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Forestry Sector Employment in Indonesia’s Riau Province

Krystof Obidzinski and Christopher Barr July 2005

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EXECUTIVE SUMMARY
This study analyses forestry sector employment in Indonesia’s Riau province in 2001. Based on official statistics and survey data, it estimates that some 86,500 workers were employed in Riau’s forestry sector in that year. Of these, approximately 38,000 workers were engaged in commercial timber extraction or pulpwood production, while just over 48,500 were involved in wood processing activities at plywood, sawnwood, or pulp and paper mills. Table A-1 summarizes the study’s findings related to direct employment in commercial timber extraction or pulpwood production. HTI pulpwood plantations accounted for approximately 48 percent of the overall employment in log production, with over 17,700 workers involved in planting 55,000 ha of Acacia plantations and harvesting 3.9 million m3 at existing plantation sites. Approximately 14,400 workers – or 38 percent of the total - were involved in harvesting 13.9 million m3 of roundwood from undocumented sources, accounting for roughly two-thirds of the logs produced in the province. Reported IPK land clearing activities employed just under 3,800 workers (or 10 percent of the total), while HPH logging concessions employed over 2,000 workers (or 5 percent of the total). Table A-1: Direct Employment from Commercial Timber and Pulpwood Production in Riau Province, 2001
Subsector Log Production (m3) Area Planted (ha) Direct Employment Percent of Total (%)

HPH Logging Concessions IPK Land Clearing Undocumented Log Production HTI Pulpwood Plantations Total

113,065 3,656,686 13,944,089 3,935,000 21,648,840

0 0 0 55,000 55,000

2,032 3,782 14,396 17,784 37,944

5.3 9.9 37.9 47.9 100.0

Table A-2 summarizes the study’s findings related to direct employment in wood processing. Over 26,500 workers were directly employed by the province’s 13 plywood and wood working mills, accounting for nearly 55 percent of all jobs in wood processing industries. Licensed sawmills and unlicensed sawmills generated 12,500 and 2,600 jobs, respectively, to account for over 30 percent of the total employment in wood processing. Riau’s two large pulp and paper mills – RAPP and Indah Kiat – together directly generated 6,480 jobs in 2001, representing 14 percent of the total.

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Table A-2: Direct Employment in Wood Processing Industries in Riau Province, 2001 Subsector Plywood and Wood Working Licensed Sawnwood Unlicensed Sawnwood Pulp and Paper Total Production 1,052,316 m3 1,187,364 m3 867,240 m3 3,150,000 Adt -Direct Employment 26,573 12,499 2,641 6,840 48,553 Percent of Total (%) 54.7 25.7 5.5 14.1 100.0

Key points to emerge from this analysis include the following: 1) Selective logging by HPH concession-holders was the largest source of timber production through the mid-1990s, but the HPH subsector is now in a process of rapid decline. Direct employment for Riau’s HPH subsector decreased from 8,455 employees in 1999 to 1,468 employees in 2001 – a drop of more than 80 percent over the preceding three years alone. 2) Forest conversion has risen sharply in recent years, and land clearing is now the dominant means of log production in Riau, accounting for up to 17.6 million m3 in 2001. This involved the clearing of approximately 135,000 ha and generated employment for over 18,000 workers. Land clearing activities typically generated employment for 134 workers per 1,000 ha – a far higher level of labor input per unit of land than either HTI pulpwood plantations or HPH selective logging concessions. However, employment generated by land clearing activities is shortterm in nature and inherently unsustainable. The degree of labor inputs involved in land clearing varies quite considerably depending on whether an area is being cleared in a manual, semi-mechanized, or mechanized manner. The conversion of 1,000 ha typically requires 440 workers if it is done manually; 96 workers if it is done with semi-mechanized operations; and 39 workers if done through mechanized operations. 3) Approximately 13.9 million m3 – or two-thirds of all logs harvested from Riau’s natural forests during 2001 – came from undocumented sources. A significant portion of this wood has been harvested by IPK land clearing permit-holders and informal land-clearing operations whose production levels are not fully reflected in statistics published by the Provincial Forestry Service. This implies that up to 14,400 workers, or nearly 40 percent of all those involved in log production in Riau, are working in what may be characterized an informal sector. 4) The HTI pulpwood plantation subsector has grown substantially over the past decade and is likely to continue to expand over the medium term to meet the fiber needs of Riau’s pulp mills. Some 13,200 workers were involved in the establishment of the 55,000 ha (net) of pulpwood plantations reported to have been planted in 2001. In addition, approximately 4,600 workers were then involved in

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managing approximately 200,000 ha (net) that had been planted during 1996-2000. These figures reflect the fact that labor inputs for pulpwood plantations are highly cyclical. The numbers of workers employed peaks in Year 1, when land clearing, site preparation, and planting occur; and again in Year 7, when harvesting and replanting are carried out. During the intervening years, particularly Years 3-6, employment drops sharply as relatively few workers are needed to manage the site. Management of the 55,000 ha (net) planted in 2001, for instance, is expected to have required approximately 3,200 workers in 2002 (Year 2) and fewer than 750 workers during 2003-2006 (Years 3-6). 5) Plywood production is undergoing a process of gradual decline, as the number of mills operating in the province has dropped from 18 to 12 since 1998. Nonetheless, in 2001 it remained the largest source of direct employment among Riau’s wood processing subsectors. The large number of workers employed by plywood mills – in some cases, as many as 3,100 at a single processing facility – suggest that the closure of individual mills can have a fairly significant impact in terms of job loss. Moreover, plywood production generates far more employment per unit of roundwood consumed than other wood processing industries. In 2001, Riau’s plywood and wood working mills employed, on average, 126 workers for every 10,000 m3 of roundwood they utilized. By contrast, licensed sawmills employed approximately 53 workers for every 10,000 m3 of logs consumed, while the province’s pulp and paper mills employed fewer than 5 workers for the same volume of roundwood input. 6) Licensed and unlicensed sawnwood production has grown in recent years. However, the industry’s production – and employment – levels are unlikely to be sustainable over the long term, as the industry draws much of its raw material supply from land clearing operations and illegal logging. In 2001, Riau had at least 600 sawmills, ranging in capacity from 500 m3 to 40,000 m3 per year. The numbers of employees range from less than 10 to 450 per mill, although the vast majority of mills employ fewer than 50 workers. The large number of licensed and unlicensed sawmills in Riau has made the industry difficult to regulate. At the same time, sawmills employ relatively small numbers of workers, so it is theoretically possible for government agencies to target closure of individual mills that are found to be operating illegally or in particular regions where overcapacity is a problem, without displacing large numbers of employees at those facilities. 7) Riau’s pulp and paper industry has undergone rapid expansion since the mid-1990s, as APP and APRIL have invested an estimated US$ 8.0 billion to build two of the world’s largest pulp mills in the province. As of 2002, Indah Kiat and RAPP each have pulp production capacities of 2.0 million tonnes per year; and together they consume over three-quarters of the province’s total roundwood production. In 2001, the two mills consumed 15.4 million m3 of roundwood to produce 3.1 million tonnes of pulp, with roughly three-quarters of this being harvested from natural forests while the remaining one-quarter came from the companies’ HTI pulpwood plantations. However, the industry is highly capital-intensive and 6,840

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workers were employed in processing this large volume of logs. The study finds that the pulp and paper industry generates direct employment of only 4.4 jobs in wood processing for every 10,000 m3 of pulpwood consumed. If related land clearing and plantation operations are included as well, it is estimated that Riau’s pulp and paper industry provided direct employment for some 36,574 workers in 2001. Most of these are unskilled or semi-skilled workers classified as either ‘daily labor’ or ‘target-based labor’, with wages ranging between Rp 435,000 and Rp 1.1 million per month (or US$ 550-1,450 per year). 8) These figures raise questions about the cost-effectiveness of further investments in pulp and paper production as a means of creating jobs in the forestry sector. On average, each job created in the pulp and paper industry and associated land clearing and plantations subsectors has required an investment of approximately US$ 218,000. At the same time, APP and APRIL have received considerable government subsidies through favorable debt restructuring agreements with stateowned banks and IBRA; lucrative tax incentives; and access to large volumes of low-cost wood through the clearing of natural forests. This study estimates that government subsidies of US$ 500 million could have provided jobs for 50,000 workers over 10 years had it been invested in public job creation initiatives. Similarly, subsidies amounting to US$ 1.0 billion could have created jobs for 100,000 workers over 10 years.

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TABLE OF CONTENTS
ACKNOWLEDGEMENTS Error! Bookmark not defined. EXECUTIVE SUMMARY TABLE OF CONTENTS LIST OF FIGURES AND TABLES GLOSSARY Forestry Sector Employment in Indonesia’s Riau Province with a Case Study of the Tesso Nilo Forest Complex defined. SECTION 1: Overview of the Study 1.1 Description and Objectives 1.2 Methodology 1.3 Limitations on Data 1.4 Organization of the Study SECTION 2: Forestry Sector Employment in Riau Province 2.1 Indonesia’s Forest Industry Restructuring Process 2.2 Overview of Riau’s Provincial Economy 2.3 Structure of Riau’s Forestry Sector 2.4 Estimate of 2001 Production Levels by Subsector 2.5 Employment From Timber and Pulpwood Production 2.5.1 HPH Selective Logging Concessions 2.5.2 Land Clearing by IPK Permit Holders 2.5.3 Undocumented Log Production 2.5.4 HTI Pulpwood Plantation Development 2.6 Employment from Wood Processing Industries 2.6.1 Plywood and Wood Working Mills 2.6.2 Licensed Sawmills 2.6.3 Unlicensed Sawmills 2.6.4 Pulp and Paper Production 2.7 Summary and Analysis 2.7.1 Direct Employment from Commercial Timber and Pulpwood Production 2.7.2 Direct Employment from Wood Processing i v vi viii 1 Error! Bookmark not 1 1 1 3 4 4 4 6 9 13 17 17 20 25 27 36 36 37 39 40 44 44 49

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BIBLIOGRAPHY

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LIST OF FIGURES AND TABLES
Figure 1: Map of Riau Province Table 1: Riau’s Forest Estate According to Functional Category, 1998 Table 2: Log Production by Source for 2001, as Reported by Riau’s Provincial Forestry Service Table 3: Estimated Roundwood Input by Riau’s Wood Processing Industries, 2001 Table 4: Estimated Volumes of Logs Harvested in Riau by Type of Wood and Source of Logs, 2001 Table 5: Reported Log Production by HPH Concessions in Riau, 1998-2002 Table 6: HPH Timber Concessions Active in Riau in 2001 Table 7: Cumulative Reported Log Production and Employment Figures for Surveyed HPH Timber Concession-Holders, 1999-2001 Table 8: Wage Structure at Surveyed HPH Concessionaires in Riau Table 9: Number and Area of IPK Land Clearing Permits in Riau, 2000-2002 Table 10: Official IPK Log Production Targets in Riau, 2000-2002 Table 11: Reported IPK Log Production in Riau 1999-2002 Table 12: Labor Inputs and Productivity Levels for Manual, Semi-Mechanized, and Mechanized Land Clearing Operations Table 13: Wage Structure at Surveyed IPK Land Clearing Sites in Riau Table 14: Unlicensed Logging at Four Major Forest Areas in Riau, 2001 and 2002 Table 15: Standard Labor Inputs for HTI Pulpwood Plantation Development in Riau Table 16: Labor Inputs for HTI Plantation Development of 55,000 ha (net) Over a 7-Year Harvest Rotation Table 17: Wage Structure at Surveyed HTI Pulpwood Plantations 8 9 13 16 16 17 17 19 19 20 21 21 22 25 26 31 33 30

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Table 18: List of Plywood Mills in Riau by Location and Production Capacity, 2000 Table 19: Production and Employment Levels for Surveyed Plywood and Wood Working Mills, 2000 and 2001 Table 20: Production and Log Consumption by Licensed Sawmills in Riau, 20002001 Table 21: Wage Structure for Licensed Sawmills in Riau, 2002 Table 22: Unlicensed Sawmill Production and Employment in Riau, 2001-2002 Table 23: Direct Employment at APRIL’s Riau Andalan Pulp & Paper Mill Complex Table 24 Basic Salary Structure for Operational Level Employees at PT Riau Andalan Pulp & Paper Table 25: Estimated Direct Employment at APP’s Indah Kiat Pulp & Paper Mill Complex Table 26: Direct Employment from Commercial Timber and Pulpwood Production in Riau Province, 2001 Table 27: Direct Employment Per Area of Land Utilized by Forestry Subsector in Riau, 2001 Table 28: Direct Employment in Wood Processing Industries in Riau Province, 2001 Table 29: Direct Employment Per Unit of Roundwood Consumed by Wood Processing Subsector in Riau, 2001

35 36 37 38 38 40 41 42 43 45 48 49

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GLOSSARY
Arahan Pengembangan Lain/Arahan Budidaya Non-Kehutanan (APL) APP APRIL CCA CGI Dinas Kehutanan Hak Pengusahaan Hutan (HPH) Hutan Produksi Hutan Tanaman Industri (HTI) IBRA IKPP Izin Pemanfaatan Kayu (IPK) Kabupaten Kanwil (Kantor Wilayah) Kawasan Hutan Kawasan Lindung Kawasan Pengembangan Kehutanan MTH Panglong RAPP Tebang Pilih dan Tanam Indonesia (TPTI) Area for Other/Non-Forestry Uses Asia Pulp & Paper Asia Pacific Resources International Ltd Core Conservation Area Consultative Group on Indonesia Provincial Forestry Service Selective logging timber concession Production Forest Industrial timber plantation Indonesian Bank Restructuring Agency Indah Kiat Pulp & Paper Land clearing permit District (sub-provincial governing unit) Ministry of Forestry’s Regional Forestry Office Forest Estate Protected Area Area for Forestry Development Mixed tropical hardwoods Manual logging system used in Riau Riau Andalan Pulp & Paper Indonesian Selective Logging and Planting System

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Forestry Sector Employment in Indonesia’s Riau Province

SECTION 1: Overview of the Study 1.1 Description and Objectives This study analyses employment dynamics in the forestry sector of Indonesia’s Riau Province, located in central Sumatra, during 2001. It documents the numbers of workers involved in various segments of the provincial forestry sector, including timber production from selective logging timber concessions; land clearing operations; pulpwood plantation development; and wood processing activities associated with the sawnwood, plywood, and pulp and paper industries. It also provides preliminary estimates of the numbers of workers involved in undocumented timber extraction in the province. The second portion of this study focuses specifically on forestry sector employment related to the Tesso Nilo Forest Complex, a proposed conservation area spanning 190,000 hectares (ha) in the south-central part of the province. A central objective of the study is to inform ongoing policy initiatives focused on downsizing and restructuring Indonesia’s wood processing industries. This process, which is largely occurring at the national level following Indonesian government commitments to the IMF and other international donor agencies, has potentially far-reaching implications for forestry sector employment in Riau and other forested regions of Indonesia. To date, however, policymakers have had little detailed information on the numbers of people directly employed in forestry activities, much less the numbers of indirect jobs created by the sector. This has made it difficult for them to estimate the numbers of workers that would be displaced by any significant efforts to close mills, or the tradeoffs in terms of long-term job creation of promoting expansion in some segments of the forestry sector while downsizing others. 1.2 Methodology This analysis of employment in Riau’s forestry sector principally focuses on measuring the numbers of workers directly employed by various segments of roundwood production and wood processing industries during 2001.1 The methodology used involved two main steps. First, production and employment data were collected from a sample of companies within each segment of the province’s forestry sector: HPH selective logging concessions; IPK land clearing operations; undocumented log production; HTI pulpwood plantations;
The study has focused on measuring forestry sector employment during 2001 because that was the latest year for which reasonably reliable information on production associated with the various subsectors could be obtained. When data collection for the study was conducted (December 2002 – February 2003), official statistics for 2002 had not yet been published, and many companies surveyed indicated that they had not yet formulated year-end production and employment statistics for 2002. An effort has been made to highlight within the narrative any important changes that are known to have occurred between 2001 and 2002.
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plywood and wood working mills; licensed sawmills; unlicensed sawmills; and pulp and paper mills. The principal objective of this exercise was to determine the relationship between production levels and the numbers of workers directly employed by individual producers within each segment. Data on origin of each company’s employees (i.e. ‘local’ vs.‘non-local’ origin) and on wage structures were also collected.2 Second, the production-employment ratio obtained from the sample in each subsector was then used to extrapolate total employment for all producers in the province. This extrapolation involved the multiplication of average productivity levels per worker from the sample companies by the total reported (or assumed) production levels from a particular segment of the provincial forestry sector. Overall production levels were generally obtained from official statistics; however, in some subsectors, it was necessary to work with figures reported by leading producers and/or informed estimates due to limitations on the availability and reliability of official data. In particular, this type of triangulation process was used to estimate overall log production levels in Riau, as the volume of roundwood production reported in the official statistics was known to grossly underestimate the actual volume of logs that were harvested during 2001. To obtain a reliable estimate of actual roundwood production, the reported and assumed volumes of logs consumed by the province’s wood processing industries were totaled, and this total was then dis-aggregated by log type (i.e. Acacia pulpwood; MTH pulpwood; and commercial logs harvested from natural forests). This resulted in the estimation that official statistics under-reported log production from Riau’s natural forests by 13.9 million m3. As the origins of this wood are unclear, this volume was classified as ‘undocumented timber production.’ In addition, the official statistics underestimate the volume of logs harvested from Acacia plantations by some 3.5 million m3, according to figures provided by the province’s two large pulp producers, APP and APRIL. Although unreported, this volume was included under ‘HTI pulpwood production’, as the origins of this wood seemed sufficiently clear. Field surveys for this study was carried out between December 2002 and February 2003. Due to the emphasis this study placed on Tesso Nilo, sample companies were largely selected from this area. In order to balance the picture, other forestry and wood processing companies were sampled from the north of Riau (Rokan Hilir District) as well as south (around Bukit Tigapuluh National Park) and southeast (Kerumutan). Estimates of production levels and numbers of employees involved in illegal logging and unlicensed sawmill operations throughout the province, and in IPK land clearing activities and licensed/unlicensed sawmills in the Tesso Nilo area were obtained from field surveys conducted independently by WWF staff based in Riau.

