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PAPUA NEW GUINEA RAINFOREST CAMPAIGN NEWS

Log Monitoring Flip-Flops

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Forest Networking a Project of Ecological Enterprises

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

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

4/10/99

OVERVIEW & COMMENTARY by EE

The Independent, the weekly Papua New Guinea newspaper, is showing

once again that it can live up to its name. They are taking the lead

in documenting the serious forest crisis currently gripping Papua New

Guinea. In particular, their last two editions document government

indecision regarding continuation of log export monitoring. Last week

there had been indications that SGS would continue to provide

independent monitoring financed by a K2 tax (about USD .85) per cubic

meter. Now the forest minister has apparently scuttled this decision

and the future of log export monitoring is again in doubt. In

addition, in a hard hitting editorial board piece, the seriousness of

the current situation is made clear.

g.b.

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ITEM #1

Title: SGS log export monitoring still on

... NEC extends contract to Dec '99

Source: The Independent

Status: Copyright, contact source for permission to reprint

Date: April 1, 1999

THE log export-monitoring contract with SGS (PNG) Pty Ltd and the

National Forest Authority (NFA) which was due to expire today, April

1, will be extended until December 1999. This decision was taken by a

special meeting of the NEC on Friday, March 26, 1999 and overturns the

March 12, 1999 decision by the National Forest Board (NFB), which

would have allowed the contract with SGS to expire today.

To pay for the SGS monitoring service, expected to cost K3.3 million

in 1999, the NEC also instructed the minister for Forests, Peter Arul,

to impose a fixed levy of K2 per cubic metre on all log export from

PNG.

The submission to the NEC was signed by Prime Minister Bill Skate, as

minister for Forests in the absence of Mr Arul who was overseas.

Greenpeace PNG spokesman and forest specialist Brian Brunton said that

Mr Arul has been inconsistent in dealing with the SGS contract and

the export levy.

"Why was Minister Arul not at such an important meeting of the NEC?"

Mr Brunton asked. "Why did he disappear out of the country? The

minister has acted inconsistently in the performance of his duties to

ensure the best interests of PNG were safe-guarded against the

substantial loss of revenue which would occur if SGS ceased monitoring

log export shipments out of PNG."

A NFA brief to the NFB's meeting of March 12 informed the board that

the greatest benefit of the log export monitoring project carried out

by SGS since early 1995 was 'almost undoubtedly its deterrent effect

on log export companies from attempting to evade taxes. For instance,

if it is assumed that the deterrent effect was just 5 per cent of the

f.o.b. log export values, this would represent a saving to PNG over

the period of K79m."

The NFB ignored the NFA advise and determined to end the contract with

SGS on March 31. Mr Brunton's concerns are widely shared by observers

of the PNG forest industry. An expert on PNG forestry industry

yesterday told The Independent that the loss of SGS's inspection

services from April 1st would have had the outcome of almost

completely losing all tax revenue from logging exports and a drastic

fall in royalties to landowners.

The expert, who asked not to be named, stated, "Without log export

inspection, any logger could choose to do price transferring, mis-

declare the species, or under-state the volume and the value of their

log export shipments. As a result the state would lose income due to

tax evasion and cheating, causing a net revenue loss to PNG and the

landowners, whose royalties are computed on the value and volume of

log exports would be cheated of their entitlements."

"This would mean a return to the pre-Barnett Inquiry times when

robber-barons in the logging industry plundered the forests and

cheated the people and the state of hundreds of millions of kina."

Mr Brunton expressed much the same concerns: "The loggers really do

not want an independent log monitoring system that they could not

control. That is why the loggers want SGS out!"

Under Section 121 of the Forestry Act the Minister for Forests can

impose a levy, after consultation with the National Forests Board. The

NFB met on Wednesday, March 31, but it is not known whether Minister

Arul followed the NEC direction and consulted with the NFA on the

government's intention to introduce the levy.

The NEC also directed the Minister for Forests to inform the NFA, that

on the basis of retaining SGS for the remainder of 1999 and of

imposing a log export levy, the PNGFA should proceed to seek European

Union Stabex funding assistance of K1.5m for the 1999 year as a

transitional measure.

The expert who requested for anonymity also expressed deep concern

about efforts by some operators in the logging industry to wreck good

governance of the forestry industry.

"There are operators in the logging industry who are looking for ways

to weaken the entire operations of the Forestry Service. This under-

mining of the professionalism within the NFA is a matter of deep

concern to international donors."

He referred to unconfirmed reports that the General Manager of

National Forest Service, Kanawi Pouru has been relieved of certain

responsibilities by the Managing Director of the PNG Forest Authority

Thomas Nen.

"Mr. Kanawi Pouru is the most professional, hard-working, competent,

dedicated individual in the PNGFA!" the expert stated.

