APP Indonesia - do you the mills out there?

LONDON, Okt. 20, 2009 (RISI) - I have just returned from a very hectic week long tour of three of Asia Pulp & Paper (APP) Indonesia's facilities on the islands of Java and Sumatra, complete with helicopter overviews, and even an earthquake thrown in at the end to really keep us on our toes!

But one thing this trip has really taught me from the outset, it is not just jungles on the ground in Indonesia, the companies and mills themselves also have their own fast growing dynamic internal jungles as they apply entrepreneurial flair on mass, attacking just about every sector where pulp, paper and even print are needed.

APP is actually the brand under which a cluster of large, independently owned and operated mills get their products to market. These mills are spread throughout the rapidly developing nation, which is widely thought by economists and analysts as the fifth BRIC country, along with Brazil, Russia, India and China. Indonesia is expected to be the sixth largest economy in the world over the next 5 or so years.

Under the APP Indonesia umbrella, the mills themselves employ a combined workforce of 70,000 people, produce in the region of 7.5 million tonnes/yr of pulp, paper and converted products, and generate around US$4.5 billion in sales worldwide.

Jewels in each crown

It seems that each of mills I visited had an individual jewel in the crown which sets itself apart from what we might think of as a 'normal' paper mill.

The first I visited was Indah Kiat Pulp & Paper, Parawang, in the resource rich Riau province in Sumatra. The integrated mill is not far from the thriving provincial capital Pekanbaru and makes pulp from both acacia and eucalyptus fiber to the tune of 800,000 tonnes/yr and makes a variety of papers including copy paper and churns out around 1.2 million tonnes/yr of paper and board. The mill employs around 13,000 people.

But the highlight of this mill tour was a helicopter flyover which included not only the massive 2,400 ha mill site, but perhaps the jewel in the crown in this region, the Bukit Batu Biosphere Reserve, a recently appointed UNESCO Man & Biosphere site for special interest. We flew for a full hour over the 172,000 hectare site, which is made up of completely untouched pristine jungle and tropical rain forest. Since 2004, APP's pulpwood supply companies here set aside more than 70,000 ha of core conservation area and help to protect the zone from illegal logging by creating a buffer zone of plantations around the reserve which makes it all but impossible for illegal operators to access the high value trees.

Another day, another island, another mill

Our next mill visit was on the island of Java, and to Tjiwi Kimia, close to Surabaya, the country's second largest city. The mill is a non integrated paper mill and converting facility, making well over 1 million tonnes/yr of all types of printing and graphic paper and board, and generated an income of US$1,350 million in 2008.

The jewel in the crown of this particular mill is it's technologically advanced converting and printing facility which brings in close on a quarter of the site's financial turnover. Using its own paper and board, it prints a variety of high quality products for customers all over the world, including fashion retail outfits and major publishers.

Pindo Deli was the last of the Indonesian mills visited, around a two hour drive west of the capital Jakarta. The specialisation here is focusing on non commodity, high value products. The mill produces tissue and high quality copy paper, as well as carbonless papers. It generated a turnover of US$1,300 million in 2008.

The jewel in the crown here? Another environmental one. APP Indonesia's pulpwood suppliers have invested in around 1500 ha of denuded wasteland close to the mill, which was all but useless due to its poor soil. Work has been done over the last few years to develop a plantation that as well as supplying wood, acts as a local resource for the grazing of cattle and other domestic animals, and there is a proposal to open it up as a recreational facility for people in the area.

The BIG questions answered

On the last day of my visit, I spent the morning with some of the top management at APP Indonesia's headquarters in the center of Jakarta, the country's capital, where some of the bigger questions about strategy, and the future of APP were addressed. Let's just say the answers are revealing and we will be running a series of articles on the Asian giant over the next few weeks both in PPI magazine and online.

APP has had its critics, and comes in for a hard time on a regular basis as regards the environment, but on my visit, I can categorically state that there is an inter-company spirit flowing here of environmental, social and commercial sensitivity that would make any paper producers in the West proud. Perhaps some of those arm chair critics should do the same as me, get on a plane and come and see for themselves the hard work that is being done by not only APP Indonesia, but plenty of other like minded companies in this rapidly growing region.

As I was getting ready to leave the country after a quite amazing glimpse into the unique way that APP tackles the challenges of producing pulp and paper on a colossal scale, a reminder of other challenges the country faces came in the shape of a 6.4 magnitude earthquake that rocked the capital city. Although terrifying, once the panic had subsided among the city dwellers, it was clear to see that Indonesian people are survivors, whether it be in the giggling relief that comes after a big fright, or the way they tackle business issues that involve commercial survival, this nation is going to be a serious one to be reckoned with in the future.

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Issued by:  RISI

Author: Mark Rushton

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Issue date: October 13, 2009

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