In this study, ‘locals’ were defined to be persons originating from and/or living permanently in Riau, while ‘non-locals’ were defined to be people whose origins or permanent residence is outside of the province of Riau. Most often, ‘non-locals’ came from the neighboring provinces of West Sumatra, North Sumatra, and South Sumatra.

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1.3 Limitations on Data In many places, the analysis presented in this study has needed to be qualified due the limited availability and highly variable quality of the data on forestry sector production and employment in Riau. Limitations on the availability and reliability of official forestry statistics can be attributed to a number of factors. First, no government agency at the national, provincial, or district level possesses a systematic data base on forestry sector employment. While the Ministry of Forestry’s Regional Office (Kantor Wilayah, or Kanwil) published employment figures for wood processing facilities until 2000, these appear to have been based on numbers reported by the companies involved with little cross-checking on the part of Kanwil. A similar problem exists with the official statistics on output levels for various types of roundwood production and wood processing. Figures published by Kanwil and by the Provincial Forestry Service (Dinas Kehutanan) often diverge quite sharply from one another, and in many cases, there appears to be a systematic under-reporting of actual production volumes. Indeed, large volumes of timber are believed to be harvested and processed illegally in Riau, and these volumes are routinely excluded from the official statistics. A third factor limiting the quality of the official data is Indonesia’s ongoing regional autonomy process, which began in 2000. In Riau, as in other parts of Indonesia, decentralization of forest administration has resulted in the closure of the Kanwil (which reported to the Ministry of Forestry in Jakarta) and the transfer of authority to the Dinas Kehutanan at the provincial and district levels (which report to the Governor and Bupati, respectively). In many cases, the provincial and district forestry agencies are working with very limited fiscal and human resources, and this has led to significant gaps in the collection and publication of official statistics. In addition, the conflicting economic and political interests between the various levels of government has often resulted in poor communication and limited transfer of information between districts and province forestry departments. One important area where the limited availability of reliable data has constrained this analysis is in estimated the degree of indirect employment generated by roundwood production and wood processing industries in Riau. Producing a reliable estimate of indirect employment for the various subsectors would require a detailed understanding of producers’ external revenue earnings and expenditures within the province, as well as the levels of disposable income, household consumption, and spending practices of employees who are directly employed by these industries. As it was not possible to obtain detailed information of this sort during the period when data collection for this study was conducted, estimations of indirect employment are not included in this study. It is acknowledged, however, that indirect employment is an important issue that merits serious analysis.

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1.4 Organization of the Study Section II of this paper focuses on forestry sector employment throughout Riau Province. It presents a description of Indonesia’s industrial restructuring process to locate the study within the national policy context. This is followed by an overview of Riau’s provincial economy and the structure of Riau’s forestry sector, as well as a section discussing the estimation of roundwood production volumes for 2001 The narrative then examines direct employment associated with various types of timber and pulpwood production in Riau, and with the different segments of Riau’s wood processing sector. SECTION 2: Forestry Sector Employment in Riau Province 2.1 Indonesia’s Forest Industry Restructuring Process To clarify the policy context of the present study, this section describes the Government of Indonesia’s ongoing initiative to downsize and restructure the country’s forest-based industries. This process effectively began in February 2000, when the government met with the IMF, World Bank and bilateral donor countries involved in the Consultative Group on Indonesia (CGI) (World Bank 2001). At this meeting, the Government made eight forest-related commitments to the international donor community. Collectively, these commitments were aimed at reducing pressures on Indonesia’s forests, improving forestry sector governance, and promoting the long-term viability of the country’s forest sector industries (Keating 2000). In support of these objectives, several of the CGI forestry commitments were designed to bring about a reduction in Indonesia’s domestic wood processing capacity. Specifically, the Government agreed to: 1) Downsize and restructure Indonesia’s wood processing industries; 2) Close illegal sawmills and take measures to curtail illegal logging; 3) Close heavily indebted forestry companies then under the Indonesian Bank Restructuring Agency (IBRA). At the national level, the rationale for reducing Indonesia’s domestic wood processing capacity is compelling for several reasons. First, Indonesia has for several years faced a considerable imbalance between demand for roundwood from the country’s sawnwood, plywood, and pulp industries, on the one hand, and the volumes of logs that can be sustainably harvested from the country’s forests, on the other hand (Barr 2001). It is estimated, for instance, that in 2000 domestic wood processing facilities collectively consumed at least 60 million cubic meters (m3) of wood; however, the Ministry of Forestry then projected that the nation’s forest estate could sustainably supply only 22 million m3 of roundwood on an annual basis. Since then, the Ministry has sharply reduced its estimation of the sustainable harvest level, restricting the authorized harvest from the country’s entire forest estate to 6.8 million m3 in 2003. Second, a very significant percentage of the timber produced in Indonesia is harvested illegally (World Bank 2001). Some analysts estimate that perhaps as much as 70 percent of

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the 50-70 million m3 of roundwood cut each year originates from illegal sources, resulting in lost government revenues of several hundred million dollars or more. With few effective mechanisms for law enforcement in the country’s forestry sector, overcapacity on the part of domestic wood processing industries is a major structural factor driving illegal logging. In some regions, large numbers of wood processing facilities – particularly small-scale sawmills – also operate without the required licenses and permits. Third, when the Government made its commitments to the CGI in February 2000, Indonesian forestry conglomerates accounted for over US$ 3 billion in corporate debts held by the Indonesian Bank Restructuring Agency (Barr and Setiono, 2001). At that time, there were signs – which have since proven to be largely correct – that IBRA would effectively write off 70 percent or more of the forestry debts in its portfolio. In seeking to close Indonesia’s heavily indebted forestry companies, members of the CGI sought to prevent the recapitalization (and subsidization through debt write-off) of companies that were not commercially viable for the long-term. They also sought to take advantage of IBRA’s far-reaching legal powers over indebted companies as an efficient institutional mechanism for downsizing the industry. Within this context, the international donor community has worked closely with the Ministry of Forestry to develop plans for restructuring Indonesia’s forestry sector industries (DFF 2001; DFF 2002). During 2002, members of the Donor Forum on Forests provided technical assistance to the Ministry’s Working Group on Forest Industry Restructuring to design a mill inspection process that would determine whether particular wood processors are using logs that have been harvested illegally. In early 2003, the Ministry initiated trial inspections at several plywood mills, and announced that mills found to be using illegal logs either would be closed outright or their processing capacity would be reduced. The Ministry’s efforts to downsize Indonesia’s wood processing sector have met with stiff resistance from forest industry groups, labor unions, and district and provincial officials in regions where potentially affected industries are located.3 A common criticism is that the closure of wood processing facilities will displace large numbers of workers. To date, however, policymakers have had little information on the impacts that downsizing and restructuring the country’s wood processing industries would likely have on livelihoods in forested regions. In particular, little data exists in the public domain related to the numbers of people directly and indirectly employed by various segments of the forestry sector. In seeking to downsize the nation’s wood processing industries, the Ministry of Forestry has also encountered dissonance with other policymakers at the national level. In early 2002, for instance, the Ministry of Industry and Trade announced plans to prioritize further development of Indonesia’s pulp and paper sector, designating it as one of five ‘sectoral drivers of macroeconomic recovery’ (DFF 2002). To date, however, it appears that the Ministry has not carefully analyzed what new pulp and paper capacity expansions would mean either in terms of pressures on forests or of job creation. These issues are particularly
3

David Brown, personal communication, March 17, 2003.

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relevant for Riau, where approximately 70 percent of the nation’s pulp production capacity is located. 2.2 Overview of Riau’s Provincial Economy Located in central Sumatra, the province of Riau covers an area of 94,561 square kilometers (km2), representing roughly 5 percent of Indonesia’s total land area – or an area over twice the size of Denmark (see Figure 1). The province is situated just across the Straits of Malacca from Singapore, giving it a strategic position for shipping and trade. A significant portion of Riau’s total area is comprised of inland sea waters, coastal swamps, and islands. Much of the province’s dryland areas and swamplands were, until quite recently, covered by extensive tracts of tropical forests. Historically, Riau has long been one of Indonesia’s wealthiest provinces. This is primarily due to its rich deposits of oil and natural gas, which have been the cornerstone of Riau’s economy since the Dutch colonial period. In 1997, Riau accounted for 58 percent of Indonesia’s national oil production, when the province generated nearly 1.0 million barrels of crude oil per day (BPS, 2000; Riau Dalam Angka 1998 cited in Potter and Badcock 2001). Riau currently produces approximately 750,000 barrels of oil per day, or over 270 million barrels annually. Much of this is produced by US-based multinational Caltex, working with Indonesia’s national petroleum company Pertamina. The petroleum and mining sector contributed some Rp 30 trillion to the provincial economy in 2000, or 54 percent of Riau’s regional Gross Domestic Product of Rp 55 trillion. Over the last 35 years, forestry has also played a significant role in Riau’s provincial economy. Large-scale timber extraction began in the early-1970s with the establishment of Indonesia’s commercial logging concession system. Following the introduction of the country’s national ban on log exports in the mid-1980s, sizeable plywood and sawnwood industries were also developed in the province, although Riau’s wood panel industry has been in decline over the last several years. The forestry sector currently accounts for approximately 9 percent of the Riau’s regional GDP, having generated Rp 56.3 billion in revenues for the provincial economy in 2000 (Dinas Pendapatan Daerah Riau 2000, cited in Andrianto 2003). Since the early-1990s, Riau has been at the epicenter of Indonesia’s pulp and paper boom (Barr 2000). The Asia Pulp & Paper (APP) and Asia Pacific Resources International Ltd (APRIL) groups have built the world’s largest stand-alone pulp mills approximately 100 km from one another – PT Indah Kiat Pulp & Paper (IKPP) in Perawang and PT Riau Andalan Pulp & Paper (RAPP) in Pangkalan Kerinci, respectively. Each of these mills is capable of producing 2.0 million tonnes of bleached hardwood kraft pulp per year, and together they account for nearly 70 percent of Indonesia’s installed pulp production capacity. The development of these mills, along with their integrated paper and paperboard facilities, has involved a capital investment of approximately US$ 8 billion during the past decade and a half. Although both APP and APRIL have faced serious financial problems in

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recent years, the Indah Kiat and RAPP mills in Riau generated aggregate revenues of some US$ 1.3 billion during 2001. In recent years, the provincial government has also prioritized the development of Riau’s oil palm industry. In 2001, it was estimated that Riau had up to 1 million hectares of land allocated for oil palm plantations, making it Indonesia’s leading province in this sector (Potter and Badcock, 2001). Although investment in new oil palm development largely came to a halt following Indonesia’s 1997 financial crisis, many financial analysts expect that Riau’s oil palm industry will experience renewed growth as Indonesia’s economic recovery progresses. In the late-1990s, the provincial government also reported that Riau had approximately 500,000 ha of rubber plantations and nearly 600,000 ha of coconut plantations (Dinas Perkebunan 1999, cited in Potter and Badcock 2001). In both cases, most of these areas were controlled by smallholders. Riau’s population was 4.1 million in 1997. Government statistics indicate that approximately 55 percent of the population is active in the province’s labor force. In 2000, the official estimate of active labor was 2.2 million people. Riau’s strong natural resource base and low labor costs enabled the province to maintain annual growth rates of approximately 9 percent in the late-1990s, in spite of the economic crisis that affected most of Indonesia. Indeed, Riau’s regional GDP nearly doubled between 1997 and 2000 – rising from Rp 26.8 trillion to Rp 55.4 trillion – due mainly to the favorable position of its export-oriented economy and the sharp depreciation of Indonesia’s currency.

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Figure 1: Map of Riau Province

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2.3 Structure of Riau’s Forestry Sector According to the Ministry of Forestry’s Regional Office (Kantor Wilayah, or Kanwil), Riau officially has just over 4.8 million ha that is classified as permanent ‘Forest Estate’ (Kawasan Hutan), representing approximately 51 percent of the province’s total land area (Kanwil Riau 2000).4 This area is divided into 10 functional types which are broadly organized into two major forest categories, as shown in Table 1. Over 3.2 million ha is classified as ‘Area for Forestry Development’ (Kawasan Pengembangan Kehutanan), of which approximately three-quarters is classified as ‘Production Forest’ (Hutan Produksi). A second category, ‘Protection Area’ (Kawasan Lindung), encompasses approximately 1.6 million ha. A third functional category is classified as ‘Areas for Other/Non-Forestry Uses’ (Arahan Pengembangan Lain/Arahan Budidaya Non-Kehutanan, or APL) (Kanwil Riau 2000). This category encompasses some 4.6 million ha of both forested and non-forested lands, accounting for almost one-half of Riau’s entire land area. It is commonly understood that forested areas within this classification have been designated for conversion to other forms of land-use, and are not part of the province’s permanent ‘Forest Estate’. However, few clear guidelines defining the criteria used for placing forested areas within this category exist in the public domain. Nor is it clear how much of the land in this category is covered by forests, or what the quality of these forests actually is. Table 1: Riau’s Forest Estate According to Functional Category, 1998
Functional Category Area for Forestry Development (Kawasan Pengembangan Kehutanan) Production Forest (Hutan Produksi) Production Forest for Conversion (Hutan Produksi Konversi) Swamp Forest (Hutan Bakau) Subtotal Protection Area (Kawasan Lindung) Protection Forest (Hutan Lindung) Protected Peat Area (Kawasan Lindung Gambut) **** (Cagar Alam/Suaka Marga Satwa) National Parks (Taman Nasional) Forest Parks (Taman Hutan Raya) Recreation Forests (Hutan Wisata) Areas Surrounding Reservoirs, Lakes and Rivers (Kawasan di Sekitar Waduk, Danau, dan Sungai) Subtotal
4

Area (ha)

2,649,608 334,521 252,860 3,236,989

361,867 695,874 439,230 110,114 6,172 4,721 13,100 1,631,078

This figure represents the total area classified as ‘Forest Estate’ (Kawasan Hutan) according to the reconciliation of the Ministry of Forestry’s ‘Consensus Forest Spatial Plan’ (Tata Guna Hutan Kesepakatan, or TGHK) and the Riau provincial government’s ‘Provincial-Level Spatial Plan’ (Rencana Tata Ruang Wilayah Propinsi, or RTRWP). The reconciled spatial plan was promulgated by the Riau Governor’s Decision 105.a/III/1998, dated March 27, 1998.

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Area for Other/Non-Forestry Uses (Arahan Pengembangan Lain/Arahan Budidaya Non-Kehutanan) Subtotal Total Source: Kanwil Riau 2000.

