Managing forests on a sustainable basis

The Single Market requires states to manage forests on a sustainable basis
Friday, December 8th 2006
Stabroek News

Dear Editor,

Surely, the Guyana Forestry Commission must be aware that we are on the threshold of the Caribbean Single Market and Economy (CSME). Surely, the Head of the Commission is aware of the requirements of the CSME as far as the forestry sector is concerned.

The CSME requires that the Community, in collaboration with competent national, regional and international agencies and organizations, promote the development, management and conservation of the forest resources in the Member States on a sustainable basis.

Mr. Editor, if we carefully examine the objectives of the CSME, the key requirement of the CSME is the conservation of our forest resources as a Member State. Surely, we cannot achieve this through the wanton export of logs unless it is for further processing in a Member State of the Community. It seems as though the international agencies and organizations with which the Commission is collaborating are the importers of our logs.

The wanton export of logs runs counter to Guyana's interest from every perspective. Within the context of the CSME, the Commis-sioner/Commission should be pushing for policy development in the area of local value added which is highly possible given the proven ability of local companies to compete on the international market.

If the current trend continues, Guyana will not meet its obligations to the CSME and this will constitute a major impediment not only in terms of our national competitiveness, given the natural advantages of this resource base, but also to our credibility as a serious player within this most important economic framework.

Yours faithfully,

O. Gilkes

Guyana - Investigation into transfer pricing

The investigation into transfer pricing should include a scrutiny of shipping documents from 2006 and earlier
Monday, December 11th 2006 (Stabroek News)

Dear Editor,

I welcome the public commitment of Mr Robert Persaud, Minister of Agricul-ture and Mr James Singh, Commissioner of Forests, to investigate the practice of transfer pricing by log exporters from Guyana to China and elsewhere.

I note the Minister's words as quoted in your report (SN, December 9, 2006): "Further, the GFC will be carrying out, with immediate effect, 100% verification of all exports to ensure that species such as Locust and Crabwood are not exported."

I recommend that the Minister of Agriculture and the Commissioner of Forests read the 16-30 November issue of the freely-available fortnightly Tropical Timber Marketing report from the ITTO (www.itto.or.jp) which states:

"About 7,778 cubic metres of mixed logs from Guyana arrived at Zhangjiagang port for the first time in September this year. The shipment featured 30 species, including greenheart, courbaril and purpleheart."

'Courbaril' is the trade name for 'locust,' a species that cannot legally be exported in log form from Guyana.

The Commissioner of Forests also stated in his letter of November 17, published in your newspaper, that the GFC "does not accept the category mixed hardwood [for export of timber]… all species have to be listed individually on the commercial invoice."

May I recommend that the investigation include a scrutiny of the shipping documents of exports from Guyana in 2006 and earlier? That investigation should uncover which log exporters are listing courbaril among the 'mixed logs' exported.

If courbaril is not listed in the shipping documents submitted in Guyana, how come this species is listed in the shipping documents presented at Zhangjiagang port in China, and later reported to ITTO?

Yours faithfully,

Mahadeo Kowlessar

Guyana - Under declaration of export price of logs

The figures suggest the under-declaration of the export price of logs is of the order of US $4.8 million per month

Saturday, December 9th 2006 (Stabroek News)

Dear Editor,

Mr Noel Thomas says he is not convinced by the evidence in the International Tropical Timber Organisation (ITTO) statistics of transfer pricing in log exports from Guyana to China. Permit me to remind him of what ITTO, not Mahadeo Kowlessar, extracted from ITTO's bi-weekly Tropical Timber Market Report (www.itto.or.jp):

This extraordinary difference - US $319 per cubic metre - is what is known as "transfer pricing", the under-declaration of the export price, which is illegal under the Customs Act, Cap.82:01, Articles 158 and 159. As 15,000 cubic metres of logs are leaving Guyana per month (monthly data from the Forest Products Marketing Commission) this suggests that transfer pricing is of the order of almost US$ 4.8 million per month.

