This is the excerpt of Fiji Buzz article:
Exposé: Fiji's Mahogany Forests
Written by Wendell Archibald
[Right Image: Typical Mahogany Forest in Fiji]
Exotic forests are not a new phenomenon and in the parts of the world where they do exist forest harvesting scarcely gives rise to difficulty.
This is not the case in Fiji. There are about 40,000 hectares of native land in Fiji which has been planted in mahogany. These forests are the result of an afforestation initiative led by the British Colonial government in the 1950's.
In the course of implementing the scheme the Colonial government put leasing arrangements in place over the native land concerned. The leases were to the government for 99 year period at a rental of sixpence per acre (13c per hectare).
The land rentals were of course adjusted periodically for inflation so that by the new millennium the return to the land owners was in the region of $2.00 per hectare.
In a modern tree or timber “crop lease” provisions exist whereby the owners of the land are to be paid “stumpage” when time arrives for crop harvest. The stumpage payments are normally calculated on the basis of the metric volume of timber taken from each tree stump.
Some leases, put in place by large public companies, have been known to contain provisions for stumpage to be paid in advance of the harvest date. In these cases the basis for payment is a periodic assessment made as to the current value of the trees growing in the ground. The “mahogany leases” by the Fijian landowners to Government contained no such provisions.
The Resource Grab
As harvest time approached, the current value of the mahogany tree crop became evident. A row of enormous proportions then began to fester between the landowners and the Government.
The row had all the hallmarks of a shameless struggle to obtain ownership and control of an economic resource. Neither side has emerged from the argument with credit.
On the one hand the land owners claimed the reward from the mahogany harvest was theirs. Government's position was that they owned the leases and therefore the right to the crop.
Despite the existence of locally owned and operated wood processing capacity both sides contended that they needed an overseas investor to help them maximise the value of the timber. Both sides then proceeded to negotiate with interested overseas parties.
By the 1999 elections the Rabuka Government had established a Government owned entity called Fiji Hardwood Corporation to manage its “mahogany interests.” George Speight, who had been appointed its Chairman, had begun to make firm 'Investor” arrangements with an American company. Something called “Fiji Mahogany Unit Trust” was also registered overseas but locally its details were never revealed.
It is well documented how the Chaudhary Government following the 1999 elections queered the pitch by contracting in a British “investor.” In some quarters it was openly stated that the disruption so caused to George Speight's plans formed the real reason for the coup of 19 May 2000.
The Suva headquarters of Hardwood Corporation were razed to the ground by fire during the course of the 2000 coup.
The Qarase Government
The Qarase Government came to effective power in July 2000, as the interim government appointed by the Commander of the Fiji Military Force. One of the persons appointed was Apisai Tora who took office as the Minister of Agriculture.
The appointment was surprising in that on 19 May 2000 it was Apisai Tora who had led the protest march which preceeded the overthrow of the Chaudhary government. He was also well known as one the protagonists and architects of the 1987 coup led by Sitiveni Rabuka.
With an election scheduled for September 2001 the new government which was later to be reformed as the “SDL party” immediately announced a “blueprint” whereby soft loans were to be provided to indigenous Fijians for the formation of businesses.
With the benefit of hindsight it now seems that funds were needed by the interim government for electioneering purposes and direct handouts designed to curry favour with the indigeneous Fijian electorate.
When the Fiji Development Bank proved slow to respond Tora immediately proceeded to bail out the Treasury by using funds at the disposal of the Department of Agriculture for such purposes. The move was a resounding success resulting in the September 2001 election of SDL to the treasury benches under the leadership of Qarase.
Some 63 months after the event Tora's permanent secretary Peniasi Kunatuba was jailed for his part in the affair. Tora and his cohorts have never been charged.
The Fiji Mahogany Act
In its first term of office the Qarase led government revitalised Fiji Hardwood Corporation by injecting $3.5 million (FJD) into the company as working capital, installing a new board of its own choosing and an ex-patriate Chief Executive Officer.
A former Chairman of Fiji Development Bank (FDB) numbered among the directors. He used his influence with FDB to obtain finance for the acquisition of the wood-working machinery of a small/medium sized wood processing plant which the High Court in Suva had wound up in April 2003.
By 15 July 2003 the Government had introduced a bill called the 'Fiji Mahogany Act' into Parliament. It was passed into law on 6th November 2003.
The preamble to the Act states it is :“An act to make provision for the development of the mahogany industry in Fiji including harvesting and processing to allow landowners participation in the industry and for related matters”
The text of the Act does not reveal the the manner by which its objectives are to be achieved. The real purpose of the Act seems to be contained in section 3 which is an empowering provision allowing Government to inject public funds into Hardwood Corporation.
