Despite the higher returns that can be realized from the value-added processing of logs locally, government has not moved with alacrity to compel major logging firms such as China’s Bai Shan Lin and India’s Vaitarna Holdings Private Inc (VHPI) to do so and as the companies continue to export huge quantities of logs annually, Guyana has been foregoing millions of dollars.
Exports of logs rather than processing the timber locally has long been a concern, since numerous promises have been made by the government and foreign investors about value-added operations. The promise of value-added has been seen as sugar coating to enable the export of large quantities of logs, particularly to China and India, even though there is little job creation here or value enhancement.
For the first half of this year, log exports rose by a whopping 80%, compared to the same period last year. The log exports account for over 70% of all wood products exported for the period. The main destination for logs was China.
“At its simplest, it means that Guyana loses the value-added on 70% of the wood products exported,” chartered accountant Christopher Ram told Stabroek News. “However, the Chinese apply a unique pro-China process in their operations. Their management, foodstuff and much of their labour, their plant and machinery would all come from China. The value derived therefrom would flow mainly to China. So rather than speak of value-added we may have to think of the net value added accruing to Guyana,” Ram said.
He added that additionally, the correct computation of value-added (which is the difference between sale price and production cost) relies on proper accounting and the absence of transfer pricing which international companies exploit in the absence of strict, sophisticated rules.
Ram, who is also an attorney, said that had the logs been processed in Guyana, the Guyana economy could have benefited from part of the value-added, the use of local purchases, taxes on employment income and corporate taxes. The employment of local staff would also allow for the transfer and enhancement of skills. “In the absence of the relevant agreements, tax concessions, accurate information on logs extracted and exported and the amounts at which the transactions are recorded, at best, any assessment can only be speculative and hypothetical,” he added.
Firms such as Vaitarna and Bai Shan Lin have been exporting logs on a large scale even though government officials and the companies themselves have committed to processing wood here. Some of these exports have been ongoing for years with the companies failing to set up promised wood processing facilities.
Stabroek News reported last week that months after Minister of Natural Resources and the Environment Persaud had said that Vaitarna was in an “advanced” stage of setting up its promised wood processing facility at Wineperu, Essequibo, Region Seven, the company is still to do so and continues to export large quantities of logs. The company subsequently broke its silence on its delayed wood processing facility at Wineperu saying that it “tentatively” expects that the saw mill will be “near completion” by the end of this year.
Vaitarna has been operating here since 2010 and also said that it plans to ramp up log production in the near term with trucks expected to arrive in Guyana this week.
Bai Shan Lin, meanwhile, has been here for the past seven years and last week, it blamed government and the Region 10 administration for the delay in setting up a processing facility.
Yesterday, the company noted that it has been purchasing logs from local concession holders since it commenced operations in Guyana in 2007. In a statement, the company said that in the period 2015-17, it would construct a wood processing plant and commence log processing with the processing capacity expected to increase to 100,000 cubic metres within three years. According to the company, two years from now, in 2016, it would establish kiln drying facilities and commence veneer manufacturing and by 2017, it would commence manufacturing of furniture, end matched flooring, doors, windows, plywood and other products.
Bai Shan Lin says that it currently injects a monthly average of about US $400,000 in foreign exchange earnings from log exports.
Earlier last week, the Chinese company appeared to lay the blame on government for the sloth in setting up a processing facility. In a statement, the company said that it has always been its intention to process logs in Guyana and it had, in 2008, applied to the government through GO-INVEST and other agencies to lease lands to set up a factory to process logs and engage in value added production, such as the making of furniture, craft and hardwood flooring.
“We were granted that lease for the construction of our processing plan 4 years after we applied for it,” the company said. It said that “specialist engineers” in China drew up the layout and design of this factory in the beginning stages of the company’s engagement in Guyana. The estimated cost of setting it up is in excess of US$80 million, the company said. It said that the lease is around 200 acres of lands located in Region 10. “For strategic reasons we would have preferred lands closer to Port Georgetown but the Government insisted that the factory be set up in Region 10 to provide employment to the people of Linden,” Bai Shan Lin said.
It also blamed the Region 10 administration for the delay in setting up the processing facility. “We began clearing the lands but encountered difficulties with the administration of Region 10. Objections were made about processing 100,000m³ logs per year,” the company said. According to the statement, Bai Shan Lin has expended approximately US$30 million to purchase equipment, conduct site preparation works, and recruit specialist engineers for this factory, and other development aspects “but have been unable to commence construction because of the difficulties referred to, among others.”
The company said that because of the fact that its value added operation is currently in development, the processing of raw materials is currently being done in China and its products are sold in Europe and North America in addition to China and India.
Bai Shan Lin asserted that it will persist in having the facility set up. “The economic and spill over benefits for Guyana will, as you have appreciated, be tremendous. The setting up of a modern wood processing plant here will result in costs savings for our company as well. There is a significant cost involved in shipping logs to China to be processed and exported from China to the EU, North America, Latin America and the Caribbean. The plant will make available to the Guyanese public, high quality wood products never before produced in Guyana,” the company said. It added that upon completion of the wood processing plant, the company will provide employment for approximately 300-500 Guyanese workers from the Linden community.
The companies have said for years that these processing facilities will be set up and it remains to be seen as to whether these timelines will be met. However, concerns remain at the continuing log exports. In addition, tracking the operations of some operators is seen as difficult as through its connections with a range of companies, Bai Shan Lin particularly, has created a complex web which makes it difficult to get a clear picture on the amount of logging that is occurring.
The authorities including the Guyana Forestry Commission (GFC) and companies over the past few days following articles in Stabroek News and Kaieteur News have strenuously defended the practices of the two companies but they have not provided figures on how much logs are being exported by these firms. However, figures obtained by Stabroek News reveal that log exports have risen by 80% for the first half of this year.