Guyana and the Wider World Pt2

Trading in forest concessions 2 - against forest policy and law

By Janette Bulkan

Sunday, March 25th 2007
Stabroek News
http://www.stabroeknews.com/index.pl/article?id=56516926

This column resumes last week's discussion of the trading in forest concessions in Guyana by FDI-benefiting (Foreign Direct Investment) companies, in disregard of the specific prohibitions set out in Guyana's forest law. In September 2006 when Seapower Resources International Limited purchased 51 per cent equity interest in Jaling Forest Industries Inc. for a consideration of HK$154 million (US$19.8 million), the company also obtained an 'Option' to acquire 51 per cent of the shares in 'Garner,' a forest concession in Guyana, within five years. 'Garner,' like Bai Shan Lin, is another player on the logging-of-prime-timbers-for-export block. 'Garner,' is both forest concession holder and timber trader. For some years now, Garner has been in the business of shipping logs to the People's Republic of China, including bulletwood (Manilkara bidentata), which is both a protected (in law) and keystone species (a species on which many animal species depend ecologically). Garner's principal(s) have negotiated logging concession(s) under secret FDI arrangements. As reported in last week's Guyana and the Wider World, the 'President' of Bai Shan Lin stated that his company was "also in the process of acquiring its own forest concession" ('New Chinese forest company pledges to invest US$100M,' Stabroek News, February 9, 2007) http://www.stabroeknews.com/index.pl/article?id=56513688). According to Seapower's 'definitions' (see below) Garner's State Forest Exploratory Permit (SFEP number 03/04) was rolled over into a Timber Sales Agreement (TSA 03/05) in less than a year. Incidentally this is a violation of SFEP legislation which mandates a three year exploratory lease (Article 7B (2) in the Forest Regulations). A Draft EIA was briefly available on the Environmental Protection Agency's website and contains one reference only to the company's principals: "Garner Forest Industries Inc. is a privately owned company operated and managed by its subsidiary company Karlam South American Timber (Guyana) Inc. along with the Board of Directors." There is no public evidence that due diligence on financial status, probity or good citizenship (which is required by the Guyana Forestry Commission's (GFC) own procedure for evaluating an application for a SFEP) was carried out on 'Garner' before the award of the TSA. Garner = Jaling = Karlam. Guyana's State Production Forests are becoming consolidated under a small number of foreign ownerships via the pretence of awards to different companies. These concessions are then freely traded nationally and internationally, in disregard of specific clauses in the concession agreements which disallow such practices, and in violation of Guyana's forest law. Garner is also discussed in Seapower's September 2006 Letter from the Board to its Shareholders. As part of its deal in acquiring 51 per cent equity in 'Jaling,' Seapower secured the 'Garner Forest Option Agreement' according to which "the Guarantor (Danny Chan) shall not and shall procure Garner not to conduct, carry out and undertake any business and other operations and activities of Garner, including but not limited to the exploratory activities and any logging and forest exploitation, operation and management within a period of five years from the Completion Date" (page 15). In plain English, while a Timber Sales Agreement is premised on the understanding that its holder will sustainably log the concession to feed a downstream in-country operation which creates added value and jobs in the State of Guyana, Garner's principals (also the principals of 'Karlam' and 'Jaling' and perhaps other concessions) immediately entered into a separate agreement with Seapower to keep Garner's forest concession dormant in the interests of profits for Seapower and its shareholders. Not only are logs being diverted from feeding industries in Guyana, they are also being under-priced in Guyana Customs data relative to Asian market prices, as mentioned several times during the last year in articles and letters published by Stabroek News. One Indian log trader said to a forestry consultant who was present at the off-loading of logs from Guyana: 'If the Guyanese are so stupid as to sell their prime hardwood logs at low prices, they deserve all the contempt we privately heap on them. Guyanese are so ignorant, it is beyond belief. They make us laugh." Some relevant definitions from Seapower's Letter follow: " 'Garner' - Garner Forest Industries Inc., a company incorporated