Indonesian timber auditors to probe allegations of faked permits for $6bn of wood

In a major test for Indonesia’s flagship EU-backed timber legality scheme, its auditors are investigating allegations that a vast logging and timber operation in virgin forest in Papua is underpinned by fake oil palm permits.

Following inquiries by Earthsight, two auditing firms, which previously certified the companies concerned against the mandatory System Verifikasi Legalitas Kayu (SVLK) scheme, said they would review the certifications. But their responses leave open the possibility that timber from the controversial project could be allowed to retain its green stamp of approval while the fake permit fiasco continues unresolved.

Earthsight wrote to the auditors the day after a Mongabay and The Gecko Project investigation reported explosive allegations that the plantation business permits (Izin Usaha Perkebunan – IUPs) for seven oil palm concessions in the controversial Tanah Merah project were faked. Two senior officials at the Papua Province’s Investment Coordination Board (BKPM Papua) – the authority that issues IUPs – alleged the permits were forged, possibly with facilitation by errant staff.

The Tanah Merah project is the world’s largest palm oil development and centres on the clearcutting of seven plantations covering 280,000 hectares (ha) of largely primary forest in Papua Province’s Boven Digoel regency, an area nearly twice the size of Greater London.

The project was the focus of The secret deal to destroy paradise, Earthsight’s 2018 investigative collaboration through The Gecko Project with news outlet Mongabay, which exposed how the preliminary plantation permits were issued by a corrupt official from prison, that the owners of the companies were unknown to government officials, and that locals were beaten during permit acquisition processes.

Three of the seven companies possessing the allegedly faked IUPs have on their basis also been granted secondary permits to utilise timber harvested during forest clearance.

The logging operations of two of these plantation companies – PT Megakarya Jaya Raya (PT MJR) and PT Graha Kencana Mulia (PT GKM) were certified as SVLK-compliant in 2018 and 2019 by private sector certification body PT Inti Multima Sertifikasi (PT IMS).

Satellite images show that by November 2019 PT MJR had deforested 5,090ha, while PT GKM had cleared 144ha.

A further company, PT Tulen Jayamas Timber Industries (PT TJTI), which has built a sprawling timber complex in Tanah Merah to process an estimated $6 billion of logs anticipated to be cut from the seven concessions, was also certified as SVLK-compliant in 2019 by another certification body, PT Borneo Wanajaya Indonesia (PT BWI).

PT TJTI currently receives its timber from the two Tanah Merah plantation companies certified by PT IMS, a factor underpinning PT BWI’s certification of the sawmill.

Both auditors informed Earthsight they were not aware of the faked IUP allegations prior to issuing SVLK compliance certificates to their clients.

Earthsight’s enquiries with PT BWI began in November 2019, following separate revelations from the Indonesian NGO Pusaka that Papuan officials alleged the environmental licence for the PT TJTI sawmill was also faked, and that a “stop work” order had been imposed on the company.

In initial responses to the faked plantation permit allegations both auditors indicated their action would be limited until the permits were revoked or legally proven as illegitimate in advance, or until they received notifications from relevant officials undermining the validity of the permits.

PT IMS said, “if there are allegations” their internal mechanism would be “to confirm the two companies and if necessary we will ask for confirmation from the issuing authority”. 

PT BWI did not acknowledge or respond to Earthsight’s questions regarding the faked environmental license at the Tulen Jayamas sawmill for a full nine weeks.

On being asked for clarification, in late January  both auditors informed Earthsight they would contact officials at BKPM Papua.

On 27 January PT IMS informed Earthsight they had “submitted a request for information to BKPM Papua”, and the same day PT BWI also pledged to undertake a “special audit” into the faked plantation permits.

PT BWI also finally acknowledged Earthsight’s questions on the allegedly faked environmental license for the sawmill, pledging to begin compiling and verifying evidence of the allegations and then conduct a “special audit”.

Earthsight forwarded PT BWI a copy of a November 2019 letter from BKPM Papua to PT TJTI that said authorities had judged the sawmill’s environmental license to be fake. The letter requested PT TJTI to cease operations at the sawmill.

If realised, the newly pledged auditor probes should require BKPM Papua to either formally verify or deny the allegations made by senior staff in 2019 that the seven Tanah Merah plantation permits were forged.

Although the pledged audits suggest the SVLK should be able to bring clarity in a quasi-legal process to what constitutes a test case in the rule of law in Indonesia’s oil palm and timber sectors, whether the auditors will verify the claims as true or false remains to be seen.

Two weeks after saying it had asked BKPM Papua for information PT IMS – which audited the IPK logging permits – confirmed they had received no response.

PT BWI has twice declined to confirm the timeframe for its “special audits”, or whether the company had received from Earthsight the November 2019 BKPM Papua letter requesting its client to stop its sawmill operations.

BKPM Papua did not respond to Earthsight’s request for confirmation that the two auditors had contacted them about the fake permit allegations, or if they planned to respond.