4,588,093 9,456,160

Commercial timber production in Riau dates to at least the 1870s, when the forests of central Sumatra supplied logs to Singapore and Malaysia and to other parts of the Dutch East Indies (Djajapertjunda 2002). During the colonial era, logs were harvested manually by teams of laborers financed by local timber merchants under a system known locally as panglong. Colonial records indicate that during the period 1905-1924, the volume of timber harvested under Riau’s panglong system averaged 270,750 m3 per year, most of which was exported to Singapore. This method of timber extraction remained in place through the first two decades after Indonesia’s independence in 1945 (Esmara 1975). During much of the 1950s and early 1960s, Riau’s timber sector was oriented towards supplying lumber and other construction materials needed for the development of the Caltex oil fields outside Pekanbaru (Djajapertjunda 2002). Large-scale mechanized logging began shortly after the Suharto regime came to power in the late 1960s. Following the introduction of the Basic Forestry Law in 1967, the Government assumed control over the nation’s forests and made vast tracts available to private sector logging companies in the form of HPH (Hak Pengusahaan Hutan) timber concessions (Barr 2001). In Riau, as in many other parts of Indonesia, HPH concessions were often allocated as a form of political patronage to companies linked to local military units and political elites. During the Suharto era (1966-1998), the Ministry of Forestry allocated 63 HPH timber concessions in Riau, covering an aggregate area of 5.1 million ha – or roughly 55 percent of the province’s total land area (Departemen Kehutanan 1998). Under the terms of the HPH contract, concession-holders were initially permitted to harvest timber in areas designated as ‘Production Forest’ and ‘Limited Production Forest’ for a period of 20 years. In 1998, however, at the urging of the World Bank and the IMF, the Indonesian government extended the duration of the HPH contract to 35 years. Concession management practices are prescribed by the ‘Indonesian Selective Cutting and Replanting’ (Tebang Pilih dan Tanam Indonesia, TPTI) system. Guidelines for the TPTI system include the use of a 35-year harvesting cycle; restrictions on cutting commercial species that are below 50 cm diameter at breast height (dbh); rehabilitation of skid trails and enrichment planting; and thinning of non-commercial species at 10, 15, and 20 years. Through the 1970s, Riau ranked among Indonesia’s major timber producing provinces; in most years, it was surpassed in volumes of logs produced by only East Kalimantan and West Kalimantan. Most of the logs harvested from HPH concessions at that time were shipped to Japan and other export markets, where they were processed into lumber and wood panels. In the early 1980s, when the Indonesian government phased in the national ban on log exports, many HPH concession-holders invested in wood processing facilities (Barr 1998). In Riau, these included 16 plywood mills with an aggregate processing 10

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capacity of 1.1 million m3 of panels per year (Kanwil Riau 2000). Most of these processing facilities are integrated with affiliated HPH concession sites from which they obtain a majority of their raw material needs; however, several mills also purchase logs from third party suppliers. Through the mid-1990s, Riau’s plywood mills produced between 750,000 m3 and 820,000 m3 of panels per year, according to provincial government statistics (Kanwil Riau 1999). Much of this volume was exported to Japan and other markets through Indonesia’s APKINDO plywood cartel, which was controlled by Suharto associate Mohamed ‘Bob’ Hasan until it was dismantled in January 1998 (Barr 1998). In recent years, plywood production in the province has declined markedly, as large-diameter logs have become increasingly scarce and as many producers have faced financial pressures associated with Indonesia’s continuing economic crisis. Provincial government statistics indicate that Riau’s plywood production in 2001 was 1.0 million m3. In addition, at least three plywood mills have closed since 2000, and several others are reported to be operating at levels that are well below full capacity. Riau’s wood processing sector also includes some 350 licensed sawmills, which are distributed widely throughout the province. These range in capacity from 500 m3 to 40,000 m3 per year (Kanwil Riau 2000). Collectively, they have an aggregate production capacity of just under 1.2 million m3 of sawnwood per year. Several of these mills are also integrated with moulding and wood-working facilities. If it is assumed that these mills are generally operating at efficiency levels of 50 percent, the industry’s overall capacity for log consumption stands at approximately 2.4 million m3 per year. It is likely, however, that many mills are running well below full capacity. The province also has at least 250 unlicensed sawmills which produce an estimated 867,000 m3 of lumber annually (WWF 2002a). These mills are capable of consuming at least 1.7 million m3 of roundwood per year assuming a 50 percent efficiency level. It is widely believed that a substantial portion of the logs utilized by Riau’s licensed and unlicensed sawmills originates from illegal sources. Since the early-1990s, the largest and fastest-growing segment of Riau’s wood processing sector has been the pulp industry. PT Indah Kiat Pulp & Paper (IKPP), which is owned by Indonesia’s Sinar Mas Group through its Singapore-based holding company Asia Pulp & Paper (APP), started producing pulp in 1984 (Spek 2000). PT Riau Andalan Pulp & Paper (RAPP), owned by the Raja Garuda Mas Group via its Singapore-based APRIL holding company, began production in 1995. Indonesia’s two leading pulp producers have undergone rapid expansion over the last several years, and each mill now has a pulp processing capacity of 2.0 million tonnes per year (Barr 2001). This corresponds to a combined annual wood demand of just under 20 million m3 of wood (9.8 million m3 per year for each mill), if the mills were to operate at full capacity. Over the past decade, APP and APRIL have allocated substantial resources to developing large-scale plantations with the stated aim of establishing a sustainable fiber supply for their mills. Both companies have secured sizeable tracts of conversion forest under the Indonesian government’s industrial plantation program (Hutan Tanaman Industri, or HTI),

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which they are permitted to manage under a 42-year license (MOFEC 1999). Arara Abadi, a plantation company controlled by the Sinar Mas Group, holds a plantation concession license for 300,000 hectares (gross) disbursed among several blocks that are located 60 to 120 km from Indah Kiat’s Perawang mill site (Sinar Mas/APP 2002). APRIL’s parent conglomerate, the Raja Garuda Mas Group, holds a plantation concession with a gross area of 280,500 ha to supply fiber to the Riau Andalan mill (RAPP 2001). At their HTI sites, both companies are planting the fast-growing species Acacia mangium and Acacia crassicarpa, each of which is managed on a 7-year harvest rotation. In spite of the substantial investments that APP and APRIL have made to bring plantations online, both groups’ mills continue to rely very heavily on mixed tropical hardwoods (MTH) harvested from Riau’s natural forests. In 2001, approximately 80 percent of the 6.5 – 9.0 million m3 of fiber consumed by Riau Andalan and Indah Kiat, respectively, was from MTH, with 20 percent coming from plantation Acacia. Historically, two-thirds to three-quarters of the MTH consumed by Indah Kiat and Riau Andalan has reportedly been harvested from affiliated plantation concessions, where the natural forest has been cleared to open up new areas for planting Acacia. Much of the remaining MTH has been purchased from companies holding IPK (Izin Pemanfaatan Kayu) wood utilization permits, which are often used to clear natural forest for the establishment of oil palm or other agroindustrial estates. Since the Indah Kiat and Riau Andalan mills began operating, both producers have projected that they would soon be able to feed their mills with a sustainable supply of plantation-grown pulpwood. However, each group has expanded pulp processing capacity at its mill at a much faster rate than it has brought HTI plantations online. At present, Indah Kiat is projecting that it will rely solely on plantation-grown fiber and no longer use MTH by 2007 (AMEC 2001). RAPP, likewise, is projecting that it will fully source its fiber from plantation pulpwood by 2009 (RAPP 2001). To meet these ‘sustainability’ targets, both groups are seeking to convert large new areas of natural forest to plantations. Indeed, figures released by each producer indicate that its existing HTI plantation concessions are adequate to produce little more than 50 percent of the wood that its pulp mill needs on an ongoing basis (Barr 2002). In Indah Kiat’s case, the group plans to secure approximately 5.0 million m3 of Acacia wood per year from Arara Abadi when the HTI is fully planted (AMEC 2001). Similarly, RAPP projects that it will be able to obtain approximately 5.3 million m3 of plantation wood annually from its HTI sites (RAPP 2001). Both producers plan to secure the remaining fiber their mills need by converting new areas of forest to plantations through joint venture (JV) agreements with other HTI licenseholders or local cooperatives, and through outgrower schemes involving local communities. The Sinar Mas Group aims to convert 167,000 ha to plantations in Riau through joint ventures with unspecified local cooperatives to supply wood to the Indah Kiat mill (AMEC 2001). For its part, the Raja Garuda Mas Group plans to develop 187,000 ha to plantations through joint ventures with other HTI license-holders, and 7,000 ha through out-grower schemes to supply fiber to RAPP (RAPP 2001). Both producers’ plans for achieving a sustainable wood supply are quite ambitious, and recent studies have

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suggested that there are a number of risk factors that could inhibit them from achieving the targets they have set (Barr 2002; AMEC 2001). 2.4 Estimate of 2001 Production Levels by Subsector As explained in the ‘Methodology’ section above, this study focuses on estimating the numbers of workers directly employed by the various segments of Riau’s forestry sector during 2001. At the time data collection was conducted (December 2002 – February 2003), official production statistics for 2002 were not yet available from the Provincial Forestry Service (Dinas Kehutanan), and many of the companies surveyed were prepared to offer only preliminary estimates of 2002 output and employment levels. This section reviews the available data on 2001 log production levels and output from each of the province’s major wood processing industries. The purpose is to summarize the disaggregated production figures for each subsector, as these figures will serve as the basis for the study’s analysis of direct employment within each industry segment. This review of the 2001 production statistics also highlights some significant areas where the official data reported by the Provincial Forestry Service diverge from apparent production levels. Most notably, there is a wide gap between log production levels reported by Dinas Kehutanan and the volumes of logs that are estimated to have been consumed by the different segments of Riau’s wood processing sector. Official statistics published by the Provincial Forestry Service report that total log production in Riau during 2001 was just over 4.2 million m3 (see Table 2). These logs came from three principal sources: 1) HPH selective logging concessions; 2) land conversion activities by IPK permit-holders; and 3) the harvest of Acacia logs at HTI pulpwood plantations. As Table 2 shows, IPK land clearing operations accounted for over 85 percent of Riau’s overall log output, according to production levels reported by Dinas Kehutanan. Table 2: Log Production by Source for 2001, as Reported by Riau’s Provincial Forestry Service Log Source HPH Logging Concessions IPK Land Clearing -- Commercial logs -- MTH Pulpwood HTI Pulpwood Plantations Total
Source: Dinas Kehutanan 2002.

Volume (m3) 113,065 3,656,686
(666,272) (2,990,414)

Percent of Total (%) 3 86
(16) (70)

460,107 4,229,858

11 100

It is believed that the volume of log production reported by Dinas Kehutanan grossly underestimates real production levels that occurred in Riau during 2001. An estimate of

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actual production levels can be derived from the assumed volumes of log inputs for the province’s wood processing industries. As Table 3 shows, the province’s plywood and licensed sawnwood industries each consumed over 2.1 million m3 of roundwood to produce over 1.0 million m3 of processed output (as reported by Dinas Kehutanan statistics), assuming a 50 percent rate of processing efficiency. Likewise, unlicensed sawmills are believed to have consumed over 1.7 million m3 of logs to produce the 867,000 m3 of lumber documented by WWF-Riau (2002a). Riau’s two large pulp mills consumed approximately 15.4 million m3 of pulpwood to produce 3.1 million air-dried tonnes of pulp, according to figures provided by APP and APRIL (Barr 2002). Altogether, this implies that total log production in Riau during 2001 exceeded 21.6 million m3 – or over five times the volume of log production reported by the Provincial Forestry Service. Table 4 summarizes both reported and undocumented log production by the type of logs (i.e commercial roundwood, MTH pulpwood, and plantation-grown Acacia logs) and by the source of these logs, to the extent the latter is known. Disaggregation of the estimated roundwood production figures in this way suggests that of the 17.4 million m3 that do not appear in the official statistics for 2001, commercial logs for processing into sawnwood or plywood (or export as roundwood) accounted for 5.4 million m3; MTH pulpwood harvested from natural forests accounted for 8.5 million m3; and Acacia logs harvested from HTI plantation sites accounted for the remaining 3.5 million m3. APP and APRIL have reported that their pulp mills obtained this 3.5 million m3 of Acacia logs from affiliated plantation companies. This suggests that some 13.7 million m3 of commercial logs and MTH pulpwood was harvested from sources that cannot be readily identified from existing statistics. For the purposes of this study, this volume of wood will be treated as having originated from ‘undocumented sources’. Of this, it can be estimated that at least 12.1 million m3 – or approximately 88 percent of the overall volume harvested from ‘undocumented sources’ – was extracted through land-clearing activities similar to those conducted by IPK permit-holders.5 Illegal logging is widespread in Riau, as in many other parts of Indonesia; and it is therefore possible that some volume of logs obtained from ‘undocumented sources’ were harvested illegally. However, as will be discussed in greater detail below, it is also the case that the total volume of timber that could officially be harvested under the IPK permits issued in Riau for 2001 exceeded 20.0 million m3. This suggests that some portion of the logs obtained from ‘undocumented sources’ – perhaps a significant portion -- may, in fact, have been harvested legally under legitimate IPK land clearing permits and simply not recorded by Dinas Kehutanan statistics. At the same time, it is widely recognized that many IPK permit-holders in Riau also routinely under-report the volumes they harvest in order to avoid paying royalties on the logs extracted. Moreover, it may be the case that
This figure is derived from the assumption that the entire 8.5 million m3 of MTH pulpwood was obtained through land-clearing, and that small-diameter pulpwood on average accounts for 70 percent of the harvestable timber at conversion sites and commercial logs account for the remaining 30 percent. This suggests that the harvest of 8.5 million m3 of small-diameter pulpwood through land-clearing would have also yielded approximately 3.6 million m3 of larger-diameter commercial logs, for a total harvest of 12.1 million m3.
5

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‘legitimate’ IPK land clearing permits are also sometimes used to provide the appearance of legality for wood harvested illegally outside of specified IPK sites. Due to the scale of ‘undocumented’ timber extraction and the complexity of the legal issues involved, it is not possible for this study to determine the volumes of timber harvested illegally in Riau. As such, this study will seek to determine the numbers of workers involved in producing the 13.7 million m3 of timber that were harvested from ‘undocumented sources’ without disaggregating this figure according to legal and illegal logging activities.

15

Table 3: Estimated Roundwood Input by Riau’s Wood Processing Industries, 2001 Industry Plywood Licensed Sawnwood Unlicensed Sawnwood Pulp Total Reported 2001 Output 1,052,316 m3 1,187,364 m3 867,240 m3 3,150,000 Adt -Estimated Roundwood Input (m3) 2,104,632 2,374,728 1,734,480 15,435,000 21,648,840 Volume of Roundwood Input by Type Commercial Logs MTH Pulpwood HTI Acacia (m3) (m3) (m3) 2,104,632 0 0 2,374,728 0 0 1,734,480 0 0 0 11,500,000 3,935,000 6,213,840 11,500,000 3,935,000

Source: Data for plywood and licensed sawnwood industry output are from Dinas Kehutanan (2002). The volume of unlicensed sawnwood industry output is from WWF-Riau (2002). The volume of pulp production, and MTH pulpwood and HTI Acacia inputs, are from RAPP and Indah Kiat reports cited in Barr (2002). Note: Estimated roundwood input for plywood, licensed sawnwood, and unlicensed sawnwood production assumes a 50 percent rate of efficiency for conversion of logs to finished product. Estimated roundwood input for pulp production assumes that 4.9 m3 of roundwood are used to produce 1 air-dried tonne (Adt) of pulp.

Table 4: Estimated Volumes of Logs Harvested in Riau by Type of Wood and Source of Logs, 2001 Type of Wood Total Volume (m3) 6,213,840 11,500,000 3,935,000 21,648,840 Reported HPH Output (m3) 113,065 0 0 113,065 Volume of Logs by Source Reported IPK Reported HTI Output Output (m3) (m3) 666,272 0 2,990,414 0 0 460,107 3,656,686 460,107 Output Not Covered by Official Statistics (m3) 5,434,503 8,509,586 3,474,893 17,418,982

Commercial Logs MTH Pulpwood HTI Acacia Total

Source: Data for reported log output for HPH, IPK, and HTI production are from Dinas Kehutanan (2002).

