Fiji Mahogany Forest

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.

Stumpage

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

Comments (3)

Show/Hide comments

Show/Hide comment form