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Export Credit Agency Finance in Indonesia

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  • 1. Export Credit Agency Finance in Indonesia "ECAs in Indonesia Destroy the Environment" Stephanie Fried Titi Soentoro Environmental Defense and Bioforum December, 2000
  • 2. Export Credit Agency Finance in Indonesia Stephanie Fried and Titi Soentoro Senior Scientist Coordinator International Program Bioforum Environmental Defense
  • 3. Table of Contents Page Number Introduction 1 The Role of Export Credit Agencies in Indonesia 3 Project Finance Packages 5 The Top 10 ECAs in the Survey of 33 Indonesia Projects 5 The Export-Import Bank of Japan 6 The Top 10 Projects in the Survey of 33 Indonesia Projects 9 Four Project Case Studies: The Paper and Pulp and Power Sectors 11 PT. Tanjung Enim Lestari 11 P.T. Riau Andalan Paper and Pulp (APRIL) 12 Sinar Mas Group: Indah Kiat 13 Indonesian Power Projects: The Paiton Debacle 14 Conclusion 16 Appendix A: The Jakarta Declaration 18 Appendix B: Newspaper articles 31
  • 4. Export Credit Agency Finance in Indonesia1 Stephanie Fried2 and Titi Soentoro3 Introduction After thirty two years under the Suharto regime, Indonesia is now trapped in an economic crisis with no clear signs of resolution in the near term. In the Suharto era, export credit agencies (ECAs) played a major role in financing environmentally and socially unsustainable investments that have depleted Indonesia’s extraordinary natural wealth. Forest degradation reached a rate of close to two million hectares per year. Investment projects such as factories, plantations, and mines not only destroyed natu- ral resources, but also gave rise to other significant environmental and social impacts including the destruction of the livelihoods of the local peoples who owned, managed, and utilized these resources. Security forces were routinely used to prevent forest- dwelling, rural, and river-side peoples from protecting and managing the natural resources upon which their livelihoods and communities depended. In resource-rich regions, the violation of human rights was a routine occurrence.ECAs played a key role by assisting foreign investors in supporting General Suharto’s system of economic and political monopolies. The regime's military security approach assured low costs for land appropriation and a relatively docile and inexpensive labor force. Major foreign investors, supported by ECA finance, competed to align themselves with powerful busi- ness interests close to the Suharto family, often by offering cost-free investment shares to Suharto’s children, other relatives, and business associates. In return, investors were assured of access to lucrative sectors of the Indonesian economy and were able to receive "assistance" from Indonesia’s armed forces when it came to clearing people off of land for their projects, stifling labor unrest, or preventing mobs from storming their polluting factories. After Suharto’s fall, export credit agencies with heavy exposure in Indonesia found that the web of business contracts that they had underwritten -- most of which were directly dependent on links to various Suharto relatives -- were endangered. As a newly independent Indonesian press brought to light evidence of the massive corrup- tion, malfeasance, improper contracting procedures, environmental devastation, and human rights violations linked to ECA-backed investments, the likelihood of substantial claims against ECA political risk insurance and guarantees increased dramatically. 1 A draft of this report was presented at the Third Annual NGO Workshop on Export Credit Agencies, Jakarta, Indonesia, May, 2000. 2 Senior Scientist, International Program, Environmental Defense, P.O. Box 520, Waimanalo, HI, 96795 USA. Email: stephf@edf.org. Adjunct Fellow, Environmental Studies, East West Center, Honolulu, HI, USA. 3 Coordinator, BIOFORUM, Bogor, Indonesia. 1
  • 5. In the case of significant ECA-guaranteed investments like the notorious Paiton power plants, foreign ECA officials attempted to intervene in Indonesia’s national poli- cy-making process in order to reduce their own exposure. For example, the industrial- ized countries making up the Consultative Group on Indonesia (CGI), had scheduled their international donor meeting for July 28, 1999. At this meeting, the CGI was to finalize the details of various aid and loan packages which were to be made available to Indonesia during the economic crisis. Two weeks before the July 28th meetings, an ECA "SWAT team" consisting of government officials who were representatives of Japan’s Export Import Bank, Germany’s Hermes Agency, the Swiss Export Risk Guarantee Agency, the U.S. Export Import Bank and OPIC – all from CGI countries -- descended upon Indonesia’s new government in an attempt to force it to honor the Suharto-era power sector contracts which had been written under conditions of extreme corruption. These contracts -- backed by ECA insurance and guarantees – had been made by companies which – as the Wall Street Journal reported -- "cut over- priced politically influenced deals that undermined the Indonesian economy."4 Two weeks before Indonesia’s July, 1999, CGI donor meeting, the team of interna- tional ECA representatives warned the new government that a failure to honor con- tracts such as the massively corrupt Paiton power contract would "harm new foreign investment and delay Indonesia's economic recovery."5 A later investigation into power contracts by Indonesian Corruption Watch identified possible markups totaling US$400 million in the country's foreign-funded power trans- mission projects. In October, 2000, the President of Indonesia’s National Power Agency, Kuntoro Mangkusubroto, stated that most power transmission projects financed by foreign export credit agencies, Kredit Expor or KE, in Bahasa Indonesia, "smacked of markup practices. All KE [ECA] projects are problem sources ... we found that on average they cost 37 percent more compared to projects that underwent inter- national tenders," Kuntoro said during a meeting with Indonesian House of Representatives Commission for Energy Affairs.6 It is clear that under the current conditions of democratization in Indonesia, export credit agencies -- whether through their links to corrupt Suharto-era business ventures or because of the secrecy with which they conduct their transactions -- remain a throwback to the politics and economic practices of the Suharto dictatorship. Export Credit Agencies Export Credit Agencies (ECAs) are governmental or quasi-governmental entities that subsidize and promote a country’s exports and investment abroad. The amount of investment that ECAs support globally is large and growing—significantly greater than the total amount of lending from the World Bank, IMF, and all other multilateral institu- tions combined.i Most ECAs are not required to consider the social and environmental impacts of the projects they support. As a result, many projects funded by ECAs severely degrade the natural environment and lead to the impoverishment of directly affected local communities. Many of these projects would not go forward without the insurance against commercial and political risk, loan guarantees, and direct loans that ECAs provide. In recent years, environmental and development NGOs have begun to call on all 4 "Power Deals With Cuts for First Family In Indonesia are Coming Under Attack," Wall Street Journal, 12/23/98. 5 "Credit Agencies Pressure Indonesia On Power Contracts," Dow Jones Newswires, 7/13/99. 6 "Foreign-funded power projects marked up: PLN", Jakarta Post, 10/17/00. 2
  • 6. ECAs to adopt and upwardly harmonize their environmental and social policies in order to put a halt environmentally destructive investments supported by these agencies. Governments have begun to acknowledge the problem but are slow in taking decisive action. At present, an international grassroots movement is working to hold the world’s industrial leaders to their commitments and ensure that they enact common environ- mental and social standards for ECAs. The Role of Export Credit Agencies in Indonesia In 1996, officially supported export credits accounted for more than 24% of the total indebtedness of developing countries.7 The years 1990-1995 saw export credit expo- sure to developing countries increase at an average growth rate of 11%.8 In 1996, the top four recipients, Russia, China, Indonesia, and Nigeria, accounted for 40% of the export credit agencies’ total exposure.9 For the top four recipients, export credits accounted for between 24% to 71% of total external debt.10 1996 1996 1996 Total External Debt ECA Exposure ECA Exposure Billions Billions As % ofTotal Debt Russia 129 52.9 41% China 128 44.8 35% Indonesia 120.2 28.2 24% Nigeria 34.9 24.8 71% Figure 1a. Export Credit Agency Exposure and Debt11 Between 1992 and 1996, export credit agencies’ exposure in Indonesia grew by 25%. By 1996, the level of ECA exposure in Indonesia – largely in support of foreign invest- ment in mega-projects closely linked to the Suharto regime – was equivalent to 24% of Indonesia’s total external debt, approximately $28 billion.12 In this analysis, we will pro- vide an overview of thirty-three projects in Indonesia supported by export credit agen- cies between 1994 and 1997, valued at total of $15 billion dollars.13 We will examine the relative contributions of the ten ECAs most active in Indonesia, looking in greater detail at the Export-Import Bank of Japan, and provide a brief overview of the ten largest ECA-supported projects which account for $12.4 billion or 83% of the value of the thirty-three projects surveyed. Figure 1b indicates the distribution of project finance over time for the 33 projects. 