LAOS
Subsidies to a struggling plantation industry
by Chris Lang

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BGA Lao Plantation Forestry Ltd (BGA) aims to establish between 44,000 and 53,000 hectares of fast-growing tree plantations, mainly of eucalyptus, in Bolikhamxai and Khammouane provinces.

BGA was established as a US$30 million joint venture between General Finance (a Thai finance company); GF-Brierley, a 50-50 joint venture between General Finance and Brierley Investments Limited (founded in New Zealand, but now registered in Bermuda with its head office in Singapore) and Asia Tech (a Thai plantation company). When the BGA project was set up, GF-Brierley held a 22 per cent share in Asia Tech. (See sections on Asia Tech and Brierley, below.) The Government of Laos is a 15 per cent shareholder in BGA (Lao Embassy 1997).

With the onset of the Thai financial crisis in mid-1997, Asia Tech and General Finance pulled out of the project. General Finance was one of 56 finance companies closed in 1997 by the Thai government because of mounting bad loans. In August 1998, Thailand's central bank filed criminal charges against six executives of General Finance. The six were charged with extending US$8 million in loans without proper valuation of the collateral. However, Narongchai Akrasanee, the Chairman and Chief Executive Officer of General Finance said in September 2001, "The case has not reached the court. The case against me has been dropped by the Attorney General Office" (Narongchai 2001).

Brierley and the Lao Government have thus become the only partners in BGA.

BGA began surveying villages and land in 1993 and Jaakko Poyry, the forestry consultancy company, carried out the feasibility study for the BGA project. BGA signed a Memorandum of Understanding with the Lao government in 1997 (Lao Embassy 1997). The government formally approved the BGA project in 1999.

The company has a 50 year land lease in Bolikhamxai and Khammouane provinces. The main species to be planted is Eucalyptus camaldulensis, with seedlings provided by Siam Forestry, a Thai company. The company plans to build a wood chipping mill, and to export the wood chips to Japan, via the Vietnamese port of Vinh. In November 2000, BGA was currently surveying an area in Hinboun in order to build a wood chip mill. The wood chips from the mill will be exported via Route 8 to the deep sea port at Cua Lo, near Vinh in Vietnam and from there to Japan (BGA no date).

BGA has received direct or indirect subsidies from the governments of Laos and Japan as well as from the ADB's Industrial Tree Plantation project (see section on ADB above, for background information on this project). Without these subsidies the project would probably not be commercially viable. As it is the subsidies are accelerating deforestation.

When BGA completes its wood chip factory, electricity will come from the nearby 210 MW Theun Hinboun dam. Funded to the tune of US$60 million by the Asian Development Bank, the dam was completed in 1998. Since the dam was completed it has caused massive problems for people living nearby, who have seen the fisheries in the river destroyed along with their livelihoods.

Route 8, which is critical to export the woodchips from BGA's proposed wood chip mill, was rehabilitated with funding from the Japanese government. (See section on ADB – Roads, above.)

In 1999, BGA received funding under the ADB's Industrial Tree Plantation project, and last year 70 per cent of BGA's expenses came in the form of concessionary loans from the ADB project.

The Lao government handed over the land for the plantation rent-free in return for a 5 per cent share in the project. The government then bought a further 10 per cent share in the scheme. Under Lao Forestry Law plantations are exempt from land tax, and BGA pays only 5 per cent income tax on its operations.

Throughout the country, Lao government officials are undertaking a land allocation programme. In the areas where BGA plans to establish its plantations, the company used aerial photographs, satellite images, maps and GPS systems to locate the best land for plantations. The government has in effect allowed BGA to allocate its own plantation land. According to the company, between 39,000 to 48,000 hectares of the land leased to BGA is "Shifting Cultivation / grazing land / Degraded forest" (BGA no date). In other words, this is land that is currently in use by villagers.

A BGA publicity brochure for the project explains the process of land allocation for the village of Ban Lao Kha:

• "Village Meeting
• Village boundary Surveyed
• Village area classified and mapped
• BGA selects suitable land
• Report prepared & submitted to the GOL Real Estate Department
• Land lease granted" (BGA no date).

