Bai Shan Lin: the Chinese logger with multiple interests in Guyana
The victory of the A Partnership for National Unity (APNU) coalition in Guyana’s May 2015 elections signalled the end to the uninterrupted rule of the Progressive People’s Party (PPP) that had begun in 1992.
Many also expected an end to the preferential treatment given to partially state-owned Chinese logging company Bai Shan Lin (BSL), which in 2007 began operating in this small but resource-rich South American country nestled between Venezuela and Suriname on the Caribbean coast to the north of Brazil.
The APNU coalition had promised during its election campaign that the “rule of law” would prevail under its watch, and that companies benefitting from Foreign Direct Investment (FDI) agreements would have to comply with both the terms of their contracts and Guyanese law. Yet Chinese companies, such as BSL, continue to dominate.
Understanding why means taking into account the country’s recent political history and unique ecology.
Global Financial Integrity, a US-based non-profit, found Guyana among the top 25 of 82 countries surveyed from 2008 to 2012 for illicit financial flows (IFF), estimated at 17.3% of its GDP and 16.4% of its total trade.
Over that period, Guyana’s GDP per capita was US$2,866 while its IFF per capita was US$495, placing it at number five in terms of IFF relative to population. It was a regional outlier, being the only Caribbean country and one of two South American countries in the top 25.
Guyana has abundant tropical forests with unique varieties of timber including greenheart (Chlorocardium rodiei), darina (Hymenolobium flavum), purpleheart (Peltogyne venosa) and wamara (Swartzia leiocalycina), which are highly sought-after on the Chinese market.
Aside from logging and log trading, Chinese companies are also prominent in construction, retail and other commercial sectors. BSL provides one illustration of how the new government is not enforcing the rules to ensure the fair award of contracts or the sustainable management of resources.
Heavy selective logging
National forest policy and the voluntary codes of practice for timber harvesting require the Guyana Forestry Commission (GFC) to set species-specific harvest rates so as to conserve viable populations of commercially desirable and ecologically important trees and ensure sustainable timber production. This has not been done.
On the naturally infertile soils of Guyana, some of these trees grow in single-species clumps or groves known locally as ‘reefs’. These are very susceptible to over-cutting unless rules on maintaining an adequate distance between tree stumps are carefully observed. There should be no heavy felling in these clumps.
Guyana’s tropical timber is in high demand from factories in China of BSL’s associates and other buyers, owing to its hardness, heaviness, dimensional stability (it does not shrink or swell) and dark colour, desirable for luxury furniture and impact-resistant wood floors.
These timbers are also slow-growing, so conservative harvesting should be the norm. But in practice, BSL and the tree fellers from whom it purchases logs have been cutting smaller and smaller trees, as log diameters recorded for tax purposes show. There is no regard for the provision of the next crop. This means the next harvest cannot be felled for many decades, perhaps hundreds of years, which entirely contradicts the policies and rules for sustainable forest management.
The GFC has been aware of the importance of preventing the unsustainable felling of the most profitable of Guyana’s more than 1,000 species of tree since the 1950s. The huge profits that can accrue from exporting top timbers as logs to China enable BSL to pay its way past official rules. Penalties for breaking the rules provide scant disincentive since they are too small and are not always enforced in the case of large and politically-connected companies.
The Guyanese government has been and is accused of acting in collusion with BSL, allowing the company to contravene local laws and get around logging quotas by purchasing from small loggers associations (SLAs) and exporting under their names. Local media have reported a number of cases of alleged wrongdoing.
In late March 2016, Joseph Harmon, minister of state in the office of Guyana’s president –de facto the country’s second most powerful leader – went on an official visit to China accompanied by “business advisor” B.K. Tiwari, independent press reported. Tiwari is a controversial businessman who had had close links to the previous PPP government, and is embroiled in a number of court cases with Bai Shan Lin over illegal land deals.
Following a public outcry, and before Harmon had returned to Guyana, president David Granger publicly rescinded the “business advisor” appointment that Harmon had apparently conferred on Tiwari earlier in 2016.
Shortly after the affair, Harmon reportedly told Guyana Revenue Authority (GRA) officials to abort an ongoing operation aimed at repossessing three luxury vehicles owned by BSL, on account of non-payment of taxes. Again, presidential intervention quickly followed, with the assurance that the GRA would operate without political interference.