7 Boote, A., D. Ross, et al. "Official Financing for Developing Countries," IMF, February, 1998, p.11 8 ibid, p11 9 ibid, p12 10 ibid, based on data from pp. 12, 14 11 ibid, based on data from pp.12, 14 12 Given the climate of secrecy under which ECAs operate and the ensuing lack of data, the extent to which ECA exposure is linked to an increase in external debt of a host country is not easily determined. In quite a few cases, host governments of coun- tries where ECA-supported projects have been financed were and are required to post callable counter-guarantees which expose the host country to a significant debt burden should the counter-guarantees be called. Data on the level of this type of exposure is not readily available. 13 It has been very difficult to obtain information on ECA financed projects. The 33 sample projects analyzed in this report by no means represent an exhaustive list of ECA-financed projects in Indonesia from 1994-1997. The US Export-Import Bank alone approved 37 projects for finance during this period, of which only 17 are included in the above analysis. The value of the projects listed is the total value of the finance package, of which ECA coverage may only make up a small part. 3
  • 7. 6.0 NCM FGB 5.0 ERG EKN Project value ($US billions) 4.0 Hermes US EXIM 3.0 JEXIM 2.0 1.0 0.0 1994 1995 1996 1997 Figure 1b. Value of 33 Export Credit Agency-financed projects in Indonesia, 1994- 1997. (Only lead ECAs are shown.) Of the 33 projects surveyed, the most significant amount of ECA-leveraged finance was concentrated in four sectors, the largest being the power and paper and pulp sec- tors. ECA-backed investments included support for a number of controversial mega- projects such as the giant Tanjung Enim Lestari (PT. TEL), Indah Kiat, and Riau Andalan paper and pulp mill projects in Sumatra and the notorious $4 billion corruption- plagued Paiton coal plants in Java. In our sample, the third and fourth largest sectors with ECA involvment were mining and state-owned refineries14 with projects valued at $2.5 billion and $2.1 billion, respec- tively, followed by cement, satellite technology, technology, and military transport. Figure 2. Thirty-three ECA-Supported Projects in Indonesia, 1994-1997 Sorted by Sector (Only lead ECAs are shown.) 5. 00 4. 50 4. 00 3. 50 Net herlands-NCM 3. 00 Swit zerland-ERG Va lue of Proje cts Sweden-EKN U.S. D ollars 2. 50 (billions) Canada-EDC 2. 00 Finland-FGB Germany-Hermes 1. 50 US Exim Japan-JEXIM 1. 00 0. 50 0. 00 Refinery Military Satellite Mining Cement Telecom Power Paper & Pulp Figure 2. Thirty-three ECA-supported projects in Indonesia. Sorted by sector,15 1994-1997. (Only lead ECAs are shown.) 14 These refineries are controlled by Pertamina, Indonesia’s astonishingly corrupt national petroleum company. 15 Please note that there are significant questions about the finance package for PT. TEL in the paper and pulp sector. Publicly available records state that two finance packages were signed for the mill – one in 1994 for $1.5 billion, and one in 1997 for $1.3 billion. Further research is needed to determine whether both of those packages were actually disbursed -- i.e. for a total project value of $2.8 billion or whether only one of the packages were disbursed. Figure 2 assumes that both finance packages were dis- bursed. If only one package was disbursed, the level of ECA support for the paper and pulp sector in our sample would be close to the level of ECA support provided for the mining sector. (See Figure 2.) 4
  • 8. Project Finance Packages The finance packages for the larger ECA-supported projects typically involve a num- ber of tranches (or parts), including long term commercial loans (some covered by pri- vate or public guarantees or insurance), equity, revolving credit, and often an "ECA tranche" which may be a commercially syndicated loan covered by ECA guarantees. ECAs also provide some direct loans. A 1997 $1.3 billion loan to PT. TEL for the con- struction of a controversial pulp mill in South Sumatra, for example, involved 6 tranches: 1. A $200 million, 10 year term commercial loan financed by 19 banks in 6 countries; 2. $350 million in equity provided by two Indonesian companies (one under General Suharto’s eldest daughter, Siti Hardiyanta Rukmana , or "Tutut"), two Japanese companies, and Japan’s OECF; 3. A $650 million, 12 year Export Credit tranche involving the Finnish Guarantee Board, the Swedish Exporkreditnamden, Germany’s Hermes, and Canada’s Export Development Corporation, funded by Germany’s KfW, two German commercial banks, a Finnish bank, Canada’s EDC and Finland’s FGB, and apparently guaran- teed by FGB, EKN, Hermes, and EDC; 4. A $41 million loan from Germany’s KfW; 5. A $50 million, 5-year revolving credit line financed by 19 banks from 6 countries; 6. A $50 million, 10 year loan arranged by Japanese, German, Korean, and Finnish Banks and AT&T. The provision of the ECA guarantees in one tranche of the loan -- $267.7 million from Hermes (the lead ECA),$205.3 million from EDC, $129 million from FGB, and $52.6 million from EKN – leveraged total project finance of over $1.3 billion. The Top 10 ECAs in the Indonesia Projects In the 33 projects examined in this study, ten ECAs took lead roles in project finance. Lead ECAs are those which contribute the largest amount of coverage or loans in a given project. They also may act to coordinate other banks or as arrangers for commercial loan syndication on a given project. The top three lead ECAs active in the Indonesia projects in our sample were JEXIM, US EXIM, and Hermes. The Scandinavian ECAs -- FGB and EKN – as well as the Canadian Export Development Corporation also played a significant role in the finance of these projects. The Swiss ECA, Export Risk Guarantee also played a role, especially in the financing of power and refinery investments. (See Figures 3 and 4.) 5
  • 9. 7.00 Satellite 6.00 Cement Military 5.00 Telec om $US billions 4.00 Refinery Mining 3.00 Paper & Pulp 2.00 Pow er 1.00 0.00 Canada-EDC US Exim Germany- Netherlands- Finland-FGB Japan-JEXIM Sweden-EKN Switzerland- Hermes NCM ERG Figure 3. Thirty-three ECA-supported projects in Indonesia. Sorted by Lead ECA, 1994-1997. (Only Lead ECAs shown.) In addition to lead roles, ECAs may play secondary roles in project finance and are able to leverage significant additional project value in a supporting role – i.e. by provid- ing additional guarantees or loans for a tranche led by another ECA, as in the above example of Canadian, Finnish, and Swedish support for the Hermes-led tranche for the $1.3 billion finance package for PT. TEL. The table below demonstrates the total finance leveraged by ECAs acting as lead financers and that leveraged by ECAs in their capacity as secondary financers in the 33 Indonesia projects. 9.0 8.0 Secondary ECA Project Value ($US billions) 7.0 Lead ECA 6.0 5.0 4.0 3.0 2.0 1.0 0.0 EDC EKN ERG EKF NCM Hermes US EXIM CESCE JEXIM FGB Figure 4. Project finance leveraged by ECAs providing lead and secondary cover- age for 33 projects, 1994-1997 The Export-Import Bank of Japan (JEXIM) JEXIM, as the most significant ECA in our sample of Indonesia projects, merits clos- er study. An analysis of the 10 JEXIM-supported projects in our sample indicates that, as a lead ECA, JEXIM focussed on projects in the power and mining sectors with additional 6
  • 10. lead funding in the refinery and cement sectors.16 As a secondary financer, JEXIM par- ticipated in a $750 million tranche of a $1.5 billion investment in the PT. TEL paper and pulp project and in the troubled $580 million INCO mine, which has been the site of human rights abuses, land seizures, and environmental destruction. Figure 5. The Value of Ten JEXIM-Supported Projects in Indonesia, 1994-1997 Sorted by Sector 4 3.5 3 2.5 Project Dollars (billions) 2 Leveraged by JEXIM 1.5 1 JE XIM Role Lead ECA 0.5 Secondary ECA 0 Cement Secondary ECA M ining Power Lead E CA Refinery Paper & P ulp Figure 5. The Value of Ten JEXIM-Supported Projects in Indonesia 1994-1997, Sorted by Sector. Looking at this another way, we can examine the amount of leverage, in terms of additional project finance, that each dollar of JEXIM exposure – in its role as lead ECA -- provided in the 10 projects in our study. 2500 2000 $ US (millions) 1500 1000 500 Projec t Value 0 JEXIM Tranc he Batu Hijau Mine JEXIM Ex posure Paiton Power Indo-Kodeco Cement Pertamina Refinery Pertamina: LNG Indocement Jkt. &W.Java Power J2-PT. TEL Paper/Pulp Tambak Lorok Power J2-PT. INCO Mine Figure 6. Comparison of JEXIM Exposure, Tranche Size, Total Project Value for ten projects, 1994-1997 One way to calculate leverage is to compare the amount of JEXIM exposure – guarantee or loan – to the total value of the project supported by JEXIM. The front row in the chart in Table 6 represents actual JEXIM exposure17 for a given project. Since 16 Value of power projects where JEXIM was lead financer appears to be $2.7 billion; mining, $1.88 billion; refinery:$1,28 billion; cement: 662 million. 17 The data do not clearly differentiate between loans and guarantees in all cases, therefore exposure comprises both loans and guarantees. 7
