Palm Oil Nepotism Adds Fuel to Disaster
10/13/97
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Headline: Palm Oil Nepotism Adds Fuel to Disaster
Source: Australian Financial Review
Date: 10/13/97
Australian Financial Review, Monday, October 13, 1997
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PALM OIL NEPOTISM ADDS FUEL TO DISASTER
President Soeharto and his family are the most reluctant to make the
necessary sacrifices because of their business interests, contends George
J. Aditjondro.
Last week, Indonesian President Soeharto called for the International
Monetary Fund to patch Indonesia's financial system, after the rupiah
suffered a dramatic 20 per cent plunge over the previous two weeks. But who
will fight the forest fires which have been raging since July in many of
the main islands of Indonesia, at the same time as the rupiah's exchange
rate began its dramatic plunge?
In this case, is not only a problem of extinguishing the fire. It is a
matter of halting the alarming rate of tropical deforestation in Indonesia.
In this case, nobody has more power than Soeharto himself. Yet the
President, two of his brothers, five of his children and one grand-child
are the most reluctant to make the necessary sacrifices, due to their
logging operations, oil palm plantations, a mega-project to convert 200,000
Ha of peat swamps in Central Kalimantan into rice fields for transmigrants
from overcrowded Java, coal mines, pulp and paper production, as well as
palm oil marketing.
Many of those companies were targetted when the Forestry Department issued
a list of 176 companies, which had fires burning on their properties. On
October 3, licences were revoked for 29 of those companies, since they
still had not managed to extinguish those fires. Several companies in
Kalimantan owned by Soeharto's charities and managed by the timber tycoon
Bob Hasan were among those 29. So were companies from the Raja Garuda Mas
(RGM) Group in Sumatra, owned by another business man, Sukanto Tanoto, who
also has joint ventures with Soeharto's children and in-laws.
The initial Forestry Department blacklist indicates the major culprits of
tropical deforestation in Indonesia since the New Order began in 1967. Most
are plantation companies, mostly rubber and oil palm, followed by timber
estates to grow the raw material for pulp and paper factories. And a
smaller group of land-clearing contractors for transmigration schemes
exposed tens of thousands of hectares of peat soil, which sprang into
flames in the heat of the fires from neighbouring forests and plantations.
Oil palm illustrates the power of Indonesia's First Family, since three
generations of the Soeharto family are involved this lucrative business. It
began in the mid-1980s, through a joint venture of the Salim and Sinar Mas
Groups, which involved Soeharto's eldest son, Sigit Harjojudanto, his
youngest brother, Tommy Soeharto, and Soeharto's cousin, Sudwikatmono.
In the late 1980s, Salim and Sinar Mas split their joint venture and each
group developed their own crude palm oil (CPO) division. The Soeharto
family interests were still represented in both groups, especially in Salim
Group, where apart from Sudwikatmono, two Soeharto siblings, Sigit
Harjojudanto and Siti Hardiyanti Rukmana, are major shareholders in the
group's Bank Central Asia (BCA).
In the meantime, Sinar Mas developed its edible oil division in
co-operation with Soeharto's second son, Bambang Trihatmojo, who is also a
minor shareholder in a plantation company of another conglomerate close to
the First Family, the Bakrie Brothers.
Bambang's younger sister, Siti Hediyati Hariyadi, also got involved in this
business. She and her brother-in-law, Hashim Djojohadikusumo, formed a
joint venture with a Sino-Malaysian tycoon, Robert Kuok, to open a 44,000
Ha oil palm plantation in South Sumatra in 1994.
This is when the third generation came into the picture. A company owned by
Sigit's eldest son, Ari Harjo Wibowo, received a quota from the Indonesian
Logistics Board (Bulog) to market 70,000 tonnes of crude palm oil a month,
more than the crude palm oil marketing quota for Salim jointly with Sinar
Mas.
Ari, however, not only wanted to sell other companies' palm oil but wanted
to manage his own plantations. So, the Transmigration Minister gave him a
contract to develop an 80,000 Ha oil palm plantation in East Kalimantan,
using transmigrants as "captive labour."
Capital was no problem for Ari, as grand-uncle Sudwikatmono would lend to
him from Salim's cement factory. And with his First Family connections in
March 1996 Ari signed a memorandum of understanding with a Pakistani
trading corporation to export US$ 1.24 billion ($ 1.7 billion) worth of
crude palm oil to Pakistan.
This oil palm (family) story and the cancerous growth of plantations,
timber estates, and mining operations in primary forest land indicate the
extent of nepotism of the Soeharto family and its effect on Indonesia's
economy and ecology.
This nepotism has often been justified by playing on Indonesian
nationalism, by making the people proud of becoming "the largest plywood
producer", then "the largest paper and pulp producer", and eventually "the
largest oil palm producer" in the world. But this misplaced nationalistic
pride has contributed to Indonesia's growing public and private debts, as
well as to the displacement of tens of thousands of local farmers and
tribal communities by the logging concessions, timber estates, and other
mega-projects. And it may also boomerang on the Australian economy and on
Australian consumers.
The most immediate effect will be on edible oils. As mentioned, most
companies on the Forestry Department blacklist are plantations which were
growing, or at least were supposed to grow, oil palm. Most of them were
members of the Sinar Mas and Salim Groups, or were involved in marketing
arrangements with Sinar Mas, Salim, or Ari Haryo Wibowo's Arha Group.
This will affect Goodman Fielder's edible oil supply from Indonesia. This
largest Australian food producer has two 50:50 joint ventures with Sinar
Mas: one in cooking oil and the other one in snack foods, a total
investment of $ 47 million. The first joint venture produces the well-known
brands of cooking oil and margarine, Meadow Lea and Mother's Choice.
The Indonesian forest fires will force Goodman Fielder -- and so ordinary
Australian consumers -- to pay more for their palm oil-derived margarine,
cooking oil, and soap. As an oil palm marketing manager told the Business
Times in Singapore, last week, the haze will shrink yields more after the
natural three-month cyclical fall in production. Oil palm needs sunlight
and rain. The prolonged drought caused by El Nino and the lack of sunlight
due to the smog will take their toll on yields in six months time, so he
predicted.
The second commodity in Australia which may be hit is paper. The
second-largest group of forest fire culprits are the timber estates which
were developed to produce the raw material for Indonesia's growing paper
and pulp factories. The two largest paper and pulp producers in Indonesia
are Raja Garuda Mas and Sinar Mas, which have listed their paper and pulp
offshoots in Singapore and New York, respectively, as APRIL (Asia Pacific
Resources International) and APP (Asia Pulp & Paper).
With their domestic and overseas mills, these two Indonesian paper tigers
have assaulted the Australian market. An Amcor subsidiary, Dalton Fine
Paper, is the agent for APP copy paper, while a 42% per cent subsidiary of
Amcor, Spicer Paper, is a full range agent for APP. In the coming months,
however, the Indonesian assault on the 15,000 tonne paper market in
Australia may be slowed by the losses from the burned plantations in
Indonesia, which have to be cleared and planted with new seedlings.
In the meantime, the ordinary people still have to suffer from the
increasing prices due to the plunging rupiah, the foul air left behind by
the forest fires, the landslides from denuded hillsides in the coming
monsoon rains,the increasing prices of cooking oil and margarine, and the
increasing prices of paper -- a major problem for tens of millions of
school kids.
Dr. George J. Aditjondro is an Indonesian environmentalist who teaches at
the Department of Sociology and Anthropology at the University of
Newcastle.