SINGAPORE, Nov. 23, 2009 (PPI Asia) - UPM has decided to terminate its pulp purchase contract with Asia Pacific Resources International (APRIL), ending the flow of acacia pulp from the Indonesian producer to UPM's 800,000 tonne/yr fine paper mill in Changshu city, China.

UPM linked the move to its agreement with Metsäliitto, M-real and Botnia in October, which will see it take over Botnia's pulp operations in Uruguay. These include a 1.1 million tonne/yr eucalyptus pulp facility in Fray Bentos and the eucalyptus plantation forestry company Forestal Oriental.

UPM currently has a half-share in the mill's pulp output, which it uses mainly at the Changshu plant and in central Europe. Following the Botnia deal, UPM will see its share increasing by some 500,000 tonnes/yr, enabling it to ship more tonnage to the Chinese facility.

The Fray Bentos deal is expected to wrap up during the first quarter of 2010, subject to regulatory approvals and agreements with Botnia's lenders.

The APRIL supply deal dates back to August 2000, when UPM bought out its 51% stake in the Changshu mill and the Indonesian firm continued to supply it with bleached hardwood kraft (BHK) pulp from its Kerinci complex in Sumatra.

Under the contract, APRIL sold UPM some 12,000 tonnes per month of pulp processed at the Kerinci facility, which has three BHK pulp lines with a total capacity of 2.9 million tonnes/yr.

An APRIL spokesman responded to the cancellation by saying that the two firms had a long-standing relationship for over 10 years and he respects UPM's business decision.

He added that losing UPM's business will not affect APRIL's pulp operations, as supply remains tight and demand strong in China and elsewhere in Asia, while prices trends are positive.

Group points to environment: The environmental group Greenpeace linked UPM's move to ecological issues, claiming UPM had admitted that APRIL's pulp "comes from a very delicate environment" and thus decided to cancel the contract.

Greenpeace also accused APRIL of destroying areas of rainforest and draining forest peat land on Sumatra's threatened Kampar peninsula.

However, APRIL denied the accusations. And UPM said it had been working for years with APRIL and

non-governmental organizations, including the WWF, to develop environmental practices at the Kerinci mill and in the plantations in Sumatra.

UPM had regularly carried out supplier audits there, most recently in October. The Finnish firm indicated that from the beginning of 2004, the Changshu mill received pulp consisting only of plantation-sourced acacia.

"APRIL has an FSC Controlled Wood certificate to prove the sustainability and legality of the pulp deliveries," UPM stated in a press release.

Greenpeace tussles with APRIL: Earlier this month, a group of Greenpeace activists launched a protest campaign in APRIL's concession land in Sumatra, with several locking themselves to evacuators, while others unfurled a banner.

The commotion prompted APRIL to call the police, who found the activists, all foreigners, allegedly trespassing and protesting without permission. They were subsequently detained.

Following their detention, some activists who participated in the action were deported by the Indonesian authorities. Two journalists, one from India and the other from Italy, were also expelled.

On November 17, Greenpeace reported that over 300 people from the nearby Teluk Meranti community arrived at the group's camp on the Kempar peninsula to stop police removing its remaining activists. In a surprising move, the police revoked an eviction order and permitted Greenpeace to stay.

Two days later, Greenpeace claimed a victory, saying Indonesia's Forestry Minister Zulkifli Hasan had ordered APRIL to suspend clearing activities on the peat lands in question pending a review of all its permits.

Furthermore, the environmental group called for a comprehensive review of existing permits and concessions for pulp and paper companies in Kempar, targeting APRIL and another Indonesian producer, Asia Pulp and Paper (APP). Greenpeace claimed the two companies control 73% of Indonedia's total pulp capacity.

APRIL declined to comment. But the firm has assigned a lawyer to deal with the matter.

And APP spokeswoman Aida Greenbury said her company has not received any pulpwood harvested in that area from suppliers.

She added that three years ago, some suppliers offered to provide APP with logs coming from Kempar, but APP found they might be harvested from high conservation value forests there and turned down the deal.

She had not heard of anything from the forestry minister about a review of pulp and paper companies' permits and concession.

By Nick Chang, Deputy Editor, PPI Asia nchang@risi.com