Our project to build an advanced timber mill has not materialised

http://www.stabroeknews.com/index.pl/article?id=56526440

Our project to build an advanced timber mill has not materialised
Stabroek News
Friday, August 10th 2007

Dear Editor,

I am writing in response to a statement made by the government of
Guyana in Friday's Chronicle titled "The wood products sector is
growing.."

I would like to start by saying that it is unfortunate that the
government of Guyana felt it necessary to air it's grievances with
Peter Ramsaroop by dragging our company, Simon and Shock International
(SSI), through the mud.

RoopGroup, the company that Peter heads in Guyana, was being considered
as a contractor for some of the work our company would have been
bringing to Guyana should we have been allowed to enter the marketplace
(formalizing policies and procedures in a simple computer programme).
His company was but one among many who would have benefited from the
US$20 M + that SSI was dedicating to local suppliers, contractors and
employees during its first years in business in Guyana.

I'm sure that Peter's article was a direct response to the results of a
meeting held between the Commissioner of Forestry Mr James Singh, the
Minister of Agriculture Mr Robert Persaud, and myself on July 12 of
this year in Minister Persaud's office.

In that meeting, SSI was informed by Minister Persaud that SSI's
application for an Exploratory Forestry permit was being placed on
indefinite hold while a subcommittee in cabinet reviewed the
possibility of Carbon Credit funds that might be made available to the
government of Guyana should the government agree to discontinue any new
forestry permitting.

This development absolutely floored me as it was obvious that Minister
Persaud had very little to say regarding the state of the Carbon Credit
marketplace and the fact that it was not fully implemented and or
understood at this time. All he would say was that the application was
on hold until the subcommittee had done its review. I asked how long
this review would take "six weeks, six, months, six years" the minister
could only offer a shrug at each interval.

I also asked if the $40,000 (US) SSI had submitted with it's
applications would be returned to us should the government change the
rules after the fact and remove the properties from consideration. Both
Minister Persaud and Commissioner Singh agreed that this was a
reasonable accommodation as it was the government changing its rules
and not of SSI's making.

Before leaving the office I was sure to inform Minister Persaud that
SSI would be forced to reconsider Guyana for our Advanced Milling
project and move on with our plans in Brazil. He simply bade me a good
day and opened the door to Brazil. Nothing was ever said that even
remotely suggested the accusations presented by government in Friday's
Chronicle.

There were a number of people who were anxious to hear the results of
this meeting as SSI had spent over four years preparing for the
construction of the Advanced Mill in Linden. Our news to them was
obviously not what they expected.

Peter was one of those we informed about our imminent departure to
Brazil; he was not surprised. I would have asked him not to comment
about the latest debacle with the government, but was too preoccupied
with the job ahead in Brazil to bring it up; not that it would have
made a difference.

All it did do was allow government to come up with a completely
different answer that would allow it to keep our US$40,000.

I am not sure who was assigned the task of writing Friday's article,
but it came as no surprise and was delivered by an individual with very
little grasp of the true facts. A cursory review of existing documents
and a few phone calls might lead the author to the conclusions reached,
but the truth, as always is much more complicated then an excuse.

To start with the author rips into our company for having no proven
track record. In fact SSI's principles have a combined 25 years of
experience in Guyana. SSI was set up as a proof of concept company that
was intended to test market Guyanese lumber in the international
marketplace. SSI clearly stated this in our application for FEPs in
December of 2005.

We also explained very clearly that the state of the lumber industry in
Guyana was so bad that we could not service the large buyers we had
been targeting.

As far as major producers in Guyana go, SSI tried to place orders with
all of them with little success. Equipment failures, inability to plane
wide boards, barges sinking, inability to cut to length, (Barama could
not cut over 18 foot boards at one time) and a general refusal to even
make a bid was very common. We transitioned to smaller mills very
quickly and concentrated on marketing diverse species that the majors
would not cut.

Strangely enough, a foreign company has just had its Timber Sales
Agreement (TSA) suspended for not following through on its milling
commitments. Their excuse for transporting out large volumes of logs
was that they were testing the markets. Any fool in this business knows
you do not test the market for lumber with log. SSI tests the lumber
market with lumber and gets pilloried for it.

The author says that red lights were flashing in government. Nothing
could be further from the truth. The discussions we had with government
were very businesslike. At the time, testing lumber markets with actual
lumber made perfect sense.

The author talks about the access granted to the company by government.
We would think that this would be a given coming from a government that
has repeatedly stated its openness and willingness to engage with
foreign investors bringing technology transfer, jobs and millions in
investment.

The author then goes on to describe a portion of the meeting hosted by
the late Minister Sawh where many Guyanese wood companies raised
concerns about the feasibility of the project. Is this any surprise;
our competitors (given official positions on boards commissions and
associations) are invited to a meeting where they are presented with
the future of milling technology in Guyana.

