An Overview of Asian Companies, Malaysia
12/1/98
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Title: An Overview of Asian Companies, Malaysia
Source: Greenpeace
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Date: 12/1/98
AN OVERVIEW OF ASIAN COMPANIES: MALAYSIA
The Malaysian Government claims that almost 59% of the country's
32.86 million hectares is under "forest cover", and a further
12.8% under plantations of tree crops such as rubber, oil palm
and cocoa. It adds that 4.63 million hectares constitute
protected areas, national parks, wildlife and bird sanctuaries
(Minister of Primary Industries, Dato 1994). It is important to emphasise however, that despite
Malaysian forest cover, the great majority of it's forest has
already been logged. The timber companies only extract certain
trees which are of commercial use to them, the remaining trees
are called residual stands" .In 1989 it was reported that
Malaysias forest was beeing logged at a rate of almost 800,000
hectares or 1,7 million acres a year - that means 3 acres per
minute ( Nepenthes rainforest Group Denmark, 1989).
The East Malaysian state of Sarawak and its neighbouring state
Sabah, on the island of Borneo, dominate the Malaysian forestry
sector, both as producers of tropical logs and as home to the
main timber companies. In October 1996 Malaysia was reported to
have about 1,123 sawmills, 126 plywood mills, 108 moulding
plants, 2,900 furniture mills and five medium density fibre-broad
plants distributed all in Peninsular Malaysia, Sabah and Sarawak.
Malaysia claims to supply 80% of the tropical sawn lumber in the
international market, and is the second largest tropical timber
exporting nation in the world after Indonesia. From 1985 to 1993
the export earnings from the Malaysian timber sector increased
from M$ 4.71 billion (US$ 1.86 billion) to around M$ 12.48
billion (US$ 4.92 billion). In product terms, while the export of
value added product such as furniture and plywood has increased
significantly, there is a visible drop in the export of logs and
sawn timber (Asian Timber, October 1996).
LOG SHORTAGE
Despite the increase in export earnings, the Malaysian timber
sector faces major challenges. The Assistant Director of the
Malaysian Timber Industry, Loke Sim Wah, pointed to the shortage
of supply of raw material as a critical factor that could affect
the future development of the Malaysian wood processing industry
(Asian Timber, October 1996). Under the Seventh Malaysia Plan
(1996-2000), log production was projected to be reduced to around
28.3 million m3 or 45,000 hectares per year. This represents a
decrease of 17% compared to the average of 34 million m3 or
52,250 hectares per year produced under the Sixth Malaysia Plan.
Ms Loke Sim Wah emphasised that "with the existing total annual
installed processing mill capacity of 13.20 million m3, 7.45
million m3 and 6 million m3 in Peninsular Malaysia, Sabah and
Sarawak respectively, and a corresponding reduction of log
production, there is an urgent need for the industry to
re-structure itself in order to adapt to the reduced availability
of the raw material" (Asian Timber, October 1996). The Business
Times reported that "some sawmills in Sarawak will be forced to
close due to a severe shortage of logs" (Asian Timber, June
1994). The Chairman of Sejati Sdn Bhd, the former Chief Minister
of Sabah, Mr Datuk Harris Mohd Salleh said in an interview that
"we are well aware that there is likely to be a timber shortage
in the near future. We just can't sit and wait for the natural
forest to rehabilitate, that will take decades". (Asian Timber,
May 1993)
The decreased availability of logs has resulted inevitably in the
increased cost of raw materials. For example, average log prices
of dark red meranti, the most popular species in Peninsular
Malaysia, have shown an increase of 75% for the period from 1990
to 1994.
In order to ensure the supply of raw material to its own
companies, Malaysia has implemented a ban on the export of logs
from Peninsula Malaysia and Sabah, and has progressively been
reducing log production in Sarawak.
