GREENPEACE REPORT 1997

AN OVERVIEW OF ASIAN COMPANIES: MALAYSIA

The Malaysian Government claims that almost 59% of the country's 32.86 million hectares is under "forest cover", and a further 12.8% under plantations of tree crops such as rubber, oil palm and cocoa. It adds that 4.63 million hectares constitute protected areas, national parks, wildlife and bird sanctuaries (Minister of Primary Industries, Datoïs Seri Dr Lim Keng Yaik, 1994). It is important to emphasise however, that despite Malaysian forest cover, the great majority of it's forest has already been logged. The timber companies only extract certain trees which are of commercial use to them, the remaining trees are called residual stands" .In 1989 it was reported that Malaysias forest was beeing logged at a rate of almost 800,000 hectares or 1,7 million acres a year - that means 3 acres per minute ( Nepenthes rainforest Group Denmark, 1989).
The East Malaysian state of Sarawak and its neighbouring state Sabah, on the island of Borneo, dominate the Malaysian forestry sector, both as producers of tropical logs and as home to the main timber companies. In October 1996 Malaysia was reported to have about 1,123 sawmills, 126 plywood mills, 108 moulding plants, 2,900 furniture mills and five medium density fibre-broad plants distributed all in Peninsular Malaysia, Sabah and Sarawak.
Malaysia claims to supply 80% of the tropical sawn lumber in the international market, and is the second largest tropical timber exporting nation in the world after Indonesia. From 1985 to 1993 the export earnings from the Malaysian timber sector increased from M$ 4.71 billion (US$ 1.86 billion) to around M$ 12.48 billion (US$ 4.92 billion). In product terms, while the export of value added product such as furniture and plywood has increased significantly, there is a visible drop in the export of logs and sawn timber (Asian Timber, October 1996).
LOG SHORTAGE
Despite the increase in export earnings, the Malaysian timber sector faces major challenges. The Assistant Director of the Malaysian Timber Industry, Loke Sim Wah, pointed to the shortage of supply of raw material as a critical factor that could affect the future development of the Malaysian wood processing industry (Asian Timber, October 1996). Under the Seventh Malaysia Plan (1996-2000), log production was projected to be reduced to around 28.3 million m3 or 45,000 hectares per year. This represents a decrease of 17% compared to the average of 34 million m3 or 52,250 hectares per year produced under the Sixth Malaysia Plan.
Ms Loke Sim Wah emphasised that "with the existing total annual installed processing mill capacity of 13.20 million m3, 7.45 million m3 and 6 million m3 in Peninsular Malaysia, Sabah and Sarawak respectively, and a corresponding reduction of log production, there is an urgent need for the industry to re-structure itself in order to adapt to the reduced availability of the raw material" (Asian Timber, October 1996). The Business Times reported that "some sawmills in Sarawak will be forced to close due to a severe shortage of logs" (Asian Timber, June 1994). The Chairman of Sejati Sdn Bhd, the former Chief Minister of Sabah, Mr Datuk Harris Mohd Salleh said in an interview that "we are well aware that there is likely to be a timber shortage in the near future. We just can't sit and wait for the natural forest to rehabilitate, that will take decades". (Asian Timber, May 1993)
The decreased availability of logs has resulted inevitably in the increased cost of raw materials. For example, average log prices of dark red meranti, the most popular species in Peninsular Malaysia, have shown an increase of 75% for the period from 1990 to 1994.
In order to ensure the supply of raw material to its own companies, Malaysia has implemented a ban on the export of logs from Peninsula Malaysia and Sabah, and has progressively been reducing log production in Sarawak.
These measures have also been implemented in response to the discovery of widespread under- invoicing of timber exports. "We hear of submarine logging, night logging, people operating outside their licensed areas and even within national parks", said Social Development Minister Datuk Ademan Saten in December 1993 (Asian Timber, December 1993). In 1994 Malaysia amendmented its 1984 National Forestry Act in an attempt to strengthen implementations to curb bad forestry practice and illegal logging. It has raised penalties 50-fold to M$500,000 and imposed a mandatory jail sentence from one to 20 years, depending on the seriousness of the offence. In addition, these amendments have also allowed the use of army personnel for forest patrolling (Asian Timber, June 1994).
