THE Government of Guyana (GoG) should consider terminating investment agreements with Baishanlin and recover the value of the fiscal concessions granted to it says former Auditor General Anand Goolsarran.
Goolsarran made that recommendation among others in his report on the forensic audit conducted into the operations of the Guyana Forestry Commission (GFC). The report was made public by the Ministry of Finance on its website on Thursday.
According to Goolsarran, the Chinese logging company has not fulfilled its obligations under State Forest Exploratory Permit (SFEP) 01/2011 and due to the fact that the Forests Act does not permit a renewal of such permits at the end of three years the SFEP 01/2011 is invalid.
“Accordingly, the related State forest should be returned to the Commission for reallocation,” the report stated.
The Forests Act prevents the transfer of ownership or control of a forest concession without the specific approval of the Commission. As such, the five concessionaires that have transferred such ownership or control to the officials of Baishanlin “should be made to surrender their concessions to the Commission for reallocation to other potential concessionaires.”
Between 2007 and November 2015, Baishanlin and four companies owned or controlled by it exported a total of 50, 928 cubic metres of logs with a Free on Board (FOB) value of US$4.483M. According to the report, the amount only accounted for 43, 868 cubic metres or 86.1 per cent valued at US$7.410.
“Baishanlin has, however, failed to fulfil its obligations to set up a downstream wood-processing plant despite assurances it had given since 2007 to do so as well as generous fiscal concessions the company was granted. The Commission calculates export commission on the FOB value of the logs, which is standard practice internationally.”
The GFC in granting export licences ensures that the FOB invoice prices are not below the benchmarks set and when concessionaires ship logs to other destinations, the final cost takes into account costs related to insurance and freight as well as other costs for transporting the logs to locations within the countries where they are sold.
The export company is also required to apply its own mark-up so as to derive a profit. It means therefore that the final price for the logs would be significantly higher than the FOB invoice on which the export commission is calculated.
“It does not appear to be an indication of under-invoicing and hence loss of revenue, unless the benchmark values are set too low,” the report stated.
Baishanlin International Forest Development Inc. was incorporated in 2006 with the main objective of setting up downstream wood-processing operations in Linden and on the East Bank Demerara.
On 4 November 2011, the Commission granted the company a SFEP 01/2011 covering 104,783 hectares of State forest. This was despite the fact that Baishanlin did not meet the criteria for the grant of such a permit, including: the submission of audited financial statements for the last five years; evidence of technical and financial qualifications; and a history of compliance.
It was discovered that a “key consideration for the grant of the SFEP was the assurance Baishanlin had given in relation to the setting up of a state-of-art integrated wood processing value-added facility in Linden, Region 10.”The company had leased 200 acres for this purpose and had given a commitment to complete the facility by the end of 2013, following which the Government of Guyana would make available a further 100 acres for further value-added processing.
As part of its agreement for the grant of the SFEP, Baishanlin was required to do a number of things, namely to carry out an Environmental and Social Impact Assessment (ESIA) before any extraction could begin; (b) prepare a business plan; and (c) do a forest inventory.
It was discovered that at the expiration of the SFEP 01/2011, on November 2014, the company did not honour its obligations. “Baishanlin contended that it faced a number of constraints, including passing through eight concessions and the need to repair/upgrade roads; and that it had since been able to access the area. As a result, on 1 October 2014, Baishanlin requested an extension of one year to fulfil these obligations under SFEP 01/2011 as well as to set up the wood-processing facility,” the report stated.
Goolsarran pointed out that notwithstanding the instructions provided in Section 9 (9) of the Forests Act 2009 that prohibits the renewal of an exploratory permit, the GFC approved of Baishanlin’s request for extension of SFEP 01/2011. The extension was granted until November 4, 2015 while no board was in place to address the issue.
“The minister responsible for natural resources indicated that: (a) the company has applied for a further extension of two years to enable it to fulfil its obligations under the permit, especially as regards to setting up of the wood-processing 5 facility; and (b) the Government was favourably disposed to approving Baishanlin’s request. The Ministry of the Presidency later clarified that the Government had not taken any decision and that it has requested information from the company about its proposed business plan and evidence of financing.”
Government has since said that upon its receipt of the information requested from Baishanlin it would review the company’s request and make a decision. The logging company is yet to make that information available. “If this second request for extension is approved, the company would have enjoyed the benefit of the grant of an exploratory permit covering a period of six consecutive years whereas the law allows for a maximum period of three years for such a permit.”
It was also discovered that despite the failure of Baishanlin to fulfil its obligations under SFEP 01/2011, the GFC granted the company a second exploratory permit SFEP 01/2013 which covered 73,015 hectres of state forest on April 26, 2013.
The company on this occasion submitted audited financial statements dated 2007-2011.
“However, a review of these statements indicates that the company was in dire financial difficulties. In particular, except for 2007, the auditors have qualified the accounts of the company because of accumulated losses that cast doubts as to the ability of Baishanlin to continue as a going concern for the foreseeable future without sustained financing,” the forensic audit stated.
Additionally, the Commission granted Baishanlin two State Forest Permits that cover an additional 8170 hectares of state forest but the grounds on which the permits were granted are unclear. “The Commission has since advised that one permit has been relinquished in March 2015. The Forests Act prohibits the granting a State forest authorisation to two or more persons associated together in a joint venture unless each of them qualifies under the Act for the grant of such an authorization.”
Additionally, without the written consent of the Commission, the holder of a SFA cannot engage in any act that results in a change of effective control which includes transferring the authorisation or sub-contracting or sub-letting.
“Any such transfer, sub-contacting or sub-letting arrangement is void, and the authorization is deemed revoked,”Goolsarran noted. He said during the period 2009 to 2014, the shareholders/directors of Baishanlin acquired controlling interest in five logging companies, through the acquisition of shares.
However, there was no evidence that the specific approval of the Commission was granted in relation to the change of ownership/control of these companies. As such, the holders of Timber Sales Agreements (TSA) should have surrendered their authorisation to the 441,119 hectares of State forests.
“Baishanlin therefore had access to a total of 627,072 hectares of State forest. In addition, while evidence was seen that the Commission granted approval for joint ventures between Baishanlin and these logging companies, it is unclear whether the provisions of the Act are applicable to existing holders of State forest authorisations. In any event, Baishanlin was only the holder of an exploratory permit and therefore would not have qualified to enter into a joint venture agreement with the holders of TSAs.”
The forensic audit report has stated that the Guyana Revenue Authority (GRA) has indicated that the government of Guyana granted Baishanlin fiscal concessions on a number of machinery, equipment and construction materials valued $7.464B or US$37.320M.
The granting of the concessions was based on “Investment agreements” between the Government of Guyana through the Minister of Finance and Baishanlin for the construction of the wood processing facility in Region 10. The total value of concessions granted amounted to $1.827 billion.
“A review of the list of items of machinery, equipment and construction materials for which fiscal concessions were granted indicates that many of the items were either unrelated to, or were significantly in excess of, the requirements for the construction of wood processing facility. Indeed, the evidence suggests that the fiscal concessions granted were substantially in relation to Baishanlin’s ownership/control of the five logging companies having TSAs as well as its proposed investment at Providence, East Bank Demerara. This is not withstanding that the investment agreements were exclusive to the wood processing facility in Linden,” the report noted.
