Illegal Forestry Activities in Berau and East Kutai Districts,

East Kalimantan:

Impacts on Economy, Environment and Society

Krystof Obidzinski and Agus Andrianto

Forest Governance Program Center for International Forestry Research (CIFOR)

April 2005

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© 2005 by CIFOR All rights reserved. Photos by Agus Andrianto and Krystof Obidzinski Published by Center for International Forestry Research Center for International Forestry Research Jl. CIFOR, Situ Gede, Sindang Barang, Bogor Barat 16680, Indonesia Tel.: +62 (251) 622622; Fax: +62 (251) 622100 E-mail: cifor@cgiar.org Web site: http://www.cifor.cgiar.org

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TABLE OF CONTENTS

List of Tables, Figures, and Maps iv

Glossary vii

Acknowledgements x

Executive Summary xi

1. INTRODUCTION 1

2. OBJECTIVES 2

3. METHODOLOGY 3

4. STRUCTURE OF THE REPORT 4

5. OVERVIEW OF THE FORESTRY SECTOR IN EAST KALIMANTAN 5

6. ILLEGAL FOREST ACTIVITIES IN BERAU DISTRICT, EAST KALIMANTAN 7 6.1. Overview of the forestry sector in Berau District 8 6.2. Illegalities associated with extractive forestry operations 8

6.2.1. HPH 8 6.2.2. Small-scale logging permits – IPKTM, IPK 24 6.2.3. HTI 29 6.2.4. Small-scale logging teams 32

6.3. Illegalities associated with wood-processing industries 34 6.3.1. Sawn timber and moulding 35 6.3.2. Timber kiosks 39 6.3.3. Ship-building 41 6.3.4. Pulp and paper production 42

7. ILLEGAL FORESTRY ACTIVITIES IN THE NORTHERN PART OF EAST KUTAI DISTRICT 44 7.1. Overview of the forestry sector in East Kutai District 44 7.2. Illegalities associated with extractive forestry operations

in the northern part of East Kutai District 44

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7.2.1. HPH 45 7.2.2. IPK 48 7.2.3. Small-scale logging teams 51

7.3. Illegalities associated with wood-processing industries in the northern part of East Kutai 53 7.3.1. Sawmills and moulding 53

8. SUMMARY AND ANALYSIS 59 8.1. Impact of illegal forest activities on district economy 59 8.2. Impact of illegal forest activities on livelihoods in Berau and East Kutai 70 8.3. Impact of illegal logging on environment in both districts 77 8.4. Factors facilitating illegal forest activities in Berau and East Kutai and how to

mitigate them 80 REFERENCES 83

APPENDICES 88

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LIST OF TABLES, FIGURES, AND MAPS List of Tables Table 1. Forest Area by Forest Land Use Type by Sub-District, as of 2001 8 Table 2. HPH and IPK roundwood production in Berau, 2001-2003 9 Table 3. Province-level IPK logging permits in Berau, 2002-2004 9 Table 4. HPH and IPK log production in Berau in 2003 12 Table 5. HPH and IPK log production in Berau until May, 2004 13 Table 6. HPH operations in Berau, an in-depth look 14 Table 7. IPKTM issued by Bupati Berau in the period 2000-2001 24 Table 8. IPK Wood Utilization Permit-Holders in Kabupaten Berau, as of 1997 25 Table 9. Plantation ventures seeking IPK permits in 1999 26 Table 10. Provincial IPK logging permits in Berau, 2002-2004 27 Table 11. HTI natural forest log production in Berau, 2003 30 Table 12. HTI natural forest log production in Berau in the first half of 2004 30 Table 13. Small-scale logging teams in Berau District, 2004 32 Table 14. Sawn timber and moulding production in Berau in 2003 36 Table 15. Sawn timber and moulding production in Berau as of May 2004 36 Table 16. Sawn timber and moulding mills in Berau, 2004 39 Table 17. Timber kiosks in Berau District, 2004 40 Table 18. Ship-building in Berau, 2004 42 Table 19. Log production in East Kutai, 2001-2002 45 Table 20. Log production in East Kutai in 2003 46 Table 21. Reported transport of HPH logs in East Kutai in 2003 47 Table 22. Provincial IPK permits in East Kutai active in 2004 48 Table 23. IPK permits issued by East Kutai District (Bupati), 2001-2004 49 Table 24. Reported transport of IPK logs in East Kutai in 2003 50 Table 25. A sample of small-scale logging teams near Muara Wahau, East Kutai, 2004 52

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Table 26. The official record of sawn timber and moulding mills in East Kutai in 2004 54 Table 27. Sawn timber production in East Kutai, 2003 55 Table 28. A sample of 15 sawmills operating in Muara Wahau, East Kutai, 2004 56 Table 29. Timber shipments by boat from Wahau to Samarinda, July 2004 58 Table 30. Passage fee system for sawn timber on the route Wahau-Samarinda 58 Table 31. Production per type of large-scale logging license in Berau, 2003 60 Table 32. Documented HPH/IPK illegal logging cases in Berau, 2000-2004 60 Table 33. Market value and Retribusi Pengelolaan tax losses from undocumented shipments of sawn timber/moulding in Berau, 2000-2002 63 Table 34. Revenues gained and lost in Berau’s forestry sector, 2003 (in Rp billion) 67 Table 35. Revenue collection and loss in the forestry sector in East Kutai, 2003 (in Rp billion) 69 Table 36. Employment generated by licensed and unlicensed forestry sector in East Kutai by category, 2003/2004 73 List of Figures Figure 1. Discrepancy between the production and shipment of logs from Berau, 1996-2003 10 Figure 2. Supply of HPH/IPK logs and the production of sawn timber in Berau, 2003-2004 37 Figure 3. Sawn timber produced and shipped in Berau, 1993-2002 38 Figure 4. HPH-IPK roundwood production in East Kutai, 2001-2003 47 Figure 5. PSDH revenues collected in East Kutai, 2000-2003 65 Figure 6. HPH and IPK employment in Berau, 1999/2000-2003 70 Figure 7. HPH-related employment in Berau, 1999/2000-2003 71 Figure 8. IPK-based employment in Berau, 1999/2000-2003 71 Figure 9. Logging-based employment (HPH, IPK) in East Kutai, 1999/2000-2003 74 Figure 10. HPH-related employment in East Kutai, 1999/2000-2003 75 Figure 11. IPK-related employment in East Kutai, 1999/2000-2003 75 Figure 12. Deforestation in Berau 1997-2000 78

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List of Maps Map 1. Administrative map of East Kalimantan Province 86 Map 2. Berau district 87 Map 3. Forest concession companies in Berau and East Kutai 88 Map 4. overlap between forestry and mining operations in Berau 89 Map 5. Talisayan sub-district 90 Map 6. PT Karya Lestari Jaya 91 Map 7. PT Berau Timber 92 Map 8. PT MSK Timber 93 Map 9. PT Taurus 94 Map 10. Berau and the northern part of East Kutai district 95

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GLOSSARY Baplan Kehutanan : Badan Planologi Kehutanan, Forestry Planning Unit BAPPEDA : Badan Perencanaan Pembangunan Daerah, Regional

Development Planning Agency BFMP : Berau Forest Management Project Borongan : Output based job BPS : Badan Pusat Statistik, Statistics Office BUMD : Badan Usaha Milik Daerah, District/Province government

enterprise Bupati : District Head CDK : Cabang Dinas Kehutanan, formerly District Branch of Forestry

Service Dana Reboisasi : Dana Reboisasi, Reforestation Fund DAU : General Allocation Fund DAK : Special Allocation Fund Dinas Kehutanan : Province/District Forestry Service Dinas Pendapatan Daerah : Provincial/District Finance Office Gaharu : Aloes Wood HGU : Hak Guna Usaha, Business License HPH : Hak Pengusahaan Hutan, Commercial Forestry Concession HPH-TC : Hak Pengusahaan Hutan-Tanaman Campuran, Commercial

Forestry Concession & Mixed Plantation HPH-TC : Hak Pengusahaan Hutan-Tanaman Coklat, Commercial Forestry

Concession & Cocoa Plantation HPH-TKS : Hak Pengusahaan Hutan Tanaman Kelapa Sawit, Commercial

Forestry Concession & Oil Palm Plantation HTI : Hutan Tanaman Industri, Industrial Timber Plantation Hutan Lindung : Protection Forest IBRA : Indonesian Bank Restructuring Agency IPK : Izin Pemanfaatan Kayu, Timber Utilization Permit

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IPKTM : Izin Pemanfaatan Kayu Tanah Milik, Utilization Timber Permit form Privately Owned Land

IPPK : Izin Pemungutan dan Pemanfaatan Kayu, Permit for Extraction and Utilization of Timber

Kabupaten : District Kadishut : Kepala Dinas Kehutanan, Head of Province/District Forestry

Service Kanwil : Kantor Wilayah, Regional office of a National Government Agency Kapolsek : Kepala Kepolisian Sektor, Sub-district Police Head Kawasan hutan : Forest Estate KBK : Kawasan Budidaya Kehutanan, Forest Estate KBNK : Kawasan Budidaya Non-Kehutanan, Non-Forest Estate Kios kayu : Timber Kiosk KKN : Korupsi, Kolusi dan Nepotisme, Corruption, Collusion and

Nepotism Kopassus : Komando Pasukan Khusus, Military Special Forces Koramil : Komando Daerah Militer, Sub-district Military Command Mandor : Logging team leader Masyarakat : Local people MoF : Ministry of Forestry MTH : Mixed Tropical Hardwoods IHPH : Iuran Hak Pengusahaan Hutan, Commercial Forestry Concession

tax NTFP : Non-Timber Forest Product PAD : Pendapatan Asli Daerah, Regionally Generated Revenues Pajak Daerah : District Tax PBB : Pajak Bumi dan Bangunan, Land and Building Tax Pemkab : Pemerintah Kabupaten, Perda : Peraturan Daerah, District Regulation Provisi Pihak Ketiga : Sumbangan Pihak Ketiga PSDH : Provisi Sumber Daya Hutan, Timber Royalty PWH : Pembukaan Wilayah Hutan, Opening of forest area Reformasi : Political transformation in Indonesia after 1998 Retribusi Daerah : District Fees

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RKL : Five Year Forestry Workplan RKT : Rencana Kerja Tahunan, Annual Forestry Workplan RP : Retribusi Produksi, Timber Production Fee RP : Retribusi Pengelolaan, Timber Processing Fee RTRWK : District Spatial Development Plan SK : Surat Keputusan, Government Decision SKSHH : Surat Keterangan Sahnya Hasil Hutan, Letter of Legality for

Forest Products SPK : Sumbangan Pihak Ketiga, Third Party Contribution STREK : French-funded Sustainable Forest Management Project in Berau,

1989-1994 Sumbangan Pihak Ketiga : Third Party Contribution (District level tax) UPTD : Unit Pelaksana Teknis Daerah, Provincial Forestry Service

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ACKNOWLEDGEMENTS

This study was funded by The Nature Conservancy. The authors gratefully acknowledge this support. We are also grateful to TNC staff in East Kalimantan whose assistance during the process of data collection was indispensable. In particular, we extend our thanks to Pak Junaedi for extensive help with spatial imagery as well as for useful discussions about forestry problems in Berau and East Kutai districts. We also extend our appreciation to Mbak Daryatun and Mas Agus for making available to us TNC field equipment. We would also like to thank Dedi and Bambang of Yaysan Bestari, Dodi Hernawan of Bioma, Rini Kusumawati, Christoforus Winfried Belle, Wijil Rahadi, Pak Dimin and Pak Bambang of Jabdan/Muara Wahau – each of whom provided critical assistance during the field component of the study. During the authors’ visits to Berau and East Kutai, numerous government officials and forestry officers made themselves available for interviews and provided important data. We gratefully acknowledge the assistance of PT Sumalindo Lestari Jaya IV, PT Gunung Gajah Abadi, contacts in other HPH, IPK, IPPK/IPKTM, woodworking sector enterprises, as well as Forestry (UPTD, Dinas Kehutanan), Statistics, Trade and Industry, and Customs Offices at the provincial level in Samarinda as well as in Berau and East Kutai districts.

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EXECUTIVE SUMMARY This study examines illegal forest activities in Berau and East Kutai Districts in Indonesia’s East Kalimantan province. By analyzing all types of extractive and processing forestry activities, the study identifies illegalities associated with these operations and assesses their economic, social/livelihood and environmental impacts. It also identifies the key driving forces behind illegal forest activities and proposes corrective measures. Illegal forestry activities in Berau and East Kutai The analysis of logging and woodworking in Berau and East Kutai indicates illegalities are widespread. They occur mainly in the following forms:

1) Logging operations cutting out of block 2) Logging companies pretending to be stagnant while in fact they extract timber 3) Land-clearing (IPK) permits issued for dubious plantation schemes 4) Unlicensed small-scale logging 5) Log/sawn timber production is under-reported and shipping documents are illegally altered 6) Logging and woodworking enterprises in both districts routinely evade taxation 7) Logging as well as woodworking enterprises engage in tax evasion

Economic impact of illegal forestry activities in Berau and East Kutai The 2003 analysis shows the illegal forestry activities cause large budgetary losses in Berau. In 2003, such losses amounted to over Rp 103 billion. However, this revenue lost is not literally ‘lost’ as a substantial part of it is appropriated by individuals and government institutions in position to do so.

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BERAU Revenue

collected (Rp billion)

Revenue lost (Rp billion)

HPH/IPK/HTI

PSDH 14.65 12.15 Retribusi Produksi 1.2 0

DR 71 0 IPPK/IPKTM DR-PSDH 0 29.3a

Retribusi Produksi 10 0

Small-scale logging teams

Informal tax 3.6 0 DR-PSDH 0 65.1 Retribusi Produksi 0 0.8

Sawmills

Retribusi Pengelolaan 0.3 1.89

Informal tax 2.03b 0 Lumber kiosks and ship-building

Informal tax 0.2 0 Pulp and paper

Water tax, PBB 0.4 0

TOTAL 103.38 109.24 Note: a This number has been derived by dividing the official figure of lost DR-PSDH of Rp. 88 billion for the period 2000-2003 by three to obtain a yearly average. b This estimate is based on the information that on average each of 37 sawmills in Berau operates 11 months a year and each has a monthly ‘informal budget’ of Rp 5 million. Similarly, economic losses resulting from illegal activities in the forestry sector in East Kutai district are large and they far outweigh the gains. In 2003, the losses amounted to Rp 126 billion, mainly in lost tax revenue on HPH, IPK and unlicensed small-scale logging. As in Berau, most of the revenue ‘lost’ is appropriated by well-connected individuals and government institutions in the district.

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EAST KUTAI Revenue collected

(Rp billion) Revenue lost (Rp billion)

HPH/IPK

PSDH 17.1 23.4 DR 46.5a 63.5

Small-scale logging teams

PSDH 0 10.5

DR 0 28.6

Informal tax 2.1 0 Sawmills

Informal tax 3.4 0 TOTAL 69.1 126

Note: a The amount of DR revenue gained is based on the assumption that about 31 percent of the total DR revenue generated from the production of logs in 2003 was transferred to East Kutai. Illegal forestry activities in Berau and East Kutai and local livelihoods While illegal forest activities in Berau and East Kutai are a drain on the finances of the local government, it must be admitted they generate employment opportunities, particularly for the unskilled labor force. In 2003, unlicensed forestry operations in Berau generated 4,000 jobs, while licensed operations created 2,000 jobs. BERAU Employment in 2003 Licensed logging sector HPH/IPK 434 HTI 250-300 Unlicensed logging sector Small-scale logging teams 3,000 Licensed woodworking sector Kiani Kertas pulp and paper mill 1,410 (70 percent skilled jobs) Unlicensed woodworking sector Sawmills, moulding 393 Timber kiosks 124 Ship-building 256 Total licensed forestry sector (logging + woodworking)

2,094-2,144

Total unlicensed forestry sector (logging + woodworking)

3,773

Total forestry sector (licensed + unlicensed) 5,867-5,917 Source: CIFOR survey 2004

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The licensed and unlicensed forestry activities also generate significant employment opportunities in East Kutai. The licensed forestry sector supported 5,500 jobs in the district due to disproportionately high number of IPK land-clearing jobs that will be available for a very short time only. The unlicensed forestry activities created 2,500 employment opportunities. EAST KUTAI Employment Licensed logging sector HPH/IPK 5,319a

Unlicensed logging sector Small-scale logging teams 2,000b

Licensed woodworking sector Reporting woodworking mills 95 Unlicensed woodworking sector Other sawmills, moulding 505-605c

Total licensed forestry sector (logging + woodworking)

5,414

Total unlicensed forestry sector (logging + woodworking)

2,505-2,605

Total forestry sector (licensed + unlicensed) 7,919-8,019 Source: CIFOR survey 2004. Note: a About 74 percent of these jobs (or 3,953) were generated by IPKs; b This is an extrapolation from the situation in the Wahau-Kombeng area where 55 logging teams (about 550 loggers) annually supply 210,000 m3 of logs to 31 local sawmills that produce 105,000 m3 of wood products; b This is an extrapolation from the situation in the Wahau-Kombeng area, where 31 sawmills employ 171 people and annually produce 105,000 m3 of wood products (production/employment ratio: 615 m3/person/year). The impact of illegal forest activities in Berau and East Kutai on the environment Illegal forestry activities in Berau and East Kutai are having an increasingly negative impact on forest, soil and water resources in both districts. In 2001, the EU’s Berau Forest Management Project estimated the rate of deforestation in Berau at 1.9 percent, or 42,500 ha per year. This study estimates that logging, both licensed and unlicensed, in Berau annually affects nearly twice as much forest. In 2003, the official log production in the district (521,965 m3) was generated from at least 23,713 ha of forest, whereas small-scale logging teams extracted 350,000-380,000 m3 of timber from between 35,000 and 38,000 ha of forest. Cumulatively, logging in the district affects between 58,713 and 61,713 ha of forest (or 2.7-2.8 percent of the total forest cover) annually. East Kutai is facing far more serious forest degradation and deforestation problems. As of 2002, there were at least 890,403 ha of degraded forest in the district, 690,000 ha of which was located in the Production and Limited Production Forest zones and 200,000 ha in conservation areas. The latter includes the Kutai National Park, which is almost completely destroyed.

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Why do illegalities occur? By far the most important driving force behind illegal forest activities in Berau and East Kutai is their economic significance as a source of enormous rents – well over Rp 100 billion annually in each district. This large pool of money is an important source for personal enrichment, as well as institutional budgetary augmentation, for various district government institutions, private companies and communities. This renders forestry a gold mine for rent-seekers, an unbeatable opportunity for quick enrichment. The logging and woodworking enterprises underreport production and tamper with timber transportation records because by doing so they minimize tax liabilities and make windfall profits. The vast riches available from illegal forest activities in Berau and East Kutai cause competition and conflict among key players seeking to benefit from them – e.g. District/Province Police, District/Province UPDT, District Forestry Bureau and other institutions. Constantly maneuvering to maximize their respective shares, these parties engage in shifting alliances to undermine the opponent(s) in whichever way possible. The scramble for rents from illegal forest activities hampers the cooperation between different government institutions in Berau and East Kutai and fundamentally undermines forest governance in both districts. What can be done to prevent them? In order to curtail the illegal forest activities by in Berau and East Kutai, law enforcement measures alone (such as detection, prevention and suppression) undertaken by the security agencies are unlikely to be sufficient. This is because the benefits from illegal forestry activities, vast rents in the form of bribes or windfall corporate profits, far outweigh the risks (applicable legal sanctions). In order to narrow the gap between the costs and benefits of illegal forest activities in both districts, the official detection, prevention and suppression measures need to be complemented by a range of other initiatives pursued simultaneously:

1) Maintain the spotlight on a difficult, yet critical, issue of restructuring the enormous overcapacity of Indonesia’s woodworking industries which drives the insatiable demand for logs

2) Operationalize bilateral agreements between Indonesia and timber importing countries to eliminate illegal timber trade

3) Generate incentives for Indonesian timber producers to adhere to the legal standard through tenure security and certification schemes

4) Help synchronize the forestry legal framework and strengthen tenure security for local communities

5) Support grass-root movements to pressure for greater accountability and transparency in the district forestry sector.

Making the on-going detection, prevention and suppression operations by the government’s law enforcement agencies work in tandem with these additional initiatives and the grass-root pressure would result in a more potent tool with which to limit illegal forest activities in both districts.

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1. INTRODUCTION Indonesia possesses one of the most extensive tropical forests in the world. At present, the forests cover approximately 100 million hectares (ha) of the country’s land surface. Most of Indonesia’s forests are found on three large outer islands of Kalimantan (Indonesian part of Borneo), Sumatra and Papua (western part of New Guinea), with Kalimantan contributing about 30.6 million ha of forest (Tacconi and Kurniawan 2004). East Kalimantan is one of the most forested Indonesian provinces on the island of Borneo. The forest in East Kalimantan covers about 60% of the province, extending from coastal swamps to central mountain ranges (Baplan Kehutanan 2002). Unfortunately, Indonesia’s valuable tropical forests are being lost at the rate of between 2 and 3.5 million ha per year (Analisa 2003; Asia Pulse 2003; Gatra 2003; Republika 2003; Pikiran Rakyat 2003). The primary causes for this deforestation include forest fires, agricultural conversion and logging – both legal and illegal. It is estimated by the Indonesian government that over two thirds of the logging activity in Indonesia is illegal or quasi-legal (Tacconi et al 2004). Illegal logging, the definition of which encompasses a diverse number of unsustainable logging practices, is undertaken on a wide range of scales – from licensed capital intensive commercial logging operations, unlicensed small-scale manual logging, to subsistence farmers clearing lands for agricultural use. Illegal logging, undertaken by both licensed and unlicensed forestry operations, not only devastates Indonesia’s forests but also harms water and soil quality, and reduces available subsistence foods, medicines and materials traditionally collected in the forests. Illegal logging is causing serious fast water-run-offs and resultant land-slides and mud-slides which are killing people and ruining their lands. These practices also harm the economy, with hundreds of millions of dollars of lost government revenue each year.

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2. OBJECTIVES This study aims to construct a clear picture of economic, social and environmental impacts of illegal logging in Berau and East Kutai Districts to clarify the situation for the relevant stakeholders (district, province, national), inform the debates in which they are involved and offer feasible options which could usefully complement the on-going government initiatives seeking to address the illegal logging problem in the region. Specifically, the goals of this study are to:

1. Document the impacts of illegal forestry activities on the forest, district economy, and

community livelihoods 2. Describe and analyze the factors driving illegal forestry activities in Berau and East Kutai 3. Describe and analyze the obstacles to preventing illegal forestry activities in both districts 4. Identify strategies for overcoming the above obstacles to reducing illegal forestry activities

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3. METHODOLOGY In order to understand the economic, environmental and social components of the illegal forestry activities in Berau and East Kutai, map out the obstacles and identify strategies to help reduce such activities in both districts, the project has undertaken a comprehensive review of all forestry operations grouped in two broadly defined categories: Licensed forestry sector � HPH/IPK/HTI/IPPK-IPKTM/wood-working (pulp and paper). The basic premise in assessing the extent and nature of illegal forest activities in this segment of the forestry sector in Berau and East Kutai was to compare the official forestry statistics, permits, plans, maps, production logs, shipping reports etc with on-the-ground realities of these operations. In practice, this exercise involved field checks of the current logging activities and interviews with company employees and forestry sector insiders. Unlicensed forestry sector � small-scale logging teams/sawn timber-moulding mills/timber kiosks/ship construction. The study of this segment of the overall forestry sector was based on district-wide survey of unlicensed logging and processing activities in order to understand their operational characteristics, participation of the main stakeholders, investment, revenue and benefit flows. Whenever possible, the comparison of the official forestry data with actual operations was undertaken as well. The survey and statistical data were augmented with interviews with company employees and forestry sector insiders. The surveys of licensed and unlicensed forestry activities were as extensive as possible. Overall, the coverage is substantial enough (about 50-60 percent sample across both licensed and unlicensed forestry operations) to ascertain the validity of the information and based on it conclusions.