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2.5 Employment From Timber and Pulpwood Production This part of the study assesses the numbers of workers that are directly employed in various types of timber harvesting and pulpwood production in Riau. The sections below examine each of the following segments of the provincial forestry sector: HPH selective logging concessions; land clearing by IPK permit-holders; unlicensed logging operations; and the development of HTI pulpwood plantations. 2.5.1 HPH Selective Logging Concessions Over the last three decades, HPH timber concessions in the province have conducted largescale mechanized logging operations in most of Riau’s 2.6 million ha of ‘Production Forest’. Since the mid-1990s, HPH concessions in many parts of the province have been in a steady decline. During the period 1998-2002, HPH log production dropped from 863,000 m3 to 156,000 m3 per year (see Table 5). In 2001, HPH log production was 113,065 m3. Table 5: Reported Log Production by HPH Concessions in Riau, 1998-2002 Year 1998 1999 2000 2001 2002 Volume (m3) 863,240 649,770 311,162 113,065 156,171

Source: Dinas Kehutanan (2000)

The number of active HPH concession sites in the province declined from 63 in 1998 to 20 in 2001. These 20 concessions encompassed a total area of just over 1.1 million ha – or approximately 20 percent of the total 5.3 million ha that had been allocated to HPHholders during the Suharto era. Table 6 provides a list of HPH timber concessions that were still active in Riau in 2001. Table 6: HPH Timber Concessions Active in Riau in 2001 Concession-Holder PT Siak Raya Timber PT Siak Pakan Raya PT Nanjak Makmur PT Yos Raya Timber PT Inhutani IV (ex Alam Wana Sakti) PT Inhutani IV (ex Dwi Marta) PT Inhutani IV (ex Chandra) PT Inhutani IV (ex HBW) PT The Best One Uni Timber PT Hutani Sola Lestari District Kampar, Pelalawan Rokan Hulu Pelalawan Pelalawan Pelalawan Pelalawan Indragiri Hilir Indragiri Hilir Pelalawan Kuansing HPH Area (ha) 28,500 46,000 48,370 97,000 70,000 57,873 36,610 69,530 50,620 45,990 Year of Expiration 2017 2007 2020 2009 n.a. n.a. n.a. n.a. 2021 2019

17

PT IFA PT Dexter PT Seberida Wana PT Thai Raivithi PT Mutiara Sabuk Khatulistiwa PT Diamond Raya Timber PT Essa Indah Timber PT Triomas FDI PT Riau Putra Bersama PT Sri Buana Dumai Total
Source: Ministry of Forestry (2002)

Indragiri Hulu Indragiri Hulu Indragiri Hilir Indragiri Hilir Indragiri Hilir Rohan Hilir Rohan Hilir Siak Bengkalis Dumai --

70,664 48,000 132,500 98,593 11,595 4,956 52,524 21,653 49,565 63,520 1,104,063

2008 2012 2013 2001 2020 2019 2019 2009 2019 2014 --

The decline of Riau’s HPH system can be attributed to several factors. First, most of the provinces’s HPH timber concessions were initially allocated by the Ministry of Forestry during the 1970s. In recent years, a growing number of HPH-holders have reached the end of their original 20 year concession contracts (DPPH 1998). While some HPH contracts have been renewed by the Ministry, many have not. In some cases, this is due to the fact that large-diameter commercial timber at the concession site has already been exhausted or remaining timber stands are located in increasingly remote locations, suggesting that the high rent levels previously associated with HPH operations no longer exist (Barr 2001). In addition, Riau’s pulp industry is currently facing substantial fiber short-falls, and this has created considerable pressure for the reclassification of HPH concession areas so that they may be available for clear-cutting and conversion to other uses (Barr 2002). Indonesia’s regional autonomy process has also put increasing pressure on the HPH system, which is widely associated with the highly centralized control over forest resources and revenues that existed during the Suharto era (Potter and Badcock 2001). With provincial and district governments now assuming significantly greater authority than they have had in the past, many are rejecting the extension of HPH timber operations in their jurisdictions in favor of more localized forms of timber extraction. This is particularly the case for HPH areas under the control of the national government’s Inhutani IV forestry enterprise. No official data are publicly available on HPH-based employment in Riau. To estimate the employment effects of the sharp decline in HPH timber production, this study sampled four HPH concessions – three in the Tesso Nilo area and one in the northern part of Riau. These included: PT Siak Raya Timber, PT Hutani Sola Lestari, PT Nanjak Makmur and PT Diamond Raya Timber. Table 7 summarizes the aggregate log production volumes and employment figures from these four concession-holders during the period 1999-2001.6

Given the small sample size, a decision was made to average over three years both the production levels and employment figures reported by the four companies sampled in order to reduce the effects of annual variations in these figures for any one company. Moreover, it should be noted that when the field work for this study was conducted in early 2003, two of the four companies were not prepared to release their Year 2002 production figures.

6

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Table 7 Cumulative Reported Log Production and Direct Employment Figures for Sampled HPH Timber Concession-Holders, 1999-2001 Company PT Siak Raya Timber PT Nanjak Makmur PT Hutani Sola Lestari PT Diamond Raya Total HPH Area (ha) 38,500 48,370 45,990 90,956 223,816 Cumulative Log Production (m3) 27,572 55,989 33,215 167,416 284,192 Cumulative Employment (persons) 475 1,085 408 1,730 3,698 Log Production Per Worker (m3/person) 58.0 51.6 81.4 96.8 76.8

Source: Company reports; interviews with company officials.

The average productivity level at the sampled HPH concession-holders indicates that over the three year period 1999-2001, one direct employee was associated with the production of approximately 77 m3 of roundwood produced. If this ratio between direct employment and roundwood production is extrapolated to the total HPH production figures for the province (currently including 20 HPH companies), direct employment for Riau’s HPH sub-sector is estimated to have declined from 8,455 employees in 1999 to1,468 employees in 2001 – a drop of 82 percent. (In 2002, it is estimated that employment rose to 2,032 workers due to an increase in log production). The origin of laborers in sampled HPH companies showed considerable variation. In 2001-2002, for instance, employment of ‘locals’ ranged from only 14 percent at PT Diamond Raya Timber to 100 percent at PT Siak Raya Timber, while the other two companies each reported between 60 percent and 70 percent of employees being ‘local’.7 Overall, the sample shows that in 2001-2002, the average HPH concessionaire’s labor force consisted of 60% of ‘local’ employees and 40% ‘non-locals’. In three of the HPH companies sampled, ‘non-local’ employees control key steps in the logging operations such as planning, felling and hauling. Table 8 summarizes the respective wage structures among HPH workers from Riau and from outside Riau at the concessionaires that were surveyed. Table 8: Wage Structure at Surveyed HPH Concessionaires in Riau Wages Activity Survey/cruising Planning Felling
7

Riau Worker (Rp/month) 916,364 779,000 --

Non-Riau Worker (Rp/month) -1,300,000

See footnote under the ‘Methodology’ section above for a description of how ‘local’ and ‘non-local’ are defined in this study.

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1,669,022 Hauling/loading Transport Administration Maintenance Catering Security 750,000 1,850,000 850,000 633,333 500,000 650,000 2,000,000 1,850,000 850,000 --700,000

Source: Survey data; company records

2.5.2 Land Clearing by IPK Permit Holders Over the last few years, production of timber by IPK land clearing permit-holders has been far more substantial than that from HPH logging concessions in Riau. Indeed, log production by IPK-holders accounts for over 85 percent of the total reported volume of roundwood produced in the province during 2001, according to Dinas Kehutanan statistics. To a very significant degree, this has been due to the key role that IPK permits have played in meeting the wood fiber needs of the province’s sizeable pulp and paper industry and in clearing land for the development of oil palm estates. The prominence of IPK permits is evident both in terms of the numbers of permits issued each year and the area encompassed by these permits. Between 2000 and 2002, at least 307 IPK licenses were granted in Riau, with about half of those becoming available in 2001 (see Table 9). During 2000 and 2001, approximately 250,000 ha of forestland were allocated annually for harvesting under IPK land clearing operations. In 2002, this figure declined to 158,000 ha due to increasing pressure on forestry authorities to limit the conversion of natural forests to other uses (World Bank 2001). IPK permits have ranged in size from 25 ha to 3,000 ha. Table 9: Number and Area of IPK Land Clearing Permits in Riau, 2000-2002 District Bengkalis Dumai Indragiri Hilir Indragiri Hulu Kampar Kuantan Singingi Pelalawan Rokan Hilir 2000 2001 2002 No. Area (ha) No. Area (ha) No. Area (ha) 13 40,957 21 31,339 7 12,773 2 3,347 2 3,321 1 5 16,950 5 6,920 1 2,400 11 28,010 9 16,720 6 6,962 11 29,391 25 32,779 2 1,150 2 4,137 8 22,751 5 24,888 16 59,342 47 72,466 21 50,549 6 22,200 6 10,777 5 12,874

20

Rokan Hulu Siak Total

6 7 79

6,850 36,786 247,970

18 9 150

7,656 43,503 248,232

15 15 78

14,737 31,726 158,058

Source: DGLHP IPK 1999-2002.

The official timber production targets for IPK land clearing operations, as reported by the Provincial Forestry Service, exceeded 19.0 million and 20.0 million m3 in 2000 and 2001, respectively. In 2002, the timber production target for IPK operations dropped to 13.6 million 3 (see Table 10). Table 10: Official IPK Timber Production Targets in Riau, 2000-2002 District Bengkalis Dumai Indragiri Hilir Indragiri Hulu Kampar Kuantan Singingi Pelalawan Rokan Hilir Rokan Hulu Siak Total 2000 3,502,703 260,860 961,325 2,178,410 2,346,490 285,779 5,066,424 1,033,498 847,501 2,575,736 19,058,726 Production target (m3) 2001 2002 3,202,265 247,177 867,298 1,861,414 1,854,639 987,950 5,375,976 947,300 848,987 3,897,903 20,090,909 1,078,287 134,659 209,952 820,974 151,038 916,225 3,346,580 1,073,714 1,681,707 4,241,040 13,654,176

Source: DGLHP IPK 1999-2002

In each of these years, the reported production levels achieved by IPK permit-holders fell well below the announced targets. In 2000, for instance, reported IPK timber production levels were 6.2 million m3 – or roughly one-third of the targeted production for that year (see Table 11). In 2001, reported IPK production fell to 3.6 million m3, or less than 20 percent of that year’s production target. In 2002, reported IPK production rose to 4.8 million m3, again representing roughly one-third of that year’s targeted production. During these years, 10-20 percent of the total reported timber harvest from IPK operations were

21

commercial logs for sawnwood or wood panel products, while the remaining 80-90 percent was composed of small-diameter pulpwood logs. Table 11: Reported IPK Log Production in Riau, 1999-2002 Year 1999/2000 2000 2001 2002 Total Commercial Logs (m3) 942,725 564,604 666,272 753,553 2,927,154 Pulpwood (m3) 4,894,958 5,654,767 2,990,414 4,022,038 17,562,177 Total (m3) 5,837,683 6,219,371 3,656,686 4,775,591 20,489,331

Source: DGLHP IPK 1999-2002

It is widely recognized that actual log harvests by IPK permit-holders in Riau over the last several years has been significantly greater than the volumes of IPK log production reported in the official statistics. There are a number of possible explanations for this. In general, the Provincial Forestry Service appears to keep poor records of IPK land clearing operations and rarely conducts field inventories to ascertain whether the volumes of logs being harvested from a particular IPK site match the volumes that are reported by the permit-holder. At the same time, companies holding IPK permits have a strong incentive to under-report the volumes of wood they harvest, and confidential industry sources report that many IPK-holders routinely do so. On the one hand, under-reporting the actual harvest volume allows the permit-holder to avoid paying royalties (approximately US$ 2.50 per m3) on the logs removed. On the other hand, some IPK-holders under-report the volumes of logs harvested at legitimate IPK land clearing sites in order to maintain the appearance that there is still standing timber at those sites that can be legally harvested. They then use the permit to provide a form of legal cover for logs that are harvested illegally from sites located outside those designated in the permit. With little effective regulation on the part of government authorities and the absence of a functioning ‘chain of custody’ system in many companies’ operations, it is often difficult to distinguish between legitimate and illegitimate IPK land clearing operations. Estimation of direct employment associated with the production of the reported volumes harvested from IPK land clearing operations depends, to a significant degree, on whether these operations are carried out manually or in a semi-mechanized or mechanized manner. All three types of operations are used, with vastly different productivity levels per labor input. Table 12 summarizes the labor inputs and productivity levels associated with each type. Manual harvesting and land clearing systems will vary according to site and weather conditions, labor availability, and the availability of chainsaws and other types of equipment. Typically, manual operations involve harvesting gangs of 8-13 members, including 2-3 chainsaw operators; 4-6 workers involved in log extraction; and 2-4 workers involved in loading. Chainsaw operators are responsible for felling, topping, and bucking. Extraction of logs to the roadside is done manually, although in some cases, buffalo are used to pull the logs from the harvest site. Loading of the logs onto the truck is also done

22

manually. Manual logging teams can generally harvest approximately 12 m3 of roundwood per day, or roughly 3,240 m3 per year. Semi-mechanized land clearing operations typically involve teams of 13-15 workers, including 6-8 chainsaw operators; 4 heavy equipment operators; 1 in-field mechanic; 1 general worker; and 1 foreman. The chainsaw operators are responsible for felling and topping, while bucking is either done at the roadside or at the log pond. The logs are mechanically pre-bunched using an excavator, before being extracted to the roadside by a skidder or bulldozer. The excavator then loads the logs onto the truck for hauling. Semimechanized teams can generally produce approximately 70 m3 of roundwood per day, or roughly 18,900 m3 per year. Mechanized land clearing operations typically involve teams of 17-21 workers, including 10-12 chainsaw operators; 4 heavy equipment operators; 1-2 in-field mechanics; 1-2 general workers; and 1 foreman. Each team generally has two mechanized harvesterbunchers, which are used for felling, topping, and bunching of the logs. Bucking is done by chainsaw operators either at the harvest site, or at the roadside before loading, or at the log pond, depending on whether the logs ar to be hauled by truck or barged. Extraction of the logs to the roadside is done by skidder or bulldozer, and loading is done by an excavator. Mechanized land clearing operations can generally produce approximately 234 m3 of roundwood per day, or roughly 63,180 m3 per year. Table 12: Labor Inputs and Productivity Levels for Manual, Semi-Mechanized, and Mechanized Land Clearing Operations Manual Team consists of:
• Chainsaw operators (2-3) • Extraction crew (46) • Loading crew (2-4)

Semi-Mechanized
• Chainsaw operators (6-8) • Heavy equipment operators (4) • In-field mechanic (1) • General worker (1) • Foreman (1) 13-15 +/- 70 m3/day +/- 18,900 m3/yr 1,350 m3/yr

Mechanized
• Chainsaw operators (10-12) • Heavy equipment operators (4) • In-field mechanics (1-2) • General workers (1-2) • Foreman (1) 17-21 +/- 234 m3/day +/- 63,180 m3/yr 3,325 m3/yr

Total team members Team daily productivity (m3/day) Team annual productivity (m3/year) Average annual productivity per worker (m3/year) Direct employment per 1.0 million m3/year Direct employment per

8-13 +/- 12 m3/day +/- 3,240 m3/yr 295 m3/yr

3,390 workers 440 workers

741 workers 96 workers

301 workers 39 workers

23

1,000 ha/year Note : Team size and harvesting plan typically vary according to the plantation condition, topography, weather conditions and machine availability. Average annual productivity levels assume 270 work days per year. Direct employment per 1,000 ha assumes average yield of 130 m3/ha.

Calculation of average annual productivity levels per worker indicate that there are sharp differences among manual, semi-mechanized, and mechanized land clearing operations. As Table 12 indicates, average productivity levels range from 295 m3 per year for workers engaged in manual land clearing; to 1,350 m3 per year for workers involved in semimechanized land clearing; and 3,325 m3 per year for workers involved in mechanized operations. These figures suggest that some 3,390 workers working for a full year would be needed to generate 1.0 million m3 of roundwood from manual land-clearing operations. By contrast, semi-mechanized harvesting operations would require 741 workers to generate this volume of wood, whereas mechanized operations would require only 301 workers. Similarly, for every 1,000 hectares cleared, manual harvesting operations generate employment for some 440 workers, whereas semi-mechanized and mechanized operations provide jobs for 96 and 39 workers, respectively. If it is assumed that the 3.6 million m3 of logs reported to have been harvested by IPK permit-holders were produced in even measure (i.e. 33 percent each) by manual, semimechanized, and mechanized land clearing operations, then approximately 4,640 workers were involved in the IPK subsector in 2001.8 If, on the other hand, it is assumed that mechanized land clearing was used to harvest 50 percent of the 3.6 million m3 and semimechanized land clearing was used to harvest 30 percent of the total, then overall employment in the IPK subsector would drop by 30 percent to 3,782 workers. If the entire 3.6 million m3 were harvested through mechanized land clearing operations, then only 1,084 workers would be employed. Conversely, if the entire 3.6 million m3 were harvested manually, then 12,203 jobs would be created. These figures are generally supported by a survey of 27 IPK operations, representing 37 percent of the 78 new permits issued in 2002. Data on 25 IPK land clearing operations located around the perimeter and inside the Tesso Nilo Forest Complex were compiled by WWF in Pekanbaru (see Table 31 below). In addition, field visits were made to two IPK logging operations near Kerumutan, in southeast Riau. In 2002, the sample of 27 IPK operations generated 1.3 million m3 of timber. Approximately 30 percent of this is estimated to have been commercial logs used for solid wood products, while the remaining 70 percent was small-diameter pulpwood. This level of production was achieved with a total labor force of 809 workers involved in production, transport, administration, and management of the IPK sites.

This figure has been determined by dividing 1.2 million m3 (i.e. one-third of 3.6 million m3) by the average annual productivity per worker for manual land clearing (295 m3/year); for semi-mechanized land clearing (1,350 m3/year); and for mechanized land clearing (3,325 m3/year).

