II. Methodology
The year 1995 was a high water mark for the Indonesian timber industry. During that year 585 timber concessions were held throughout the country, and the price of Indonesian forest exports were strong. But starting in early 1996, then-Minister of Forestry Djamaludin Suryohadikusomo began to revoke and reassign timber concessions to other uses.
Because the area of concessions began to shrink in 1996, 1995 is used as a baseline year for the industry at its most robust. This study examines the distribution of timber resources at mid-decade, and whether patterns of ownership changed in subsequent years, and if so, which companies lost or benefited.
All the findings of this study are based on the output from a database designed by Dr. Adrian Whiteman, an economist with the ITFMP for many years. The database contains information on all known HPHs, and HPH-linked sawmills and plywood mills in Indonesia. The data on HPHs include name, location, the timber group to which they belong, and their total area. The data on mills include name, location, the timber group to which they belong, and the amount of roundwood the government says they are allowed to consume.
The data entered into the database comes from the best available sources. The first source was Profil Industri Pengolahan Kayu (Profile of the Wood Manufacturing Industry), published by the Direktorat Pemanfaatan dan Peredaran Hasil Hutan (Directorate for the Utilization and Distribution of Forest Products), located within the Direktorat Jenderal Pengusahaan Hutan (Directorate General of Forest Utilization) of the Departemen Kehutanan (Department of Forestry). The publication shows the linkages between specific mills and HPHs in Indonesia and served as the basis of the database from which this study was produced.
The book was a valuable source of information, but had several limitations. First, it was published in 1990, and is thus dated. Second, it does not contain a full list of names of HPH-linked mills or HPHs. This is because the Direktorat Pemanfaatan dan Peredaran Hasil Hutan (PPHH) does not have direct access to such information. For mill information, PPHH must rely on the Ministry of Industry; for HPH information, on another directorate within the Direktorat Jenderal Pengusahaan Hutan, Direktorat Penyiapan Pengusahaan Hutan (Directorate for Preparation of Forest Utilization). Both the Department of Industry and Trade and the Direktorat Penyiapan Pengusahaan Hutan (PPH) recognize the value of the information they hold, and are not always forthcoming with information when PPHH comes knocking.
The information contained in Profil Industry Pengolahan Kayu was updated using Capricorn Indonesia Consult's Company Profile: Integrated Woodbased Industry in Indonesia (1994); and Pusat Data Bisnis Indonesia's Forestry Indonesia (1994). Considering the difficulty that must have been involved in obtaining the information contained in these books, it is quite exceptional that they were published at all, although their high price tags (just under US$1,000 each) resulted in their contents remaining unknown to all but a devoted and specialized readership.
Information on mills and HPHs from Capricorn Indonesia Consult (CIC) and Pusat Data Business Indonesia (PDBI) was cross-referenced and harmonized with that from Profil Industri Pengolahan Kayu. CIC and PDBI enabled us to identify hundreds of HPHs and mills that Profil Industri Pengolahan Kayu did not include, along with their corporate affiliations in many cases.
It should be noted here that the ITFMP database organizes timber groups in a way that does not fit entirely with common notions of how these groups themselves are organized. Indonesian timber conglomerates appear to do their best to hide their actual size from the public. One tactic is for a company which has already acquired a number of timber concessions to spin them off to one or more family members, who then run these concessions under a different company name.
This tactic has been used for some years in Burhan Uray's Djajanti Group. Sujono Varinata, Burhan's son, initially ran the company's eastern Indonesian operations, but now runs his own substantial timber company, the Budhi Nusa group. On paper, Budhi Nusa is a separate entity from the Djajanti group, but in reality it is still a part of the latter group, and the Jakarta offices of all of Budhi Nusa's HPHs are located within Djajanti headquarters. This report combines their holdings for the purpose of calculating concession control.
This study also considers the two-concession Telaga Mas timber group as being included under the umbrella of the Barito Pacific conglomerate. The Sumber Mas group was classified in this database as belonging to the Army. The reasoning for this is that the Army's Yayasan Kartika Eka Paksi and PT. Tri Usaha Bhakti control minority or majority shares in virtually every one of Sumber Mas's HPHs and mills. Similarly, the Brata Jaya Utama group is classified as belonging to the national Police. Sumber Mas is an Army company, and Brata Jaya Utama a national Police company (Indonesian Observer 1998). Finally, this report considers the Jati Maluku group to be a part of the Bob Hasan group, and the Suharto family's Harapan Kita Utama timber concessions as belonging to the Salim Group. For the purposes of this study, "timber group" is defined as a company with more than one HPH.
Mutiara Timber (now Indonesia's 19th largest concession holder) is operated and owned by the chief commodity buyer for the Salim Group (now Indonesia's 12th largest concession holder). But even though the two conglomerates do business together in the area of food commodities, it was decided to keep the two groups separate, largely because there appears not to be a large overlap of holdings between them.
Once the process of constructing 450 inter- and intra-group mill-HPH linkages was completed, it was noticed that the database contained a large number of mills of unknown ownership linked to HPHs whose ownership was known, and an even larger number of HPHs of unknown ownership tied to mills of known ownership.
To accommodate this shortfall in information, unaffiliated mills and HPHs with supply or demand linkages to known groups were included in those groups. The timber industry groups presented later on in this report are based on their supply and demand linkages, in addition to actual ownership, and are therefore in some cases slightly larger than they would be if they were determined on the grounds of ownership alone.
Due to this choice, approximately 200 additional inter- and intra-group HPH-mill linkages were identified. Most of these appeared to confirm the importance of the major industry groups. At this stage, only about 100 HPH-mill linkages outside the major industry groups remained in the database. The fact that approximately 650 out of the total of 750 HPH-mill links identified in the baseline study occurred within or between 64 timber groups suggests that there is a high concentration in the timber industry.