The Fiji Mahogany Trust
Otherwise section 4, and the remainder of the Act concerns the establishment of a trust called the “Fiji Mahogany Trust”
A peculiarity is that in law, there are three elements which must be present before a trust can be said to exist. These are that there must be
1. at least one beneficiary (or cestuis que trust);
2. some defined property which is the subject of the trust; and
3. a trustee who is obliged to deal with the property for the benefit of the cestuis que trust.
With the Fiji Mahogany Trust none of the required elements of a trust are able to be discerned..
Processing in the West
Shortly after the Fiji Mahogany Act was passed the wood processing plant which had been purchased with FDB assistance was moved westwards on Viti Levu from Suva to Lautoka. There it began processing mahogany supplied by Fiji Hardwood Corporation.
In a short space of time the company was achieving exports of containerised dressed mahogany timber. According to certain members of the company's staff 6 containers were exported every week.
On the basis of these reports Fiji Hardwood Corporation should have been enjoying an income stream of at least $12 million (FJD) annually. In reality it ran out of funds before the end of 2005.
A new CEO for Hardwood Corporation was brought in mid 2006. He found the root cause of the company's problems to be “transfer pricing".
That is the timber exported was returning $400 (FJD) per cubic metre whereas the costs of production were far in excess of that amount. The profits on sales in the country of destination were not of course being repatriated to Fiji Hardwood Corporation.
The Police were informed but the previous holder of the CEO's office fled the country. An investigation was reported to have been commenced into the activities of the board members and staff of Hardwood Corporation who were involved.
When the health of the new CEO deteriorated 6 weeks ago the board of Fiji Hardwood Corporation took the opportunity to terminate his appointment (and presumably the Police enquiry).
In its 2006 budget the Qarase government voted that a further $5 million FJD of Public funds be injected into Fiji Hardwood Corporation.
RESOURCES: Fiji Mahogany Act 2003
Mahogany plantations misappropriation involve NLTB and has a connection with Qarase and the mysterious bail out of Fiji Hardwoods Corporation with funds sourced from Fiji Development Bank according to a Fiji Times article.
This is the excerpt:
$5.8m granted in mahogany bailout
Friday, December 22, 2006
FIJI Hardwood Corporation was granted $5.8million by the Laisenia Qarase-led government to bail itself out of debt.
This was confirmed by Fiji Hardwood chairman Winston Thompson yesterday.
He said the money was received from the Fiji Development Bank (FDB).
"Earlier arrangements were made by the government with the FDB about the issue and that is where it is at the moment," said Mr Thompson.
He said the corporation received the fund weeks ago and hoped to change its image.
Parliament had approved a government request to guarantee a $5.8million loan by Fiji Hardwood.
Ousted finance minister Ratu Jone Kubuabola approved the loan in February as the company experienced cash flow difficulty. In 2003, the government bailed the company with a $7million loan from Fiji National Provident Fund.
Mr Thompson said he was aware of roadblocks in Tailevu by two landowning units claiming compensation.
The mataqali Rara of Naimasimasi Village in Tailevu wants back the land because according to them, it was reserved for them by their forefathers.
Clan spokesman Jovilisi Kedrayate said Fiji Hardwood needed to return 38 acres of land where the company planted mahogany without permission.
Lawyer Tevita Fa said his clients would not change their stand on the decision.
The land is part of an 86-acre spread of which Fiji Hardwood has a lease on 48 acres.
All this talk about Mahogany is perhaps an extension to the infamous Wall Street Journal article published on September 13th 2000, regarding Mahogany negotiations involving the pre 2000 coup dealings with George Speight, the former Executive of Fiji Hardwood Corporation and subsequent convicted coup leader.
This is an excerpt:
Fiji Mahogany Incites Lawsuits,
Resource Battle in Troubled Region
By ROBERT FRANK
Staff Reporter of THE WALL STREET JOURNAL
September 13, 2000
SUVA, Fiji --
On a mountainside deep in the jungle of Viti Levu, Fiji's principal island, Alisi Marama digs for one of the world's most coveted commodities.
"This is what everyone is fighting over," says the 52-year-old prawn farmer's wife, holding up a mahogany sapling. "We never knew these trees were worth so much money."
Fijians call them "white people's trees." On plantations started by the British, the tall, gray trunks rise from the jungle in neatly planted rows, covering more than 80,000 acres. To logging companies, they're "king mahogany," used in everything from boardroom paneling and yacht decks to furniture. Through a strange confluence of history, geography and an environmental movement thousands of miles away, Fiji's mahogany farms, believed to be the world's largest, have placed this remote archipelago at the center of a global business storm.
What began as a bidding competition for timber rights between a U.S. company and a British firm has come to involve government officials from the two countries, as well as Price Waterhouse Coopers, a Seattle entrepreneur and a former timber executive named George Speight, who staged a coup against Fiji's government in May. Billions of dollars are at stake and lawsuits are flying from Suva to Seattle.