  • 11. the amount of JEXIM exposure was not available for all of the 10 projects surveyed, it was necessary, in addition, to come up with a proxy for JEXIM exposure. Data were available on the size of the tranche involving JEXIM for a given project. From an examination of the data, however, it was impossible to ascertain what percent of a given tranche had JEXIM coverage. If we take the most conservative estimate, and assume that JEXIM exposure was equivalent to the entire tranche (in many cases, it would likely be less than that), we can come up with a comparison of JEXIM tranche size to total project value. JEXIM tranche size is represented in the middle row of the graph in Figure 6. The back row represents the total project value leveraged by ECA finance. Another way to explore the leverage per JEXIM dollar of exposure is to examine leverage ratios. For projects where data exists on the dollar amount of JEXIM expo- sure, the leverage ratio is the amount of JEXIM exposure divided by the total project value: Total Project Value JEXIM Exposure A value of one indicates that the value of the project was equivalent to the amount of coverage provided by JEXIM – i.e. a $100 million JEXIM guarantee supported a $100 million investment. Values higher than one indicate that JEXIM dollars of expo- sure are leveraging more finance than is covered by JEXIM. 7 6 Exposure Ratio * 5 4 3 2 1 0 Batu Hijau Pertamina Jkt. J2-PT. Indoc ement Tambak Mine Refinery &W.Java INCO Mine Lorok Pow er Pow er Figure 7. Leverage Ratios for Six JEXIM-Supported Projects Indonesia: 1994-1997 Figure 7 indicates that, for the six projects for which JEXIM exposure data are avail- able, one dollar of JEXIM coverage can leverage as much as six dollars of private finance. The average amount of dollars leveraged for the six JEXIM projects was $4 for every dollar covered by JEXIM. For the remaining four projects for which no JEXIM exposure data was available, Figure 8 shows the leverage ratio for tranches of loans in which JEXIM was involved, averaging $2.6 for the four projects analyzed. Given the conservative nature of the tranche estimates, one would expect ratios calculated using tranch figures would be lower than those calculated using JEXIM exposure data. 8
  • 12. 3.5 3 2.5 Tranche Ratio 2 1.5 1 0.5 0 Pertamina: Paiton Indo- J2-PT. TEL LNG Pow er Kodec o Paper/Pulp Cement Figure 8. Tranche Leverage Ratios for JEXIM: Four Indonesian projects 1994-1997 Top 10 ECA-Supported Projects in Sample of 33 Projects The ten largest ECA-supported projects in our sample of 33 projects have a com- bined value of $12.4 billion, equivalent to 83% of the value of all projects analysed. Top 10 Proj ects 23 Remainin g Proje cts Figure 9. The value of the top ten ECA-supported Indonesia projects: $12.4 bil- lion (total $15.1 billion), or 82% of total value of the 33 projects surveyed. Again, in these top ten projects, the power and paper/pulp sectors take up the largest amount of finance, $4.2 billion and $4 billion, respectively. 9
  • 13. 4.5 4 3.5 EKN $US billions 3 EDC 2.5 FGB 2 US EXIM 1.5 Hermes 1 JEXIM 0.5 0 Pow er Paper & Pulp Mining Refinery Figure 10. Top ten ECA-supported Indonesia projects, 1994-1997 sorted by sector and ECA The top ten projects in Indonesia were awarded to seven companies, with three companies – PT.TEL, Paiton Power, and Pertamina, Indonesia’s notoriously corrupt national petroleum company -- receiving two of the top ten projects each. The remain- ing projects provided support for companies involved in environmentally and socially problematic paper and pulp operations in Sumatra – the Sinar Mas conglomerate’s Indah Kiat mill and the APRIL conglomerate’s Riau Andalan mill -- and a new mine site for Newmont, a company already facing environmental complaints for its existing oper- ations elsewhere in Indonesia. 4.5 4 3.5 3 $US billions 2.5 2 1.5 1 0.5 0 Andalan Kertas copper/gold Batu Hijau Indah Kiat Pulp nickel mine PT. T.E.L Paiton Power Pertamina APRIL, Riau PT. INCO 9, Perawang Figure 11. Indonesian recipients of top ten ECA-supported finance packages, 33 project survey, 1994-1997 ($US billions) 10
  • 14. Four Company Case Studies: Paper/Pulp and Power Sectors Paper and Pulp in Indonesia The government of Indonesia has been supporting the expansion of the paper and pulp industry which, before the economic crisis, was expected to grow from its current 2 million ton annual production capacity to a 10 million ton capacity by 2010 with the addition of 16 new paper and pulp mills. The mills currently operating in Indonesia rely, for the most part -- despite their public statements -- on the clearcutting of natural or community managed forests, often on indigenous lands. In a few cases, they have uti- lized pine plantations planted under Dutch colonial authority. The Indonesian govern- ment’s campaign to rapidly expand the country’s paper and pulp production has been haunted by concerns that, given the lack of sufficient pulpwood plantations, industry expansion would lead to the wholesale clearcutting of hundreds of thousands of hectares of the nation’s remaining forests, often inhabited by indigenous and other for- est farming peoples.18 Indeed, this has often been the case, sparking unrest , litigation, the continual harassment of local communities by security forces, and, in the post- Suharto era, massive public protests against the forced seizures and clearcutting of community forests, air pollution, and the pollution of major waterways by paper and pulp mills and factories. 1. PT. Tanjung Enim Lestari The Barito Pacific Group, Indonesia’s largest logging conglomerate, is the majority shareholder in PT. Tanjung Enim Lestari, (PT.TEL) – slated to become Indonesia’s largest paper and pulp mill -- and its sister company, PT. Musi Hutan Persada , was designated to prepare massive pulp plantations to feed the mill. From the beginning of the establishment of the financing package for the mill, General Suharto’s eldest daughter, Siti Hardiyanti Rukmana ("Tutut"), was sought as a significant shareholder. In 1994, Germany’s Hermes, Japan’s JEXIM, Finnish Export Credit, Sweden’s Exportkreditnamnden, and the Export Development Corporation approved a $1.5 billion finance package19 for the mill. In 1997, Hermes, the Export Development Corporation, Exportkreditnamnden, the Finnish Guarantee Board, and Japan’s OECF approved a $1.3 billion finance package for the mill. The signing of this finance package corre- sponded with the signing of a pulp supply agreement with PT. Musi Hutan Persada to guarantee pulp for the mill. The entire output of the mill is destined for export. This company, from its pre-construction preparation phase on -- including mill con- struction and plantation preparation -- has generated substantial conflicts with the sur- rounding communities. In the 1990 and 1992, the Barito Pacific Group – already embroiled in conflicts with local communities in and near its logging concessions throughout Indonesia – began clearing concession land in the Benakat region.20 In 1992, the company moved transmigrants from Java and elsewhere into the area to pro- vide the labor force for its operations. In 1992, despite protests from local inhabitants, 18 See, for example, Jakarta Post editorial, "Pulping the forests", 4/11/96; WALHI, YLBHI, "Mistaking Plantations for Indonesia’s Tropical Forest," Jakarta, 1992. 69 pages. 19 Please note that, to date, it has not been possible to ascertain whether both or only one of these finance packages actually came to fruition. This underscores the need for transparency in the provision of data by ECAs. 20 The ensuing chronology is paraphrased from "Pulping the People: Barito Pacific’s Paper Pulp Factory and Plantations in South Sumatra: PT. Tanjung Enim Lestari and PT Musi Hutan Persada", Down to Earth, June, 1997, p.8. 11
