Indonesia's biggest paper firm back in the spotlight

A firefighter trying to extinguish a peatland fire in an oil palm plantation in Pelalawan in Sumatra yesterday. APP and its suppliers control concessions covering 2.6 million ha in Indonesia. Reports indicate that there were more than 300 fire alerts
A firefighter trying to extinguish a peatland fire in an oil palm plantation in Pelalawan in Sumatra yesterday. APP and its suppliers control concessions covering 2.6 million ha in Indonesia. Reports indicate that there were more than 300 fire alerts recorded on those concessions in Sumatra earlier this month.PHOTO: REUTERS

It is told to supply info on its Singapore and Indonesia subsidiaries and what suppliers are doing to fight fires

It is the largest pulp and paper firm in Indonesia, backed by the powerful Widjaja family.

But it seems Asia Pulp and Paper (APP) is now Singapore's biggest target in the fight against illegal forest fires, which have led to the haze crisis affecting millions across Singapore, Malaysia and Indonesia.

It has been ordered by the National Environment Agency (NEA) under the Transboundary Haze Pollution Act to supply information on its Singapore and Indonesian subsidiaries, as well as what its suppliers are doing to fight fires.

APP stood out among the five companies that Environment and Water Resources Minister Vivian Balakrishnan named on Friday as possible culprits behind forest fires in concession land in Indonesia.

This is because compared to the four firms also under investigation, two of which are its suppliers, APP is one of the world's largest manufacturers of tissue, stationery and other paper products. Contrary to earlier reports, APP is not listed on the Singapore Exchange (SGX) and remains under the control of the Widjajas' Sinar Mas Group, one of the largest Indonesian conglomerates. The group's business covers pulp and paper, agriculture, property, financial services, energy, infrastructure and telecommunications.

Despite its business pedigree, APP has on a number of occasions found itself thrust under the spotlight of the authorities here.

In 2001, APP was the subject of a probe by the Commercial Affairs Department (CAD), after creditors and investors cried foul when APP defaulted on US$13.9 billion of debt earlier that year. But the case, along with a parallel probe by the CAD into APP's sister company, Asia Food and Properties, was closed two years later without any disclosure as to why the firms were investigated.

Today, Sinar Mas ranks among Indonesia's richest business groups. Investors have since funded five Singapore-listed firms controlled by Sinar Mas with $4.3 billion of loans and bonds.

This has helped the Widjaja empire reach a market value of US$7.5 billion (S$10.7 billion) on the SGX, data compiled by Bloomberg in May showed.

Singapore-listed firms run by the Widjajas include the world's second-largest palm oil producer Golden Agri-Resources, Indonesia's largest developer Sinar Mas Land, coal miner Golden Energy and Resources, investment holding company Bund Center Investment and lifestyle developer Top Global.

APP is the timber plantation and paper manufacturing arm of Sinar Mas. The firm and its suppliers control concessions covering 2.6 million ha in Indonesia.

Reports indicate that there were more than 300 fire alerts recorded on those concessions in Sumatra earlier this month.

APP also has dozens of subsidiaries from Mauritius to the Cayman Islands, in different functions such as trading, distribution, investment and financing.

The paper supplier does not compile an annual report on its website, posting only two annual reports of two operating subsidiaries based in Jakarta, Indah Kiat Pulp and Paper, and Pabrik Kertas Tjiwi Kimia.

From these, The Sunday Times learnt that APP also provides management services to the two subsidiaries, deriving income in the form of management fees.

For instance, Indah Kiat paid APP a management fee of US$8.6 million for the six months ended June 30, according to its latest financial report.

Tjiwi Kimia paid APP a management fee of US$4.7 million in that same period.

Sinar Mas does not consolidate its total group earnings in one financial report either. It had previously said the rationale for this is that each company in the group is independent.

However, the pulp and paper arm of Sinar Mas is one of the group's largest divisions by asset size.

Indah Kiat had US$6.56 billion and Tjiwi Kimia US$2.76 billion in total assets at the end of June this year, according to their latest financial reports.

The last year for which APP reported its accounts to Singapore's Accounting and Corporate Regulatory Authority (Acra) was 2013.

A search with Acra revealed three directors in connection with APP. They are Indonesian Suresh Kilam, Australian Cosimo Borrelli, and Japanese Kunihiko Naito.

APP company secretary Lee Tai Wai, a Singaporean, is also one of the owners of limited-liability partnership Audit Alliance, the firm appointed to audit the accounts of the Aljunied-Hougang-Punggol East Town Council.

Efforts by The Sunday Times to contact the four men were not successful by press time.

Environmental activists have also been attacking Sinar Mas for years, resulting in companies such as toymaker Mattel cutting APP-made paper packaging out of their supply chain.

Some, like sustainability expert Jessica Cheam, called the NEA's latest invocation of the Transboundary Haze Pollution Act "significant".

"It is the first time that Singapore has commenced legal action and also the first time that the Act will be tested since it was passed last year," she said. "The litmus test would be how the companies respond to it, and whether it would prove an effective measure for taking companies to task if they are found responsible for the illegal fires."

Responding to queries on the latest enforcement action by the NEA, an APP spokesman said the company is preparing to respond to the agency.

But she added that as a forest-based business, APP gains absolutely nothing from burning land.

"Fires, therefore, pose an economic threat for APP and cost us a lot of money and resources to deal with," she said. "In addition, the resulting damages from fires cause sufferings to our employees and communities within our operations, as well as threaten the very forests that we have invested to protect."

Yesterday, Indonesian President Joko Widodo said on Facebook that he was committed to cracking down on the culprits behind the forest fires. "My commitment alone, however, will not work without the support of all parties: government, private and public," he said.


Correction note: An earlier version of this report stated that Top Global is under the Sinar Mas Group. It is not. Madam Sukmawati Widjaja, who runs Top Global, is vice-chairman of the Sinar Mas Group, but the group does not have a direct or indirect shareholding in Top Global. We are sorry for the error.

A version of this article appeared in the print edition of The Sunday Times on September 27, 2015, with the headline 'Indonesia's biggest paper firm back in the spotlight'. Print Edition | Subscribe