributions, logging permit fees and royalties.

Kaban admitted that the level of revenues was still unsatisfactory compared to the potential.

For this, the forest ministry will set aside some 414,000 hectares of forest land for logging permit bids this year, and push the firms to also invest in timber processing, instead of just logging,

"By selling processed wood products, they can earn up to $80 from a log, as compared to only $30 by selling the unprocessed log," he said.

Kaban also hoped that the state banks currently managing the reforestation funds would find ways to extend the funds as loans for prospective forestry industry investments.

"We can also add another Rp 2.5 trillion if we are allowed to sell the wood confiscated from illegal loggers," he said.

The world's third largest forestry country, Indonesia still faces several obstacles on the road to sustainably managing its forests, which have been badly damaged by rampant illegal logging.

Data from the ministry shows that some 2.6 million hectares of land in the country is deforested every year, threatening the country's remaining 40 million hectares of natural forest.