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4. STRUCTURE OF THE REPORT The body of the study consists of two major parts. The first of these, Section 6, focuses on illegal forestry activities in Berau District. It opens with an overview of Berau’s forestry sector. Subsequently, it discusses illegalities associated with extractive forestry operations (various forms of logging) as well as wood-processing industries in the district. The second part of the study, Section 7, focuses on illegal forestry activities in the northern part of East Kutai District. It follows the structure of Section 6 by first presenting a brief overview of the district’s forestry sector and subsequently discussing illegalities in both extraction and processing of timber. These chapters are followed by the summary and analysis section which examines economic, social and environmental impacts of illegal forest activities in Berau and East Kutai; identifies key driving forces behind such illegalities; assesses the obstacles to reducing illegal forest activities and outlines possible ways to strengthen the on-going anti-illegal logging (anti-illegal forest activities) initiatives in both districts.

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5. OVERVIEW OF THE FORESTRY SECTOR IN EAST KALIMANTAN

The province of East Kalimantan is located in the eastern part of the island of Borneo. It is one of the largest and richest provinces in Indonesia, with an area of 211,400 km2, making it the second largest province in the country after Papua. Prior to decentralization and regional autonomy, East Kalimantan was divided into four administrative districts of Kutai, Pasir, Berau, Bulungan and three townships – Balikpapan, Samarinda and Tarakan. Currently, the province comprises eight administrative districts and there townships (see Appendix 1). There is talk about turning Bulungan, Malinau, Nunukan districts and the township of Tarakan into a separate province of North Kalimantan (Tempo Interaktif 2004). However, it is unclear if and when such plan will materialize. As of 2003, the population of East Kalimantan province numbered 2.6 million people (BPS 2002). The province’s population increased by more than 300% over the last 30 years, mainly due to intensive in-migration caused by growth in natural resource based industries such as timber, oil, gas and coal mining. The urban areas of Samarinda and Balikpapan as well as adjacent parts of Kutai Kartanegara district are inhabited by 55% of the province’s population. The rest of the province’s area, particularly the hinterland, has always been sparsely populated. In 2002, there were 19.6 million hectares of forest in East Kalimantan, mainly comprised of Production Forest (4.6 million ha), Limited Production Forest (5.2 million ha) and Conversion Forest (5.2 million ha) (BPS 2002). The remainder was classified as National Parks and Reserves (1.8 million ha) and Protection Forest (2.8 million ha). East Kalimantan has for a long time been one of the most important timber producing provinces in the whole of Indonesia. Between 1970 and 2000, large-scale concessionaries (known as Hak Pengusahaan Hutan, or HPH) extracted about 156 million m3 of logs from the province’s forest (Dinas Kehutanan Kalimantan Timur 2000; BPS 2000). At their peak in 1992, active HPHs totalled 89 companies. As of 1999/2000, there were 83 HPH permits in effect, of which 65 were active and 17 stagnant. The effective HPH permits had 8.8 million ha of forest under licence (Dinas Kehutanan Kalimantan Timur 2000; BPS 2000). Since then, the number of active, large logging concessionaries in the province has declined, mainly due to financial problems, social conflicts and difficulties with securing annual work plans (RKT, Rencana Kerja Tahunan) (Casson and Obidzinski 2002). At the same time, many newly formed district governments began issuing large numbers of small-scale concession permits (IPPK/IPKTM or HPHH). In 1999, the official log production in the province totaled 7.2 million m3. In 2001, this fell to around 4.5 million m3. In 2003, the logging quota for East Kalimantan was about 1.6 million m3, while in 2004 it was lowered to 1.4 million m3. As of mid-2004, there were only 30 HPH companies with approved RKT plans active in the province. East Kalimantan continues to have a fairly significant wood-working sector. According to the province’s Forestry Office (Dinas Kehutanan), in 2002 there were 27 operating plywood/sawn timber mills of which 20 were located in the provincial capital, Samarinda, five in Balikpapan and

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one each in Sangkulirang and Tarakan, giving a total of 4.8 million m3 per year in installed capacity. There were also 90 officially registered sawmills, with a total installed capacity of 0.7 million m3. However, the real capacity for sawmills is likely to be much higher as only a small number of them are officially registered. The pulp and paper capacity of the province was relatively small in 2002, with Kiani Kertas’ mill in Berau capable of producing 525,000 tons of pulp per year. There were also two wood chip mills, one each in Tarakan and Nunukan, with a combined capacity of 298,000 tons. East Kalimantan’s woodworking industries are faced with a serious deficit of the raw material, as there is a significant discrepancy between the demand for timber and the available supply of logs. While the installed capacity of woodworking industries in the province has been relatively stable over the last several years at around 6 million m3 per year, the supply of logs has been falling steadily. Even if the industry operated at half of the capacity, it would still face a deficit of logs that in 2002/2003, for instance, reached between 4 and 5 million m3. Illegal logging is filling this gap. In 2000, illegal logging in East Kalimantan was estimated at between 2.5 and 5 million m3 per annum (Obidzinski and Palmer 2002). This figure includes logs that were illegally exported (Smith et al 2003). While the forestry sector is still considered important within the framework of East Kalimantan’s economy, its significance has been declining. This has been the case since the mid-1980s when natural gas and oil became the main contributors to the province’s economy. In 2002, oil and gas generated about 60 percent of the export value in East Kalimantan. The remaining 40 percent were generated by coal (and other mineral) mining as well as forestry, with coal mining showing particularly strong growth in the 1990s.

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6. ILLEGAL FOREST ACTIVITIES IN BERAU DISTRICT, EAST KALIMANTAN

Berau is one of eight districts (kabupaten) comprising the province of East Kalimantan. Covering a land area of 24,000 square kilometers, the district is located in the northwestern part of East Kalimantan and now borders kabupaten Bulungan, East Kutai and Malinau (Kompas 2001). Most of Berau territory lies in an extensive hinterland of the Segah and Kelay Rivers that provide crucial communication arteries throughout the district by linking interior with the coast1. The interior is dominated by hills and mountain ranges that rise to over 2000 meters above sea level in the extreme western part of the district. According to official government data, about 80 percent of the district’s area, or 2.2 million hectares, is covered with forest (BPS Berau 1998:96; Pemkab Berau 1999:14). In the east, Berau faces the Celebes Sea (see Appendix 2). The coastline is of considerable length and diversity, as dozens of islands and reefs (best known among them is Pulau Derawan) are scattered along the shore (Pemkab Berau 1990) Tanjung Redeb is the capital of the Berau district. Together with two adjacent towns of Gunung Tabur and Sambaliung, it forms a larger urban area of about 50,000 people. The overall population of the district in 2000 was estimated at nearly 120,000 (Kompas 2001). If compared to the total of about 50,000 in the mid 1980s, it is clear that the population of Berau experienced tremendous growth over the last twenty years (BPS Berau 1998:20). Although transmigration to Berau began as early as 1981, no more than 17-18,000 people have arrived (primarily from West and Central Java) and settled permanently (Noor 1996:108; BPS Berau 1998:37-38). Until the late 1980s, the majority of the population was local Malays and Buginese pursuing subsistence agriculture (wet and dry rice) as well as trade. A small minority was comprised of town-based Chinese traders, native Dayaks (Segai, Kenyah and Punan) inhabiting villages in the hinterland and Bajau sea nomads in the east (Pemkab Berau 1990). Although HPH logging operations have been active in Berau since the early 1970s, few locals found employment in this sector as logging companies brought contract labor from outside (Tim Monografi Daerah Berau 1976). The influx of spontaneous migrants (also primarily from Java) to Berau began in the late 1980s when the company PT Berau Coal was about to open the mining of coal in the district. In the early 1990s, this influx turned into a flood as the Kalimanis group of timber tycoon Mohammad “Bob” Hassan announced plans to build a large pulp and paper mill in the eastern part of Berau (Barr 1998). For instance, between 1994 and 1995 alone, a crucial construction phase of the PT Kiani Kertas mill, the population of Berau increased by over 20 percent (BPS Berau 1998:20; Kaltim Post 2002).

1 Kelay and Segah Rivers merge into the Berau River near the town of Tanjung Redeb, district capital, about 50 km from the estuary.

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6.1. Overview of the forestry sector in Berau District Over 2.2 million hectares (ha) – or approximately 90 percent of Berau’s total land area – is classified as Kawasan Hutan, or Forest Estate (see Table 1). Of this, 1.5 million ha has been designated as either Permanent or Limited Production Forest; 353,000 ha classified as Protection Forest; and 329,000 slated for conversion to other uses. Fifty three percent of Berau’s Production Forest is located in the interior sub-districts of Kelay and Segah, while over one-half of the kabupaten’s Conversion Forest is located in the coastal sub-district of Talisayan. Table 1. Forest Area by Forest Land Use Type by Sub-District, as of 2001 Kecamatan Permanent

Production Forest (ha)

Limited Production Forest (ha)

Conversion Forest (ha)

Protection Forest (ha)

Total (ha)

Kelay 62,750 340,750 34.975 182,725 621,200 Segah 105,300 318,500 16,150 99,800 539,750 Talisayan 150,999 45,675 165,950 64,900 427,524 Gunung Tabur 289,475 28,475 20,025 0 337,975 Sambaliung 84,800 48,400 68,775 6,350 208,325 Biduk-Biduk n.a. n.a. n.a. n.a. n.a. Pulau Derawan 59,650 5,175 23,075 0 87,900 Tanjung Redeb 5,075 0 0 0 5,075 Total 758,049 786,975 328,950 353,775 2,227,449 Source: BPS Berau 2001.

Since the mid-1980s, Berau has been an important area for log production in East Kalimantan, Indonesia’s largest timber-producing province. Until the collapse of Suharto’s New Order regime in May 1998, formal timber extraction in the district was largely carried out by companies holding HPH (Hak Pengusahaan Hutan) timber concessions issued by the central government. As in many other parts of Indonesia, substantial volumes of logs have also been harvested in recent years by land clearing license holders and operations based on small-scale logging permits. 6.2. Illegalities associated with extractive forestry operations The extractive forestry sector in Berau consists of the following sub-sectors: HPH (Hak Pengusahaan Hutan) large-scale logging concessions, small-scale logging permits such as IPK (Izin Pemanfaatan Kayu) or IPPK/IPKTM (Izin Pemungutan dan Pemanfaatan Kayu, Izin Pemanfaatan Kayu Tanah Milik), development of HTI (Hutan Tanaman Industri) industrial timber plantations and small-scale unlicensed logging teams. The illegality problems associated with extractive forestry operations in each sub-sector are discussed below.

6.2.1. HPH The Ministry of Forestry (MoF) allocated the first HPH concessions in Berau in 1969, during the start of East Kalimantan’s commercial timber boom. Over the ensuing decade, MoF distributed 14

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HPH concessions in the district, covering an aggregate area of 1.4 million ha (Kanwil Kaltim 1998). With forests that are rich in high-value dipterocarps, Berau has been one of the province’s most productive sources of timber over the last three decades. During the 15-year period from 1985-1999, HPH-holders operating in Berau reportedly harvested 10.5 million m3 of logs, or over 13 percent of the 77 million m3 of roundwood formally extracted by concessionaires in Indonesia’s largest timber-producing province (Dinas Kehutanan, 1999). It is likely, however, that the actual volumes of timber harvested have been substantially greater than these official figures suggest, as illegal logging – by HPH-holders and by other parties – is known to have been common practice in Berau, and other parts of East Kalimantan (Kartodihardjo 2000). Since 1998, the reported production of roundwood in Berau by HPH concession holders has been declining. Among the main reasons for this are financial difficulties and legal uncertainty the companies are facing as a result of tenure/compensation conflicts with local communities as well as concession overlaps with other land-use license holders (e.g. coal mining, plantation estates). For a brief moment in 2001 and 2002, the drop off in the production of roundwood by HPHs was offset by the increased log output from IPK land-clearing permits and IPPK/IPKTM district timber extraction licenses (Table 2). However, the allocation of IPKs has fallen sharply in recent years (Table 3), whereas the process of phasing out of IPPK/IPKTM permits is nearly complete. Table 2. HPH and IPK roundwood production in Berau, 2001-2003

Production (m3) Year

HPH IPK Total

2001 294,904 918,378 1,213,282

2002 402,582 348,700 751,282

2003 120,752 244,357 365,109Source: UPTD, District Forestry Service, Berau Table 3. Province-level IPK logging permits in Berau, 2002-2004

Year Area (ha) Production target (m3) 2002 18,400 365,2022003 4,447 65,7032004 2.000 26.448Source: Dinas Kehutanan, East Kalimantan Province It is important to note that over the last few years the reported shipment of log from Berau has often exceeded the reported log production in the district, indicating serious irregularities (Figure 1).

10

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1996 1997 1998 1999 2000 2001 2002 2003

Vol

ume

(m3)

Logs Shipped (m3)Logs Produced (m3)

Figure 1. Discrepancy between the production and shipment of logs from Berau, 1996-2003

Source: UPTD Berau; BPS Berau (2001, 2002) Between 1996 and 2003, about 775,937 m3 more of logs had been shipped than produced in Berau. In some years, more logs were produced than shipped. Greater production than shipping would not be surprising if Berau possessed an established plywood sector (sawmills do not use HPH or IPK logs for processing), but it does not. This means that in the years when production exceeded shipping, the excess logs were almost certainly transported illegally out of the district as well. The official district statistics suggest that between 1996 and 2003 HPH and IPK operations in Berau extracted between 775,937 m3 and 1,179,876 m3 of logs illegally. Until recently, the district’s largest timber producer was the state-owned enterprise, PT Inhutani I (see Appendix 3). Based in Balikpapan, Inhutani I first became active in 1976, when it was given control of HPH concessions over an area totaling 2.4 million ha in various parts of East Kalimantan (Dinas Kehutanan 1999). Approximately 365,000 ha of the area initially assigned to Inhutani I is located in Berau. Since the early-1990s, Inhutani I has also assumed control over 165,000 ha of forest area in Berau that was previously managed by private concession-holders whose HPH contracts have now ended. In the late 1990s, Inhutani I had operations at four HPH sites in Berau, from which it extracted 125,000 m3 – or 30 percent of Berau’s formal roundwood production – in 1998/1999 (Dinas Kehutanan 1999).2 Until 1999, the largest corporate actor among private concession-holders in Berau was the Kalimanis Group. Controlled by Suharto’s close associate Mohammad ‘Bob’ Hasan, Kalimanis entered Berau in 1973, when PT Kalhold (later re-named Rejo Sari Bumi) obtained a 70,000 ha concession. The group expanded its presence in 1978 by securing a 330,000 ha HPH for PT Alas Helau. By the mid-1990s, Bob Hasan had also become the director of the Astra Group, which 2 Between 1990 and 1995, Inhutani I hosted a French-sponsored STREK project conducted forest disturbance and recovery studies at its concession area in Labanan. The work initiated by STREK was continued by the EU-funded Berau Forest Management Project (BFMP) – a cooperative project with PT Inhutani I that operated in Berau between 1996 and 2002 with the capitalization of nearly US $ 15 million. The BFMP work is set to resume with a new EU-funded 5-year Berau-Bulungan Participatory Forest Management Project.

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controlled concession areas totaling 140,000 ha in Berau through two HPHs managed by PT Sumalindo Jaya. The Kalimanis Group also secured the rights to develop tree plantations on just under 200,000 ha in Berau. These are being established to support the group’s Kiani Kertas pulp mill, which Kalimanis built just southeast of Tanjung Redeb in 1997. Since then, Kalimanis’ hold on forest resources in Berau has been severely weakened. In 1999, Mohammad ‘Bob’ Hasan was jailed on corruption and embezzlement charges associated with, among others, his remote sensing business operations. In the same year, PT Alas Helau lost its HPH concession license due to the allegations of irregularities in the process of license procurement. It was subsequently divided into five much smaller concessions, ranging in size from 30,000 ha to 50,000 ha, awarded to the following companies: PT Karya Lestari; PT Mahardika Insan Mulia; PT Aditya Kirana Mandiri; PT Wana Bhakti Persada Utama; and PT Amindo Wana Persada. Hasan also lost control of PT Sumalindo Lestari Jaya forest concessions, as these were sold to the Hasko Jaya Group in 2000. Finally, in early 2004, the Kiani Kertas pulp and paper mill was sold to the consortium led by Kopassus Chief Mr. Prabowo, former Minister of Trade Luhut Panjaitan and the current Intelligence Chief Indra Priyono. At the moment, Mohammad ‘Bob’ Hasan only retains some control over the 200,000 ha of pulpwood plantations intended to feed the mill. While the partition of PT Alas Helau increased the total number of HPH concessions in Berau by 4, between 1999 and 2004 there have only been two new HPH licenses issued for available unmanaged forest estate in Berau. These licenses were granted to PT Hutan Alam Kalimantan and PT Karya Lestari Jaya, for 12,000 ha and 8,100 ha respectively. In contrast to other HPH concessionaries in the district, PT Hutan Alam Kalimantan and PT Karya Lestari Jaya logging activities are oriented towards the establishment of plantation estates in forest areas currently under their control. Rather unusually, their licenses are labeled as HPH-TC (Tanaman Campuran, Mixed Plantation) and HPH-TC (Tanaman Coklat, Cocoa Plantation) respectively. In 2003, HPH and IPK license holders reported cumulative production of just over 346,000 m3 of logs (Table 4). However, since many companies were active (i.e. conducted logging) and yet did not report any production, it seems likely that a significant amount of underreporting had taken place.

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No Company Jan Feb Mar April May June July Aug Sept Oct Nov Dec Total Remarks

1Perusda Bakti Praja 0 0 0 0 0 0 0 0 0 0 0 0 0

Logged throughout the year

2PT. Aditya Kirana Mandiri 0 0 0 0 0 0 0 8,197 1,157 1,014 856 1,003 12,228

3 PT. Daisy Timber 0 0 0 0 0 0 0 0 0 0 0 12,499 12,499

4PT. Dwiwira Lestari Jaya 0 0 0 0 0 0 0 0 0 0 0 0 0

Logged throughout the year

5PT. Hutan Alam Kalimantan 0 0 3,800 21,217 0 0 0 1,687 0 13,277 0 0 39,981

Underreported production

6 PT. Inhutani I 0 0 0 11,381 11,401 0 10,156 0 10,966 5,119 9,679 0 58,7027 PT. Inhutani II 0 0 0 0 0 0 0 5,339 1,506 2,278 0 0 9,123

8 PT. Karya Lestari 0 0 0 0 0 9,038 3,791 3,653 3,843 7,317 3,902 0 31,545

9PT. Karya Lestari Jaya 0 0 3,656 0 0 0 0 0 0 0 0 0 3,656

Logged throughout the year and produced significantly more

10PT. Malinau Dian Bara 0 0 0 0 0 0 0 0 0 0 0 0 0

11PT. Mahardhika Insan Mulia 0 0 0 1,975 8,528 1,887 8,185 0 1,418 1,836 4,274 19,653 47,755

12PT. MSK Timber Co. Ltd 0 0 3,507 0 5,716 1,529 2,618 2,775 0 0 0 0 16,146

Underreported production

13PT. Multi Puri Sejahtera 0 0 0 0 0 0 0 0 0 0 0 0 0

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PT. Puji Sempurna Raharja 0 0 0 8,062 1,535 3,462 2,875 0 0 4,388 2,718 3,135 26,175

15 PT. Rejosari Bumi 0 0 3,855 2,411 3,768 3,414 4,462 4,073 0 0 0 0 21,983

16PT. Repindo Jaya Sawit Sejati 0 0 0 0 0 0 0 0 0 0 0 0 0

17PT. Sentosa Kalimantan Jaya 0 0 0 0 0 0 0 0 0 0 0 0 0

18PT. Sumalindo Lestari Jaya 0 0 4,658 5,625 7,532 6,023 3,993 9,183 7,019 3,595 1,150 11,917 60,694

19PT. Tabalar Wood Industries 0 0 0 0 0 0 0 0 0 0 0 0 0

20PT. Wanabakti Persada 0 0 0 0 0 0 0 0 0 0 5,531 5,531

Likely produced significantly more

0 0 19,476 50,670 38,480 25,354 36,080 34,907 25,910 38,824 28,110 48,207 346,019

Table 4. HPH and IPK log production in Berau in 2003

Source: UPTD Berau, CIFOR survey 2004 In the first half of 2004, most HPH concessions in Berau were officially immobilized due to difficulties with securing annual work plan approvals (RKT, Rencana Kerja Tahunan), as these were contingent on prior settling of timber royalty (PSDH, Provisi Sumber Daya Hutan) and reforestation fund (RD, Dana Reboisasi) payments. This, however, did not prevent them from continuing logging operations (see ‘remarks’ in Table 5 below).

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Table 5. HPH and IPK log production in Berau until May, 2004 No Company Jan Feb Mar April May Total Remarks

1 Perusda Bakti Praja 0 912 0 0 0 912

Operated for most the period; underported production

2PT. Aditya Kirana Mandiri 0 0 0 0 0 0

Operated for most of the period

3 PT. Daisy Timber 0 0 0 0 0 0

4PT. Dwiwira Lestari Jaya 0 0 0 0 0 0

Operated for most the period; underported production

5PT. Hutan Alam Kalimantan 5,296 0 0 3,480 0 8,776

Grossly underreported production

6 PT. Inhutani I 0 0 1,557 3,149 4,460 9,1657 PT. Inhutani II 0 4,266 0 2,705 3,556 10,526

8 PT. Karya Lestari 0 0 0 0 0 0 Operated for most of the period

9 PT. Karya Lestari Jaya 0 0 0 0 0 0

Operated for most the period; grossly underported production

10 PT. Malinau Dian Bara 0 0 0 0 0 0

11PT. Mahardhika Insan Mulia 0 0 0 0 0 0

Operated for most of the period

12PT. MSK Timber Co. Ltd 0 0 0 0 0 0

Operated for most the period; underported production

13 PT. Multi Puri Sejahtera 5,296 3,840 0 0 0 9,136

14PT. Puji Sempurna Raharja 0 0 0 0 0 0

15 PT. Rejosari Bumi 0 0 0 0 0 0

16PT. Repindo Jaya Sawit Sejati 0 0 0 0 0 0

17PT. Sentosa Kalimantan Jaya 0 0 0 0 0 0

18PT. Sumalindo Lestari Jaya 0 0 1,406 1,401 0 2,806

19PT. Tabalar Wood Industries 0 0 0 0 0 0

20 PT. Wanabakti Persada 0 0 0 0 0 0 Operated for most of the period

10,592 9,018 2,962 10,735 8,016 41,322 Source: UPTD Berau; CIFOR survey 2004 Based on field surveys as well as interviews with company insiders, it is clear that most roundwood producers in Berau (HPH and IPK) were grossly underreporting their production output. The companies claim that in 2003 and 2004 their operations were based on unfinished logging quotas (carryover) from previous years. However, this does not explain why the real production figures were not reported to the forestry authorities. In order to probe further the practices of large-scale logging enterprises in Berau, 15 HPH and IPK operations have been studied in greater detail (Table 6). Most concessions show indications of a range of violations, including:

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� No clearly marked concession borders � Current/past/future logging blocks are unmarked � Delineation of logging roads, skidding trails and the position of log yards and log ponds all

deviate, often radically, from what district forestry and company concession maps indicate Nearly all concessions face problems with local communities and must deal with land as well as compensation claims. In addition, most HPH and IPK concessions overlap with other land uses such as protection forest (Hutan Lindung), industrial timber plantations (HTI, Hutan Tanaman Industri), oil palm estates, coal mining concessions etc, thus facing a major legal uncertainty factor (see Appendix 4). The findings about the surveyed HPH concessions are presented in the table below. Table 6. HPH operations in Berau, an in-depth look No Concession Contractor Remarks 1 PT Sumalindo

Lestari Jaya (SLJ) IV

Seeking to break the stagnation of operations in 2001-2003, SLJ IV sought to revive logging operations through sub-contracting. A number of prospective companies were considered, including PT. Biru Hijau (Malaysia), PT. SURI (Jakarta), PT. Surya Satria (Panin Bank Grup), PT. Jabontara Eka Karsa (oil palm developer), PT. Sues Timber, PT. Johan Abadi and PT Aji. Eventually, PT Aji became the party responsible for logging on production sharing basis. The value of monthly production is divided between PT Aji and SLJ IV, with 77.5% of production going to the former and 22.5% being the share of the latter.

• Stagnation between 2001 and 2003 due to compensation conflict with 5 villages on the upper Segah River. SLJ IV began operating again in late 2003, following the acquisition of the company by the Hasco Group (PT Aji, the logging operator, being one of its subsidiaries).

• The conflict with local villagers was

finalized with a one-time payment of Rp 350 million to the communities. In addition, SLJ IV/Aji is paying a fee of Rp 15.000 per m3 in cash and Rp 7500 per m3 for village infrastructure.

