Barama and the Law

http://www.stabroeknews.com/index.pl/article_business?id=56521556
Barama and the Law
By Christopher Ram
Christopher Ram is the Managing Partner with Ram & McRae Professional
Services Firm
Stabroek News
Saturday, June 2nd 2007

What has Ms Janette Bulkan done to cause Barama to accuse her of being
responsible for loss of sales by the company and for pushing a family
agenda while challenging her to produce information to support claims
against the company? The company's response is not only unconvincing
but reflects discomfort in the company to the exposure of its
operations after what appears to be some excellent research. Part of
the nation's patrimony is its excellent forestry resources but we only
have to look at the region from which Barama comes to realise the grave
dangers of the failure to adequately regulate those scarce resources.

Ms Bulkan has of course spent years in the country's hinterland, has
interacted with some key communities and stakeholders in those
communities and is pursuing advanced studies in the forestry sector.
Her work including the series of articles in the Sunday Stabroek from
January to April of this year has been an eye-opener for most Guyanese.
It shows that this company is operating with its own special rules - in
its forestry operations, its misuse of tax concessions that have been
clearly unlawful and with accounting and financial statements that
sometimes defy principle and logic. In close to two decades, the
company appears to have been allowed by the regulators and the
authorities complete freedom without question or scrutiny. Requests to
the Forestry Commission for information on the company are stone-walled
while the tax concessions it has enjoyed are based on questionable
exercise of the tax laws.

Yet, the Guyanese public seems to have no interest in this or
practically any other serious national issue. For some irrational
reason we react only to issues of race and politics but not in the use
of the country's resources or its implications for the country. Janette
Bulkan therefore is doing the country a huge favour by highlighting the
abuses and the harm that are being perpetrated on the nation.

I am of course particularly interested and intrigued at the quality of
the company's financial reporting. Group companies are prone to
transfer pricing but the financial statements show that only 21% of the
company's sales are to group companies compared to a higher 37% that is
sold to the Asian markets. The numbers seem unbelievable given the
international reach of the Group's structure.

There is an interesting but apparently never used provision in the tax
laws that treats as profits of a non-resident company engaged in any
agricultural, manufacturing or other productive undertaking in Guyana,
the full profit that can be earned in a wholesale market for sales
outside of Guyana. This is a tax-avoidance measure but with the company
being treated as if it has a birthright to tax holidays in Guyana,
whether the law allows it or not, the GRA seems either to treat the
matter as academic or simply ignores it.

The financial statements show the cavalier manner in which the tax laws
are in fact being implemented with respect to this company. Note 4 to
the financial statements for the year ended 31 January 2005 and signed
off by the auditors one year later indicate that the company's original
tax holiday including 'exemption from all forms of taxation' had ended
in October 2001 but that in 2002 the Government of Guyana had 'issued a
letter of intent to extend this period for a further period of ten
years'. The financial statements for the next year indicate that the
tax concessions had been extended from October 2004 but 'only to Import
Duties and Consumption Taxes on fuel, spares and glue'. What about the
letter of intent and do these new arrangements extend to Value-added
Tax and to the two new subsidiaries appearing in 2006? This company
must be extremely lucky and influential to persuade the Government to
exercise an authority and grant it a tax holiday which the law clearly
does not allow.

And what does the country get in return? The jobs being offered to
locals are at the lower end while the higher-paying jobs go to the
expatriates causing what the World Wildlife Fund, which appears to be
becoming disenchanted with the company, called 'cross-cultural
challenges'. Worst of all, job numbers are falling and it is believed
that the proportion of expatriates is rising. How can we be sure that a
company that seems to get its own way in every area of its operations
is not also taking unfair advantage of the immigration laws?

And do the royalties compensate for the low-level, low-pay jobs offered
to Guyanese? Here again we get the wrong end of the tree. As Ms. Bulkan
advises us, from June 30, 2003 to September 30, 2006 the company paid
US$2.5 million to the Government of Guyana and to the 'landlording
forest concessionaires combined.' This 'landlording' which Ms. Bulkan
considers illegal arises because domestic enterprises simply cannot
compete with Barama that pays no tax on spares and fuel which attracts
very high rates of tax. One such enterprise told me that with such an
uneven playing field, it had no choice but to effectively give over the
operation of its concession to Barama with severe loss of employment.

Over the seven years ended in January 2006, the company's turnover was
G$27 billion on which it reported losses of G$9.3 billion which
includes interest paid to companies in its international group of some
G$5.2 billion. This it is allowed to do because despite several calls
over the years, this country has no rules on 'thin capitalisation' and
as a result companies can finance their operations purely by loans.
Indeed, the last financial statements available show the company as
having negative working capital and negative equity. Meanwhile
management charges climb from $65 million to $260 million.

Has the Registrar of Companies been any more diligent than the others?
It was a pleasant surprise to find that the company was submitting
annual returns and financial statements to the Registry but it is clear
that the directors who at the last filing were all non-residents have
not been complying with some of the requirements of the Companies Act.
It is unlikely that this is accidental and in any case ignorance of the
law cannot be an excuse. Whatever the reason, the non-filing of the
directors' annual report under section 154 of the Companies Act 1991
allows the company to avoid disclosure of matters in which the Guyanese
public has a vested interest. Again, there is no indication that the
Registrar has done anything to enforce compliance by the company.

The company's note on its prospects has remained the same since 2001!
It bears repeating. 'The price for plywood on the world market
continued to be depressed (is this Ms. Bulkan's fault as well?) even
though there were some improvements over the previous year. Along with
the high debt servicing they had an adverse impact on the profitability
of the company resulting in a substantial loss for the year'. This is
surely a classic and how it escapes the country's only international
auditing firm is mind-boggling! The evidence is that there has been no
build-up of inventory of plywood and this may be entirely due to the
pursuit of the more lucrative log exports.

Barama represents a total failure of every sector of the Government to
set up any meaningful and responsible relationship between the company
and the country. It would be wrong to place all the blame on the
company which is simply taking advantage of terribly poor supervision
by all the regulators. Given the importance of the forestry resources
to the future of the country, the only solution I can see is a complete
review of the company's compliance with the laws and regulations of the
country. After all, if the international accreditation body can
undertake a review of an operation in which they have less direct
interest, why should we not do a similar exercise?

There is a lesson for all in the work done by Ms. Bulkan and the action
by the Amerindian community at Akiwini to give notice of eviction to
Barama.

'Til next week when we look at DDL.