UPDATE: PATAMACCA PALM OIL PROJECT

UNCLAS SECTION 01 OF 02 PARAMARIBO 000305

SIPDIS

SIPDIS

SENSITIVE

STATE FOR WHA/CAR LLUFTIG, OES, INR/IAA: RCARHART

E.O. 12958: N/A
TAGS: SENV ECON EAGR EINV SMIG TBIO CH NS
SUBJECT: UPDATE: PATAMACCA PALM OIL PROJECT


PARAMARIBO 00000305 001.2 OF 002


REFTEL: 05 PARAMARIBO 576

Summary
--------------


1. (SBU) A late breaking solution to difficulties securing
financial guarantees has breathed new life into the Chinese
Patamacca palm oil project, but this event has renewed
controversy over the sound business sense behind the deal.
Those opposed describe it as nothing more than a thinly
veiled timber export scheme undertaken by an inexperienced
Chinese firm, which has contributed none of its own capital
to the enterprise. While residents in the Patamacca region
fear jobs will go to Chinese laborers, leaving them with no
economic benefits but rather saddled with environmental
degradation resulting from clear cutting large swaths of
tropical rain forest. The deal also highlights a
politically thorny scenario rife with rumor mongering of
its implications for rural Maroon political support,
growing Chinese influence and tilting the ethnic balance
among the broader business community. End summary.


2. (SBU) Reftel outlined the difficult history of the
Patamacca oil deal in which the Chinese investment company
Zhong Heng Tai signed an MOU with the GOS to cut 40,000
hectares of tropical rain forest in order to plant a oil
palm plantation and produce palm oil for export to the
Chinese market. After foundering for over two years in its
ability to secure financial guarantees of 16.2 million USD
to support the project, the GOS surprisingly extended the
deadline to April 10, 2006. Under the terms of the MOU,
after the first 2 years the company is expected to provide
an additional bank guarantee in the amount of 30.9 million
USD to the GOS. On April 4, Paul Rellum, head of the GOS's
steering group leading the negotiations between GOS and the
Chinese company, stated that Zhong Heng Tai was still
negotiating with Caribbean and local Surinamese banks to
secure the financial guarantee. Suddenly on April 6 the
press reported that the company had managed to secure the
bank guarantee from the Royal Bank of Trinidad and Tobago
(RBTT) with no details other than to say that financing in
China remained unavailable. RBTT offered to guarantee the
project on a "back-to-back basis," whereby a bank in China
would counter guaranteed the RBTT loan in order to
revitalize the effort. In so doing, RBTT's action has
reawakened the substantial controversy surrounding the
deal.


3. (SBU) Opponents of the project have long cited the
potential negative environmental impacts like loss of
biodiversity, diminished habitat integrity and a higher
potential for flooding brought on by the deforestation of
old-growth forest and its replacement with a monoculture of
oil palm trees. The NPS faction within the ruling coalition
of the GOS has long pushed for this project discounting the
criticism and believing it will create an estimated 5,000
jobs in the remote district of Marowijne. They also cite
the expansion of Suriname's timber exports, and eventually
palm oil, to China. In short, the ruling coalition with
some members barely on board (see para. 6) - expects to
derive revenue, expanded infrastructure, training for local
labor, and the creation of local spin-off industries.


4. (SBU) Beyond the environmental concerns, the terms of
the investment are rather unconventional in that the
sweetheart deal allows for the sale of the cut timber to
create a pay as you go method of financing the costs. Zhong
Heng Tai would begin by clear-cutting 40,000 hectares of a
total 50,000 hectares concession on which the palm oil
trees will be planted. Beginning in the first year with an
initial 1,000 hectares to be converted to palm oil
production followed in the second year with an additional
2,000 hectares and in the third year another 3,000 and
finally 4,000 hectares per year for the next 9 years until
the entire 40,00 hectares are under cultivation. The wood
harvested is meant for export to China for sale generating
the revenue needed by Zong Heng Tai to pay the GOS a pre
arranged fee of 12 USD per cubic meter for the export of
milled lumber and 24 USD per cubic meter for the export of
whole logs.


PARAMARIBO 00000305 002.2 OF 002



5. (SBU) With the new financial guarantee, the project has
reinvigorated political opposition to the deal. According
to NDP member Jenny Simons, the deal with China Zong Heng
Tai is nothing more than a front for a wood processing
business. Simon believes the structure of the deal proves
that the Chinese company intends to clear-cut Suriname's
forest and use the income from the export of the wood to
finance a palm oil project. Simons went on to say that the
oil derived from such an operation could then only be sold
on the Chinese market since international environmental
regulations would prohibit other countries from purchasing
palm oil produced under these conditions.


6. (SBU) Before A-Combination (AC) leader and convicted
drugs trafficker Ronny Brunswijk was elected to the
National Assembly in May 2005, he promised voters in his
home district Marowijne that he would do everything in his
power to stop the deal from going through. Now part of the
governing New Front Plus coalition, Brunswijk and his
fellow party leaders are under intense pressure to deliver
on the high expectations for economic development they
raised during their campaign. Local Maroon communities
fear that they will lose out on the estimated 5,000 new
jobs generated from the project, believing that the
employment opportunities will go to "cheaper" Chinese
laborers. Locals also dread the potential for
environmental damage to the land and water on which they
heavily rely.


7. (SBU) On April 27 local resentment reached a peak when
people in the town of Moengo, which is the largest town
near the Patamacca area, protested against the deal by
calling on AC politicians in the National Assembly to step
down for failing to stop the project. Others dubbed the
arrival of the Chinese company and its staff as a Chinese
invasion. Shortly thereafter, AC leaders held town hall
meetings in Marowijne to clear up, as they claimed,
apparent misunderstandings about the nature of the project
and the AC position, which precariously straddles both
sides of the fence. AC leaders are not categorically
opposing the deal, which would greatly upset their
coalition partners, but at the same time are insisting on
significant changes to the original agreement that would
address their constituency demands.

COMMENT
--------------


8. (SBU) Despite the Deus ex machina intervention at the
last minute by the local RBTT Bank to keep the Patamcca
Palm Oil project alive there remain many skeptics who still
see significant investment, environmental and political
risks ahead. Some fear that the project is overly dependent
on revenue generated from the cleared timber, which is
meant to provide the investment capital for the first six
years. Out of this revenue come start-up costs,
infrastructure expenses and concession fees. With the
Chinese firm Zhong Heng Tai risking none of its own
capital, many wonder whether the project can even be
classified as direct foreign investment by China. The fact
that numerous Chinese logging firms have tried and failed
to market Suriname's relatively unknown species of tropical
hardwoods over the past decade does not bode well for the
ultimate success of the Patamacca Palm Oil project. The
project appears to critics to be little more than a
concession granted to clear-cut 40,000 hectares of forest
at a fixed price justifying the importation of Chinese
workers. Others fear the inexperienced Zhong Heng Tai will
fail leaving large-scale environmental damage in their
wake. Finally, the most skeptical see the entire effort as
being supported by the Creole dominated NPS political
faction as an attempt to undermine the business strength of
the Hindustanis through growing Chinese business interests.
End comment.

BARNES