• Logging operations conducted

comparatively well (RKTs for the most part clearly marked, TPKs and logging roads not deviating much from forest management plans/maps). However, in some RKTs (2003, 2004) logging has been carried out on very steep slopes. Although technically most of SLJ IV concession is located in Limited Production Forest (HPT), clearly in some areas the viability of log extraction in rugged topography is pushed to the limit.

• SLJ IV concession is not yet facing a

serious threat from small-scale illegal logging operations due to rugged

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terrain and difficult access, although improving road connection with Tepian Buah could change that. In 2002/2003, the concession was briefly encroached upon by IPPK/IPKTM operations based in Punan Malinau and Long Ayan/Long Ayap. Currently, these are defunct.

2 PT Inhutani I –

Unit Tepian Buah

PT Royindo (no detectable field operations in 2004)

• Although the concession area still possesses good quality forest (particularly in the upper Siduung/Siagung watersheds), its condition is deteriorating rapidly.

• The area has been encroached upon

by IPPK/IPKTM logging operations between 2000 and 2003. There were at least 19 such permits issued within the concession’s boundaries.

• The concession also suffered

degradation from the activities of PT Palma Karisma Sekawan. In 1997, the company obtained 9,500 ha of Inhutani’s concession ostensibly to establish an oil palm plantation. In 2001, with most of the area logged and no trace of plantation, Berau’s Bupati revoked the plantation permit. Currently, the 9,500 ha of scrubland is completely unproductive, unless it is taken over (as is planned) by another oil palm developer – a Malaysian company PT Hutan Hijau Emas. This plan must be treated with caution and monitored closely, as PT Hutan Hijau Emas seeks 40,000 ha of forest/land for its oil palm estate in the vicinity of Tepian Buah, Gunung Sari and Trans SP 2.

• PT Inhutani I Unit Tepian Buah is

overrun by teams of small-scale loggers from surrounding villages. These loggers target Bangkirai, Ulin and Meranti species. Roughly sawn timber is produced on the spot and it is transported by trucks to Labanan, Teluk Bayur and Tanjung Redeb.

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• Unconfirmed information suggests that

Tepian Buah Unit will be taken over by PT HSLL (Hutan Sanggam Labanan Lestari). Given the deplorable state of the forest in HSLL’s concession (PT Royindo is the logging contractor), this does not bode well for Inhutani’s Tepian Buah Unit.

3 PT Hutan

Sanggam Labanan Lestari (HSLL)

PT Royindo • The concession area suffers from excessive opening of the forest/canopy (PWH - Pembukaan Wilayah Hutan) due to unnecessarily high density of roads. The main road, secondary roads, skidding trails criss-cross the concession in all directions. Excessive logging is undertaken in the process of road construction.

• The concession is invaded by the

teams of small-scale loggers. These loggers extract mainly Bangkirai, Ulin and Meranti species. Roughly sawn timber is produced on the spot and it is transported by truck to Labanan, Teluk Bayur and Tanjung Redeb.

• The renowned Plot STREK is located

within the boundaries of HSLL’s concession. The plot area has been damaged by an IPKTM operation conducted by PT Jabontara Ekakarsa as well as by small-scale loggers.

4 PT Aditya Kirana Mandiri

PT Royindo (since 2003) • The contractor conducts logging operations in proper RKTs. However, the latter are difficult to locate because of near non-existent marking of RKT blocks in the field.

• Although in 2003 logging was carried

out in the proper area, the overall layout of operations (roads, TPKs etc) differs substantially from plans/maps available at the district forestry offices (Dinas, UPTD). It is unclear whether there is official clearance for such

17

discrepancies, although Royindo employees explain it is an accepted fact that operations in the field will diverge, sometimes substantially, from the official planning.

• In 2004, while preparing a camp at Km

70 in preparation for RKT 2004, a branch road was constructed going deep into steep slope areas and out of the approved RKT block.

• HPH area of PT Aditya is relatively free

from small scale loggers. There is some small scale logging activity on the border with Inhutani’s Tepian Buah Unit, but so far it has been very limited.

5 PT Wanabakti

Persada Utama PT Royindo • Carried out logging in RKT area for

2004 well before the permit was issued. Royindo explained that logging was based on carry-over volumes from the previous year, but district government forestry sources do not confirm this

• There is information suggesting that not only has Royindo logged RKT block for 2004 prior to receiving proper documents, but it has already logged in the block for 2005

• There is a continuing disagreement between the villages of Long Keluh/Boy, Long Pelay and Lamcin and PT Wanabakti/Royindo over areas that can be logged as part of HPH and those that should be left out as community (adat) forest.

6 PT Amindo Wana

Persada

PT Amindo Wana Persada

• PT Amindo Wana Persada began operating in 2001. The main difficulty it was faced with was linking its concession to more accessible parts of Berau. It had two options: 1) build a connecting road across the Kelay River into the HPH of PT Aditya; or 2) try to link up with the road network of PT SLJ IV on the upper Segah River. PT Amindo decided on the first option. In 2002/2003, it completed the Long Keluh-Long Lamcin road that linked its

18

HPH concession to the corridor road established by PT Aditya. Inside information indicates that in the process of the road construction, Amindo helped itself to about 4000 m3 of commercial logs from HPH Aditya (this is in addition to logging done to open up the road bed).

• The link road was badly constructed

and it was usable only for a very short period of time. Bad roads, sub-par equipment and very difficult terrain all conspired against PT Aditya. The company was never able to fully establish production activities in its HPH concession

• In early 2004, PT Amindo suspended

operations in Berau. Apparently, the company has been considering the possibility to access its concession from the Wahau (East Kutai) side by linking it to the Narkata-Mugi Triman-Essam corridor road. The company hopes it will be easier that in Berau, but such an assessment is flawed. Distances involved are considerable, terrain as very difficult and, under the current District Development Plan (RTRWK); most of the areas to be traversed are classified as Protection Forest (Hutan Lindung).

7 PT Mahardika Insan Mulia (operates since 2001)

PT Royindo (in charge of logging since 2002)

• PT Mahardika is one of two HPH companies in the upper Kelay watershed (the other one: PT Karya Lestari) that transport logs via the corridor road to Labanan (part of this road overlaps with the Samarinda-Berau trans-Kalimantan highway).

• Inside information indicates that in

2003 the company logged well in excess of its RKT allowance. PT Mahardika was supposed to work on 500 ha/22,000m3 in 2003. However, in reality it logged 1200 ha, producing about 41,000m3. The company has not received its RKT for 2004 until late in the year.

19

• In 2001/2002, the company “allocated”

800 ha of its concession for an IPKTM enterprise. The license, under the name of Long Gie village, was operated by PT Royindo and PT Alam Permai Bhakti (based in Tarakan). According to local estimates, the companies logged approximately twice the size of the licensed forest area.

8 PT Karya Lestari

(HPH Pesantren Hidayatulah Balikpapan)

PT Prima Wanatama (based in Tarakan)

• Carried out logging in the 2004 RTK area prior to securing the permit. In July 2004, when RKT for 2004 was granted, the company already extracted more than 2000 m3 (TPK transit on the Kelay River)

• In 2003, the company’s logging

contractor intruded into the Protection Forest area between the Kelay and Gie Rivers. The case was investigated by the District Forestry authorities and the Police. The company was supposed to pay a Rp 2 billion fine. However, the fine has not been paid yet, as negotiations continue.

9 PT Sumalindo Lestari Jaya I

PT Surya Graha Sakti • The concession is severely degraded and it will likely be abandoned in the near future.

• There is little control over access in

and out of the concession. Intensive production of square logs and roughly sawn timber by logging teams from Dumaring and Talisayan is taking place. The small-scale loggers are logging old RKT areas as well as the few ones with still good timber stands on which SLJ I depends for survival in the next few years.

• A part of SLJ I concession was taken

over by PT Dwi Wira Lestari for a logging venture called HPH-TKS (Tanaman Kelapa Sawit, Oil Palm Plantation). The company is run as a partnership between a well-known (but disreputable) figure in the logging circles in East Kalimantan – Luther

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Kombong – and an ex SLJ I staff Turyadi/Ateng. If other forestry operations by the Kombong family in Berau are any indication (see the case of PT Karya Lestari Jaya below), this part of ex-SLJ I concession is headed for destruction.

• SLJ I HPH concession area has also

suffered degradation from the activities of Berau-based enterprise PT. Berau Perkasa Mandiri, which carried out logging based on the IPK permit for road construction.

10 PT Daisy Timber PT Daisy Timber • PT Daisy Timber suspended

operations in late 2003 and it has been inactive for the first half of 2004. In the second half of the year, it planned to resume logging activities by hiring PT Nabila (Hanurata Group) from neighboring East Kutai as a contractor.

• Because the company was officially

not active in 2004,.it is surprising that it shipped a few thousand m3 in the middle of the year -- even though clearly all of its log ponds, TPKs were empty. Timber sector insiders in Berau suspect that Daisy Timber documents (Daisy Timber did have an RKT for about 6,000 m3) have been used to cover the logs of PT Nabila extracted in East Kutai without RKT.

• Small-scale logging has penetrated

parts of Daisy Timber concession, but currently it confined to the area north of the Suleiman River.

11 PT Puji Sempurna Raharja

(Malaysian outfit) • The concession is heavily degraded

• On the northeastern side, it has been illegally logged by PT Meranti Samarinda Kalimantan (MSK) based on the IPK permit related to the planned development of coal mining (see the section on IPK, IPPK/IPKTM logging below)

• More illegal logging inside the

21

concession was done by an IPK related to road construction (Tanjung Redeb – Kasai – Tanjung Batu), carried out by the individual named Awong, and an IPK for oil palm development (PT Bina Maju Hutanindo)

• The concession is overrun by small-

scale logging teams producing square logs and roughly sawn timber. The teams are based in Kasai and in Gunung Tabur

12 PT Rejosari Bumi PT. Sentosa Kalimantan Jaya (SKJ)

• At the moment, the concession is inactive. Local press indicates that the Governor of East Kalimantan will recommend the license to be revoked for subsequent auction.

• The concession is degraded. It is

overrun by small-scale logging teams from Gunung Tabur that produce square logs and roughly sawn timber.

• The concession area overlaps with the

area licensed for coal-mining by PT Berau Coal. Currently, there are two IPK operations associated with PT Berau Coal (located within the HPH of PT Rejosari Bumi) conducted by Mitra Abadi cooperative and by PT. Sungai Berlian Jaya (Haji Abidinsyah)

13 PT Dwiwira Lestari – HPH-TKS (Tanaman Kelapa Sawit, Oil Palm Plantation)

PT Dwiwira Lestari

• The concession of PT Dwiwira consists of two enclaves (Lahan I and Lahan II), north and south of the Talisayan Protection Forest (Hutan Lindung) – see Appendix 5.

• The area is heavily degraded.

• The communities are engaged by the

company in IPK-like logging activities to clear the forest for the plantation, fow which there is no IPK permt.

• Lahan II is in large part a scrubland.

The link between Lahan I and Lahan II is the ex PT Gonpu road, which cuts across the Talisayan Protection Forest.

22

• This road is also used by PT SLJ I as well as by small-scale loggers. The condition of the road is terrible. Both companies state they keep the road in deteriorated state on purpose to limit encroachment. This strategy seems to have little success.

14 PT Karya Lestari

Jaya (KLJ), HPH-TC (Tanaman Campuran Coklat, Mixed Plantation – Cocoa), established in 2000

Joint venture with PT Segara Timber

• Cooperation with PT Segara Timber allows Karya Lestari to use PT Segara’s machinery. In return, Karya Lestari is obliged to sell its logs to PT Segara’s wood working industry in Samarinda – PT Segara Plywood.

• The biggest problem with KLJ is that

its license status is unclear (its HPH license has not been finalized and the company operates based on an IPK)

• Widespread underreporting and

logging out of block have taken place (see the case study below)

15 PT Hutan Alam Kalimantan (HAK), HPH-TC (Tanaman Campuran, Mixed Plantation)

PT. Samarinda Harapan • In mid-2004, PT HAK made provincial and national press/TV headlines when it was discovered that the company has logged extensively out of the block.

• Internal/confidential information

indicates that PT HAK logged about 33,000 m3 in excess of what it was allowed. However, only 12,000 m3 was seized by the Police and District Forestry authorities as the proof of wrong-doing. This amount was eventually reduced further in Berau District Police reports to 8,000 m3. Forestry insiders in the district are of the opinion that the company was allowed to keep the rest in exchange for a substantial fee per m3 to a number of locally powerful figures.

Among the worst cases of violations associated with HPH logging currently in effect in Berau is that of PT Karya Lestari Jaya. A detailed case study of this logging enterprise follows below.

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Illegal logging by HPH license holders – the case of PT Karya Lestari Jaya In July 1999, KLJ applied for a HPH license covering just over 8,100 ha of the forest in the ex concession area of PT Hanurata. KLJ sought a hybrid between HPH concession and HTI plantation in the form of HPH-TC (Tanaman Campuran Coklat, Mixed Plantation of primarily cocoa). Although as a concept HPH-TC was without precedence in the Indonesian forestry nomenclature, the Ministry of Forestry agreed to allocate the concession. Within 2 months of getting the official nod for HPH-TC (but with no permit in hand), in October 1999 the company requested a 1,000 ha IPK from the provincial forestry office in Samarinda. In February, 2000 the permit was granted, even though legally KLJ was not yet a HPH concession holder for the area in question. The 1,000 ha IPK had the production quota of 16,610 m3 of logs, to be completed by the end of January 2001. In October 2000, KLJ requested an extension from the provincial forestry office in Samarinda, explaining it had logged only 300 ha and produced 9,892 m3 (quota left: 700 ha, 6,718 m3). The extension was granted, inexplicably with an additional production allowance of 22,025 m3, to be completed by October 2001. In June 2001, a survey team from the provincial forestry office visited KLJ site in Berau and established that the company had by then produced 33,132 m3 of logs (twice the original target production volume). However, it was concluded there was still a substantial production potential in the IPK area. Consequently, the provincial forestry granted an extension for another year (until August 2002) and added another 20,704 m3 to the production target (total of 53,863 m3).

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6.2.2. Small-scale logging permits – IPKTM, IPK Until recently, small-scale logging permits in Berau have come in two types: district and province licenses. The district-based small-scale logging permits, or IPKTM (Izin Pemanfaatan kayu Tanah Milik, Utilization Timber Permit form Privately Owned Land), have been at the center of logging boom in Berau and other parts of East Kalimantan in the aftermath of decentralization and regional autonomy in Indonesia. The number of these permits issued between 1999 and 2002 totals more than 200. In 1999, there were 24 licenses (with multiple extensions) awarded for the total of 11,396 ha. Between 2000 and 2001, additional 183 permits were issued covering more than 35,000 ha of forest with the production target of nearly 1.4 million m3 of roundwood (Table 7). Table 7. IPKTM issued by Bupati Berau in the period 2000-2001

Production target Sub-district Total of IPKTM permitsArea (ha) Output (m3)

1 Biduk-biduk 10 1,200 62,0392 Segah 14 1,729 129,6223 Gunung Tabur 47 20,336 300,3044 Kelay 24 2,575 196,6255 Pulau Derawan 6 995 72,7856 Sambaliung 28 3,437 256,2217 Talisayan 35 3,528 232,7538 Teluk Bayur 17 1,573 115,4259 Tg. Redeb 2 200 14,923 Total 183 35, 573 1,380,697

Source: Dinas Kehutanan and UPTD Berau.

IPKTM based logging peaked in 2001 and subsequently declined as a result of progressive limitations imposed by the central government authorities on districts’ right to issue such permits. In late 2002, Berau officially ceased to issue new IPKTM licences. In early 2003, it announced that extensions would no longer be granted once the existing licenses expired. However, as indicated by the case of PT Taurus (see box 2), some IPKTM operations found ways to survive well into 2004. IPKTM for Livestock by PT Taurus In February 2002, Cipta Abadi cooperative from the village of Gunung Sari, Segah sub-district, obtained an IPKTM permit seeking to use timber fees for the expansion of livestock (cattle). The party responsible for the implementation of the IPKTM was a Berau company PT Berlian Indah. PT Berlian Indah was to establish a herd of about 50 cattle in return for which it was allowed to carry out logging on 200 ha of forest with the production quota of 6,216 m3 of roundwood. The logging was to be completed within a year. In April 2004, nearly a year after the expiration of Berlian Indah’s IPKTM license in Gunung Sari, its contractor (PT Taurus) continued to log in forest areas well beyond the designated IPKTM site. The survey of all logged areas indicate between February 2002 and April 2004, PT Taurus, on behalf of PT Berlian Indah, extracted about 65,000 m3 of logs – more than 10 times its licensed production quota.

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Since the mid-1990s, a growing portion of Berau’s timber production has been carried out by companies holding Wood Utilization Permits (Izin Pemanfaatan Kayu, or IPK). In contrast to the selective harvesting techniques required under the HPH system, IPK permits allow logging companies to harvest all standing timber from a forested area that is being converted to another form of land use. The Ministry of Forestry holds full authority to issue IPK permits, and it has generally assigned these to companies converting forestland to timber or pulp plantations, agro-industrial estate crops, or mining operations. In 1997, 13 companies held IPK permits in Berau for a combined area of 43,000 ha (Table 8). Table 8. IPK Wood Utilization Permit-Holders in Kabupaten Berau, as of 1997

Company Area (ha) Type PT Inhutani I/PT Tanjung Redeb Hutani 9,557 HTI Pulp PT Rejo Sari Bumi 4,291 HTI Pulp PT Tabalar Wood 3,230 HTI Pulp PT Hanurata 854 HTI Pulp

PT Sumalindo Lestari Jaya I 2,637 HTI Trans PT Alas Helau 1,331 HTI Trans PT Tabalar Wood 1,100 HTI Trans

PT Baldiwasa Palmaindo 4,250 Estate Crop (Oil palm) PT Palma Kharisma Sekawan 4,000 Estate Crop (Oil palm) PT Jabonsara Ekakarsa 2,600 Estate Crop (Oil palm) PT Tanjung Buyu Perkasa 1,000 Estate Crop (Coconut palm) PT Inhutani I/PT Sentosa Kalimantan Jaya 400 Estate Crop (Coconut palm)

PT Berau Coal 7,822 Coal Mining Total 43,072 Source: Cabang Dinas Kehutanan Berau, 1997

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In 1998, after the fall of Suharto’s regime there was a flurry of applications for plantation estate permits in Berau. By 1999, there were no fewer than 19 companies applying for a total of 240,200 ha of the forest, ostensibly to establish oil palm plantations (Table 9). Table 9. Plantation ventures seeking IPK permits in 1999

No Company Plantation permit date

Location Plantation type

Area (ha)

1. PT. Jabontara Ekakarsa

3/10/1997 29/9/1998 (HGU 14,000 Ha) 30/11/1999 addition of 6,000 Ha

Batu Putih /Talisayan Oil Palm 29,500

2. PT. Berau Bukit Gemilang 11/11/1998 Long Laai, Segah Oil Palm 11,000 3. PT. Teras Cakra Perdana 28/02/1998

04/02/1999 Long Ayap, Long Ayan, Segah

Oil Palm 20,000

4. PT. Mega Buana Utama 03/03/1998 04/02/1999

Tg.Batu, Semurut, P. Derawan,

Oil Palm 20,000

5. PT. Kartika Propita Ganda 03/03/1998 04/02/1999

Talisayan, Dumaring, Tembulan, Talisayan

Oil Palm 20,000

6. PT. Lini Andalan 11/02/1998 04/02/1999

Tg.Prepat, Pantai Harapan, Biduk-biduk

Oil Palm 12,700

7. PT. Taman Buana Tirta Indah 27/02/1999 Maluang, Gn.Tabur Oil Palm 18,000 8. PT. Agritimur Karya Graha 15/04/1999 Long Ayan, Segah Oil Palm 16,000 9. PT. Palma Kharisma Sekawan 05/06/1999 Punan Malinau, Segah Oil Palm 20,000 10. PT. Batu Sempit Sawit Indo 08/07/1999 Sepinang, Biduk-biduk Oil Palm 15,000 11. PT. Dwi Wira Lestari Jaya 11/08/1999 Biatan Hilir, Talisayan Oil Palm 20,000 12. PT. Repindo Jaya Sawit Sejati 20/09/1999 Sembakungan, Gn.Tabur Oil Palm 18,000 13. PT. Borneo Agro Sawit Lestari 20/09/1999 Tasuk, Gn.Tabur Oil Palm 20,000 14. PT. Inhutani I Adm.Berau 07/10/1999 Tepian Buah, Segah Oil Palm 11,000 15. PT. Behowen Sumber Makmur 18/11/1999 Long Beliu, Lesan Dayak,

Kelay Oil Palm 13,000

16. PT. Hono Baswen Sumber Rejeki

18/11/1999 Long Ayan,Long Ayap, Segah

Oil Palm 4,000

17. PT. Badiwata Palma Indo - Biatan Lempake, Talisayan

Oil Palm 15,000

18. PT. Teras Cakra Perdana 04/02/1999 Long Ayan, Segah Oil Palm 20,000 19. PT. Sentosa Kalimantan Jaya - Tg.Batu, P. Derawan Coconut 6,000 Total 240,200

Source: Dinas Perkebunan Kabupaten Berau

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Nearly all of these plantation applications turned out to be front schemes for timber exploitation. However, unable to secure the necessary financial investment, most of the new plantation IPK holders never established operations on the ground. As a result, between 2002 and 2004, the government authorities in Berau revoked inactive plantation permits of this kind. Consequently, the area allocated for IPK logging declined as well (Table 10). Table 10. Provincial IPK logging permits in Berau, 2002-2004 Year Area (ha) Production target (m3)

2002 18,400 365,202

2003 4,447 65,703

2004 2,000 26,448 Source: Dinas Kehutanan, East Kalimantan Province Despite this decline, the existing plantation IPK operations are far from being effectively controlled. As is evident from the analysis of two IPK sites in Berau, plantation development continues to be used as a a façade for timber extraction. IPK by Perusda (district company) PT Bhakti Praja PT Bhakti Praja is a district-owned enterprise (BUMD, Badan Usaha Milik Daerah) established in 1999 to help Berau district government increase locally generated income (PAD, Pendapatan Asli Daerah). In September 2000, PT Bhakti Praja obtained an IPK permit from the provincial forestry office in Samarinda for 3,200 ha of forest with the production target of 53,540 m3 of logs (435/Kpts/KWL-4.2/2000). The logging was to be completed within a year. In September 2001, Bhakti Praja reported to the provincial forestry office that it had managed to log only 832 ha of forest, producing 10,018 m3 of timber, and requested an extension. Following an exchange of documentation and field visits, the provincial forestry service granted a 1 year IPK extension (358/Kpts/KWL-4.2/2001). In May 2002, Bhakti Praja asked for the second extension, indicating that to date it had carried out logging on 1,200 ha of forest only. It also reported that during the first extension term it produced 9,793 m3 of logs in addition to 10,018 m3 produced during the first year of operations. The second one-year extension of Bhakti Praja’s IPK permit was granted only in September 2003 (522.21/4810/DK-VII/2003). During the intervening 12 months, Bhakti Praja reported no production activities to district forestry authorities, although it logged continuously. In May 2004, Dinas Kehutanan Berau and the Police raided Bhakti Praja’s IPK location, impounded over 7,700 m3 of illegally cut logs and uncovered what they claim to be extensive cutting out-of-block dating back to at least 2001/2002.

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Coal-mining IPK – PT Berau Bhakti Permai In February 2003, Bupati Berau granted a coal exploration permit (Ijin Kuasa Pertambangan Eksplorasi) to PT Nusantara Jaya Perkasa for 6,436 ha in the northeastern part of the district. Having secured the exploration permit, the company applied for an IPK license to clear the area intended for exploration. On 17 March 2004, the provincial Dinas Kehutanan in Samarinda issued such an IPK permit for 2,000 ha (with the production target for 26,448 m3) to a Berau based firm PT Berau Bhakti Permai (SK Kadishut Propinsi Kaltim No 522.21/777/DK-VII/2004), which sub-contracted the logging to PT Meranti Samarinda Kalimantan (MSK) – an ex HPH concessionary in the area. Although the permit states the IPK covers 2,000 ha, the survey of the area marked on the concession map indicates it actually extends over 3,000 ha. Once the IPK became effective, PT Nusantara Jaya Perkasa suddenly realized the coal deposits it was seeking to exploit were geologically “too young” and therefore of no economic value. As a result, it asked the Bupati of Berau to cancel its coal exploration permit. The coal exploration permit was cancelled. However, the IPK land-clearing license remained in effect. In late 2004, PT MSK continued to operate in Berau based on the IPK for non-existent coal exploration. Nearly all of its logging activities were carried out outside the allocated IPK area and its main log pond in Tanjung Bone, near the border with Bulungan district, was filled with improperly or completely unmarked logs.