in Guyana, South America, with limited liability." " 'Garner Forest' - the forest, including but not limited to those granted under the State Forest Exploratory Permit dated 18 June 2004 and the Timber Sales Agreement [number 03/05] dated 11 June 2005 executed by Guyana Forestry Commission in favour of Garner, of an area approximately 92,737 hectares mainly located in the left bank of Mazaruni River, the right bank of Puruni River, and the left bank of Putareng River of Guyana." " 'Garner Forest Option Agreement' - an option agreement dated 16 May 2006, entered into between the Company and Mr Danny Chan, pursuant to which the Guarantor has granted the Company a call option to purchase 51 percent of the shareholding of Garner at a nominal consideration of HK $1 which is exercisable by the Company within five years from the Completion Date, at the purchase price of HK $60 million [US $ 7.8 million]." " 'Company' - Seapower Resources International Limited, a company incorporated in the Cayman Islands with limited liability, the Shares of which are listed on the main board of the Stock Exchange." " 'Guarantor' or 'Mr Danny Chan' - Mr Danny Chan, father of Mr Peter Chan, is the chairman and director of the Target [Jaling Forest Industries Inc.] and the beneficial owner of 44.55 percent equity interest in the Target as at the Latest Practical Date." " 'Option' - a call option granted by Mr Danny Chan to the Company at a consideration of HK $1 to purchase from Mr Danny Chan 2,550 ordinary shares of Garner, representing 51 percent of the issued shared capital of Garner at a total price of HK $60 million, equivalent to approximately HK $23,529 per Option Share." Guyana's forests also underpinned the launch of the parent company of Barama Company Limited on the Hong Kong stock exchange in February 2007. Samling Global Limited raised US $280 million through an initial public offering (IPO) of about 25 per cent of the company on the Hong Kong stock exchange. Samling Global Limited, like Seapower in 2006, emphasized its forest holdings: "It [Samling Global Limited] has gross forestry concession areas (natural forest land it leases from the government) of approximately 1.4 million ha in Malaysia and 1.6 million ha in Guyana. In addition, it has harvesting rights for a further 445,000 ha in Guyana…" ('Malaysian timber company on track for HK listing,' Financeasia.com, 15 February 2007, http://www.financeasia.com/article.aspx?CIaNID=45887). That article effectively acknowledges that the Barama company is illegally renting forest harvesting concessions in Guyana - a further 445,000 ha. The Financeasia article also noted that, "The company does, however, purchase some of the timber it needs for its manufacturing business in China to reduce transport costs, among other things. Typically it feeds about half of its harvested timber into its own operations, while the rest is sold as logs. The split can be adjusted to make the most of demand and selling prices for different products at any given time" (ibid.). During his presentation of the GFC's Discussion Paper on Log Export Policy on February 17, 2007, the Commissioner of Forests said that between 2003-2006, the GFC calculated that log exporters had earned US $48.6 million from log exports, and that this sum was adequate for re-tooling in Guyana. Other estimates suggest that this figure is a gross underestimate of real earnings through export of unprocessed logs, but the GFC is unwilling to allow independent investigation. Isn't it odd that an indebted government refuses opportunities for increasing its forest and customs revenues and for fulfilling its own forest, industrialization, competitiveness and revenue policies? But I am happy to applaud the GFC for its recent policy of increasing the minimum royalty charges, to stimulate more intensive logging per hectare. From the various figures quoted above, there are evidently considerable sums of money sloshing around - but for Asian principals and shareholders, not for the Guyana exchequer or for Guyanese workers. By the way, who in Guyana can have missed the incessant advertisements in all three daily newspapers requesting the purchase of hardwood logs for processing in Guyana? What these advertisements do not say is that the offer price is way above the export prices declared to Customs in Georgetown. And have the regulatory agencies taken note that a number of these suppliers are delivering logs direct to a wharf - whence they too are bound for China? Inaction and lack of coordination on Guyana's part support the Chinese takeaway at firesale prices. 'Locking the stable door after the horse has fled' may well be the Guyana epitaph.