  • 15. Musi Hutan Persada (MHP) began illegal logging of the forested lands of the Benekat villagers. The inhabitants of Benakat were threatened by local authorities and security forces who insisted that they give up 1,250 hectares of their productive rubber gardens (see photo), upon which their livelihoods depended, or risk being officially branded with the serious charge of "hindering development", a subversion charge.21 The farmers were repeatedly summoned for interrogations and threatened with prison. Those who openly resisted the efforts at intimidation were accused of involve- ment with Indonesia’s banned Communist Party, an accusation with serious ramifica- tions. Those who did finally agree, under great pressure, to give up their lands received negligible compensation. In 1995, 500 villagers in the Muara Niru and Kuripan areas signed a letter to the Vice President of Indonesia rejecting the development of the pulp mill in their area. Over the next few years, local villagers whose lands had been seized without warning or compensation by MHP to provide plantations for the paper and pulp mill, repeatedly petitioned local, district, provincial, and national government officials stating that they did not want the PT. TEL plantations on their lands. In June, 1997, representatives of local communities went to the Department of Trade and Industry to protest the compa- ny’s presentation of its internal environmental impact assessment. Citing environmen- tal and social concerns, Indonesia’s leading environmental organization, WALHI, called for the cancellation of the project. The National Legal Aid Foundation protested to sen- ior government ministers that the local people’s rights as well as environmental laws had been violated. In the aftermath of Suharto’s ouster, feeling the winds of "reformasi", local villagers in the area surrounding PT.TEL have once again requested a halt to the construction of the mill and are demanding the return of their lands. In May, 2000, the authors of this study and over 40 representatives of Indonesian, Japanese, European, Middle Eastern, Australian, and American NGOs made a site visit to the PT. TEL region. At a village located on a portion of the river near the company’s wastewater disposal site, the group heard from representatives of a range of neighboring riverside communities and saw direct evidence of skin ulcera- tions on adults and children who had bathed in the village river after PT. TEL had start- ed its operations. They were also shown containers of black liquid which had been col- lected by villagers from the river – which provides their water supply -- near the com- pany’s outfall pipes. The villagers described the manner in which they had been excluded from any meaningful consultation during the process of the siting of the plant. They described the forced land seizures carried out by the company under military guard and the heavy-handed way in which the security forces had terrorized them when they had dared to voice their opinions. 2. APRIL: Riau Andalan Paper and Pulp Riau Andalan’s parent conglomerate, Raja Garuda Mas, under its international enti- ty, Asia Pacific Resources International Holdings (APRIL) financed the expansion of its Riau Andalan mill, through a $750 million investment package supported by the Finnish Guarantee Board and the Swedish Exportkreditnamnden. Riau Andalan is Indonesia’s second largest pulp producer.22 This expansion allows the mill to convert four million cubic meters of wood into 750,000 tones of pulp each year. The company 21 Subversion is a capital crime in Indonesia. 22 Barr, C. "Profits on Paper: The Political Economy of Fiber, Finance, and Debt in Indonesia’s Pulp and Paper Industries", CIFOR, Bogor, Indonesia, November 2000. 12
  • 16. has harvested over 50 species of tropical hardwood by clearing natural forests while "waiting for its plantations to mature."23 In October, 1997, conflicts between local com- munities and the company escalated after Riau Andalan announced that it would no longer honor an earlier land compensation plan and that it planned to build a road directly through ancestral lands owned by the communities. Security forces became involved and the resulting protests led to the hospitalization of several villagers and the arrest of the village’s legal representative.24 In April, 1997, Indonesia’s Environmental Impact Assessment Agency, BAPPEDAL, blacklisted Riau Andalan for water and air pollution and for conflicts with local villagers.25 In addition, APRIL runs the troubled 240,000 ton per year Indorayon Utama mill, also in Sumatra, which was shut down by public riots after Suharto’s ouster. Over 1,000 members of the security forces were brought into the region to break up a block- ade of protestors who had hampered production at the mill since mid-June, 1998. From its earliest stages of development, Indorayon has been involved in conflicts with local villagers as a result of the forced seizure of their lands for pulp plantations and the heavy-handed use of security forces to silence opposition to the mill through the issuance of threats and bribes.26 The mill was the subject of a court case brought by WALHI as a result of its pollution of the Asahan river. In 1996, Hermes provided a $5.6 million guarantee for the shipment of German equipment to APRIL’s Tjiwi Kimia paper factory which utilizes the pulp produced by APRIL’s troubled Indorayon Utama mill. 3. Sinar Mas: Indah Kiat Asia’s largest paper and pulp company outside of Japan, Asia Pulp and Paper (APP), owns the Indah Kiat pulp mill in Perawang, Sumatra which is financed through a $500 million investment package supported by Exportkreditnamnden, the Finnish Guarantee Board, Spain’s CESCE, Denmark’s Exportkreditfonden, and Canada’s Export Development Corporation. Hermes and U.S. EXIM have also apparently provid- ed a $5.6 million guarantee, and a $4.5 million loan, respectively, for this mill, under separate financial arrangements.27 The 790,000 ton per year Indah Kiat mill is slated to consume 200 square kilometers of old growth forest per year "until its plantations mature."28 According to the head of Indonesia research at a Singapore brokerage firm, Indah Kiat accounts for 77 percent of APP’s paper capacity and 50% of its operating profit.29 In 1999, Indah Kiat used 8.9 million cubic yards of pulpwood, approximately 87% of which was mixed tropical hardwoods from natural forests, not from plantations. According to research conducted by the Center for International Forestry Research (CIFOR), Indah Kiat has deforested about 278,000 hectares (1,074 square miles) over the past 12 years, an area about the size of Luxembourg.30 Indah Kiat revised its goal of obtaining all of its wood from plantations -- the company formerly claimed that it 23 Barr, C. ibid. and Carerre, R. and L. Lohmann, Pulping the South: Industrial Tree Plantations and the World Paper Economy, Zed Books, London, 1996. pp. 212,220. 24 "The Final Cut: Illegal Logging in Indonesia’s Orangutan Parks", Environmental Investigation Agency and Telapak Indonesia, p25. 25 ibid, p.25 26 Walhi, Down to Earth, Carerre 27 Barr, C. ibid. , and Bloomberg, "Asia Pulp and Paper Faces Shortages of Wood Fiber, Research Shows" 11/27/00 28 Carerre, p.220 29 Bloomberg, ibid, 11/27/00 30 Barr, C. ibid, cited in Bloomberg, 11/27/00 13
  • 17. would be using plantation timber by 2004. In a recent filing with U.S. regulators, the company now says that it is aiming at 2007.31 According to CIFOR researcher, Chris Barr, "It is clear that Indonesian pulp and paper producers have assumed a high degree of financial risk by developing large-scale processing facilities without first securing a legal and sustainable fiber supply."32 For years, the mill has been embroiled in conflicts pertaining to the source of its timber for pulping and in 1993 was fined $1.4 million for the utilization of illegally felled timber.33 To sup- ply land for its pulp plantation program and to obtain an inexpensive pre-plantation timber harvest, Indah Kiat seized and clear-cut over 3,000 hectares of the indigenous Sakai peo- ple’s forest gardens, leaving the Sakai without cultivable land for their subsistence needs.34 One of Indonesia’s most prominent environmental coalitions, WALHI, documented the terribly polluted conditions of the Siak River downstream from the mill, noting dead fish bobbing by the factory’s waste outlet and recording complaints of skin rashes by local villagers bathing and obtaining drinking water from the river downstream from the mill.35 The results of WALHI’s surveys indicated that Indah Kiat appeared to utilize its wastewater treatment facility primarily when there was an official pollution inspection and only sporadically, otherwise.36 4. Indonesian Power Projects: The Paiton Debacle Financing for the massive Paiton coal plant complex in Java was provided in 1995 by a $2.5 billion finance package for Paiton One covered by guarantees and loans from JEXIM, MITI, US EXIM, and OPIC and, in 1996, by a $1.7 billion finance package for Paiton Two provided by US EXIM, Hermes, the German Kreditanstaltfuerwiederaufbau (KfW), and C&L Deutsche Revision (Germany’s public investment insurance agency – analogous to the U.S. OPIC). In December, 1998, the Wall Street Journal -- which identified Paiton One as "one of the most expensive power deals of the decade, any- where" -- detailed the staggering corruption involved in the Paiton I deal which had been directly supported, over the years, by former Vice President Dan Quayle, President Clinton, Ron Brown, Robert Rubin, Warren Christopher and Henry Kissinger, the latter two acting as lobbyists for a Mission Energy-General Electric joint venture which eventually succeeded in winning the project bid.37 In Indonesia, only one of the country’s private power contracts had ever been competitively bid, meaning that most of the billions of dollars of foreign power investments in Indonesia "went through cronies and relatives of Mr. Suharto."38 According to the Wall Street Journal, the Mission-GE megaproject, as Indonesia’s first private power venture, set the tone for all investments to follow. The company "bagged one of the richest private-power contracts of the 1990s when its local partner, a relative of Mr. Suharto by marriage who received shares in the project essentially free, sealed the deal by getting Mr. Suharto himself to weigh in favor of Mission-GE at a key juncture in price negotiations."39 31 Bloomberg, ibid, 11/27/00 32 Bloomberg, ibid, 11/27/00 33 "Laporan Utama," Majalah Prospek, 10/16/93; see also Carerre, p.221 34 Walhi p.38, Carerre p. 222 35 Walhi, p.36 36 Walhi, p.36 37 "Power Deals With Cuts for First Family in Indonesia are Coming Under Attack," Wall Street Journal, 12/23/98. 38 ibid. 39 ibid. 14