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6.2.3. HTI The industrial plantation estates are a comparatively new segment of the forestry sector in Berau. If HPH and IPK logging have been in effect for over 30 years, the establishment of HTI (or HPHTI) plantation estates in the district dates back only to mid-1990s. The most prominent HTI industrial plantation in Berau is PT Tanjung Redeb Hutani. The 180,330 ha plantation was established in 1996 in order to supply natural, and eventually Acacia, wood to PT Kiani Kertas pulp and paper mill in Mangkajang near the estuary of the Berau River. As Kiani Kertas mill was officially launched in September of 1997 by then President Suharto, instantly becoming the largest wood-processing industry in the district, PT Sumalido Lestari Jaya established a 10,673 ha HTI unit near Batu Putih on the ex-HPH area of PT Gonpu Indonesia. In order boost the raw material base for Kiani Kertas mill further, in 1998 the Kalimanis Group and PT Inhutani I formed a HTI company PT Belantara Pusaka on 15,610 ha of the HPH area of PT Alas Helau. The production activities of HTI companies in Berau entail clearing the natural forest as well as harvesting of planted Acacia or Eucalyptus pulpwood. In 2003, the above companies produced just over 164,000 m3 of natural forest logs. After the first five months of 2004, their production of natural forest logs stood at 105,762 m3 (Table 11 and Table 12).

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No Company Jan Feb Mar April May June July Aug Sept Oct Nov Dec Total

1

HTI PT. Sumalindo Lestari Jaya 0 0 15,836 12,660 14,711 6,677 0 3,549 0 0 0 12,811 66,242

2HTI PT Tanjung Redeb Hutani 0 0 0 0 0 65,663 7,665 1,397 0 12,781 0 0 87,505

3

HTI PT. Belantara Pusaka 0 0 0 0 0 0 0 0 0 4,399 0 6,435 10,834

0 0 15,836 12,660 14,711 72,339 7,665 4,946 0 56,005 28,111 78,715 164,582

No Company Jan Feb Mar April May Total

1HTI PT. Sumalindo Lestari Jaya 12,729 10,061 7,690 6,864 12,696 50,040

2HTI PT Tanjung Redeb Hutani 9,444 12,097 6,271 11,217 16,694 55,722

3HTI PT. Belantara Pusaka 0 0 0 0 0 0

22,173 22,158 13,961 18,080 29,389 105,762

Table 11. HTI natural forest log production in Berau, 2003

Source: UPTD Forestry Bureau, Berau Table 12. HTI natural forest log production in Berau in the first half of 2004

Source: UPTD Forestry Bureau, Berau The natural forest logs are produced through land-clearing, subsequent to which planting is to be undertaken. The HTI companies in Berau invariably subcontract land-clearing operations to smaller logging companies. For instance, PT Sumalindo Lestari Jaya I hired Samarinda-based PT Surya Graha Sakti to carry out land-clearing on its Batu Putih HTI site. Similarly, PT Tanjung Redeb Hutani employs a number of logging contractors for the production of natural forest roundwood. The production of plantation pulpwood is considerably more difficult to estimate. PT Sumalindo Lestari Jaya HTI-Transmigration Batu Putih unit appears to be doing comparatively well among the companies in the district3. In 2003, the company harvested about 400 ha of its planted estate producing 53,432 m3 of pulpwood, mostly Gmelina arborea (PT SLJ-I:7-8). While the achieved harvest volume constituted only about 56% of the planned target (99,500 m3), planting has been implemented on 534 ha, or 66% of the target. In comparison to other HTI plantations in Berau as well as in the province of East Kalimantan, these numbers are quite respectable. PT Tanjung Redeb Hutani is by far the largest HTI estate in Berau. The company, established with the singular task of supplying plantation logs to Kiani Kertas pulp and paper mill, is jointly owned by the Kalimanis Group (65%) and the state forestry enterprise, PT Inhutani I (35%). The HTI operations of PT Tanjung Redeb Hutani in Berau have been financed largely from Indonesia’s 3 The same cannot be said about its financially unviable Muara Karangan unit in the neighboring East Kutai district (Djumainah 2000)

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national Reforestation Fund (Dana Reboisasi, or DR), of which the company is reported to have received Rp 83 billion (Ernst & Young 1999). However, despite the relatively high levels of financial investment and support it has received, the company’s operational record is very poor. Out of 180,330 ha available for the HTI plantation, only 91,000 ha are actually plantable. PT Tanjung Redeb Hutani claims that since 1993 approximately 67,400 ha have been planted, but only 40,000 ha are currently considered utilizable (Botha 2002). An area of about 7,000 ha of the planted area is subject to land claims by local communities, reducing the effective plantation area further to at most 33,000 ha.

In 2003, Tanjung Redeb Hutani reportedly harvested 1,220 ha of its plantation producing 121,024 m3 of Acacia mangium logs, in the process achieving about 22% of targeted harvest area and 28% of harvest volume (PT Tanjung Redeb Hutani:6-7). Considerably more worrying is the fact that in the same year the company planted only 493 ha of land (out of the target of 4,523 ha – 11% realization rate). In addition, replanting of dead seedlings was to be undertaken on 1,800 ha but was implemented only on 71 ha (4% realization rate). One commonly given explanation for this poor performance are cashflow problems resulting from the fact that the main consumer of Tanjung Redeb Hutani’s logs, Kiani Kertas pulp and paper mill, cannot make timely payments for the deliveries of logs. Having nowhere to go with its pulpwood, for most of 2003 Tanjung Redeb Hutani was operating with only a skeleton staff, suspending all non-essential operations (Botha 2002). Due to the fact that only a fraction of Tanjung Redeb Hutani’s 2003 production and planting targets were achieved, these were merged with the 2004 work plan (carry over). In 2004, the company aimed to harvest nearly 7,500 ha of plantation in order to produce approximately 635,000 m3 of pulpwood. It also planned to plant 6,571 ha of new plantation area. However, direct observation in the field indicates the company will fall far short of these targets. The third HTI plantation company operating in Berau is PT Belantara Pusaka located in the Lesan area in the southern part of the district. Since its inception in 1998, the company has been facing financial problem resulting from its association with the Kalimanis Group in general, and with PT Alas Helau in particular. The goal of PT Belantara Pusaka HTI plantation was to complement Tanjung Redeb Hutani in supplying pulpwood logs to Kiani Kertas mill. As such, Belantara Pusaka

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is wholly owned by Kalimanis and it was established on the area for which the group’s other subsidiary PT Alas Helau obtained a HTI permit in 1992. In 1999, the HPH license of PT Alas Helau was cancelled due to the allegations of corruption, collusion and nepotism (KKN), placing other Kalimanis companies, such as Belantara Pusaka, in unfavorable light. The subsequent pressure on the Kalimanis Group, particularly in connection with the misuse of Reforestation Fund, placed Belantara Pusaka in financial crunch. As of 2001, the company was reported to have about 8,341 ha of HTI ready for harvest (Gmelina arborea and Acacia mangium – planted as early as 1995/1996 by Alas Helau). However, financial difficulties disrupted the harvest operations (PT Belantara Pusaka:4). In 2002, Belantara Pusaka’s HTI activities stagnated. In 2003, the company received the annual work plan permit according to which it was expected to harvest 1,711 ha of plantation, produce 159,142 m3 of pulpwood and plant 500 ha of new plantation. None of these targets were even partially met, as the company continued to be stagnant.

6.2.4. Small-scale logging teams Berau wood-working industries’ demand for timber fuels a considerable amount of small-scale logging throughout the district (see also section 7.3). The survey carried out throughout Berau has revealed that in 2004 there were approximately 106 small-scale logging teams operating along the accessible roads in the district. It is estimated that these teams produced approximately 202,750 m3 of logs (Table 13). Table 13. Small-scale logging teams in Berau District, 2004

�

��

�

Total No Location Number of

teams Number of chainsaws

Number of Loggers

Production (m3/month)

1 Segah 14 28 73 560

2 Gn. Sari 13 118 239 2,490

3 Gn. Tabur (Merancang, Batu-Batu, Kasai) 17 153 284 4,365

4 Sambaliung (Merancang, Batu-Batu, Kasai) 8 50 103 1,395

5 Teluk Bayur 11 133 383 3,040

6 Teluk Bayur, Labanan, Kelay 14 148 406 3,920

7 Maluang-Bulungan 16 73 165 2,805

8 Talisayan 13 54 144 1,700

Total 106 757 1,797 20,275 Source: Survey CIFOR 2004. The main concentration of these logging activities is along the roads than can be accessed by Mitsubishi Colt diesel trucks, which are the vehicles of choice for transporting timber overland in

33

Berau. They are extremely durable and once modified can negotiate very difficult terrain, penetrating forest along seemingly impassable dirt tracks.

The timber transported is usually in the form of squared logs or roughly sawn timber. In the southeastern part of the district, the recently improved roads from Talisayan to Teluk Suleiman and in the direction of Sangkulirang are rife with small-scale logging teams. The Kelay River area, on the other hand, is relatively free from small-scale logging, except for the section of trans-Kalimantan highway between the Kelay River and the village of Labanan. As old roads are steadily improved (Tanjung Redeb-Bulungan, Berau-Samarinda, Berau-Tepian Buah) and new roads are being built (e.g. Berau-Tanjung Batu-Bulungan, Labanan-Long Paai, Labanan-Long Keluh/LongDuhung), it is likely the extraction of timber by illegal logging teams for delivery overland will increase in the near future. In addition to land based illegal logging teams in Berau, there are also small-scale teams working along the major waterways. Such teams specialize in producing round logs that are tied into rafts and floated downstream to sawmills and moulding mills. Most of river-based logging is centered in the middle and lower sections of the Segah River and its tributaries (Birang, Sambrata, Pura, Siduung, Siagung, Malinau). Nearer the coast, Lati and Kasai branches of the Berau River are important areas of small-scale logging. While in the limited time available for this research it was not possible to undertake a detailed investigation of river-based logging teams, based on

34

interviews with logging team leaders (mandor) in several key areas, it is possible to estimate there are at least 75-80 such teams employing approximately 1,200-1300 people who, using 520-550 chainsaws, produce 15,000-18,000 m3 of round logs per month, or 150,000-180,000 m3 per year.

Overall, it can be estimated that small-scale logging teams, operating both on land and along the rivers, annually produce 350,000-380,000 m3 of timber (round logs, square logs, roughly sawn timber) that are consumed by Berau’s wood-working industries. Approximately 3,000 loggers with 1,300 chainsaws are employed on the annual basis to generate this output. The government agencies in Berau are de facto formalizing illegal logging activities of this kind by subjecting them to informal taxation. The survey at key police check points on overland timber delivery routes converging on the main consumer markets of Teluk Bayur-Tanjung Redeb-Gunung Tabur-Sambaliung revealed the loggers pay Rp 50,000 per truck (5 m3 of timber) for safe passage. It can therefore be estimated that the police annually generate just over Rp 2 billion from the passage fees on trucks ferrying timber to the main consumer markets in Berau. A similar passage fees are applicable to water-based transport of timber and these generate additional Rp 1.5-1.8 billion per year for the police, bringing the total to about Rp 3.5-3.6 billion. 6.3. Illegalities associated with wood-processing industries Timber extraction activities in Berau provide raw material to three distinct wood processing industries in the district: 1) sawmill and moulding industry; 2) timber kiosks and 3) ship-building.

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6.3.1. Sawn timber and moulding The history of wood-working industry in Berau dates back to the early 1970s. In 1974, Berau was reported to have a few manually operated mills producing low quality material for the local market (Direktorat Perencanaan 1974). In the late-1970s, the first mechanized sawmills were established in the district (PT Becosurveys 1981). In the early 1980s, as the government imposed a national ban on log exports, sawmills in Berau began to multiply. In 1981, local government sources reported 17 mechanized sawn timber and moulding mills in the district (Pemkab Berau 1981). Two years later, in 1983, this total increased to 22 mills, most of which operated low-yield circular saw blades for production (BKPMD 1988). In 1995, the number of officially registered mills in the district totaled 30 units, and the first high-yield band saws were installed. In 2000, the total number of sawn timber and moulding mills listed by the Industry and Trade Office in Berau was 64 units, although only 40 of them were active (Obidzinski et al 2001; Casson and Obidzinski 2002).

The official government data on sawn timber and moulding processing in Berau is inconsistent and often contradictory. For instance, the Industry and Trade Office (quoting UPTD Forestry Office) states that in 2004 Berau’s sawn timber and moulding mills totaled 59 units. Yet, the same UPTD Forestry Office reports the existence of only 24 active (reporting) mills. It also reported that in 2003 and 2004 (until May), some of these mills (12 in 2003 and 8 in 2004) produced 31,028 m3 and 16,452 m3 of wood products respectively (Table 14 and Table 15)

36

No Company Jan Feb Mar April May Total1 CV. Cahaya Bintang 0 0 0 150 0 1502 CV. Linda 0 0 0 0 0 03 CV. Meranti Segah River 0 0 0 0 0 04 CV. Sisilia 0 0 0 0 0 05 CV. Sungai Berlian 0 0 392 631 0 1,0236 CV. Talisayan Gemilang 0 0 0 0 0 07 CV. Tanjung Prima Lestari 0 0 0 0 0 08 Erliana 0 0 0 0 0 09 Gunung Agung 1,115 0 1,120 0 2,616 4,851

10 Herry Chandra 0 0 0 0 2,872 2,87211 Meranti Jaya 0 0 0 0 0 012 Perdana Nusantara 0 0 0 0 0 013 PT. Citra Wana Rimba Mulia 0 0 0 0 0 014 PT. Daisy Indah Wood Ind 0 0 0 0 0 0

15 PT. Daisy Sulaiman Wood Ind 0 0 0 1,039 0 1,03916 PT. Kaltim Damai Lestari 342 542 1,450 0 299 2,63417 PT. Paribau Sentosa 927 0 675 0 0 1,60318 PT. Tanjung Buyu Perkasa 0 0 0 0 0 019 Sambarata Raya 0 0 0 0 0 020 Singkuang Jaya 0 0 0 0 0 021 Syahrani Taram 0 0 0 0 0 022 UD. Agra Sarana 0 0 0 0 0 023 UD. Kayu Abadi 0 0 0 0 0 024 UD. Maluang Raya 0 0 0 0 2,280 2,280

2,385 542 3,638 1,820 8,067 16,452

No Company Jan Feb Mar April May June July Aug Sept Oct Nov Dec Total1 CV. Cahaya Bintang 0 0 0 0 0 412 46 0 0 0 0 0 4582 CV. Linda 0 0 0 0 0 0 0 0 0 0 0 0 03 CV. Meranti Segah River 0 0 0 0 0 0 0 0 0 0 0 0 04 CV. Sisilia 0 535 0 0 0 0 0 0 0 0 0 388 9235 CV. Sungai Berlian 0 0 0 0 0 0 130 0 0 0 0 0 1306 CV. Talisayan Gemilang 0 0 0 0 0 453 0 0 0 0 0 0 4537 CV. Tanjung Prima Lestari 0 0 0 0 0 0 0 0 0 0 0 0 08 Erliana 0 0 0 0 0 0 0 0 0 0 0 0 09 Gunung Agung 0 1,211 0 0 0 0 0 0 0 2,962 0 2,763 6,936

10 Herry Chandra 0 3,762 1,802 817 0 1,037 0 0 0 0 0 650 8,06911 Meranti Jaya 0 590 0 0 0 0 0 0 0 0 0 848 1,43912 Perdana Nusantara 0 0 0 0 0 0 0 0 0 0 0 0 013 PT. Citra Wana Rimba Mulia 0 0 0 0 0 0 0 0 0 0 0 0 014 PT. Daisy Indah Wood Ind 0 0 0 0 0 0 0 0 0 0 0 0 015 PT. Daisy Sulaiman Wood Ind 0 0 0 0 0 0 0 0 0 0 0 0 016 PT. Kaltim Damai Lestari 0 0 0 0 0 0 0 0 0 382 814 0 1,19617 PT. Paribau Sentosa 0 0 0 0 0 0 0 0 0 0 0 721 72118 PT. Tanjung Buyu Perkasa 0 0 0 0 0 0 0 0 0 0 0 0 019 Sambarata Raya 0 0 0 0 0 0 0 122 0 0 0 0 12220 Singkuang Jaya 0 0 0 0 0 458 0 0 0 0 0 0 45821 Syahrani Taram 0 0 0 0 0 0 0 0 0 0 0 0 022 UD. Agra Sarana 0 0 0 0 0 0 0 0 0 0 0 0 023 UD. Kayu Abadi 0 0 0 0 0 0 0 0 0 0 0 0 024 UD. Maluang Raya 0 0 0 3,700 0 0 2,218 1,543 2,663 0 0 0 10,125

0 6,098 1,802 4,517 0 2,360 2,395 1,665 2,663 3,344 814 5,371 31,028

Table 14. Sawn timber and moulding production in Berau in 2003

Source: UPTD Forestry Bureau, Berau Table 15. Sawn timber and moulding production in Berau as of May 2004

Source: UPTD Forestry Bureau, Berau

37

Official log supply vs reported production of sawn timber According to UPTD Forestry Office as well as District Industry and Trade Office, sawn timber/moulding mills in Berau obtain the raw material from legal sources – i.e. HPH or IPK operators. Indeed, HPH and IPK logging permits stipulate that the companies supply 5 percent of their production for local consumption. However, if one matches the reported sawn timber production for 2003-2004 with 5 percent of the official log production in the district for the same period, the mills face a shortfall of about 45,685 m3 of raw material for the entire period, or 2,855 m3 per month (Figure 2). Figure 2. Supply of HPH/IPK logs and the production of sawn timber in Berau, 2003-2004

0

2000

4000

6000

8000

10000

12000

14000

vol (

m3)

2003-2004

log demand for reported levels of sawn timberproduction

log supply fromHPH/IPK, hypothetically 5 % of allproduction sold di Berau)

Source: UDPT Forestry Bureau, Berau Reported production vs reported shipping of sawn timber Similarly, there are differences between the reported volumes of sawn timber produced and shipped in Berau (Figure 3). The forestry as well as trade and industry officials are at loss to explain this discrepancy, as it is commonly known that nearly all production output is sold outside. They suggest it may be the result of statistical errors or, indeed, some underreporting.

38

Figure 3. Sawn timber produced and shipped in Berau, 1993-2002

0

10,000

20,000

30,000

40,000

50,000

60,000

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Vol

(m3)

Sawn timber producedSawn timber shipped

Source: BPS (quoting District Forestry Service): 2000, 2001, 2002

The research findings for this report indicate that underreporting in Berau’s woodworking sector occurs on a large scale. In contrast to the UPTD Forestry Office and Industry and Trade Office data, the survey of all wood-working industries in the district indicates that, as of 2004, there were 37 active sawn timber and moulding mills in Berau (Table 16).

39

Table 16. Sawn timber and moulding mills in Berau, 2004 Wood-working industries Raw material intake/month Output/month

Type Total Employment

Vol (m3) Value (Rp billion) Vol (m3) Value (Rp

billion) Sawmill 27 335 32,450 8.2 21,510 16.3

Moulding 10 58 535 0.2 485 0.35 Total 37 393 32,985 8.4 21,995 16,65

Source: CIFOR survey 2004. Most of these mills (32) are located within a 10 km radius of the district capital of Tanjung Redeb, near the strategic confluence of Kelay and Segah Rivers as well as along the lower course of the Berau River. The remaining 5 mills operated in the Talisayan seaboard area and in the Berau River delta4 (see the Appendix 2). The mills are relatively new enterprises – the oldest ones date back to 1995, the majority was opened in the late 1990s, while the most recent one was established in 2004. The sawmills and moulding mills in Berau are operated by local businessmen (Berau Malay, Banjarese and Chinese) who engage in various other parallel enterprises – e.g. shop-keeping, hotels, transport. Increasingly, they are also becoming involved in government infrastructure projects. In terms of legal status, most mills possess business licenses (HGU) or permits form the Industry and Trade Office. Some even submit annual raw material supply plans to District and UDPT Forestry Offices. However, the reported annual raw material supply volumes are significantly lower than the volumes needed to match the official production and shipping figures. Real raw material input and production The survey findings indicate that in 2004 sawn timber and moudling mills in Berau consumed about 329,850 m3 of raw material in order to generate approximately 219,950 m3 of timber products, valued at Rp 80 billion and Rp166.5 billion respectively5. These figures differ greatly from the official district government records. Despite abundant evidence to the contrary, district policy-makers are of the opinion that woodworking in Berau is still small-scale, that it produces and consumes relatively small quantities of timber and therefore, in order to boost the local economy, it needs to be intensified. The fact that far more sawmills operate that the official industry registers show and that these mills produce and consume between 5 and 7 times the reported volumes of timber calls for a reconsideration of such ideas.

6.3.2. Timber kiosks A relatively new development in the wood-working sector in Berau over the last few years has been the emergence of timber kiosks (kios kayu) as the main source of wood for local consumption. In

4 Villages of Batu-Batu and Kasai. 5 Assuming 11-month work year, which is the sector’s norm.

40

Location Established min max min max Vol (m3/month) Value (Rp million)

1 Tepian Buah 2000 T.Buah 20 20 10 10 20 152 Tepian Buah 2002 T.Buah 20 30 10 15 30 22.53 Teluk Bayur 2000 Tumbit,Labanan,Segah 50 70 35 35 70 634 Teluk Bayur 2000 Tumbit,Labanan,Segah 60 80 30 56 80 67.55 Teluk Bayur 2003 Labanan,Segah 30 30 15 21 30 276 Teluk Bayur 2003 Labanan,Segah 30 40 20 21 40 277 Teluk Bayur 2001 Birang,Segah,Sbrata 40 40 28 28 40 368 Rinding 2002 Birang,Segah,Sbrata 40 40 28 28 40 369 Rinding 2003 Segah,Labanan 80 80 40 56 80 67

10 Rinding 2003 Tepian Buah 40 40 20 28 40 3611 Rinding 2002 Labanan,Tumbit; Segah 50 200 35 100 200 10512 Rinding 2004 Labanan,Tumbit; Segah 25 25 12,5 17.5 25 22.513 Rinding 2004 Birang,Labanan 20 20 10 14 20 1814 Sambaliung 2004 Bangun 20 30 10 21 30 2715 Jln.Pemuda 2004 Birang, Sambarata 40 50 25 28 50 3116 Jln.Durian III 2002 Birang,Merancang, 30 30 15 21 30 2717 Jln.Durian III 2003 Labanan,Segah 50 50 25 35 50 4518 Jln.Durian III 2002 Labanan,Segah 50 60 25 42 60 4519 Jln.Durian III 2001 Labanan,Segah 40 40 20 28 40 3620 Milono 2000 Kasai,TLS,Segah 100 100 70 70 100 8121 Murjani III 2000 Labanan,Segah 50 60 25 42 60 5422 Manunggal 2002 Birang 50 60 25 42 60 5423 Manunggal 2003 Birang,Sambarata 25 25 17.5 17.5 25 22.524 APT.Pranoto 2004 Labanan,Birang 60 60 30 42 60 5425 Mangga II 2003 Birang,Kasai 50 70 35 35 70 4526 Merah Delima 2003 T.Buah,Lbnan,Mracang 70 100 49 50 100 6327 Sanipah II 2003 Kasai,Merancang 60 80 30 56 80 7228 H.Isa II 2002 Birang,Kasai 50 50 25 35 50 4529 Jln.Bulungan 2003 Birang,Merancang, 40 40 28 30 40 3630 Sanipah II 2003 Birang,Sambarata 50 80 35 40 80 4531 Sei.Buluh 2004 Labanan,Segah 25 25 12.5 17.5 25 22.5

Total 1,365 1,725 783 1,082 1,725 1,348

Procurement value (Rp million) Sales Timber kiosks

Origin of raw materialNo

Vol intake (m3/month)

2004, there were 31 such timber kiosks, almost all located in Tanjung Redeb-Teluk Bayur -Gunung-Tabur-Sambaliung urban area (Table 17). Table 17. Timber kiosks in Berau District, 2004

Source: CIFOR survey, 2004. The presence and activities of timber kiosks in the district have been legally regulated by the District Regulation (Perda) No. 13/2003. The emergence of timber kiosks in Berau is closely linked to economic development processes in the district taking place within the framework of post-2001 regional autonomy. The spectacular growth of the financial wealth available to the district (the district budget increased from Rp 54 billion in 1998 to over Rp 440 billion in 2002) translated into a multiplicity of infrastructure projects – especially roads, upgrade of port and waterfront areas, as well as construction of government offices and housing complexes. Naturally, such infrastructure project require large volumes of timber.