8

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On average, each employee was associated with an annual output of 1,627 m3 of timber. It should be noted, however, that 600,000 m3 – or roughly 45 percent of the total log production by the surveyed IPK operations – was produced at two HTI sites managed by Riau Andalan Pulp & Paper. The use of mechanized land clearing operations at these sites generated an estimated 181 jobs. An additional 309,000 m3 was harvested from three other large IPK sites, accounting for nearly 25 percent of the total volume of timber extracted. These operations generated jobs for 125 workers. Average annual productivity per worker at these five sites was 2,970 m3 per year (a sum that is slightly lower than the 3,325 m3/year estimated for mechanized operations in Table 12). This suggests that annual productivity per worker at the 22 remaining IPK sites in the sample was 748 m3 per year (i.e. 525 workers produced 391,000 m3 in 2002). The sample also showed that the majority of employees in those companies are not from Riau. The local population constitutes about 43% of IPK labor force, whereas workers from outside of Riau make up the remaining 57%. As was the case with HPH concessions, non-Riau workers come predominantly from neighboring provinces of North, West and South Sumatra. Table 13 summarizes the respective wage structures for Riau and non-Riau workers at the surveyed IPK land clearing sites. Table 13: Wage Structure at Surveyed IPK Land Clearing Sites in Riau Wages Riau Worker Non-Riau Worker (Rp/month) (Rp/month) 450,000 550,000 -2,500,000 1,125,000 1,125,000 1,406,000 --850,000 -1,300,000 -1,650,000 275,000 -625,000 --

Activity Survey/cruising Planning Felling/penebangan Hauling/loading Transport Administration Maintenance Catering Security

Source: Survey data; company records

2.5.3 Undocumented Log Production As explained earlier in this study, Provincial Forestry Service statistics for 2001 fail to account for some 13.7 million m3 of roundwood harvested from Riau’s natural forests. This volume includes approximately 5.4 million m3 of commercial logs used for sawnwood or plywood production and 8.5 million m3 of MTH pulpwood consumed by the province’s two pulp mills. These figures have been determined by estimating the log inputs 25

that would have been consumed by Riau’s various wood processing industries to generate the levels of processed outputs that have been reported for that year.9 It is estimated that at least 12.1 million m3 of the overall undocumented log production was harvested through land clearing operations similar to those conducted by IPK permitholders. Therefore, to estimate the levels of direct employment involved in undocumented log production in Riau, it is useful to apply the labor productivity levels calculated in the previous section for manual, semi-mechanized, and mechanized land clearing. If, for instance, it is assumed that each type of harvesting operation (i.e. manual, semimechanized, and mechanized) was used to produce one-third of the 13.9 million m3 of logs harvested from undocumented sources, then approximately 20,236 workers would have been employed in this portion of the sector.10 If, on the other hand, it is assumed that mechanized land clearing was used to harvest 50 percent of the 13.9 million m3 and semimechanized land clearing was used to harvest 30 percent of the total, then overall employment in the IPK subsector would drop by 30 percent to 14,396 workers. If the entire 13.7 million m3 were harvested through mechanized land clearing operations, then only 3,124 workers would be employed. Conversely, if the entire 13.9 million m3 were harvested manually, then 46,440 jobs would be created. The labor productivity level estimated for manual harvesting is generally supported by the findings of field surveys of unlicensed logging operations that were conducted by WWFRiau in 2001 and 2002. These surveys were carried out to document illegal timber harvesting in and around four of the province’s largest remaining tracts of natural forest: Tesso Nilo; Bukit Tigapuluh; Kerumutan; and Rimbang Baling. They found that annual timber production by unlicensed logging operations was on the order of 600,000 m3 each year, while the number of people employed in such operations was about 3,000 (see Table 14). Extraction of timber by teams composed of 5-8 loggers is the most common form of illegal logging in the region. Most of the labor in such logging activities is done manually, but in recent years modified agricultural machinery, pickup trucks and even motorcycles have been employed to intensify production and ease the hardships of extracting increasingly distant stands of commercially valuable timber.

It is known, for instance, that Riau’s two major pulp mills have consumed far larger volumes of ‘mixed tropical hardwoods’ (MTH), reportedly obtained through IPK land-clearing operations, than IPK production levels reported by the Provincial Forestry Service would suggest. During 2000-2002, the APP group’s Indah Kiat mill consumed 6.6 million m3 (2000), 6.9 million m3 (2001) and 7.5 million m3 (2002) per year of MTH which, according to the company, were harvested under IPK permits at its own plantation sites and sites operated by joint ventures and community out-grower schemes (Barr 2002). Similarly, the APRIL group’s Riau Andalan pulp mill consumed 4.2 million m3 (2000), 4.4 million m3 (2001), and 4.8 million m3 (2002) per year of MTH, reportedly obtained from IPK land clearing operations at its own plantation concessions and third-party sites (Barr 2002). Added together, these figures suggest that the province’s pulp mills consumed 10.8 million m3 (2000), 11.3 million m3 (2001), and 12.3 million m3 (2002) per year of MTH per year during 2000-2002 – or roughly two to four times the volumes of pulpwood reported by the Provincial Forestry Service to have been harvested by IPK permit-holders during these years. 10 This figure has been determined by dividing 4.6 million m3 (i.e. one-third of 13.9 million m3) by the average annual productivity per worker for manual land clearing (295 m3/year); for semi-mechanized land clearing (1,350 m3/year); and for mechanized land clearing (3,325 m3/year).

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Table 14: Unlicensed Logging at Four Major Forest Areas in Riau, 2001 and 2002 Forest Area Surveyed Tesso Nilo Bukit Tigapuluh Kerumutan Rimbang Baling Daily Total Annual Total No. of Logging Teams 82 337 95 28 542 542 No. of Loggers 643 1,685 475 125 2,928 2,928 Daily Production (m3/day) 513 674 1,425 58 2,670 587,400

Source: Investigations by WWF-Riau in 2001-2002. Note: Annual total is an estimate based on the assumption that there are twenty working days in a month and loggers work eleven months per year (WWF-Riau).

Out of the total 542 logging teams reported to have been operating in 2001 and 2002, a sample of 82 groups surveyed by WWF in Tesso Nilo and an additional 2 groups in the Kerumutan area surveyed independently for this report revealed that about 73 percent of their labor force originates from Riau, whereas 27 percent are from neighboring provinces. The predominance of local laborers in unlicensed logging is related to the fact that locals generally possess the familiarity with the landscape that is needed to locate remaining stands of high quality timber in Riau and the legitimacy needed to extract these resources within the current political climate. Outsiders typically bring a more sophisticated technical knowledge, which is often needed to operate and maintain mechanical equipment, and administrative skills. 2.5.4 HTI Pulpwood Plantation Development Both APP and APRIL have made substantial investments in pulpwood plantations over the past decade to develop dedicated fiber supplies for their respective pulp mills.11 APPaffiliate PT Arara Abadi began planting Acacia at its 300,000 ha (gross) HTI plantation concession in the mid-1980s in order to supply wood to Indah Kiat. According to company figures released in January 2002, the annual area planted in recent years has ranged from 13,016 ha in 1996 to 18,888 ha in 2000 (Sinar Mas/APP 2002). The company reports that through May 2001, total planted area at Arara Abadi was 130,000 ha and overall net plantable area stood at 178,000 ha.12 Over the last two years, the company has taken steps to secure an additional 167,000 ha at new sites that will be managed through joint venture (JV) agreements with unspecified cooperatives (AMEC 2001).
It should be noted that forestry companies affiliated with APP are owned and managed by APP’s parent conglomerate, the Sinar Mas Group. 12 Both of these figures represent substantial downward revisions from previous reports, which estimated that 180,000 ha had been planted through the end of 2000 and that Arara Abadi’s net plantable area was then 217,000 ha (Spek 2000a). The company explains that the recent revisions are “based on GPS measurements and excluding losses due to land occupation, plantation failures, and previously inaccurate measurements” (Sinar Mas/APP 2002)
11

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APRIL began developing large-scale pulpwood plantations in the early-1990s. Riau Andalan reportedly has access to 195,000 ha of net plantable area at its own HTI plantation site; 85,000 ha at plantation sites held by associated and joint venture companies; and 20,000 ha managed by nearby communities as part of an out-grower scheme (RAPP 2001). According to company figures released in 2001, annual planting at all sites in recent years has ranged from a high of 27,800 ha in 1997 to a low of 18,700 ha in 2000. The company claims that through the end of 2000, 151,000 ha had been planted on all sites (RAPP 2001). APRIL, likewise, has taken steps to secure access to 187,000 ha (net) of forestland that can be converted under joint ventures with 11 different companies now holding forestry concessions, as well as 7,000 ha (net) that can be converted through community out-grower schemes.13 With supplies of MTH within a commercial distance of the two mills rapidly declining, APP and APRIL have announced ambitious plans to fully source their mills’ fiber needs from plantation-grown Acacia by 2007 and 2009, respectively. In each case, the success of these plans will depend on the company’s capacity to expand its annual planting program quite significantly. APP’s wood supply plan is based on annual planting at all sites effectively tripling from 24,000 ha in 2000 to 73,000 ha in 2005, and remaining at 61,000 ha or more each year thereafter (Sinar Mas/APP 2002). APRIL, likewise, projects that annual planting at all sites will increase from less than 19,000 ha planted in 2000 to 49,000 ha by 2003 – an increase of 150 percent over a 3-year period (RAPP 2001). The group then projects that annual planting at all sites will range between 45,000 ha and 49,000 ha through at least 2020.14 Some industry analysts have expressed skepticism that APP and APRIL will be able to expand their plantation bases on such a significant scale over such a short time frame.15 Riau’s Provincial Forestry Service reports that 55,000 ha (net) of pulpwood plantations were established in the province in 2001 (Dinas Kehutanan 2002). It is assumed that this figure includes net replanting at existing plantation sites and the establishment of new plantation sites following the clearance of existing natural forest cover. Although neither APP nor APRIL has yet published its annual planting figures from 2001 or 2002, this figure would appear to be quite plausible – indeed, it represents a 28 percent increase in the combined area (43,000 ha) that the two companies reported planting at all sites in 2000. Given that Indah Kiat and RAPP are also reported to have consumed approximately 3.9 million m3 of Acacia wood during 2001, it can be estimated that roughly 25,500 ha (net)
C. Munoz, personal communication, March 7, 2002, Kerinci. Data provided by APRIL appears to indicate that 75,000 ha of the JV sites have been planted through the end of 2001. 14 It bears noting that APRIL’s projections imply that it can fully supply a 2.0 million tonne pulp mill by planting 49,000 ha or less per year, while Sinar Mas/APP projects that it will need annual planting levels of 61,000 ha to supply a mill of the same size. It is possible that this reflects the significantly greater proportion of Sinar Mas/APP’s plantations that are being developed on peatland soils, as discussed below. 15 AMEC Simons’ recent wood supply assessment of APP’s operations noted, for instance, that “The projected rates of planting required to accomplish the proposed shift from MTH to Acacia within the designated time frame (100% plantation wood by 2007), require annual planting rates far above those achieved in recent years. It was determined in the audit that past targets have not been met (average 83% at WKS and 70% at AA). The annual planting targets in both Riau and Jambi are very ambitious and represent large increments from past performance.”
13

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of the 55,000 ha (net) of plantations were established through replanting at existing sites.16 This implies that some 29,500 ha (net) of plantations were established at new sites. As a first step in determining the number of jobs involved in planting 55,000 ha, Table 15 summarizes the standard labor inputs associated with the development of Acacia pulpwood plantations in Riau. Based on data supplied by RAPP’s forestry staff, they show that plantation development typically involves seven types of labor inputs over a 7-year harvest rotation. These include: initial land clearing (for areas where natural forest is being converted); plantation development (which includes site preparation, planting, weeding, thinning; and general site management); seedling production; forestry planning (surveying and mapping); transport; harvesting; and security. Many of these inputs are concentrated at either the start (i.e. forestry planning, land-clearing, seedling production, site preparation, planting, and transport) or the end (i.e. harvest and transport) of the rotational cycle -which, in turn, is the start of the next rotation. In this way, labor inputs associated with plantation development on any given tract of land are highly cyclical, with sharp peaks in labor inputs during Year 1, when land clearing and planting occurs, and Year 7, when harvesting and replanting is done. Labor inputs show a significant drop during the intervening years (i.e. Years 2-6). Using the standard labor inputs for HTI development summarized in Table 15, it can be calculated that some 14,468 workers were directly involved in the clearing and planting of 55,000 ha (net) of pulpwood plantations that were reported to have been developed in 2001 (see Table 16). It should be noted that this calculation assumes that 25,500 ha of the total area was re-planted on existing HTI plantation sites where 3,935,000 m3 of Acacia were harvested before the new planting was carried out. This initial harvesting activity involved some 1,846 workers, or 13 percent of the total. The remaining 29,500 ha is estimated to have been planted on newly established sites following the clearing of natural forest. This processing involved 1,278 workers, or 9 percent of the total.17 Approximately 7,400 workers, or 50 percent of the total, were involved directly in plantation development activities, which included site preparation, planting, and weeding. Just over 11 percent of the overall employment were involved in seedling production (1,617 workers) or transport (1,668 workers), respectively. The numbers of workers directly involved in managing the 55,000 ha of pulpwood plantations that were developed in 2001 are projected to decline to 3,214 during the plantation’s second year (see Table 16). Approximately 90 percent of the labor inputs during Year 2 are associated with weeding and thinning. During Years 3-6, labor inputs for the entire area are estimated to drop sharply to 728 workers, as little management of the plantation is required. During Year 7, labor inputs rise dramatically to 17,601 workers, as this is when harvest of the first rotation of Acacia and replanting occurs.
This figure is based on the assumption that Acacia stands planted in 1995 had mean annual increments of 22 m3/ha/yr to generate yields of 154 m3/ha. 17 Labor input for land clearing at the 29,500 ha of newly established HTI sites will be subtracted from the estimate of total direct employment for the HTI pulpwood plantation subsector in 2001, in order to avoid duplication of labor estimates for IPK land clearing and undocumented log production, as calculated in the preceding sections.
16

29

To calculate total direct employment in the HTI pulpwood plantation subsector in Riau during 2001, it is necessary to determine not only the labor involved in the development of the 55,000 ha of newly planted sites, but also labor inputs at existing plantation sites that were planted over the preceding several years. To be clear, Table 16 includes an estimate for the numbers of workers (1,846) involved in the harvest of 25,500 ha of Acacia plantations during 2001. Under a 7-year rotation, it is likely that these areas would have been planted in 1995. If it is assumed that total annual planting at all plantation sites in Riau averaged 40,000 ha (net) per year during 1996-2000, then the labor involved in managing these sites during Years 2-6 can be assumed to be roughly three-quarters of the labor required during Years 2-6 to manage the 55,000 ha (net) of plantations detailed in Table 16. This amounts to 4,594 workers. To summarize, this section has estimated that the clearing and planting of 55,000 ha (net) of Acacia pulpwood plantations in Riau during 2001 generated direct employment for 14,468 workers. Of these, 1,278 workers were involved in land clearing activities on approximately 29,500 ha, and their labor has therefore already been counted in preceding sections. Subtracting this figure from the total suggests that 13,190 workers were uniquely involved in the establishment of the 55,000 ha (net) that were planted in 2001. In addition the HTI subsector generated direct employment for some 4,594 workers who were involved in managing existing plantations covering an estimated 200,000 ha (net). These figures indicate that the HTI subsector provided direct employment for a total of 17,784 workers in 2001. By adding together the 55,000 ha (net) of newly established sites and replanted areas developed in 2001 and the 200,000 ha (net) established during 19962000, it can further be estimated that the net planted area under active management by HTI companies in 2001 was approximately 255,000 ha.18 If it is assumed that net planted area represents 65 percent of the gross area under active management, then the gross area of HTI plantations under active management in 2001 was approximately 400,000 ha. A survey of three HTI plantation sites located on the perimeter of the Tesso Nilo Forest Complex found that over 80 percent of the workers at these sites were migrants from other provinces.19 A significant portion of them came from East Java and West Kalimantan. The average wage structure for operational workers at these sites is summarized in Table 17. Table 17: Wage Structure at Surveyed HTI Pulpwood Plantations Wages Riau Worker Non-Riau Worker (Rp/month) (Rp/month) 656,521 757,650

Activity Administration
18

This calculation assumes that the 25,500 ha of plantation sites that were replanted in 2001 represented the entire area that had been planted seven years earlier in 2005. 19 Surveyed plantation companies included PT Rimbah Penarap Indah, PT Ekawana Lestaridharma, and PT National Timber.

