Sustainable Public Procurement

A Study Case of Paper Procurement

Let’s start with a simple question. Is it true that the purchase volume of HVS paper is small and simple? From a partial perspective, it is evident that the purchase of HVS paper is small in terms of volume. However, if we start from the logic of the origin of funds, the volume of paper purchases will prove to be not small. The source of funds for the purchase of HVS paper comes from the State Budget/Regional Budget, so measuring the volume should also be based on the source of funds.

If only the budgeting system and government sourcing system already use information technology, it will be easy to find out the volume of government HVS paper procurement in one year. One day there will be a system similar to the Enterprise Resource Planning System (ERPS) in the private sector, that is the Government Resource Planning System (GRPS).

The amount of paper needs

Let’s start with a rough simulation of the provincial-level HVS paper capacity calculation. Let’s just say that one regional work unit (SKPD) in each district in one month requires 100 reams of HVS paper. With the number of SKPD on average is 35 units in each district/city, this means that the consumption of HVS paper per month for one district/city is 3,500 reams. For South Kalimantan, which has 13 districts/cities and 1 province, one month’s paper requirement is equal to 49,000 reams. Therefore, the one year requirement is multiplied by 12 months and the result is approximately 588 thousand reams. 1 ream of paper with a content of 500 sheets weighs 2.17kg, meaning 588 thousand reams are approximately equal to 1,275,960 kg or 1,275 tons of paper or the same as the production capacity of 1 intermediate paper mill (2011).

With such a simulation, do we still think that the paper volume procurement is small? If the paper needs of one province in one year can meet the production scale of 1 paper mill with 1 large machine, can it be said that the procurement of HVS paper for the provincial government is simple?

What’s more interesting is the government’s need for paper in the next 10 to 20 years which will not change. Because even though there has been a shift in the government administration system towards a paperless one, the need for paper is still quite large. Moreover, this is only for one sector, that is the government sector. It is not wrong that the title of this paper states that “Paper Procurement is Strategic”.

The main reasons for investing are capacity and consistency of demand. With a rough figure of 1,275 tons of routine usage every year, it is very feasible to establish a paper factory in South Kalimantan Province. At least the production capacity will be absorbed by the government. Surely, the need for real HVS government paper is greater than this crude simulation.

With the establishment of a multi-player paper factory, it results in added value to the region both in terms of labor and the economy. This is where procurement takes on a very strategic role. The concept is simple, united we are firm, divided we collapse or, in strategic procurement terms, it is called consolidated demand.

Consolidated demand is the concept of consolidating needs or demands, which are previously scattered, into one. SKPD paper needs are unified into the relevant district/city needs, then unified again at the provincial level until they meet the quantity or volume that meets a certain production scale.

With a large volume of demand, even more added value are obtained. One of which is the price that is cheaper than retail purchase. For the government as the buyer, the amount of demand increases bargaining power and attractiveness for providers to provide the best deals. On the consistency side, there will certainly be uniformity at the price level.

Environmental Sustainability Aspects

The raw material for paper comes from Pulp. Pulp comes from wood and non-wood fibers. Most of Indonesia’s pulp comes from wood. Citing the data presented by E.G. Togu Manurung and Hendrikus H. Sukaria from the Faculty of Forestry, Bogor Agricultural University. In the article “Pulp and Paper Industry: New Threats to Indonesia’s Natural Forests”, they write that if to produce 1 tonne of pulp takes 4.5 m3 of logs, therefore with a capacity of 5,295,600 tonnes in 1999, the Indonesian pulp industry needs 24 million m3 of logs. Assuming the potential of logs in conversion forest areas is, on average, 80 m3 per hectare, in order to meet the demand for pulp raw materials, about 300,000 ha of natural forest must be cut down.

With a reality as such, do we still doubt that paper procurement is strategic? The condition of the forest, which is very strategic for living, is negatively affected by the view that paper procurement is trivial and does not need to be taken seriously by the government. It is a mistake to view the question of the scale of paper production as a matter of the private sector only. The government must step in to manage the forest, whereby one of the means is through sustainable paper procurement.