In addition to its efforts at control, the Malaysia government has also decided to use a bar code tagging system in timber concessions throughout the country in continued efforts to curb illegal logging. The bar codes, similar to those used for consumer goods, would be in the form of plastic tags. The information contained in them included the species of the tree and the area where it grows. (Asian Timber, November 1993) Following years of national and international criticism of its forest management practices, Malaysia became very vocal in presenting its credentials as a world leader in introducing sustainable forest management. In 1996, the Malaysian Minister of Primary Industries, Dr Lim Keng Yaik, announced that the country would spend US$ 985 million on forest management activities up to the year 2000, with the money coming from revised royalty, levy and other taxes on forestry and timber products. He stated that financing sustainable forest management is a continuing investment to ensure the sustainable supply of timber for the downstream wood processing industries as well as to see that "the forests will effectively provide protection to the environment" (Asian Timber, 1996b).
While some Malaysian timber companies have supplemented their scarce resources by investing in forest plantations (such as rubber and oil palm) others have decided to look for cheaper and less controllable sources of supplies of raw material from the natural forest. They have decided to invest in new operations in other tropical countries such as Papua New Guinea, Guyana, Suriname, Cambodia, Brazil, Belize or the Solomon Islands.
These countries do not however have the resources nor an effective institutional machinery to control the large scale logging operations of these Asian companies. The present stronger package of control measures established by the Malaysian government is a recognition of the dangers involved in the uncontrolled operation of their own logging companies.
SARAWAK'S FORESTS AND SUSTAINABILITY
When the forest industry in Sarawak talks about "sustainable forestry" or "sustained yield" it means how to log forests so that the supply of logs can continue forever. They do not mean how to log forests in a way that preserves forest ecology and the lives of the forest dwellers, native communities, etc. Even if one agrees with the forest industry's point of view, the increasing inability of Malaysia to supply logs shows the unsustainability of its forest management.
Sarawak is the world's largest exporter of tropical logs, mostly to the Japanese, Korean and Taiwanese markets. It accounts for 43% of Malaysian log output. Of the 16.6 million m3 harvested in 1993 in Sarawak, 6 million m3 were earmarked for local processing. The level of exports has been declining slightly over recent years, with the South Pacific, especially Papua New Guinea, increasing its market share to the main importers.
Sarawak shipped 6.6 million m3 of logs to Japan in 1990 and this had fallen to below 4 million in 1995, whilst PNG exports to Japan increased from 600,000 to 1.6 million m3 over the same period (Tropical Timbers, 1996a), mainly as a result of activities by Malaysian controlled companies. This decline in exports is in line with the Sarawak state policy of increasing the amount of logs processed domestically in an attempt to implement the "sustainable management" of its dwindling forest resources (Asian Timber, 1996a).
Whilst the country is quick to promote these recent efforts, Malaysia, and the state of Sarawak in particular, have in fact long been the focus of attention regarding the unsustainable exploitation of the forests.
In 1990, an International Tropical Timber Organisation (ITTO) Mission which studied Sarawak's forests identified three significant impediments to sustainable forest management in the state:
1) over-cutting in the hill dipterocarp forests;
2) inadequate catchment management;
3) insufficient control of felling operations.
A number of objectives were identified to help address these problems, namely the urgent recruitment of additional staff to the forestry department, a significantly reduced rate of timber harvesting, an increase in the amount of protected areas, the undertaking of an assessment of the forest resources of the state in relation to long term trade prospects for forest products, a review of the organisational structure for the allocation, management and operation of timber licences, and the encouragement of closer consultation and greater participation among local communities (ITTO, 1990 p. vii).
