Through a glass, darkly – what’s wrong with an Indian coffee retailer exporting logs of prime furniture and flooring timber from Guyana instead of local processing for added value?

Part 4

By Janette Bulkan

In this fourth article in this series, I will discuss the due diligence which should have been carried out prior to giving forest concessions to Café Coffee Day, and some of the associated issues.

Due diligence – Simon and Shock
International Inc. (SSI) – SFEP 03/07

SSI began negotiations in 2004 and paid the application fee of US$ 20,000 when replying to the advertisement for SFEP 03/07 in December 2005.  Article 6 (2) of the Forests Act 1953/1997 requires the GFC to check that SFEP applicants have:

(a) adequate financial resources, technical competence and experience to carry on effective exploratory operations;

(b) an adequate programme of exploratory operations;

(c) satisfactory proposals for the employment and training of Guyanese;

(d) objectives which are compatible with national development objectives.

In addition, the GFC’s SFEP manual of procedures and the information sheet accompanying the application form (April 1999) state that a SFEP will not be issued for any area that is occupied, claimed or used by Amerindians.

The GFC Board of Directors was doubtful about the actual technical competence of SSI and about its financial status, in relation to its brochure proposing to invest US$26 million on a computer-controlled sawmill at Linden and giant trucks.  The chairman of the GFC Board suggested a financial check by international accountants Dunn and Bradstreet.  That kind of due diligence check is precisely why the application fee of US$ 20,000 is set so high for State Forest Exploratory Permits (SFEPs), to pay for such scrutiny.  However, it is unlikely that this external expertise was used by the GFC or by Go-Invest.  After prolonged haggling, the GFC issued the SFEP in January 2008.

Requirements to be completed within the three years of a SFEP include forest product inventories, topographic surveys, social and environmental surveys and studies, preparation of an investment proposal for the harvesting and utilization of forest produce, and for the preparation of environmental and social impact assessments and an environmental management plan, and a forest management plan.  It is not clear from the public record if SSI completed any of these studies and plans before the GFC suspended the SFEP in 2009.

In its undated statement (on its website from mid-April 2011) the GFC stated that it had completed the necessary due diligences to allow a transfer of the SFEP from SSI to DFCPL (a subsidiary of Café Coffee Day, Karnataka, India) in 2010.  It is unclear how the GFC determined that a coffee plantation company and Main Street coffee retailer in India complied with the four eligibility requirements of Article 6 (2) of the Forests Act 1953/1997, mentioned above, or what other kinds of due diligence checks were conducted.

The transfer included assumption by DFCPL of the SSI outstanding debts to the GFC of US$ 254,000.  Article 6 (9) of the Forests Act 1953/1997 provides for a performance bond to be posted by the applicant.  It is not clear if such a bond was posted initially by SSI, exhausted by the non-performance of SSI, or forfeited to pay penalties before the SFEP was suspended in 2009.  It is also unclear if the DFCPL/VHPI takeover of SFEP 03/07 included the posting by VHPI of a new performance bond.  And if not, why not?

The undated GFC statement of April 2011 stated that DFCPL’s work on the SFEP was ‘currently being finalized’.  That seems unlikely, unless SSI had indeed already undertaken exploratory work and had handed over the results to DFCPL.

Due diligence – former Caribbean Resources Limited (CRL, TSA 04/89), now VHPI TSA 01/10

The CRL subsidiary of Trinidad-based CLICO had purchased the TSA from the government-owned Guyana Timbers Ltd. at a very low price and apparently without competitive bidding in 1989.  If the GFC 1993 concessions policy and the 1994 concept of SFEPs, and/or the still unwritten national strategic plan for forest allocation required by the National Forest Policy 1997/2011, had been applied to the long-expired and recently-rescinded CRL concession in early-mid 2010,  then the CRL area should have been transparently and internationally advertised for new competitive bidding.

However, the procedure possibly used for awarding the former CRL TSA 04/89 to Café Coffee Day’s subsidiary Vaitarna Holdings Private Inc. (VHPI) as TSA 01/10 involved a short (one-day?) advertisement in July 2010, a single response from VHPI, and a speedy award of the TSA to VHPI in early September.  Any due diligence on VHPI or its parent company Café Coffee Day in India would have been completed in less than two months.  As Café Coffee Day had no relevant experience or qualifications, staff or equipment, there must be questions about the checks which should have been carried out by the GFC and Go-Invest.  In contrast, the checks before the SFEP was issued to SSI took the whole of the two years 2006 and 2007.  The GFC’s 1993 concession policy states that ‘TSAs will be granted to applicants with proven ability . . .’

In its statement dated 13 April 2011, section 16, the Ministry of Agriculture asserted that ‘Regarding due diligence checks, the public is assured that a comprehensive due diligence was done; this due diligence has proven that the company has the necessary expertise to undertake the various tasks that are required; it also established that the company has sufficient financial resources, and has a track record of carrying out harvesting and processing operation efficiently’.  No evidence was provided in support of this statement.

Although that TSA had last been sold in 1989 and re-started in 1991, and had expired in April 2006, the GFC has not indicated if the incoming VHPI has to prepare a new forest management plan, a business plan, an environmental and social assessment and associated environmental management plan; or no plans at all?

VHPI paid a premium of US$3 million for the 346,000 ha of the TSA 01/10, just US$0.3 million more than CLICO paid for it in 1989, 21 years earlier.  That premium was not paid into the accounts of the GFC or into the Consolidated Fund but was used to pay off some of the stakeholders who had lost money in the CLICO bankruptcy.  This use of the premium was apparently authorized by the Minister of Forests, at that time Bharrat Jagdeo.

In the fifth article in this series, I will address the commitments made by VHPI to in-Guyana timber processing, its actual exports of unprocessed logs, the ineffective GFC log export commission, and the failures of the GFC and its Minister to act as public servants.

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