On the procurement side of government goods/services, the Presidential Regulation No. 54 of 2010 has been concerned with this. The 13 policies formulated in Presidential Regulation No. 54 of 2010 have a very large strategic function both individually and collectively. There are goals that go beyond practical guidance regarding the implementation of procurement principles. One of the policies to formulate attention to the aspects of natural resources usage and the wise preservation of environmental functions to ensure the implementation of sustainable development.

In the era of Presidential Regulation No. 16 of 2018, the objectives are increasingly sharpened. Within the scope of the Government of the Republic of Indonesia, the principles of sustainable procurement are taken from Presidential Regulation No. 16 of 2018 Article 1 number 50. The core principle of sustainable government procurement is the achievement of “value for money.” In particular, Presidential Regulation No. 16 of 2018 states that, Procurement of goods/services that provide maximum value for money and contribute to increasing use of domestic products, increasing Micro, Small and Medium Enterprises and sustainable development”.

The mandate of this Article 1 number 50 is further described in its derivative articles, which, among others, are:

  • Article 4 and Article 5  of the Presidential Regulation No. 16 of 2018 include sustainable procurement as part of the Goods/Services Procurement Objectives of the Public Goods/Services Procurement Policies.
  • Article 68, specifically aimed at sustainable procurement.
  • Article 65 emphasizes on the participation of small-scale businesses
  • Article 66 and 67 emphasizes on the utilization of domestic products to support local industries through public procurement.

How is the implementation related to paper procurement? The recommendation for copying and printed paper from the European Green Public Procurement (GPP) is one of the answers.

The demand for paper will always remain, for Asia alone the prediction of paper demand wass 6.7 million tons in 2014. The growth of the paper industry is unlikely to be hampered but it is possible to better control it. The European GPP recommends that in the future paper consumption should pay attention to several things. First, using paper whose raw material do not come from natural forests. Second, make use of recycled materials. And thirdly, it must be free from bleaching chemicals or chlorine which are harmful to the environment and humans. These criteria are the main requirements in public procurement, including in Indonesia as well.

Will this policy then suppress the growth of the paper industry? On the contrary, if this policy is implemented, the industry will inevitably follow. They are forced to switch to non-natural forest raw materials such as those of the Industrial Plantation Forests. For the record, 5 to 10 years this policy will be applied internationally.

From the demand side, this is a great opportunity for Indonesia. Land areas with the potential to develop production forests are abundant. It is time for Indonesia to take the role of building an environmentally-friendly paper industry, at a time when many overseas industries are trapped with using natural forests.

One of the obstacles to the success of the Industrial Plantation Forest program, apart from the planning and implementation sides, is also the result of neglecting environmental conservation elements in the procurement process. Since paper procurement is considered small and mundane, why pay attention to the matter of eco label, recycle, elementary Chlorine Free and others. The goal is: natural forests remain sustainable, the paper industry continues to grow and production forests are expanding and profitable.

Commitment of Micro and Small Scale Businesses

The next question when the concept of consolidated demand is advanced, is what about the commitment to fostering micro and small businesses and whether the procurement process is not simple and easy at the pratical level.

Related to the commitment to micro and small businesses. To address this issue, it is better to offer a small case for purchasing HVS paper. One SKPD unit usually purchases paper at the retail level at one store by breaking up the purchase without any contractual ties. Purchases repeat and this cycle lasts for a very long time, even practically continues for generations. The question is how many retailers then transform into non-small businesses. The answer, is none.

Is this a pattern that we want to maintain in small business coaching? That small businesses are built to stay small. The answer is, of course not! You can imagine how much taxpayer’s money are wasted on fostering small businesses like this, while the value was minimal. Compare this to the concept of consolidated demand, it is only through the procurement of paper that the government can establish a sustainable paper factory that has environmental, economic and social impacts as well.