At the time of the study, harvesting in hill forests was about 13 million m3 a year and the authors estimated that, at that level of harvesting, all primary forests available for timber production, including those found on steep slopes of more than 60%, would be logged out in about 11 years (i.e. by 2001), leaving only cutover forests with their reduced yield and revenue prospects. According to the report, logging on slopes over 60% would produce totally unacceptable environmental damage unless logging practices were completely revised, involving new and more costly operations. Excluding slopes over 60%, the report calculated the sustainable annual yield for the whole of Sarawak's forests (and not just that specifically allocated to forestry) to be 6.3 million cubic metres, rising to 9.2 million m3 if certain costly silvicultural practices were immediately introduced into all logging operations (ITTO, 1990 p:34-35), but this has not happened (Pearce, 1994).
Log production in Sarawak is consistently much higher than the sustainable levels recommended by the ITTO: in 1995 it was 16 million cubic metres (Star newspaper, 1996a). Although a falling amount is being exported, overall production levels are still more than double the ITTO recommended sustainable logging rate. Thus the industry inevitably faces domestic log shortages. Given the continuing demand for unprocessed logs in the markets of Japan, Korea and Taiwan, as well as potential shortages for their own growing downstream processing industries, it is no surprise that Malaysian companies are increasingly looking to invest in logging operations overseas. This expansion is being vigorously promoted by senior Malaysian ministers including Prime Minister Mahatir and the Minister for Primary Industries, Dr. Lim Keng Yaik.
Sarawak was also reported to have the highest rate of logging accidents and deaths in the world. In the period 1973-84 there were 603 logging deaths and 11,650 non-fatal accidents. Nepenthes Rainforest Group, Denmark, 1989
ENVIRONMENTAL AND SOCIAL IMPACTS
From 1963 to 1985, a total of 2.8million hectares or 28,217 sq. km. of forests were logged, this being equivalent to 30% of the total estimated forest area in Sarawak. In 1985, another 270,000 hectares or 2,700 sq.km. ( 2.8%) of forests were logged.
Logging practices continue to be a huge cause for concern in Sarawak from environmental and social perspectives. A report by a forestry department engineer found that during tractor logging on hilly terrain of the kind routinely logged today, an average of five trees were left broken on the forest floor for every tree cut down to be sold. Skid trails occupied 6% of the area being logged. (Pearce, 1994). The same report found that the silt load in streams increases 12-fold during logging, mainly as a result of the heavy machinery being used, which damaged vegetation and churned up the soils which then washed away (Pearce, 1994). In August 1995, unseasonal flooding in Sibu was thought to be caused by heavy logging in the Upper Rajang river area (Borneo Post, 1995a).
As mentioned above, the big "forest cover" of Malaysia is mainly constituted of "residual stands" . A FAO study has shown that as much as 50% of the residual stands may be damaged, and the surface soil may be destroyed, when up to 30% of the ground surface is exposed (Nepenthes Rainforest Group, Denmark, 1989).
According to the head of the Sarawak Natural Resources and Environmental Board, Mr James Dawos Mamit, indiscriminate logging practices have created serious erosion and caused havoc in river systems, with as much as 60 million tonnes of soil being poured into rivers annually, and logging related activities such as the building of roads and skid trails turning many formerly crystal clear rivers muddy. The state of Sarawak itself admits that indiscriminate logging practices have created serious erosion and caused havoc to the rivers systems and even the Sarawak Timber Association (STA) has admitted that logging has caused sedimentation of Sarawak's many rivers (Asian Timber, September 1996). In an effort to combat this, timber companies have been asked to prepare environmental impact assessment reports before carrying out logging activities and these reports are supposed to include ways to minimise sedimentation and soil erosion. Those who do not comply would not be able to renew their annual logging permits (Asian Timber, 1996c).