A representative of BGA explained, in November 2000, "BGA does the land allocation. So far 10 villages have been mapped." When asked whether any villagers were reluctant to have plantations on their land, he replied, "No. We did the presentation, so no one said no."

By November 2000, BGA had only established around 650 hectares of plantations, but villagers were already seeing their swiddens and forests converted to monoculture eucalyptus plantations. Villagers are employed on a day by day basis as labourers for 10,000 kip/day. Villagers in Ban Lao Luang report that the money they have earned from working for BGA is welcome, and they no longer have to travel to Thailand to find paid work. At present, the company needs labour to clear land for plantations but as the area of established plantations grows and as less land is cleared for new plantations the opportunities for employment will decrease. At the same time as employment decreases, villagers will see their livelihoods further eroded by the enclosure of their common land, swiddens, grazing lands and forests.

In Ban Lao Kha and Ban Lao Luang, BGA has cleared areas of dense natural forest in order to plant eucalyptus trees. Villagers in Ban Lao Luang report that they have to walk further to collect mushrooms and other forest products, and wildlife such as mice and birds have moved to remaining forest areas away from the plantations. BGA sprays the regenerating forest between the rows of eucalyptus trees three times a year with the herbicide glyphosate, making sure that the plantations remain monocultures.

Although no longer part of the BGA project, the Chairman and Chief Executive Officer of General Finance, Narongchai Akrasanee, apparently played a key role in ensuring the infrastructure was in place for BGA's investment. As well as being director of several other Thai and regional companies, Narongchai has been advisor to several Thai Prime Ministers and in 1997 he was the Thai commerce minister.

In March 1997, he took part in a three-day official visit to Vietnam with the Thai foreign minister, Prachuab Chiyasarn. According to a report in the Bangkok Post, the Thais "expressed great interest in Routes 8 and 9" (Bangkok Post 14 March 1997). Route 8 links Thailand's Nakhon Phanom province with Laos's Khammouane and Vietnam's port city of Vinh, and its rehabilitation was crucial to for exporting wood chips from the BGA project.

During his Vietnam trip, Narongchai also discussed the problem of delays in exporting goods caused by bureaucratic red tape at Lao and Vietnamese borders. The Asian Development Bank subsequently arranged a series of studies and workshops to discuss ways of alleviating delays at customs, and in November 1999 the transport ministers of Thailand, Laos and Vietnam signed an agreement aimed at removing the restrictions on transporting goods between the three countries (Bangkok Post 14 March 1997). (See section on ADB – Roads, above.)

While in Vietnam, the Thai delegation, including Narongchai, witnessed the signing of a memorandum of understanding between Vietnamese officials and Asia Tech to develop an industrial zone in the central Vietnamese province of Nghe An (Bangkok Post 14 March 1997). Narongchai was also chairman of Asia Tech. (See section on Asia Tech, below.)

Asia Tech is a Thai company investing in agriculture and tree plantation projects. Narongchai Akrasanee, the Thai businessman, (see BGA section, above) was the chairman of Asia Tech. Asia Tech was one of the partners in the BGA plantation project before they pulled out "because we ran out of long term funding" according to Narongchai (Narongchai 2001). (See report on Thailand – Asia Tech.)

Asia Tech is today "almost inactive" according to Narongchai, although he added, "it set up another company to produce and sell MDF [medium density fibreboard] boards" (Narongchai 2001).

In addition to the BGA project, Asia Tech has been involved in another plantation project in Laos, in Champasak province in the south of the country. This project ran into difficulties from the start of tree planting, and is now largely abandoned.

On 5 November 1990, Asia Tech wrote to the Lao government to propose a project on 16,000 hectares of land in Champasak province. A year later, Khamthai Sipandone (then-Prime Minister and president of the foreign investment committee) signed an investment permission document for an investment period of 30 years. The Lao government took a 5 per cent share of the project.