41

This study estimates nearly all construction-based demand for timber in Berau is supplied by timber kiosks. In 2003, such kiosks sold about 18,975 m3 of timber in the main urban areas in the district. In 2004, they are likely to supply a similar amount. The timber kiosk owners procure sawn timber of various sizes through a network of chain saw operators in the villages in the proximity of main town and communication arteries. While at the moment 18,975 m3 may not seem as a significant amount of timber, it is likely to increase in the near future. The 2001-2011 District Strategic Development Plan envisages an acceleration of construction projects in the district (roads, airport, industrial and manufacturing centers, tourism facilities etc). It is assumed that timber for these projects will come from sawmills, the official production of which is expected to double by 2011 (BAPPEDA Berau 2001). If this assumption is applied to the actual supplier of timber for development projects in Berau, i.e. timber kiosks, it means they will be supplying close to 40,000 m3 of timber per year in the near future.

6.3.3. Ship-building A largely unknown aspect of the use of timber in Berau is the construction of wooden vessels (ships, boats, canoes etc). In 2004, 129 manufacturing enterprises of this kind employed 256 people and consumed 901 m3 of timber year (Table 18).

42

Table 18. Ship-building in Berau, 2004

Sub-district Number of enterprises Employment Raw material use (m3/year) Biduk-biduk 21 58 332 Gn Tabur 5 25 78 Kelay 30 58 150 P. Derawan 31 43 193 Sambaliung 17 37 48 Segah 13 17 37 Teluk Bayur 12 18 63

Total 129 256 901 Source: CIFOR survey, 2004. Note: a 40-ton ship requires 15 m3 of timber, whereas a 100-ton ship needs 30 m3 of wood. A particularly interesting feature of ship manufacturing in Berau is that enterprises of this kind require small volumes of wood and are highly labor intensive. While ship-building is only slightly behind sawmills in terms of employment (256 jobs vs 335 jobs), the former is distinguished by the fact that only 40 m3 of timber are consumed per employee per year whereas each sawmill worker processes more than 24 times that amount of timber (970 m3) during the same period of time.

6.3.4. Pulp and paper production In the mid-1990s, Bob Hasan’s Kalimanis Group developed a large-scale pulp project in Mangkajang, located 40 kilometers south of Tanjung Redeb. The Kiani Kertas pulp mill had an official production capacity of 525,000 tons per annum when it came online in mid-1997, and reportedly cost US$ 1.3 billion to build (Kenny 1997). Drawing on its owner’s close ties with President Suharto, the Kalimanis Group received heavy government subsidies for the construction of the Kiani mill (Barr 2000). These included at least US$ 300 million in loans from four state banks; an allocation of US$ 100 million from the government’s Reforestation Fund; and a 10-year holiday on corporate income tax. In addition, the Suharto government gave Kiani Kertas a permanent waiver on the payment of import and export duties for all capital goods. It is widely reported within the industry that the real costs involved in the construction of the Kiani mill were substantially lower than those reported by the company – perhaps by as much as one-half (Barr 2000). According to individuals involved with the mill’s operation, the diversion of finance during the construction of Kiani Kertas resulted in the creation of a highly inefficient processing unit.6 Many of the components purchased for the mill were apparently rebuilt, rather than new; and the use of sub-par equipment in some parts of the mill has limited other parts from running at full 6 Confidential interview with a pulp mill engineer employed by PT Kiani Kertas, Tanjung Redeb, November 11, 2000. As this informant explained, “For a mill to run efficiently, it needs high levels of coordination between raw material supply and processing; proper use of machinery and the right equipment in place; and spare parts on hand when equipment breaks. Kiani has none of these. Equipment is being pushed to the max. If the normal life of a part is 3-4 months, Kiani pushes it to 6-8 months. The problem is, you never know when you are going to have a catastrophic breakdown. Normally, when a part needs to be replaced, a mill will run down its stocks to 30 percent or less. In Kiani’s case, the mill is run until a part breaks, then everything stops.”

43

capacity. In the years since production began at Kiani, the mill has experienced frequent shutdowns, which have incurred substantial costs. Since the fall of the Suharto regime in May 1998, Kiani Kertas’s operations have been further complicated by the Kalimanis Group’s overall financial problems. In September of that year, Kalimanis pledged Kiani Kertas, together with 33 other companies, to the Indonesian Bank Restructuring Agency (IBRA) as collateral for the repayment of some Rp 12 trillion (or US$ 1.8 billion) in Bank Indonesia liquidity credits (Barr 2000). Kiani Kertas is also directly responsible for US$ 628 million in outstanding debts in IBRA’s portfolio. In October 2000, IBRA entered into a debt restructuring agreement with Kiani that allowed the company to continue operating under its pre-crisis management team and to pay its debts over an extended, 10-year period (IBRA 2000). In August 2002, IBRA sold some US$ 480 million of Kiani’s debt to Bank Mandiri and a consortium of investors (Barr and Setiono 2003).7 Because of technical and financial problems, Kiani Kertas has reportedly operated well below its installed capacity since it came online in 1997. In its first year of operation, Kiani Kertas produced and exported only about 22,000 tones of pulp. This number increased to 175,406 tones in 1998, declined to 138,233 tones in 1999, increased again to 273,875 tones in 2000 and declined again to 236,667 tones in 2001 (BPS Berau 2001). In 2002, the mill produced 143,749 tones of pulp, which is only about 35 percent of its installed production capacity (BPS Berau 2002). In 2001 and 2002 the mill is estimated to have consumed approximately 1,065,000 m3 and 646,870 m3 of wood respectively, as approximately 4.5 m3 of wood (under bark) are required to produce one ton of pulp. The industry sources estimate that since the mill began operating, roughly 10 percent of it’s raw material intake have been mixed tropical hardwoods (MTH) harvested from natural forests in Berau and other parts of East Kalimantan. The remaining 90 percent have been plantation pulpwood imported from Sabah, Vietnam and Australia (Tasmania) (Botha 2002). A negligible amount of HTI pulpwood is also produced and delivered by HTI operators in Berau – particularly PT Sumalindo Lestari Jaya I and PT Tanjung Redeb Hutani.

7 This consortium includes former president Suharto’s son-in-law, Prabowo Subianto and Luhut Pandjaitan, the former trade minister and ambassador to Singapore, and Hendropriyono, Indonesia’s current Chief of Intelligence.

44

7. ILLEGAL FORESTRY ACTIVITIES IN THE NORTHERN PART OF EAST KUTAI DISTRICT

7.1. Overview of the forestry sector in East Kutai District East Kutai District is located in the central-eastern part of East Kalimantan province. It is considerably larger than Berau as it covers 35,747 km2, or 17 percent of the province’s land area. In 2002, the district had a population of 167,559 people, of whom 56,853 resided in the district capital of Sanggata – a coal-mining town on the coast (BPS Kutai Timur 2002). Along its eastern edge, the district is facing the Celebes Sea and it has an extensive and diverse coastline running from the Mahakam delta to the eastern tip of Mangkalihat Peninsula. In its central and southern parts, East Kutai is dominated by undulating plains, lowlands and swamps. In the north, northwest and northeast the district’s topography is defined by mountainous terrain that includes carst mountain ranges. East Kutai has two major communication arteries: 1) trans-Kalimantan highway that cuts through the eastern and northern parts of the district connecting it to Samarinda in the south and other districts to the north and 2) Wahau-Kedang Kepala Rivers flowing into the Mahakam River. 7.2. Illegalities associated with extractive forestry operations in the

northern part of East Kutai District According to District Forestry Office (Dinas Kehutanan), in 2002 about 2.8 million ha of East Kutai’s land area were classified as a forest estate. This forest area comprised: 1) Production Forest (0.97 million ha); 2) Limited Production Forest (1.09 million ha); 3) Conversion Forest (1.07 million ha); 4) Protection Forest (0.45 million ha) and 5) Park/Reserve Forest (0.22 million ha) (BPS Kutai Timur 2002:96). These forest resources support a range of licensed and unlicensed extractive activities (HPH, IPK, small-scale logging teams) as well as licensed and unlicensed woodworking (sawn timber, moulding mills).

45

2001 20021 PT. Hanurata unit Manum bar Sandaran 20,467 46,357 66,8242 PT. Hanurata unit Kelokan Sangkulirang 18,537 32,784 51,3213 PT. Hanurata unit Sangata Sangata 9,134 16,625 25,7594 PT. Hanurata unit Bengalon Bengalon 10,953 7,928 18,8815 PT. S im a Agung Sandaran 18,334 25,867 44,2006 PT. Segara Indochem Afd SGI Sangkulirang 0 23,814 23,8147 PT. Segara Indochem Afd SGT Sangkulirang 16,003 15,744 31,7478 PT. Kedungm adu Tropical W ood Sangkulirang 13,864 19,495 33,3599 PT. Intertropic Aditam a Ma. Bengkal 0 9,708 9,708

10 PT. Panam bangan Bengalon 18,857 5,271 24,12811 PT. G unung Gajah Abadi Kongbeng 40,489 33,755 74,24312 PT. Basuim ex Ma. W ahau 19,184 0 19,18413 PT. Basuim ex carryover Ma. W ahau 2,032 6,286 8,31814 PT. Loka Dwihutani Raya Kongbeng 15,660 24,190 39,85115 PT. Melapi T im ber Busang 7,948 18,972 26,91916 PT. Narkata Rim ba Ma. W ahau 10,005 2,557 12,56217 PT. Dharm a Satya Nusantara Ma. W ahau 10,994 29,863 40,85618 PT. Sum ber Mas Tim ber Busang 8,087 0 8,08719 PT. O ceanic Tim ber Products Ma. Bengkal 0 0 020 PT. S ilvaduta Cooperation Ma. Bengkal 17,324 0 17,324

21PT. Inhutani I Sangkulirang/ Carryover Kaliorang 0 13,770 13,770

22 PT. Sum alindo Lestari Jaya/ IPK Sangkulirang 5,591 4,632 10,22423 PT. Sum alindo Lestari Jaya / HTI Sangkulirang 10,805 82,035 92,84024 PT. Inhutani Long Nah Ma. Ancalong 7,001 2,246 9,24725 PT. E tam Bersam a Lestari /IPK Sangkulirang 13,412 4,861 18,273

26 PT. E tam Bersam a Lestari /IPK-TP Sangkulirang 0 26,127 26,12727 PT. Surya Hutani Jaya Ma. Bengkal 4,736 0 4,73628 PT. W ana Kaltim Lestari Sangkulirang 23,071 68,617 91,68829 PT. Long Bagun Prim a Sawit Sangkulirang 27,399 1,329 28,72730 PT. Mandu Palm a Lestari Sangkulirang 16,187 7,345 23,532

31 PT. Dharm a Satya Nusantara /IPK Ma. W ahau 8,579 29,906 38,48432 PT. Inhutani II/Indom inco M Bontang 10,888 11,623 22,51133 PT. Inhutani II/ Kitadin Bontang 0 0 034 PT. K iani Lestari Ma. Bengkal 68,033 50,797 118,829

35PT. O ceanic Tim ber Products Ma. Dun TP Ma. Ancalong 0 65,168 65,168

36PT. O ceanic Tim ber Products Ma. Dun Kopkar Ma. Bengkal 0 42,393 42,393

37PT. O ceanic Tim ber Products Ma. Marah TP Telen 17,777 48,993 66,769

38PT. O ceanic Tim ber Products Ma. Marah Kopkar Telen 0 46,407 46,407

39 PT. Hanurata Manum bar / IPK Sandaran 2,535 1,608 4,14340 PT. Putera Kalim antan Perm ai Sangkulirang 0 21,125 21,12541 Kop. Bum i Ulayat Telen 0 721 72142 KUT. E lang Mentari Kongbeng 0 2,151 2,15143 Kop. Telaga Mandiri Ma. Bengkal 0 3,960 3,96044 Kop. Prim er Karya Baru Ma. W ahau 10,150 19,468 29,61845 Kop Mandu Saka Lestari Sangkulirang 2,463 19,275 21,73846 Kop. Karya Pem bangunan Kaliorang 0 12,742 12,74247 Kop. Peridan Kerayaan Jaya Sangkulirang 0 13,674 13,67448 LKMD. Mukti Lestari Sangkulirang 0 7,889 7,88949 LKMD. Batu Lepoq Sangkulirang 0 3,147 3,14750 PT. Soko Joyo Makm ur Ma. W ahau 0 45,431 45,43151 PT. Inhutani SP III Pengadaan Kaliorang 0 2,960 2,96052 PT. Borneo Karya Indah Perm ai Sangkulirang 0 6,732 6,73253 CV A lfath Sangkulirang 0 68,922 68,92254 Kelom pok Tani Gajah Indah Ma. W ahau 0 1,526 1,52655 Kelom pok Tani Tiga Tawai Ma. Ancalong 0 2,891 2,89156 Yayasa Fastabiqul Khairat Busang 0 10,251 10,251

Total HPH 359,333 482,644Total IPK 127,163 587,290TOTAL 486,497 1,069,934

LocationNo Company Annual production (m3) Cumulative

production (m3)

Table 19. Log production in East Kutai, 2001-2002 Source: Dinas Kehutanan East Kutai, Sanggata. Note: IPK production figures are in shading.

46

Meranti Valuiable species Mixed Meranti Valuiable

species Mixed Gmelina arborea

Acacia mangium

Paraserianthes f

1 Jan 0 0 0 30,075 0 22,714 0 0 0

2 Feb 10,863 0 0 37,500 12 8,222 0 0 0

3 March 13,011 4 145 32,119 0 1,975 312 0 0

4 April 14,645 0 28 29,413 19 5,059 2,105 100 501

5 May 21,506 7 198 40,427 8 26,674 588 92 321

6 June 16,065 4 1,310 48,220 7 6,098 2,081 0 0

7 July 26,361 13 1,350 41,412 0 7,499 298 2,664 0

8 Aug 23,767 0 300 86,868 0 30,909 0 0 0

9 Sept 17,638 0 2,921 37,345 0 27,819 0 0 0

10 Oct 13,770 21 402 44,016 0 456 0 0 0

11 Nov 5,572 0 41 9,988 5 178 0 49 0

12 Dec 35,199 55 2,328 24,337 3 2,095 0 256 0

Subtotal 198,398 103 9,023 461,719 54 139,698 5,385 3,161 822

TotalHPH = 207,524

IPK = 601,740

HTI = 9,369

HTI (m3)No Month

HPH (m3) IPK (m3)

7.2.1. HPH In contrast to Berau and other districts in East Kalimantan, HPH sector in East Kutai maintained its dominance in extractive (logging) activities through decentralization and the initial period of regional autonomy (until 2001/2002). While in other parts of the province IPK operations had by then out-competed HPHs, in East Kutai the latter were able to hold out longer. In 2001/2002 there were still 22 HPH concessions active in the district, some of them operating multiple logging units (Table 19, also see Appendix 3). By 2003, however, the slowdown in the HPH sector became pronounced and the dominance of IPK logging established. Only about 10 HPH license holders continued to be active that year. In the Wahau-Kombeng area, only 2 HPH concessionaries secured RKT work plans and continued to operate in 2004 (i.e. Gunung Gajah Abadi and Dharma Satya Nusantara). Table 20. Log production in East Kutai in 2003

Source: Dinas Kehutanan East Kutai, Sanggata

Overall, between 2001 and 2003, HPH operations in East Kutai went into decline while IPK logging expanded (Figure 4). This growth occurred in no small degree due to the fact that many HPH concessionaries, facing financial difficulties, social conflicts and problem with securing RKT work plans, switched to IPK operations that carry far fewer responsibilities. A prime example of this is a HPH concession holder PT Oceanic Timber Products Inc in Telen and Muara Ancalong sub-districts. The company has a prime quality logging concession in the Atan-Marah watersheds in the north-western part of the district. Due to difficulties with RKT documents, in 2002 the company suspended its HPH operations and focused on IPK logging. In partnership with company employees and local villagers, it secured 4 IPK permits with the total production target of 202,961 m3 over 2 years. It is far more than it would have been allowed to extract as a HPH concessionary, and with far fewer strings attached. A similar shift from HPH to IPK logging was undertaken by PT Narkata Rimbah in the Wahau-Kombeng area.

47

Jan Feb Mar April May June July Aug Sept Oct Nov Dec

1 Hanurata Manumbar - - - - 6,018 - 7,118 6,651 4,232 1,164 4,176 4,069 33,427

2 Hanurata Kelolokan 4,018 8,156 - - - 3,358 - - 1,824 5,783 - 3,402 14,368

3 Porodisa Bengalon - - - - - - - - - - - - -

4 Porodisa Sangata 3,963 - - - - - - - 1,505 - 1,971 - 3,476

5 Sima Agung - - - - - 5,530 7,061 4,952 5,928 - - 4,614 28,085

6 Segara Indochem - - - - 1,384 4,083 5,157 3,931 1,641 1,734 4,020 2,244 24,194

7 Segara Timber 1,408 3,225 - - - - - - 4,989 - - - 8,314

8 KTW - - - - - 3,860 - 2,036 - 1,960 -1,700 7,857

9 Penambangan 2,011 25,218 - - - - 1,978 - - - - - 1,978

10 Intertropic Aditama - - - - - 2,021 - - - - - - 2,021

11 Basuimex - - - - - - 4,972 - 2,449 4,320 - 11,741

12 Narkata Rimba - - - - - - - - - - - 653 653

13 DSN 3,862 1,813 4,598 - 4,360 - 2,420 2,219 4,953 2,234 2,993 1,011 24,78914 Inhutani I Skl 3,151 - - - 5,128 - - - 1,121 - 2,726 - 8,97415 Melapi Timber 2,501 - - - - - - - - - - - 2,501

16 Gunung Gajah Abadi - 41,343 - - 5,412 6,253 5,766 8,330 6,590 7,148 - 6,926 46,424

17 Loka Dwihutani Raya - 4,167 - - 8,084 - 6,695 - - - - 3,825 18,604

TOTAL 20,915 83,923 4,598 0 30,386 25,106 41,167 28,119 35,232 18,062 22,166 25,043 237,405

TotalNo Company Month/m3

Figure 4. HPH-IPK roundwood production in East Kutai, 2001-2003

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

2001 2002 2003

Vol (

m3)

HPHIPK

Source: Dinas Kehutanan East Kutai, Sanggata

In 2003, HPH companies transported 237,405 m3 of logs that had been extracted in East Kutai, slightly in excess of what they reported as the production output – i.e. 207,534 (difference: 29,881 m3) (Table 21). Table 21. Reported transport of HPH logs in East Kutai in 2003

Source: Dinas Kehutanan East Kutai, Sanggata

While this disparity is minor, the main problem with HPH concession holders who have shifted to IPK operations is that logging out of block is widespread. Interviews and field investigations in

48

No Company Permit date Location Area (ha) Production target (m3)

IPK Objective

1 PT. Etam Bersama 14-Jun-01 Sangkulirang 3,000 31,090 Oil palm16-Jul-02 Sangkulirang Permit renewal30-Dec-02 Sangkulirang 100 Permit renewal

2 PT. Mandu Palma Lestari 14-Feb-02 Sangkulirang 200 36,470 Oil palm18-Jul-02 Sangkulirang 15,656 21,690 Oil palm

3 PT. Kiani Lestari 20-Feb-02 Telen 36,407 178,740 Salvage logging4 PT. Oceanic Timber Products Inc 6-Dec-01 Ma. Ancalong 13,277 200,119 Salvage logging5 Koperasi Karyawan PT. OTP 7-Jul-02 Ma. Ancalong 200 233,352 Salvage logging6 PT. Hanurata Coy Ltd 22-Oct-01 Sandaran 1,866 6,250 Settlement expansion7 PT. Wana Kaltim Lestari 26-Sep-01 Sangkulirang 566 59,900 HTI

5-Sep-02 Sangkulirang 445 77,199 Permit renewal8 PT. Sumalindo Lestari Jaya 13-Nov-01 Sangkulirang 9,776 35,042 HTI -Trans9 PT. Inhutani II (PT. Indominco) 13-Nov-01 Bontang 593 54,814 Coal mine

10 PT. Inhutani II (PT. Kitadin) 13-Nov-01 Bontang 3,000 6,995 Coal mine11 Koperasi Mandu Saka Lestari 1-Oct-01 Sangkulirang 1,100 47,860 Oil palm12 Koperasi Telaga Mandiri 11-Dec-01 Telen 3,000 6,237 Rubber13 Koperasi Perindam Kerayaan Jaya 11-Jan-02 Sangkulirang 7,000 35,430 Oil palm14 PT. Dharma Satya Nusantara 17-Feb-03 Ma. Wahau 2,000 22,410 Oil palm15 PT. Long Bagun Prima Sawit 8-Apr-02 Sangkulirang 2,000 27,404 Oil palm

14-Nov-02 Sangkulirang 800 53,750 Permit renewal16 LKMD Desa Persiapan Mukti Sari 3-May-02 Sangkulirang 700 10,130 Leftovers from

landclearing for HTI PT. SLJ

17 LKMD Desa Batu Lepoq 14-Jun-02 Sangkulirang 1,650 10,686 Leftovers from landclearing for HTI PT. SLJ

18 PT. Inhutani I Sangkurilang 14-May-02 Sangkulirang 2,000 9,850 Permit renewal19 CV Alfath 16-Sep-02 Sangkulirang 2,000 33,793 Rubber20 Yayasan Fastabiqul Khairat 24-Sep-02 Ma. Ancalong 84,440 Salvage logging21 Koperasi Primer Karya Baru 10-Aug-01 Ma. Wahau 24,065 Leftovers from

landclearing for HTI PT. Bulungan Sarana

Total 107,336 1,307,716

Wahau-Kombeng clearly show that current IPK ventures by PT Oceanic Timber Products and PT Narkata Rimbah log well beyond the allocated territory, manipulate production reports and understate log transport8.

7.2.2. IPK As in Berau, IPK logging permits in East Kutai come in two types: province-level permits and permits issued by the district government. As of 2004, there were at least 21 provincial IPK permits in effect that covered 107,336 ha (some permits dating back to 2001) with the cumulative 2001-2004 production target of 1,307,716 m3 (Table 22). Table 22. Provincial IPK permits in East Kutai active in 2004

Source: Dinas Kehutanan East Kutai, Sanggata

Between 2001 and 2004, the district government of East Kutai (Bupati) issued at least 35 IPKs covering 153,741 ha of forest with the production target of 1,494,663 m3 of logs (Table 23). 8 Wahau, Miau Baru, Nehes Liahbing – July 2004.

