Investigative Report on Oriental Timber Corporation
- Special To The Perspective -

The Perspective

March 20, 2000

There has been much concern and controversy regarding the role of the Oriental Timber Corporation (OTC) ­ A Malaysian business entity ­ that has been operating some of Liberia's most reserved forests unscrupulously, without any control or regulation by the government of Liberia. These concerns range from complaints by local residents of the destruction being done to their houses, villages and farms; and to the massive deforestation of the land which could have long-term adverse consequences on the environment.

The Perspective newsmagazine has received an investigative report compiled from direct personal observations of OTC in the field, along the road to Buchanan, in the Port of Buchanan and from conversations with OTC management, substantiated by local media reports in Liberia, and from local foresters very knowledgeable of the Liberian forestry sector.

Gus van Kouwenhoven, a businessman of Dutch origin, succeeded in buying up or otherwise acquiring 5 concessions in Southeast Liberia (Grand Bassa, River Cess and Sinoe counties) in the late 1990s, totalling a good part of the SE Liberian forest block. With these large holdings in hand, many other concessions (mostly inactive?) were seized to put together a concession stretching from just north of Buchanan east across River Cess county and into Sinoe county (perhaps up to the boundary of the Sapo National Park according to one report). No maps of the concession area are publicly available, however, it varies between 2,500,000 acres (900,000 hectares) to 4,000,000 acres (1.44 million hectares). Mr. van Kouwenhoven reached a "management agreement" with FDA for this forest area; again, this agreement is not publicly available and may not withstand contestation in court.

In early 1999, Mr. van Kouwenhoven invited a Southeast Asian group to carry out the field extraction activities. An agreement was reached between Government, Mr. van Kouwenhoven and the "Malaysians" (who registered themselves as the Oriental Timber Company) - for OTC to manage the port of Buchanan (importing 2 tugboats as it had silted over) and to upgrade the 108-mile dirt logging road connecting Buchanan to Greenville into a 4-lane, all-year highway which will allow 10-12 months of logging per year. This road upgrade was purportedly in the name of "development" although the road passes through largely uninhabited areas and has little traffic besides logging operations. No environmental impact assessment was ever carried out. The road passes through the Krahn-Bassa National Forest where permanent infrastructure is prohibited and where a national park has been proposed since the 1980s. The road upgrades were completed in a matter of months from October 1999 to January 2000.

The relationship between the "Liberian-Malaysian Timber Company", which was the original name announced for the company to do the logging activities in SE Liberia, and OTC is unclear. Perhaps, it may be the same company. The Liberian-Malaysian Timber Company had been in the local media in connection with Mr. van Kouwenhoven in early 1999 in connection with logging in Lofa County.

Logging Scale and Practices - OTC is reportedly operating at a remarkable rate of efficiency. Forest clearance, log transport, loading, maintenance and more are running at "military" efficiency. OTC has 140-150 "machines" (Caterpillars, D7 size) working 7 days per week, plus 70-74 trucks that make 2 trips per day to Buchanan. Trucks must drive at over 110 km/hour (on the new gravel road) to make the trip since the area of greatest activity is reportedly east of the Senkwehn River. Extraction is done by clearfelling everything, leaving mostly bare ground behind. Chainsaws are used to fell the largest trees while medium and small trees may be felled by bulldozer instead.

Many report that logs of all diameters are taken, including ones smaller than 40 cm diameter which represent a significant portion of the production. However, some of these may be the tops of larger trees; normally the slender tops would be discarded but they appear to be of interest to OTC. In the Port of Buchanan, the commercially sought species (primary and secondary) in commercially demanded diameters (50-59 cm and >60 cm) are separated from the non-commercial tertiary species and undersize logs. European buyers are offered commercially desirable logs at standard marker prices. OTC is not trying to undercut or glut the market. From a buyer's perspective, OTC has acted extremely professional, organised and fair. Furthermore, unlike most Liberian logging companies, it does not require advance payments for logs but will sell its current stock.

Given various observations of OTC trucks, they extract about 2800 - 3500 cubic meters per day, or 80,000 m3 to 105,000 m3 per month (800,000 - 1,100,000 m3 per year). 3000 m3/day, or 90,000 m3/month, seems to be the most generally agreed number. The average production of a large forestry company in Liberia is around 10,000 m3 per month, making OTC larger by an order of magnitude than anything Liberia is used to. In 1988, the peak production year prior to the war, the entire Liberian timber production came to about 1 million m3. All OTC production is exported and all is exported as raw logs.

