Singapore – Choking on the Haze

Singapore – Choking on the Haze

　The South East Asian haze is an annual occurrence in the mid to latter part of each year, affecting many countries in the region, with Singapore, Indonesia and Malaysia being the worst affected. It is a man-made air pollution crisis originating in Indonesia, which seriously affects health, environment and productivity in the region. The haze of 2015 was estimated to have cost South East Asia USD 14 billion. The widespread burning of land in Indonesia to make way for mostly palm oil, and paper and pulp wood plantations is the main cause, as burning is economical compared to the use of machines to clear land.

　With the haze occurrence worsening each year, the haze of 2015 was severe and prolonged, lasting about three months. The Pollution Standards Index in Singapore reached ‘hazardous’ levels, and the country was severely affected. Healthcare, productivity and tourism costs were high, with a corresponding deterioration in the general standard of living. It is a health, economic and environmental problem that is not likely to be resolved soon.

　After a severe haze occurrence in 2015, Singapore and Indonesia have started to take serious action. The countries are currently conducting investigations into several palm oil and pulp and paper companies suspected of involvement in land burning. Regionally, ASEAN has been criticised for not taking a more forceful stance on land burning and as a regional issue, the solution to the haze problem lies in stronger regional cooperation. However, the effectiveness of the policy measures implemented, and the achievement of the desired outcome remains questionable.

　2015 – One of the Worst Years in History

　The haze of 2015 has been severe – pollution in Singapore reached hazardous levels (PSI above 300) with the highest level of the Pollution Standards Index (PSI) reaching 341 in September, causing disruptions to daily activity. Further, the onset of the worst El Nino in two decades caused a severe dry streak and prolonged the haze of 2015. While the haze was prevalent for almost three months, the episode of the worst haze, which recorded PSI levels above the unhealthy range (>100), lasted for about a month.

　This air pollution crisis is caused by the practice of ‘slash and burn’ to clear land for agricultural use (mainly palm oil and pulp wood plantations) by farmers and agricultural firms in the Indonesian regions of Kalimantan and Riau. In 2015, 2.1 million hectares of forest and other land were burned down in Indonesia, which is the second worst year in history. The worst was in 1997, when 10 million hectares of land was razed. With the prevailing winds carrying the smoky haze caused by the fires, the entire region was blanketed in pollution for weeks at a time, with disruption to business, schools and transport.

　Several countries in the ASEAN region – Thailand, Vietnam, Brunei, Indonesia, Malaysia, and Singapore, Cambodia and the Philippines – are reported to have been affected by the South East Asian haze of 2015. However, Singapore and Malaysia, sandwiched between the land burning Kalimantan and Riau provinces of Indonesia, along with Indonesia, remain the worst affected due to proximity.

　Burning the Most Cost Effective Method for Clearing Land in Indonesia

　Indonesia’s motivation for stopping the smoke belching fires and the consequential haze remains a point of controversy. Surpassing Malaysia in 2006, Indonesia became the world’s largest palm oil producing nation, producing close to 16 million tonnes that year. Palm oil plantations make up the majority of the land that is set on fire for cultivation. In 2014, palm oil brought in USD 21 billion in revenue to the country, accounting for 2.4% of GDP, and offers employment to an estimated 2-3 million people. Further, high profit margins from low production costs and high productivity, coupled with increasing global demand, makes palm oil a lucrative industry for Indonesia. A hectare of palm oil typically earns farmers around IDR 48 million a year, a figure 20% higher compared to rice cultivation. The country has plans to increase palm oil production to 40 million tonnes by 2020 from the current 33.5 million tonnes through increased yields and more plantations.

　Many large companies and small scale farmers resort to the burning of land for palm oil and paper and pulp wood, as it is cheaper than the use of tractors and bulldozers to do so. According to the Centre for International Forestry Research in Indonesia, it costs just USD 7 to clear a hectare of land by burning compared to USD 150 to do so by machines. Further, according to the Centre for Industry Research of Indonesia, there is a thriving illicit land market for burned land. While the average cost of land in the area is SGD 800 per hectare, if the land has been cleared by burning, the price is higher at around SGD 950 per hectare, which provides great incentive for burning land to enhance value.

