U.S. FUND SEEKS MADAGASCAR FOREST DEAL

UNCLAS SECTION 01 OF 02 ANTANANARIVO 000430

SIPDIS

SENSITIVE
SIPDIS

DEPT FOR AF/E AND OES
ADDIS ABABA FOR REO - LBRODEY
PARIS FOR D'ELIA

E.O. 12958: N/A
TAGS: SENV EAGR EAID ECON PGOV PREL MA
SUBJECT: U.S. FUND SEEKS MADAGASCAR FOREST DEAL


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1. (SBU) SUMMARY: Since a meeting in September, 2006, between
President Ravalomanana and the president of the Global Environment
Fund (GEF),a deal to create a 30,000 hectare sustainable forestry
operation in Madagascar has progressed in fits and starts.
Interrupted by the December 3 presidential election, a cabinet
shuffle, and the April 4 referendum, the U.S.-based GEF has
persistently sought negotiations with the GOM on their proposed USD
60 million investment. The deal would create Madagascar's first
certified forestry company and represent a substantial success for
the President's vision for sustainable development... if the GOM can
overcome the bureaucratic obstacles to take advantage of the
opportunity. END SUMMARY.

First Meeting During UNGA
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2. (SBU) In September 2006, Kevin Tidwell from GEF made an initial
visit to Madagascar to explore investment opportunities in the
forestry sector. In late September on the initiative of the U.S.
Embassy there was a meeting on the margins of the UNGA between
President Ravalomanana and GEF President and CEO Jeff Leonard. This
seemed a perfect match, bringing the developing country leader
famous for his "Durban Vision" for conservation together with a
developed-country investment fund focused on sustainable
development. Global Emerging Markets Forestry (GEMF) Investors LLC
-- co-managed by International Forestry Investment Advisors and GEF
- thus came to learn that tens of thousands of hectares of
plantation forest in Madagascar were underutilized, while natural
forests were under intense pressure of deforestation. The President
invited GEF to come to Madagascar to find suitable land for a
sustainable forestry operation.

Proposed 30,000 Hectares Sustainable Forestry Operation
-------------- --------------


3. (SBU) In the subsequent months after the New York meeting, GEMF
staff visited Madagascar to find suitable forests for investment.
With support from the USAID Environment Program and implementing
partners, GEMF concluded that at least 30,000 hectares of forest in
eastern Madagascar owned and poorly-operated by a parastatal,
Fanalamanga, was appropriate for their investment in a
state-of-the-art certified sustainable forestry operation.
Unfortunately, the governance and structure of Fanalamanga's Board
were prone to inaction and the deal stalled on technical details the
Malagasy side did not have the capacity to address.

New Environment Minister Shows Up...
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4. (SBU) In February, GEMF staff again visited Madagascar hoping to
negotiate for a 50-year concession to operate the Fanalamanga forest
plantation. Finding obstacles and incompetence among members of
Fanalamanga's Board, GEMF sought a meeting with newly-named Minister
of Environment, Water and Forests, Koto Bernard. The new Minister,
well-known to the Mission, although perhaps not for proactive
leadership, avoided the meeting for days. When news finally
trickled up to the President, on a visit outside the country, he
angrily instructed the Minister to see GEMF.


5. (SBU) The President's intervention led Minister Bernard to speed
out to the airport for a one-hour last-minute conversation with the
departing GEF officer to confirm GOM interest and "rescue the deal."
Following that meeting, GEMF reiterated their interest in an April
12 letter stating the Fund had over USD 350 million to invest in
sustainably managed forests in developing countries. GEMF stated
their intention to acquire a long-term concession on 30-40,000
hectares of Fanalamanga's plantations, invest up to USD 60 million
in management and milling operations, and create 2,500 jobs.

...Then Disappears Again
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6. (SBU) The April 12 GEMF letter emphasized the urgency of meeting
to conclude a Memorandum of Understanding and decide on next steps
and feasibility studies. GEMF is actively exploring several
forestry investments in other countries and does not want to waste
its time if Fanalamanga is a dead end. With staff in South Africa
on other business, GEMF requested a meeting before April 25 -- they
received no reply. Without constant handholding and encouragement
from USAID and partners, it is likely GEMF would already have
abandoned Madagascar.

Presidency Advisor "Coaching" Environment Minister
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7. (SBU) In a recent restructuring at the Presidency, longtime
Mission contact Andry Ralijaona moved from the governance office to
be a Madagascar Action Plan (MAP) Advisor, responsible for
commitments in environment, mining, and public security. When
contacted in late April, Ralijaona promptly replied to GEMF that the
GOM remains interested in the investment, because it contributes to
environmental protection and economic growth exactly in line with
the MAP strategy. Ralijaona had already spoken to Minister Bernard
and confirmed the Fanalamanga Board would be restructured ("cleaned"
in his words) as soon as possible to establish an entity with whom
GEMF could quickly conclude an agreement. The Mission remains in
close contact with both sides to facilitate communication.


8. (SBU) COMMENT: The next three months are crucial if GEMF
Investors are to complete a Memorandum of Understanding and begin
feasibility studies. The outcome of this deal will be instructive
on two counts vital to the MAP: whether the GOM can efficiently
respond to investor interest and whether the reality can match the
rhetoric on sustainable development in Madagascar. END COMMENT.

MCGEE