These measures have also been implemented in response to the
discovery of widespread under- invoicing of timber exports. "We
hear of submarine logging, night logging, people operating
outside their licensed areas and even within national parks",
said Social Development Minister Datuk Ademan Saten in December
1993 (Asian Timber, December 1993). In 1994 Malaysia amendmented
its 1984 National Forestry Act in an attempt to strengthen
implementations to curb bad forestry practice and illegal
logging. It has raised penalties 50-fold to M$500,000 and imposed
a mandatory jail sentence from one to 20 years, depending on the
seriousness of the offence. In addition, these amendments have
also allowed the use of army personnel for forest patrolling
(Asian Timber, June 1994).
In addition to its efforts at control, the Malaysia government
has also decided to use a bar code tagging system in timber
concessions throughout the country in continued efforts to curb
illegal logging. The bar codes, similar to those used for
consumer goods, would be in the form of plastic tags. The
information contained in them included the species of the tree
and the area where it grows. (Asian Timber, November 1993)
Following years of national and international criticism of its
forest management practices, Malaysia became very vocal in
presenting its credentials as a world leader in introducing
sustainable forest management. In 1996, the Malaysian Minister of
Primary Industries, Dr Lim Keng Yaik, announced that the country
would spend US$ 985 million on forest management activities up to
the year 2000, with the money coming from revised royalty, levy
and other taxes on forestry and timber products. He stated that
financing sustainable forest management is a continuing
investment to ensure the sustainable supply of timber for the
downstream wood processing industries as well as to see that "the
forests will effectively provide protection to the environment"
(Asian Timber, 1996b).
While some Malaysian timber companies have supplemented their
scarce resources by investing in forest plantations (such as
rubber and oil palm) others have decided to look for cheaper and
less controllable sources of supplies of raw material from the
natural forest. They have decided to invest in new operations in
other tropical countries such as Papua New Guinea, Guyana,
Suriname, Cambodia, Brazil, Belize or the Solomon Islands.
These countries do not however have the resources nor an
effective institutional machinery to control the large scale
logging operations of these Asian companies. The present stronger
package of control measures established by the Malaysian
government is a recognition of the dangers involved in the
uncontrolled operation of their own logging companies.
SARAWAK'S FORESTS AND SUSTAINABILITY
When the forest industry in Sarawak talks about "sustainable
forestry" or "sustained yield" it means how to log forests so
that the supply of logs can continue forever. They do not mean
how to log forests in a way that preserves forest ecology and the
lives of the forest dwellers, native communities, etc. Even if
one agrees with the forest industry's point of view, the
increasing inability of Malaysia to supply logs shows the
unsustainability of its forest management.
Sarawak is the world's largest exporter of tropical logs, mostly
to the Japanese, Korean and Taiwanese markets. It accounts for
43% of Malaysian log output. Of the 16.6 million m3 harvested in
1993 in Sarawak, 6 million m3 were earmarked for local
processing. The level of exports has been declining slightly over
recent years, with the South Pacific, especially Papua New
Guinea, increasing its market share to the main importers.
Sarawak shipped 6.6 million m3 of logs to Japan in 1990 and this
had fallen to below 4 million in 1995, whilst PNG exports to
Japan increased from 600,000 to 1.6 million m3 over the same
period (Tropical Timbers, 1996a), mainly as a result of
activities by Malaysian controlled companies. This decline in
exports is in line with the Sarawak state policy of increasing
the amount of logs processed domestically in an attempt to
implement the "sustainable management" of its dwindling forest
resources (Asian Timber, 1996a).
Whilst the country is quick to promote these recent efforts,
Malaysia, and the state of Sarawak in particular, have in fact
long been the focus of attention regarding the unsustainable
exploitation of the forests.
In 1990, an International Tropical Timber Organisation (ITTO)
Mission which studied Sarawak's forests identified three
significant impediments to sustainable forest management in the
state:
* 1) over-cutting in the hill dipterocarp forests;
* 2) inadequate catchment management;
* 3) insufficient control of felling operations.
A number of objectives were identified to help address these
problems, namely the urgent recruitment of additional staff to
the forestry department, a significantly reduced rate of timber
harvesting, an increase in the amount of protected areas, the
undertaking of an assessment of the forest resources of the state
in relation to long term trade prospects for forest products, a
review of the organisational structure for the allocation,
management and operation of timber licences, and the
encouragement of closer consultation and greater participation
among local communities (ITTO, 1990 p. vii).