The most pervasive effects of logging is the reduced water holding capacity of the land and increased erosion from rain. According to research carried out by the WWF in 1989, the consequences of raised silt and mud load in rivers are far-reaching. The report pointed out that more than 60% of the rivers in Sarawak are affected by logging activities in the forests around them. (Nectoux, Francois and Kuroda, Yoichi WWF 1989)
Indigenous communities continue to protest against logging in their traditional lands, and there is no sign of the increased consultation and participation recommended by the 1990 ITTO team as a main objective for achieving sustainable forest management. Conflicts between the timber companies and forest-dwelling communities have been widely publicised in recent years. The issue has centred on the resentment experienced by many people in remote areas that loggers were exploiting forests with little or no regard for the important part that these forests played in the welfare of the traditional inhabitants. Semi-settled and nomadic forest dwellers and those living on the forest margins depend on the forest for a wide variety of products. Access to these products may be shared or assigned to individuals or communities. Most of the products are consumed directly, a few enter local markets, and fewer still are traded internationally.
Since 1987, timber blockades and various other protests against logging operations have become more widespread and many publications have appeared describing the conflict between the communities, logging companies, and the government. (Hong, 1987; Ghee & Valencia, 1990; ITTO, 1990; Hurst, 1990; Nicholas & Singh, 1996; Manser, 1996). While some native groups realise the benefit of additional employment they are also concerned about the negative effects of the timber operations in their area.
COMPANY OPERATIONS
Company operations have been subject to increasing scrutiny by the government and national and international NGOs since the exposure in 1992 of years of widespread evasion of taxes through transferring profits overseas. As a result of that investigation 20 timber companies were issued with demands for large back taxes. According to Primary Industries Minister Lim Keng Yaik, one of the biggest groups was assessed for RM 100 million (Approx. US$ 40 million). (Asian Wall Street Journal Weekly, 1994). In 1994 revenue officials again mounted a number of raids on timber company offices in Sarawak, with one official describing the process: "Log export values have been understated or logs have been sold at a loss to other family members in Hong Kong before being re-exported to Japan or South Korea at great profit" (FT, 1994). Also in 1994, logs worth RM 5million destined for the black market were seized by the Sarawak forestry department, and there were a number of court cases on illegal logging incidents (New Straits Times, 1995).
Sibu in Sarawak is the headquarters of some of the largest timber groups in the world. As most of their operations are registered as private limited companies, with ultimate control resting with key families, they are able to operate in relative secrecy, away from public scrutiny. Another common feature is a close relationship with key politicians in the State.
The biggest Malaysian companies operating overseas are mostly the ones that have become notoriously known to the Sarawak´s natives for destroying their forests, crops and polluting the rivers. Three of the top five timber giants in Sarawak are outlined below. Like other Malaysian logging companies, the wealth and technological capacity generated by exploiting natural resources in the country has formed the basis for their expansion overseas. However, massive investments on such a global scale required novel ways to increment their capital. Accordingly, during 1994 and 1995, most of the privately owned logging companies took over companies listed in the Kuala Lumpur exchange to raise funds for their expanding operations.
Main Malaysian Logging Companies Operating outside Malaysia)
Samling Corporation - Guyana, Cambodia, Brazil
Rimbunan Hijau - Papua New Guinea
Berjaya Group - Solomon Islands, Suriname, Guyana
WTK Group- Indonesia, Papua New Guinea, Cambodia, Burma, Brazil
Aokam Perdana and Idris Hydraulic - China
Kumpulan Emas Berhad - Solomon Islands
Parklane - Vanuato
Maving Brothers LTD - Solomon Islands
Benta/Mun Loon - Laos
Chew Piau/Eastern Era - Papua New Guinea
Solid Timber SDN.BHD - Guyana
Tenaga kemas SDN.