A further difficulty stemmed from the fact that certain HPHs supply mills belonging to more than one industry group. It was then decided that a single HPH could be attributed to more than one industry group with the areas of such HPHs apportioned equally between the mills it was known to supply.
For example, Ratah Timber Company, a 125,000 hectare HPH belonging to the Roda Mas group, was listed as a supplier of both the Barito Pacific group's Sangkulirang Bhakti plymill and Roda Mas's own Tirta Mahakam plymill. It was therefore decided that the group affiliation for half of the Roda Mas HPH would be re-designated as Barito Pacific, with half remaining with Roda Mas.
The group affiliations and hectarage of nine HPHs were partially re-assigned in this way from one group to another. Four of the nine HPHs partially reassigned in this manner went to the Barito Pacific timber company. The table below shows timber concessions whose hectarage has been, for the purposes of this study, divided between other timber companies and Barito Pacific as well as a single case where a timber concession belonging to the Air Force has its supply solely dedicated to Barito Pacific.
Table 2.1 Timber concessions not licensed to Barito Pacific which partially or fully supply Barito Pacific mills
A more common, although less complicated, problem were HPHs which supplied mills in other groups. It was decided in such cases that, as long as the HPH from outside the mill's industry group had a sole-supplier relationship with the mill in question, the HPH would simply be re-assigned to the same industry group as the mill.
For example, the Djajanti group's mammoth Nusantara Plywood mill is supplied by thirteen Djajanti HPHs, and one Barito Pacific HPH (Sedia Mulia Utama). It was decided therefore that Barito's Sedia Mulia Utama, and its entire 170,000 hectares would be re-assigned to the Djajanti group. The affiliation of a total of 24 HPHs were transferred in this manner from one group to another.
Again, the process of adjusting the database for HPHs which supply mills from more than one group, and for mills supplied by HPHs from more than one group resulted in a definition of industry grouping based not only on ownership, but on supply and demand linkages as well. The significance of these refinements is that they give a more accurate picture of the total supply and demand for timber in each of the major timber groups.
Once these various data entry tasks were completed, the database was ready to run. However, before assessing the supply and demand balance of the various timber groups, a final hurdle remained. It became necessary to come up with a way to determine the amount of roundwood that each group's HPHs were putting out. One way to determine this would be to add together the total volume of wood entailed by each timber concessions' annual cutting plan. But such plans are not easily available.
ITFMP growth modeling studies in Indonesia's forests indicate that sustainable production over an unlimited time horizon is equal to 0.8 to 0.9 m3/hectare annually. Therefore, in theory, it should be possible to simply multiply the total hectarage of all Indonesia's concessions by 0.8 to 0.9 in order to obtain the total annual roundwood output of the country. However, according to the Department of Forestry's official statistics, the total area of HPHs in Indonesia at mid-decade was 60 million hectares, while production from those same HPHs was only 22 million m3 (Statistik Kehutanan Indonesia 1994/1995: 5,7). This suggests that a national multiplier closer to 0.4 would be in order.
Therefore, to estimate the roundwood output of each group, national forestry statistics were used to derive a series of "provincial multipliers" which could be used to calculate the average output per hectare for any given HPH, or any given province, in Indonesia. This multiplier was calculated by taking the total area of HPHs in each province and dividing that number by total HPH roundwood production per province. The results, including the multiplier for each province, are presented in the following table.
The table reveals a great discrepancy in HPH production between provinces. For example, West Irian has a low average output of only 0.17m3/hectare. This is due to the lower volumes of commercial species in the Australian flora found east of Lydekker's line.
Low levels of production elsewhere are less easy to explain. For example, HPHs in once timber-rich Riau province produce on average only 0.17 m3/hectare. This is, in all likelihood, the outcome of decades of forest clearing and unsustainable logging practices. Concessions now have so little virgin forest left that the annual felling licenses cover relatively small areas and/or produce low volumes of timber.
To summarize, a number of sequential steps were taken in order to determine how Indonesia's timber concession holdings and mill capacities are divided between timber groups and provinces. First, all known linkages between timber concession and concession-linked mills were entered into a database. Next, the timber group affiliations of those concessions and mills were obtained from two authoritative private publications.
Steps were then taken to smooth out the data. Nominally unaffiliated concessions acting as sole suppliers to larger groups, and nominally unaffiliated mills acting as sole buyers from larger groups, were folded into those groups. In the cases where it was claimed that two or more groups were affiliated with a given concession or mill, the output of that concession, or the consumption of that mill, was divided proportionally between the groups on whose behalf such claims were made.
Finally, estimates were produced of the roundwood output of each concession, each timber group, and each province, based upon the use of a multiplier for each province. These multipliers are listed in Table 2.2 above.
By adding together the total estimated output of each concession in a group, a figure was arrived at of the total roundwood output of each timber group in Indonesia in 1995. Similarly, by adding together the total hectarage of the concessions in a given province, and then multiplying that number by the multiplier for that province, a figure was arrived at for the total HPH roundwood output for each province.
Knowing the raw material supply available from all timber concessions in each province, and then comparing that amount with the amount of raw material demanded by all sawmills and plymills in each province, gives us an idea of the probable contribution that each province's sawmills and plymills made to the consumption of logs deriving either from legal but non-sustainable land-clearing, or from illegal sources at mid-decade. Similarly, knowing the amount of raw material supply available to each timber group, and then comparing that amount to the raw material demanded by each group's HPH-linked sawmills and plymills, gives us an idea of the probable contribution that each group's sawmills and plymills made to the consumption of logs from either land clearing or illegal sources. Timber group figures are conservative, as pulpwood consumption is not included. Findings are presented in the following section.