　With 77.5% of the approximately 100 million hectares of Indonesian forest falling under ‘production forests’, land concessions are granted by the government to various stakeholders, mostly private companies, for utilisation. Of these concessions, 18 million hectares have been set aside for palm oil plantations, half of which have already been planted. It is estimated that 3-7 million hectares of land will be required for palm plantation expansion into 2020. A further 10 million hectares have been set aside for wood fibre concessions.

　While it is not likely that all of the remaining land concessions are going to be cleared by burning, a good percentage will be. To estimate the average area of land being burned each year, for the years 2009-2014 the annual average loss of tree cover in Indonesia’s forests was around 1.5 million hectares, caused mainly by burning and logging. Thus it can be roughly estimated that on average, between 1.0 million to 1.5 million hectares of land will be burned in Indonesia each year, until the concessions have been completely utilised. For now, the Indonesian government has a moratorium on new concessions in place.

　The Haze Remains a Costly Affair for Singapore

　The impact of the haze on all aspects of life and the economy is vast. Healthcare, productivity, and tourism and outdoor businesses can be identified as the areas most affected. An economist for Bank of America, Merrill Lynch has estimated that the total cost of the 2015 haze to Singapore will be between 0.1-0.4% of GDP, depending on if the haze had lasted one or three months. Based on 2014 GDP data, this would be somewhere between SGD 307 million-SGD 1.2 billion. An attempt has been made below to identify and break down the cost impact of the haze on the worst affected sectors of the economy.

　High Healthcare Cost Expected in 2015

　With the potency to trigger minor eye and throat irritations to more serious respiratory illnesses, the haze is weighing down on the health of Singaporean citizens each year, with an accompanying rise in government subsidies and healthcare costs.

　With the health of many Singaporean being adversely affected, the government has taken measures to provide relief to its citizens. The Haze Subsidy Scheme was implemented in 2013 by the government to provide children, the elderly and low to middle-income Singaporeans with affordable treatment for several haze-related conditions, and is activated when haze conditions are extreme. Those who fall under the scheme will pay no more than SGD 5-10 for the treatment of haze-related illnesses.

　In 2013, 20,500 patients benefitted from the Haze Subsidy Scheme over the entire four month period of the haze, with the cost of these subsidies totalling SGD 500,000. As per the Government, 42,000 people benefitted from the subsidy during the worst month of the haze in 2015. At an average estimate of SGD 50 cost per consultation, the consultations are likely to cost an approximate SGD 2 million this year, just for the worst month, without considering the cost of medicine.

　Furthermore, private clinics have reported a 15-20% increase in outpatient attendance during the worst periods of haze. At an average cost per consultation of between SGD 15-30, private consultations would likely cost between SGD 5-7 million for the worst one month of the haze. In total, healthcare costs for the haze would likely be between SGD 7-9 million this year, about 0.1% of total healthcare costs.

　Decline in Productivity Inevitable

　Losses due to a decline in productivity will be unavoidable, with employees taking sick leave due to conditions caused by the haze, with some staying home to take care of dependents who fall sick. Further, employers were encouraged to provide relief to employees in terms of shorter work hours and longer breaks. Businesses with operations outdoors, such as construction, delivery and ship building are most affected as their employees have higher exposure. In 2013 and again in September of this year, fast food chains McDonald’s, KFC and Pizza Hut suspended delivery services during the worst stages of the haze.

　In 1997, it was reported that 36,000 working days were lost during the 5 months of the haze. Extrapolating those figures for the worst month of haze in 2015, 7,200 lost working days in 2015 would cost SGD 1 million at an average daily wage rate of SGD 150.

　Tourism and Outdoor Businesses Feel the Brunt

　The tourism sector remains one of the worst affected by the haze as a decline in tourist arrivals could decrease tourism spending by a significant amount.