These practices are in flagrant violation of Liberian law and FDA regulations, which stipulate that trees under diameters of 60 and 100 cm DBH (diameter at breast height), and in one case 50 cm DBH, may not be cut. Clearfelling large areas so to leave bare dirt, with all the consequent erosion problems, is entirely outside the spirit of FDA rules and renders the area useless for future forestry: forest regeneration is near impossible in such conditions and no reforestation activities are undertaken. No other company insists on "wasting nothing", cutting every possible tree, which is against FDA regulations. OTC does not prepare management plans, inventories or allow any oversight by FDA. It has posted armed guards to keep FDA or other government officials and local residents away from certain areas. In construction of the road, it bulldozed farms and houses of local residents without any compensation or consultation. It has extracted wood from neighboring concessions and has destroyed forests used by communities living in its concession. When the Superintendent of Grand Bassa County criticized OTC's practices publicly in December 1999, he was promptly fired by the Executive Mansion. (He was reinstated a few days later but since then has kept silent on OTC. Rumors exist that OTC, or perhaps the Liberian-Malaysian Timber Company, was kicked out of Cote d'Ivoire after failing to keep promises or abusing national laws and regulations.)

Export of raw logs is discouraged if not forbidden under International Tropical Timber Organisation and African Timber Organisation guidelines. It is an explicit policy of FDA's post-war strategy to increase local wood transformation and value-added. OTC was initially going to renovate the former VAMPLY plywood factory in Buchanan but has not yet done so. The OTC managing director has said that production is to supply the parent company's factories in Asia, while excess production is sold at the port of Buchanan, hence OTC has no plans to transform the wood and add value locally.

The initial promises of jobs, training and development have not materialized. Approximately 600 Asian laborers have been imported and were all given free work permits despite complaints - some have been sent home for reasons unknown. All skilled jobs are operated by Asians with reportedly few going to Liberians. Only unskilled jobs at the port, or spotters and chainsaw operators in the forest are reserved for Liberians. Almost all food is imported from Asia as are, boasts the managing director, the prostitutes (who are changed every two months). Training and development or assistance programs have not materialized. The announcement in January 2000 that OTC will "use half of its profits to renovate the University of Liberia campus" on the outskirts of Monrovia is the only obvious gesture to help Liberia. However, it has been criticized as overly convenient since the main University of Liberia campus across the street from the National Patriotic Party Headquarters, Charles Taylor's ruling party, has long represented a threat of activism and opposition at his doorstep.

OTC manages the Port of Buchanan, although foresters exporting logs in fact negotiate with Mr. van Kouwenhoven for use of the port. This permits OTC an effective stranglehold on all timber exports from Buchanan, the principle port for timber in Liberia.

Global Star (Asia) Holdings Limited Ownership of the company is still somewhat uncertain. The company which owns OTC appears to be Global Star (Asia) Holdings Limited, member of the Global Star Group. According to his calling card, the Director of OTC is named Joseph Wong (or Joseph Wong Kiia Tai) and his father said to be the owner of Global Star Group. They are based at 4212-5, Hong Kong Plaza, 186-191 Connaught Road West, Hong Kong. They are ethnic Chinese, perhaps with Malaysian passports. However, the workers are mostly if not entirely Indonesian. Many if not all were recruited from Sumatra. The reason OTC insists on being known as Malaysian is unknown. Perhaps it is to hide their identity, or it is the most accurate description of the transnational company. Another report is that the logs are being exported to the Djan Djanti Group which makes plywood from the logs, although this company is not listed as one of Global Star's direct holdings.

In private conversations, Mr. Wong has said that OTC is exporting 60,000-70,000 m3 per month to southeast Asia to supply its plywood factories. This comes to 720,000-840,000 m3 per year. The excess production is sold in the port of Buchanan to buyers mostly for export to Europe (France and Spain are most frequently cited).

At this extraction rate, assuming 8 - 10 m3 per acre are obtained by total land clearance, OTC is consuming 8000 - 12,500 acres of forest per month, or 3000 - 4500 hectares/month. At this rate, the forest concession will be entirely destroyed in 200 - 500 months, or between 17 and 42 years. The southeast Liberian forest block is the largest remaining forest block in all of humid West Africa although very shortly it may not be. Mr. Wong has stated privately that he does not plan to operate OTC for more than 2 - 3 years in Liberia, which begs the question who or what will replace them in 2002, and does he think OTC will have worn out its welcome and special protection by then?