49

No Company Permit Date Location Area (ha) Target

production (m3)

1 PT. Borneo Karya Mandiri 101 tahun 2002 11-Feb-02 Sandaran 47,850 no data2 PT. Nadila Indodaya 426/522/Bup-Kutim/2002 11-Feb-02 Sandaran 50,000 no data3 PT. Putra Kalimantan Permai 456/503/BUP-Kutim/IX/02 13-Aug-02 Sangkulirang 3,000 78,500

362/02.188.45/HK/IX/2003 19-Sep-03 Renewal 1,886 47,005 4 PT. Soko Joyo Makmur 224 tahun 2002 19-Jul-02 Kongbeng 2,000 62,193

444/02.188.45/HK/XII/2003 22-Dec-02 Renewal 667 23,750 5 PT. Kalimantan Bolivia Maloiindo 97/02.188.45HK/VI/2003 4-Jun-03 Sangkulirang 2,000 49,200 6 PT. Binakarya Nuansa Sejahtera 143/02.188.45/HK/V/2003 24-May-03 Sangkulirang 4,000 3,284 7 PT. Sima Agung 92/02.188.45/HK/III/03 26-Mar-03 Sandaran 538 20,085 8 PT. Putra Daya Kaltim 78/02.188.45HKIV/03 16-Mar-03 Kongbeng 3,000 106,920 9 PT. Inhutani I, Unit Balikpapan 145 /02.188.45HKIII/203 24-Mar-03 Sangkulirang 1,500 58,890 10 PT. Kutai Timur Prima 279/02.188.45/HK/VII/2003 29-Jul-03 Bengalon 100 30,320 11 PT. Etam Bersama Lestari 144/02.188.45/HK/III/03 24-Mar-03 Sangkulirang 2,500 1,799 12 CV Alfat 68.B/02.188.45HK/III/2003 21-Mar-03 Sangkulirang 3,000 76,398 13 CV. Kalimarau 64.A/02.188.45HK/III/2003 26-Mar-03 Sangkulirang 2,500 14,280 14 CV. Ardi Jaya 343/02.188.45HK/IX/2003 5-Sep-03 Sandaran 1,000 44,670 15 CV. Kutai Inovasi Utama 57/02.188.45/HK/II/04 27-Feb-04 Sangkulirang 1,200 50,312 16 CV. Sumber Jaya Abadi 92.B/02.188.45HK/IV/2003 27-Mar-03 Sangkulirang 2,000 7,920 17 CV. Labbaika 62/02.188.45HK/III/2004 11-Mar-04 Sangkulirang 1,000 27,042 18 Kop. Karya Pembangunan 67/02.188.45/HK/III/2004 3-Mar-04 Kaliorang 1,000 20,000 19 Kop Bina Usaha Pelita Warga 246 tahun 2002 2-Jul-02 Bengalon 500 39,316 20 Kop. Cinta Hutan Lestari 193.A tahun 2002 21-Oct-02 Sangkulirang 5,000 135,000 21 Kop. Bumi Etam Sejahtera 68/02.188.45/HK/III/2003 1-Apr-03 Sangkulirang 2,000 67,460 22 Kop. Min Sut Lekut 91/02.188.45/HK/IV/2003 4-Jun-03 Ma.Wahau 2,200 55,594 23 Kop. Pertanian Semoga Jaya 241/02.188.45HKVI/2003 20-Jun-02 Sangkulirang 800 30,240 24 Kop. Telaga Mandiri 239 tahun 2002 8-Aug-02 Telen 1,100 36,697

115/02.188.45/HK/IV/04 7-Apr-04 Renewal 1,200 49,880 25 KUT Elang Mentari 258 tahun 2002 17-Sep-02 Kongbeng 2,000 71,708 26 Kop. Karya Bakti 282/02.188.45/HKVII/2003 31-Jul-03 Sandaran 2,000 52,994 27 Kop. Kertha Nugraha 204/02.188.45/HK/VII/2003 2-Jul-03 Kaliorang 1,200 44,967 28 Kop. Pertanian Sangkulirang Permai 364/02.188.45/HK/IX/2003 19-Sep-03 Kaliorang 400 15,100 29 Kop Serba Usaha Tunas Jaya 363/02.188.45/HK/IX/2003 19-Sep-03 Bengalon 1,500 39,315 30 Kop. Nelayan Kakap Putih 452/02.188.45/HK/XII/2003 31-Dec-03 Sangkulirang 1,600 26,779 31 Kop. Batu Lepoq Lestari 75.a/02.188.45/HK/IV/2004 8-Mar-04 Sangkulirang 1,500 41,455 32 Kop. Serba Usaha Warga Rimba no data33 CV Sinar Meranti 365/02.188.45/HK/IX/03 19-Sep-03 Bengalon 11,001 34 Kop. Bumi Ulayat Indah Lestari 238 tahun 2002 8-Aug-02 Telen 47,025 35 KUD Marga Jaya 452/503/BKT/DK-VIII/02 13-Aug-02 Ma.Ancalong 7,564

Total 153,741 1,494,663

Table 23. IPK permits issued by East Kutai District (Bupati), 2001-2004

Source: Dinas Kehutanan East Kutai, Sanggata

In 2003, both provincial and district IPKs cumulatively reported the production of 601,740 m3. In the same year, IPK operators reported to have shipped 670,856 m3 of logs in the district – thus, shipping exceeded production by 69,116 m3 (Table 24). This discrepancy may seem minor. However, only 39 out of 66 IPK holders reported shipping of logs. Some IPK operations were

50

Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec1 PT. WKL 2,024 5,150 0 0 0 0 0 0 0 1,147 0 0 8,321

2 PT. Long Bangun 0 5,573 0 0 4,848 0 1,705 4,426 9,457 8,795 0 6,199 41,002

3 PT. MPL 1,359 0 0 0 0 0 0 0 0 0 0 0 1,3594 PT. OTP Dun TP 5,638 11,809 8,835 2,699 0 2,802 4,106 21,475 10,613 0 4,237 6,255 78,467

5 Kopkar Rimba K OTP 5,329 3,803 3,821 1,683 12,932 18,619 3,821 0 10,854 12,178 4,112 868 78,020

6 PT. OTP Marah TP 0 0 0 0 0 0 10,427 15,748 7,324 0 8,094 0 41,593

7 Kopkar Marah OTP 0 0 0 0 0 0 0 0 0 15,449 4,073 256 19,778

8 PT. PKP 0 896 0 0 608 1,914 0 2,080 3,114 1,420 0 0 10,034

9 Y. Fastabiqul Khairt 0 4,607 0 0 2,658 0 4,564 0 5,058 1,617 0 2,593 21,097

10 Bumi Etam Sejahtera 0 0 0 0 2,469 0 0 0 0 0 0 0 2,469

11 Sumalindo LJ 0 1,969 0 0 7,373 607 0 2,874 2,041 3,842 1,906 3,840 24,45312 Cinta Hutan L 0 0 0 0 0 6,271 7,575 5,029 4,014 11,440 13,289 0 47,619

13 Kop. Marga Jaya 0 0 0 0 0 0 1,003 0 3,044 0 0 0 4,046

14 Kiani Lestari 0 0 0 0 0 0 3,447 1,363 742 1,543 3,607 1,171 11,873

15 KUT Elang Mentari 2,998 0 0 0 0 0 0 4,365 0 0 0 0 7,363

16 Sbr Jaya Abadi 0 0 0 0 0 0 0 2,958 2,566 0 0 0 5,524

17 KT. Beringin Jy. Skt 0 0 0 0 0 0 0 0 1,364 0 1,614 0 2,978

18 HPHH Long Wehea 0 0 0 0 0 0 0 0 3,249 0 0 0 4,145

19 PDKT 0 0 0 0 0 0 0 0 0 14,913 8,408 7,367 30,688

20 IHPHH Long Salimin 0 0 0 0 0 0 0 0 0 2,249 0 0 2,249

21 SMS 0 0 0 0 0 0 0 0 0 0 2,068 0 2,068

22 Kop Karya Bhakti 0 0 0 0 0 0 0 0 0 0 0 3,194 3,194

23 Kop Semoga Jaya 0 0 0 0 0 0 0 0 0 0 0 1,730 1,730

24 PT. Inhutani I Skl 3,151 0 3,565 1,859 0 0 2,731 0 0 0 0 0 11,30625 PT. BKIM 0 2,968 0 0 2,149 2,927 0 1,590 2,049 3,842 0 0 15,52526 PT. EBL 0 5,059 0 0 5,097 4,923 0 1,174 4,819 3,746 0 3,284 28,10327 LKMD Bt Lepoq 0 0 0 0 0 1,166 0 513 0 0 0 0 1,67928 CV Wana Bhakti 1,169 0 0 0 0 0 0 0 0 0 0 0 1,16929 CV. Alfath 0 0 0 0 0 0 0 0 0 0 2,526 0 2,52630 Kop Mandu S 1,378 2,437 0 0 0 0 0 0 0 0 0 0 3,81531 BKNS 0 0 0 0 0 0 0 0 0 0 0 1,815 1,81532 LKMD Mukti 0 0 0 0 3,148 0 3,454 0 0 0 0 0 6,60333 PT. Soko Joyo 7,478 12,019 0 0 0 0 0 0 0 0 0 0 19,497

34 Ke. Tani Tiga Tawai 820 0 0 0 1,206 0 0 0 0 0 0 0 2,026

35 OP Telaga M 16,384 0 0 7,453 0 0 0 20,126 0 0 0 43,963

36 Bumi Ulayat Indah L 0 0 0 0 6,230 7,345 6,022 0 49,600 0 0 0 69,197

37 Kopkarya Pemb 1,863 0 0 0 0 0 0 0 0 0 0 0 1,863

38 Kop Primer Karya Br 3,362 0 0 0 0 0 0 0 0 0 0 3,362

39 CV. Kalimarau 0 0 0 0 0 0 1,736 5,205 0 1,397 0 0 8,338TOTAL 52,953 56,291 16,221 6,240 56,171 46,574 50,591 68,801 140,033 83,576 53,935 38,573 670,856

No Company TotalMonth/m3

probably not active, but according to forestry insiders in East Kutai (the Wahau-Kombeng area), a good number operated but officially pretended to be inactive9. Table 24. Reported transport of IPK logs in East Kutai in 2003

Source: Dinas Kehutanan East Kutai, Sanggata

Besides the production-shipping discrepancy, the problems with IPK operations in East Kutai are twofold: 1) As of 2004, IPKs continue to be issued by district authorities, in direct violation of the

9 Interviews with IPK operators in Wahau-Kombeng area, July-September 2004.

51

central government regulations revoking Bupatis’ authority to issue such permits and 2) IPK licenses are often issued for dubious plantation schemes (mainly oil palm). A prime example of this are IPKs operated by PT Narkata Rimbah. In 2004, the company carried out logging on behalf of at least 4 village cooperatives in Wahau-Kombeng: Putra Dayak Kalimantan (Miau Baru), Sentiang Indah (Miau Baru), Pancasila Abadi (Nehes Liahbing) and Borneo Prima (Nehes Liahbing). The last two licenses cover 27,500 ha and 47,000 ha respectively and are located on the ridges of Gunung Kulat and Gunung Beriun near the border with Berau. Cumulatively, the production target of these IPKs reaches hundreds of thousands of m3. In September 2004, PT Narkata Rimbah was investigated by the provincial Forestry and Police authorities for logging outside the area of its IPK permits and for failing to make progress with community plantation projects.

7.2.3. Small-scale logging teams As in Berau, woodworking industries in East Kutai (sawmills and moulding) depend entirely on raw material (either square or round logs) delivered by small-scale logging teams. Such logging teams have become increasingly more active in recent years. Prior to 2000, small-scale logging was carried out by locals largely along major waterways. The last 2-3 years have seen the arrival of “truck logging” teams from Samarinda and from as far as Banjarmasin (South Kalimantan) and Kotawaringin (Central Kalimantan). The truck loggers deliver round logs and square logs to sawmills, employing ingenious methods of hauling the logs to the roadside using rear wheels of the truck as a winch. Innovative winching methods are also used for loading the logs onto trucks. In the Wahau-Kombeng area, a sample of 11 small-scale logging teams has been studied. Cumulatively, the sample had the manpower of 116 loggers who, using 45 chainsaws, produced about 3,830 m3 of round and square logs per month, or 42,130 m3 per year (see Table 25).

52

Table 25. A sample of small-scale logging teams near Muara Wahau, East Kutai, 2004

Production Sales

m3/month Destination1 Jaim Jabdan Gentung River Independent; Rp.

1,750,000 + ketingting + 1chainsaw

1 4 600 Sawmills in M. Wahau

2 Siman Jabdan Gentung River Independent; Rp. 2,500,000 + ketingting + 1

chainsaw1 4 400

Sawmills in M. Wahau

3 Yanto Jabdan Gentung River Independent; Rp. 2,000,000 + ketinting + 1

chainsaw1 4 350

Jainudin (Koramil M.Wahau), then on to Samarinda

4 Kleasong Nehes, Liahbing

Gentung River; Selek River inside GGA concession

Agus and Roby (Chinese from Samarinda); Rp.

20,000,000/6 months + 12chainsaws

12 30 600

Sawmills in M. Wahau

5 M. Tik Nehes, Liahbing

Selek River inside GGA concession

Independent; Rp. 60,000,000/5 months 8 20 800

Sawmills in M. Wahau

6 Yuda SP 2 Jembatan Tiga on the road to Samarinda

Independent; 13 buffalos

3 6 120

Sawmills in SP2, M. Wahau

7 Samikun SP 1 Km 47 from M Wahau in ex Basuimex concession

Independent

3 9 120

Sawmills in SP, M. Wahau

8 Anwar SP 2 GGA concession Independent

8 20 400

Sawmills in SP, M. Wahau

9 Ajis SP 1 GGA concession Km 21; Km 47 in ex Basuimex concession (in the direction of Gergaji Mountain)

Independent

6 15 320

Sawmills in SP, M. Wahau

10 Wingdyang Dyaklai Km 41 in ex Basuimex concession

Independent 1 2 60

Sawmills in SP, M. Wahau

11 Wungsam Miau Baru Km 41 in ex Basuimex concession

Independent 1 2 60

Sawmills in SP, M. Wahau

TOTAL 45 116 3,830

No Name of the team Origin Location Financing Number of

chainsaws Number of

loggers in team

Source: CIFOR survey, 2004.

Since there are 31 woodworking mills in the Wahau-Kombeng area with the installed production capacity of 105,000 m3 of sawn timber year (see section 7.2.1 below), in order to feed these mills there must be about 55 teams active in the area, totaling 580 loggers, 225 chainsaws and producing 19,100 m3 per month or 210,000 m3 per year.

53

7.3. Illegalities associated with wood-processing industries in the northern part of East Kutai

The woodworking sector in East Kutai is mainly comprised of sawmills and moulding mills. Some of the latter also act as timber kiosks, particularly in Sanggata. East Kutai also possesses one plywood mill located in Sangkulirang – PT Pacific Bontang Raya – with the installed annual production capacity of 90,000 m3 per year. Due to the fact that the focus of field investigations was on the area of Wahau-Kombeng, the sourcing of raw material and production activities of this plywood mill were not studied as part of this project.

7.3.1. Sawmills and moulding Official records show that as of 2004 there were 48 woodworking mills in East Kutai, centered largely in Sanggata and Bengalon (Table 26). However, there are reasons to believe the real number of active mills is substantially higher. The official district register is not listing the largest sawn timber and moulding producer in East Kutai – PT Putra Bengalon Wood10. In addition, the Forestry and Trade-Industry Offices in Sanggata seem to be aware of only 1 sawmill in Kombeng and none in Wahau. In fact, there are 31 woodworking mills active in the Wahau-Kombeng area (see Appendix 10).

10 Provincial forestry sources estimate this mill’s annual production capacity at up to 70,000 m3 of sawn timber and moulding.

54

No Company Owner/manager Location EstablishedType of industry

Installed capacity (m3/year)

1 CV. Nusantara Comelius Rantelangi Sangkulirang 14-Sep-02 Sawmill 3,000 2 Kop. Leken Meren Balan Laway Kombeng 4-Sep-02 Sawmill 2,950 3 PT. Sumber Meranti Sakti Soegianto Benggalon 10 Jan 01; 17 OcSawmill 2,500 4 PT. Kalimantan Lestari Hatta Norjali Sangkulirang 17-Oct-02 Sawmill 18,000 5 CV. Bahtera Agung E.A Hairun Sangkulirang 6-May-03 Sawmill 2,500 6 CV. Rimba Mas Plaju Jaubi Syarief Sangkulirang 3-Apr-03 Sawmill 2,500 7 Tanjung Manis Indah Zuldani Sangkulirang 6-May-03 Sawmill 3,000 8 PT. Porodisa Budiman Molek Bengalon Sawmill no official data9 PT. Pasifik Bintang Jaya Budiman Molek Bengalon Sawmill no official data

10 PT. Putra Bengalon Wood Budiman Molek Bengalon Sawmill no official data11 PT. Panambangan Drs. Sukamdani Bengalon Sawmill no official data12 Sawmill Bansaw Angah Udin Bengalon Sawmill no official data13 Bansaw Zaenal Bengalon Sawmill no official data14 Meduai Bakti H. Abd. Karim Bengalon Sawmill no official data15 H. Slamat H.Slamat Bengalon Sawmill no official data16 Arif Rani Arif / Rani Bengalon Sawmill no official data17 M. Yunus M. Yunus Bengalon Sawmill no official data18 Sumber Rejeki Mulia Bahruni Bengalon Sawmill no official data19 Meubel Aidil Fitriansyah Sangkulirang Sawmill no official data20 Meubel Agus Sasongko Sangkulirang Sawmill no official data21 Enggal Enggal Telen Sawmill no official data22 Syahbudin Syahbudin Telen Sawmill no official data23 Meubel Fauzi Ma. Bengkal Sawmill no official data24 PT. Kalimantan Wana Sakti Sangkulirang Sawmill no official data25 PT. Surya Graha Sakti Sangkulirang Sawmill no official data26 PT. Hanurata Coy. Ltd Sangkulirang Sawmill no official data27 UD. Lima-lima Ambo Dalle Sangata 2001 moulding 360 28 Empat Sekawan Suparman Sangata 2000 moulding 1,080 29 Meubel Rukun Jumran Sangata 2002 moulding 360 30 Dwi Tunggal Waridi Sangata 2001 moulding 360 31 Lingga Jaya Moh. Nur Ali Sangata 2001 moulding 360 32 Moulding Sekawan H. Warkasi Sangata moulding 1,080 33 Meubel sukma Jaya Sairoji Sangata moulding 360 34 UD. Basuki Rachmad Sangata moulding 900 35 Andy Moulding Danis Sangata moulding 360 36 Meubel Sangata Mandiri Rais Sahide Sangata moulding 1,080 37 Burhanudin Burhanudin Sangata moulding 360 38 Ray Meubel M. Thamri Akap Sangata moulding 360 39 Teguh Teguh Sangata moulding 360 40 H. Aripin H. Aripin Sangata moulding 24 41 Jaya Raya Sunarto Sangata moulding 540 42 UD. Jaya Usaha Meubel Sri Rahmawati Sangata moulding 540 43 Abadi Sahrani Sangata moulding 1,800 44 A. Fadilah Muchsin Sangata Sawmill 1,800 45 Adi Putra Jaya Antai Sangata moulding 1,440 46 Shaleh Shaleh Sangata Sawmill 1,440 47 Sawmill Yahya Yahya Sangata moulding 1,800 48 Kusuma Meubel Suyatno Sangata moulding no official data

Table 26. The official record of sawn timber and moulding mills in East Kutai in 2004

Source: Dinas Perdagangan dan Perindustrian, East Kutai

The officially reported production of sawn timber in 2003 was 58,561 m3 (Table 27). It is interesting to note, however, that this figure is based on 24 reporting mills only. While it is possible that some mills were temporarily (or permanently) not active, sawmill sector insiders in East Kutai (the Wahau-Kombeng area) indicate it is a “standard operational procedure” for many sawmills to pretend not to be producing in order to avoid unwanted attention as well as formal/informal tax burden11.

11 Interviews with sawmill operators in Wahau, July-September 2004.

55

Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec1 Surya Citra Abadi - - - - - - 530 554 - - - - 1,0482 KNL 322 - - - 1,576 1,582 1,346 1,544 1,522 764 - 548 9,2043 PO. Ate Jaya - 465 408 - 631 552 694 551 1,182 - 1,073 - 5,5564 Bahtera Agung 1,026 692 843 810 - - 942 - - - 743 607 5,6645 Tanjung Manis I - - - - - - - 382 145 331 266 - 1,1246 Lestari Sejati 1,720 - - 2,087 - - 1,146 - 503 359 - 702 6,5177 KSU Rahayu L - - - - - 1,834 2,124 748 592 244 668 335 6,5448 EA. Hairun 463 163 262 - - - - - - - - - 8889 Adil Makmur - - - - 507 177 - - - - - - 68410 SMS - - - 772 204 367 467 - 602 - 547 503 3,46111 Surya Graha Sakti - - - - - - - - - - - - -12 UD. Harapan Prima 969 416 629 728 620 - 1,758 829 1,728 1,497 1,294 1,909 12,37713 Leken Meren 669 - - - - 260 50 - - - - - 97914 CV Nusantara - - 101 144 122 - - - 71 - - - 43715 PBR - - - - 106 - - - - - - - 10616 PBW 211 125 - - - 72 140 95 103 - - - 74517 Mitra Utama S - - - - - - - 382 - 331 266 - 97918 Rancang Bangun Lestari - - - - 212 - - - - - - - 21219 Kop Warta Jaya - - 50 - - - - - - - - - 5020 Wardana - - 376 - - - - - - - - - 37621 Agus Sumardi - 166 - - - - - - - - - - 16622 Pmd Pancasila - - - - - - - - 150 298 - - 44823 CV Kalindo - - - - - - - 104 164 80 159 191 69724 H. Landang - - - - - 260 - - - - - - 260

TOTAL 5,379 2,027 2,669 4,541 3,978 5,105 9,199 5,189 6,760 3,903 5,016 4,794 58,561

TotalNo Company Month (m3)

Table 27. Sawn timber production in East Kutai, 2003

Source: Trade and Industry Office, East Kutai

Out of the total of 31 sawmills in Wahau-Kombeng, a sample of 15 have been studied in detail. The sample sawmills had a total of 7 bandsaws, 14 circular saws, 83 workers and generated 4,760 m3 of timber per month or 52,360 m3 per year (Table 28). It can be approximated, therefore, that 31 mills located in the Wahau-Kombeng area have about 14 bandsaws, 28 circular saws, labor force of about 171 people and produce about 105,000 m3 of sawn timber per year. This alone is nearly double the official figure for the production of sawn timber in the district. At the very least, therefore, 46,439 m3 of annual sawn timber production in East Kutai goes unrecorded. However, the real figure is likely to be significantly higher as there is at least one other large woodworking center in East Kutai – in Sebulu – that does not feature in official statistics.

56

Bandsaw Circle Species Form Origin Price/m3 m3/month Price/m3

1 1999 H.Wage Wongso SP 2 Wahau

1 B, M, K Square logs Purchases from any supplier

430,000; 460,000

600 500,000; 600,000; 600,000

2 1999 H.Wage Wongso SP 2 Wahau

1 K, M, B Logs Purchases from any supplier

360,000 600 500,000; 600,000; 600,000

3 2004 Teleah Teleah (Dabeq village head)

Dabeq 2 K, M, B, U Square and round logs

Purchases from any supplier & has logging teams with 15 chainsaws

SDA 130

4 1998 Iksan H. Husin SP 4 1 2 M, K, B, U

Square logs Purchases from any supplier; has agreed upon monthly deliveries

380,000; 400,000; 500,000

240 500,000; 600,000; 800,000

5 1997 Markasi (Banjar)

Markasi M. Wahau 1 M, K, U Square logs Purchases from any supplier; has agreed upon monthly deliveries

300,000; 400,000

100 450,000; 700,000

6 Habib Jamaludin SP 2 Wahau

1 M, K, B Square logs Purchases from any supplier; has agreed upon monthly deliveries

380,000; 400,000; 450,000

600 500,000; 600,000; 600,000

7 H. Nurung H. Nurung SP 1 2 M, K, U Square logs Purchases from any supplier; has agreed upon monthly d li i

380,000; 400,000; 500,000

130

8 H. Ida Bp. Ida SP 1 1 M, K, U Square logs Purchases from any supplier; has agreed upon monthly

300,000; 400,000

100 450000; 700000

9 Kep Sekolah

Hasnan SP 1 1 M, K, U Square logs Purchases from any supplier; has agreed upon monthly d li i

300,000; 400,000

100 450000; 700000

10 Jelebug Jelabug Selabing 2 M, K, U Square logs Purchases from any supplier; has agreed upon monthly d li i

380,000; 400,000; 500,000

130

11 Yusuf Selabing 2 M, K, U Square logs Purchases from any supplier; has agreed upon monthly d li i

380,000; 400,000; 500,000

130

12 Jalani (Polsek Wahau)

Mr X Selabing 1 M, K, U Square logs Purchases from any supplier; has agreed upon monthly deliveries

300,000; 400,000

100 450000; 700000

13 Habib Bambang SP 2 1 K, M, B Logs Purchases from any supplier

360,000 600 500,000; 600,000; 600,000

14 (cina malaysia)

Agus (Surabaya)

SP 2 1 K, M, B, U Square and round logs

Purchases from any supplier & has logging teams with 15 h i

360,000 600 500,000; 600,000; 600,000

15 H.Samsi (orang wahau)

Selabing 1 K, M, B Logs Purchases from any supplier; has agreed upon monthly deliveries

360,000 600 500,000; 600,000; 600,000

TOTAL 7 14 4,760

Owener Manager Sales

Nearly all sawn timber produced in Muara Wahau is shipped to Samarinda, most of the time by river. About half of the timber is consumed in Samarinda, while the rest is shipped to Surabaya as well as abroad to Malaysia. Minor amounts of sawn timber are also transported by truck from Muara Wahau to Bengalon (Rp 150,000/m3) for shipping to Surabaya

Equipment Raw material Production No Established Location

Table 28. A sample of 15 sawmills operating in Muara Wahau, East Kutai, 2004

Source: CIFOR survey, 2004. Note: M stands for Meranti, K for Keruing and U for Ulin.

