Source: Malaysiakini

Company bankrupt, Sarawak’s mega-paper mill in trouble

Tony Thien

2:00pm Mon Aug 26th, 2002

A billion-Ringgit pulp-and-paper company — the first in Sarawak — in which a state government agency teamed up six years ago with the now-bankrupt Indonesian-owned Asia Pulp & Paper Ltd — has been placed on official receivership, according to several lawyers familiar with the case.

Asia Pulp & Paper which had been de-listed from the New York Stock Exchange after running into debts it could not pay amounting to more than US$10 billion had a majority stake in Borneo Pulp & Paper Sdn Bhd, with the remaining stake held by the state-owned Sarawak Timber Industry Development Corporation (STIDC).

Reliable sources told malaysiakini that the state government had already taken several steps to protect its own interests in the company which had been earlier given massive tracts of land for tree plantation in Bintulu — some of which are being opposed by local natives — to support the proposed paper mill.

Lawyers that malaysiakini spoke to said they first heard of the receivership about two weeks ago when a case involving Native Customary Rights (NCR) land claim came up in the Kuching High Court against Borneo Pulp & Paper, and the defendant’s counsel informed the court of the company’s current status.

It is learnt there are several cases of NCR land claims pending against the company.

Last year, a NCR land claim came up in court involving Iban longhouse dwellers in the Bintulu area, and High Court judge Ian Chin — in what was described as a landmark case — ruled in favour of the claimants.

The receivership order is said to be connected with a large syndicate loan that Borneo Pulp & Paper obtained, but apparently it had failed to service interests on amounts already drawn. This is believed to involve about RM100 million.

In financial distress

This development had also come after news that the foreign partner’s parent company Asia Pulp & Paper had been delisted from the New York Stock Exchange after being in financial distress in its global business operations.

Moves were made to find new foreign investors or partners, including those from Sweden, Finland and even Thailand. Interest was shown initially but Asia Pulp & Paper’s presence was said to have been a stumbling block in the exercise.

In May this year, the state government made an announcement that "it has taken an unprecedented step to resume (take back) the tree plantation land alienated earlier for the Borneo Pulp & Paper project".

The Ministry of Resources Planning and Management in a statement said "the step had been taken after lengthy and careful consideration as it was necessary to protect the interests of the state and its people."

"It is important for Sarawak to move ahead with the project in order to develop a viable pulp-and-paper industry in Sarawak, and her people, and more importantly, to further diversify the state’s economy," according to the statement.

This was the first time that the state government came up with a statement to explain what was going on.

The Sarawak Timber Industry Development Corporation (STIDC) entered into a joint venture with Asia Pulp & Paper to implement the project in 1996.

"APP (Asia Pulp & Paper) is the majority shareholder and the project manager under the joint venture agreement," the statement explained.

Behind schedule

However, the ministry added, six years on, the construction of the paper mill had yet to start and the development of commercial tree plantation was far behind schedule.

On its part, the STIDC had procured all the necessary land and forest resources, as well as the necessary approvals to enable the project to move ahead.

The ministry’s statement said that on March 12, 2001, Asia Pulp & Paper had unilaterally declared a debt moratorium against its worldwide creditors of over US$13 billion (more than RM50 billion).

Then on July 3 the same year, Asia Pulp & Paper was suspended and delisted from the New York Stock Exchange and one year later, there did not seem to be any significant progress in its complex debt restructuring, it added.

Under those circumstances, STIDC had on Oct 15, 2001 made an offer to purchase the shares of Asia Pulp & Paper in the joint-venture company. "However, some six months later, the parties had not reached a settlement and the offer by STIDC had lapsed on April 30, 2002."

In addition, on May 9, 2002, the syndicated lenders served a letter of demand on Borneo Pulp & Paper, demanding payment of all outstanding indebtedness.

The ministry, which is also headed by Chief Minister Abdul Taib Mahmud, said "the state government had no alternative but to reluctantly take the unprecedented step to resume the tree plantation land and to compensate the lenders and the joint venture company in accordance with Sarawak land laws".

In financial distress

It did not give details of this compensation, other than to say that the state government felt that the six years’ delay in the project was "unfortunate".

"And as much as it was reluctant to do so, it (the government) had to act responsibly by taking the unprecedented step to resume the three plantation land alienated to the project earlier," it added.

The ministry said this move would enable the government to move ahead with the project "to bring further economic development to Sarawak, to diversify its economy and to protect the interest of the state, and her people and to look after the welfare of the staff, who had been so loyal and dedicated despite the many challenges they were facing as a result of financial predicaments facing the project.’

Malaysiakini understands that what in effect this means is that the state government has taken back the plantation proposed for the project and that it is no longer under Borneo Pulp & Paper.

It also learnt that the STIDC is setting up a new company to be alienated with the plantation land of some 250,000 hectares and that three Sarawak-based timber conglomerates have been invited to be equity partners.

Sources said the three timber-based companies are Samling Group, Rimbunan Hijau Group and KTS Sdn Bhd.

Meanwhile, according to the same sources, the senior management staff of Borneo Pulp & Paper are expected to be either released from their employment within the next few weeks or absorbed by the new company, before work commences on the development of the tree nursery, site clearing for the mill and tree plantation in Bintulu.

When fully completed, together with the mill, the paper-and-pulp mill is expected to involve a capital of more than RM2 billion.