Finances - OTC has apparently made an up-front payment of $5 million to Government, and its pays the BIVAC tax (1.4% of export price). However, none of the other fees or taxes are reported to be paid, including the industrialisation fee, severance fees, reforestation fee, conservation fee, research fee and 5% export tax. Together, these should come to about $30-$31 per m3. Thus assuming they work 10 months per year and spend the two rainiest months doing maintenance on their equipment, this represents an annual tax evasion of $23-33 million (dividing the $5 million paid over three years). This says nothing of the economic and financial damages that are incurred and that some other countries charge by way of fines for poor logging practices. However, several sources have said these accusations of tax evasion result from jealousy and rumor rather than fact. They cannot be easily verified.

Depending upon the price at which the 60,000 m3 is sold to the holding company for transformation into plywood, OTC's could in fact be running at a slight loss, estimating production costs at $60 million fixed investment amortized over 3 years plus $35 million annual running costs and a selling price of less than $50/ m3 for tertiary species. However, this would represent probably unrealistically low prices, kept low to reduce the BIVAC taxes paid and to ensure that all profits are deferred to the other company in the Star Holdings Group that transforms the raw logs into plywood, planks or veneer. Were the logs secondary and a few primary species and sold for a fair average market price of $135/ m3, estimates of OTC's profits come to between $50 million and $90 million per year. The truth probably lies somewhere in between.

A rough rule of thumb is that plywood production profits are equivalent to the reasonable production costs for raw log extraction when timber is bought at market rates. In this case, the production costs are uncharacteristically low because mostly of poor extraction practices as well as cheap labor and low transport costs. Assuming $50-70 million in reasonable annual production costs, OTC is permitting annual profits of $100 to $160 million to the parent company, and assuming OTC is using it for plywood.

Public response and presidential protection - Within a month of announcing the agreement, it had begun to draw public criticism because of the free work permits granted to Asian workers who were doing jobs Liberians can do. When road construction and logging operations began, citizens complained of having their houses and farms destroyed without compensation. By November, complaints began surfacing that armed guards were not allowing FDA staff into the concession area and that logging was proceeding in flagrant violation of all laws and regulations. When the Grand Bassa County superintendent criticised OTC, he was fired on orders from the Executive Mansion. President Taylor went on record in October warning government officials "not to harass investors" meaning none of the normal petty or not-so-petty extortion will be tolerated with OTC. Around the same time he insisted that "the forest is for the government, and no person or section can claim personal ownership" in spite of rural communities' traditional use of the forest and the fact that it is owned by the people of Liberia and government is merely the steward of the asset.

President Taylor summed up the protection OTC is receiving when he said it is his "pepperbush" so no one can touch it. With such presidential protection, OTC is above the law and the government. This is widely recognized by all who are aware of what OTC is doing, and most say they are vehemently opposed to its abuse of Liberia's forest, laws and people, but the reign of intimidation and fear so prevalent in the Taylor administration squashes criticism. FDA maintains a rhetoric of gratitude towards the work OTC is doing, deflecting and denying criticism in all public forums.

A Second Presidential Pepperbush In Lofa County? - In parallel, businessman Victor Haikal is reported to want to do the same thing in Lofa County as Mr. van Kouwenhoven did in SE Liberia, although Mr. van Kouwenhoven has been negotiating with the Liberian-Malaysian Timber Company for operating concessions there since 1998 or 1999. President Taylor has already begun talking of a second pepperbush in Lofa county. Concessionaires received official communications from FDA on January 25, 2000 that their concessions are being rescinded. The forests of Lofa County extending into Sierra Leone represent the second largest remaining forest block in humid West Africa. Lofa County consists of 8 regular concessions and 4 salvage permits but unlike in SE Liberia the concessions are being actively logged. Reportedly, FDA Managing Director, Bob Taylor, has been in disagreement with the Executive Mansion over this issue.

An Asian company is trying to get involved in Lofa, sent from Shimmer International Cameroon, Ltd., which is part of the Rimbunan Hijau Group, a transnational Malaysian logging company. Rimbunan Hijau has proven extremely controversial in south east Asia and in central Africa due to abuses of national laws and regulations, human rights violations and contractual breeches. The two people who are trying to set up the Liberian operations are Thomas Tiong Yong Yung (Administrative, PR and Personnel Manager for Shimmer International) and Peter Hii Hung Kai (Shimmer International Regional Manager).

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