　Contributing approximately 6% of the country’s GDP in 2014, tourism is important to Singapore’s economy. Over a million tourists arrive each month and spend on sightseeing and entertainment (25%), accommodation (22%), shopping (17%), food and beverages (10%) and other (26%). During the haze period, many travel companies reported cancellations and a drop in inquiries as visitors to the city decided to avoid holidaying in the country. Tourists already in Singapore are likely to reduce spending as outdoor activities and sightseeing would be curtailed. One of the biggest events in Singapore’s yearly calendar, the Singapore Grand Prix, was plagued with uncertainty this year as the haze looked likely to lead to the event’s cancellation and a resultant loss in revenue of SGD 200 million. Fortunately, the situation improved and the race was held. However, outdoor businesses such as street eateries, bike rentals and open air restaurants remained some of the worst affected, with some businesses reporting a 70% decline in transactions during the haze.

　According to Barclays research, the country experienced a 15% drop in tourist arrivals on average for a month during the haze in 1997, about a 6% drop in tourist arrivals due to the haze in 2006, and estimated a figure somewhere between those values for 2013.

　For 2015, while September and October are not peak months for tourists, a protracted haze can potentially elevate business costs considerably. Especially in an industry that is already experiencing a downturn, this will pose a challenge. A 3% decline in arrivals was witnessed in 2014, while the period January-July 2015 saw a further 1.7% drop in arrivals compared to the same period last year. There were 15.1 million visitors to the country in 2014, bringing in total receipts of SGD 23.6 billion. Thus based on 2014 figures, an estimate of a 10-15% decline in tourist arrivals due to the haze over a period of a month could shrink tourism receipts by between SGD 196-295 million in 2015.

　Cutting through the haze. What is being done?

　A Strong Effort by ASEAN Remains to be Seen

　Since the haze of 1997, ASEAN has taken several measures to bring about regional cooperation in containing the issue. However, action seems to have been limited to paper, and ASEAN has been heavily criticised for not taking a stronger stance on the matter.

　A milestone was achieved in 2002 when all 10 members of the ASEAN community signed the ASEAN Agreement on Transboundary Haze, which calls on the parties to cooperate in developing and implementing measures in order to prevent, monitor and reduce transboundary haze pollution. Although other member states had ratified the agreement by 2010, Indonesia only ratified the agreement last year, after 12 years.

　However, with incidents of haze being reported in the last 4 decades and the episodes worsening each year, ASEAN has been severely criticised for not taking a stronger and more concerted effort to stopping or controlling this man-made calamity. While the lack of concrete measures is questionable, the answer lies in the core of ASEAN and the fundamentals that it has been built on. ASEAN is an association of co-operation rather than coercion. Thus, when Indonesia refused to sign the transboundary haze pollution agreement for 12 years, or when Indonesia and Malaysia refused to share satellite images when the haze monitoring system was launched, ASEAN could not do anything about it. ASEAN does not resort to forcing agreements, and neither is there a centralised administration to do so.

　Singapore Passes Legislature – Achievement of Desired Outcome Questionable

　The Transboundary Haze Pollution Act, passed in Singapore’s Parliament in 2014, is a piece of legislation that allows criminal or civil liabilities against an entity that started or contributed to haze pollution outside of Singapore, but ultimately affects the state. The law allows the government to fine the perpetrator a sum of SGD 100,000 per day with a maximum cap of SGD 2 million. Further, it allows any person to commence civil legal action for losses incurred from haze pollution resulting from the fault of the offending entity.

　However, experts and legal analysts have disparaged the potential impact of the legislature in preventing the illegal methods of land clearing for plantations. Firstly, there is the difficulty in gathering evidence of illegal activity and enforcement of the law in foreign jurisdictions without infringing on the sovereignty of that country. Further, prosecution will require identification of ownership information, which due to Indonesia’s complex and conflicting system of laws governing land use and tenure, may be difficult. Furthermore, the offending companies may resort to various means, such as complex ownership structures, in order to distance themselves from the parties setting the fires. Finally, many have argued that the fine, with a maximum cap of SGD 2 million, is insufficient as a deterrent, with palm oil companies in Indonesia earning up to USD 18.4 million in revenues per year.