At the time of the study, harvesting in hill forests was about 13
million m3 a year and the authors estimated that, at that level
of harvesting, all primary forests available for timber
production, including those found on steep slopes of more than
60%, would be logged out in about 11 years (i.e. by 2001),
leaving only cutover forests with their reduced yield and revenue
prospects. According to the report, logging on slopes over 60%
would produce totally unacceptable environmental damage unless
logging practices were completely revised, involving new and more
costly operations. Excluding slopes over 60%, the report
calculated the sustainable annual yield for the whole of
Sarawak's forests (and not just that specifically allocated to
forestry) to be 6.3 million cubic metres, rising to 9.2 million
m3 if certain costly silvicultural practices were immediately
introduced into all logging operations (ITTO, 1990 p:34-35), but
this has not happened (Pearce, 1994).
Log production in Sarawak is consistently much higher than the
sustainable levels recommended by the ITTO: in 1995 it was 16
million cubic metres (Star newspaper, 1996a). Although a falling
amount is being exported, overall production levels are still
more than double the ITTO recommended sustainable logging rate.
Thus the industry inevitably faces domestic log shortages. Given
the continuing demand for unprocessed logs in the markets of
Japan, Korea and Taiwan, as well as potential shortages for their
own growing downstream processing industries, it is no surprise
that Malaysian companies are increasingly looking to invest in
logging operations overseas. This expansion is being vigorously
promoted by senior Malaysian ministers including Prime Minister
Mahatir and the Minister for Primary Industries, Dr. Lim Keng
Yaik.
Sarawak was also reported to have the highest rate of logging
accidents and deaths in the world. In the period 1973-84 there
were 603 logging deaths and 11,650 non-fatal accidents. Nepenthes
Rainforest Group, Denmark, 1989
ENVIRONMENTAL AND SOCIAL IMPACTS
From 1963 to 1985, a total of 2.8million hectares or 28,217 sq.
km. of forests were logged, this being equivalent to 30% of the
total estimated forest area in Sarawak. In 1985, another 270,000
hectares or 2,700 sq.km. ( 2.8%) of forests were logged.
Logging practices continue to be a huge cause for concern in
Sarawak from environmental and social perspectives. A report by a
forestry department engineer found that during tractor logging on
hilly terrain of the kind routinely logged today, an average of
five trees were left broken on the forest floor for every tree
cut down to be sold. Skid trails occupied 6% of the area being
logged. (Pearce, 1994). The same report found that the silt load
in streams increases 12-fold during logging, mainly as a result
of the heavy machinery being used, which damaged vegetation and
churned up the soils which then washed away (Pearce, 1994). In
August 1995, unseasonal flooding in Sibu was thought to be caused
by heavy logging in the Upper Rajang river area (Borneo Post,
1995a).
As mentioned above, the big "forest cover" of Malaysia is mainly
constituted of "residual stands" . A FAO study has shown that as
much as 50% of the residual stands may be damaged, and the
surface soil may be destroyed, when up to 30% of the ground
surface is exposed (Nepenthes Rainforest Group, Denmark, 1989).
According to the head of the Sarawak Natural Resources and
Environmental Board, Mr James Dawos Mamit, indiscriminate logging
practices have created serious erosion and caused havoc in river
systems, with as much as 60 million tonnes of soil being poured
into rivers annually, and logging related activities such as the
building of roads and skid trails turning many formerly crystal
clear rivers muddy. The state of Sarawak itself admits that
indiscriminate logging practices have created serious erosion and
caused havoc to the rivers systems and even the Sarawak Timber
Association (STA) has admitted that logging has caused
sedimentation of Sarawak's many rivers (Asian Timber, September
1996). In an effort to combat this, timber companies have been
asked to prepare environmental impact assessment reports before
carrying out logging activities and these reports are supposed to
include ways to minimise sedimentation and soil erosion. Those
who do not comply would not be able to renew their annual logging
permits (Asian Timber, 1996c).
The most pervasive effects of logging is the reduced water
holding capacity of the land and increased erosion from rain.