“The GRA is going to carry out its duties and its responsibilities, and it has recommitted to doing so without fear or favour,” Rawle Lucas, chairman of the GRA said in response to the allegations, adding; “we are all about restoring confidence in this agency and ensuring that mistakes of the past are not repeated.”
A photograph also appeared in Kaieteur News, one of Guyana’s two independent newspapers, apparently taken on 27 March during the China trip, of Harmon in a private jet flanked by Chu Wenze and Chu Hongbo, of BSL, and Su Zhirong, of Rong-An Inc., the second biggest Chinese logger and log trader in Guyana.
“The picture by itself, of course, is a very uncomfortable one to look at,” admitted Raphael Trotman, the minister for forestry. Harmon finally issued a statement which claimed inter alia that the Chinese Ambassador to Guyana had arranged the private jet trip for him to visit Long Jiang Forestry Industries Group, a company based in Heilongjiang Province, in northeastern China.
The Long Jiang group is a state-owned company that had acquired 55% of the shares in Bai Shan Lin and intends to fully take over the company in 2016. Any such acquisition of BSL’s logging concessions would require prior presidential approval under Guyanese law. There is no evidence that this has been granted.
BSL has misused its FDI concessions from the Guyana government to expand its portfolio of business interests. In 2007 BSL declared its intention to invest US$100 million in value-added wood processing at two locations. Nine years later, there is still no wood-processing factory.
BSL has since acquired interests in gold mining, transporting sand and stone, barge construction for transport of logs and quarried stone, selling duty-free imported steel, real estate, construction of residential housing, a government ministry car park and a shopping mall.
In 2007, BSL said it had rights to log 400,000 hectares of forest in Guyana. By November 2012, it claimed to control 950,000 hectares of forest although the GFC only counted 627,000 hectares. Independent calculations showed that the figure was closer to 1.5 million hectares.
Many of the 200 vehicles imported duty-free for use in BSL’s wood processing factory were actually deployed in BSL’s other businesses. The use of duty-free fuel also intended originally for logging gives the BSL group of some 19 subsidiary companies in Guyana an unbeatable cost advantage over local enterprises which do not enjoy such FDI benefits.
Copies of some of the 2012-2015 requests by BSL for duty-free imports and tax relief claims were leaked to the independent newspaper Kaieteur News, with some of the more amazing requests extracted and published. These included: 1 billion tonnes of cement, 1 billion metres of electric wire, 2 billion pails of paint and 100,000 tonnes of steel – all of which were approved by the then minister of finance. Each application referred to BSL’s intention to construct the wood processing facility, with only rare queries from the Guyanese about the lack of any progress since 2007.
Chu Wenze, BSL’s CEO, was elected in November 2012 as one of four vice presidents of the industry association, the China Timber and Wood Products Distribution Association (CTWPDA). Among other activities, the association hosts events at which wood trade representatives rub shoulders with government officials. The CTWPDA rejected a report by the Environmental Investigation Agency on the trade in illegal timber entitled Appetite for destruction.
The Guyana government’s decision in the matter of the full takeover of BSL by Long Jiang Forestry Industries Group is seen as a test case as to whether the Guyana government will ensure transparency and compliance with legal requirements.
China and Guyana signed a bilateral trade agreement in 2003, which calls for respect for Guyana’s laws. Moreover, any FDI agreements should follow the guidelines set out in the latest report of the Organisation of Economic Cooperation and Development (OECD) and the guidelines produced by the State Forestry Administration and Ministry of Commerce in Beijing.
Guyana should apply consistently, transparently and without any bias the approved national policies and laws and forest harvesting codes of practice. For this to happen in the forestry sector, it will be necessary to put an end to discretionary practices and the tradition of political interference in order to bring BSL and other logging companies into compliance.
In keeping with recommendations made earlier this year to the ministerially-appointed board of directors at GFC, an action should be brought to Guyana’s high court to secure injunctions to bring a halt to BSL’s operations, following the example of the Chief Minister of Sarawak in Malaysia – which had a dramatically beneficial effect in greatly reducing illegal forest activities almost overnight. Without such actions, the rule of law in Guyana, like the future of its forests, hangs in the balance.