New Age Timber Tycoons

Illegal logging in Kalimantan (Starling Resource)

Harvesting the forests has enriched many. Two entrepreneurs are trying the opposite, aiming to make millions selling carbon credits for not cutting down the trees.

by Ardian Wibisono 

In a remote corner of Kalimantan, two entrepreneurs are trying to develop the country’s largest carbon trading site using $10 million of their own money. It is a bold plan, one that could bring many times that investment or— possibly—lose everything. And the two aren’t sure which scenario will materialize. “You can say I’m smart or just plain dumb. I’m so smart that I know what is going to happen or too dumb to realize that I shouldn’t be doing this,” says Dharsono Hartono, President Director and sole owner of PT Rimba Makmur Utama. His partner, Rezal Kusumaatmadja, runs environmental consulting firm Starling Resources based in Bali.

Their Katingan Peat Conservation Project covers 227,000 hectares, an area three times that of Singapore, nestled between two rivers in a relatively untouched section of Kalimantan. While there are some two dozen carbon trading projects in Indonesia, most are driven by eco-motivations and involve an NGO or government agency. Katingan is the only major one set up to make a profit. “We are purely private investors, trying to make this into a business. It’s difficult,” admits Dharsono.

The pair graduated from Cornell University, Dharsono getting a master’s in financial engineering then spending several years as an investment banker for JP Morgan in New York. Rezal got a master’s in urban planning from the University of Hawaii before setting up Starling Resources. Meeting in Cornell, they separated only to bump into each other ten years later at a conference in Bali in 2007, where Rezal told Dharsono of carbon trading’s potential. “Dharsono is the one who translated my idea into a business,” says Rezal. “He said the opportunity had to be taken.” Aside from his idea, Rezal also contributed his family network, as his father is the former Minister of Environment Sarwono Kusumaatmadja.

It took two years for the pair to select the area. In June 2009, the Forest Ministry said Dharsono’s Rimba Makmur Utama could have the site with a 60-year concession once environmental studies, now finished, are approved by Jakarta. The pair hope that approval will come next year. Once it does, Dharsono will need to pay $5 million for the concession fee. With the setup and running costs, the total investment climbs to $10 million. One big cost is the survey work, validating how much carbon is there worth trading—complex process of drilling deep into the carbon deposits in at least 100 different sites across the area. To get to the sites, the monitoring teams have to hike through the tropical heat and thick jungle. “The most challenging part is how to survey the area, and having enough samples so that we can get accurate carbon measurement in the area,” says Dharsono.

The effort is probably worth it. From a carbon trading perspective, Katingan is a nearperfect site. It’s classic Borneo forest, complete with a large population of endangered orangutans and other exotic fauna. As important, it’s peatland, the world’s densest natural storage system for carbon. Composed of compacted dead plant matter, peatland is found in only 3% of the earth’s land area. Indonesia, however, is home to an estimated 20 million hectares of peatland scattered in Sumatra, Kalimantan and Papua. Much of those valuable carbon deposits are destroyed, however, as peatland gets used up by logging, plantations or mining. By some estimates 40% of Indonesia’s total annual carbon emissions are coming from the destruction of peatland.

The more peatland is destroyed, however, the more valuable Katingan becomes. Dharsono estimates the site could hold as much as 800 million tonnes of carbon. Although carbon credits are currently selling around $8 a tonne on carbon credit markets, that doesn’t mean Dharsono owns a fortune worth $6.4 billion. Most of that can never be sold under the arcane rules of carbon trading.

Dharsono figures that when he can finally start selling credits, perhaps in another two years, it will be one or two million tonnes at most. To be sure, at $8 a tonnes, that’s $8 to $16 million a year, which would quickly recoup most or all of his sunk cost of $5 million, plus other investments and any additional running costs. Even with a 20% government tax on any profit, and 20% more to aid local communities, the pair would still have enough to live well. Dharsono feels prices can only go up, as demand increases and carbon supplies dwindle—he’s looking forward to the day when carbon credits sell for as much as $20 a tonne. In 2009, some 21 million tonnes of carbon credits traded hands for $130 million ($6 a tonne average), according to a recent study by U.S. nonprofit Forest Trends. On the other hand, he admits: “What if there are no buyers?”

First the pair have to get the site qualified for carbon trading. They are asking to be paid, in effect, to not cut down the trees and develop the area, generating a credit that can be sold to offset someone else’s carbon emission. It’s a tricky business to measure. The two are trying to meet a complex set of standards, many of which are still in flux or not yet finalized. “Progress has been made in development of international standards and verification system for the voluntary market” as Dharsono put it in a recent Rimba Makmur Utama powerpoint slide.

To help develop his plans, Dharsono has been talking to Australia’s Macquarie Bank and the World Bank to build support. “We’re pleased to be working with the Katingan project, which aims to be a world-leading demonstration of how forests can be retained by using carbon finance,” says Brer Adams, senior manager at Macquarie in charge on carbon financing. There’s also the possibility that some multinationals would like to fund the project for the corporate governance bragging rights. The U.S. Clinton Foundation, for example, has already helped support the surveying work. “We have a good site, I’m sure there are many who’d like to help us,” says Rezal.

Despite their business focus, the two also don’t mind the positive benefits of Katingan. “We are not just exploiting the environment like previous generations. This business feels right because we are doing a good thing,” says Dharsono.