BHD - Guyana
SAMLING GROUP OF COMPANIES
The Samling group of companies and its subsidiary, Samling Strategic Corporation Sdn Bhd, control around 1.5 million hectares of forests in the state of Sarawak (Asia Money, 1995). It also owns large timber operations in Guyana (another 1.69 million hectares), Cambodia (at least 800,000 hectares) and elsewhere. The Samling group of companies is a huge conglomerate consisting of 54 subsidiaries and associate companies (Asia Money, 1995). The Samling group is controlled by the ethnic-Chinese Yaw Teck Seng and his family, and the family's net worth is estimated at US$ 1.6 billion (Forbes, 1995). Whilst most of the group is made up of private companies it has recently acquired a listed company, Lingui Developments Berhad, through a reverse take-over, thus gaining access to the Kuala Lumpur Stock Exchange. The Lingui 1995 annual report shows that Samling Strategic Corporation Sdn Bhd holds 29.67% of the Lingui shares. Some securities analysts view the Samling Group as the country´s largest and most aggressive fully integrated timber group. The group´s overseas business stretches to Japan, Taiwan, South Korea, the US and Canada. (The Edge, December 1993)
Politically, Yaw Teck Seng is related to a prominent Sarawak State Minister by marriage. Mirzan Mahathir, son of Malaysia's Prime Minister, also sits on the board of directors of Tamex Timber Sdn Bhd, a timber contractor in which the immediate and ultimate holding companies are Samling Strategic Corporation and Yaw Holdings Sdn Bhd. Samling Strategic Corporation is a major shareholder (70 percent) of Tamex Timber Sdn Bhd. Through Limbang Trading (Bintulu) Sdn Bhd, the group also work with Datuk James Wong Kin Min, the President of Sarawak National Party (SNAP, a component party of the National Front, the ruling coalition government in Malaysia). Datuk James Wong is also the current Sarawak Minister for the Environment and Local Government.
Controversy surrounds the operations of Samling in Sarawak. The company has tried to obtain signatures on 'Goodwill Agreements' from communities which give the company carte blanche to operate as they wish. Such agreements 'place the responsibility for monitoring operations onto the community where they wish to claim a royalty, give up any claim to traditional lands used for farming and hunting or gathering and must compensate the company for any protest action they may take. Logging operations have been described on many occasions as having destroyed land, fruit trees and other forest products, as well as polluting the rivers. Such actions are said to have driven off game, depleted fish stocks from rivers and deprived communities of potable water.' (Forests Monitor, 1996).
WTK GROUP OF COMPANIES
Wong Tuong Kwong (WTK) Group is the oldest of the big five Sarawak timber giants, founded in the 1960s by Datuk Wong Tuong Kwong. It has become a huge conglomerate with 70 subsidiaries operating in several activities such as mineral exploration, insurance etc and has logging concessions in Papua New Guinea as well as Sarawak (450.000 acres). It was through working for WTK that Wong Tuong Kwong's nephew, Tiong Hiew King, learnt about the business and following a split in 1975 left to establish the Rimbunan Hijau group (Asian Wall Street Journal Weekly, 1994).
WTK is managed by the two sons of Wong Tuong Kwong; Wong Kie Yik and former Senator Wong Kie Nai. Kie Nai and Kie Yik are prominent financiers of James Wong's Sarawak National Party (SNAP).
WTK operations in Sarawak have encountered resistance by local people. When offers of gifts such as casting nets for fishing and money were refused by the Penan of the Magoh-River region and they maintained a road blockade, WTK is said to have employed a Chinese versed in Penan matters. He threatened the people: "If you do not abandon the blockade, you had better watch out at night. I will come and kill your children..." (Manser, 1996, p39). After losing a court case in 1987 concerning blockades on private roads WTK is said to have offered the blockade spokesperson RM30,000 (US$11,900) to persuade his people to accept a profit share of RM2 (US$0.79) per cubic meter of timber to allow the company to continue working. The spokesperson declined. (Manser, 1996).
