Papua New Guinea Timber Industry Unleashes Flood of Misinformation

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WORLDWIDE FOREST/BIODIVERSITY CAMPAIGN NEWS

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Forest Networking a Project of forests.org

http://forests.org/ -- Forest Conservation Archives

http://forests.org/web/ -- Discuss Forest Conservation

8/29/99

OVERVIEW & COMMENTARY by EE

Following are two pieces of information regarding the current Papua

New Guinea (PNG) timber industry situation. The first is a newspaper

article (from the multi-national logger owned National) which reports

that Turama Forest Industries has shut down because of the

reinstatement of the log export tax structure through discontinuation

of tax breaks given by the previous government. The second is an

anonymous contribution from an industry insider, which makes some

interesting comments. Regarding Turama, the reason for closure

is a bunch of "crap," the real reason is that it is the rainy season

and too wet to operate.

You can bet that after the industry has bullied to get its way on

taxes and the rains stop, they'll be right back out there. It is not

as if the trees went anywhere. The newspaper article additionally

refers to several other operation's imminent closures. In the past

such claims have been a list of operations that are at the end of

their resource, and would be shutting down regardless. This is the

case for most current logging operations--they will be finished within

the next few years, as expected. In the article, they refuse to name

the operations that will shut down--but mark my words, when they are

released they will be nearly entirely operations at the end of their

productive life.

The timber industry is pulling out all stops in a misinformation

campaign to protect their right to unsustainably log with little or no

benefits to landowners and the PNG government (perhaps even negative,

when take into account the costs). This timber industry has never had

the development interests of PNG at its heart. It is the wrong type

of industry upon which to base sustainable, equitable management of

PNG forests. Yet, their tentacles are so enmeshed within PNG

government and politics that it is difficult for PNG to pursue its own

interests.

The reinstated tax is high. By being so, it captures rents which were

lost when there were virtually no taxes being paid--over much of the

past decades, it discourages inefficient operators, it guarantees

government revenue for the first K130 of timber value which had been

at 0% tax under the tax breaks given last year, and it goes a long way

toward recouping the costs of logging to the country. These costs,

commonly known as externalities, though hard to quantify, are real and

significant. They include such real costs to be borne by PNG as soil

erosion, regional climate change, water degradation, foregone

subsistence use of forests, and lost development opportunities

(opportunity costs) in areas such as community forestry and other

alternative forest uses. It is very probable that a total

cost/benefit analysis of the current log export industry would

indicate that in net, logging occurs at a loss to PNG. This would

take into account repatriated earnings, imported supplies, the above

externalities, and other factors.

The end result may well be that less timber volume will be exported,

and some inefficient or nearly completed operations go out of

business. But timber that is exported will provide the minimum

economic benefit to the country necessary to justify the resource use.

It is hard to predict given all the industry smoke and mirrors, as

well as market uncertainty, but it may well be that comparable

national tax income will be derived from less export volume. This

would certainly be prudent for PNG's interests, and is much more

beneficial for the country than large volumes of export with virtually

no tax on any given log being exported--the model of production that

industry is intent on maintaining.

While PNG is paying to have its forests logged, the industry continues

due to inequities associated with the allocation of rents from the

harvest. This includes pervasive transfer pricing practiced by the

timber industry (which is well documented) and amounts to theft. It

also includes diversions to the well-lined pockets of a few

politicians and local leaders. If the timber industry can not exist

under the current or comparable taxation system, it is not worth

having. It is time to rethink forest management in PNG and develop

methods of ownership, management and processing which are culturally

appropriate and benefit Papua New Guineans. A critical first step, as

outlined below, is going to be getting the National Forest Board out

from under the control and wanton manipulation of industry.

The industry views past logging leases as having granted them the

right to log virtually all remaining PNG forests, and to dictate how

much tax they will pay. The current industrial log export industry

does not have the birthright to log PNG's forests. Wantok, no ken

larim ol ovasis kampani bosim yumi ol Asples PNG! These are my

opinions circulated to individuals that have previously sought

them by subscribing to this personal email list (review disclaimer

on service to which you all agreed at:

http://forests.org/forests/disclaim.html ).

g.b.