The Independent has spoken with a number of informed people who agree

with the expert's view of Mr. Pouru.

Apparently Mr. Pouru has not been specifically demoted from the

position of General Manager of the NFS but he has been relieved of

duties relating to a special task force to fast-track 15 new

industrial logging operation.

Observers, including a flood of international writers of letters to

The Independent, are deeply worried by the current government's

instructions to 'fast-track' these new operations. Mr. Pouru is widely

regarded to have acted professionally to ensure that 'fast-tracking'

does not lead to illegal process in breaching forest legislation and

over-turning sustainable forestry management

practices.

Mr. Pouru's responsible approach is said to have frustrated and

exasperated major logging interests who want to get their hands on the

last remaining major timber stands in PNG. Most of these remaining

concessions are in the Western, Gulf and Sandaun provinces. This means

that the current government intention is to grant millions of hectares

of rain-forest, most of the country's remaining rain-forest resource,

to be allocated with great haste, and outside of forest legislation

and regulations.

It appears that 'fast-tracking' of these 15 operations would take away

the last remaining major timber resources in PNG. Mr. Pouru has been

insisting on adherence to correct procedures which has effectively

delayed the granting of these new concessions. Neither Mr Pouru and Mr

Nen have been available to comment to The Independent on these

matters.

Documents obtained by The Independent include a NFA brief to the NEC

which states that the current industry situation is that, compared to

the period prior to the log export tax reduction, approximately double

the volume is being logged for less than the same amount of log export

tax revenue.

"Log prices" according to the NFA brief: "are expected to continue to

rise this year to a level of around K200 per cubic metre. A small K2

per cubic metre export monitoring levy would not adversely affect the

viability of most efficient log export operations."

ITEM #2

Title: Why sacrifice our forest to bail PNG out of crisis?

Source: The Independent, Editorial Board Opinion

Status: Copyright, contact source for permission to reprint

Date: April 1, 1999

AFTER almost three years of toeing the line, the government is now

pushing to fast track about 19 new logging projects. The reason for

this is simple - bring in the desperately needed foreign exchange to

prop up the weak kina. Since the mining and petroleum companies are

not bringing in their earnings except to pay their taxes, our

country's forest is once again on the chopping block. This time, to

bail PNG out of its financial crisis, and not too many people are

jumping up and down about this very very short term measure.

The approval given to some of these forestry projects is highly

questionable. However, like everything else in this country, politics

and the whims of politicians is what counts - never mind the long term

detrimental effects to the environment, or the financial returns to

the villagers.

With the export tax on logging reduced, are the economic gains worth

fast tracking so many of our remaining rainforests? Given the current

world price of logs, is PNG benefitting from this or the logging

industry? What are the alternatives to logging, or is that no longer

economically viable?

These are questions we want answers to and demand that the government

and its advisors honestly answer them.

The fast tracking of these new projects are worrying in that the haste

to get them up and running, short cuts will be taken, where the law is

circumvented, environment impact assessment is bypassed and incorrect

species and quantities reported.

The danger of the industry reverting to the pre-Barnett days is very

real.

Another area of concern is the manpower capacity within the PNG Forest

Authority to ensure that these new projects are all above board. The

Forest Authority is also included in a mass retrenchment exercise

currently underway in the public service. Will there be enough

officers left to monitor these new logging ventures?

While we welcome the government's extension of the SGS contract to

monitor the log exports, the renewal is only up to December 1999. What

happens after December? Given the inevitable staff shortage within the

Department of Forests by December, the monitoring of logs may cease

altogether if the SGS contract is not renewed.

Unless there is consistent monitoring of the log export, the revenue

earned would not be worth the wholesale plundering of the forests.

Why should we sacrifice our forests to bail PNG out of its economic

crisis - a crisis created by the leaders of this country?

A responsible government would also look at the two powerful resource

sectors, mining and petroleum, and get them to bring back onshore the

desperately needed foreign exchange, instead of being content only

with the scraps being thrown our way now.

Why is the government so reluctant to push this through? The only

conclusion one can draw from this is that the government is not

prepared to take on a goliath - given their experience with the fly-

in-fly-out tax. However, in the case of forestry, it is the village

people whose interest is at stake and the government is not too

concerned about that.

While mining and petroleum may earn more than our logs, they are non-

renewable, so why fast track forest projects which may strip the

country bare by the time mines and oil also reach the end of their

lifespan?

ITEM #3

Title: NEC revokes log export levy

... Decision comes days after levy was imposed

Source: The Independent

Status: Copyright, contact source for permission to reprint

Date: April 8, 1999

THE National Executive Council (NEC) has reversed its decision to

impose a levy on log exports only days after making the decision to

impose such a levy.

The Independent reported last week that the NEC had met on Friday,

March 26, 1999 and directed the minister for Forests, Peter Arul to

impose a levy of K2 per cubic metre on export logs to pay for the

costs of the log export monitoring contract with SGS (PNG) Pty Ltd.