In most other countries, the export taxes levied by the exporting country will capture most of that excess US $319 for national coffers. That is as it should be as the forests are the patrimony of the nation, not of the log exporter and his/her cronies. The log exporter still makes a huge profit when (s)he exports purpleheart at US $130 per cubic metre. The GFC did a survey of cost of log production in 20 large concessions in 2005 and determined that the cost of production of a log up to the mill gate was less than US $ 55 per cubic metre.

I note that Mr Noel Thomas is speaking for a larger constituency - "we read with much amusement" and "we are certain…". I can only hope that the State agencies and officials who are charged with looking out for the national interest and the public good will investigate the issue of transfer pricing using all the instruments of due diligence at their disposal.

Yours faithfully,

Mahadeo Kowlessar

Log sellout explained

MEDIA STATEMENT BY
ROBERT M. PussAUD
MINISTER OF AGRICULTURE
WITH RESPONSIBILITY FOR FORESTRY

A number of articles have been published recently in the public media on several issues including the lack of adequate supplies of forest products for the added value manufacturers resulting from the exportation of logs, and the non-compliance of the companies - Barama Company Limited and the Jaling Forest Industries Inc. – regarding implementation of their business plans.

Log Exports
The Government of Guyana, through the GFC Board of Directors and the Hon. Prime Minister Samuel Hinds held several meetings with the Forest Products Association (FPA) and the Guyana Manufacturers Associations (GMA) over the past two years on the issue of log exports and meeting the raw material demands of the manufacturers.

I as the Minister responsible for Forestry, continued this consultation process by engaging representatives of the FPA and the GMA in separate meetings on November 17, 2006. The consensus decisions arising out of those meetings based on my proposal were:

The FPA and GMA to nominate two (2) representatives each to be part of a committee to be convened by the GFC.


The FPA and GMA would submit position papers reflecting their ideas on the issue of log exports and raw material supply. The GFC would summarize the outcome of the previous discussions and circulate these to the FPA and GMA respectively.
The Committee will then develop a position paper that would be the basis for a public consultation in January 2007.
Following the public consultation, the Government will then refine its position on the exportation of logs and other related matters.

It must also be noted that the Government had earlier taken positive action to assure a guaranteed supply of raw Material to the manufacturers by providing them with access to prime state forest lands.

The clearly stated intention in providing access to these state forests was to guarantee not only these manufacturers, but also others, access to raw material to do added value activities. This proposal was accepted by the manufacturers and several have received State Forest Permissions


Non-compliance of Jaling and Barama
With respect to the non-compliance of Jaling Forest Industries Inc. regarding the implementation of their business plans, I met with the top management of the Company on November 23, 2006. I articulated the expectations of the Government that the business plan must be complied with, and requested a detailed proposal outlining Jaling’s actions to remedy the situation. Jaling submitted a twelve (12) month plan beginning January 2007. This plan will see the completion of the sawmill, veneer and kiln drying complex by December 2007. It is also projected that there will be a total extraction of 60,000 m³ for 2007; of this 47.7% will be sold to the Karlam Sawmilling Complex in Linden, 30.0% will be converted into squares and 22.3% will be sold locally.

In terms of employment, a ratio of 80:20 (local to expatriate) is proposed for 2007. This is to be further increased to 85:15 in 2008.

A similar meeting was held with representatives of Barama Company Limited (BCL) on November 29, 2006 at which I made the following points among others:

Need for a reduced exportation of logs by BCL
BCL to submit a detailed proposal to address its non-compliance with the implementation of the Buck Hall complex.


Barama in its submission commits the company to the installation of Kiln Drying facilities and a finishing plant by March 2007. In addition, there will be installation of the veneer plant and construction of two (2) barges by September 2007.

The installation of the co-generation facilities is scheduled for completion by September 2007 and from January 2007, the sawmill at Buck Hall will produce three thousand (3000) cubic metres of sawn lumber on a monthly basis. This will see the reduction in the exportation of round logs, a condition I insisted on in the meeting with company officials.

Local employment according to the Company will be three hundred and fifty (350) by December 2007, while there will only be fifty seven (57) expatriates. Of this number, 40 will be skilled persons assigned specifically to the construction of the dry dock and barges.

The GFC will be increasing its presence at these operations to ensure strict compliance in accordance with the commitments made by the companies. Should there be any breaches, the Government will be forced to re-examine the terms of the concessions granted.