Further, while both auditors said they registered Earthsight’s enquiries as formal complaints under the SVLK system, no  such cases are detailed on the government’s online case-tracker.

On 27 January Earthsight wrote to Komittee Accreditasi Nasional – an industry body that accredits certification companies to audit against the SVLK and other standards – requesting information on the status of the “complaints”. They did not provide a response, despite initially encouraging the auditors to respond to Earthsight’s enquiries.

It is possible that the SVLK auditors never receive any formal information on the faked permits allegations from BKPM Papua, and that the SVLK certificates for the timber operations may be allowed to persist, even if the allegations are neither denied nor retracted. Were that to happen, it could put the reputation of the whole SVLK system in jeopardy.

While the Papuan officials reported to have made the allegations of faked plantation permits have not retracted them since first published, Mongabay/TGP also reported that the officials now want the companies already clearing forests to “fix” their permits by reapplying for real ones so they can continue operations legally.

Despite having reportedly identified the IUPs as fakes back in 2013, no official action has been taken by any authorities. In the meantime, thousands of hectares of pristine forests have been cleared.

Meanwhile, the two SVLK auditors also told Earthsight that despite pledging to investigate the matter, their actions would ultimately be reliant on the actions of other officials.

Earthsight asked PT IMS what they would do if BKPM Papua neither verified the validity of the IUPs nor reduced the risk that their allegations of faked permits were true.

PT IMS did not directly answer, but stated they had “internal mechanisms” that would be triggered “if already there was confirmation from the BKPM Papua Province and government agencies related to the false IUP allegation”.

PT IMS did not say they would do anything if BPKM Papua never responded.

Similarly, while pledging “special audits” into both the plantation firms’ IUPs and the sawmill’s environmental licence, PT BWI also said it “does not have the authority to verify the IUP documents for raw material suppliers” of their client PT TJTI.

It added that it would “follow up” the SVLK certificate it issued to PT TJTI only “when it is proven that PT TJTI buy and/or receive and/or store and/or process and/or sell illegal timber.” As the sawmill receives wood from the two plantations PT IMS audited as SVLK-compliant, PT BWI appear to be intending only to revoke the sawmill certificates if PT IMS revoke the SVLK certificates for the plantations.

PT BWI did not say whether it would revoke PT TJTI’s SVLK certificate if the sawmill’s environmental license were confirmed to be fake – even though the licence is a pre-requisite of SVLK compliance for a sawmill.

If the Papuan authorities never confirm or deny either of the allegations, both auditors appear to be preparing to accept that absence of verification as a justification for ignoring the allegations and maintaining the SVLK certificates already issued.

The risk that the allegations are true but are just not being acted on in an apparent rule of law vacuum does not appear to be a factor influencing the two auditors’ justifications for retaining the certificates they have issued – even if the allegations are never retracted or denied.

The auditor probes will be closely watched by legal, environmental and trade policy observers as a key test of the credibility of Indonesia’s much-vaunted SVLK.

Under the terms of a Voluntary Partnership Agreement (VPA) between Indonesia and the EU – negotiated over a decade and ratified in 2014 – wood certified under the SVLK is exempt from Europe’s landmark legislation to prohibit illegal timber – the EU Timber Regulation (EUTR) – which came into force in 2013. Indonesia is the only country to have implemented a full VPA to date, with the SVLK underpinning the agreement.

Earthsight has been unable to confirm whether PT TJTI is exporting wood products to Europe but understands that no Indonesian or EU law could prevent them doing so while their SVLK certificates remain valid. This appears to be the case regardless of whether or not the allegations of faked permits are ever retracted by the officials who made them – the same officials purported to have issued the permits.

The VPAs and the EUTR are the major elements of the EU’s 2003 Forest Law Enforcement, Governance and Trade (FLEGT) Action Plan to eliminate illegal logging and timber trade – the block’s flagship forest conservation policy initiative. The strengthened implementation of FLEGT VPAs and the EUTR were also pledged as specific actions in the 2019 EU Communication on Stepping up EU Action to Protect and Restore the World’s Forests, which seeks to eliminate all deforestation worldwide – not just illegal logging and timber trade.

Shortly after leaving the EU, the UK government announced in February its intention to build on its multilateral cooperation on forests and timber trade reform to lead a global coalition of nations to eradicate illegal logging and deforestation.

The UK has already transposed an equivalent provision to the EUTR and the VPA with Indonesia into domestic UK law, indicating its resolve to maintain its major contribution to this globally important policy area after leaving the EU.

On announcing the forests coalition initiative UK Environment Minister Lord Goldsmith cited a 2019 case where timber wrongly SVLK certified due to fake permits was subsequently identified as illegal and the SVLK certificates were suspended. The perpetrators were jailed.

“These are vital steps towards making sure there is no safe harbour for illegal timber anywhere in the world” Lord Goldsmith said.

It remains to be seen whether Indonesia’s SVLK can or will verify the fraud alleged by Papuan officials in Tanah Merah, or whether the legality certificates already issued will be maintained by SVLK auditors even if the allegations are never resolved.