Not one of them saw the tremendous opportunities each of their
companies could have taken advantage of in a changed marketplace. They
only saw risk and danger. "Can't be done" "we don't have the skills"
"you'll never be able to move logs that distance on our roads" on and
on they went. At the end of the meeting, in response to our statement
that we would be competing directly with the mills in Brazil, one
prominent member of the lumber and finished furniture industries
proclaimed as he was leaving "We can't compete with the Brazilians!!!"
we never responded to that statement. We will now. You will never know
if you do not try!!

The author implies next that SSI submitted a business plan that did not
include a forestry concession. We can state categorically that this is
not the case. Forestry was always a part of our plan. Does the author
assume we are fools who would bring the most advanced mill in the world
to Guyana at a cost of tens of millions of dollars and then rely on our
own competitors to supply that mill? (see below)

The author states next that the government issued a land lease to
construct the mill. In this he is partially correct. The Prime
Minister's Office, Linmine, and Lands & Surveys were able to find a
suitable location for the mill in early 2005. Hats off to all of them,
they did a great job. The lease was conditional on all of the
requirements for the mill being met. This included a concession for
log. The lease is ready, but the conditions have not been met.

As far as the granting of fiscal incentives is concerned, this was not
a huge stretch. We simply copied them from the GO-INVEST web site.

This is the point at which the author goes completely off track in
making a statement that the company could not move forward without a
large concession. This statement implies that we brought the concession
forward late in the game. What does the author think we were doing
attending all these previous meetings with the GFC?

If you simply look at the documentation, you will see a draft MOU with
GO-INVEST in early 2005 with no forestry mentioned and an application
for a concession in late 2005. What you will not see is the original
draft MOU prepared by SSI and presented to GO-INVEST in December of
2004. This draft had the forestry concession clearly identified. It was
GO-INVEST that removed the forestry and rewrote the MOU without it.
They simply did not have the authority to grant a forestry concession
so they removed it and referred us back to the GFC for that portion.

On the recommendation of the technical staff at the GFC, SSI wrote a
separate MOU for consideration by Forestry in early 2005. This was
rejected as the Commissioner who said SSI would have to submit itself
to a full review by the GFC.

Knowing that the membership of this commission was chock full of our
competitors, SSI hunkered down for the long haul.

The reason for the huge gap in time was not because SSI added the
concession to our business plan. It was simply because the GFC had no
new concessions available for us to apply for. The concessions we did
eventually apply for were not made available until late in 2005.

The author again brings up those red flashing lights. I'm sure his
review of the paperwork caused red lights in his eyes. But SSI spent
those intervening months waiting for the GFC to identify a suitable
concession, not rewriting our business plan.

The author then brings up a very important point. SSI was required to
submit audited financials of our subsidiary trading company in the US.

Something that had never been required of an applicant before. SSI was
very leery about submitting our books to a commission made up of our
competitors.

We were even more leery when informed by a close associate that one
board member was overheard telling another board member he would use
those books to keep our proposal in a constant state of question and
answer. Even if untrue, SSI was greatly alarmed.

SSI then tried to get GO-INVEST to facilitate a meeting with the
chairman of the GFC, a man who at this point, strange as it might seem,
we had never met (he had skipped all previous meetings and
discussions). We could not get anyone at GO-INVEST to return our calls
so we reached out to a member of the Chamber of Commerce to facilitate
the meeting

The meeting did take place and SSI was assured that the GFC would issue
clear and understandable policies and procedures regarding any review
of our books. What we ended up receiving was a two-sentence email
assuring us that our potential competitors would not have access to our
books. What happened to the policies and procedures?

At this point SSI is faced with a dilemma. Hanging over a pack of
hungry wolves do we give them a shot at a big toe, or the whole leg?

The author says that what we submitted was unimpressive. I agree; we
intentionally gave up the big toe.

Then, late in the game, the head of GO-INVEST mentions to one of our
principles at a cocktail party, celebrating the opening of Buddy's
Hotel, that we should bring in our investors to prove our financial
capabilities. This was repeated after the July 12 meeting with Minister
Persaud.

SSI saw this coming. We stated very clearly in our application for the
forestry concession in Dec. 2005 that:

"Since the mill cannot be built without a secure source of raw
material, the funding of SSI L.L.C. is contingent on acceptance of this
application. Upon acceptance of this application SSI will provide to
the GFC all relevant financial documentation relating to SSI L.L.C."

So let's review the past four years and see if SSI was correct in
keeping our investors out of what has devolved into a three-ring
circus.

We have a government that lets competitors decide who's allowed in and
who's excluded from the marketplace. We have meetings in which our
competitors are yelling at each other when they aren't yelling at us.
We have the owner of the concession adjoining the one we are applying
for thrown into a US Federal jail on drug charges.