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Land preparation Nursery Planting Weeding, thinning Transport Security

474,637 445,474 485,117 473,280 477,221 594,854

386,106 386,106 386,106 386,106 386,106 815,166

Source: Survey data; company records

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Table 15: Standard Labor Inputs for HTI Pulpwood Plantation Development in Riau, Based on a 7-Year Harvest Rotation Activity Land Clearing Chainsaw operators Equipment operators In-field mechanics General workers
Foremen

Year 1
1:20 m3/day 1:50 m3/day 1:150 m3/day 1:100 m3/day 1:300 m3/day

Year 2 0 0 0 0 0
1:20 ha 1:500 ha 1:2500 ha 1:10000 ha 30/sector

Year 3 0 0 0 0 0
1:150 ha 1:3000 ha 1:5000 ha 1:10000 ha 30/sector

Year 4 0 0 0 0 0
1:150 ha 1:3000 ha 1:5000 ha 1:10000 ha 30/sector

Year 5 0 0 0 0 0
1:150 ha 1:3000 ha 1:5000 ha 1:10000 ha 30/sector

Year 6 0 0 0 0 0
1:150 ha 1:3000 ha 1:5000 ha 1:10000 ha 30/sector

Year 7 0 0 0 0 0
1: 8 ha 1:150 ha 1:750 ha 1:10000 ha 30/sector

Plantation Development Workers Foremen Assistants Supervisors Administration Seedling Production Workers Equipment operator Foremen Supervisors Forest Planning Surveyor aides Surveyors Supervisors Transport20
20

1: 8 ha 1:150 ha 1:750 ha 1:10000 ha 30/sector*

1:200 seedlings/day** 35/sector 1:15 workers 1/sector

During Years 2-6, nursery operations are oriented toward providing seedlings for other plantation sites.

1:200 seedlings/day 35/sector 1:15 workers 1/sector

6/team*** 1/team 1/sector

During Years 2-6, labor required for forest planning is assumed to be 10 % of that in Years 1 and 7.

6/team 1/team 1/sector

According to the RAPP data, employment in transport will differ in Year 1 and Year 7 because MTH and Acacia have somewhat different yields per ha. RAPP officials claim that in Year 1, land clearing activities will yield, on average, approximately 130 m3 per ha. In Year 7, harvest of Acacia from the HTI site will produce about 200 m3 of Acacia per ha.

Equipment operators Support Supervisors Administration Harvesting Chainsaw operators
Equipment operators Chokermen General workers Scalers In-field mechanics Guards Harvest supervisor Harvest planning

1:20 m3/day 1:100 m3/day 1:350 m3/day 1/sector

During Years 2-6, labor required for transport is assumed to be approximately 5 % of that in Years 1 and 7.

1:20 m3/day 1:100 m3/day 1:350 m3/day 1/sector

0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0

1:20 m3/day 1:50 m3/day 1:50 m3/day 1:100 m3/day 1:150 m3/day 1:150 m3/day 1:150 m3/day 1:300 m3/day 1:300 m3/day

Security
Rangers Supervisors 1:700 ha 1/sector 1:700 ha 1/sector 1:700 ha 1/sector 1:700 ha 1/sector 1:700 ha 1/sector 1:700 ha 1/sector 1:700 ha 1/sector

Source: Interviews with RAPP forestry officials, February 2003. Notes: *A sector covers an area of approximately 20,000 ha. ** Approximately 1386 seedlings are needed for 1 ha of HTI plantation. *** One team is needed for every 500 ha.

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Table 16: Labor Inputs for HTI Plantation Development Over a 7-Year Harvest Rotation on 55,000 ha (29,500 ha on New Sites and 25,500 ha on Existing HTI Sites) Activity Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Land Clearing (mechanized) on 29,500 ha of New Sites a 710 Chainsaw operators 0 0 0 0 0 Equipment operators 284 0 0 0 0 0 In-field mechanics 95 0 0 0 0 0 General workers 142 0 0 0 0 0 47 0 0 0 0 0 Foremen 1,278 0 0 0 0 0 Subtotal
Harvesting of Acacia on 25,500 ha of Existing HTI sites b Chainsaw operators Equipment operators Chokermen Scalers General workers Guards Mechanics Harvest supervisors Harvest planners Subtotal

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

729 291 291 146 97 97 97 49 49 1,846
6,875 367 73 6 83 7,404 1,417 96 101 3

0 0 0 0 0 0 0 0 0 0
2,750 110 22 6 83 2,971 0 0 0 0

0 0 0 0 0 0 0 0 0 0
366 18 11 6 83 485 0 0 0 0

0 0 0 0 0 0 0 0 0 0
366 18 11 6 83 485 0 0 0 0

0 0 0 0 0 0 0 0 0 0
366 18 11 6 83 485 0 0 0 0

0 0 0 0 0 0 0 0 0 0
366 18 11 6 83 485 0 0 0 0

Plantation Development Workers Foremen Assistants Supervisors Administration
Subtotal

6,875 367 73 6 83 7,404 1,417 96 101 3

Seedling Production Workers Equipment operator Foremen Supervisors

34

Subtotal

1,617 660 110 3 773 1,324 265 76 3 1,668 0 0 0 0 0 0 0 0 0 0 79 3

0 66 10 1 77 66 13 4 1 84 0 0 0 0 0 0 0 0 0 0 79 3 82

0 66 10 1 77 66 13 4 1 84 0 0 0 0 0 0 0 0 0 0 79 3 82

0 66 10 1 77 66 13 4 1 84 0 0 0 0 0 0 0 0 0 0 79 3 82

0 66 10 1 77 66 13 4 1 84 0 0 0 0 0 0 0 0 0 0 79 3 82

0 66 10 1 77 66 13 4 1 84 0 0 0 0 0 0 0 0 0 0 79 3 82

1,617 660 110 3 773 2,037 407 116 3 2,563 2,037 815 815 407 272 272 272 136 136 5,162 79 3 82

Forest Planning Surveyor aides Surveyors Supervisors
Subtotal

Transport Equipment operators Support Supervisors Administration Harvesting Chainsaw operators
Equipment operators Chokermen General workers Scalers In-field mechanics Guards Harvest supervisor Harvest planning Subtotal
c

Subtotal

Security
Rangers Supervisors Subtotal

82

14,668 3,214 728 728 728 728 17,601 Sources: Derived from data provided by RAPP Forestry Department, February 2003. Note: a Labor inputs for initial land clearing activities on 29,500 ha of new plantation sites are based on assumed yields of 130 m3/ha for MTH cleared from natural forest; b Labor inputs for harvesting of Acacia from 25,500 ha of existing HTI plantation sites are based on assumed yield of 154 m3/ha for sites planted in 1995; c Labor inputs for harvesting of Acacia at HTI sites planted in 2001 are based on the assumed yields of 200 m3/ha.

Total

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2.6 Employment from Wood Processing Industries This part of the study assesses the numbers of workers that are directly employed in various types of wood processing in Riau. The sections below examine each of the following segments of the provincial wood processing industries: plywood and woodworking mills; licensed sawmills; unlicensed sawmills; and pulp and paper production. 2.6.1 Plywood and Wood Working Mills According to provincial forestry statistics, Riau had 14 plywood and woodworking mills operating in 2000 – down from 16 mills in 1998 -- and they produced 1,037,066 m3 of wood panels and other processed wood products (see Table 18) (Dinas Kehutanan 2001). In 2001, the number of mills had declined further to 13, but overall production had risen slightly to 1,052,316 m3. By early-2003, at least one additional mill had closed. Table 18: List of Plywood Mills in Riau by Location and Production Capacity, 2000 Company Name PT Kea Wood Industries II PT Olympia Veneer PT Korindo Abadi PT Asia Forestama Raya PT Nusantara Pacific PT Ewan Super Wood PT Sola Gratia Plywood PT Kampariwood Industries PT Perawang Lumber Industry PT Panca Eka Bina Plywood PT Siak Raya Timber PT Kea Wood Industries PT Pertiwi Prima Plywood PT Murini Timber PT Surya Dumai Industries PT Ardjuna Perdana Total
Source: Kanwil Riau 2000

District/Municipality Kampar Indragiri Hulu Kepulauan Riau Pekanbaru Pekanbaru Pekanbaru Pelalawan Siak Siak Siak Siak Siak Siak Siak Siak Rokan Hilir

Plywood Capacity (m3/yr) 78,000 24,000 164,000 40,000 36,000 17,250 70,000 42,000 95,600 120,000 120,000 78,000 40,800 30,000 140,000 67,000 1,162,650

To assess the numbers of workers employed by Riau’s plywood and wood-working subsector, a sample of six mills – representing approximately 50 percent of the province’s total installed capacity – was surveyed. Table 19 summarizes the capacities, production levels, and numbers of workers employed by these mills in 2001 and 2002. The survey shows that the six sampled mills employed 10,770 during 2001 and 9,748 workers during 2002, respectively. Average productivity levels per worker during at these mills was approximately 39.6 m3 of plywood per year.

Table 19: Production and Employment Levels for Surveyed Plywood and Wood Working Mills, 2000 and 2001 Company Surya Dumai Siak Raya Panca Eka Bina Sola Gratia Asia Forestama Ewan Superwood Total Capacity 2001 2002 (m3/yr) Prod’n (m3) Employees Prod’n (m3) Employees 140,000 67,038 1,907 92,905 2,241 120,000 122,058 3,107 121,206 2,551 120,000 93,946 2,081 118,988 1,931 70,000 17,700 590 8,750 300 40,000 78,111 2,600 64,212 2,140 17,250 10,750 485 13,500 585 507,250 389,603 10,770 419,561 9,748

Source: Company data and records from Dinas Kehutanan Propinsi Riau for production and employment figures. Processing capacity figures are from Kanwil Riau 2000.

If the average employment-production relationship obtained in the survey is applied to the total plywood and wood working production for Riau in 2000 (1,037,066 m3), the overall employment for this sub-sector would be around 26,188 workers. Similarly, in 2001 employment in plywood and wood working mills in Riau would total 26,573 people. It should be noted that both estimates are far in excess of approximately 12,000 strong labor force reported by the provincial forestry officials in these mills in both years (Dinas Kehutanan 2001). At the mills surveyed during the course of this study, approximately 60 percent of the workers originated from Riau, while roughly 40 percent were migrant laborers from neighboring provinces. 2.6.2 Licensed Sawmills Sawnwood production represents an important segment of Riau’s wood processing sector. In 2001, the province had an estimated 600 sawmills in operation. Of these, approximately 350 were believed to possess the licenses and permits necessary to operate legally, whereas the remaining 250 mills were operating without legal approval (Dinas Kehutanan 2001; WWF 2001). In contrast to Riau’s plywood industry, the sawnwood subsector has grown in recent years, with 38 new licensed mills initiating operations between 2000 and 2001. Statistics from the Provincial Forestry Service indicate that in 2000, Riau’s licensed sawmills produced approximately 960,000 m3 of lumber, and employed over 9,900 workers (see Table 20). In 2001, output from the province’s licensed sawmills rose to just under 1.2 million m3 of lumber, and it is estimated that this segment of the forestry sector then employed approximately 12,250 workers. If it is assumed that these mills are, on average, operating with a 50 percent rate of efficiency, then it is likely that they consumed some 2.4 million m3 of roundwood during 2001. (Production figures for 2002 were not available at the time this study was conducted).

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Table 20: Production and Log Consumption by Licensed Sawmills in Riau, 2000-2001 Year 2000 2001 Number of Sawmills 312 350 Production (m3) 959,434 1,187,364 Logs Consumed (m3) 1,918,868 2,374,728 Workers Employed 9,905 12,253a

Source: Statistik Dinas Kehutanan Propinsi Riau 2001. Note: a Employment figures for 2001 are estimates based on labor productivity in 2000.

Due to time limitations when the field work for this study was conducted, it was possible to survey directly only four licensed sawmills. Two of the sampled sawmills were located in the Tesso Nilo area, and the other two were found near Bukit Tigapuluh National Park in the south of Riau. Given the small sample size, it must be emphasized that the results should only be extrapolated to the provincial level with extreme caution, as they clearly do not represent a statistically relevant sample. The four licensed sawmills surveyed for this study produced 4,935 m3 of lumber in 2001 and employed 68 workers. In 2002, they produced 6,650 m3 of lumber and employed 70 workers. The data indicate that within the sample, the labor-production ratio in 2001 was 1 employee per 72.6 m3 of sawn timber. If this relationship is applied to overall sawn timber production by licensed sawmills in Riau in 2001, the total employment figure for the province that year is extrapolated to be 12,499 persons. This figure is, in fact, quite close to the estimated 12,253 workers employed by Riau’s licensed sawmills that was derived from Dinas Kehutanan production and employment data for 2000 and 2001 (see Table 20 above). Similar calculations for the 2002 are not possible as the sawn timber production data for Riau province have not yet been published. The sample shows that workers from outside Riau dominate employment in the province’s licensed sawmills. In 2001, the total labor force of 68 workers in the sample was comprised of 28 Riau residents (42%) and 40 migrants (58%). In 2002, this changed only very slightly, as 28 of the 70 workers in the four surveyed mills were Riau residents (40%) and 42 were migrants (60%). Employees from outside Riau are generally reported to originate from North Sumatra, West Sumatra and other neighboring provinces. Reported wage structures at the four sawmills that were surveyed suggest that there is often a disparity between Riau and non-Riau workers in terms of the distribution of higherpaying jobs. The Riau residents and migrants seem to be involved in the production process in more or less equal measure, with generally identical wages for workers involved in the same jobs. However, most of the higher-paying jobs at the mills – that is, administration, supervision, general repairs and maintenance of saw blades -- are often the domain of workers from outside Riau (Table 21).

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Table 21: Wage Structure for Licensed Sawmills in Riau, 2002 Wages Riau Worker Non-Riau Worker Activity (Rp/month) (Rp/month) Administration -1,000,000 Supervisor -1,750,000 Grader 750,000 750,000 Operator 730,000 730,000 Assistant 540,000 540,000 Helper 750,000 -Blade sharpening -1,000,000 Security 400,000 -Maintenance -750,000 Catering 250,000 300,000 Book keeping 300,000 300,000
Source: Survey data, February 2003.

2.6.3 Unlicensed Sawmills The majority of unlicensed sawmills in Riau are concentrated in areas containing the largest remaining tracts of natural forest. Surveys conducted by WWF-Riau in 2001 and 2002 identified 250 unlicensed sawmills in the vicinity of four main forest complexes in Riau (Table 22). Cumulatively, these mills employed over 2,600 people and produced nearly 900,000 m3 of sawn timber per year. Table 22: Unlicensed Sawmill Production and Employment in Riau, 2001-2002 Sawmills Forest Area Tesso-Nilo Bukit Tigapuluh Kerumutan Rimbang Baling Total per day Total per year Number of Production Employment mills (m3/day) 85 370 3,018 52 949 268 101 1,212 606 12 110 50 250 2,641 3,942 250 2,641 867,240

Source: Investigations by WWF-Riau in 2002, follow-up to data from 2001. Note: Annual total is an estimate based on the assumption that there are 20 working days in a month and sawmills operate 11 months per year (WWF-Riau).

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The WWF surveys conservatively estimate that unlicensed sawmills in Riau do not recover more than 50 percent of the logs they process. Based on such assumption, the raw material needed to produce 867,240 m3 of sawnwood would be approximately 1,734,480 m3 of logs. These figures are comparable to the officially reported volumes of logs consumed and sawnwood produced by licensed sawmills (see Table 20). This suggests that the real production of sawn timber in Riau may be about twice the volume that is reported. The labor force in unlicensed sawmills is largely composed of workers from outside of Riau. The data on unlicensed sawmills in the vicinity of Tesso Nilo and Bukit Tigapuluh National Park show that around 74% of the labor is from the provinces neighboring Riau. Only 26% are Riau residents. This ratio would indicate that approximately 1,954 Riau residents and 687 migrant workers were employed in unlicensed sawmills in Riau in 20012002. It is possible that the figures reported by the WWF survey significantly underestimate the numbers of illegal sawmills operating in Riau, as well as the numbers of workers employed in this subsector. In a confidential report, the District Forestry Service in Indragiri Hulu identified 140 unlicensed sawmills in that district alone. These mills were reported to have produced 86,715 m3 of sawntimber in 2001 and to have employed 2,077 workers. This suggests that, on average, annual productivity levels per worker were 42 m3/person/year at the Indragiri Hulu mills. By contrast, the WWF data suggests that annual productivity levels per worker were 328 m3/person/year at the 250 illegal sawmills covered in those surveys. This pronounced discrepancy suggests that further information is needed to determine, with a greater degree of reliability, the numbers of unlicensed sawmills operating in Riau, the numbers of workers employed at these facilities, and the productivity of these workers. 2.6.4 Pulp and Paper Production Riau’s pulp and paper industry has undergone very rapid expansion in recent years. PT Indah Kiat Pulp & Paper, the APP group’s flagship mill located in Perawang, expanded its pulp production capacity from 790,000 tonnes per annum in 1995 to 2.0 million tpa in 2001 (Spek 2000; APP 2002). During the same period, the company also raised its installed paper production capacity from 200,000 tonnes to 700,000 tonnes per annum. In 2001, Indah Kiat reportedly produced 1.8 million tonnes of pulp, of which 1.2 million tonnes were sold externally (APP 2002). The APRIL group’s PT Riau Andalan Pulp & Paper increased its pulp processing capacity from 850,000 tonnes per annum in 2000 to 1.3 million tpa in early 2001 with the installation of a second pulp line (PL-2A). Very shortly thereafter, it installed an additional pulp line (PL-2B) to raise capacity to 2.0 million tpa (Barr 2001). In 2002, the company also installed a second paper machine to bring its paper production capacity to 700,000 tonnes. In 2001, RAPP reportedly produced 1.3 million tonnes of pulp and 281,000 tonnes of printing and writing paper. In 2002, the company’s production rose to 1.7 million tonnes of pulp and 295,000 tonnes of paper.

