Timber Industry Refuses to Follow PNG Law

URGENT ACTION ALERT!!! YOUR LETTER NEEDED!!!

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PAPUA NEW GUINEA RAINFOREST CAMPAIGN NEWS

"We all are not going to pay the royalty"

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Forest Networking a Project of Ecological Enterprises

7/12/96

OVERVIEW & SOURCE by EE

In a shocking move that threatens to undermine PNG sovereignty and the rule

of law, multi-national timber companies operating in PNG have stated that

they will defy PNG law and not pay the higher landowner royalty rates as

mandated recently by enactment of the 1996 PNG budget. The companies have

been paying on average K6 per cubic meter (about USD4.00) while multi-

nationals are selling the same timbers for anywhere from K150-200. The

1996 Budget promised landholders up to K23 m3 plus 7.5% royalties under the

new graduated royalty system.

In an amazingly hardball move, the major foreign industrial logging

companies, that for years have been building their influence and control in

the country while making millions of dollars, are threatening not only to

not pay the new royalty rates; but even go so far as to say that they will

shut down rather than pay the higher royalties.

Rimbunan Hijau, the largest logger controlling over half the industry, has

been generating approximately USD1 billion in revenues yearly. In addition

to dominating the timber industry, they own one of the largest timber

concessions in the world in Western Province, own one of the two daily

newspapers, and are widely alledged to have bought significant political

influence. Yet, they are unwilling to pay a fair rate of return to the

resource owners, going so far as to openly refuse to honor the law. It is

criminal that a foreign company, that provides meagre returns to a

developing country (about K2 a cubic meter in their Western concession),

would use its tremendous capital as a weapon against its host country.

Clearly, Papua New Guinea, a country with tremendous forest wealth, can do

better than entertain corporate bad actors such as these. The best thing

that could happen is to let the whole cut and run industrial timber

industry as it currently exists simply shut down and leave. There are

viable small scale timber operations in country which given the proper

governmental and international aid support could ensure a sustainable

timber industry for many centuries into the future. Aid donors must be

called upon to help the government weather the short term financial costs

of establishing a sustainable and equitable timber industry.

I appeal to list recipients to use all means to communicate their

dissatisfaction with the situation. Please take the time to send faxes

(optimally, in that this is a fast breaking situation) and letters as soon

as possible to the following addresses. Please be courteous; and I

suggest, in addition to the above information and the enclosed two

background items, the following talking points:

* PNG's forests are a great source of wealth that is like money in the

bank. If the current bad actors don't want to harvest the timbers while

providing a fair rate of return; there is a viable local small scale timber

industry and other more respectful foreign operators that can bring

equitable development.

* Ask that the PNG government not succumb to corporate blackmail. Ask

that the government stand their ground, asserting their right to implement

and enforce their laws. This increase in royalties is a much needed first

step in bringing an out of control timber industry into a meaningful source

of development for PNG.

Send letters and faxes to:

Prime Minister Sir Julius Chan

Office of the Prime Minister

PO Box 6055

Boroko, NCD

Fax: 675 327 6696

The Times of Papua New Guinea

Attn: Letters to the Editor

PO Box 1982

Boroko, NCD

Papua New Guinea

Fax: 675 325 4433 and 675 325 2579

Post Courier

Attn: Letters to the Editor

PO Box 85

Port Moresby, NCD

Papua New Guinea

Fax: 675 321 2721

Mr. Roger Hau'ofa

NBC Radio

PO Box 1359

Boroko, NCD

Papua New Guinea

Fax: 675 321 3747

** Roger is prone to read letters out over the air on his morning radio

program. Make sure they are well researched and written because a good

portion of the nation is listening.

Additional information sent previously to this list on the matter can be

found at the following URLs on the World Wide Web:

gopher://forests.lic.wisc.edu:70/00/png/recent/fiataxes.txt

gopher://forests.lic.wisc.edu:70/00/png/recent/frevwin.txt

If a list recipient was able to condense this information into a short,

concise action alert with sample letter; I would be happy to send it to the

2,000 people receiving this list. Following are two background pieces; the

first from the _National_ newspaper in PNG which is owned by Rimbunan

Hijau. The second comes from Brian Brunton, a local forest activist.

Now is the time to act with urgency to bring some resolution to the ongoing

and worsening PNG forest crisis, before the forests are liquidated by

strong arm timber interests.

Glen Barry

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ITEM #1

/** reg.newguinea: 334.0 **/

** Topic: 129 FIA blocks timber royalty **

** Written 11:25 PM Jul 11, 1996 by drobie@pactok.peg.apc.org in

cdp:reg.newgui

nea **

Subject: 129 FIA blocks timber royalty

To: nius@pactok.net.au Of: 90:900/900.

From: drobie Of: 90:675/100.6

Date: 11/7/96 11:14:29 PM

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Title -- FIA refuses to pay K10 royalty

Date -- 11 July 1996

Byline -- Frank Senge Kolma

Origin -- Niuswire

Source -- The National (PNG), 11 July 1996

Status -- Abridged

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FIA REFUSES TO PAY K10 ROYALTY

By Frank Senge Kolma

PORT MORESBY: The Forest Industries Association has decided that its

members will refuse to pay the additional K10 royalty on top of existing

taxes, imposed at the insistence of the World Bank recently.

The executives of the FIA, which comprises six of the country's biggest

timber firms, among others agreed unanimously to refuse to pay the royalty.

The operators, Cakara Alam (PNG), Open Bay Timber, Rimbunan Hijau (PNG),

Stettin Bay Lumber Company, Turama Forest Industries and the WTK Group,

effectively control 86 per cent of the timber industry in PNG.

President of the Forest Industries Association, Francis Tiong, said

yesterday: "We have reached a collective decision that we all are not going

to pay the royalty.