RIMBUNAN HIJAU GROUP OF COMPANIES
Malaysia's largest timber group is Rimbunan Hijau ("Forever Green") (Forbes, 1995). It has timber concessions in Sarawak of around 800,000 hectares (FT,1994), dominates Papua New Guinea's forestry sector and has forestry interests in New Zealand and China, as well as diversifying into other activities such as the ownership of newspapers in Malaysia and Papua New Guinea (AsiaMoney, 1995). Rimbunan Hijau also owns a 40% share in Limgang Trading Sdn., which has a 310,000 hectares concession in Sarawak (55% of Limbang is owned by Sarawak´s Minister for the Environment and Tourism, James Wong Kim Min) It is privately owned and controlled by one family, headed by Tiong Hiew King. The family are estimated to be worth about US$2.5 billion (Forbes, 1995).
Whilst it remains largely a private group of companies, whose operations are veiled in secrecy, the Tiong family has sought to obtain a more public face through the reverse take-over of Berjaya Textiles Bhd (now renamed Jaya Tiasa Holdings Bhd), giving it a listing on the Kuala Lumpur Stock Exchange (FT 1994). Its overseas logging operations appear to remain under the control of the private parts of the group and in Papua New Guinea it is the dominant player through control of a number of associate and subsidiary companies. There are recent rumours that Rimbunan Hijau group owns, or is in the process of acquiring, Primegroup Holdings, a British Virgin Islands registered company with logging interests in Guyana and Papua New Guinea. If this is true, then Rimbunan Hijau group's international logging interests are, or will shortly become, even more extensive, both geographically and in terms of size. Apart from its logging activities, the company has interests in banking, newspapers and oil-palm plantations. One of Hiew King's younger brothers is a member of the Malaysian Parliament. Despite the company´s political connections, it has been caught for tax evasion, the Asian Wall Street Journal reported.
BERJAYA GROUP
Berjaya Group Berhad's ownership structure and some of its past practices are well-documented. It is a large, diversified Malaysian conglomerate controlled by the Malaysian businessman Vincent Tan Chee Yioun. Holdings include seven public and about 200 private companies involved in gambling, textiles, tourism, hotels and property development. Total group assets, according to the conglomerate's 1994 Annual Report, were around US$2.2 billion. Timber and the related processing industries are relatively new interests for Berjaya (Sizer & Rice, 1995. p.11). Like the Samling Group the Berjaya Group also has close connections with the Mahathir family businness, the Malaysia's Prime Minister (G. Aditjondro).
The group became active in the timber business in 1994. In May of that year, Berjava´s wholly owned subsidiary, Brejaya Group Cayman Ltd acquired a timber company and obtained a forest concession of 600,000 hectares in Solomon Islands. In September 1994, Berjaya Group Bhd. bought 60% stake of the Canadian timber company Taiga Forest Products Ltd. and aimed at expanding Taiga´s operations into the US.
In Novermber 1994, the Securities Commission approved a deal between Berjaya Textile and Rimbunan Hijau through which Berjaya Textile became one of the largest timber companies on the Kuala Lumpur Stock Exchange and Rimbunan Hijau got access to the stock market and the new timber concessions that Berjaya was accumulating in several countries.
Mr. Tan himself has been quoted as saying 'we are not a logging company' (Solomons Star, 1994), indicating that the group do not have an established record in forestry management and calling into question the group's ability to manage timber concessions in countries such as Suriname and Guyana. Note that this company's forays into the timber sector in the Solomon Islands did not perform well and the promised investment of MR100 million (aprox. US$ 40million) in downstream activities did not materialize due to a lack of interest from underwriters (SCMP, 1995).
Some recent incidents cast a shadow over Berjaya's corporate responsibility. In July of 1994, Tony C.T. Yeong, the managing director of Berjaya Group Limited in the Solomon Islands, was expelled from the country for allegedly attempting to bribe the Solomon's Minister of Commerce, Employment and Trade (Solomons Star, 1994a). The Berjaya Group has also been accused by Malaysian environmentalists of destroying coral reefs off Rendang Island, Malaysia, to develop coastal property. In another case, the Berjaya Group withdrew from a plan to develop a forested area in Malaysia following protests from environmentalists (Sizer & Rice, 1995).