　Singapore Clamps Down on Errant Companies

　Bringing the Transboundary Haze Pollution Act into action for the first time, Singapore served four Indonesian companies ‘preventive measure notices’ for being responsible for starting forest fires and contributing to the haze in September 2015. The notice requires them to take measures to mitigate the fires and stop any further burning of the land. The companies are PT Rimba Hutani Mas, PT Sebangun Bumi Andalas Wood Industries, PT Bumi Sriwijaya Sentosa and PT Wachyuni Mandira.

　Asia Pulp & Paper Company (APP), an Indonesian company headquartered in Singapore, was also served notice to provide information on its subsidiaries in Singapore and in Indonesia, and to take measures to stop the fires under their concessions. Some of APP’s customers, including leading supermarket chains, have withdrawn all products of the company after the allegations. APP maintained that it has a ‘no burning policy’ with its suppliers and welcomed investigations into its business.

　The largest palm oil producer in the world, Singapore-based Wilmar International, announced in 2013 that it was cutting off supplies from Indonesian suppliers accused of burning land. In the midst of the haze issue in 2015, the company issued a statement reiterating that it is fully committed to sustainable plantations, stating it has a strict ‘no burn’ policy, and its plantations have an active fire monitoring system. Golden Agri, the world’s second-largest listed palm planter by acreage, announced in September 2015 that it has stopped purchases from a supplier alleged to be causing forest fires in Indonesia. The company further noted that it is monitoring hotspots in its third party supplier locations and will work with suppliers in fire prevention and management.

　Further experts opine that Singapore should evaluate the cost of this now annual occurrence in order to make better policy decisions such as subsidies to citizens and businesses, and to help international governments to pressure Indonesia to take more serious action. Putting a dollar value on the cost of the haze will make the arguments more substantial and the toll on the country more ‘real’.

　Indonesia Finally Takes Action

　While diplomatic ties between Singapore and Indonesia strain over the haze issue, and criticism mounts, Indonesia maintains that it is doing what it can. The head of disaster recovery in the country reported that sufficient personnel and equipment were deployed to fight the fires. Singapore offered to help Indonesia fight the smoke belching fires several times during the 2015 haze, an offer which Indonesia finally accepted in October 2015.

　In terms of taking the offending companies to task, the Indonesian government in September of this year ordered four companies, PT Langgam Inti Hibrindo, PT Tempirai Palm Resources and PT Waringin Agro Jaya to suspend operations, and the forestry concession of PT Hutani Sola Lestari has been revoked. Currently, more than 100 companies are under investigation for involvement in land burning by Indonesian authorities.

　Further, with approximately 50% of the palm oil companies in Indonesia being owned by Malaysians and Singaporeans, there have been calls that the two countries need to share in the blame. Palm oil plantations owned by Indonesian, Malaysian and Singaporean companies collectively made revenues of USD 18.4 billion in 2014. From buying carbon credit from Indonesia to sharing in the USD 1.2 billion cost of fighting forest fires per year, many suggestions for compensation have been made by policy analysts. Of the firms currently under investigation by Indonesia authorities for causing forest fires, two are Singaporean companies, PT Palm Lestari Makmur and PT PAN United.

　A more concerted effort by ASEAN to carry out its tasks as outlined in the Transboundary Haze Pollution Agreement needs to be made. Focus should be on encouraging Indonesia to promote the development of sustainable plantations, with such efforts targeted on gradually reducing land burning in Indonesia in the future.

　APPENDIX

　What is the PSI?

　Singapore has developed a unique measure of air quality called the PSI (Pollution Standards Index) in order to provide the public with timely information on the air quality standards during the haze. There are three readings, namely the 24 hour PSI, 3 hour PSI and 1 hour PM2.5 readings. The 24 hour PSI gives an indication of the overall exposure of an individual to the haze and is referred to assess the health impact of the haze. The 3 and 1 hour readings give an indication of current air quality and are helpful in planning immediate outdoor activity.