LIBERIA: INITIAL TIMBER CONTRACTS MARK MILESTONE BUT RAISE

UNCLAS SECTION 01 OF 02 MONROVIA 000252

SIPDIS

SENSITIVE
SIPDIS

STATE FOR AF/W-PDAVIS, INR/AA-BGRAVES, AF/EPS, EB
AID FOR AFR/WA-YMALCION
ACCRA AND DAKAR FOR FCS

E.O. 12958: N/A
TAGS: EAGR PGOV EINV SENV LI
SUBJECT: LIBERIA: INITIAL TIMBER CONTRACTS MARK MILESTONE BUT RAISE
CONCERNS

REF: 2007 MONROVIA 1090


1. (SBU) SUMMARY: Liberia has marked another step towards the
resumption of legal commercial logging by awarding new timber
concessions for the first time since United Nations timber sanctions
were imposed in 2003. The Forestry Development Authority (FDA) held
a bid opening ceremony February 29 to kick off the evaluation and
award process for six timber sale contracts (TSC). Although these
initial six contracts are expected to yield only $850,000 in
licensing fees over three years, and logging is not expected to
commence until October of this year, the provisional awards re-open
a vital revenue stream to the Government of Liberia (GOL). This
first exercise of the FDA's new contract allocation regulation was
not without flaws, but is a step in the right direction. A rush to
award concessions for larger Forest Management Contracts (FMCs)
before resolving outstanding issues related to the bid evaluation
process are a cause for concern. Civil Society has also objected to
any award of FMCs prior to agreement on a Community Rights and
Access Law. END SUMMARY.


2. (SBU) The UN sanctions on Liberian timber were lifted in 2006.
The FDA, with the help of the United States Forest Service (USFS),
has worked for the last three years to reestablish a legal and
operational framework for commercial logging. Under the new law and
supporting regulations, companies must be pre-qualified in order to
bid on timber contracts. Contracts are awarded based on the highest
bid premium - the amount the bidder is willing to pay in excess of
the annual land rental fee of 1.25 USD per hectare. An undisclosed
minimum bid is established, by regulation, to ensure the GOL
maximizes public revenues. In the past the GOL did not employ
competitive bidding procedures and therefore did not receive fair
bid premiums for logging contracts.


3. (SBU) Despite pressure from the government and industry to
restart logging, only six companies were pre-qualified to bid on the
first set of contracts and only three chose to bid. Two of the TSCs
were awarded at the minimum bid level while the other four were
awarded at a small bid premium over the minimum bid requirement.
The bids, if finally approved following due diligence, will provide
$850,000 in licensing fees to the GOL (via the FDA) over the next
three years.


4. (SBU) The pre-qualification and bid evaluation process was not
entirely smooth. Two bidders filed identical business statements
and seem to have received financing from the same source, indicating
possible fraud or collusion. Also, some large companies with tax
arrears were given clearance in violation of FDA regulation.
Although a Ministry of Finance source tells us all tax arrears had
been paid, an FDA source assured us that was not the case, thereby
injecting a measure of doubt as to the transparency and fairness of
the process. After the bidding, FDA due diligence revealed that
none of the three provisional contract winners had the financial or
staff capability to perform the contracts. The FDA has given the
three firms 30 days to demonstrate financial ability but it is
unclear what will happen if the firms are unable to meet that
deadline.


5. (SBU) The FDA announced that the next round of pre-qualification
of companies has begun and the FDA published tenders for three
long-term Forest Management Contracts (FMC) the week of March 10.
Unlike TSCs which are for limited duration (three years) and small
acreage (less than 5,000 hectares),FMCs are for larger forest areas
(50,000-400,000 hectares) and longer term duration (up to 25 years).
Bids for these initial FMCs are due April 18. The FDA is also
preparing tenders for possibly four additional FMCs in the coming
months.


6. (U) Civil Society groups have registered intense objection to the
award of FMCs prior to an agreement on a Community Rights and Access
Law that would establish community tenure rights for forest lands.
Global Witness and other international NGOs stated March 27 that
"resumption of large-scale logging before this law is implemented
will undermine the efforts of rural communities to develop and
prosper." The law was originally scheduled for completion in 2007
but continued disagreement among stakeholders makes it unlikely the
law will be concluded before the end of 2008. Civil Society
determination to defer FMCs until a law is implemented is at odds
with GOL's desire to stimulate employment and capture revenues from
the timber sector as soon as possible.


7. (U) Meanwhile, Swiss-based SGS Group is finalizing the Standard
Operating Procedures for the implementation of its five-year Chain
of Custody contract to track timber exports and ensure traceability.
During an explanatory workshop for forestry officials and industry
representatives March 20, SGS outlined the steps logging companies
must take after they are awarded a TMC or FMC before they can
initiate logging. The new Forestry Law regulations and Chain of

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Custody procedures require companies to inventory concession areas
and provide block maps and other documentary reporting to SGS before
the FDA will issue an authorization to commence logging operations.
Given these requirements, it is unlikely logging will commence on
these initial TSCs before October 2008.


8. (SBU) COMMENT: With the Forestry Reform Law, associated
regulations and the new Chain of Custody procedures, the FDA has
created the foundation for a transparent, accountable system for
allocating concessions in a way that maximizes government revenue
and ensures responsible forest management. Despite initialstumbles, the process represents a dramatic improvement over how
timber contracts were awarded in the past. The tender was offered
openly and competitively with an adequate minimum bid in place to
ensure potential collusion did not result in inadequately-priced
contracts. A solid due diligence effort at this stage is vital to
ensure the integrity of these initial awards and to provide lessons
learned that inform and improve the next wave of more sensitive FMC
concessions.


9. (SBU) COMMENT, CONT.: Symbolic success notwithstanding, the
dearth of qualified TSC bidders and the homogeneity of bids are
disappointing, and the FDA's rush to award FMCs before some obvious
procedural flaws - and lingering community access issues - are
addressed is a cause for concern. While the FDA faces intense
pressure to issue timber contracts as fast as possible, it must also
ensure that the award and evaluation of those contracts are in
accordance with forestry and procurement regulations, thereby
reinforcing the foundation the FDA worked so hard to build. END
COMMENT.

DBOOTH