According to research carried out by the WWF in 1989, the
consequences of raised silt and mud load in rivers are
far-reaching. The report pointed out that more than 60% of the
rivers in Sarawak are affected by logging activities in the
forests around them. (Nectoux, Francois and Kuroda, Yoichi WWF
1989)
Indigenous communities continue to protest against logging in
their traditional lands, and there is no sign of the increased
consultation and participation recommended by the 1990 ITTO team
as a main objective for achieving sustainable forest management.
Conflicts between the timber companies and forest-dwelling
communities have been widely publicised in recent years. The
issue has centred on the resentment experienced by many people in
remote areas that loggers were exploiting forests with little or
no regard for the important part that these forests played in the
welfare of the traditional inhabitants. Semi-settled and nomadic
forest dwellers and those living on the forest margins depend on
the forest for a wide variety of products. Access to these
products may be shared or assigned to individuals or communities.
Most of the products are consumed directly, a few enter local
markets, and fewer still are traded internationally.
Since 1987, timber blockades and various other protests against
logging operations have become more widespread and many
publications have appeared describing the conflict between the
communities, logging companies, and the government. (Hong, 1987;
Ghee & Valencia, 1990; ITTO, 1990; Hurst, 1990; Nicholas & Singh,
1996; Manser, 1996). While some native groups realise the benefit
of additional employment they are also concerned about the
negative effects of the timber operations in their area.
COMPANY OPERATIONS
Company operations have been subject to increasing scrutiny by
the government and national and international NGOs since the
exposure in 1992 of years of widespread evasion of taxes through
transferring profits overseas. As a result of that investigation
20 timber companies were issued with demands for large back
taxes. According to Primary Industries Minister Lim Keng Yaik,
one of the biggest groups was assessed for RM 100 million
(Approx. US$ 40 million). (Asian Wall Street Journal Weekly,
1994). In 1994 revenue officials again mounted a number of raids
on timber company offices in Sarawak, with one official
describing the process: "Log export values have been understated
or logs have been sold at a loss to other family members in Hong
Kong before being re-exported to Japan or South Korea at great
profit" (FT, 1994). Also in 1994, logs worth RM 5million destined
for the black market were seized by the Sarawak forestry
department, and there were a number of court cases on illegal
logging incidents (New Straits Times, 1995).
Sibu in Sarawak is the headquarters of some of the largest timber
groups in the world. As most of their operations are registered
as private limited companies, with ultimate control resting with
key families, they are able to operate in relative secrecy, away
from public scrutiny. Another common feature is a close
relationship with key politicians in the State.
The biggest Malaysian companies operating overseas are mostly the
ones that have become notoriously known to the Sarawak's natives
for destroying their forests, crops and polluting the rivers.
Three of the top five timber giants in Sarawak are outlined
below. Like other Malaysian logging companies, the wealth and
technological capacity generated by exploiting natural resources
in the country has formed the basis for their expansion overseas.
However, massive investments on such a global scale required
novel ways to increment their capital. Accordingly, during 1994
and 1995, most of the privately owned logging companies took over
companies listed in the Kuala Lumpur exchange to raise funds for
their expanding operations.
* Main Malaysian Logging Companies Operating outside Malaysia)
* Samling Corporation - Guyana, Cambodia, Brazil
* Rimbunan Hijau - Papua New Guinea
* Berjaya Group - Solomon Islands, Suriname, Guyana
* WTK Group- Indonesia, Papua New Guinea, Cambodia, Burma,
Brazil
* Aokam Perdana and Idris Hydraulic - China
* Kumpulan Emas Berhad - Solomon Islands
* Parklane - Vanuato
* Maving Brothers LTD - Solomon Islands
* Benta/Mun Loon - Laos
* Chew Piau/Eastern Era - Papua New Guinea
* Solid Timber SDN.BHD - Guyana
* Tenaga kemas SDN.
* BHD - Guyana
SAMLING GROUP OF COMPANIES
The Samling group of companies and its subsidiary, Samling
Strategic Corporation Sdn Bhd, control around 1.5 million
hectares of forests in the state of Sarawak (Asia Money, 1995).