Asia Tech started trial plantations with eucalyptus in 1992, and with Acacia mangium in 1995. According to local sources, almost all of these trees died. Prasan Singhonsai of Asia Tech, however, blames the Lao government for the problems with these trials. In 1995, in a presentation at an FAO conference in Vientiane, he said, "our company has been adversely affected by a lack of consistent technical advice: in 1992, we invested in establishing 200 ha of eucalyptus plantations. Then we were obliged to abandon these plantations due to the confusion of technical units concerned" (Prasan 1995: 75).

At the same time as the eucalyptus and acacia trials, Asia Tech experimented with farming milk cows. These fared little better than the trees: many died, and the company sold the rest.

Asia Tech ran into further difficulties when District level officials surveyed the land area proposed for the project and could find only 12,404 hectares of available land for Asia Tech. "To avoid delay" the Minister of Agriculture and Forestry, Pimpa Taepkhampuan, handed over this area to Asia Tech and requested the Champasak governor to find the remaining area.

In March 1995, Forenco, a New Zealand forestry consulting company, produced a pre-feasibility report for Asia Tech, based on a two-day visit to the area by Peter Olsen of Forenco. Most of the 77-page study considers the financial implications of different planting regimes. Social, community and cultural issues occupied the consultants for half a page of the report (Bannan 1995: 11).

Among the items that the consultants recommended for "in depth investigations" before the project commenced was "social and community issues in the project area such a dislocation and relocation of local inhabitants and alternative livelihood provision" (Bannan 1995: 1).

Although the consultants stress that their report is not a feasibility report, no further studies were carried out before Asia Tech started commercial planting of trees in 1995.

One of the most serious problems caused by the project is that local people have lost access to their land, both for cattle grazing and growing crops. Prasan Singhonsai of Asia Tech stated in 1995, "The land conflict between the company and villagers living inside the company's area still exists because the allocated land contained 19 villages" (Prasan 1995: 75).

During 1996-1997, Asia Tech planted pine trees, clearing areas of secondary forest and fencing off land, thus preventing local people from grazing cattle. Villagers received no direct benefits from the company. Asia Tech paid some village headmen to help them identify which land was registered to the company, thus causing resentment and conflict among villagers (Watershed 1996a: 15).

During this period Asia Tech cleared forest to establish an area of 900 hectares of pine plantation. After government officials visited Champasak and inspected this 900 hectare plot in 1997, the Ministry of Agriculture and Forestry removed more than 4,000 hectares from Asia Tech's agreed land area leaving Asia Tech with around 8,200 hectares. Villagers initially hoped to regain their land, but District officials simply handed over land reclaimed from Asia Tech to other companies – to grow coffee, for example.

Asia Tech's planted areas are today largely neglected. Asia Tech sprayed the plantations with herbicide in 1998, but since then has done no maintenance of its plantations. In 2000, Asia Tech ploughed around two hectares of land for maize, and carried out sugar cane trials on a 15 hectare plot.

The Burapha Group was established in 1990 (Sonesack 1995: 70) and is structured perfectly to gain the most from the subsidies available for plantation development in Laos. The company is a subsidiary of the Swedish forest industry company Silvi Nova AB, and in Laos consists of three companies: BAFCO (Burapha Agroforestry Co. Ltd.); NAFCO (Nabong Farm Co. Ltd.); and BDC (Burapha Development Consultants Co. Ltd.). The first two companies are commercial ventures – BAFCO produces and exports wood based products from its own plantations, and NAFCO is a dairy farm which supplies Vientiane with dairy products, chicken and eggs. BDC however plays a very different role, being the largest consulting firm in Laos, providing advice on financial analysis, engineering, environment, forestry, agriculture and livestock and rural development.

In May 1995, the ADB contracted Burapha Development Consultants, along with CIRAD-Foret (of France) and MIDAS Agronomics (of Thailand) to act as consultants on the ADB's Industrial Tree Plantation project (see ADB section, above). In the five year contract period the consultants produced project documents including an Inception Report, quarterly progress reports, plantation management papers, and environmental technical reports (ADB no date).