The NEC also instructed that the contract with SGS which was due to

expire on Thursday April 1, 1999 be renewed and extended to the end of

1999. Prime Minister Bill Skate stood in as minister for Forests, in

the absence of Mr Arul who was overseas, put the proposals to the NEC

on March 26. It is understood that upon minister Arul's return early

last week he met with the prime minister and this resulted in the levy

being revoked by the NEC in last Wednesday's meeting.

Mr Arul's opposition to the levy is baffling to informed observers.

The minister is reported to be opposed to the levy because he believes

that the National Forest Authority (NFA) lacks the capacity to collect

the levy.

An informed source within the NFA refutes the minister's opinion and

states, "It is a simple procedure! It would be collected by Customs.

The amount of the levy is a straight calculation of the log volume

being exported as shown on the Bill of Lading multiplied by the K2

levy. A cheque would be drawn by the log exporter prior to export and

ship clearance at the same time as the Customs Duty is collected.

Customs would give the cheque to NFA who would hold the cheque in a

log export trust fund."

Minister Arul did not respond directly to our inquiries but he is

understood to be visiting his Kandrian electorate to check on damages

following Monday's earthquake in the area.

The minister did however send out a press release in which he stated

that he was in support of the log monitoring program. The press

release makes no mention however of the log export levy, nor that the

levy was cancelled by an NEC meeting which the forests minister had

attended, whereas such a levy was earlier approved at an NEC meeting

when he was absent.

NEC's decision of March 31, 1999, to continue the SGS contract but not

to impose the levy means that the funding for the contract in 1999

will come from the government, rather than through the levy of K2 per

cubic metre which was to be imposed on the log exporters, as a user

pay levy.

The NFA in a briefing paper dated March 12, 1999 advised the NFB and

subsequently, the NEC that the forest industry could easily afford the

levy because log prices have risen recently and are predicted to

continue to rise throughout 1999.

The cost of the SGS contract for 1999 is K3.3 million. It is

understood that the government hopes to obtain K1.5m from European

Union Stabex funds to pay for part of the contract but the balance of

about K2m must be found within the PNG budget or other domestic

sources. Informed sources state however that the European Union will

insist on guarantees that the log export monitoring will be continue

beyond 1999 before they agree to release the K1.5m.

To obtain the K2m. the NFA will have to make the case to the Budget

Implementation Committee (BIC). Since last week the BIC is headed by

Dr Pirouz Hamidian-Rad, the government's chief economic advisor.

It consists of the chief secretary Robert Igara, secretary for

treasury, Brown Bai, the attorney general, Michael Gene, the secretary

for personnel management, Bill Kua and James Loko, the commissioner-

general for internal revenue commission.

The Independent is informed that Dr Hamidian-Rad had earlier opposed

the extension of the SGS contract on purely economic grounds. The NFA

in its brief to the NFB to the March 12 meeting advised the NFB that

Dr. Hamidian-Rad had stated at a recent meeting that he sees no

benefit in the log export monitoring project. The brief stated, "this

(attitude of Dr Hamidian-Rad) seem strange given the facts, and is at

odds with both his own earlier actions as a World Bank representative,

and with statements by each of the minister for forests, the deputy

prime minister and the secretary for the treasury who were all

supportive of the project."

The 'facts' referred to in the NFA brief is that the SGS contract

since its inception in 1995 has represented a saving to PNG over the

period of K79m, plus K22m on customs duty & company tax and K34m in

foregone foreign exchange earnings totaling K135m, at a cost of only

K15.1m until the end of 1998.

Dr Hamidian-Rad has not been available to respond to The Independent's

requests to comment. Meanwhile, SGS continues to carry on with its log

export monitoring tasks even though its contract officially expired

last Thursday, April 1. The NFB met again yesterday afternoon to deal

with the NEC direction to extend the SGS contract. The outcome of the

afternoon deliberations was not yet known when the newspaper went to

print.

SGS's General Manager, Bruce Telfer informed The Independent that he

has been requested by the NFA Managing Director Thomas Nen to carry on

with log export monitoring because the NEC doesn't want SGS to stop,

despite the contract having expired. "Contractually we should stop log

monitoring but given Mr Nen's assurances, we are continuing but only

for the next week or so, so as to demonstrate our goodwill."

He stated that SGS must start winding down soon because it has

contractual obligations to its staff, so all the staff have been given

a month's notice of termination from April 1, 1999.

Mr Telfer explained, "We will reverse those staff terminations if the

contract is renewed quickly. We are endeavouring to carry on as

normal in the short term, but the clock is ticking.

Given the NEC decision, we are optimistic that the NFB will agree to

extend the contract in due time so that the log monitoring project is

not jeopardised."

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