PT Inti Indorayon Utama likely to resume operations shortly

PT Inti Indorayon Utama likely to resume operations shortly

JAKARTA (JP): Publicly listed pulp and rayon fiber maker PT
Inti Indorayon Utama is seeking government approval to resume
operations which have been suspended for at least 15 months now
over environmental and social disputes.

The trustee of the company's shareholders, Palgunadi T.
Setyawan, said on Wednesday that Indorayon had received support
from the government to find a way for the immediate reactivation
of its mills without having to wait for the establishment of the
government's initiated audit process.

"Since we already have the approval in principle, we will
resume operations as soon as we can obtain and deliver raw
materials to the factory," he told a media briefing.

He said the company could not wait for the establishment of
the government's initiated audit team to assess Indorayon's
operations management as the bid for interested audit firms had
yet to be concluded.

T. Mulya Lubis, who represents foreign shareholders that own
86 percent of Indorayon, said the immediate reopening of the mill
was very important to restore foreign investors' confidence in
Indonesia.

He said the company's foreign shareholders remained committed
to Indorayon and had supported the company's efforts in improving
environmental management.

Palgunadi said Indorayon would also restart intensive
discussions to unravel the differences with communities
surrounding the company's factories and forest plantations in
Porsea, North Sumatra.

"This time we will use a better method to deal with the
problems. We will approach the local communities and help them
with their daily concerns ... We are committed to allocating 1
percent of our annual total production costs or about Rp 5
billion (US$715,000) to a community development fund," he said.

Community fund

He said the estimated Rp 5 billion community fund, which would
be used to support the development of local economic, social and
infrastructure facilities, would be disbursed immediately after
the company resumed operations.

Indorayon holds a concession right to 269,060 hectares of pine
forest areas in the regencies of Dairi, Simalungun, North
Tapanuli and South Tapanuli in North Sumatra.

The company's factories in the Porsea district have the
capacity to produce 240,000 metric tons of paper pulp in addition
to 60,000 tons of rayon fiber a year.

The company became the target of demonstrations in July last
year when residents living near Lake Toba opposed its operations
over alleged improper environmental-related operation management,
which resulted in bad odors and polluted water and air.

Environmental organizations alleged Indorayon had caused the
water level in Lake Toba to decrease and had harmed forests in
the area.

The House of Representatives ordered the company in July last
year to suspend its operations pending an audit on the
environmental impact of its activities.

The company resumed operations in November, supposedly to
allow the environmental audit to take place. The audit, however,
was called off and demonstrations turned ugly when protesters
clashed with company employees fearful of losing their jobs.

The violence forced then president B.J. Habibie in March to
completely suspend the company's operations pending an audit by
an independent auditor to be appointed through a bidding process.

The government said five bidders from Germany, the United
States, Finland and Australia would enter the final round in
September, but no progress has been made so far.

Palgunadi said Indorayon had passed an environmental, safety
and health audit conducted by the United States-based Labat-
Anderson Inc. in 1995.

He rejected the accusations on unsustainable production and
forest management, saying that most of the criticisms were rather
groundless.

"Indorayon applies a sustainable forestry management system.
Most of the accusations leveled on us appeared to occur due to
the critics' lack of proper knowledge on the case," he said.

He said the company did not destroy the forest areas in North
Sumatra as it had only harvested 27.5 percent of its 269,060
hectare concession and spared 37.2 percent of the remaining plot
for a conservation area and 30.4 percent for community
settlements.

Indorayon's finance director David Pile said the 17 month-
closure had inflicted the company some $96 million in lost
profits in addition to $110 million in operational costs.

The government, Pile added, also lost $54 million in potential
tax revenues and other government fees.

The company booked roughly $60 million and $7.8 million a year
in profits from the sales of pulp and rayon fabric respectively,
Pile said.

Indorayon is a unit of the Raja Garuda Mas Group, a
diversified conglomerate controlled by local businessman Sukanto
Tanoto.

The company is listed on the Jakarta and Surabaya Stock
Exchanges and has its American Depository Shares floated in New
York. (cst)