Government agencies have performed poorly in relation to the concession licences acquired by the logging company Vaitarna Holdings Private Inc (VHPI) and substantial improvement will be needed in the process towards reaching a timber trade agreement with the European Union (EU), two forestry experts say.
Guyana has applied to the EU to join its Forest Law Enforcement, Governance and Trade (FLEGT) programme and has begun work on a Voluntary Partnership Agreement (VPA). A VPA is a legally binding trade agreement between the EU and a timber-producing country outside the EU and its purpose is to ensure that timber and timber products exported to the EU come from legal sources. The agreements also help timber-exporting countries stop illegal logging by improving regulation and governance of the forest sector.
Participation in this process is one of the requirements in the Joint Concept Note under the Norway-Guyana forests partnership for which Guyana will receive up to US$250 million in performance based payments to protect its forests.
Writing in a five-part series in Stabroek News, forestry experts Janette Bulkan and John Palmer have noted that the consultancy Efeca pointed out in May 2011 that the draft of Guyana’s Legality Assurance System (GLAS) did not match requirements of EU-FLEGT. They pointed out that Efeca offered an alternative scheme but there is no evidence that the Guyana Forestry Commission (GFC) has addressed the points raised by Efeca in a public document. “A GLAS acceptable to the EU will be necessary before certificates of verified legality can be issued for forest products to be exported to and admitted under the EU Timber Regulation,” they said.
The duo said the GFC has had a good opportunity to demonstrate its claimed best practice in respect of the concessions issued in 2010 to the newly created local subsidiary of the Indian coffee retailer Café Coffee Day. This subsidiary was first called Dark Forest Company (S) Pte Ltd but is now called VHPI. The company has two concessions.
The duo, using the legality definition checklist, and applying it to VHPI’s two concessions, has identified several non-compliances including due process used to allocate concessions not being followed.
“The GFC has not demonstrated that it followed national policies and its own procedures in issuing the concessions,” Bulkan wrote while referring to a more detailed examination in a prior series of columns. In addition, it was pointed out that the original two areas bordering the Rewa River were advertised only in Guyana in December 2005, contrary to the policy intention of international advertisement for such large areas allocated under State Forest Exploratory Permit (SFEPs).
The Forests Act does not require re-advertising when a SFEP is transferred to a new holder with the written consent of the GFC and in this case, SFEP 03/2007 covering 392,000 hectares of forest was suspended by the GFC in 2009 for continued non-payment of area fees and inaction over the preparatory works required by the terms of the licence. “The SFEP had been transferred to VHPI sometime in 2010, and VHPI paid a premium of US$245,000 which was the outstanding sum due to the GFC from the original holder Simon & Shock International Logging Inc. However, it is not obvious that the GFC applied the requirement of the National Forest Policy 1997 that ‘Concessions shall be transferrable to new concessionaires provided that qualifying standards are satisfied,’” the duo noted.
“No such standards have ever been published. The rewording in the 2011 revision of the National Forest Policy refers instead to the Forests Act 2009 which is currently not valid,” they said while adding that SFEP 03/2007 should have expired in 2013 or been converted to a Timber Sales Agreement (TSA), but the GFC Forest Resources Allocation map of April 2013 still shows the two areas as under SFEP.
Bulkan noted that the case of the former Caribbean Resources Ltd (CRL) concession TSA 04/1989, now 01/2010 which covers 345,000 hectares is a lot more complicated and was described in her previous series. “The GFC has claimed that it did advertise locally in 2010 the rescinded CRL concession. The GFC was unable to produce a copy of the advertisement in 2012. It did not advertise internationally for open, competitive bidding. The non-competitive bid by Café Coffee Day of India did not involve a transfer of ownership as CRL’s holding had been rescinded,” she noted.
“Therefore this huge area should have been treated as a new concession, not a transfer, and should have been advertised as a SFEP. Moreover, as with the Rewa River areas, Café Coffee Day/VHPI had no prior experience of sustainable management of tropical forest and should have been disqualified in accordance with GFC procedures,” Bulkan wrote while noting that a “wholly improper” bypass was developed by the GFC to circumvent these requirements.
She said the GFC apparently did not conduct due diligence checks on VHPI. “The GFC and Go-Invest spent many months during 2006-2008 on such checks for the predecessor Simon & Shock, much to the annoyance of the then proprietors who complained publicly about the poor service from these government agencies,” the forestry expert said. She recalled a news bulletin from the Ministry of Agriculture on 20 April 2011, which, as it relates to VHPI, the ministry claimed that “a comprehensive due diligence was done . . . the company has sufficient financial resources, and has a track record of carrying out harvesting and processing operation efficiently.”
Despite this, she said, it is not clear that the GFC applied similar checks to VHPI, even though it obviously lacked requisite experience. “Furthermore, VHPI has claimed that it will develop added-value on-shore processing of timber in Guyana and also, in contradiction, that it will export logs for processing at the Café Coffee Day furniture factory. In practice, as Stabroek News has reported, VHPI is simply exporting unprocessed logs, contrary to the assurances given by the Ministry of Agriculture in April 2011,” she said.
Last month, more than three years after commencing operations here, Minister of Natural Resources and the Environment Robert Persaud said that VHPI was in an advanced stage of setting up its promised wood processing facility at Wineperu.
Bulkan and Palmer further asserted that although the GFC failed to advertise internationally, there should still have been international due diligence checking on the financial state and resources of Café Coffee Day in India. “That is what the high application fee for SFEPs is intended to fund. It is not clear that either GFC or Go-Invest had the skills for this work,” they wrote.
Further, the GFC failed to advertise properly in accordance with national policy, and therefore there was no competition for the logging areas and thus no basis for auction. Publication in the public domain of concession licences and FDI arrangement was not done by the GFC or Go-Invest, the duo pointed out.
Any checks by the Auditor General were also not reported in the GFC annual report for 2012. “In summary, the government agencies have performed poorly in relation to the concession licences acquired by VHPI. Substantial improvement will be needed in the process towards reaching a FLEGT Voluntary Partnership Agreement with the European Union,” they wrote.
VHPI is a subsidiary of the India-based Coffee Day Group. Coffee Day, through its Dark Forest subsidiary, in 2010 acquired the State Forest Exploratory Permit (SFEP) for 391,853 hectares of forest originally awarded in 2007 to US-based Simon and Shock International Logging Inc (SSILI), after buying out SSILI.
After the acquisition, the company registered in Guyana as SSILI. Subsequently, Dark Forest acquired the 345,961 hectares concession which was originally assigned to Caribbean Resources Limited (CRL). The government accepted an offer of $600 million for the TSA. The company was registered as VHPI and has been harvesting and exporting logs from this concession.
The total area held by Coffee Day is 737,814 hectares of forest, making it the second largest forestry concession holder in Guyana.