(taken from Forbes Indonesia)

Success in the Bag

©Jonathan Kantor/Getty Images

 In less than a year, Sugianto Tandio has captured 80% of the market for shopping bags used by Indonesia’s biggest retailers. Now he’s breaking into the U.S. market.  

By Ardian Wibisono

Sugianto Tandio has risen far fast. In less than a year, his company PT Tirta Marta has become the largest maker of plastic shopping bags for major retailers like Carrefour and Hero, controlling an estimated 80% of the market. His edge? Tirta Marta’s bags are 100% degradable using proprietary technology developed by Sugianto, yet cost almost the same as conventional plastic shopping bags.

To spiff up their eco-credentials, the country’s biggest retailers, including Alfamart, Bata and Giant, have all signed up for the bags, marketed under the Oxium brand. As upscale grocer Kem Chicks says on its bags: “Switch to our eco-friendly fully degradable plastic bags.” Also driving the switch was an agreement signed February by the Indonesian Chamber of Commerce and Industry (Kadin) and the Jakarta city administration to encourage retailers to phase out regular plastic bags starting next year, and instead offer non-plastic bags or degradable bags. Sugianto’s bags perfectly fulfill the latter guideline.

Now that Sugianto has captured a big chunk of the Indonesian market, he is eyeing the even-bigger U.S. market. After regular trips to the U.S., he’s already gotten some impressive customers, such as the Mall of America, retailer Club Monaco and sportswear maker Hurley. In the U.S., Sugianto is selling a different bag, the Ecoplas, made from tapioca and which biodegrades in ten weeks. To prove it, Sugianto sometimes buries his Ecoplas bags in the ground, and then dig them up a few weeks to show the degradation.

The bag is also price competitive, costing one third that of rival bags made from corn starch -- although Ecoplas still costs about 15% more than ordinary plastic bags. Oxium bags, in contrast, are close to the price of regular bags, but not as eco-friendly. They are only “degradable,” meaning they will crumble into a fine powder in two years but don’t fully disappear like a Ecoplas bag (see illustration).

Source: Tirta Marta

Sugianto is no stranger to plastic. His family company Tirta Marta, of which he owns 60%, has been in plastic manufacturing since 1971, making everything from traditional shopping bags to agricultural seed bags. With 300 staff, it has sold to clients such as Unilever, Motorola and Hitachi. Sugianto learned to appreciate innovation from U.S. manufacturer 3M, where he worked as an engineer for five years in the U.S. before returning to Indonesia in 1994 to take over the family firm (3M is known for innovative products like Post-it Notes).

In 2000, he started work on his bags. The lack of demand for such bags back then didn’t bother him. “Green business will eventually be a good business as awareness of environmental issues grows,” says Sugianto of his rationale for starting the research. Still it took eight years and millions in research to develop the technology. Eventually he developed a special additive, which makes up about 10% of the plastic used in the bag, that speeds up the breakdown of the plastic from hundreds to just two years. The Ecoplas bag, in contrast, is a more straightforward mixture of tapioca starch and other ingredients to form a plastic. To make the bag more politically correct, Sugianto uses only organic tapioca bought from farmers under fair trade principles. Sugianto claims it is also more durable than the corn starch-based competitor.

Development of the bags also came at a heavy cost to the company. In 2006, high oil prices drove up plastic manufacturing costs that, combined with the millions spent on research, put a huge strain on Tirta Marta’s finances. That year he sold 40% of his company to U.S.-based private equity firm Aureos Capital for $5 million, valuing the company at the time at $12.5 million. “We were facing difficulties because price hike of raw materials,” says Sugianto. “So we decided to seek a partner.” The Aureos involvement provided not just cash but also marketing expertise, and Aureos hopes one day to take Tirta Marta public. “We're lucky to find this company and have the opportunity to invest in it. It has strong potential since it developed a product that no other Indonesian company has,” says Aureos spokesperson Harianto Taruna.

Sugianto’s breakthrough came in June 2009 when one of the country’s largest convenience store chains, Indomaret, became his first customer. His sales pitch was simple -- just try the bag, it won’t cost any more than a regular one. So Indomaret did, and discovered that sales improved when they used the Oxium bags. Today Indomaret buys 201 tonnes of Oxium bags a month to supply to the 4,200 stores in its chain.

All told, Sugianto is selling more than 3,000 tonnes a month of Oxium bags, and revenues have hit $10 million. Demand is so strong that he has had to farm out production to ten other companies to meet his targets (Tirta Marta gives them the special additive to produce Oxium bags). Rivals, however, have noticed Tirta Marta’s success. A competing degradable plastic made by Canadian firm EPI is being used by upscale grocer Ranch Market in its bags. Petrochemicals giant Chandra Asri is said to be developing its own degradable plastic. “Competition is always good, it makes us more motivated,” says Sugianto, who closely guards his technology, discouraging reporters from visiting his factory where he makes the bags. He also has to monitor his quality control – once discovering a wholesaler had branded ordinary plastic bags as Oxium (the wholesaler was promptly fired).

Sugianto says the market has been barely tapped in Indonesia. After dominating the major retail market, Sugianto is looking to sell his bag in other sectors that use plastic bags, such the huge informal retail market. He estimates that he has tapped a mere 2% of the total potential market in the country. He is also applying his Oxium technology to other forms of plastic beside bags. “We are currently developing molded products using degradable plastic to be marketed soon,” says Sugianto. With his newfound success, Sugianto has learned that his plastic is fantastic. 

(the story is taken from Forbes Indonesia Magazine)