GUYANA'S TROUBLED FORESTRY SECTOR

C O N F I D E N T I A L SECTION 01 OF 03 GEORGETOWN 001303

SIPDIS

C O R R E C T E D C O P Y -ADDED SAN JOSE, BRASILIA,
BEIJING, HONG KONG

SIPDIS

E.O. 12958: DECL: 12/15/2016
TAGS: SENV EAGR EAID PGOV KCOR KFRD XB CH GY
SUBJECT: GUYANA'S TROUBLED FORESTRY SECTOR

REF: A. GEORGETOWN 00294


B. GEORGETOWN 00947

GEORGETOWN 00001303 001.2 OF 003


Classified By: AMBASSADOR DAVID M. ROBINSON FOR REASON 1.4(D)


1. (C) Summary: Amid recent public outcry over unscrupulous
business practices in Guyana's poorly monitored forestry
sector, the Guyana Forestry Commission (GFC) has announced an
investigation into allegations of transfer pricing. Despite
some companies' official agreements with the GOG on providing
employment and economic growth via value-added exports, raw
logs remain the most popular forest export. Due to special
tax breaks for large concessionaires and conspicuous
under-valuation of exports by some companies, Guyana earns
less than US $5 for each exported raw log. While the
transfer pricing probe and a soon-to-be-announced carbon
trading scheme may allow Guyana to benefit from its forest
resources in a more equitable and sustainable way, it remains
to be seen whether upcoming forestry legislation revisions
will address other pressing concerns in the forestry
community, including corruption, use of timber companies as
fronts for illegal activities, and exploitation of hinterland
Amerindian communities. End Summary.

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RAW LOGS FAIL TO CREATE JOBS, TAX REVENUE
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2. (U) A recent public controversy has brought to light that
two large transnational companies--the Malaysian/South Korean
Barama Company Ltd and the Canadian/Hong Kong Jaling Forest
Industries--may have failed to honor their agreements to
export value-added products and hire Guyanese workers, and
may have engaged in transfer pricing. Janette Bulkan, a Yale
University Forestry PhD student and community and
environmental activist, has calculated that most logs are
valued for customs in Guyana at US $90 per cubic meter, while
Asian importing countries report a value closer to US $380
per square meter. Bulkan estimates that this type of
transfer pricing costs Guyana approximately US $3 million a
month.


3. (C) Hamley Case, a member of the Guyana Forestry
Commission Board who is also an opposition People's National
Congress Reform (PNCR) Member of Parliament and PNCR
Executive Committee member, advocates for gradual
implementation of a total ban on raw log exports, and
believes that companies should only be allowed to export
species that cannot be turned into value-added products in
Guyana. Case said that although there was some support in
the Forestry Commission for such a ban, several Board members
currently profiting from raw log exports were opposed.
According to David Singh--the Director General of the
Iwokrama International Center, an important national forest
preserve--Ecuador is the only other country in South America
besides Guyana which still allows raw log exports.


4. (C) On December 8, Minister of Agriculture Robert Persaud
and Commissioner of Forests James Singh held a press
conference to announce an investigation into allegations of
transfer pricing. A report on the investigation is expected
in January. Persaud told EmbOffs that the probe was not a
response to public pressure--his office and the GFC had
suspected transfer pricing for some time, but had not had any
evidence. Persaud also said he had made it clear to Barama
that they needed to pay normal tax rates for timber harvested
outside their duty-free concession. Persaud said that the
draft Forestry Bill he had just received will establish a
system for controlling log exports. He considers a complete
ban on log exports financially unfeasible, but supports a ban
on the export of species that can be converted into
value-added products in Guyana.

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SOME CHINESE "TIMBER WORKERS" HAVE NEVER SEEN A CHAINSAW
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5. (C) Bulkan and John Palmer--the former director of the
U.K.'s Department for International Development (DFID)
Forestry Research Program in Guyana--claim that several
Chinese companies in Guyana are using their timber operations
as a front to facilitate the onward travel of illegal Chinese
immigrants. Companies have allegedly brought in Chinese
workers for their timber operations who raised local eyebrows
with their obvious lack of expertise in chainsaw operation or

GEORGETOWN 00001303 002.2 OF 003


other relevant trades. Former Minister of Home Affairs Gail
Teixeira previously told ConOff that she had received several
applications for large groups of Chinese, Indians and
Pakistanis allegedly coming to work in Guyana's timber
industry. Suspecting that these third-country nationals were
really attempting to travel further north, Teixeira began
reviewing all such applications personally.


