Plywood industry faces uncertainty with planned ruling OR New ruling makes future of plywood industry uncertain

Rendi A. Witular The Jakarta Post Jakarta

The future of the country's plywood industry could be at risk if the government proceeds with plans to issue a forest rehabilitation ruling, which industry players say would severely reduce the supply of logs as raw material.

The Association of Indonesian Wood Panel Producers (Apkindo) said the ruling would cause about 75 percent of existing plywood companies to close operations, rendering at least 500,000 people jobless.

Foreign exchange revenue would also plunge as some 80 percent of Indonesian plywood products are exported, according to the association. Plywood has been one of the country's primary non- oil and gas export commodities.

But the government, under pressure from international donors, is determined to protect the country's forests, which environmentalists say have been seriously damaged by forest- related industries.

According to the new ruling, to become effective early next year, forest concessionaires whose licenses expire will be granted extensions and allowed to continue felling trees only if the concession area can produce at least 75 cubic meters per hectare of logs with a minimum diameter of 50 centimeters.

In comparison, the existing ruling only stipulates that concession holders are not allowed to fell trees with a diameter of less than 50 cm. But there is no minimum volume requirement.

According to the Ministry of Forestry, the license of some 375 forest concessionaires will expire next year.

Apkindo said the ruling was effectively a logging moratorium because few concession areas could meet the new requirement.

"We appeal to the government to drop the plan ... because it will only kill the (plywood) industry," Apkindo chairman Martias told The Jakarta Post.

If the Ministry of Forestry implements the ruling, total log supply at home is expected to drop to around 6.8 million m3 next year, compared to more than 12 million m3 estimated for this year. Of this log output volume, some seven million m3 goes to the plywood industry, which has an existing production capacity of 10.5 million m3.

But Apkindo said that if only 6.8 million m3 of logs were available next year, the plywood industry could only take up some three million m3 while the remainder would be consumed by other timber-related industries.

"So it's no exaggeration to say that around 75 percent of the plywood companies could go under," said Martias.

Some 90 percent of logs for the plywood industry come from forest concession areas, while the remainder comes from industrial forest estates.

The Ministry of Forestry said the moratorium measure was crucial to rehabilitating forests that had experienced severe deforestation.

According to the ministry, deforestation has reached 40.26 million hectares out of the country's total natural forested areas of 119.7 million hectares.

The ministry also said that some 43 percent of the forest concession areas were either in critical condition or no longer productive.

Such a situation has alarmed international donors, and has put strong pressure on Indonesia to take protective measures as a precondition for new badly needed loans.

"The destruction of our forests has been caused by uncontrolled exploitation. We need to introduce prompt and stern measures to prevent further forest destruction," said Ministry of Forestry spokesman Koes Sarjadi.

Koes said that forest concessionaires whose areas were classified as critical would be forced to rehabilitate the forest if they wanted license renewals. It will take concessionaires 10 to 20 years to rehabilitate their areas before they can fell trees again.

As a longer-term solution to the problem of raw material shortage faced by the plywood industry, the ministry is currently encouraging people to open forest plantations under a program called home-scale forest estate industry.

"We persuade people to open a forest plantation in which we will help them with the capital. Their logs can be sold directly to the plywood industry," said Koes.

Another program is to boost log supply from industrial forest estates.

Koes said it was also important to boost the production efficiency of the local plywood industry.

He said the country's plywood industry had not been efficient.

He pointed out that the local industry needed two cubic meters of logs to produce one cubic meter of plywood, while companies in other countries needed only 1.6 cubic meters of logs to produce the same volume of plywood.

Currently, there are some 128 plywood companies operating in the country that employ some 16 million workers. Total investment in this sector has reached US$27 billion.

Some 80 percent of the country's plywood output is exported, providing nearly 100 percent foreign exchange revenue since the import component is very small.

From 1993 to 1997, foreign exchange earnings from this industry averaged around $4 billion per year, which accounted for 9.29 percent of the country's total foreign exchange revenue.

However, due to the economic crisis, earnings from the industry have plummeted to an average of $2.5 billion per year.