East Kalimantan was the first of Philip Hurst’s case studies, a region which occupies about 200,000 km2. of Borneo. In 1981 there were an estimated 173,000 km2 of forest, of which 130,000 had been designated for logging. In the 1980s Kalimantan as a whole supplied almost one-third of the country's timber exports. Despite this contribution to the economy the profits accrued to a small minority and did not generally improved the living standards of the local people. By 1984 Kalimantan had more than 10,000 km2 of 'critical lands', a dangerous situation for an agricultural region.
As an introduction to the politics of logging Hurst presented the case of the U.S. Weyerhauser Corporation provides a good example of logging concession politics in this region at this time.
Hurst’s story begins in the late 1960s when Weyerhauser's logging concessions in the Philippines were becoming unprofitable. Wishing to expand operations Weyerhauser went into partnership with an Indonesian company: the International Timber Corporation of Indonesia (ITCI). In 1971 ITCI gained rights to 386,000 ha of primary hill forest in East Kalimantan.
Weyerhauser could never buy out its partner because ITCI was a trust set up personally by President Suharto. On paper, Weyerhauser owned only 65% of ITCI but they provided the operations' total investment of US$32m. Both parties gained: Weyerhauser had financial control over ITCI and ITCI acquired a large working capital with no investment. ITCI's major shareholders were the top 73 Generals in Suharto's 'New Order' government. In effect the partnership was a form of pay-off from Suharto for the loyalty of Indonesia's military elite. Over the first seven years ITCI's log sales averaged US$37m annually. In 1977, output from this one concession reached 1.6m tons of logs worth US$66m.
How much of this figure was straight profit for Weyerhauser is not clear. The forest expert, Norman Myers, estimated that for a similarly funded operation the foreign shareholder gained more than US$3m profit per year.
The ‘Three Ministers Decree’ of 1980 put pressure on all logging operations to reinvest profits in processing facilities, but this did not suit Weyerhauser who pulled out of ITCI in 1984. In short, Weyerhauser was not interested in timber processing or managing the forest after they had extracted the highest value timber, an attitude typical of foreign investment in Indonesia's timber industry at this time. The concessionaires left behind an overcut forest and a tinderbox, which was revealed when during 1982-3 fires swept through 3.5m ha of the region. An estimated 20 million cu. metres of timber from primary forest and a further 35 million c. metres from secondary forest were destroyed.
In 1993 came the report of the Southeast Asia Sustainable Forest Management Network ‘Communities and Forest Management in East Kalimantan: Pathway to Environmental Stability. This was edited by Mark Poffenberger and Betsy McGean of the Center for Southeast Asia Studies, International and Area Studies of University of California, Berkeley. This report provides a preliminary discussion of selected research findings from the Indonesian members of the Southeast Asia Sustainable Forest Management Network. With nearly three-quarters of the country's land area officially under forest cover, national planners have viewed forest utilization as a vehicle to stimulate economic growth and as a land pool to absorb Java's growing population. Migrants seek forest land for farming. Businessmen see profit-generating opportunities. Non-government organizations perceive the richness of the cultural and biological diversity and hope to preserve it. Indigenous peoples view the forest as their ancestral home, the foundation of their traditions and their continuity. The East Kalimantan case studies did not attempt to justify any of these views described above. Rather, the researchers reported changes in the environment and society occurring in the provincial study sites in recent years through human forest interactions. The study found that forest utilization practices by concessionaires, developers, migrants, and local populations had led to a rapid process of forest degradation, especially in high pressure areas nearer roads and urban centres. The researchers raised the question, "How can Indonesia best manage its millions of hectares of degraded forest lands?" They concluded that while some of this area can be developed for settlements, agriculture, and fast-growing timber plantations, a sizable majority might best be left to regenerate naturally under the protection of local communities.
They found that indigenous Dayak communities in Datarban and Diak Lay both showed a deep knowledge of forest ecology and regenerative processes based on centuries of experience with long rotation agriculture. Traditional wisdom combined with more recent scientific experimentation indicates rapid regrowth can be achieved if cutting and burning are controlled. The productivity of valuable timber and non-timber forest products could be greatly increased through enrichment planting and other manipulations of the natural environment. The Dayaks, as well as the Kutai and migrant groups, were concerned about the future of their communities and the natural resources upon which they depend. The researchers concluded by urging planners, academics, and community development specialists to empower forest people with the legal custodial authority to heal disturbed forest ecosystems and make them once again ecologically rich and economically productive.
Illegal logging and fire have continued to be major issues in East Kalimantan for the next quarter of a century. According to a 2006 report by Ferdinandus Agung Prasetyo and Krystof Obidzinski from the Center for International Forestry Research (CIFOR) the East Kalimantan provincial government is losing over US$ 100 million a year in lost business tax revenue due to illegal logging and unreported timber processing. This does not include the intangible costs of the loss of biodiversity and water services. Nor the future social cost of natural disasters and loss of jobs from forest destruction.