Further, the GFC will be carrying out, with immediate effect 100% verification of all exports to ensure species such as Locust and Crabwood are not exported.

I do anticipate that all stakeholders will support the initiative for broad-based consultations and discussion as we move to expand our forestry sector, particularly value-added activities.

December 8, 2006.

Why Guyana keeps losing

Available data strongly suggest that the invoice prices for logs don't reflect market value
Thursday, November 30th 2006 (Stabroek News)

Dear Editor,

In his haste to respond to articles and correspondence in Stabroek News during the last two weeks, the Commissioner of the Guyana Forestry Commission (GFC) seems to have forgotten some aspects of national policy, legislation and the procedures of his GFC.

What the recent correspondence has shown is the increasing gap between the paper policies and procedures and their implementation. The Commissioner does not address this gap in his response letter which you published on 17 November.

Nor does he explain why the claimed inter-departmental coordination with the Guyana Revenue Authority and Go-Invest (and, one hopes, the Ministry of Tourism, Commerce and Industry) has failed to stimulate value addition to forest products leaving Guyana, in spite of extraordinarily generous terms for foreign direct investment. This "co-ordination" has instead permitted a huge increase in export of unprocessed logs to Asia, especially India and China, over the last few years. Yet, since at least 1996, there have been national policy statements which explicitly favour in-country timber processing and value-addition, in-country employment, in-country up-skilling. It is conventional for governments to back such national policy statements by taxing the export of unprocessed logs to the point at which only the very best logs will show a profit on export. That also helps to combat transfer pricing. Expressing it in somewhat simplified terms, the export tax rates are conventionally worked out backwards from the Cost, Insurance and Freight (CIF) value at the importing port minus insurance and ocean freight charges to reach the "true" Free-On-Board rate at the exporting port. The export tax then captures the excess "rent" caused by the initial underpricing of access to this national resource by the GFC. As it happens, Chinese Customs are assiduous in assessing log imports because they collect tax on the logs; see the reports by Greenpeace and the Environmental Investigation Agency on merbau timber logs exported from Indonesian Papua to China (merbau having timber properties similar to Guyanese purpleheart). So CIF rates (landed price) in Chinese ports are probably as close as you will get to "real" market prices for tropical logs.

There are no national policy statements which favour export of raw materials when they could be processed locally. There are no national policy statements in favour of exporting jobs to Asia, or skills to Asia, or leaving value addition to Asian countries.

Of course log export is more profitable than milling, as long as our government does not tax exports conventionally. This is not a plea for banning log exports, but for ensuring that Guyana obtains the best value overall from its natural resources.

So let us have a look at some data -

FOB export price declared to GFC in Georgetown for best quality purpleheart logs, as reported to the International Tropical Timber Organization US$ 130 per cubic metre CIF import price at Guangzhou City, China, as reported to the International Tropical Timber Organization (Y4600-4800) US$ 569 - 594 per cubic metre Ocean freight and insurance from Guyana to China on 20-foot containers holding 12 true cubic metres of logs not more than US$ 120 per cubic metre. Extraordinary difference between import price in China minus export price in Guyana minus freight and insurance (569-130-120) = US$ 319 per cubic metre. This extraordinary difference is what is known as "transfer pricing", the under-declaration of the export price, which is illegal under the Customs Act, Cap.82:01, Articles 158 and 159. As 15,000 cubic metres of logs are leaving Guyana per month (monthly data from the Forest Products Marketing Commission) this suggests that transfer pricing is of the order of almost US$ 4.8 million per month. This figure unfortunately tallies with the US$ 3 million per month which Ms. Bulkan estimated (Stabroek News, 13 November, 2006).

Yet the Commissioner of Forests denies that this is a problem. In his letter he said, "the GFC has no evidence to substantiate this allegation of transfer pricing . . . Invoices are provided for all exports".

Does the GFC employ any economists, or persons with MBAs? If yes, what do these public servants do during the course of a working day? Whose interests do they serve? The public interest or that of a small group of log traders?

