Almost every new company granted a forest concession exports logs in its first three years and the deal to transfer 1.8 million acres to a start-up Indian logging company will not negatively impact Guyana’s pact with Norway, Guyana Forestry Commission (GFC) head, James Singh says.
“This is a re-allocation of previously issued concessions. It will not have a negative effect on the Guyana-Norway Agreement since the company will have to comply with all of the GFC guidelines for Sustainable Forest Management. The Guyana- Norway Agreement makes it clear that sustainable forestry activities will not be stopped”, he said in a statement to Stabroek News yesterday.
The manner in which 1.8 million acres of forest were transferred last year to Vaitarna Holdings Private Inc. (VHPI), have raised questions with Alliance For Change (AFC) leader Khemraj Ramjattan saying yesterday that the “shady” deal appears to have been fast-tracked to get the money to pay policyholders of failed insurance company, Clico, and suggested that the transaction might be illegal.
The government had not disclosed the transactions and the GFC only issued a statement last week after queries by the media. The statement said that the government accepted an offer of $600 million by VHPI to re-allocate a re-possessed concession of 345,961 hectares to the company. Caribbean Resources Limited (CRL) had held a Timber Sales Agreement (TSA) for that concession.
Before that transaction, VHPI took over the State Forest Exploratory Permit (SFEP) for 391,853 hectares of forest originally awarded to US-based Simon and Shock International Logging Inc (SSI) in 2007.
The $600M for the second concession was used to meet the sums outstanding to Clico policyholders following the collapse of the local company.
Critics have argued that when exploration permits fall into non-compliance like SSI’s they should be submitted to a fresh process rather than allowing the defaulting company to enter a transaction which allows it to recoup its investment and perhaps make a profit.
Singh said yesterday that currently, if SFEP’s like the one granted to SSI are breached, there are two possibilities. He explained that the SFEP would be suspended, and this would be followed by re-possession and then re-advertisement as being available for re-allocation. “An example of this is the SFEP previously awarded to Case Timbers Limited which became non-compliant with the terms of the agreement. It was suspended then re-possessed and re-advertised for allocation,” he said.
The second option, which government followed, is the suspension of the SFEP and but prior to re-possession, consider a request by another party to take over the shares of the original company. “This request has to be approved by the GFC Board of Directors, Cabinet Sub-Committee on Natural Resources, and finally Cabinet”, Singh said. “The company buying over the shares also takes over whatever indebtedness the previous holder had. Two examples of this are Jaling Forest Industries Inc. and SSI”, he said.
The GFC Commissioner said that SSI failed continuously to pay acreage fees which amounted to US$254,000 and also failed to begin any exploratory operations even after two years had elapsed, contrary to their prior commitment. He said that the company was warned on several occasions and was finally suspended. Before re-possession, Indian company, Coffee Day Limited through its subsidiary- VHPI applied to take over the shares of SSI and agreed to pay the indebtedness, he said adding that after the necessary due diligences and approvals, the Company was awarded the SFEP. It is unclear how Coffee Day Limited became aware that SSI was in default.
According to Singh, it has never been the norm for the GFC to publicize the issuance of SFEPs. What the GFC publicizes is the availability of SFEP’s for allocation, he said. When SSI was awarded its SFEP, he said, the GFC had publicly advertised that an SFEP was available for allocation and SSI applied for the Permit and this application was reviewed firstly by the GFC Forest Resource Allocation Committee (FRAC), then the GFC Board Technical Committee. “It was then approved by the GFC Board of Directors, then by the Cabinet Sub-Committee on Natural Resources, and finally by the Cabinet”, he stated. He said that due to the financial crises and other unforeseen factors, SSI was unable to undertake the required exploratory works, or pay the necessary acreage fees and its SFEP was then suspended for
non-compliance with the SFEP agreement.
After the suspension, Coffee Day Limited then approached the Government offering to pay all outstanding debts of SSI, and do the necessary exploratory works. After a thorough due diligence was done, Government agreed for Vaitarna to take over as the shareholders of SSI, Singh said. The company then paid the outstanding US$254,000 to the GFC and committed to do a forest inventory, a business plan and an Environmental and Social Impact Assessment (ESIA), and submit these to the GFC and the Environmental Protection Agency (EPA) this year.
“It is important to note that this SFEP is issued for the conducting of exploratory operations only- There will be no harvesting or extraction of logs until the SFEP meets all requirements, and is converted into a Timber Sales Agreement”, the GFC Head said.
He stressed that the conversion of an SFEP to a TSA is not automatic or guaranteed. “GFC and EPA first have to give their approval of the submitted documentation, and approval has to be given by the GFC Board, Cabinet Sub-Committee on Natural Resources; final approval is given by Cabinet”, he said.
According to the GFC Commissioner, if a TSA is issued, the public is normally notified via a press conference by the Ministry of Agriculture and during GFC decentralized outreach visits. With regards to the TSA issued to CRL, the company defaulted on a state forest concession that was issued to them which was then re-possessed by the government.
VHPI then indicated its interest in acquiring the re-possessed concession. “The same level of approvals…for SFEP issuance and conversion to TSA were done and agreement reached on a negotiated price of G$600M”, Singh said. He stressed that this was a re-allocation of an already existing concession and the GFC has already publicized this re-allocation to the Forest Products Association (FPA) and at outreach meetings conducted since the transaction.
When the negotiations on the price were done, he said, factors considered were that no current concession holder has paid any monies for access to harvest the resources, other than acreage and royalty fees and Vaitarna agreed to pay in addition to these fees, an additional US$3M and a valuation of the resource, plus costs associated with harvesting, extraction and transportation.
Also considered was that $600 million would be applied to help meet liabilities owed to policyholders of Clico (Guyana), given that CRL is part of the same group of companies as Clico which went into receivership in 2010. CRL continues to have significant indebtedness to Clico (Guyana), Singh said.
He said that the company will pay royalties in accordance with the forestry legislation and benefits to Guyana will be revenue from acreage fees, royalties and sawmill license fees. There will also be the added employment opportunities and the company will also be encouraged to engage in local added value activities, he said. “The GFC does not justify the export of logs; rather it has always encouraged a movement towards added value activities”.
According to the GFC Commissioner, the National Log Export Policy which uses an increase in the export commission to discourage log exports will be reviewed this year “and it is expected that there will be even greater disincentives to prevent the export of logs, thus encouraging the involvement in value added”
“It is important to note that almost every new company granted a forest concession engage in some amount of log exports in years 1-3 until their processing facilities are up and running, and to generate some cash flow during start up operations”, he said. “The GFC will however, encourage the company to get involved in local added value activities as soon as is possible”, Singh added.
He said that the company will be issued an annual allowable cut (AAC) based on the acreage and forest inventory. “Logs within this AAC can be exported in accordance with the National Forest Policy.
Of course, as mentioned before, GFC will encourage the company to get involved in local added value activities, and a review of the log policy later this year will hopefully increase the disincentives to export logs”, he said.
Ramjattan had said that the non-disclosure of the deals highlighted the administration’s “shady and opaque” nature. “It is not transparent at all”, he said adding that the “shadiness” of the deal creates a number of suspicions. He questioned why the land was not advertised and put for public tender.
Ramjattan also questioned the expertise of the company in the forestry arena and said that the deal appears to have been rushed through to get money to pay policyholders of Clico. “You don’t sell off all this land to a company that has absolutely no experience in forestry”, he said. “We have to now ask the forestry commission whether all the legal requirements were met.
The company plans to ship logs to India to make furniture. It also plans to start a sawmilling operation.