It also owns large timber operations in Guyana (another 1.69
million hectares), Cambodia (at least 800,000 hectares) and
elsewhere. The Samling group of companies is a huge conglomerate
consisting of 54 subsidiaries and associate companies (Asia
Money, 1995). The Samling group is controlled by the
ethnic-Chinese Yaw Teck Seng and his family, and the family's net
worth is estimated at US$ 1.6 billion (Forbes, 1995). Whilst most
of the group is made up of private companies it has recently
acquired a listed company, Lingui Developments Berhad, through a
reverse take-over, thus gaining access to the Kuala Lumpur Stock
Exchange. The Lingui 1995 annual report shows that Samling
Strategic Corporation Sdn Bhd holds 29.67% of the Lingui shares.
Some securities analysts view the Samling Group as the country's
largest and most aggressive fully integrated timber group. The
group's overseas business stretches to Japan, Taiwan, South
Korea, the US and Canada. (The Edge, December 1993)
Politically, Yaw Teck Seng is related to a prominent Sarawak
State Minister by marriage. Mirzan Mahathir, son of Malaysia's
Prime Minister, also sits on the board of directors of Tamex
Timber Sdn Bhd, a timber contractor in which the immediate and
ultimate holding companies are Samling Strategic Corporation and
Yaw Holdings Sdn Bhd. Samling Strategic Corporation is a major
shareholder (70 percent) of Tamex Timber Sdn Bhd. Through Limbang
Trading (Bintulu) Sdn Bhd, the group also work with Datuk James
Wong Kin Min, the President of Sarawak National Party (SNAP, a
component party of the National Front, the ruling coalition
government in Malaysia). Datuk James Wong is also the current
Sarawak Minister for the Environment and Local Government.
Controversy surrounds the operations of Samling in Sarawak. The
company has tried to obtain signatures on 'Goodwill Agreements'
from communities which give the company carte blanche to operate
as they wish. Such agreements 'place the responsibility for
monitoring operations onto the community where they wish to claim
a royalty, give up any claim to traditional lands used for
farming and hunting or gathering and must compensate the company
for any protest action they may take. Logging operations have
been described on many occasions as having destroyed land, fruit
trees and other forest products, as well as polluting the rivers.
Such actions are said to have driven off game, depleted fish
stocks from rivers and deprived communities of potable water.'
(Forests Monitor, 1996).
WTK GROUP OF COMPANIES
Wong Tuong Kwong (WTK) Group is the oldest of the big five
Sarawak timber giants, founded in the 1960s by Datuk Wong Tuong
Kwong. It has become a huge conglomerate with 70 subsidiaries
operating in several activities such as mineral exploration,
insurance etc and has logging concessions in Papua New Guinea as
well as Sarawak (450.000 acres). It was through working for WTK
that Wong Tuong Kwong's nephew, Tiong Hiew King, learnt about the
business and following a split in 1975 left to establish the
Rimbunan Hijau group (Asian Wall Street Journal Weekly, 1994).
WTK is managed by the two sons of Wong Tuong Kwong; Wong Kie Yik
and former Senator Wong Kie Nai. Kie Nai and Kie Yik are
prominent financiers of James Wong's Sarawak National Party
(SNAP).
WTK operations in Sarawak have encountered resistance by local
people. When offers of gifts such as casting nets for fishing and
money were refused by the Penan of the Magoh-River region and
they maintained a road blockade, WTK is said to have employed a
Chinese versed in Penan matters. He threatened the people: "If
you do not abandon the blockade, you had better watch out at
night. I will come and kill your children..." (Manser, 1996,
p39). After losing a court case in 1987 concerning blockades on
private roads WTK is said to have offered the blockade
spokesperson RM30,000 (US$11,900) to persuade his people to
accept a profit share of RM2 (US$0.79) per cubic meter of timber
to allow the company to continue working. The spokesperson
declined. (Manser, 1996).