6. (C) According to Persaud, companies are required to prove
that foreign staff provide expertise which is not available
locally. He admitted, however, that enforcement was
difficult on the ground--nobody checks if somebody brought in
as an expert machinist ends up driving a truck. Companies
are allowed 15% foreign staff, with a higher allowance for
the first three years of operation. According to Persaud,
Jaling is the only company not currently adhering to the 15%
limit. Jaling officials told Persaud that their foreign
staff currently represented 16-17% of the workforce, and
promised to meet the 15% requirement by next year.

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AMERINDIAN COMMUNITIES VULNERABLE TO BRIBES, EXPLOITATION
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7. (C) Bulkan, Palmer, and Singh all agreed that Amerindians
living in the remote interior in a non-cash-based subsistence
economy are extremely vulnerable to bribery, and can be
persuaded to sign away their rights to community lands for a
low price. A former Commonwealth forester working in the
interior told PolOff that a group of Amerindians had
approached him for advice on contracts proposed to them by
smaller Chinese logging companies. The forester advised the
Amerindian communities not to sign the contracts, which were
extremely one-sided. Bulkan and Palmer have recommended that
the Ministry of Amerindian Affairs provide a legal advisor
and require that any Amerindian community wishing to sign a
contract involving use of their titled lands have the
contract vetted before signing. Persaud said that while
Amerindian communities were allowed to sign contracts
regarding their titled lands with anybody they chose, every
company was subject to the same forestry guidelines, and in
practice many of the companies contracting with Amerindian
communities had already been vetted by the government due to
their operations in other areas of Guyana.


8. (C) According to Singh, there is great commercial timber
interest in the North Rupununi Wetlands, a large forested
area directly south of the Iwokrama preserve. Although the
local North Rupununi District Development Board is interested
in partnering with Iwokrama to harness the forest's potential
in a sustainable manner, there are many other suitors,
including several Chinese companies. Logs harvested in this
area could potentially be shipped to Brazil rather than to
Guyana's coastland, bypassing a difficult river crossing at
the other side of the Iwokrama territory. Portions of the
North Rupununi Wetlands are titled to Amerindian communities,
and Singh noted that even the provision of free meals could
potentially earn the loyalty of local Village Councils.
Singh had seen a blank contract offered to a local Amerindian
community by a subsidiary of Jaling.

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USAID ENCOURAGES EXPANSION OF VALUE-ADDED SECTOR
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9. (U) USAID's Guyana Trade and Investment Support (GTIS)
project is administering a program of market linkage
activities in the wood products sector. GTIS facilitated
International Wood Products Association (IWPA) membership for
Guyana's Forest Product Marketing Council (FPMC),and
accompanied FPMC representatives at IWPA's annual Fair in
Arizona in April. GTIS estimates that contracts generated at
this event have already created over US $4 million in new
wood product exports, and are likely to reach US $15
annually. The GTIS project focuses on developing
non-traditional, value-added exports and providing technology
and employment boosts for local companies through linkages
with international partners. Iwokrama is also attempting to
launch a sustainable-use timber program focusing on
value-added products, but has not yet been able to find a
business partner willing to come up with the required US $2.5
million initial investment.

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CARBON CREDITS COMING SOON

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10. (C) Minister of Agriculture Persaud told EmbOffs that
Guyana had already signed an MOU with the UK-based Chatham
House to launch Guyana on international carbon-trading
markets. A reserve of 1.7 million hectares near the border
with Suriname has been set aside for carbon trading purposes.
Persaud said that he was expecting revenues of $100 million
annually via trading on the European Union Emissions Trading
Scheme and possibly the Chicago Stock Exchange. Persaud said
that the deal was still being finalized, but he expected to
make it public in the near future.

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COMMENT
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11. (C) Comment: Carbon credits and expansion of value-added
exports could help Guyana maximize sustainable benefits from
its enormous forest resources. Yet without political will to
create and enforce a comprehensive system of controls in the
forestry sector, an unregulated industry is likely to
continue taking a toll on Guyana's environment, security,
indigenous citizens, and public coffers. End Comment.
Robinson