Waves of Unrest
The coup, which battered the South Pacific's most promising economy and set off waves of unrest throughout the region, also has links to mahogany. Weeks before the attack, protests were mounting against the government for its decision to accept the British company's lower bid and for its treatment of landowners. Leading the charge was Mr. Speight, who had been ousted by the government from a top timber job and who had received consulting payments from the U.S. company that lost the bid. Three days before he stormed Fiji's Parliament, the coup leader took out a dramatic advertisement in a local newspaper stating that he was "not on the take" from the U.S. company.
Fijian police have set up a special unit to investigate the mahogany deal, and a former police chief, Isikia Savua, said last week that there are "possibilities of linkages" between the mahogany and the coup. Whatever the investigation reveals, Fiji's mahogany trees are likely to kindle even more unrest, as tribal chiefs, giant timber companies, government agencies and even rural farmers begin staking claims.
"We have this asset that people learn has tremendous value," says Charlie Walker, a timber executive and former Fijian congressman and diplomat. "I'm afraid that unless we get a solution that's agreeable to Fijians, it's going to create more instability."
Other issues have contributed to regional turmoil, such as land rights, ethnic strife and widespread corruption, but at the heart of the violence are battles over natural resources such as oil, natural gas, gold and timber. A struggle between rival tribes over land in the Solomon Islands has sparked an attempted coup and widespread killings and kidnappings. Papua New Guinea continues to fight with Bougainville separatists over minerals, while the French are battling native Melanesians in New Caledonia over nickel. As colonial influence and financial aid recedes in the region, Fiji's lucrative mahogany trees are becoming the next explosive commodity.
In the early 1900s, as part of a global forestry experiment, the British government shipped a bundle of mahogany seedlings to Fiji from the rain forests of British Honduras, which is now Belize. The aim was to expand the economy of the Britain outpost in the South Pacific and create a new source of mahogany for British furniture makers. The seedlings flourished, and in the 1960s the Fiji government started regular plantings to ensure a steady crop.
The trees grew largely unnoticed until the late 1990s, when several factors put them on the world stage. Most of the world's mahogany, sold mainly to the U.S. and Britain, comes from the rain forests of South America, primarily Brazil. With overlogging and growing pressure from the environmental movement, timber companies were suddenly forced to look for "green" alternatives.
Enter Fiji. More than 2,000 miles from the nearest continent, Australia, the group of 300 tropical islands is far removed from the insects that plague mahogany in other countries, specifically a type of shoot borer that cripples young trees. With its steamy climate and volcanic soil, Fiji is the only place where mahogany plantations have taken hold on such a large scale. Analysts say the country could supply up to two-thirds of world demand within the next 10 years, yielding between $50 million and $200 million a year in revenue and offering a new source of growth for the tourism-based economy. Since the trees grow on plantations, rather than wild in forests, they're considered ecologically correct.
In 1998, as overseas interest grew, the government hired Price Waterhouse -- now PricewaterhouseCoopers -- to search for a foreign logging partner. Bidders were asked to take a stake in the state-owned mahogany company, Fiji Hardwood Corp., and to help build the roads, sawmills and sanding and furniture plants needed to process the wood. Within weeks, Price Waterhouse had narrowed a list of six candidates to two finalists: Britain's Commonwealth Development Corp. and the American-led Timber Resource Management.
CDC, an investment company owned by the British government, offered $68 million for the stake and certain cutting rights -- a sum many in the Fijian government considered far too low. TRM, a newly created consortium led by Marshall W. Pettit, a businessman based in Bellevue, Wash., entered a bid of $110 million. The deal involved a complicated bond offering, a Cayman Islands holding company and millions of dollars in banking and transaction fees. TRM is 65%-owned by Washington-based Anglo-Pacific Resources, which is controlled by Mr. Pettit, a financier who has interests in real estate and natural-resource projects. The remainder of TRM is held by various New Zealand and Australian timber companies.
'We Were Terminated'
After weeks of analysis, Price Waterhouse recommended CDC, saying the company was more established than TRM and would provide more direct benefits to Fiji. For reasons still under dispute, the government challenged the recommendation. In a crowded conference room in February 1999, government ministers cut short Price Waterhouse's presentation and fired the company, saying they could handle the mahogany deal themselves.
"We were terminated at the meeting," says Gary Butler, Price Waterhouse's lead manager on the project.
With the government taking over the deal, a new player emerged in the talks: Mr. Speight. A Fijian insurance executive with a flair for sales, an M.B.A. from Andrews University in Michigan and close ties to the government, Mr. Speight was chairman of Fiji Hardwood Corp. and a leading member of the government's mahogany steering committee. At the meeting with Price Waterhouse, Mr. Speight led the attack on CDC's proposal and charged that the bid "didn't meet the government's requirements."
