Guyana and the wider world

Trading in forest concessions - against forest policy and law

By Janette Bulkan

Sunday, March 18th 2007
Stabroeknews
http://www.stabroeknews.com/index.pl/article?id=56516380

Today's column considers the (ab)use of forestry concessions as tradable commodities by Asian FDI-benefiting (Foreign Direct Investment) companies, practices that are against forest law and policy in Guyana. Why is trading against policy? Because the April 1993 Guyana Forestry Commission (GFC) policy says that, * "It is the policy of the Government of Guyana that its forest shall be managed on a sustainable basis and in an environmentally sound manner to produce the maximum benefits for the people of Guyana" - that is, the maximum net social benefit to which I have referred often. * The 1993 policy also says, "No additional areas will be granted to Timber Sales Agreement (TSA) holders until they have demonstrated their ability to work existing concessions for maximum sustained yield" and "Failure to work a concession… may lead to cancellation of the TSA." These two bullet points should have prevented the GFC from allowing under-utilised concession holders from acquiring more than one TSA. The same bullet points should also have prevented Barama from acquiring the Barama Housing Incorporated (BHI) SFEP, soon to be rolled over into a TSA, because Barama acknowledges that it harvests much less than the average of 20 m3/ha, which is what the GFC says it should. The second of the quoted bullet points and the violations of the legal articles quoted at the end of this column should have resulted in cancellation of the concessions. If the GFC actually had a strategic plan for allocating concessions as stated in the 1997 National Forest Policy and the 2001 National Forest Plan, the rescinded areas would have been re-allocated through the open bidding process. It is illogical to have an open bidding process for new concessions and allow under-the-table trading of under-used concessions, and it is also against the policy favouring net social benefit, besides being illegal. The evidence from the Asian end of the value chain shows that Guyana is treated as if a 'For Sale' sign has been hung up at our doors. Forestry concessions are being rented for large sums of money, with no regard to the terms of the agreement. The concession licence is still ostensibly with the original holder. The Asian trading companies are no doubt secure in the knowledge that the lack of coordination between regulatory agencies (Guyana Forestry Commission, Guyana Revenue Authority, Ministry of Home Affairs, Customs) gives free reign to their international wheeling and dealing. In his message on the occasion of Chinese New Year, China's Ambassador Zhang Jungao's singled out two Chinese companies for special mention: "Last year also saw a breakthrough of co-operation between the private sectors of both countries in promoting the economic development in Guyana spearheaded by Bosai [bauxite] and Bai Shan Lin [forestry]." (Guyana Chronicle, February, 2007). However, there is little evidence so far - as tracked in Guyana's GDP or local employment, or workers' salaries or contributions to PAYE or NIS - of commensurate benefits from Asian logging companies to Guyana's development. Guyana's logging and milling sector have been reduced in the past 10 years to raw commodity supplier of prime timber species in log form to Asian countries, at the lowest prices for comparable timbers globally. The Asian market, the beneficiary of this 'Chinese (and Indian) takeaway,' absorbed 98 per cent of the total volume of logs exported from Guyana in 2006. Log exports as a percentage of log production in Guyana increased from 35 per cent in 2005 to 44 per cent in 2006. 82 per cent of all log exports in 2006 went to two Asian countries - India and China - importing 41 per cent each. The remaining 16 per cent of exported logs went to seven other Asian countries (Singapore, Taiwan, Vietnam, Thailand, Hong Kong, Bangladesh, Malaysia). The Initial Public Offerings (IPO) and letters to shareholders on acquisitions in Guyana take no account of forest policy in Guyana aimed at promoting downstream in-country processing, local employment and skills creation. On the contrary, one conglomerate, Seapower Resources International Limited (listed on the Hong Kong stock exchange) which acquired 51 per cent ownership of Jaling, holder of forestry concessions in Guyana, during September 2006 stated in its September 1 'Letter from the Board': "At present, the only exporting country for the Joint Venture is the People's Republic of China and the Directors confirmed that the Company has no intention to sell the harvested timber in the local market of Guyana or any other market" (p. 29). A sense of the intricacies of the trades involving the forests of Guyana can be conveyed by the following 'definitions' of terms mentioned in the quotation above, and set out in Seapower Resources International Limited's Letter from the Board: " 'Joint Venture' - W and J Forest Resources Development Limited, a joint venture company incorporated in Hong Kong on 1 December 2005 for the purpose of, amongst other things, the operation and management of the Forest, owned as to 50 percent by the Target and Mr Chu Wenze respectively" "'Joint Venture Agreement' - a joint venture agreement dated 22 December 2004, entered into among the Target and four independent natural persons from the People's Republic of China, as amended from time to time, to set up and operate the Joint Venture." " 'Forest' - the forests granted