  • 18. According to Djiteng Marsudi, the head of Indonesia’s now-bankrupt state owned electric utility, PLN, "the U.S. power companies dictated terms to us because they had Indonesia’s first family behind them."40 PLN was ordered to utilize coal from a company owned by Mission-GE partners Hashim Djojohadikusumo, a Suharto relative by mar- riage,41 and Agus Kartasasmita, brother of then-Minister of Mines and Energy and cur- rent Economics Minister now overseeing Indonesia’s relations with the World Bank and the IMF. Mr. Hashim’s company planned to charge PLN 30% to 40% more than the going rate for coal. Despite repeated requests by GE, Mr. Hashim refused to sign anti- corruption forms or statements.42 The government ordered Mission-GE to purchase boil- ers for the plant from ABB Combustion Engineering. Combustion’s state-owned affiliate was chaired by Mr. Habibie and a Suharto son was the company’s commercial agent in Jakarta. The purchase of the boilers from this company added $20 million in costs. Mission-GE insisted that PLN must pay an extremely high tariff for the electricity to be produced by the plant and suggested that more debt could be shifted to OPIC to cover the tariff, finally set at 8.6 cents per kilowatt-hour of electricity, 32% higher than compa- rable tariffs in Indonesia. When a US Exim Bank official visited Jakarta, several gov1ment and PLN officials told her that they didn’t want and couldn’t afford Paiton. ‘‘It was a presidential decision," says Nengah Sudja, a former head of research for PLN. "Everybody knew it was nepotism, but we couldn’t do anything about it."43 According to the Wall Street Journal, government planners knew PLN was not ready for big private-power initiatives and the utility's "transmission grid leaked like a sieve." Indonesian government power consultants recommended smaller, environmentally and economically more sustainable alternatives such as geothermal and small gas-fired plants, and urged competitive bidding. Instead, Suharto, and then Technology Minister B.J. Habibie, now Indonesia's president, "hand-picked developers to lead the charge into big, high-risk, coal-fired power stations" according to these same consultants. In the aftermath of the economic crisis, PLN has told Mission-GE that doesn’t plan to buy any electricity at all from the consortium’s 1,230 megawatt coal-fired plant next year, when it is scheduled to go on-line. ECA finance of over a billion dollars – backed by the taxpayers of the industrialized countries – has abetted a gigantic economic and environmental fiasco. 40 ibid 41 Mr. Hashim is the brother of the notorious General Prabowo, who is married to a Suharto daughter and who was the former head of Indonesia’s brutal Kopassus special forces (active in East Timor and West Papua), and who currently faces charges of orchestrating the murder of student demonstrators by sniper fire. 42 Another sought-after investor, Mr. Djojohadikusumo’s sister-in-law (the wife of General Prabowo) "flew into a rage" when Entergy, a U.S. company also interested in the Paiton deal , "insisted she sign some anticorruption documents." As a result, Entergy dropped the deal as did Southern Co., the biggest U.S. power producer in Asia, "because of concerns over cronyism and other risks." GE – backed by ECA insurance and guarantees – went on with the deal. Wall Street Journal, 12/23/98. 43 ibid 15
  • 19. Conclusion Export credit agencies have provided massive support for environmentally damag- ing and socially destructive infrastructure projects in Indonesia – many of which tradi- tional multilateral development banks, such as the World Bank, did not support as a result of their environmental and social regulations and standards. Given the ECAs’ lack of transparency and accountability, it is clear that a significant amount of interna- tional pressure – most likely from civil society organizations and social movements around the world, and perhaps from enlightened governments – will be needed to stop the destruction and violations of human rights associated with ECA finance. In May, 2000, representatives of over 50 NGOs from 19 countries met in Jakarta to assess the current state of export credit agency finance. The groups heard testimony from villagers in Indonesia who lived in the path of giant ECA-supported mines, paper and pulp mills, and other projects. They listened to presentations from around the world on ECA-facilitated dams slated to displace impoverished communities, often of ethnic minorities (including Kurds in a civil war zone in Turkey), ECA-facilitated support for mil- itary equipment to regimes with troubling human rights records, and ECA support for massive and often troubled energy projects, including nuclear power plants. They heard from civil society representatives from the United States and Switzerland who had been allowed -- "unofficially" – to address two closed and secre- tive meetings of the ECA representatives gathered at the Organization for Economic Cooperation and Development (O.E.C.D) in Paris. They also heard from civil society representatives from Indonesia and Kurdistan/Turkey who had been barred from the O.E.C.D. meetings. They reviewed a September, 1999, Financial Times article which pointed out that careless export credit agencies shared a major responsibility for "vio- lence in East Timor and economic disaster in Indonesia." The NGOs then drew up a document titled, "The Jakarta Declaration for Reform of Official Export Credit and Investment Insurance Agencies." The Jakarta Declaration -- endorsed by 340 civil society organizations representing millions of citizens in 45 coun- tries -- calls for transparency, public access to information, and consultation with civil society and affected people in both O.E.C.D. and recipient countries The Jakarta Declaration also calls for binding common environmental and social guidelines and standards at least as rigorous as existing international procedures and standards for public international finance. The Declaration notes that in Indonesia and elsewhere, ECAs have not only supported arms exports directly linked to egregious human rights abuses, and that their support for mining, paper and pulp mills and other major infrastructure investments has often been accompanied by destruction of local peoples' rights to land and livelihood, the armed suppression of dissent, and the sup- pression of press freedom to criticize such abuses. The NGOs call for the adoption of explicit human rights criteria -- designed in consultation with affected peoples and civil society, and based on existing regional and international human rights conventions – to guide the activities of ECAs. Citing Transparency International’s finding that the continued lack of action by ECAs to address the issue of corruption had brought some ECA practices "close to complicity with a criminal offense," the Jakarta Declaration calls for the adoption of detailed bind- ing criteria and guidelines to end the abetting of corruption by ECAs. It also calls for an end to ECA finance for non-productive investments, including military purchases, and white elephant projects such as nuclear power plants -- investments rejected by OECD 16
  • 20. bilateral aid agencies and multilateral development agencies such as the World Bank. The NGOs echo their support for the proposal of the Koalisi Anti-Hutang, the Indonesian Anti-Debt Coalition, for the cancellation of Indonesian ECA obligations, which have provided support for highly corrupt and destructive projects. The Jakarta Declaration ends by stating that: These ECAs have so far refused to accept any responsibility for their past mis takes, and to draw any meaningful lessons from them. The current practices of the ECAs embody a form of corrupt, untransparent, environmentally and socially destructive globalization as serious and reprehensible as the concerns raised by civil society and activists around the world about the World Trade Organization, the proposed Multilateral Agreement on Investment, and the International Monetary Fund and World Bank. We call upon concerned citizens and organizations around the world to turn their attention to ECAs and their negotiating forum, the OECD, and to press their governments to undertake reform without further delay. Thus civil society organizations have begun to take steps to rein in the threats to the natural environment and human rights posed by secretive and untransparent export credit finance agencies. 17