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The entire output of the woodworking sector in Wahau-Kombeng is shipped to Samarinda. Some of this timber is subsequently transported to Java. Most of it is shipped to Samarinda by river. An insignificant amount is transported by trucks to Bengalon on the coast. There are 45 registered boats in Wahau that are used to transport sawn timber; an equal number reportedly operates unregistered. There is a queue system for timber boat operators, each subject to the quota of maximum 3 trips per boat per 2 months. The cost of transporting sawn timber by boat to Samarinda is Rp 250,000 per m3.

During 2 weeks of monitoring in Wahau in July 2004, 2,445 m3 of sawn timber was shipped by boats to Samarinda (Table 29). As the water level was low due to dry weather conditions, it is assumed the river traffic was at the annual low during the period under observation and that it intensifies with the onset of the rainy season12.

12 This was corroborated by boat operators in Wahau river port (pelabuhan).

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Timber species Vol (m3)

1 14-Jul Usaha Bersama K, B 200 Samarinda Sawmill H. Samsi2 14-Jul Putra Kelinjau K, B 200 Samarinda Sawmill H. Samsi3 16-Jul Air Bunga I K, B 200 Samarinda Sawmill Wongso Wage4 17-Jul Putra Diana K, B 200 Samarinda Sawmill H. Habib5 19-Jul Berkat Usaha 1 B 80 Samarinda Anwar6 14-Jul Roni Putra A K, B 200 Samarinda Sawmill H. Samsi7 14-Jul Roni Putra B K, B 200 Samarinda Sawmill H. Samsi8 14-Jul Air Bunga II K, B 200 Samarinda Sawmill Wongso Wage9 14-Jul Air Bunga III K, B 200 Samarinda Sawmill Wongso Wage

10 14-Jul Telaga Putra A K, B 210 Samarinda Husin + Wongso (40 m3)11 19-Jul Tongkang K, B 200 Samarinda Habib12 15-Jul Berkat Usaha II B 60 Samarinda Anwar13 15-Jul dinasti K, B 200 Samarinda Habib14 27-Jul Telaga Putra B K, B, U 95 Samarinda H.samsi

TOTAL 2,445

Destination Origins of the shipmentLoadDeparture

date Name of boatNo

Wahau-Samarinda transit points LocationPassage fee collectors Amount (Rp)

Starting point/Wahau-Kombeng SDC Koramil 75,000 Post 1 M.Wahau Koramil + Polsek 1,000,000 Post 2 Muara Bengkal Koramil + Polsek 400,000 Post 3 Muara Ancalong Koramil + Polsek 1,000,000Post 4 Senyiur Koramil + Polsek 1,000,000Post 5 Sebulu Koramil + Polsek 1,000,000Post 6 Senoni Koramil + Polsek 1,000,000Post 7 Tenggarong Koramil + Polsek 1,000,000

Table 29. Timber shipments by boat from Wahau to Samarinda, July 2004

Source: Survey CIFOR 2003. Note: K stands for Keruing, B for Bangkirai, U for Ulin.

While each year substantial volumes of sawn timber production are not reflected in district statistics, the movement of sawn timber within and outside of East Kutai is watched closely by the Police and Military units stationed along the main transportation arteries. The reason for this careful monitoring is “passage fees” extracted at several strategically located check-points (Table 30). The 105,000 m3 of sawn timber shipped by river each year from Wahau to Samarinda alone adds up to Rp 3.4 billion in informal tax for the security personnel each year. Table 30. Passage fee system for sawn timber on the route Wahau-Samarinda

Source: CIFOR survey 2004

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8. SUMMARY AND ANALYSIS Illegal forestry activities are widespread in both extractive as well as processing sectors in Berau and East Kutai districts. The illegalities can be summarized as follows:

� Logging operations cutting out of block � Logging companies pretending to be stagnant while in fact they extract timber � Land-clearing (IPK) permits issued for dubious plantation schemes � Unlicensed small-scale logging � Log/sawn timber production is under-reported and shipping documents are illegally altered � Logging and woodworking enterprises in both districts routinely evade taxation. � Logging as well as woodworking enterprises engage in tax evasion

Below, the legal forestry activities are juxtaposed with illegal operations in order to examine their comparative impact on district economy, society/livelihoods and the environment. 8.1. Impact of illegal forest activities on district economy BERAU DISTRICT HPH, IPK, HTI operations (revenue gained) According to the Provincial Finance Office (Dinas Pendapatan Daerah), in 2003 Berau collected Rp 14.65 billion in PSDH tax revenue on 521,695 m3 of roundwood produced by HPH, IPK and HTI license holders. Of this amount, 32 percent, or Rp 4.69 billion, entered Berau’s budget while the rest was divided between other districts, the province of East Kalimantan and the central government in Jakarta. In 2003, Berau’s government also generated Rp 1.2 billion from the above volume of timber through Retribusi Produksi district tax (Rp 2,300 per m3 of logs). In the same year, the district also received Rp 22 billion in Reforestation Fund (DR). The total value of DR tax on Berau’s roundwood production in 2003 was about Rp 71 billion. Approximately 40 percent of this amount is divided between the province and the district of origin. The Rp 22 billion that Berau received in 2003 constitutes about 31% of the total value of DR revenue generated that year. It is anticipated that in 2004, the district will receive Rp 16 billion in DR. HPH, IPK, HTI operations (revenue lost) Between 1996 and 2003, HPH, IPK and HTI operations in Berau illegally extracted and shipped approximately 1,179,876 m3 of logs. Timber industry insiders say the real figure is significantly higher as production/shipping underreporting is “a standard operational procedure.” Counted at the

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average domestic price of Rp 500,000 m3 ($ 50) for the last few years, the market value of the logs taken illegally out of Berau over that period of time is a staggering Rp 590 billion (well over $ 70 million). In terms of other lost tax revenue on this volume of timber (i.e. PSDH and DR), the numbers are equally impressive. The 1,179,876 m3 of logs shipped illegally out of Berau between 1996 and 2003 resulted in the loss of approximately Rp 219 billion – Rp 160 billion in reforestation fund (DR) and Rp 59 billion in PSDH timber royalty. As already indicated (see Table 2 and Table 11), in 2003 large-scale licensed logging activities in Berau generated the following output of logs: Table 31. Production per type of large-scale logging license in Berau, 2003 Type of logging Production (m3) HPH 120,752 IPK 244,357

HTI 164,582 Total 521,695 Source: Dinas Kehutanan and UPTD Berau When juxtaposed with the district financial data, these numbers indicate a serious loss of PSDH tax revenue incurred by the district in 2003. The key figures to illustrate this loss are as follows:

� PSDH collected in Berau in 2003: Rp14.65 billion � PSDH that should have been collected (521,695 m3 x Rp 50,000): Rp 26.08 billion � Uncollected PSDH: Rp 11.4 billion (equivalent to 228,711 m3 of untaxed logs) � Berau’s share of PSDH in 2003: Rp 4.68 billion � Berau’s share of PSDH if it was fully collected: Rp 8.34 billion � Berau’s lost share of PSDH in 2003: Rp 3.66 billion

While the collection of PSDH was clearly a problem in 2003, this does not seem to have been the case with DR, which was duly extracted on the total log production. For the select few cases of illegal logging activities by HPH, IPK, or IPPK/IPKTM license holders that have been identified over the last few years, the approximate loss estimate is as follows: Table 32. Documented HPH/IPK illegal logging cases in Berau, 2000-2004

Company Illegally extracted volume (m3)

Year Market value (Rp)

Lost tax revenue - PSDH, DR, RP (Rp)

Remarks

PT Mahardika Insan Mulia

22,000 2003 13,200,000,000 4,142,600,000 See Table 6

PT Karya Lestari

2,000 2004 1,200,000,000 376,600,000 See Table 6

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PT Hutan Alam Kalimantan

33,000 2003/2004 19,800,000,000 6,213,900,000 See Table 6

PT Karya Lestari Jaya

40,000 2000/2004 24,000,000,000 7,532,000,000 Timber trade insiders in Berau estimate between 60 and 70 percent of LKJ's production has been illegal

PT Bhakti Praja

7,700 2000/2004 4,620,000,000 1,449,910,000 This is a conservative estimate based on timber volumes seized by the Police in 2004 only

PT Meranti Samarinda Kalimantan

26,448 2003/2004 15,868,800,000 4,980,158,400 This is a conservative estimate based solely on IPK production target only (legality of which is dubious), while intesive logging is also conducted out of block

PT Taurus 58,784 2002-2004 35,270,400,000 11,521,664,000 Filed survey revealed between 2002 and 2004 PT Taurus extracted about 65,000 m3 of logs. The legal IPKTM production target of 6,216 m3 was subtracted from that

Total 189,932 113,959,200,000 36,216,832,400 Note: DR is $16 per m3 ($1 = Rp 8,500), PSDH is Rp 50,000 per m3; RP stands for a district tax called Retribusi Produksi and it is Rp 2,300 per m3 of HPH/IPK logs or Rp 10,000 per m3 of IPPK/IPKTM logs. IPPK/IPKTM operations (revenue gained) Since the onset of IPPK/IPKTM policy in Berau in 1999, at least 207 small-scale logging permits have been issued, covering at least 46,969 ha of forest that were to yield nearly 1.6 million m3 of logs. It is likely that in reality a far greater area is involved because most IPPK/IPKTM permits have had area and production target additions. Based on Perda No. 48/2000, which provided the district’s legal framework for small-scale concession logging, IPPK/IPKTM operations were subject to two types of district taxes: SPK (Sumbangan Pihak Ketiga, Third Party Contribution) – a one time payment of Rp 200,000 per hectare of the concession – and RP (Retribusi Produksi, Production Fee) in the amount of Rp 10,000 per m3.

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Taking into consideration the 2000-2001 period only for which firm IPPK/IPKTM data are available, the 183 permits issued during that time for 35,573 ha of forest would have generated about Rp 7.1 billion in SPK tax. In addition, the target production of 1,380,697 m3 would have produced Rp 13.8 billion RP tax. In total, it can be estimated that IPPK/IPKTM logging in Berau contributed at least Rp 20.9 billion to the district’s finances during 2000-2001. Since these concessions operated until the end of 2003, it is possible than another Rp 10 billion was generated annually in the form of RP tax in 2002 and 200313. Research on small concession logging in Berau in 2000 and 2004 has shown that successful IPPK/IPKTM applications were associated with unofficial payments of Rp 10 million per permit (Obidzinski and Suramenggala 2000). It can be inferred, therefore, than 207 IPPK/IPKTM permits issued in Berau between 1999 and 2001 generated about Rp 2.07 billion in informal fees of this kind. IPPK/IPKTM operations (revenue lost) As mentioned earlier, Berau’s branch of the provincial forestry service (UPTD) and Berau’s Bupati Masjuni have been criticized for exempting IPPK/IPKTM license holders from DR and PSDH taxes (Kompas 2004). At issue is the wording of District Regulation (Perda) No. 48 of 2000, which is seen as providing a loophole for district logging enterprises to avoid these key forestry taxes. The implementation of Perda no. 48/2000 is said to have resulted in the loss of DR-PSDH tax revenue in the amount of about Rp 88 billion (Kompas 2004). Small-scale logging (revenue gained) As indicated in section 6.2.4, small-scale loggers pay Rp 50,000 per approximately 5 m3 of timber to district authorities (usually Police) for a safe passage. A similar rate is applicable to water-based transport of timber. Cumulatively, the annual production by small-scale loggers of 350,000-380,000 m3 of logs in Berau generate about Rp 3.5-3.6 billion in unofficial tax income for district officials. Small-scale logging (revenue lost) Small scale illegal logging in Berau, between 350,000 m3 and 380,000 m3 of log annually, carries the following domestic market price tag and tax value:

� Market value: Rp 210-228 billion

� Uncollected DR-PSDH tax: Rp 65.1-70.7 billion

� Uncollected District fee Retribusi Produksi of Rp 2,300 per m3: Rp 0.8-0.9 billion 13 SPK tax is applicable only to the original application permits and not to area or production extensions.

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Woodworking industries (revenue gained) According to the official statistics, in 2003 Berau’s sawmill and moulding industry produced 31,028 m3 of timber products. Since 2000, these products are subject to district tax called RP (Retribusi Pengelolaan) amounting to Rp 10,000 per m3. As a result, in 2003 sawmills and moulding mills in Berau generated Rp 0.3 billion of Retribusi Pengelolaan tax. A similar amount of Retribusi Pengelolaan on sawn timber and moulding is likely to be collected in 2004. There are virtually no financial benefits for Berau stemming from the operations of Kiani Kertas pulp and paper mill. The company pays symbolic annual fees for the use of water as well as ground tax (PBB, Pajak Bumi dan Bangunan) that cumulatively average Rp. 0.4 billion. Woodworking industries (revenue lost) As shown in section 6.3.1, over the last 12 years (and probably much longer) the officially recorded export of sawn timber/moulding from Berau has consistently exceeded the reported production volumes, meaning that production of these products was consistently underreported. Looking at only a 3-year period between 2000 and 2002, while unreported timber volumes and the lost RP (Retribusi Pengelolaan) tax revenue do not seem excessive (about 67,000 m3 and Rp 0.67 billion respectively), the market value of the unaccounted for sawn timber is significant (Table 33). While in East Kalimantan the price of sawn timber is estimated at Rp 760,000 per m3, in major domestic consumer markets in Java, this value can easily double. Table 33. Market value and Retribusi Pengelolaan tax losses from undocumented shipments of sawn timber/moulding in Berau, 2000-2002 Year Sawn timber,

moulding produced (m3)

Sawn timber, moulding shipped (m3)

Excess of sawn timber, moulding shipped (m3)

Market value (Rp)

Uncollected RP district taxe (Rp)

2000 7,519 28,687 21,168 16,087,680,000 211,680,000 2001 27,057 49,969 22,912 17,413,120,000 229,120,000 2002 29,574 52,507 22,933 17,429,080,000 229,330,000

Total 64,150 131,163 67,013 50,929,880,000 670,130,000 Source: BPS Berau (2000, 2001, 2002) for production and shipping of sawn timber and moulding. The above numbers become staggering once the real production of sawn timber and moulding in Berau is considered. The real 2003 production of sawn timber/moulding in Berau, estimated at 219,950 m3 (and expected to be roughly the same in 2004) carries the following market and tax values:

� Market value: Rp 167.2 billion per annum � Uncollected Retribusi Pengelolaan: Rp 1.89 billion in 2003 and Rp 1.87 billion in 2004

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As explained earlier, timber kiosks obtain their raw material from chainsaw operators working in the proximity of main towns in Berau. Their 2003 production/sales were approximately 18,975 m3. The same production/sales volume is projected for 2004. Together with 901 m3 annually extracted for ship-building, the timber felled and processed for timber kiosks generates Rp 0.2 billion per year in informal tax. The major economic loss associated with the operations of PT Kiani Kertas pulp and paper mill in Berau is the fact that the enterprise continues to benefit from a range of excessive privileges. Kiani Kertas has cost Indonesian state banks (and therefore Indonesian taxpayers) at least $ 300 million in unpaid bank loans and another $ 100 million in reforestation fund (DR). In addition to soft bank loans, the mill secured a 10-year holiday on corporate income tax and a permanent waiver on the payment of import and export duties for all capital goods. All these privileges, obtained while the former President Suharto was in power, are still in effect. A considerable part of Kiani’s debt ($ 480 million) was sold by IBRA to Bank Mandiri and a group of private investors, in one strike erasing a range of questions about the past borrowing and accounting practices. The continuing corporate income tax holiday and a permanent waiver on import and export duties for all capital goods mean that Berau is receiving no tax revenue from Kiani Kertas’ operations. EAST KUTAI DISTRICT East Kutai is one of the richest districts in Indonesia. In 2003, its total budget was Rp 828.4 billion. The majority of its wealth comes from a share in natural gas production, coal mining, oil production and other mineral exploration royalties. The vast financial resources generated by mining are augmented by the General Allocation Fund (DAU) and Special Allocation Fund (DAK) dispensed by the central government. Locally generated income (PAD) has been relatively insignificant. In 2003, it totaled only Rp 6.3 billion, or less than 1 percent of the total district budget (Dinas Pendapatan Kutai Timur 2003). Forestry’s contribution to PAD has been minimal. East Kutai’s PAD has two main district tax categories: Pajak Daerah (district tax) and Retribusi Daerah (district fees), but they do not affect the forestry sector. PAD includes only one forestry related tax called IHPH (Iuran HPH, or HPH tax), but it is not being collected. PAD’s “other” category also comprises Provisi Pihak Ketiga tax (similar to Berau’s SPK – Sumbangan Pihak Ketiga), but in 2003 it generated only Rp 1.6 billion, nearly all of it from non-forestry enterprises. Generating vast income from mineral resources, East Kutai seems to consider forestry of little importance for budgetary purposes. In contrast to other districts in East Kalimantan, the local government does not impose any district taxes on the production of logs or sawn timber.

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HPH/IPK (revenues gained) The PSDH revenue collection in East Kutai has been growing steadily over the last few years, rising from about Rp 3 billion in 2000 to Rp 17 billion in 200314 (Figure 5). While in the past HPH concessions were the main sources of this tax revenue, since 2002 IPKs have become the dominant means of log production and PSDH revenue. Figure 5. PSDH revenues collected in East Kutai, 2000-2003

0

2

4

6

8

10

12

14

16

18

2000 2001 2002 2003

Rp

billi

on

PSDH

Source: Dinas Pendapatan East Kutai, Sanggata HPH/IPK (revenues lost) Despite an impressive growth of PSDH tax revenue over the last four years, there are serious losses associated with HPH/IPK operations in East Kutai. The disparity between the reported production and shipping of HPH/IPK roundwood in the district in 2003, amounting to 100,000 m3, can be viewed as insignificant in this context. In 2003, PSDH and DR was not collected on a fairly large part of the district’s HPH and IPK log production15. In 2003, East Kutai District Income Office (Dinas Pendapatan) reported collecting Rp 17.1 billion in PSDH tax. At Rp 50,000/m3, this means that the tax was collected on 341,547 m3 of logs out of the total HPH/IPK roundwood production of 809,264 m3. This in turn means that more than half of the production, or 467,717 m3, was not taxed. As a result:

14 East Kutai district is entitled to 32 percent of PSDH annual totals. 15 Or, indeed, they were collected but did not enter the district’s budget.

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� Nearly Rp 23.4 billion in PSDH and Rp 63.5 billion in DR tax revenue went uncollected, or were misappropriated

� In 2003, PSDH collected in East Kutai was Rp17.1 billion (district’s share Rp 5.5 billion, 32 percent of total)

� PSDH that should have been collected (809,264 m3 x Rp 50,000): Rp 40.5 billion (district’s share Rp 13 billion)

� In 2003, DR collected in East Kutai Rp 46.5 billion in DR (districts approximate share Rp 14.5 billion, or 31 percent)16

� DR that should have been collected (809,264 x Rp 136,000): Rp 110 billion (district’s approximate share Rp 34.1 billion, or 31 percent)

� East Kutai’s lost share of PSDH and DR in 2003: Rp 7.5 billion and Rp 19.6 billion respectively

Small-scale logging (revenue gained) As in Berau, small-scale loggers pay Rp 50,000 per approximately 5 m3 of timber (round or square logs) to Police (Kapolsek) or Military (Koramil) for safe passage to sawmills. This rate applies both to water and land-based transport. This means that in the Wahau-Kombeng area, the annual delivery of 210,000 m3 of logs to local mills generate about Rp 2.1 billion in unofficial tax for the security forces. Small-scale logging (revenue lost) Small-scale loggers in Wahau-Kombeng produce at least 210,000 m3 of logs per year, which means Rp 10.5 billion in uncollected PSDH and Rp 28.6 billion in uncollected DR. Woodworking industries (revenue gained) Some government agencies, particularly the Police and the Military, impose informal taxes on sawn timber transported from the hinterland to Samarinda, Bengalon and Sanggata. Such informal fees on the Wahau-Samarinda route generate Rp 3.4 billion per year. Woodworking industries (revenue lost) Generating nearly all of its income from natural gas, oil and mineral exploration royalties, East Kutai does not impose any official taxes on woodworking industries. SUMMARY Berau District

16 The total PSDH revenue is taken as an indication of the volume of timber subject to taxation in 2003.

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Illegal logging/forestry activities in Berau are predominantly in the form of HPH and IPK operations logging out of block, underreporting production and/or manipulating log transport records. Substantial volumes of timber are annually extracted by small-scale logging teams. There is also a significant number of unregistered sawmills in the district. Many mills pretend not o be active, while in fact they operate as usual, manipulating production and/or transport records. It is clear that over the long term, losses resulting from such practices in Berau outweigh the gains as the former go into hundreds of billion of Rupiah mainly in uncollected taxes on HPH, IPK, HTI, IPPK/IPKTM, and sawmill/moulding operations. The comparison between the economic benefits and the costs associated with all forestry operations in Berau are illustrated below. Table 34. Revenues gained and lost in Berau’s forestry sector, 2003 (in Rp billion)

Revenue collected Revenue lost

HPH/IPK/HTI PSDH 14.65 12.15 Retribusi Produksi 1.2 0

DR 71 0 IPPK/IPKTM DR-PSDH 0 29.3a

Retribusi Produksi 10 0 Small-scale logging teams Informal tax 3.6 0 DR-SPDH 0 65.1 Retribusi Produksi 0 0.8 Sawmills and moulding Retribusi Pengelolaan 0.3 1.89 Informal tax 2.03b 0 Timber kiosks and ship building Informal tax 0.2 0 Pulp and paper

Water tax, PBB tax 0.4 0 TOTAL 103.38 109.24

Note: a This number has been derived by dividing the official figure of lost DR-PSDH of Rp. 88 billion for the period 2000-2003 by three to obtain a yearly average. b This estimate is based on the information that on average each of 37 sawn timber and moulding mills in Berau operates 11 months a year and each has a monthly “informal budget” of Rp 5 million.

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The key points emerging from the gain/loss analysis in Berau’s forestry sector as of 2003 are as follows:

� Revenue collected (including informal fees, or bribes) was Rp 103.38 billion � Without informal fees, the official revenue collected was Rp 97.55 billion

� The informal fees (or bribes) extracted from the forestry sector was

approximately Rp 6.33 billion. However, this is very likely an underestimate as figures for informal fees from HPH/IPK/HTI operations are not available

� The revenue lost, in the form of uncollected DR, PSDH and RP taxes in the

licensed sector as well as those forfeited in the unlicensed sector, was Rp 109.24 billion. This amount, however, is not literally lost. A good part of it is appropriated by individuals and government institutions in position to do so

� The lost forestry revenue in 2003 was equal to about a quarter of Berau’s budget

for that year EAST KUTAI DISTRICT Similarly to Berau’s case, illegal logging/forestry activities in East Kutai are widespread. They appear in several forms: 1) IPK and HPH operations logging out of block, underreporting of production and/or manipulating log transport records; 2) IPK enterprises pretending not to be active, while in fact they operate as usual; 3) the legal basis for IPK permits in East Kutai is questionable as Bupati is not allowed (by the central government) to issue such permits any more; 4) IPKs are often issued for dubious plantation schemes; and 6) many sawmills are unregistered and the reported production is a fraction of the real output. It is clear that in East Kutai financial/economic losses resulting from illegal activities in the forestry sector are significant and they far outweigh the gains. In 2003, the losses amounted to at least Rp 126 billion, or nearly 2 times the district’s gains, mainly in uncollected tax revenue on HPH, IPK and small-scale logging (Table 35).