or approved to be granted to the Target by the Guyana Forestry Commission of an aggregate area of approximately 164,800 hectares (407,000 acres) mainly located in the north bank of Amakura River, the south bank of Baramita Amerindian Reserve and Whana River, the east bank of Whannamaparu and Whana River and the west bank of border with Venezuela, State Forest of Guyana, South America, which the Target has obtained an exclusive timber concession right for a period of 25 years." " 'PRC Joint Venture Partners' - four natural persons in the People's Republic of China, including Mr Chu Wenze, whom have founded the Joint Venture with the Target." " 'Target' - Jaling Forest Industries Inc., a private company incorporated in Guyana, South America with limited liability." Ten days before the Chinese Ambassador's New Year's message, Bai Shan Lin's 'President,' Mr Chu Wenze, held a press conference in Georgetown at which, inter alia, he stated that his company would invest US $100 million in Guyana, and that it was in partnership with Beijing Uni-Construction Company (BUCC) which had a 49 per cent share and was the source of funding for the Guyana operation ('Chinese firm plans US $100 million investment here, Guyana Chronicle, February 9, 2007). A week before Mr Chu Wenze's press conference a Stabroek News report noted that Bai Shan Lin's website stated that it planned to invest US $4.5 million in Guyana ('Chinese firm to process logs from Jaling concession,' Stabroek News, January 30, 2007). How credible is the jump from US $4.5 million to $100 million in a week? The same newspaper report detailed the company's claim on its website that it had rights to 400,000 hectares of forest in Guyana, although the two blocks of JaLing's Timber Sales Agreement (TSA 02/05) amount to only 137,000 ha. At his press conference Mr Chu Wenze alluded to the 'souring' of a business relationship between Bai Shan Lin and Jaling, and further stated that his company was "also in the process of acquiring its own forest concession so that it would be assured of a reliable supply of logs for its downstream activities" ('New Chinese forest company pledges to invest US$100M,' Stabroek News, February 9, 2007, http://www.stabroeknews.com/index. pl/article?id=56513688). An auditor's report to the shareholders of Seapower Resources International Limited (incorporated in the Cayman Islands with limited liability) noted, "On 10 April 2006, the Company and Wild Forest Limited, its wholly-owned subsidiary, entered into an acquisition agreement to acquire a 51 percent equity interest of Jaling Forest Industries Inc., a private company incorporated in Guyana, South America, for a consideration of HK$154 million [US$19,794,344]." Not a bad piece of small change for Danny Chan, the principal of Jaling. This company is notorious in local press reports for its poor treatment of its very few Guyanese forestry workers (60 compared with 140 Asian workers, completely at odds with the ratio stated by Minister Robert Persaud at his press conference on December 8, 2006), non-compliance with its business plans negotiated under secret FDI concessionary terms, and single-minded focus on exporting prime timber species in log form to China. Whatever the Chinese companies in Guyana fight among themselves about, they rest secure in the knowledge that there is little government interest or oversight of their activities. In the Guiana Shield countries of Guyana and Suriname, Chinese companies are popping up at every node of the production-to-consumption market chains for timber, taking advantage of lax regulatory regimes, and the under-priced and un-monitored export of hardwood timbers. The practices detailed above of private deals which transfer forestry concessions in Guyana are illegal. The relevant legislation is detailed below: 'Landlording' is the practice in which the legal holder of a forest harvesting concession gives up managerial control and rents it out to another enterprise. This practice is illegal under Forest Regulations 1953, Article 12 - "No transfer of any lease or timber sales agreement shall be made by any forest officer without the prior approval of the President where such lease or timber sales agreement grants exclusive rights to any person over an area estimated to exceed three thousand acres or is for an unexpired period exceeding three years." Landlording is illegal under Condition 13 of Timber Sales Agreements - "The grantee shall not transfer, sublet, mortgage or otherwise dispose of any interest arising under this agreement except in accordance with the Forest Regulations and any purported disposition made except in accordance with such regulations shall be null and void." Landlording is also illegal under Condition 2 of 16 of State Forest Permissions - "This Permit is not transferable without the prior consent in writing of the Commissioner. It may not be assigned or sublet nor may the grantee allow any person to work under it on payment to the Grantee of any consideration whatsoever." Landlording can be permitted only with express Presidential authority (the President being the Minister of Forestry, as opposed to the quotidian control by the Minister for Forestry, who is usually also the Minister of Agriculture). Landlording is differentiated from 'sprinting' which was a long-standing practice by which concession holders would contract in labour for specific tasks, but without in any way passing on managerial control. Next week I shall continue to examine the Asian end of the value chain against the stated national forest policy and forest law.