Friday, April 25, 2008

Increasing attention to logging corruption

Logging has long been been recognised as central to the corruption problem in SI, but recent reports have again put the spotlight on this connection.

Solomon Star this week highlighted the association in an editorial "We CAN do something about logging problems". The editorial pointed out the potential role of RAMSI in curbing the devastating industry, but also raised the difficulties RAMSI might be facing in doing so, given that so many national politicians are involved in the industry.
RAMSI also has the ability to address issues like the avoidance of taxes and payments, and the whole murky world of questionable pricing mechanisms.

You have to wonder why RAMSI hasn’t been asked for more direct help to bring logging, legal and illegal, and all the problems associated with it under better control.

You have to wonder. Is this because too many of our people in positions of influence are benefiting from their ties with the loggers?
This same involvement was the concern of Transparency Solomon Islands (national chapter of the international corruption NGO Transparency International) in its most recent media release In their release on setting log prices, TSI drew attention to significant problems surrounding government revenue capture from the logging industry:
...there are well-authenticated stories circulating in Honiara that the government is losing SBD$1m to SBD $2m a week in revenue because the price on which export duty is paid on logs is too low-and that this has been going on for several years, losing hundreds of millions of dollars that should have gone into improving government services.
TSI's main concern was regarding the setting of the "determined price" for exported logs. The SIG government sets a determined price for all exported logs, and uses this price to calculate export duties. This is to avoid the risks of relying on self-reported "free-on-board" export prices, which exporters have an incentive to understate.:
"There are several reasons why an exporter may falsely declare a low fob price. First, to reduce the amount of export duty he has to pay. Second, to reduce the income he appears to be earning in Solomon Islands, to avoid paying business income tax to the government (he can arrange to receive some of the payment overseas by selling the logs to a related company for an artificially low price-this is called transfer pricing). And third, to reduce the amount of money he has to share with whoever contracted him to cut and export the logs-the so-called landowners and the middleman or agent who put the deal together."
TSI's concern was that the Minister of Finance is involved in this process, an exercise that should be purely "purely technical". The scope for conflicts of interest, and corrupt influence, are obvious, especially given previous findings about logging in the country. The recently released report on illegal logging in Australasia by the Australian Institute of Criminology noted how revenue dropped in the Solomons even while volumes more than doubled:
In 2005, approximately 1.2 million cubic metres of timber were harvested in the Solomon Islands, up from 550,000 cubic metres in 2002. At the same time, government revenue from the logging industry and contributions from logging to the overall economy fell (Burrow 2006: 2).... There are also ample reports about widespread corruption in the Solomon Islands’ logging industry and allegations about large Malaysian logging companies exercising influence by paying bribes instead of taxes (Greenpeace 2004: 16; Stark & Cheung 2006: 37). It has been estimated that logging companies failed to pay $30m in taxes in 2004, up from $10m in 2003 (Burrow 2006: 2).
This is consistent with national findings within the SI government itself. In his 2007 report to Parliament, summarising the overall findings of 10 special audits he had carried out over 2005 and 2006 the SI Auditor General noted a total of almost SBD50 million in lost revenue in the period he assessed:
Department of Forestry, Environment and Conservation ($48.7m) - Many serious shortcomings were noted in the procedures and practices as well as deficiencies in internal controls were identified. There is no doubt that the poor management and administration, compounded by the lack of accountability and transparency of granting timber exemptions, has resulted in a significant amount of export duty being forgone which otherwise should not have been exempted... ....These factors as well as poor supervision, non-compliance with the Public Finance and Audit Act, Financial Instructions and General Orders, breakdown in the procedures and practices and major deficiencies in internal controls, contributed to the fact that royalty payments due to the Government were not fully captured. These deficiencies have left the Department of Forestry, Environment and Conservation open to fraud and corruption.
With only a few years left for the supply of logs, it is imperative for more benefit to be extracted from the resource, with an improvement in revenue collection just the beginning.