  • 21. Appendix A: June 13, 2000 Jakarta Declaration For Reform of Official Export Credit and Investment Insurance Agencies Over 50 representatives of Indonesian and international non-governmental organi- zations (NGOs), and social movements convened in Jakarta and South Sumatra 1- 7 May, 2000 for a strategy meeting on official export credit and investment insur- ance agencies (ECAs). They agreed on the following Declaration, endorsed by 347 NGOs from 45 countries. Introduction Non-governmental organizations around the world call the attention of gov- ernments and international institutions to the mounting adverse environmental, social, human rights and economic consequences of ECA activities. We have directly witnessed the unconscionable human suffering and environmental devasta- tion that ECAs have produced in Indonesia, which is only one of many country examples. ECAs have supported many projects—e.g. in the mining, pulp and paper, oil and power sectors—which have had devastating social and environmen- tal impacts. ECAs have supported the export of arms used for human rights abus- es by the Suharto government. In 1996, ECA exposure in Indonesia was $28 bil- lion, an amount equivalent to 24% of Indonesia's external debt. The Indonesian ECA debt places an unacceptable burden on the Indonesian people, crippling their future development. As a 22 September 1999 "Financial Times" article pointed out, careless industrialized country export credit agencies share a major responsibility for "violence in East Timor and economic disaster in Indonesia." Official Export Credit and Investment Insurance Agencies have become the largest source of public international finance, supporting in 1998 over eight percent of world exports. In 1998 ECAs supported $391 billion in private sector business and investment, of which $60 billion was for middle- and long-term guarantees and loans, mainly supporting large-scale project finance in developing countries. This exceeds all bilateral and multilateral development assistance combined, which has averaged some $50 billion over the past decade. ECAs account for 24 percent of all developing country debt, and 56 percent of the debt owed to official governmen- tal agencies. In April, 1998 163 NGOs from 46 countries sent to the finance and foreign min- istries of the major industrialized OECD countries a "Call of National and International Non-Governmental Agencies for the Reform of Export Credit and Investment Insurance Agencies." The NGOs called for transparency in ECA deci- sion making, environmental assessment and screening of ECA financial commit- ments, including participation of affected populations, social sustainability (equity 18
  • 22. and human rights concerns) in appraisal of ECA commitments, and for an international agreement in the OECD and/or G8 on common environmental and social standards for ECAs. Over the past two years the major industrialized countries have only made the min- imal commitment to work towards common environmental approaches and guidelines in the OECD. The lack of transparency and meaningful public consultation in the OECD Working Party on Export Credits and Credit Guarantees, particularly the lack of any consultation with representatives of affected groups and organizations from non-OECD recipient countries, has rendered this process a travesty. ECAs have consistently learned no lessons from the past and continue to approve financing for environmentally and socially destructive operations. The social and environmental negligence, support for human rights violations, and lack of transparency of ECAs must come to a halt. ECA financing for major arms trans- actions, for obsolete technologies rejected or illegal in their home countries, and for economically unproductive investments is a scandal of global proportions. Call for Reform Based on the experiences of Indonesia and many other countries, NGOs from around the world reiterate the April, 1998 international Call for Reform of Export Credit and Investment Insurance Agencies. We call upon OECD governments, ministers and national legislatures to undertake with due dispatch the following reform measures for their ECAs: 1. Transparency, public access to information and consultation with civil society and affected people in both OECD and recipient countries at three levels: in the assess- ment of ongoing and future investments and projects supported by individual ECAs; in the preparation within national ECAs of new procedures and standards; and in the negotiation within the OECD and other fora of common approaches and guidelines. 2. Binding common environmental and social guidelines and standards no lower and less rigorous than existing international procedures and standards for public internation- al finance such as those of the World Bank Group and OECD Development Assistance Committee. These guidelines and standards need to be coherent with other ongoing international social and environmental commitments and treaties, for example, the con- ventions of the International Labor Organization and the United Nations Convention on Biological Diversity. In addition ECAs must conduct full, transparent accounting for cli- mate change impacts and move to increase investments in sustainable renewable energy. So far, some governments have established, or are establishing, environmen- tal and social policies which substantially deviate from, and are below these internation- ally recognized standards and guidelines. 3. The adoption of explicit human rights criteria guiding the operations of ECAs. This should be done in consultation with affected people and civil society, and based on existing regional and international human rights conventions. In Indonesia and else- where ECAs have not only supported arms exports directly linked to egregious human 19
  • 23. rights abuses, their support for mining, paper and pulp mills and other major infra- structure investments often has been accompanied by destruction of indigenous and local peoples' rights to land and livelihood resources, armed suppression of dissent, and suppression of press freedom to criticize such abuses. 4. The adoption of binding criteria and guidelines to end ECAs' abetting of corrup- tion. According to Transparency International, the continued lack of action by ECAs to address this issue is bringing some ECA practices "close to complicity with a criminal offense." We endorse the recommendations of Transparency International submitted to the OECD and European Union in September, 1999, on how ECAs should avoid continued complicity in corruption. These include, inter alia, recom- mendations that export credit applicants must state in writing that no illegal pay- ments related to a contract were made, and that any contravention of the ban on illegal payment should entail cancellation of the state's obligation to pay. Companies found guilty of corruption should be banned from further support for five years, and export credit agencies should not underwrite commissions as part of the contracts they support. 5. ECAs must cease financing non-productive investments. The massive ECA sup- port for military purchases and white elephant projects, such as nuclear power plants, that would be rejected by OECD bilateral aid agencies and multilateral development agencies such as the World Bank must end. 6. The cancellation of ECA debt for the poorest countries, much of which has been incurred for economically unproductive purposes. We support the call of the Indonesian anti-debt coalition for the cancellation of Indonesian ECA obligations, now placing an insupportable burden on the Indonesian people. Conclusion The OECD Development Assistance Committee declared in 1996 that " we should aim for nothing less than to assure that the entire range of relevant industri- alized country policies are consistent with and do not undermine development objectives." The OECD ECAs, and the OECD Export Credit Working Party, com- pletely disrespect this call. These ECAs have so far refused to accept any respon- sibility for their past mistakes, and to draw any meaningful lessons from them. The current practices of the ECAs embody a form of corrupt, untransparent, environ- mentally and socially destructive globalization as serious and reprehensible as the concerns raised by civil society and activists around the world about the World Trade Organization, the proposed Multilateral Agreement on Investment, and the International Monetary Fund and World Bank. 20
  • 24. We call upon concerned citizens and organizations around the world to turn their atten- tion to ECAs and their negotiating forum, the OECD, and to press their governments to undertake reform without further delay. Undersigned Non-Governmental Organizations and Individuals: AUSTRALIA: Action for World Development NSW Inc. AID/WATCH Australian Council for Overseas Aid Bougainville Freedom Movement Campaign Against Corporate Tyranny in Unity and Solidarity (CACTUS) Community Aid Abroad (Oxfam Australia) Economic Reform Australia Friends of the Earth Australia Information for Action Jubilee 2000 Australia Mineral Policy Institute Native Forest Network/Southern Hemisphere People for Nuclear Disarmament Public Interest Advocacy Centre Rainforest Information Centre TEAR Australia (Christian Action with the World's Poor) The Bathurst Justice Group The LEAD Group Inc. Wordwit International (Australia and China) World Vision Australia (WVA) AUSTRIA: Erlaßjahr 2000 Österreich NATURFREUNDE INTERNATIONALE BANGLADESH: Like-Minded Environmental Activists Group (LMEAG) BELGIUM: Eurodad Fern International NGO Forum on Indonesian Development(INFID) BOLIVIA: Plan de Desarrollo Indigena (PDI) BRAZIL: Conselho Indigenista Missionario (Espiritu Santo) Ecoa Movimento dos Atingidos por Barragens-Brasil (MAB) Rios Vivos Coalition (America Latina/Europa/USA) 21