In 1995 Jaakko Poyry and Burapha produced a report for the ADB commenting on the Lao Government's law on plantations, Directive 186. Among the consultant's recommendations were that export taxes and transport taxes should be reduced (Jaakko Poyry 1995a: i-ii).

When the Lao Government gets advice from forestry consultants through a project funded by the Asian Development Bank, it may believe that it is getting the best advice that money can buy. In Burapha's case however there is a clear conflict of interest. In its consultancy work for the ADB, Burapha Development Consultants provides advice recommending more subsidies to produce cheap timber which Burapha Agroforestry can buy and export. According to a representative of BGA, Burapha has even received funding through the ADB project. No wonder that a Burapha representative in Vientiane said about the ADB project, "The project for Burapha has been a success, I'm not sure about the project as a whole".

On 7th November 2000 Burapha formally opened its US$2.9 million laminated-wood processing factory at Nabong Farm, 30 kilometres from Vientiane. The factory will initially sell timber pallets to IKEA, the Swedish retailing giant, and in future will produce furniture under the trademark Vicwood. Financing came from a series of loans – US$550,000 from IKEA, US$800,000 from the International Finance Corporation (IFC), the private sector arm of the World Bank, and US$300,000 from Swedfund, the Swedish IFC counterpart (IFC www 1).

Burapha's project was supported by an institution called the Mekong Project Development Facility (MPDF). Created in 1997, MPDF helps companies in Vietnam, Cambodia and Laos to raise financing and helps them prepare business plans. MPDF is managed by the International Finance Corporation (IFC). MPDF has a budget of US$25 million between 1997 and 2002, and is funded by the European Union, IFC and the governments of Australia, Finland, Japan, Norway, Sweden, Switzerland, and the United Kingdom (IFC www 1).

MPDF produced a study of Burapha's eucalyptus project, and according to IFC, "MPDF played a key role in packaging the deal and getting IKEA and Swedfund on board" (IFC www 1).

MPDF conducts environmental and social reviews of all projects, and claims to ensure compliance with national laws, IFC policies and World Bank best practices. MPDF summarises this information in an Environmental Review Summary, "which becomes a public document once approved by the project sponsor" according to MPDF's web-site (MPDF www 1). (On 27 September 2001, and again on 12 November 2001, I wrote to Javed Hamid, Director of the Asia and Pacific Department of the IFC in Washington, requesting copies of the MPDF reports on the Burapha project. At the time of writing [end of November 2001] I have not received any reply.)

Sumphorn Manodham, managing director of Burapha, points out how important MPDF's involvement was for Burapha: "We do not think we could have arranged the financing without MPDF, and the proof is that after the MPDF study, the same financiers that were reluctant are now providing funds" (IFC www 1).

The timber for Burapha's new factory will come from Burapha's 1,200 hectares of Eucalyptus camaldulensis plantations. Burapha's publicity materials claim that the factory will bring "beautiful hardwoods" to "discerning world markets without devastating the natural tropical forests". However, while IKEA has found a new source of cheap timber, with or without Burapha's factory project the logging of Laos' forests continues.

According to a representative of Burapha, the land used for Burapha's plantations at the Nabong farm was once a Cuban-funded farm and later the site of a FAO-funded project. After 1975, the area became a re-education camp and the top-soil was removed. Burapha claims therefore that planting eucalyptus in this area is an improvement.

Another Burapha employee, writing in 1995, stated that "In the past, out company has faced many difficulties when requesting land. Some officials believed that out plantations would destroy soil fertility, thus they hesitated to co-operate and issue the authorisation for use of the land" (Sonesack 1995: 71). This implies a more complex situation than simply "improving" land without topsoil.

Brierley was founded in New Zealand in 1961 by Sir Ronald Brierley (BIL www 1). Initially the company bought shareholdings in public companies in Australia and New Zealand. By the 1980s Brierley had shareholdings in over 300 companies (BIL www 1). Between 1993 and 1996 Brierley invested US$235 million in Asia, in power projects in India, Indonesia and the Philippines, agribusiness in Thailand, and property and infrastructure in China (TimesNet Asia 1996). Brierley employs 5,300 people and invests in energy, oil, engineering, construction and property, wholesale and retail and others (including forestry) (Wright www 4).