Siding with the micro and small businesses can still be done. This is where the importance of good contract management lies. There are many methods that can be applied. One of them is the framework contract (FC). FC is carried out at the provincial level with one of the paper manufacturers. At the district/city level or the SKPD level, they will make a direct purchase through a shop that is a manufacturer reseller at an agreed price in the FC. This is where the concept of the GSO price or government special order come from.

FC is not something new. In the era of Presidential Decree No. 80 of 2003, an inter-provincial government FC with local print media was carried out in the announcement of the procurement of goods/services. The savings achieved at that time were enormous, because districts/cities no longer needed to issue procurement requisition costs. The print media that are legal to become providers have been determined and the price is the same in every district/city. The procurement process is very simple on the purchase execution side.

When policies to increase the participation of micro, small businesses, small cooperatives and community groups in the procurement of goods/services are made and included in one of the 13 goods/services procurement policies of Presidential Regulation No. 54 of 2010, certainly there were big goals in them.

Law No. 20 of 2008 tentang Micro, Small and Medium Scale Businesses clearly states that the empowerment of Micro, Small and Medium Businesses needs to be carried out to increase their position, improve their in realizing economic growth, equitable distribution and increase in people’s income, creating jobs, and alleviating poverty..

It may be concluded that the actual concept of independence or empowerment is being achieved. As the saying goes, giving a fishing rod is more beneficial than giving fish. However, unfortunately, at the implementation level, it is often unrealized that it is indeed givinh a fishing rod but at the same time a pond filled with fish that is deliberately made hungry. This way the fish can be lured easily and will be sure to succeed. This is exactly the same as the direct purchase paper procurement case described in the previous article.

The fishing rod is a policy of siding with small businesses, but tactically we are giving space for unplanned and partial spot buying. The accumulation of funds is so large that it lacks flavor and is unable to make small entrepreneurs the driving force of the economy, especially in paper procurement. It would be interesting if, later, there is a special study related to how much government paper procurement is able to encourage the independence of small entrepreneurs in the paper sector as samples.

Let’s simulate if we really implement the consolidated demand for paper procurement at the provincial level. Again this is just a simulation of an idea, of which validity must be tested through a scientific study.

With the demand for HVS paper at the provincial level of 588 thousand reams and then the base price per ream is 34 thousand Rupiah, the total potential purchase is around 20 billion Rupiah per annum. With a total value of this size, it is certain that the contract is intended for non-small businesses.

In identifying needs, several things are obtained including ensuring that it is easy for end users, namely the provincial government to the sub-district level in the district/city to obtain paper. To fulfill this, the provider will and must have a distribution network that extends to the sub-districts. Then regarding the distribution pattern is determined that the provider cooperates with small entrepreneurs at the sub-district level, perhaps even at the village level.

This partnership pattern is well known in the policy of procuring imported goods/ services. The Presidential Regulation No. 16 of 2018 Article 65 clearly mandates that Budget User/Proxy of Budget User is obliged to expand the role of small businesses in various ways, one of which is to encourage medium and large businesses to partner with small businesses.

The benefits obtained from this partnership scheme, especially the procurement of paper, are the increased capability of small businesses that become partners. The lead firm through the established contract will empower its small-business partners to be competent in terms of distribution, service and logistics. It is possible for these business partners to receive training from the lead firms in order to improve service quality.

Keep in mind that when the buyer’s position is very strategic and very attractive to the provider, there are only two possibilities that the provider will be in the develop or core boxes  in the krajilc box matrix. In this position the buyer/user will play a role in achieving Value for Money (VFM).

This article only tries to raise procurement concepts that have not been utilized so far, even though the regulations have made it possible to do so. I don’t know how many billions, maybe even trillions of funds are for the procurement of paper, but not even one new paper factory has been established in South Kalimantan. Let us start to improve the procurement process with the right strategy so that the maximum benefits can be utilized for the welfare of the people.

Updated and extracted from the Book written by Samsul Ramli. (2013). Title: Bacaan Wajib Para Praktisi Pengadaan Barang/Jasa Pemerintah. Jakarta: Visi Media.

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