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RELAYED TEXT STARTS HERE:

Title: Logger shuts down

Source: The National

Date: August 27, 1999

Byline: PETER KORUGL

LAE: Turama Forest Industries - one of Papua New Guinea's biggest

logging companies - has shut down operations as the Government's mini-

budget takes its toll on logging companies in the country.

Turama Forest Industries - a joint New Zealand and Singaporean company

- wound up its operations early this month after it was unable to

generate enough money to maintain its operations and pay new taxes.

Industry sources yesterday said apart from the Turama Forest

Industries, 11 other logging companies may shut down operations in the

next four weeks while another five loggers would scale down their

operations due to financial constraints brought on by the budget.

"I cannot reveal the names of the companies that are folding up. It

will take up to two months before they shut down operations," PNG

Forest Industries Association's Executive Officer Bob Tate said.

Industry sources said the companies that were in difficulties were not

engaged in any new operations and many logging areas had been

abandoned while they were only processing stockpiled logs.

"Turama is a major log exporter in the country. In the last six months

it exported over K10 million worth of logs and this company has shut

down and others are going to follow soon," said Gabriel Samol,

chairman of the National Forest Board.

Mr Samol said the industry was not consulted by the Government when

the mini-budget was drawn up but if it had done so, it would have been

advised that the new tax measures were not necessary.

"The new tax measures are killing the companies that are going to pay

these taxes and the Government is losing money ... that is all that

the mini-budget has done," Mr Samol said.

The industry contends that in the old 1999 budget, a 28 per cent tax

was imposed on all log exports (FOB) but this has shot up to about 70

per cent in the mini-budget because the Government wanted to raise K15

million between August and December.

ITEM #2

Title: anonymous tips

Source: anonymous, slightly edited for clarity

Status: Networked on understanding that these are opinions of

the individual writing them. This service does not condone,

them, and can be held liable for such views. Recall

email list conditions for subscriptions and use at:

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Date: August 27, 1999

IT seems that the Chairman of the National Forest Board is acting as

the spokesman for the FIA. In yesterdays Post Courier he claimed that

the recent reversal of the interim log export tax measures threatened

the survival of the forest industry - very much the party line.

He also singled out RH's tinpot veneer mill which he said was on hold.

What have export taxes increases got to do with veneer production,

there's no taxes at all on processed products? And we all know that

this slapped up plant, of which the paint job is probably the most

expensive part, is just a fob to get Kamula Doso and other forest

resources.

He also warned that the situation now encouraged fly by night

investors. Name me one log export company which has been operating in

PNG which would not fit this category?

In today's National, Samol was on again about the loss from Turama

Forest Industries closing down because of the tax. What crap -

they've closed down because it's too bloody wet to operate over there.

He also stated today that the new taxes were killing the industry -

what about the transfer pricing that has been shown and what about the

industries sloppy inefficiency? And even if it did, is this the sort

of industry that we really want to remain?

Mr Samol has also been playing other funny games. He has been using

his position on the Board to try and block the TNC project at

Josephstaal. We now know that Mr Samol has done consulting work for

the Korean Company (Komajo) and that as part of this he set up the

landowner company , Josephstaal Devt Corporation - the two outfits who

have been wheeling, dealing, bribing, etc to get this project tipped

over. Not only that, Mr Samol has also been making trips to Madang

and meeting with the landowners and companies in relation to the

project. Somewhat of a conflict of interest and hardly what is

expected of the National Forest Board Chairman.

Speaking of which, Samol is the Professional Foresters Rep on the

Board with Oscar Mamoli as his alternative. Mamoli is General Manager

of Innovision (Makapa) and was named in the dirty dealings by the

Forest Commission of Inquiry.

So with these fellows holding the Chair and the FIA with brute force,

things are not good on the Forest Board.

Re Josephstaal, we effectively have two Board members with a conflict

of interest - Samol and the FIA who are very vocal in their contempt

of the green NGO's - especially when they might do something that

could show them up.

Changes are needed.

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