Big UK banks put in millions
Special report: paper
Paul Brown and John Aglionby in Jakarta Tuesday June 26, 2001 The Guardian
Asian Pulp and Paper is caught in a vicious circle. Because it has used relatively cheap timber culled from the rainforests, it has been able to undercut competitors and so depress the global paper market. But now it finds itself with huge debts, in part caused by this depressed market. It is having to service the deficit by driving up production - and cutting down more trees. When all the Indonesian forests are gone, there could be a world paper shortage and spiralling prices.
APP has international debts of £8.5bn, and its share price plummeted from £5 to 8p before dealing was suspended. Normally bankruptcy would quickly follow this situation, but a financial conjuring trick by the Indonesian government has kept APP afloat.
The government took over the local bank to which APP owed most money, making it the preferential creditor. Investors would get little or nothing if they forced the company into bankruptcy.
As a result APP can go on cutting forests until it runs out of trees. According to Science magazine: "If the current state of resource anarchy continues, the lowland forests of the Sundra shelf, the richest forests on earth, will be destroyed by 2005 in Sumatra."
Prominent in the destruction is the APP subsidiary In dah Kiat, the vast paper and pulp plant which is accused of getting large quantities of cheap timber supplies by clear cutting tropical rainforest.
One Indah Kiat supervisor told the Guardian: "There's no hurry to use more sustainable wood because that's more expensive to process. So we are using tropical hardwood and not asking too many questions about how legal it is."
British investors are among those who have ploughed money into APP. NatWest led a syndicate to provide £50m for companies within the APP group, and its current lending remains at £7m. A Friends of the Earth report, Paper Tiger: Hidden Dragons, claims that Barclays arranged a £430m loan in September 1990. The bank has refused to comment.
Legal and General has holdings worth £120,000 in Indah Kiat and another subsidiary, Tjiwi Kimia, but is to review them. London-based Newton Investment Management is reported to be the 19th biggest shareholder in APP, with stock worth £1.4m - it refused to comment.
Ed Matthew, Friends of the Earth forests campaigner, said APP's trouble "would never have reached this stage if international investors had not put money into the company so it could go on building bigger plants.
"This led to them clear cutting even more rainforest, so flooding the market with cheap paper. Because the paper is so cheap the company has not been able to pay its debts, creating a vicious circle of more destruction and more debt."