We have our greatest supporter, the Minister of Agriculture, gunned
down with his family in his own home. We have competitors asking to
crack open our books and take a peek…Need I go on.

SSI was required to have one of the largest banks in the US verify the
availability of $250,000 in cash, and have that amount ready to commit
to the exploratory work once an FEP was granted. That money has
remained in reserve for almost two years now.

SSI also made a written guarantee to the government that the company
would surrender the exploratory permits and return the concession uncut
should we not build the mill. Having a multi billion-dollar bank
working with you, or millions of dollars of investor money in the US
does not get a mill built. We could have shown the money, as many do,
but never spent it.

Losing the concession if SSI did not build the mill was a no brainer
for Guyana. SSI reduced government's risk below that of any other
applicant to date. Government actually had to work hard to lose this
advanced mill, and all it represents, and send it off to Brazil.

Whoever the author of this letter is, they have no idea as to the
complexity of what SSI was trying to do in Guyana. A historical review
of the paperwork will not show the ten years of work and hundreds of
thousands of dollars that SSI put into this project.

Carbon credits, credibility gap, funding issues, however you want to
phrase it, all SSI was looking for was a simple answer, yes or no. Can
we build the most advanced mill in the world in Guyana or not.
Apparently the answer is no. It's that simple.

Kelly Simon

CEO

Simon & Shock International LLC

Editor's note

We sent a copy of this letter to Mr Geoffrey da Silva, the Executive
Director of the Guyana Office for Investment for his comments and
received the following response:

"It seems to me that the crux of the matter is whether the company is a
"major US investor" with access to substantial financial resources.

The company is requesting between 500,000 and 1,000,000 (1 million)
acres of some of the best tropical rainforest in the world. When SSI
had the opportunity to present its current and potential financial
backing, Mr Simon agreed that the financial information SSI submitted
to the Guyana Forestry Commission (GFC) was unimpressive because SSI
did not want "a pack of hungry wolves" to get the full financial
information. I believe that Mr Simon is calling the forestry companies
in Guyana "hungry wolves".

The application for the forestry concession was accepted for due
process and due diligence. Therefore, as Mr Simon states in his letter,
SSI had made a commitment that "Upon acceptance of this application,
SSI will provide to the GFC all relevant financial documentation
relating to SSI".

Instead, as he wrote, SSI "gave up the big toe" and not "the whole leg".

Mr Simon asserts that the author of the article, "The Wood Products
Sector is Growing and Diversifying" implied that SSI did not include a
forestry concession in its business plan. Reading from that article
here is what I see, "The original proposal, submitted by the company,
outlined a plan to build a modern state-of-the-art sawmill in the
Linden area. Logs for processing would be bought from the large
companies as well as small chain-saw companies and the community groups
that have small forest concessions.

The business plan projected that, after a few years of operation, the
company would apply for a forest concession.

Mr Simon is wrong when he wrote that "We have a government that lets
competitors decide who's allowed in and who's excluded from the
marketplace". From January 2006 to June 2007, twenty-nine (29) foreign
investors expanded and/or started up investment projects in the Woods
Products Sector in Guyana. These investors, who include six (6)
overseas Guyanese, came from the United States of America, Holland,
Canada, Malaysia, China, Germany, Trinidad and Tobago, Brazil and the
United Kingdom. Just as important, thirty-four (34) local investors
either expanded or started up new projects. In fact, forty (40)
projects are expansions and twenty-three (23) are new investments. Most
of the new projects, foreign and local investments, are manufacturing
finished products (including from the lesser used species) - shingles,
flooring, mouldings, doors, outdoor furniture, office and bedroom
furniture, pre-fabricated houses, decking and dimensional kiln-dried
lumber.

Foreign exchange earnings (US$), from the export of wood products,
increased by fifty percent (50%) in the last two years. Significantly,
a growing percentage of the US$ earnings are coming from the export of
finished products. Of the total sixty-three projects, five (5) are
large, twenty-two (22) are medium-sized, thirty-five (35) are small and
one (1) is a micro project.

Most "competitors" are not even aware of who these investors are! It is
therefore obvious that Mr Simon does not know "the state of the lumber
industry in Guyana".

There is no owner of a concession in a US Federal jail.

Carbon Credit Funds is a very important policy initiative that the
Government of Guyana is pursuing. Mr Simon is entitled to his own
opinion on whether this should be a priority issue for Guyana.

With regards to the track record of SSI in Guyana, could Mr Simon
indicate when, where and what were the results (without divulging
confidential information) of the market tests for Guyanese lumber done
by SSI? And what is "a Proof of Concept Company"? Are the smaller mills
in Guyana presently supplying SSI for their market tests?"