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This section examines employment figures associated with RAPP’s pulp and paper operations, and these figures are then extrapolated to estimate direct employment at Indah Kiat’s pulp and paper complex.21 Given that the installed pulp and paper production capacities at RAPP and Indah Kiat are quite similar, an estimate of the numbers of workers employed by Indah Kiat can be derived from employment figures reported by RAPP. RAPP officials report that the Riau Andalan Pulp & Paper mill complex and related transport and shipping facilities directly employ approximately 3,420 workers. As Table 23 shows, nearly one-half of these – or 1,548 workers – are employed at RAPP’s pulp mill. The remainder are employed at the company’s paper mill (543 employees); affiliated transport and shipping facilities (731 employees); the mills’ power plant (245 employees); an onsite chemical plant (17 employees); catering and support services for the town site at the mill complex (221 employees) and security at the mill and town sites (125 employees). In interviews, RAPP officials indicated that most of these employees are considered to be members of the company’s permanent labor force, and are paid on a monthly basis. Table 23: Direct Employment at APRIL’s Riau Andalan Pulp & Paper Mill Complex Segment of Operations Pulp mill Paper mill Transport and shipping Power plant Chemical plant Catering and support services Security Total Number of Jobs 1,548 543 731 245 17 221 125 3,420 Percent of Total 45 16 21 7 1 6 4 100

Source: Interview with RAPP officials, Pangkalan Kerinci, Riau, February 2003.

The number of workers employed by RAPP at its pulp and paper mill complex is surpassed quite significantly by the numbers employed by the company at affiliated forestry operations. As described above, the company sources its wood from IPK land-clearing activities and Acacia pulpwood plantations at the company’s own HTI plantation concessions; from IPK land-clearing and plantation development at ‘joint venture’ sites; and from IPK land-clearing activities at third-party sites. APRIL officials report that direct employment at RAPP’s own forestry operations in 2001 totaled 8,751 workers. Approximately one-quarter of these (2,182 workers) were classified as ‘permanent employees’ and paid on a monthly basis, one-fifth were classified as ‘permanent daily
Of the province’s two pulp and paper producers, only APRIL agreed to participate in this study, and company officials met with Krystof Obidzinski at RAPP’s mill site in Pangkalan Kerinci in February 2003. By contrast, APP declined to meet with the study’s authors or to make information available about employment at their companies’ operations, in spite of multiple requests. However, the fact that the RAPP and Indah Kiat pulp mills are operating on effectively the same scale suggests that the numbers of workers employed by the two companies – at least in relation to pulp production and associated forestry operations -are likely to be fairly similar.
21

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labor’ or ‘target-based labor’ (536 and 1,184 workers, respectively); while over one-half were classified as ‘irregular daily laborers’ (4,849 workers). In 2002, total direct employment in RAPP’s forestry activities reportedly declined significantly to 6,521 workers. According to company officials, this resulted from greater out-sourcing (sub-contracting to local firms) of forestry operations. Wage levels for RAPP employees working at the operational level, as reported by company officials in February 2003, range from Rp 435,000 per month for unskilled workers to Rp 5.5 million per month for some managers (see Table 24). These figures cover basic salary only, and are exclusive of transport and food allowances, health coverage, and other benefits provided by the company. Salaries for employees at the administrative level are significantly higher than this. Table 24: Basic Wage Structure for Operational Level Employees at PT Riau Andalan Pulp & Paper Type of Labor Unskilled-semiskilled Skilled Supervisor-superintendent Managerial Monthly Wage (Rp/month) 435,000-1.1 million 595,000-1.6 million 1-4.9 million 2.3-5.5 million

Source: Interview with RAPP officials, Pangkalan Kerinci, Riau, February 2003. These figures represent basic salary only, and do not include transport allowance, medical benefits, food allowance and other benefits.

RAPP’s labor force at both the mill complex and the company’s forestry operations is predominantly composed of workers who originated from outside Riau. RAPP officials reported that approximately 35 percent of the overall labor force comes from ‘Riau and West Sumatra’, suggesting that Riau ‘locals’ constitute some subset of this group. Approximately 33 percent of the labor force comes from North Sumatra and Aceh, while 23 percent is from Java, and the remaining 6 percent comes from other locations. In addition to employment generated at the company’s mill complex and forestry operations, RAPP has also created jobs associated with the company’s community development program. Since 1999, RAPP has conducted various community development initiatives in 71 villages within five sub-districts (kecamatan), located near the mill site. According to RAPP officials, these programs have cost the company approximately US$ 7 million annually and cover a wide range of activities, including: agricultural extension services (i.e. an integrated farming systems program); village infrastructure development (i.e. roads, schools, mosques); educational assistance; support for social and communal activities; as well as financial support and training for small- and medium enterprise development. RAPP officials reported that community development activities have generated 70 jobs for RAPP staff, as well as significant livelihood improvements for participating villages.

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Direct employment at APP’s Indah Kiat Pulp & Paper mill complex in Perawang can be extrapolated, with some degree of reliability, from the employment figures reported by RAPP. Like RAPP, Indah Kiat has an installed pulp production capacity of 2.0 million tonnes per annum and an installed paper production capacity of 700,000 tonnes per annum. Although the actual production levels at the two mills clearly vary over time, the fact that the two mills have essentially identical production capacities (at the time this study was conducted) suggests that the number of workers directly employed by Indah Kiat is likely to be very similar to the employment figures reported by RAPP: approximately 3,400 workers total at the mill complex, with approximately 45 percent employed at the pulp mill; 16 percent at the paper mill; 21 percent at the company’s transport and shipping facilities; 7 percent at the mills’ power plant; less than 1 percent at the complex’s chemical plant; 6 percent in catering and support services for the town site at the mill complex; and less than 4 percent in security at the mill and town sites (see Table 25). Table 25: Estimated Direct Employment at APP’s Indah Kiat Pulp & Paper Mill Complex Segment of Operations Pulp mill Paper mill Transport and shipping Power plant Chemical plant Catering and support services Security Total Number of Jobs 1,550 540 730 240 20 220 120 3,420 Percent of Total 45 16 21 7 1 6 4 100

Source: Derived from employment figures for RAPP, presented in Table 23 above.

Like RAPP, Indah Kiat probably accounts for direct employment of between 6500 and 8700 jobs at affiliated forestry and plantation operations. As described above, many of these are linked to the operations of PT Arara Abadi, the Sinar Mas Group plantation company which manages a 300,000 ha (gross) HTI plantation concession in Riau to supply wood to the Indah Kiat pulp mill. As with RAPP, it is likely that many of these jobs are not permanent positions; rather, a majority of them are likely to be classified as ‘target-based labor’ or ‘irregular daily labor’. It is unclear what, if any, jobs have been created by community development efforts on the part of Indah Kiat and its affiliated companies. From this analysis, it can be concluded that Riau’s pulp and paper industry directly employs some 6800 people at the province’s two large mill complexes. Moreover, it is estimated that RAPP and Indah Kiat currently account for direct employment of up to 15,000 jobs at associated forestry and plantations operations (discussed above under the sections on ‘HTI Pulpwood Plantation Development’ and ‘Land-Clearing by IPK PermitHolders’). It should be emphasized that this figure is only a very rough estimate due to the fact that APP declined to participate in this study. It should also be stressed that a significant portion of the jobs at RAPP and Indah Kiat’s forestry and plantation operations

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are temporary in nature and that the numbers of jobs available at particular plantation sites are highly cyclical (i.e. peaking in years when planting and harvesting occur). 2.7 Summary and Analysis This study has calculated the levels of direct employment generated by the various types of roundwood production and wood processing industries in Riau’s forestry sector during 2001. It is estimated that, on aggregate, some 86,500 workers were employed in the sector. Of these, approximately 38,000 workers were engaged in commercial timber or pulpwood production, while just over 48,500 were involved in processing activities at plywood, sawnwood, or pulp and paper mills. 2.7.1 Direct Employment from Commercial Timber and Pulpwood Production Table 26 summarizes the levels of direct employment associated with each type of commercial timber extraction and pulpwood production during 2001. It shows that HTI pulpwood plantations accounted for approximately 48 percent of the overall employment in log production, with over 17,700 workers involved in planting 55,000 ha and harvesting 3.9 million m3 at existing plantation sites. It is, likewise, estimated that some 14,400 workers – or 38 percent of the total -- were involved in harvesting 13.9 million m3 of roundwood from undocumented sources, accounting for roughly two-thirds of the logs produced in the province. Reported IPK land clearing activities employed just under 3,800 workers (or 10 percent of the total), while HPH logging concessions employed over 2,000 workers (or 5 percent of the total). Table 26: Direct Employment from Commercial Timber and Pulpwood Production in Riau Province, 2001
Subsector Log Production (m3) Area Planted (ha) Direct Employment Percent of Total (%)

HPH Logging Concessions IPK Land Clearing Undocumented Log Production HTI Pulpwood Plantations Total

113,065 3,656,686 13,944,089 3,935,000 21,648,840

0 0 0 55,000 55,000

2,032 3,782 14,396 17,784 37,944

5.3 9.9 37.9 47.9 100.0

Note: Employment figures for ‘IPK land clearing’ and ‘Undocumented log production’ both assume that 50 % of total production is conducted through mechanized operations, 30 % through semi-mechanized operations, and 20 % through manual operations.

These figures document the relationship between log production and direct employment during year 2001 only – effectively providing a snapshot of a particular historical moment. To put these figures in a broader perspective, however, it is useful to consider what they may mean in relation to the major trends in roundwood production that are now occurring in Riau. This section summarizes these trends and analyses their likely implications for employment in the province’s forestry sector. 44

First, selective logging by HPH concession-holders was the largest source of timber production through the mid-1990s, but the HPH subsector is now in a process of rapid decline. Of the 63 HPH timber concessions allocated by the Ministry of Forestry during Suharto’s New Order regime, no more than 20 are still operating. Reported log production by HPH-holders dropped from 863,000 m3 in 1998 to 113,000 m3 in 2001. In many cases, HPH concessions that were originally allocated in the 1970s and early 1980s have not been renewed when their 20 year contracts have expired. Under Indonesia’s regional autonomy process, provincial and district officials have frequently reallocated these areas for conversion to other uses. This study estimates that direct employment for Riau’s HPH subsector declined from 8,455 employees in 1999 to 1,468 employees in 2001 – a drop of more than 80 percent over the preceding three years alone. Second, forest conversion has risen sharply in recent years, and land clearing is now the dominant means of log production in Riau. This increase in forest conversion has been driven, to a large extent, by the growing demand for wood fiber on the part of Riau’s pulp industry and the expansion of the province’s oil palm sector – two processes that are often inter-linked. The provincial government has supported this large-scale increase in land clearing by allocating over 300 IPK permits between 2000 and 2002, thereby authorizing the clearance of all standing forests on an aggregate area of 655,000 ha. In 2001, reported roundwood production from IPK sites totaled 3.6 million m3. In addition, this study estimates that at least 12.7 million m3 of wood, and perhaps as much as 13.9 million m3, was harvested through the clearing of natural forests from undocumented sources. Altogether, reported and unreported land clearing in Riau is estimated to have totaled up to 17.6 million m3 in 2001. This involved the clearing of approximately 135,000 ha and generated employment for over 18,000 workers (accounting for 48 percent of the total employment in commercial log and pulpwood production for the province). It should be noted that less than one-fifth of the entire area cleared was replanted with Acacia for pulpwood production. As Table 27 shows, land clearing (from reported IPKs and undocumented sources) involves a far higher level of labor input per unit of land than either HTI pulpwood plantations or HPH selective logging concessions. Averaged across all log production that occurred in Riau in 2001, land clearing activities typically generated employment for 134 workers per 1,000 ha. By contrast, HTI pulpwood plantation development generated employment for approximately 43 workers per 1,000 ha, and HPH concessions supported jobs for less than 2 workers per 1,000 ha. It is critical to recognize, however, that employment generated by land clearing activities is short-term in nature and inherently unsustainable. In contrast to the selective logging and rotational management practices prescribed for HPH timber concessions, IPK regulations allow permit-holders to remove all remaining forest cover from the site being logged. For policymakers concerned with employment issues in Riau, it will be important to determine how much longer forest conversion and land clearing activities in the province can continue at the pace that has been set over the last few years. In addition, it will be

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necessary to evaluate the extent to which workers involved in land clearing have access to jobs or other opportunities for income generation on the land they have cleared, once the forest cover is removed. Another important point to emerge from this analysis is that the degree of labor inputs involved in land clearing varies quite considerably depending on whether an area is being cleared in a manual, semi-mechanized, or mechanized manner. As noted earlier, the conversion of 1,000 ha typically requires 440 workers if it is done manually; 96 workers if it is done with semi-mechanized operations; and 39 workers if done through mechanized operations. Similarly, manual land clearing operations typically employ 3,390 workers to harvest 1.0 million m3; whereas semi-mechanized operations employ 741 workers; and mechanized operations employ 301 workers. This implies an 11-fold difference between manual and mechanized operations in terms of employment generation. Table 27: Direct Employment Per Area of Land Utilized by Forestry Subsector in Riau, 2001
Subsector Direct Employment Total Area (ha) Employment Per 1,000 ha

HPH Logging Concessions IPK Land Clearing Undocumented Log Production HTI Pulpwood Plantations Total

2,032 3,782 14,396 17,784 37,944

1,114,063 28,128 107,262 400,000 1,649,453

1.8 134.4 134.4 42.9 --

Note: The total area figure for HPH logging concessions refers to the gross area covered by the 20 HPH licenses that were active in Riau during 2001. For IPK land clearing and undocumented log production, total area has been estimated by dividing log production by 130 m3/ha. For HTI pulpwood plantations, total area has been estimated, first, by adding the assumed net area planted during 1996-2000 (200,000 ha) and the reported net area of plantation development during 2001 (55,000 ha on new areas and replanting sites combined); and, second, by dividing this sum by 0.65 to obtain the gross area covered by the plantation sites under operation (assuming net plantable area is 65% of gross area). It should be noted that the gross area for HTI plantations reported here is substantially lower than the 600,000 ha of gross plantation area (at all sites) that APP and APRIL reported having access to in 2001.

Third, weak regulatory institutions and strong market demand have resulted in two-thirds of Riau’s total log production being harvested from undocumented sources. Based on the assumed volumes of log inputs utilized by Riau’s wood processing industries, this study estimates that 13.9 million m3 of logs harvested from natural forests during 2001 are not accounted for in the official statistics. Approximately two-thirds of this volume was in the form of small-diameter logs that were harvested to meet RAPP and Indah Kiat’s considerable demand for MTH. With the information available, it is not at all clear what portion of this wood was harvested legally and what portion came from illegal sources. On the one hand, it is possible that much of these logs may have been harvested legally by holders of IPK licenses or harvesting permits issued by local Bupati’s, and simply not recorded by the

