‘It’s not a one-way street’

Alfred Sasako

October  2009 Issue

Four years from now, log exports—Solomon Islands’ major foreign exchange earner—will have disappeared. That’s the official warning from none other than Finance Minister, Snyder Rini.
Official figures released in Honiara recently showed log exports account for 70 percent of the nation’s foreign revenue earnings and 17 percent of the country’s national income. Its disappearance will create a huge hole to plug. Mining and fisheries are being touted as potential industries to replace projected revenue losses from logging operations.
What many do not seem to realise is that while loggers in particular contribute substantially to government coffers, it’s not a one-way street. They too, in return receive substantial “incentives” from the government.
In any one year, what logging companies get through duty exemptions, goods and sales tax exemptions and so on, run into tens of millions of dollars.
In 2006 for example, some US$4.6 million were given to foreign logging companies in “unlawful tax exemptions”, according to investigations which aired on Aljazeera television network last year. The so-called incentives given to investors usually come in deals struck with government. More often than not, these deals are shrouded in secrecy. Take for example, a deal struck in 2005. It followed an agreement entered into in 1999 between the government and a Malaysian firm called Sylvania Products Pty Ltd [SPPL], which had agreed to develop a palm oil out-growers’ scheme on Vangunu in the Western Province.
A civilian coup on June 5, 2000 in Honiara had delayed implementing the 1999 agreement. It however did not stop other preparatory work by the company and resource owners.
In the case of resource owners who live in the virgin forest around Vangunu, they were hard at work. They wanted to get some benefits from this new development. SPPL, on the other hand, continued logging the area, using the civil unrest as an alibi as well as under the pretext of clearing the land for planting palm oil seedlings and so on.
By now a local company called Marovo Development Ltd and Resources Owners of Vangunu, was formed and registered. MDL for short was seen by its creators as the vehicle to deliver development in the area.
Under the arrangement, MDL would get all the incentives such as tax holidays, import duty exemptions and exemptions on goods and sales tax from the government.
For this purpose, a Memorandum of Understanding [MoU] was signed between the government and MDL on June 28, 2005. In the arrangement, the government was represented by a group of officials while the MDL was deemed the developer.
The problem is that no one on MDL’s board is from the Vangunu area. Rather, they were employees of Sylvania Products Pty Ltd. This did not seem to bother the government.
Drawn from government departments such as the Department of Commerce, Industries and Employment, Department of Agriculture and Livestock, and Inland Revenue and Customs and Excise representing the Department of Finance, these officials form what the MoU termed, the Management Unit.
Assistance: Its offer of assistance to MDL is pretty comprehensive and telling. According to part one of the 2005 MoU, the “government pursuant to its policy considers the Vangunu out-growers scheme as a high priority programme which would substantially benefit the economy of Solomon Islands and the local communities, especially the communities of Vangunu, the beneficiaries of the out-growers scheme”.
“The government agrees to provide incentives and assistance it sees fit by way of duty remission, levies, tax holidays, exemptions from goods tax and sales tax as a contribution to this out-grower scheme,” it said. It did. And more.
“The government agrees to ensure the needed technical assistance and incentives derived from government’s programmes are used for the purpose of developing the out-growers Scheme as stated herein and to encourage local communities to participate in the development of this worthwhile project,” the MoU said.
For its part, the MoU stipulated that “MDL and SPPL shall also supply technical, financial and capital outlay as incentives for the development and establishment of the out-growers scheme”.
“MDL shall assist in the importation of equipment, machinery and appropriate technology and technical and management skills during the course of the establishment,” it said.
Being true to its undertaking, the government did more. It appears to have thrown in [provided] two landing barges, Landing Craft [LC] Bersama and Landing Craft [LC] Broncos to help MDL.
But that’s not all. The MoU also provides for a special fund to be established where export duty revenue received by MDL can be credited.
Clause 6[1] of the MoU said: “Where an incentive in terms of paragraph [2] is granted, MDL shall produce monthly statements showing detailed figures of the remissions or exemptions obtained.
“The statement shall further include details of volumes of export timber, prices obtained and proof that the determined value of the concession and the full payment of the export duty revenue due on the exported logs has been credited by MDL to a special fund established for the implementation of the MDL out-growers scheme”.
“The special fund shall be a fund within the meaning of section 100[2] and [3] of the constitution of Solomon Islands].
In essence, the constitution allows such a fund to be set up but it requires prior Parliamentary approval. Such a fund, the Constitution says, shall not form part of the Consolidated Fund.
At present, no one seems to know whether the special fund exists or that parliamentary approval had been obtained.
What is known is quite disturbing. According to government officials, MDL had never come to utilise the preferential treatment in terms of exemptions it has obtained from the government under the MoU. Instead, Sylvania Products Pty Ltd is using these exemptions to benefit itself. And no wonder. According to documents obtained by ISLANDS BUSINESS, MDL does not have anyone from Vangunu or Western Province on its board.
Instead, the two sole directors on the board, Roger Tauariki and Sim Swee Him, are in fact, employees of Sylvania Products Pty Ltd. They each have 50% share of the company, according to the documents. As well as being a director, the documents also show Tauariki as the company secretary. MDL was registered on October 9, 2003, according to records from the Registrar of Companies in Honiara. Documents also show the exemptions given to Sylvania Products Pty Ltd via MDL were not limited to the usual duties on heavy machinery and goods and sales tax.
“The company [SPPL] even received exemptions on fuel and petroleum products,” one senior official exclaimed.
“What infuriated some of us is that SPPL is selling fuel to other logging companies around the country at heavily discounted price while the rest of us are paying the full price at the bowser,” the official said. SPPL has logging operations in both Isabel and Western Provinces.
In the meantime, something else was happening to the two landing crafts.  On May 7, 2007, Tauariki applied for and received approval to set up a company called Island Corporation. Registered on that day, Island Corporation listed its business as logging, sawmilling, heavy plant hiring, transportation, oil palm plantation and real estate. Ownership of the two landing crafts, LC Bersama and LC Broncos has been transferred to Island Corporation from its original owner, MDL, according to government officials. The third landcraft Broncos II was sold to a company called Xiang Lin Timber (SI) Limited for $120,000 (US$14,592) on December 2008.
The intriguing thing about this transaction, according to government officials, is that there’s no record of the bill of sale of the two crafts.
“This whole thing needs to be thoroughly investigated,” a frustrated government official said.
Senior government officials spoken to said they were fully aware of the case, but stopped short of whether the matter was going to be investigated. Whatever the government decides, it appears the losers are the people of Vangunu in the Marovo Lagoon, once a contender for world heritage site listing.
Today, all that remains of the area are scars from logging operations.