Demand for timber is now far exceeding the amounts that can be produced sustainably. According to the CIFOR study, East Kalimantan's timber industry has the capacity to produce about 9.1 million cubic meters of wood a year. For all of Indonesia the capacity exceeds 60 million cubic meters. This is in stark contrast to the Ministry of Forestry's allowable cut of 5.7 million cubic meters in 2004. The report takes a fairly standard estimate that the industry in East Kalimantan is working at only 60 percent of its potential capacity, which equates to the need for timber in the region being around 5.5 million cubic meters" Figures for the past five years show that the official quantity of log production from natural forest has been around 2.1 million cubic meters per year. Subtract this official figure of 2.1 million cubic meters from the 60 percent estimated output, and there is an apparent deficit of 3.3 million cubic meter of logs. This 3.3 million cubic meters of timber is being processed without any taxes being paid to the provincial government. There is also the lost revenue incurred through illegal timber smuggling to neighbouring countries. This was over two million cubic meters in 2000. . In total, undocumented timber processing and illegal logging amount to a revenue loss of Rp 856 billion a year - about $US107 million a year - half the annual revenue of the region. This is money that could be spent on poverty reduction programs, job creation schemes, new schools and health centres.
The price of timber is decreasing despite a rise in demand for wood and a decline in the legal production of timber. Given falling supply and increasing demand, economics dictates that prices should be rising. That prices are not going up means there is an oversupply of timber on the market, and this appears to be from illegal or at least undocumented sources. This timber costs less because the suppliers do not have to pay tax or meet the other financial obligations associated with legally producing timber.
It appears that the days of East Kalimantan being the main source of timber to Indonesia are over. In 1974, official government statistics listed the region as producing 6.6 million cubic meters of timber. The estimate of the Ministry of Forestry for 2004 is only 1.6 million cubic meters. The decline in output is due to a number of causes. These range from the 1997/98 forest fires and recent land use changes, through to unsustainable and illegal logging, which is also contributing to the steady deforestation of East Kalimantan. There are many issues underpinning illegal logging. One of them, but not the major one, is the lack of law enforcement. The most significant underlying cause of illegal logging is the client-patron relationship. Illegal logging is difficult to eliminate because both suppliers and purchasers benefit from the profitability of the trade, especially by evading tax.
Current timber prices are reaching as low as US$45-50 per cubic meters. These levels are bound to make legal timber production unprofitable. Another reason for the low prices is that workers involved in illegal logging earn much less than legal workers because of their poor bargaining position.
The authors of the report suggest a number of solutions to the illegal logging problem. Restructuring the timber industries, increasing the supply of timber from plantations and improving the management of natural forest would reduce illegal logging and slow down deforestation. Other solutions include making timber industry regulations more transparent and improving law enforcement practices.
Forestry is the main source of livelihood in East Kalimantan. If illegal logging is not properly addressed, Prasetyo and Obidzinski predict unemployment in the region will increase due to the short-term benefits and unequal distribution of profits from the business of illegal logging will harm the environment and the economic future of the region.
In 2005 the system for verifying the legality of timber known as the ‘legality standard’, the outcome of an MOU between the governments of Indonesia and UK, had clearly not been agreed upon by the stakeholders in East Kalimantan. However the independent parties that instigated the system – i.e. The Nature Conservancy (TNC) of America, the Department for International Development (DFID) of UK and SGS/URS Forestry (a TNC consultant) continued to attempt to spread information about it in East Kalimantan. The East Kalimantan Working Group on Forests, (Coordinator, Yoga Sofyar), the Director of BEBSiC (Ade Fadli) and the Coordinator of Working Group 30 (Public Policy Advocacy Foundation), Kahar Al Bahri. Yoga, Ade Fadli and Kahar hoped that later there would be a system which supports the conservation of the forest and takes the part of the local communities. They admitted concern for the situation of the forestry sector. Up to now, after almost 40 years selling timber, Indonesia has not yet been able to say that the timber from the forest is harvested according to law, i.e. that it is legal. “This is a very shameful situation,” said Ade Fadli on the web site ‘Illegal-logging.info’.
Meanwhile, the headline in the The Jakarta Post, Feb 9, 2006, 'Illegal logging rolls on', has an air of resignation about it, as the paper reported the latest news on the logging issue:
Some 20 ships loaded with illegally cut logs and sawn timber are docked outside Tanjung Balai Karimun Customs Office in Riau Islands province. The ships were detained by the customs office while attempting to smuggle their illegal cargo into Malaysia and Singapore, the head of the office, Bambang Prasodjo, told The Jakarta Post. Eight of the ships were detained in January, carrying over 613,000 cubic meters of illegally cut timber worth an estimated Rp 3.5 billion (US$376,344). Last year, the office detained about 30 ships. Bambang claimed Monday there were no signs that the smuggling of illegal logs in the province's waters was slowing down. "It is still difficult to break up the networks smuggling illegally cut logs into Singapore and Malaysia. Complicating the situation is the fact that the under the Customs Law, the smugglers are considered to be the ones carrying (the illegal goods), in this case, the captain and crew. (Arresting) the owners of the ships is outside our authority," he said. He said smugglers carried the logs at night, even during rough weather, believing there would be fewer police patrols. In Riau Islands, five areas are believed to be the main suppliers of illegal logs to neighbouring countries. They are Tembilahan, Selat Panjang, Dumai, Tiga Island and Dabo Singkep. (JP/Fadli)
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