"There is just no more money.

"You think if there is money to be made, we are going to go to this extent

to confront the government. The truth is we are losing money. We are going

to close down."

Mr Tiong said if the operators do close down, some K400 million to K500

million in direct revenue would be lost to the country.

The multiple effect would be two to three times that figure and over 10,000

jobs will be lost.

(Note: The National is owned by the logging company Rimbunan Hijau; the

writer is editor Frank Senge Kolma. The rival Post-Courier did not carry a

matching story).

+++ends

ITEM #2

/** reg.newguinea: 335.0 **/

** Topic: png graduate royalty press statemen **

** Written 8:24 AM Jul 11, 1996 by bbrunton@pactok.peg.apc.org in

cdp:reg.newg

uinea **

PRESS STATEMENT

ICRAF SAYS THAT THE NEW REVENUE SYSTEM ANNOUNCED BY FOREST MINISTER BAING

DOES NOT HONOUR THE BUDGET PROMISE TO PAY LANDHOLDERS A ROYALTY OF K23M3 ON

EXISTING PRICES, IS CONFUSING, AND WILL NOT SATISFY LANDHOLDERS, WHO ARE

ENTITLED TO A FAIR PRICE FOR THEIR TREES. k10M3 IS NOT ENOUGH. THE WHOLE

SYSTEM OF BUYING AND SELLING TREES NEEDS TO REVIEWED SO THAT LANDHOLDERS

SELL THEIR TREES COUPE BY COUPE FOR A MARKET PRICE.

1. The 1996 Budget promised landholders up to K23 m3 plus 7.5 % royalties

under the new graduated royalty system.

2. Landholders currently are being paid on average K6 m3.

3. Forest Minister Baing simply refused to implement the graduated

royalty. Our information is that the Prime Minister, under pressure from

the World Bank, this week, wrote to Baing and told him to sign the

necessary papers.

4. Forest Minister Baing then held a press conference and announced that a

partial implementation of the budget promise of the landholders graduated

royalty would take effect from the 1st of July 1996. There is to be no back

payment.

6. Using an average existing royalty figure of K6m3, and export data from

the first quarters Forest Digest , ICRAF calculates that landholders have

been deprived of as much as K26 million between 1st January 1996 and 1 July

1996. This figure is approximate because the Forest Authority does not

publish the amount of royalty paid to land holders.

7. Current log prices are about K160m3, and under the promises in the

budget landholders should have received K23m3 since the beginning of the

year.

8. But Forest Minister Baing says landholders will only get K10m3 from the

beginning of July 1996. This does not take into account any deduction of

15% to be paid to provincial governments, and a 5% withholding tax paid to

the National Government. Of course logging companies are paid on the basis

of prices calculated in US dollars. Over the past two years the kina has

devalued, so that the rise to K10m3 may not affect landholders in real

terms all that much.

9. ICRAF is aware that the World Bank had insisted that the graduated

royalty system be brought into effect, and back-dated to the 1st of April

1996. It appears that the Government may be in breach of SAP

conditionality, because of its refusal to back-date to the first of April.

10. The new "project development levy" is really the balance of the

graduated royalty, on top of the K10m3. On current prices this would amount

to K13m3. But ICRAF's information is that it will not be paid to

landholders, but used by local authorities for infrastructural development

and aid. The reason why the Minister is doing this is because the forest

officials do not trust landholders to spend their own money wisely.

11. The budget promised landholders , on current prices , K23m3. This is

the payment the landholders should get for signing the TRP and FMA

agreements.

12. The forest Minister is try to confuse landholders by saying that

"infrastructure" costs, and premiums are to be taken into account for

existing projects. What he is saying is that the project development levy

will not be paid to existing projects because those landholders are getting

infrastructure and premiums on existing projects.

13. This is misleading. Infrastructure is provided under the Project

Agreement, which is a contract between the permit holder and the Forest

Authority. The landholders are not a party to those contracts. In addition,

on many existing projects the infrastructure has not been completed, so why

should the landholders have to pay for something they either do not get, or

which is not theirs.

14. The Minister for Forests is also misleading landholders when he talks

about "genuine premiums paid to landowners". Premiums are generally paid as

a result of a contract between a logging company and a so-called

"landowning company". As a matter of law, landholders, and landowning

companies ( LOCs) are different legal personalities. In reality, many LOCs

are badly run, set up as puppets of logging companies, and do not

distribute dividends. The Forest Minister is wrong when he says that

premiums are paid to landowners.

15 The new policy fails landholders because it does not honour the

promises in the budget that the landholders would get K23m3 on current

prices.

16. The new policy is really an extension of the colonial system under

which landholders were the victims of unequal and inequitable contracts.

Professor Ron Duncan said in 1994 "The Melanesian logging contract

arrangement distributes revenues from the sale of logs (which belong to

customary landowners) in a manner which is economically unjust, and needs

to be changed radically ". The new initiatives will not alter this. What

the Minister for Forests is doing is trying to confuse landholders. He will

not succeed because K10m3 in the hands of landholders (less 15 % to

provincial government, less 5% withholder tax), is not enough.

17. ICRAF calls for a complete overhaul of the way in which landholders

sell their trees. Landholders should not have to sell their timber rights

for a royalty. They should sell their trees on a couope by coupe basis, and

be paid a market price. We believe that this would encourage landholders to

manage their timber assets in a businesslike manner, and so help conserve

resources for future generations, and protect the environment.

B. D. Brunton

Greenpeace Forest Specialist.

Individual & Community Rights Box 155,

P.O. University,

Advocacy Forum Inc. N.C.D.,

PAPUA NEW GUINEA

PH: (675) 326 2469

FAX: (675) 26 0273

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