Mr. Speight, however, had another interest. In the spring of 1999, just after the February meeting, Anglo-Pacific Funding wired two payments of $5,000 each to Mr. Speight's Australian bank account, according to bank statements. Anglo-Pacific Funding is also controlled by Mr. Pettit. When the payments were disclosed on a Fiji television program just before the coup this past May, the news unleashed allegations of influence peddling and corruption in Fiji's press.
Both Mr. Pettit and Mr. Speight confirm the payments, but say they weren't related to the mahogany deal. Mr. Pettit says the fees were for office space and insurance-consulting work that Mr. Speight performed for Anglo-Pacific in 1997 and 1998 -- well before the mahogany talks began -- as part of a pine-logging deal that was later canceled. Mr. Pettit says he thought the payments were being made to an insurance company managed by Mr. Speight, not to Mr. Speight's personal account. Mr. Pettit adds that he knew nothing about Mr. Speight's coup, and that allegations of influence peddling were manufactured by Mr. Speight's political rivals.
"George Speight didn't do us any favors," Mr. Pettit says. He notes that the association with Mr. Speight worked against TRM during negotiations, "since other people involved were in effect constantly inferring that Mr. Speight was carrying our banner."
In an advertisement in a Fiji newspaper just three days before the coup, Mr. Speight stated that he was "not on the take" from TRM and that he had acted during the mahogany negotiations "in a responsible manner with absolute integrity." Neither Mr. Speight nor his attorney could be reached for comment on the mahogany deal.
Timber Talks Reopened
Mr. Speight's influence, however, was overshadowed by larger events in May 1999, when Fiji elected a new government and Mr. Speight was swept out of his timber positions. The new government, led by Prime Minister Mahendra Chaudhry, launched a widespread investigation into fraud and corruption and reopened the mahogany talks. In July 1999, Mr. Chaudhry settled on CDC, stating in a letter to CDC that the British company was the "preferred bidder" and that the government "wishes to proceed to complete the negotiations." The letter's existence, however, didn't emerge until months later.
TRM, meanwhile, continued to pursue its bid, having spent more than $2 million on legal fees and other deal-related costs. Mr. Pettit and Fahnestock & Co., a New York-based securities firm that was organizing the bond involved in TRM's bid, arranged to fly four Fijian government ministers to New York last September in a final push to promote the bid. Since the Foreign Corrupt Practices Act prevented TRM from paying for the trip, the U.S. Trade and Development Agency agreed to be the sponsor. The agency paid $25,000 in air fare, hotel and travel costs for the ministers.
Months after the delegation returned home, TRM learned of the July 1999 letter and the Fijian government's commitment to CDC. Mr. Pettit and the U.S. ambassador in Fiji, Osman Siddique, were furious, charging that the Fiji government had accepted the trip in bad faith and wasted U.S. taxpayers's money. "We feel thoroughly taken advantage of," Mr. Pettit says.
This past April, Mr. Siddique charged into Prime Minister Chaudhry's office and said: "No more excuses. You can do what you want with your f---ing forest."
Mr. Siddique, a travel-agency owner from Virginia, confirms the account and adds that he was simply supporting the commercial interests of a U.S. company.
'A Slap in the Face'
As the deal slipped away, TRM turned to lawsuits. The company has filed nine suits in Fiji -- four against a former consultant and a former equity holder, two against the government and three against various Fiji newspapers and newspaper columnists, because of what Mr. Pettit says were libelous and false reports about TRM and the company's bid. The reports, earlier this year, questioned the reputation of TRM and detailed the payments that TRM would receive from the mahogany deal in addition to conventional revenue.
"All I want is an apology," says Mr. Pettit, adding: "We were trying to do something good for the people of Fiji, and all we got were lies and a slap in the face."
Mr. Speight has his own legal troubles. Imprisoned on an island off Suva, he faces charges of treason for leading the May coup, in which he and 16 other rebels took the entire government hostage and then turned the country over to the military.
With Fiji's economy in crisis, the mahogany trees are becoming even more important -- and controversial. Entomologists at a forestry station outside Suva have received reports of a population of mahogany shoot borers on the island of Espiritu Santo, about 900 miles away.
Meanwhile, Fiji landowners are staging protests in a bid to take back the trees -- which are growing on land largely owned by local tribes but leased by the government -- while several government agencies are also staking claims. TRM and CDC both vow to continue fighting for a deal, and several new competitors from Europe and Canada have also approached the government and landowners.
"We took care of these trees all our lives," says Mrs. Marama, standing at the edge of a lush mahogany plantation on land owned by her tribe. "Now we want something in return."
Write to Robert Frank at firstname.lastname@example.org
The negotiations for the same Mahogany plantations continued after the 2000 coup with Interim Prime Minister playing a leading role; which landowners feel weary of, as an article in Pacific Magazine outlines.
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