Surely the scale of transfer pricing (almost US $4.8 million monthly) suggested by a routine check of a bi-weekly publicly available ITTO newsletter should have come to the attention of someone trained in economics and working in the public sector? Why is there not an official investigation? Surely this is a matter for a court case? When was the last time that the GFC took anyone to court, apart from small-scale lumber yards illegally situated on the ex-railway embankment?

Yours faithfully,

Mahadeo Kowlessar

Discussion

Logs - US$130 vs US$569

Logs - US$130 vs US$569

Forestry transfer pricing probe on -Commissioner Singh -Barama, Jialing to come under closer scrutiny
By Nicosia Smith
Saturday, December 9th 2006
In the wake of a flurry of critical letters and concerns about log exports, Commissioner of Forests James Singh yesterday disclosed that a probe is already being done of allegations of transfer pricing in the industry and it was also disclosed that two producers have pledged to push value added output.

Singh also vowed to take action against log exporters found guilty of transfer pricing.

Speaking at a press conference yesterday at the Agriculture Ministry boardroom, Minister of Agriculture Robert Persaud and Singh responded to several concerns raised by letter writers and others in this newspaper over alleged non-compliance by Jialing Forest Industries Inc and Barama Company Ltd (BCL).

Meanwhile, Singh, head of the Guyana Forestry Commis-sion (GFC), told Stabroek News in an interview following the press conference yesterday that the issue of transfer pricing came up several months ago and an investigation is ongoing. "Action will be taken against companies for transfer pricing," he said.

He added that although persons wanted the GFC to make a statement on the issue it could not be done before the investigation was completed. One letter writer (see page 6 of today's issue) quoted the actual export price declared to the GFC for purple-heart logs as US$130 per cubic metre, while the import price at Guangzhou City in China for the same logs was US$569, a large difference. The investigation is expected to uncover if this practice indeed exists as if it does, it means that Guyana is losing millions of US dollars on levies that should be paid on these log exports. read more

Guyana - Transfer Pricing

GuyanaGuyana, one of the most corrupt countries in Latin America, is noted especially for links to the illegal drug trade. Guyana has a particuIar reputation for money laundering and, given that trade in timber accounts for most Guyana's official export earnings, it is likely that at least some of that trade is associated wityh money laundering.

The unit prices cited in the ITTO's fortnightly "Tropical Timber Market Report" indicate that the difference between the unit prices for Guyana's log exports are remarkably small relative to unit prices for equivalent products exported from other producer countries. The difference might well be attributable to transfer pricing fraud. Given that, during 2005, logs account for almost all India's (and half of China's) timber imports from Guyana, and that India and China (primarily India) account for more than half of Guyana's log exports, India and China may well be complicit in such fraud. The loss of export revenue attributable to transfer pricing fraud might amount to US$ 10mi during 2005. That amount represents some 2% of Guyana's export revenue (of US$ 500 million, roughly half of which was then attributable to gold, diamonds and sugar, and a further 10% to timber).

One might expect that such a large percentage in lost revenue would prompt donors to at least claim to be applying effective pressure on the government of Guyana to substantially reduce those losses. Logs, sawn wood, and plywood accounted for approximately 40%, 30%, and 20% of the RWE volume of Guyana's timber exports during 2005.

During early 2006, Guyana's larget timber enterprise, Barama, received an FSC certificate pertaining to the management of 570,000ha (i.e. less than one third of the area) of its forest concessions. This FSC certificate does not reflect Barama's illrepute - which include alleged economic crime (concerning transfer pricing fraud and the granting of the very lage area of its forest concessions and its generous tax treatment), failure to respect the rights of workers and indigenous people, and procuring wood from dubious sources. Although Barama - owned jointly by Samling (a controversial subsidiary of Lingui Developments from Sarawak) and Sunkyong (a major conglomerate from Korea) - is in effect the sole producer of plywood in Guyana, the granting of that FSC certificate should not be deemed to imply that Guyana's plywood exports (or indeed other products made or traded by Barama) are either legal or from sustainably managed forest.

Guyana's second largest timber company, Demerara Timbers, is said to be owned the Prime Group of Singapore - which might be a shell company and which is related to owners of the notorious Rimbunan Hiijau.

http://www.globaltimber.org.uk/guyana.htm