While Kutai Barat had limited infrastructure and revenue it was rich in natural resources, particularly forest resources. Realising that revenue from the PT KEM mine was limited, the local government began to identify ways to facilitate and support local development through forest exploitation shortly after it was formed. According to the Kutai Barat district government, the central government had given district governments some rights to generate revenue from forest resources through the issuance of the new decentralisation laws (No. 22/1999 and No. 25/1999); and Regulation No. 6/99 on Forest Utilisation and Forest Product Harvesting in Production Forests. Following the release of the latter regulation, the Kutai Barat government followed the lead of the Kutai Kartanegara government to issue 100 ha concessions as a means to generate revenue and allow local people to benefit from forest resources. By the end of 2000, the Kutai Barat government had issued 220 Permits to Use and Harvest Timber (Ijin Pemanfaatan dan Pemungutan Kayu) and nearly 50 HPHHs (Forest Product Harvesting Rights). These licences cumulatively covered approximately 22 300 ha of forest land and allowed the Kutai Barat government to generate approximately US$27 000 in revenue (Kaltim Post, 24 August 2000). In 2000, the HPHH scheme had gained a lot of support from the general populace, primarily because it was realised that HPHHs could generate substantial revenue for the new district, and also because the allocation of HPHH permits would enable local people to secure a greater share of the benefits from forest resources.

However, a number of problems were also noted. For instance, it was recognised that there was potential for local people to be exploited through the process, particularly as they were dependent on outside partners for capital and machinery. Local government also lacked the capacity to ensure that forest exploitation was carried out in a sustainable and equitable manner. The small-scale licences were undoubtedly fuelling an increase in deforestation and little thought had been given to forest rehabilitation or reforestation. Consequently, the Mahakam River was flooded with timber (dibanjiri kayu) from the region — one woman interviewed along the Mahakam River between Tenggarong and Samarinda said she had not seen so much timber pass through the region since the 1970s.

Donors and non-government organisations raised a number of concerns about the issuance of these new permits. They raised concerns about the potential for HPHHs to increase conflict among communities and individuals — especially since many of the permits were being allocated in HPH concessions, HPHH rights could be manipulated by government officials and outside interests, and their issuance could give negative connotations to the decentralisation process.

The timber industry also raised concerns about the fact that HPHHs were being issued within existing HPH concessions, and this was a matter of concern to provincial and central governments as both were under significant pressure from the timber industry to restore law and order in the forest estate. For instance, in early 2000, 77 loggers in Kutai and Bulungan threatened to close down their operations if local and provincial governments did not prevent local people from logging their concessions and disrupting their activities (Jakarta Post, 21 February 2000). The Association of Indonesian Timber Concession Holders (Asosiasi Pengusaha Hutan Indonesia) also complained that several companies in Kutai and Bulungan were unable to continue operating as local peoples had seized their heavy equipment to demand payments amounting to billions of rupiah (Jakarta Post, 21 February 2000: 9). Moreover, in February 2000, some 10 foreign investors and plywood buyers, mainly from South Korea, threatened to pull out of their contracts due to concern over escalating conflicts between timber companies and local people. The buyers said that they were worried that plywood mills would not be able to meet delivery schedules as many timber companies had stopped logging operations as a result of prolonged disputes with local people (ibid.).

In early 2000, the central government realised that it had lost control over the allocation of HPHH permits and was losing large amounts of potential revenue from district timber regions. The Ministry of Forestry and Estate Crops then suspended its earlier regulation giving district governments the right to allocate small-scale logging permits. Both the Bupati of Kutai Kartanegara and Kutai Barat were ignoring this decision and arguing that, under regional autonomy, they were duty bound to ensure that local people would directly benefit from forest resources (personal communication, Bupati of Kutai Barat and Kutai Kartanegara, 5 August 2000).