  • 25. CAMEROON: Partnership, Management And Support Programme CANADA: Alternatives Canadian Auto Workers Canadian Council for International Cooperation Canadian Friends of Burma Canadian Labour Congress Canadian Lawyers Association for International Human Rights Democracy Watch East Timor Alert Network Falls Brook Centre Halifax Initiative MiningWatch Canada Project Ploughshares RESULTS Canada Social Justice Committee of Montreal Society Promoting Environmental Conservation Steelworkers Humanity Fund Sweet Land Collective West Coast Environmental Law Association COSTA RICA: Asociación Latinoamericana de Organizaciones de Promoción (NGO association with 45 members in 20 countries) FoE International's Campaign on the Environmental and Social Impacts of Mining DENMARK: Danish Association for International Co-operation FINLAND: Coalition for Environment and Development Finnish Asiatic Society Finnish Association for Nature Conservation Finnish Energy Political Association/Alternative to Nuclear Power Finnish Nature League/Forest Group FRANCE: Agir ici pour un monde solidaire Amis de la Terre Attac France Fédération Artisans du Monde France-Libertés Fondation Danielle Mitterrand HELIO INTERNATIONAL Info Birmanie L'Observatoire des Transferts d'Armements Reseau d'information sur le Tiers Monde (RITIMO) Reseau Jeunes Solidaires Survie 22
  • 26. GABON: Les Amis du Pangolin GEORGIA: Sakartvelos Mtsvaneta Mozraoba/Friends of the Earth Georgia GERMANY: Aktionszentrum 3. Welt e.V. Berliner Landesarbeitsgemeinschaft Umwelt und Entwicklung (Blue 21) EarthLink/The People & Nature Network ECOROPA Europe EURONATUR Forum Umwelt & Entwicklung IMBAS Institute of Interdisciplinary Study and Research (IfSF) Naturschutzbund Deutschland (NABU) e.V., Rettet den Regenwald e.V. Society for Threatened Peoples Umwelt-AG der Anne-Frank-Gesamtschule Urgewald Weltwirtschaft, Oekologie & Entwicklung e.V. (WEED) GUATAMALA: Maya Pedal (Guatamala and Canada) Tropico Verde HONDURAS: Comité para la Defensa y Desarrollo de la Flora y Fauna del Golfo de Fonseca (COD- DEFFAGOLF) INDIA: Adivasi Mahila Manch/Indigenous Women's Platform Bindrai Institute for Research Study & Action Environment Support Group Jharkhandis Organisation Against Radiation (JOAR) Jharkhandis Organisation for Human Rights (JOHAR) KALPAVRIKSH North and North East Mines Minerals & People South Asia Network on Dams, Rivers and People INDONESIA: Aliansi Masyarakat Adat Kalbar Aliansi Masyarakat Adat Nusantara Aliansi Perempuan Adat Nusantara Bioforum BP-Konsorsium Pembaruan Agraria debtWATCH Indonesia Elsam FOKER LSM PAPUA (Forum Kerjasama LSM Papua) 23
  • 27. FPMP-Sulsel Gabungan Anak Seni Sriwijaya Gita Pertiwi ICEL Indonesian Prosperity Trade Union Institute Dayakology Institute of Development and Economic Analysis (IDEA) Jagat-NTT JARI Indonesia Jaringan Kerja Masyarakat Adat Jaringan Organisasi Independen untuk Penguatan Rakyat(JOIPaRa) Jatam Konsorsium Pendukung Sistem Hutan Kemasyarakatan KSKP Lahat KSPPM LBH Palembang Indonesia Lembaga Advokasi Rakyat Lembaga Bela Benua Talino Lembaga Gemawan Lembaga Konsumen Hijau Lembaga Olah Hidup Lembaga Pemetaan Aset Produksi Rakyat Lembaga Pendukung dan Pemberdayaan Sosial Ekonomi Petani Karet Leskap LORIES NADI National Development Fund NGO'S CAFÉ NRM Oman Women's Committee Palembang Legal Aid Institution PERBBUNI Persatuan Perempuan Sama/The Women's Union For Equality PIAR/NTT Pijar Indonesia PLASMA PPSDAK/Yayasan pancur Kasih Pusat Informasi dan Komunikasi Perempuan (PIKP) Puti Jaji RMI - Institute for Forest and Environment Sahabat Persada Alam Sarekat Nelayan Sumatra Utara SEN/LPIST Serikat Demokrasi Sosial Solidamor Solidaritas Perempuan Telapak Urban Poor Consortium Wadah Pengembangan Alternatif Pesisir (WPAP) 24
  • 28. Riforma mondiale della SACE Service Civil International/Branca Italiana Un Ponte per... Xaverian Missionaries (Italy and many other countries) Fausto Bertinotti (Dep. and Member of the European Parliament) PRC Ugo Boghetta (Dep.), PRC Franco Bonato (Dep.) PRC Luca Cangemi (Dep.) PRC Aurelio Crippa (Sen.) PRC Fausto Co' (Sen.) PRC Walter De Cesaris (Dep.) PRC Giuseppe Di Lello Finuoli, Member of European Parliament PRC Franco Giordano (Dep.) PRC Maria Lenti (Dep.) PRC Giorgio Melentacchi (Dep.) PRC Ramon Mantovani (Dep.) PRC Luisa Morgantini, Member of European Parliament, PRC Maria Celeste Nardini (Dep.) PRC Edo Rossi (Dep.) PRC Giovanni Russo Spena (Sen.) PRC Tiziana Valpiana (Dep.) PRC Nicola Vendola (Dep.) PRC Luigi Vinci (Capogruppo), Member of European Parliament, PRC JAPAN: A SEED JAPAN Campaign for Future of Filipino Children (CFFC) Friends of the Earth Japan Green Energy "Law" Network Japan Center for a Sustainable Environment and Society (JACSES) Japan NGO Network on Indonesia Japan Tropical Action Network (JATAN) Mekong Watch People's Forum 2001 Society for Creation of Future of Yoshino River KENYA: Forest Action Network Relief and Environmental Care Africa (RECA) KYRGYZSTAN: Bureau on Human Rights and Rule of Law MALAYASIA: Centre for Orang Asli Concerns (COAC). Partners of Community Organisations (PACOS). 26
  • 29. Walda Walhi Aceh Walhi Jawa Barat Walhi Jawa Timur Walhi Kalimantan Tengah Walhi Sulawesi Selatan Walhi Sulawesi Tengah Walhi Sulawesi Utara Walhi Sultra Walhi Sumatera Selatan Walhi Sumatra Utara WALHI/National Secretariat WWF Sahul Yappika Yascita Yasinta Yayasan Asri Yayasan Bantaya Yayasan Bina Potensi Desa Yayasan Gemi Nastiti Yayasan HAPSARI Perbaungan Yayasan IMPALM Yayasan KAPPALA Indonesia Yayasan Kelola Menado Yayasan Lembaga Bantuan Hukum Indonesia Yayasan Pelangi Indonesia Yayasan pengembangan Masyarakat Desa (Papua) Yayasan Peran Yayasan tahanjungan Tarung Palangkaraya YLK-Sulsel YPBB ISRAEL: GreenAction - for Social Ecological Change Israeli Association for Earthday Events ITALY: Amici della Terra Associazione Nuova Solidarieta/Bottega del Mondo di Finale Ligure Campagna per la Riforma della Banca Mondiale Centro Internazionale Crocevia Circolo di San Salvo del Partito della Rifondazione Comunista COCIS Coordinamento Lombardo Nord/Sud del Mondo GEVAM/ONLUS Operatore nella cooperazione Internazionale Partito della Rifondazione Comunista (PRC) Rete Italiana botcottaggio Nestle Rete Romana sul Consumo Critico 25
  • 30. MEXICO: Grupo Mesófilo A.C. Red Mexicana de Accion frente al Libre Comercio (RMALC) Trasparencia, S.C. NETHERLANDS: Both ENDS Campagne tegen Wapenhandel Corporate Europe Observatory Friends of the Earth International Greenpeace International Komitee Indonesia The Northern Alliance for Sustainability The Transnational Institute World Information Service on Energy (WISE) NEW ZEALAND: The Pacific Institute of Resource Management NIGERIA: African Network for Environmental and Economic Justice Ecowas Network on Debt and Development (ECONDAD) The Flood and Erosion Victims Association(FEVA) NORWAY: FIVAS, Association for International Water and Forest Studies Forum for Environment and Development Regnskogsfondet/Rainforest Foundation Norway PAKISTAN: Pakistan Network of Rivers, Dams, and People PAPUA NEW GUINEA: NGO Environmental Watch Group PHILIPPINES: Cordillera Peoples Alliance NUCLEAR FREE PHILIPPINES COALITION RUSSIA: Agency for Public Ecological Reviews Altai State University Ecoclub Angara-Yenisei Rescue Association ASMO-Press Association of Young Journalists of Tomsk Region Baltic Resource and Information Center Bayangol Ethno-Ecological Center Bureau for Public Regional Campaigning Buryat Regional Union for Baikal ECODEFENSE! Int'l Fund for 21st Century Altai Green Light Environmental Center 27
  • 31. ISAR-Siberia Kamchatka League of Endependent Experts Krasnoyarsk Regional Public Fund for Forest Protection Magadan Center for the Environment Public Ecological Center "Dauria" Public Ecological Charitable Fund "Baikal" Republic of Sakha (Yakutia) Center for Ecological Education Republic of Sakha (Yakutia) Public Ecological Center Republic Public Environmental Fund "Baikal" Sakhalin Environment Watch Siberian Association for NTFP Use Siberian Environmental Center Socio-Ecological Union/Antinuclear Campaign St. Petersburg Society of Naturalists Taiga Rangers Taiga Research and Protection Agency Tele-radio Company "Katun" Tomsk Ecological Student Inspection Toyeon Ecological Center Transbaikal Center for Biodiversity Conservation World Information Service on Energy Russia SLOVAKIA: Center for Environmental Public Advocacy/Friends of the Earth Slovakia SOUTH AFRICA: Alternative Information & Development Centre (AIDC) Timberwatch Coalition SWEDEN: Fältbiologerna Miljoefoerbundet Jordens Vaenner/Friends of the Earth Sweden Swedish Society for Nature Conservation Peter Söderbaum, Professor i ekonomi med inriktning på ekologisk ekonomi Mälardalens högskola, Sweden SWITZERLAND: Aktion Finanzplatz Schweiz Arbeitskreis Tourismus & Entwicklung Basel Mission Berne Declaration Bruecke-Cecotret/Development Agency of Swiss Confederation of Christian Trade Unions Caritas Switzerland Green Party Switzerland Honduras Group Switzerland Netzwerk für sozial verantwortliche Wirtschaft NSW/RSE Solifonds Swiss Coalition of Development Organizations Swiss Energy Foundation 28