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Table 35. Revenue collection and loss in the forestry sector in East Kutai, 2003 (in Rp billion)

Revenue collected Revenue lost

HPH/IPK

PSDH 17.1 23.4 DR 46.5a 63.5

Small-scale logging teams

PSDH 0 10.5

DR 0 28.6

Informal tax 2.1 0

Sawmills and moulding

Informal tax 3.4 0

TOTAL 69.1 126 Note: a The amount of DR revenue gained is based on the approximation that about 31 percent of the total DR revenue generated from 341,547 m3 of logs officially subject to other (i.e. PSDH) taxation was transferred to East Kutai. The key points emerging from the gain/loss analysis East Kutai’s forestry sector in 2003 are as follows:

� Revenue collected (including informal fees, or bribes) was Rp 69.1 billion � Without informal fees, the official revenue was Rp 63.5 billion

� The informal fees (or bribes) extracted from the forestry sector were at least Rp

5.6 billion. This figure is likely a gross underestimate as it is based on informal taxation on logs and sawn timber in select parts of East Kutai only

� The revenue lost, in the form of uncollected DR, PSDH taxes from licensed and

unlicensed logging operations, was Rp 126 billion. As in Berau, this amount is not literally lost. A good part of it is appropriated by individuals and government institutions in position to do so

� The lost forestry revenue is equal to about one-seventh of the total district budget,

which is dominated by the income from mining (oil, natural gas, coal)

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8.2. Impact of illegal forest activities on livelihoods in Berau and East Kutai

In the context of livelihood strategies, the main significance of logging and woodworking industries in Berau and East Kutai is in created employment opportunities. BERAU DISTRICT HPH and IPK logging According to official statistics, in 1999/2000 HPH and IPK operations in Berau supported 1,363 jobs (Dinas Kehutanan Kalimantan Timur 2000:46). Of these, 1,166 were permanent jobs, 32 daily jobs and 165 output based jobs (borongan). If these employment figures are linked to the production by HPH and IPK license holders in Berau in 1999/2000 (1,147,072 m3), it means that each HPH and IPK employee was associated with the production of 841 m3 of logs per year. If this employee/production ratio is assumed as constant, it is possible to approximate the fluctuation of HPH/IPK labor over the last few years (Figures 6, 7 and 8). Figure 6. HPH and IPK employment in Berau, 1999/2000-2003

0

200

400

600

800

1,000

1,200

1,400

1,600

1999/2000 2001 2002 2003

Jobs

BoronganDailyPermanent

Source: Dinas Kehutanan Kalimantan Timur 2000

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Figure 7. HPH-related employment in Berau, 1999/2000-2003

0

100

200

300

400

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600

1999/2000 2001 2002 2003

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BoronganDailyPermanent

Source: Dinas Kehutanan Kalimantan Timur 2000 Figure 8. IPK-based employment in Berau, 1999/2000-2003

0

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800

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1,200

1999/2000 2001 2002 2003

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BoronganDailyPermanent

Source: Dinas Kehutanan Kalimantan Timur 2000 The number of jobs created by the licensed logging sector in Berau has never been great. The logging jobs peaked at about 1,400 in 2001 and since then they have declined rapidly. The fall in the number of logging jobs has been caused by two factors: 1) declining number of active HPH concessionaries and 2) phasing out of IPPK/IPKTM district logging permits. As a result, the significance of logging-related employment in Berau is small within the framework of the district’s economy. In 2002, for instance, the total of 893 HPH/IPK jobs constituted only about 2.7 percent of

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the employment in Berau’s agricultural sector17, or merely 1.5% of the district’s total employment (BPS Berau 2002). While the number of logging jobs has been small and is falling, such jobs could still be a useful source of employment for the rural population. However, their utility is limited by by the fact that 85.5% of logging jobs in Berau are permanent jobs, while only 14.5% is either borongan or daily output-based employment. The borongan and daily employment are the employment categories usually accessible to the local people (in situ population, villagers). However, between 1999/2000 and 2003, borongan and daily employment generated by HPH and IPK license holders in Berau ranged from the high of only 216 jobs (2001) to the low of 67 jobs (2003) only. The majority of permanent jobs are “skilled jobs”, meaning they are held by the outsiders (town-based population, immigrants). As a result, HPH/IPK logging is not a significant source of employment for the rural population in Berau. HTI plantations Employment opportunities generated by HTI timber plantations are negligible. As of 2003-2004, HTI operations in the district reportedly supported about 250-300 jobs annually18. Small-scale logging teams In 2003, small-scale logging teams operating in Berau employed around 3,000 people. This is far more jobs than the number generated either by HPH/IPK logging, HTI plantation operations or both. The operations of small-scale logging teams have been intensifying in the district over the last few years. In 2000, it was estimated that such teams hired just over 2,000 loggers, producing around 200,000 m3 of wood annually (Obidzinski et al 2001). By 2003, the number of jobs linked to small-scale logging increased to approximately 3,000. The growth of employment in small-scale logging teams can be attributed to a number of factors:

� Work opportunities in small-scale logging are a welcome alternative (or supplement) to the nearly non-existent employment in the formal logging sector (HPH, IPK)

� Work arrangements are flexible – i.e. people can work a few months a year, whenever

they have spare time from other tasks or as an alternative income option if other sources of subsistence (agriculture, trade etc) fail

� Working as a small-scale logger can be financially rewarding if operations run smoothly

� Rising demand for timber within Berau, particularly in urban areas around Tanjung Redeb

17 Agriculture in Berau consists of food crops, plantation estates, fisheries, husbandry and forestry. 18 Interviews with Tanjung Redeb Hutani and Sumalindo Lestari Jaya I staff, April-July 2004.

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Wood-working industries When Kiani Kertas pulp and paper mill was opened in Berau in 1997, there were high hopes that the mill would become a major source of employment for the district’s population. The mill project did create a lot of jobs during the 4-year construction period (1993-1997), stimulating annual in-migration of up to 10-20% of the district population (Pemkab Berau 2001:14). Once Kiani Kertas became operational, the employment available at the mill site settled at around 1,410 workers (385 in production operations, 518 in maintenance and 507 in site services) (Botha 2002:42). While this is still a substantial pool of jobs, its main limitation is that approximately 70 percent of the employment (987 jobs) at Kiani Kertas are skilled positions for which Berau residents are unlikely to qualify (Botha 2002:42). This means the remaining 423 unskilled jobs are the only employment opportunities Berau residents are likely to obtain per year. In 2003-2004, the unlicensed woodworking sector – sawmills and moulding mills – annually employed 393 people. The timber kiosks provided employment for about 124 people. The construction of wooden ships, boats etc additionally absorbs about 256 people each year in the district (Table 36). Table 36. Employment generated by licensed and unlicensed forestry sector in Berau, 2003/2004 Employment Licensed logging sector

HPH/IPK 434 HTI 250-300

Unlicensed logging sector Small-scale logging teams 3,000

Licensed woodworking sector Kiani Kertas pulp and paper mill 1,410 (70 percent are skilled jobs)

Unlicensed woodworking sector Sawmills, moulding 393 Timber kiosks 124 Ship-building 256

Total licensed forestry sector (logging + woodworking)

2,094-2,144

Total unlicensed forestry sector (logging + woodworking)

3,773

Total forestry sector (licensed + unlicensed) 5,867-5,917 The important points emerging from the table above are as follows:

� Employment generated by unlicensed logging teams is over four times the size of licensed logging

� The licensed woodworking sector’s labor force is twice the size of employment in the

unlicensed woodworking sector, mainly due to the size of Kiani Kertas pulp and paper mill

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� However, in terms of unskilled jobs, the unlicensed woodworking provides nearly twice as many jobs as Kiani Kertas

� The unlicensed forestry sector is nearly twice the size of the licensed one, interms of jobs

EAST KUTAI DISTRICT HPH and IPK logging According to the provincial statistics, in 1999/2000 HPH and IPK logging operations in East Kutai generated 2,237 jobs19 (Dinas Kehutanan Kalimantan Timur 2000:46). Of those, 1,084 were permanent jobs, 570 daily jobs and 583 output based jobs (borongan). If these employment figures are linked to the production by HPH and IPK license holders in East Kutai in 1999/2000 (339,902 m3), it means that each HPH and IPK employee was associated with the production of 152 m3 per year. Assuming this employee/production ratio as constant, the HPH/IPK employment dynamics can be illustrated as follows (Tables 9, 10 and 11). Figure 9. Logging-based employment (HPH, IPK) in East Kutai, 1999/2000-2003

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

1999/2000 2001 2002 2003

Jobs

BoronganDailyPermanent

Source: Dinas Kehutanan Kalimantan Timur 2000

19 In 2000, the District of East Kutai did not exist yet and the administration of the province’s forest was still in the hands of the branches of the provincial forestry service (CDK, Cabang Dinas Kehutanan). The area of today’s East Kutai District comprised 2 CDK: CDK Sangkulirang and a part of CDK Mahakam Ilir. The logging employment figures for Mahakam Ilir for 1999/2000 are not available. As a result, the estimate of production/employment ratio (m3/person) in 1999/2000 for the present-day East Kutai is based on the figures for CDK Sangkulirang only.

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Figure 10. HPH-related employment in East Kutai, 1999/2000-2003

0

500

1000

1500

2000

2500

3000

3500

1999/2000 2001 2002 2003

Jobs

HPH BoronganHPH DailyHPH Permanent

Source: Dinas Kehutanan Kalimantan Timur 2000 Figure 11. IPK-related employment in East Kutai, 1999/2000-2003

0

500

1000

1500

2000

2500

3000

3500

4000

4500

1999/2000 2001 2002 2003

Jobs

IPK BoronganIPK DailyIPK Permanent

Source: Dinas Kehutanan Kalimantan Timur 2000 In comparison to Berau, the number of jobs created by licensed logging in East Kutai is significant. The logging jobs of this kind peaked at over 7,000 jobs in 2002 and stayed well above 5,000 in 2003. HPH employment was strong on its own until the end of 2001. The subsequent decline was offset by a spectacular growth of IPK jobs, which increased from just over 800 jobs in 2001 to more than 3,800 in 2002. To a significant degree this growth was fueled by a tendency among HPH concessionaries to switch to much less legally-demanding IPK operations. The decline of HPHs and the growth of IPK logging jobs is associated with the emphasis East Kutai is placing on the development of agro-business/agro-industry sector (mainly oil palm), for which it has allocated 1.3

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million ha of land. However, forest clearing cannot be sustained in a long term. As a result, IPK employment (and logging employment as a whole) is certain to decline in East Kutai over the next few years. Within the framework of the district’s economy, logging related employment in East Kutai is not very significant but much more so than in Berau. In 2002, for instance, the total of just over 7,000 HPH/IPK jobs constituted about 6.5% of the district’s total employment (BPS Kutai Timur 2002). As important as the numbers is the structure of logging-related employment in East Kutai. On average, about 51.5 percent of all jobs are borongan or daily output-based employment. As borongan and daily employment categories are most accessible to the locals, in 2003 approximately 2,600 HPH/IPK jobs were available to the rural East Kutai residents. This is a significant source of employment for the rural population in the district. Small-scale logging The study in Wahau-Kombeng has shown there are at least 580 people (55 teams) working on the annual basis in small-scale logging in the area. These teams feed the local woodworking sector, which is comprised of 31 sawn timber/moulding mills. Since the official district records enumerate 47 other mills in the district (plus the fact that the sawmill centers of Sebulu and Bengalon/Sangkulirang have at least as many unregistered sawmills each as Wahau-Kombeng), there could be well in excess of 2,000 people working in small-scale logging teams throughout the district on annual basis. Woodworking sector (licenced and unlicenced) The woodworking sector in Wahau-Kombeng annually employs about 171 workers who produce 105,000 m3 of sawn timber and moulding. Based on this production/employment relationship (615 m3 per person per year), it could be approximated that the reported sawn timber production of 58,561 m3 in 2003 would generate about 95 jobs annually. It may be that the intensity of production in Wahau is higher than elsewhere in East Kutai and therefore it may not be representative of the district as a whole. However, the 2003 sawn timber production figures for East Kutai come from 24 reporting mills only. Since the official records enumerate 47 mills in the districts other than those in Wahau-Kombeng, as well as the fact that the sawmill centers of Sebulu and Bengalon/Sangkulirang have at least as many unregistered sawmills each as Wahau-Kombeng, there may be well over 100 woodworking mills operating in East Kutai, employing 600-700 people.

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Table 36. Employment generated by licensed and unlicensed forestry sector in East Kutai by category, 2003/2004 Employment Licensed logging sector

HPH/IPK 5,319a

Unlicensed logging sector Small-scale logging teams 2,000b

Licensed woodworking sector Reporting woodworking mills 95

Unlicensed woodworking sector Other sawmills, moulding 505-605c

Total licensed forestry sector (logging + woodworking) 5,414 Total unlicensed forestry sector (logging + woodworking) 2,505-2,605 Total forestry sector (licensed + unlicensed) 7,919-8,019 Source: CIFOR survey 2004. Note: a About 74 percent of these jobs (or 3,953) were generated by IPKs; b This is an extrapolation from the situation in the Wahau-Kombeng area where 55 logging teams (about 550 loggers) annually supply 210,000 m3 of logs to 31 sawmills that produce 105,000 m3 of wood products; b This is an extrapolation from the situation in the Wahau-Kombeng area, where 31 sawmills employ 171 people and annually produce 105,000 m3 of wood products (production/employment ratio: 615 m3/person/year). The important points emerging from the table above are as follows:

� Licensed logging operations (HPH/IPK) are by far the most dominant source of employment in the forestry sector

� About 74 percent (or 3,953) of licensed logging jobs come from IPK enterprises. Since

these are short-term land-clearing operations, this pool of jobs is likely to be available for a few years only

� HPH jobs (1,366) are significantly outnumbered by unlicensed logging operations

� The licensed (reporting) woodworking sector’s labor force is very small – 95 jobs

� The not-reporting (illegal) woodworking sector is 5-6 times the size of the reporting one

� The licensed forestry sector is more than twice the size of the unlicensed one, again

primarily due to disproportionately large number of short-term IPK jobs 8.3. Impact of illegal logging on environment in both districts BERAU DISTRICT The impact of both licensed and unlicensed forestry activities is having a negative impact on Berau’s forests, soil and water resources, although opinions are divided about the severity of the problem.

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In 2001-2002, the EU’s BFMP (Berau Forest Management Project) project estimated the amount of forest lost in the district between 1997 and 2000 was approximately 127,500 ha, translating into the annual deforestation rate of 42,500 ha (Steenis 2001; Mantel et al 2002). The significance of this figure can be considered from the point of view of the history of forest cover change in Berau, or by placing it in the context of the current forest cover in the district. If viewed historically, there is indeed a cause for concern. Prior to 1997, it took about 27 years (1970-1997) for 127,500 ha of forest to be deforested. After 1997, the same area was lost only within 3 years, pointing to a significant acceleration in deforestation rate in the district (Figure 12). Figure 12. Deforestation in Berau 1997-2000

Source: www.bfmp.or.id If viewed against the background of the overall forest cover in Berau, officially estimated at 2.2 million ha in 2002 (BPS Berau 2002), the reported 42,500 ha in annual forest loss amounts to approximately 1.91 percent in annual deforestation rate. A more recent study in the concession area of PT Hutan Sanggam Labanan Lestari (formerly a part of Inhutani I) reported that between 1996 and 2000 deforestation rate in this part of Berau was about 1.71 percent per year (Dahal et al 2002; Yijun and Atmopawiro 2003). According to the official forestry statistics, large-scale concession logging operations in Berau extract about 22 m3 of timber per ha (Dinas Kehutanan Kalimantan Timur 2000). This means the

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total 2003 log production in the district (521,965 m3) would have been generated from at least 23,713 ha of forest. As small-scale logging teams extract only about 10 m3 of timber per ha, their 2003 production (350,000-380,000 m3) would have come from between 35,000 and 38,000 ha of forest. Cumulatively, it could be assumed with a reasonable degree of confidence that between 58,713 and 61,713 ha of forest in Berau is annually affected by logging, both licenced and unlicenced. This area constitutes between 2.7 and 2.8 percent of the total forest cover in the district. While well below the dangerous levels of deforestation in other parts of East Kalimantan or Sumatra, what makes this figure potentially dangerous is in clustering of such logging activities. Concentrations of small-scale illegal logging activities along passable roads, particularly in lower parts of the Segah watershed, Berau River and Talisayan seaboard, result in locally high pressure on the forest. This contributes to soil erosion, river sedimentation and the risk of flooding (Mantel 2001:11). This is particularly the case in the middle and lower parts of the Segah (and to a lesser extent Kelay) watersheds. The sedimentation of the Segah and Berau Rivers, key to Berau’s water-based transportation and trade, has been increasing over the last several years as well20. In the dry season, the district’s port often becomes inaccessible to larger vessels. With the planned development of a new port in Berau, dredging of the main river corridor from Tanjung Redeb to Berau’s delta will become a regular necessity. EAST KUTAI DISTRICT East Kutai district is facing far more serious deforestation and forest degradation problems than Berau. As of 2002, there were at least 890,403 ha of degraded forest in the district, of which 690,000 ha were located in the Production and Limited Production Forest and 200,000 ha in conservation areas (BPS Kutai Timur 2002). The man-made forest fires have historically been a major force behind destruction and/or degradation of the forest in East Kutai. The 1982/83 fires caused mainly by negligent HPH operations razed hundreds of thousands of hectares in parts of the Mahakam basin as well as on the coast. Although not nearly as extensive, the 1997/98 forest fires also consumed large areas of the forest. In addition to the Mahakam basin, among particularly negatively affected was the Wahau area in the western part of East Kutai. Vast tracts of HTI plantations in Wahau (PT Kiani Lestari, PT Barito Pacific, PT Sumalindo) were consumed by flames as well as large areas of adjacent natural forest. To this day, the Wahau area as well as the region between Wahau and Bengalon on the coast is covered by hundreds of thousands of hectares of burnt stumps. The largest conservation area in East Kutai, the Kutai National Park, is steadily deteriorating. Established in the early 1990s, the park’s original area was 198,628 ha. In 2000, only about 62,205 ha still had undamaged forest cover (Kompas 2004b). The park has been destroyed by a combination of factors, including: migrant settlements, HPH logging, HTI development, small-scale logging and exploration for coal deposits. As the Kutai National Park is nearing the state of 20 Interviews with district port authorities in Tanjung Redeb, May-September 2004.

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destruction, district officials (Bupati) have been considering writing off the remaining 50,000-60,000 ha and focusing conservation efforts elsewhere (Kompas 2005). The other factor behind the forest loss and forest degradation in East Kutai is land clearing by IPK enterprises. The expansion of IPK logging over last few years is directly related to East Kutai’s plans to become the center of agro-business and agro-industry in East Kalimantan. To accomplish this, the district authorities plan to clear 1.3 million ha of land/forest for large-scale plantations, mainly oil palm (Kompas 2004a). As a result, IPK licenses are continuing to be issued by district authorities (even though the central government regulations prohibit this) and the allocated forest areas to be cleared are large. East Kutai’s forest is also threatened by HPH operations. A prime example of this is the activities of PT Essam Timber. In 1992, PT Essam Timber, a subsidiary of the Kalimanis Group, was granted a 350,000 ha HPH concession that borders with East Kutai, but is located in the southern part of Malinau District. The only feasible way to access the concession and extract timber was to link it by road to Muara Wahau in East Kutai. Unfortunately, Essam’s concession was separated from Wahau by the extensive Belayan-Klinjau-Telen protection forest. Without much trouble, however, the company was given a special permission by the provincial and national forestry authorities to construct a corridor road through the protection forest. While the road link permit might be a product of the New Order forestry politics, the road was completed in 2000 (well into the reformasi and decentralization period) and it is surprising how little attention and/or external scrutiny this project has attracted. The Essam road is nothing short of a mega project and it has serious environmental implications. The company worked for 5 years to complete the 200 km corridor road. The road cuts through one of the last (and largest) pristine areas of sub-mountaine and mountaine forest in East Kutai (and East Kalimantan as a whole). In some parts it reaches the elevation of over 2,100 meters above the sea level. The concession is currently stagnant but by constructing the road it has opened this fragile region to intrusion by commercial NTFP (gaharu, gall stone) collectors, gold miners, bushmeat hunters etc. Since Essam’s HPH concession has been non-active for over 2 years now, technically its license could/should be withdrawn. As this is unlikely to happen, the activities of PT Essam Timber should be closely watched to monitor the risks this company posses to this vast and fragile region. 8.4. Factors facilitating illegal forest activities in Berau and East Kutai

and how to mitigate them The main driving force behind illegal forest activities (logging, woodworking) in Berau and East Kutai is their economic significance as a source of enormous rents – well over Rp 100 billion annually in each district. This huge pool of money is an important source for personal enrichment, as well as institutional budgetary augmentation, for various district government institutions, private companies and communities. This renders forestry a gold mine for rent-seekers, an unbeatable opportunity for quick enrichment for those who can take advantage of it. The vast riches available from illegal forest activities in Berau and East Kutai cause competition and conflict among the key players seeking to benefit from them – e.g. District/Province Police, District/Province UPTD, District Forestry Bureau and other institutions. Constantly maneuvering to

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maximize their respective shares, these parties engage in shifting alliances to undermine the opponent(s) in whichever way possible. The scramble for rents from illegal forest activities hampers the cooperation between different government institutions in Berau and East Kutai and fundamentally undermines forest governance in both districts. From the livelihoods perspective, illegal forestry sector (logging and woodworking) is an important source of employment in both districts. The unlicensed logging by small-scale logging teams in Berau is nearly four times the size of licensed logging; unlicensed woodworking provides nearly two times as many unskilled jobs as the licensed one. Overall, the unlicensed forestry sector in Berau is nearly two times the size of the licensed one. Similarly, in East Kutai the unlicensed forestry sector is an important provider of jobs in the rural parts of the district. The employment generated by illegal forest activities (in the addition to economic rents) is a major obstacle preventing these illegalities from being seriously tackled by the law enforcement authorities. Environmentally, illegal forest activities are posing a serious threat to forest resources in both districts, but little as yet is being done to contain it. In Berau, deforestation is understood as a potential problem, but there is little urgency to do anything (unless forest fires, flooding, soils erosion and river sedimentation take a dramatic turn for worse), as Berau’s forests are still generally perceived to be in comparatively good condition. In East Kutai deforestation and forest degradation are far more severe, but there is a sense in the district that not much can be done but write off the already damaged or degraded forest areas and focus on agro-development and conservation in the remaining remote forest areas. The findings of this project indicate that in order to counter the illegal logging problem in both districts, a concerted effort on a range of fronts is necessary to even the disparity between the benefits of illegal forestry activities and costs/risks associated with them (including stricter monitoring, prevention and enforcement measures by the security apparatus and judicial system). However, such measures alone are unlikely to succeed because the benefits from illegal forestry activities, vast rents generated through misappropriation, under-collecting or non-collecting of the official forestry tax revenue, far outweigh the risks (applicable legal sanctions) or other costs (environment). In order to narrow the gap between the costs and benefits of illegal forest activities in both districts, the official detection, prevention and suppression measures need to be complemented by a range of other initiatives pursued simultaneously:

1) Maintain the spotlight on a difficult, yet critical, issue of restructuring the enormous overcapacity of Indonesia’s woodworking industries which drives the insatiable demand for logs

2) Operationalize bilateral agreements between Indonesia and timber importing countries to eliminate illegal timber trade

3) Generate incentives for Indonesian timber producers to adhere to the legal standard through tenure security and certification schemes

4) Help synchronize the forestry legal framework and strengthen tenure security for local communities

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5) Support grass-root movements to pressure for greater accountability and transparency in the district forestry sector.

Making the on-going detection, prevention and suppression operations by the government’s law enforcement agencies work in tandem with these additional initiatives and the grass-root pressure factor would result in a more potent tool with which to limit illegal logging and other illegal forest activities in both districts.

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APPENDIX 1 Administrative map of East Kalimantan Province

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APPENDIX 2 Berau District

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APPENDIX 3 Forest concession companies in Berau and East Kutai

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APPENDIX 4 Overlap between forestry and mining opetrations in Berau

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APPENDIX 5 Talisayan sub-district

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APPENDIX 6 PT Karya Lestari Jaya

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APPENDIX 7 PT Berau Timber

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APPENDIX 8 PT MSK Timber

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APPENDIX 9 PT Taurus

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APPENDIX 10 Berau and the northern part of East Kutai districts