RIMBUNAN HIJAU GROUP OF COMPANIES
Malaysia's largest timber group is Rimbunan Hijau ("Forever
Green") (Forbes, 1995). It has timber concessions in Sarawak of
around 800,000 hectares (FT,1994), dominates Papua New Guinea's
forestry sector and has forestry interests in New Zealand and
China, as well as diversifying into other activities such as the
ownership of newspapers in Malaysia and Papua New Guinea
(AsiaMoney, 1995). Rimbunan Hijau also owns a 40% share in
Limgang Trading Sdn., which has a 310,000 hectares concession in
Sarawak (55% of Limbang is owned by Sarawak's Minister for the
Environment and Tourism, James Wong Kim Min) It is privately
owned and controlled by one family, headed by Tiong Hiew King.
The family are estimated to be worth about US$2.5 billion
(Forbes, 1995).
Whilst it remains largely a private group of companies, whose
operations are veiled in secrecy, the Tiong family has sought to
obtain a more public face through the reverse take-over of
Berjaya Textiles Bhd (now renamed Jaya Tiasa Holdings Bhd),
giving it a listing on the Kuala Lumpur Stock Exchange (FT 1994).
Its overseas logging operations appear to remain under the
control of the private parts of the group and in Papua New Guinea
it is the dominant player through control of a number of
associate and subsidiary companies. There are recent rumours that
Rimbunan Hijau group owns, or is in the process of acquiring,
Primegroup Holdings, a British Virgin Islands registered company
with logging interests in Guyana and Papua New Guinea. If this is
true, then Rimbunan Hijau group's international logging interests
are, or will shortly become, even more extensive, both
geographically and in terms of size. Apart from its logging
activities, the company has interests in banking, newspapers and
oil-palm plantations. One of Hiew King's younger brothers is a
member of the Malaysian Parliament. Despite the company's
political connections, it has been caught for tax evasion, the
Asian Wall Street Journal reported.
BERJAYA GROUP
Berjaya Group Berhad's ownership structure and some of its past
practices are well-documented. It is a large, diversified
Malaysian conglomerate controlled by the Malaysian businessman
Vincent Tan Chee Yioun. Holdings include seven public and about
200 private companies involved in gambling, textiles, tourism,
hotels and property development. Total group assets, according to
the conglomerate's 1994 Annual Report, were around US$2.2
billion. Timber and the related processing industries are
relatively new interests for Berjaya (Sizer & Rice, 1995. p.11).
Like the Samling Group the Berjaya Group also has close
connections with the Mahathir family businness, the Malaysia's
Prime Minister (G. Aditjondro).
The group became active in the timber business in 1994. In May of
that year, Berjava's wholly owned subsidiary, Brejaya Group
Cayman Ltd acquired a timber company and obtained a forest
concession of 600,000 hectares in Solomon Islands. In September
1994, Berjaya Group Bhd. bought 60% stake of the Canadian timber
company Taiga Forest Products Ltd. and aimed at expanding Taiga's
operations into the US.
In Novermber 1994, the Securities Commission approved a deal
between Berjaya Textile and Rimbunan Hijau through which Berjaya
Textile became one of the largest timber companies on the Kuala
Lumpur Stock Exchange and Rimbunan Hijau got access to the stock
market and the new timber concessions that Berjaya was
accumulating in several countries.
Mr. Tan himself has been quoted as saying 'we are not a logging
company' (Solomons Star, 1994), indicating that the group do not
have an established record in forestry management and calling
into question the group's ability to manage timber concessions in
countries such as Suriname and Guyana. Note that this company's
forays into the timber sector in the Solomon Islands did not
perform well and the promised investment of MR100 million (aprox.
US$ 40million) in downstream activities did not materialize due
to a lack of interest from underwriters (SCMP, 1995).
Some recent incidents cast a shadow over Berjaya's corporate
responsibility. In July of 1994, Tony C.T. Yeong, the managing
director of Berjaya Group Limited in the Solomon Islands, was
expelled from the country for allegedly attempting to bribe the
Solomon's Minister of Commerce, Employment and Trade (Solomons
Star, 1994a). The Berjaya Group has also been accused by
Malaysian environmentalists of destroying coral reefs off Rendang
Island, Malaysia, to develop coastal property. In another case,
the Berjaya Group withdrew from a plan to develop a forested area
in Malaysia following protests from environmentalists (Sizer &
Rice, 1995).