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Provincial Forestry Service. On the other hand, numerous reports have suggested that illegal logging is widespread in Riau, and that IPK licenses and Bupati permits are often misused to provide the appearance of legality for logs that are harvested outside authorized areas. Distinguishing between legal and illegal log flows is often difficult in cases where independent ‘chain-of-custody’systems either do not exist or are not yet fully operational. From the perspective of employment, this situation implies that an estimated 14,400 workers – or nearly 40 percent of all those involved in log production in Riau – are working in what may be characterized an informal sector. To be clear, this figure has been derived from the assumption that 50 percent of undocumented production is conducted through mechanized operations, 30 percent through semi-mechanized operations, and 20 percent through manual operations.22 This, in turn, implies that approximately 9,424 workers – or two-thirds of the 14,400 – were involved in manual logging operations, while 3,088 were involved in semi-mechanized logging, and 2,090 were involved in mechanized harvesting. It is likely that those involved in mechanized or semi-mechanized harvesting were employed by companies that are either closely affiliated with or working as contractors to RAPP or Indah Kiat. Much of the manual logging is likely being done by members of local communities harvesting forests in and around their villages. Fourth, the HTI pulpwood plantation subsector has grown substantially over the past decade and is likely to continue to expand over the medium term to meet the fiber needs of Riau’s pulp mills. This study estimates that companies and outgrower schemes affiliated with APP and APRIL planted a total of 55,000 ha (net) of Acacia plantations in 2001, and that the overall gross area of pulpwood plantations then under active management was 400,000 ha (gross). Both APP and APRIL are currently trying to expand the net area of their respective plantation programs so they will fully supply the 9.8 million m3 of wood fiber that each of their Riau mills needs annually. APP has announced plans to raise its annual planting to 73,000 ha (net) in 2005, and then to plant 61,000 ha (net) or more each year thereafter (Sinar Mas/APP 2002). APRIL is seeking to raise its annual planting to 49,000 ha (net) by 2003, and to plant between 45,000 ha and 49,000 ha (net) in each of the following years (RAPP 2001). To meet these expansion targets, the two producers will effectively need to double the aggregate area planted in 2001 and to maintain annual planting levels at 110,000 ha (net) This study estimates that nearly 13,200 workers were involved in the establishment of the 55,000 ha (net) of pulpwood plantations reported to have been planted in 2001. In addition, approximately 4,600 workers were then involved in managing approximately 200,000 ha (net) that had been planted during 1996-2000. These figures reflect the fact that labor inputs for pulpwood plantations are highly cyclical. The numbers of workers employed peaks in Year 1, when land clearing, site preparation, and planting occur; and again in Year 7, when harvesting and replanting are carried out. During the intervening years,
The number of workers engaged in undocumented log production could be higher than 14,400 if the portion of logs harvested manually were, in fact, greater than 20 percent. As noted earlier, if it is assumed that each type of harvesting operation (i.e. manual, semi-mechanized, and mechanized) was used to produce one-third of the 13.9 million m3 of logs harvested from undocumented sources, then approximately 20,236 workers would have been employed in this portion of the sector.
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particularly Years 3-6, employment drops sharply as relatively few workers are needed to manage the site. Management of the 55,000 ha (net) planted in 2001, for instance, is expected to have required approximately 3,200 workers in 2002 (Year 2) and fewer than 750 workers during 2003-2006 (Years 3-6). In terms of employment generation, this means that conversion of any particular area of land to a HTI plantation will create a fairly significant number of jobs every seven years. In the intervening years, relatively few jobs will be created and yet the land will not be available for other uses. This may be an acceptable land-use option in areas where there is little competition for land or on tracts of land that have few other productive uses. However, in areas where there are multiple land-use options, significant competition among stakeholders for access to this land, and/or high levels of unemployment, then the implications of the highly cyclical labor demands of HTI plantations need to be rigorously assessed. In terms of livelihood security for rural communities in Riau, the tradeoffs between pulpwood plantations and other land-use options take on added significance with APP and APRIL now seeking to expand their plantation resource bases. Communities located in areas where the companies are seeking to develop plantations are often faced with the question of whether the benefits from employment and income generation will be greater if Acacia trees are planted on a particular tract of land or if that land is used for oil palm production, rubber production, or small-holder agriculture. In many cases, the answer to that question depends on whether community members have access to other sources of income beyond the 7-year labor cycle that would incur if the land were planted with Acacia. At the same time, it is not always the case that local communities have access to whatever jobs are created by plantation development efforts in the areas where they live. Indeed, at three plantation companies surveyed for this study, over 80 percent of the workers originated from other provinces. In this study, it was not possible to determine whether or not this reflects a broader trend in Riau. However, if it does, this would suggest that HTI plantation development provides relatively minimal benefits for the local population. Another important issue relates to the fact that until now, virtually all of the HTI pulpwood plantations established in Riau have been developed on sites where natural forest has been cleared before the Acacia is planted. The main reason for this is that APP and APRIL have sought to use large volumes of MTH to satisfy the fiber supply needs of their mills.23 The companies also frequently seek to gain added legitimacy for their operations by mentioning the fact that their forestry operations are a major source of employment in Riau. However, this study demonstrates that relatively few jobs are created by the use of mechanized land clearing on forested areas to establish plantation sites. Indeed,
On this point, APP and APRIL generally argue that they are using the MTH simply as a ‘bridging supply’ of fiber until their plantations become fully operational. However, both companies have expanded their pulp mills at a much faster pace than they have brought plantations online. Their reliance on MTH stems, to a significant degree, from the fact that they have not planted sufficient areas of Acacia plantations prior to these capacity expansions.
23

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mechanized land clearing generates only 39 jobs for every 1,000 ha cleared (assuming a standing timber volume of 130 m3/ha). This would suggest that all other factors being equal, there would be relatively little foregone employment generation if future HTI pulpwood plantations were located on lands without forest cover or on forested areas with much smaller standing volumes of timber. 2.7.2 Direct Employment from Wood Processing Table 28 summarizes the numbers of workers directly employed by Riau’s forestry sector industries during 2001. This study estimates that over 26,500 workers were employed by the province’s 13 plywood and wood working mills, accounting for nearly 55 percent of all jobs in wood processing industries. Licensed sawmills and unlicensed sawmills generated 12,500 and 2,600 jobs, respectively, to account for over 30 percent of the total employment in wood processing. Riau’s two large pulp and paper mills – RAPP and Indah Kiat – together generated direct employment of 6,480 jobs in 2001, representing 14 percent of the total. Table 28: Direct Employment in Wood Processing Industries in Riau Province, 2001 Subsector Plywood and Wood Working Licensed Sawnwood Unlicensed Sawnwood Pulp and Paper Total Production 1,052,316 m3 1,187,364 m3 867,240 m3 3,150,000 Adt -Direct Employment 26,573 12,499 2,641 6,840 48,553 Percent of Total (%) 54.7 25.7 5.5 14.1 100.0

As with the estimates of employment in roundwood production, these figures are perhaps best interpreted within the context of the sector’s major trends. The following sections outline the current trajectories of Riau’s wood processing industries and briefly examine their implications in terms of forestry sector employment. First, plywood production is undergoing a process of gradual decline; nonetheless, it remains the largest source of direct employment among Riau’s wood processing subsectors. Since 1998, the number of plywood mills operating in the province has dropped from 18 to 12, and several of these mills are currently running well below their installed capacity. Industry sources anticipate that further mill closures and/or capacity reductions are likely to occur in the next few years as large-diameter logs become increasingly scarce – and particularly if international market conditions for tropical plywood remain unstable. It is also possible that the Ministry of Forestry, which now regulates plywood and wood working mills, may seek to decommission some of the province’s wood panel production capacity as part of its broader effort to reduce log demand to a more sustainable level.

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Due to the large number of workers employed by plywood mills – in some cases, as many as 3,100 at a single processing facility -- it should be emphasized that the closure of individual mills can have a fairly significant impact in terms of job loss. Moreover, the findings of this study suggest that plywood production generates far more employment per unit of roundwood consumed than other wood processing industries. As shown in Table 29, Riau’s plywood and wood working mills employed, on average, 126 workers for every 10,000 m3 of roundwood they utilized. By contrast, licensed sawmills employed approximately 53 workers for every 10,000 m3 of logs consumed, while the province’s pulp and paper mills employed fewer than 5 workers for the same volume of roundwood input. Table 29: Direct Employment Per Unit of Roundwood Consumed by Wood Processing Subsector in Riau, 2001 Subsector Plywood and Wood Working Licensed Sawnwood Unlicensed Sawnwood Pulp and Paper Total Direct Employment 26,573 12,499 2,641 6,840 48,553 Roundwood Consumed (m3) 2,104,632 2,374,728 1,734,480 15,435,000 21,648,840 Employment Per 10,000 m3 126.2 52.6 15.2 4.4 22.4

Second, licensed and unlicensed sawnwood production has grown in recent years, but the industry draws much of its raw material supply from unsustainable land clearing operations and undocumented logging. In 2001, Riau had at least 600 sawmills, and these facilities are estimated to have produced over 2.0 million m3 of lumber. Licensed sawmills range in capacity from 500 m3 to 40,000 m3 per year, and numbers of employees range from less than 10 to 450 per mill, although the vast majority of mills employ fewer than 50 workers. Most of the province’s unlicensed sawmills are small-scale units located on the perimeter of Riau’s four main natural forest complexes: Tesso Nilo, Bukit Tigapuluh, Kerumutan, and Rimbang Baling. These facilities employed, on average, 11 people per mill; however, the sawmills near Tesso Nilo are significantly larger than those near Kerumutan and Rimbang Baling. The growth of the sawnwood subsector in recent years appears to have been catalyzed, to a significant degree, by the expansion of forest conversion to supply wood for Riau’s pulp mills and by the breakdown of law and order in the province’s forestry sector. With the clearing of natural forest for MTH and plantation development, it is often the case that up to 30 percent of the logs harvested have a diameter at breast height (dbh) of 30 cm or more. These are typically utilized by sawmills in the area, while the smaller-diameter wood is sent to the pulp mills. The rise in the number of sawmills in recent years has also coincided with the proliferation of informal logging following the collapse of the Suharto regime and the decentralization of forest administration. With little effective regulation being exercised by Riau’s provincial or district governments, teams of illegal loggers are

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supplying sawmills with large volumes of logs harvested from former HPH concessions, protected forests, or other areas that were previously inaccessible to them. This dependence of Riau’s sawnwood industry on unsustainable and informal log supplies suggests that the subsector’s current level of production – and employment generation – is not sustainable over the long-term. Over the medium term, however, sawnwood production will likely remain an important source of forestry sector employment for as long as forest conversion and informal logging continue at the current pace. The large number of licensed and unlicensed sawmills in Riau has made the industry difficult to regulate. In contrast to Riau’s plywood or pulp mills, sawmills are dispersed geographically across the province and are often small enough that they can be relocated relatively easily in response to the shifting availability of timber supplies, or the shifting attention of regulatory authorities. At the same time, sawmills employ relatively small numbers of workers, so it is theoretically possible for government agencies to target closure of individual mills that are found to be operating illegally or in particular regions where overcapacity is a problem, without displacing large numbers of employees at those facilities. In many cases, however, sawmills are located close to where the logs they process are being harvested, and legal and illegal loggers who would potentially be displaced – as well as local government authorities -- are likely to protest any closure of mills. It should be mentioned that the worker productivity levels estimated for unlicensed mills is a significant anomaly in this study’s findings. As shown in Table 29, approximately 15 workers are reported to be employed at unlicensed sawmills per 10,000 m3 of roundwood consumed, whereas over 52 workers are employed at licensed sawmills to process an equivalent volume of logs. If correct, this would suggest that the unlicensed mills are significantly more efficient and/or more capital intensive than their licensed counterparts – both of which seem unlikely. It is possible that the WWF survey data on which this is based inadvertently underestimate the numbers of workers employed by unlicensed sawmills or overestimate those mills’ production levels. As noted earlier, such a conclusion is supported by figures reported by Dinas Kehutanan in the District of Indragiri Hulu. In this district alone, officials reported the existence of 140 illegal sawmills with a combined processing capacity of 86,715 m3/year. These mills reportedly employ 2,077 workers, suggesting that approximately 120 workers are involved in processing 10,000 m3 of roundwood. Clearly, this is an area that would benefit from further study. Third, Riau’s pulp and paper industry has undergone rapid expansion since the mid-1990s and currently consumes over three-quarters of the province’s total roundwood production; however, the industry is highly capital-intensive and Riau’s two large pulp and paper mill complexes employ relatively few workers compared to other types of wood processing. It is estimated that APP and APRIL have invested approximately US$ 8.0 billion, in aggregate, to increase annual production capacity at Indah Kiat and RAPP, respectively, to 2.0 million tonnes of pulp and 700,000 tonnes of paper products. They have also invested approximately US$ 450 million to bring supporting plantations online. Operating at their full current capacities, the two mills combined are capable of consuming some 19.6 million

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m3 of roundwood per year. In 2001, the two mills consumed approximately 15.4 million m3 of roundwood to produce 3.1 million tonnes of pulp, with roughly three-quarters of this reportedly being harvested from natural forests while the remaining one-quarter came from the companies’ HTI pulpwood plantations. One of the more remarkable figures to emerge from this study is the fact that only 6,840 workers were directly employed in processing such a large volume of logs. Indeed, this suggests that the pulp and paper industry generates direct employment of fewer than 5 jobs in wood processing for every 10,000 m3 of roundwood consumed, as compared to 126 jobs generated by the plywood industry and 52 jobs generated by the licensed sawnwood industry for the same volumes of roundwood. In other words, for every cubic meter of roundwood that is processed, a plywood mill will generate 25 times more employment than a pulp mill; and a sawmill will generate 10 times more employment. Indah Kiat and RAPP, however, operate on a scale that is several orders of magnitude greater than even the largest plywood and sawnwood processing facilities, and therefore, the numbers of workers employed at their mill sites is substantially larger in an aggregate sense. It is important to recognize that both Indah Kiat and RAPP generate far more employment in plantation development and roundwood production than in wood processing at their mill sites. In 2001, for instance, it was estimated that HTI plantation development activities associated with the two mills employed some 17,784 workers, while the harvesting of 11.5 million m3 of pulpwood logs through documented and undocumented land clearing provided employment for approximately 11,950 more. Altogether, this suggests that the pulp and paper industry, together with related land clearing and plantation operations, provided jobs for some 36,574 workers in 2001. Approximately two-thirds of these workers are directly employed by the pulp companies or forestry companies affiliated with them. However, nearly three-quarters of the workers hired by those forestry companies are not full-time permanent employees. Rather, they are classified as either ‘daily labor’ or ‘target-based labor’, generally making between Rp 435,000 and Rp 1.1 million per month (or US$ 550-1,450 per year) and having little longterm job security. Moreover, as noted above, the jobs associated with land clearing are generally not sustainable over the long term; and the conversion of forest land to plantations frequently involves the displacement of local communities and/or undermining of livelihood options for households previously dependent on the forests or land being allocated to plantations. In mid-2002, the Ministry of Industry and Trade issued a series of announcements indicating that it would make renewed efforts to promote the pulp and paper industry, which it views as being a critical sector in supporting Indonesia’s macroeconomic recovery. From the perspective of employment generation, it is important to assess whether further investment in pulp and paper production is a cost-effective means of creating jobs in the forestry sector and whether the jobs created are likely to be sustainable over the long term. This type of assessment is particularly necessary to the extent that public funds are being used to subsidize the industry’s expansion and/or forest resources are being managed unsustainably in order to maximize the industry’s short-term profits.

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In very rough terms, the cost per job created by Riau’s pulp and paper industry can be estimated by dividing the approximately US$ 8.5 billion invested in the industry and its supporting plantations by the 36,574 jobs estimated to have been directly created by the pulp and paper industry and related plantation development and land clearing activities in 2001. This suggests that each job required an investment of approximately US$ 218,000. Amortized over the 20-year life of the mills’ machinery, it can be estimated that each job costs, on average, US$ 10,900 per year. With nearly three-quarters of the workers employed by the pulp and paper companies and their forestry affiliates classified as ‘daily workers’ or ‘target-based labor’, a significant portion of these employees make less than US$ 1,000 per year in wages (or Rp 750,000 per month).24 It is difficult to determine the total value of the capital subsidies that the Indonesian government has given to APP and APRIL over the last several years. However, it can be estimated confidently that the two producers have received direct and indirect government subsidies amounting to several hundred million dollars or more. These have been provided through favorable terms for the companies’ debt restructuring agreements with state-owned banks and IBRA25, lucrative tax incentives, and access to large volumes of low-cost wood through the clearing of natural forests. If it is assumed, for the sake of analysis, that the total value of government subsidies to the two groups has amounted to US$ 500 million, it could be argued that the Indonesian government has, in effect, spent these funds to support the creation of 36,754 jobs. However, if it is estimated that the average annual wage for unskilled and semi-skilled workers is approximately US$ 1,000 per year (i.e. Rp 750,000 per month), then the government’s US$ 500 million could have supported 50,000 workers over 10 years had it been invested in public job creation initiatives. If it turns out that the government’s subsidy to APP and APRIL is US$ 1.0 billion, then the number of workers that could have been employed would be twice as large – i.e.100,000 workers over 10 years. These figures certainly raise questions about the benefits of public subsidies for further investment in pulp and paper production, particularly given the degree of concentration that currently exists within the industry. Generally, one would expect that government subsidies to strategic industries would leverage private sector investment in order to achieve objectives that have outstanding social or environmental benefits for society at large. In the case of Riau’s pulp and paper sector, however, it would appear that the government is subsidizing two large producers that create relatively few jobs for the amount of funds invested -- certainly far fewer jobs than if the government simply invested the amounts of the subsidies directly in job creation programs.

This figure assumes an exchange rate of Rp 9,000 per US$ 1.00. As of 2002, IBRA holds some US$ 1.3 billion in debts associated with APP’s parent conglomerate, the Sinar Mas Group. It is unknown how much of this debt the Government will ultimately recover; however, IBRA has often collected 20 percent or less of the debts owed by other forestry debtors.
25

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Morevoer at the time this study was conducted, Indah Kiat and RAPP together consumed roughly 20 million m3 of roundwood per year, nearly three-quarters of which has been harvested through clearing of natural forests. Forestry companies affiliated with APP and APRIL have also secured some 585,000 ha (gross) of plantation area and are seeking to secure additional plantation areas totaling 350,000 ha (gross). Plantation areas that have been allocated to those companies in the form of HTI plantation concessions are not available for other types of land-use for at least 42 years. While outgrower schemes may provide some local communities with income-generating opportunities by growing pulpwood for the mills, it is also the case that lands planted under Acacia are effectively unavailable for other types of income generation or livelihood support for at least the 7year rotation period.

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