In 1996 a Malaysian, Singaporean and Indonesian consortium bought 20% of Brierley at a price of US$692 million. The group consists of Hong Leong (Singapore), Hong Leong (Malaysia), Sembawang Corp (Singapore), Haw Par Brothers International (Singapore) and the Salim Group (Indonesia) (TimesNet Asia 1996).

After the Asian economic crisis in 1997 the Board initiated a review of corporate philosophy and investment strategy. Several investments were disposed of and bank debt was reduced (BIL www 1).

On 1 December 1999 Brierley relocated its global headquarters to Singapore. The company is listed on the Singapore, New Zealand, Australian and UK stock exchanges. Since December 1999 the company has

been registered in Bermuda (BIL www 1).

Key investments include a 46% holding in the UK hotel group Thistle hotels plc (the largest hotel operator in London); a 30.3% shareholding Air New Zealand; and a 28% shareholding in James Hardie Industries (a global leader in fibre cement building products and systems) (BIL www 1).

In its 1999 Interim report to shareholders BIL reported that the last 12 months "have probably been the most difficult in the Company's history. The dramatic decline in asset values, initially triggered by the Asian economic crisis, was the catalyst for significant structural change to BIL" (BIL www 1).

Brierley was part of the consortium that bought the New Zealand Forestry Corporation in 1996 after it was privatised by the New Zealand government. The consortium consisted of Fletcher Challenge Forests (part of Fletcher Challenge Limited, a New Zealand-based international company, with operations in building, energy and forestry: 37.5 per cent), Citifor Limited (a subsidiary of the government-owned China International Trust and Investment Corporation: 37.5 per cent) and Brierley Investment Limited (25 per cent). The consortium paid approximately US$1.7 billion, (Stride 2000) and renamed it the Central North Island Forest Partnership (CNIFP) (Fletcher Challenge 1998).

The CNIFP owns the cutting rights for 168,000 hectares of Radiata pine and douglas fir plantations. Adjacent to this area is 117,000 hectares of plantations owned by Fletcher Challenge, forming the largest single Radiata pine plantation in the world. Fletcher Challenge has integrated the management of the two plantations areas, laying off 120 staff in the process. According to Fletcher Challenge, the two areas together can produce six million cubic metres of wood per year (Fletcher Challenge 1998).

The Asian financial crisis of 1997 prompted a drop in log prices and severely cut into the NZ forestry asset's value (Stride 2000). In late 1998 Brierley decided to sell its investment in the CNIFP, resulting in a loss of approximately US$74 million (BIL www 1).

In 1999 Brierley reported a loss of US$80 million for the six months to 31 December 1998. In the six month period Brierley sold 24 of 59 assets it held on 30 June 1998. Most of the loss was as a result of the sale of CNIFP (FEER 1999).

The remaining partners in the CNIFP, Citic and Fletcher Forests, have huge debts and had to meet a deadline of 30 December 2000 to inject several hundred million dollars, otherwise the banks threatened to take over the forestry estate (Stride 2000). The company is presently in receivership and for sale (Rosoman forthcoming).

Brierley and International Paper jointly run Carter Holt Harvey which has pine plantations in Chile and in New Zealand (Carrere and Lohmann 1996: 88). At the end of 1999, Carter Hold Harvey sold its interest in Compania de Petroleos de Chile (Copec) the main part of the company's operations in Chile. The sale was to AntarChile a company controlled by the Angelini Group (CHC 1999).

Brierley's Investment Review 1997 lists a number of projects in the forestry sector in Thailand and Laos, through the Thailand-based investment company, GF-Brierley. In November 1997, Brierley held 50 per cent of the GF-Brierley's shares. GF-Brierley was a joint venture between Brierley and Thailand-based General Finance and Securities Public Company (BIL www 1). GF-Brierley had a 22 per cent in Asia Tech Group, 38.6 per cent per cent of ATP, a pulp and paper development project, and a 30 per cent interest in BGA Laos, a tree plantation development project in Laos (BIL www 1). 

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