  • 32. Swiss Labour Assistance Swissaid TAIWAN: Taiwan Environmental Protection Union THAILAND: EarthRights International Mangrove Action Project Northern Development Foundation Towards Ecological Recovery & Regional Alliance (TERRA) Yadfon Association UGANDA: Uganda Debt Network UNITED KINGDOM: Campaign Against Arms Trade Centre For Alternative Technology (Wales) Christian Aid Down to Earth Fern/WRM Northern Office Forest Peoples Programme Forests Monitor Friends of the Earth (England, Wales and Northern Ireland) GLOBE UK All Party Parliamentary Group Green Party of England & Wales Ilisu Dam Campaign Indonesian Human Rights Campaign (TAPOL) Jubilee 2000UK Kurdish Human Rights Project Minewatch Partizans (People Against Rio Tinto and Subsidiaires) Rights and Accountability in Development (University of Oxford) The Corner House Wales Green Party/Plaid Werdd Cymru World Development Movement Jean Lambert MEP, Green Party Member of the European Parliament (London Region) UNITED STATES: 50 Years Is Enough: U.S. Network for Global Economic Amazon Watch Center for International Environmental Law Environmental Defense First Peoples Worldwide Friends of the Earth Global Response Institute for Policy Studies International Primate Protection League 29
  • 33. International Rivers Network Leavenworth Audubon Adopt-a-Forest Mangrove Action Project Native Forest Council Natural Resources Defense Council Oxfam America Pacific Environmental Resource Center Preamble Center Project Underground Rainforest Action Network Rainforest Foundation USA Rainforest Relief Rockefeller Brothers Fund Worldview, Ltd. Dennis V. Brutus, Professor Emeritus, University of Pittsburgh Terence Turner, Professor, Cornell University URUGUAY: Instituto del Tercer Mundo World Rainforest Movement ZIMBABWE: African Forum and Network on Debt and Development 30
  • 34. Appendix B: Indonesian Newspaper articles on export credit agencies. “NGO’s: ECA Bankrupt the Country” 31
  • 35. “Export Credit Projects are Generally Full of Corruption, Collision, and Nepotism” 32
  • 36. “ECAs In Indonesia Destroy the Environment” 33
  • 37. The Jakarta Post December 12, 2000 Forests under threat from debt-laden firms: Report BOGOR, West Java (JP): A new study sponsored by two international organizations shows that Indonesia's forests -widely regarded as among the most biologically important tropical forests in the world - are under dire threat as heavily debt-laden companies struggle to obtain sufficient wood for continuous production. A sevenfold rise in mill capacity over the past decade, financed by multibillion dollar investments, has enabled Indonesia to become one of the world's top 10 pulp and paper producers. According to the report by the Center for International Forestry Research (CIFOR) and the World Wide Fund for Nature (WWF)'s Macroeconomic Program Office, which has been made available to The Jakarta Post, Indonesia's pulp and paper industries have grown by 700 percent since the late 1980s, backed by US$12 billion credit and investments CIFOR researcher Christopher Barr, who conducted the study from mid-1999 until the end of this year, reports that the combined production capacity of Indonesia's pulp and paper industries has grown since 1988 from 1.8 million tonnes a year to more than 13 million tonnes a year. The report notes that the country's pulp and paper producers, dominated by four conglomerates, secured backing for major growth, in part, by pledging to obtain their raw material from sustainably managed tree plantations. Yet so far, only 8 percent of the wood the industries consume (100 million cubic meters since 1988) has come from plantations. The rest is mixed hardwood timber from natural forests - much of it thought to be harvested illegally. "The fact that companies have made investments on this scale without first securing a legal and sustainable supply of raw material suggests that many pulp and paper projects in Indonesia are at considerable financial risk," Barr writes in the CIFOR-WWF report, Profits on Paper: The Political Economy of Fiber, Finance, and Debt in Indonesia's Pulp and Paper Industries. Barr calculated that more than 800,000 hectares of natural forest have been cleared since 1988 to supply the rapidly expanding mills. The government of Indonesia has allowed the country's pulp and paper companies, which are concentrated in Sumatra's Riau province, to exploit large areas of natural forest at low cost. But the CIFOR-WWF study concludes that as much as 40 percent of the wood that mills now obtain from natural forests comes from undocumented and probably illegal sources. The nation's rapidly diminishing forests will continue to face heavy pressure for at least the next seven years, the report warns, as plantation yields 34
  • 38. fall far short of meeting the volumes of wood the country's mills need to operate at projected processing capacities. Barr speculates that the quest for additional sources of wood could hasten deforestation in Kalimantan and Papua (formerly Irian Jaya), as pulp and paper companies seek raw materials from beyond their current base in Sumatra. Growing Risk The study looks particularly at the performance and economic conditions of two of Indonesia's largest pulp and paper companies, owned by Asia Pulp & Paper (APP) and Asia Pacific Resources International Ltd. (APRIL). Both have made considerable headway since the 1990s in establishing industrial pulpwood plantations. Fast-growing acacia and other species favored for plantations can generally be harvested in seven to eight years. But the CIFOR-WWF report shows that large capital investments in pulp and paper processing facilities have rapidly outpaced plantation development efforts, with companies expected to face growing shortages of raw material over the next five to seven years. "Besides putting added pressures on Indonesia's remaining natural forests, debt-driven expansion will raise the financial risks if these companies are not able to secure low-cost fiber over the long term," Barr observes. Conflicts between companies and communities over forest access and environmental issues further raise the financial stakes, as illustrated by the ongoing suspension of operations at the $600 million Indorayon pulp mill in North Sumatra. The study shows that Indonesian pulp and paper producers have been willing to invest enormous sums in the expansion of mill capacity because the financial risk to their owners has been diminished by government subsidies (such as access to pulpwood at costs well below its stumpage value), weak regulation of Indonesia's financial sector and inadequate risk assessment by international financial institutions involved in the investments. The economic crisis in Indonesia has magnified the problems. Some of the nation's largest mills and pulpwood plantations have been placed in receivership under the Indonesian Bank Restructuring Agency (IBRA) because of their heavy debt loads. "IBRA has allowed the companies to continue operating under their precrisis management teams, and there are strong reasons to believe the agency may write off a substantial portion of their outstanding debts, thereby providing yet another capital subsidy," says Barr. Furthermore, agreements between major pulp producers APP and APRIL and their foreign investors to resolve outstanding debts have been linked to further expansion of the companies' processing operations. 35
  • 39. Recommendations The report suggests a number of policy options that government agencies and financial institutions could adopt to put Indonesia's pulp and paper industries on a more sustainable track. The recommendations are best read in the context of the full report and they relate to corrective action on: further expansion of pulp and paper processing capacity; wood supply subsidies to Indonesia's pulp industry; allocation of new forest conversion licenses; independent monitoring of plantation development; stricter application of due diligence by financial institutions on major investments in major pulp and paper projects in the face of financial risks; and potential reliance on illegally obtained raw material. 36
  • 40. Appendix C: A productive rubber garden in a village affected by the PT. Tanjung Enim Lestari paper and pulp mill. 37
  • 41. A bottle of black water taken from portion of the river where the PT. Tanjung Enim Lestari paper and pulp mill has its outflow pipe. This black waste water was dumped from the PT. TEL outflow directly into the river water which is used for bathing and washing by villagers that inhabit the shoreline. Villagers report- ed skin lesions and sores after bathing in the river after PT. TEL had started dumping operations. 38
  • 42. Environmental Defense 1875 Connecticut Avenue NW, Suite 1016 Washington D.C. 20009 Tel. 202-387-3500 Fax 202-234-6049 www.environmentaldefense.org