in Malaysia, Papua New Guinea

Papua New Guinea’s deforestation problem

PNGIn 2014, Papua New Guinea became the world’s largest exporter of tropical timber. This wasn’t supposed to happen. Eleven years ago, PNG formed the Coalition for Rainforest Nations and presented the idea of REDD to the UN climate meeting in Montreal.

The architect of REDD, Kevin Conrad, completed his MBA in International Finance at Columbia University in 2005. For his final MBA project, Conrad looked at whether the money from carbon credits could be as profitable as logging in Papua New Guinea. He decided that it could.

In a November 2005 piece for the Financial Times, Conrad and his supervisor at Columbia Geoffrey Heal, wrote that, “Recognising carbon credits from avoiding deforestation makes standing timber an income-earning asset worthy of conservation.”

How things have gone so terribly wrong is documented in a new report by Frederic Mousseau, published by the Oakland Institute: “The Great Timber Heist: The Logging Industry in Papua New Guinea”.

The report makes no mention of REDD. Instead it reports how the logging industry is destroying PNG’s forests. In 2014, 3.8 million cubic metres of timber was exported. REDD has done nothing to stop this destruction.

5.5 million hectares of Special Agriculture and Business Leases

The exploitation of PNG’s forests has accelerated in recent years with the issuing of a total of 5.5 million hectares of Special Agriculture and Business Leases. Rather than being used for agricultural projects, as originally intended, SABLs have been widely used by logging companies. In 2013, PNG’s Prime Minister Peter O’Neill said that a Commission of Inquiry into the SABLs, “revealed a shocking trend of corruption and mismanagement in all stages in the process”.

In June 2014, O’Neill promised to cancel all illegal deals. But the government has taken no meaningful action to cancel deceptive land deals, stop illegal logging, or return land to traditional owners.

10 million hectares of logging concessions

In addition to SABLs, the government has issued 10 million hectares of logging concessions. In 2013, the Oakland Institute produced a film about the impacts of logging on communities in PNG:

In the new Oakland Institute report, Mousseau writes:

Logging in PNG obscures a multilayered tragedy of the betrayal of people’s constitutional protections and the loss of cultural heritage and land for millions of Papua New Guineans. All over the country, local communities are being deprived of their resources and their rights while their government turns a blind eye to the deceptive practices of the forest industry and police forces that often work on behalf of logging companies.

Rimbunan Hijau’s 40 years of destruction

The report focusses on subsidiaries of Rimbunan Hijau, the largest logging company in PNG. Rimbunan Hijau was founded by Tiong Hiew King in 1976 as a logging company in Malaysia. Having devastated Malaysia’s forests, the company and its subsidiaries expanded operations to Papua New Guinea, Indonesia, the Solomon Islands, Vanuatu, Burma, Gabon and Equatorial Guinea.

The report reveals rampant transfer pricing in the logging industry in PNG, where companies underprice exported timber and overprice expensive for goods and services in PNG. As a result:

  • Most of the logging industry appears to declare little to no profit from the export of timber.
  • The 16 subsidiaries of the Malaysian firm Rimbunan Hijau Group investigated in this report appear to have been working mostly at loss for over a decade.
  • With no or little profit declared, most of the companies in the sector generally don’t pay the 30% income tax on profit that businesses are required to pay according to national laws. Operating at a loss, the 16 RH subsidiary companies we investigated have together accumulated around $32 million in tax credit in just seven years.
  • The discrepancies found in PNG timber export prices and the operational losses declared by many logging companies seem to indicate that transfer pricing is taking place in PNG’s forest industry—resulting in a loss of tax revenue that may exceed $100 million per year.

One of the ways that companies can give the appearance of reduced profits is by using multiple companies and subsidiaries, including holding companies in tax havens. The majority of Rimbunan Hijau holding companies are in the British Virgin Islands, including: Super Acme Ltd., Mooningham Ltd., Wilmington Co. Ltd., Subang Inc., and Proexcel Ltd.

The report includes a diagram of Rimbunan Hijau’s corporate structure (click on the image for a larger version):

Rimbunan Hijau

The Malaysia Insider reports that Rimbunan Hijau responded by calling the report “baseless and inaccurate”, and called it an attack by “western anti-forestry activists”.

But Rimbunan Hijau’s destructive logging activities have been going on way too long. Eleven years ago, Greenpeace put out a report titled, “Rimbunan Hijau Group – Thirty Years of Forest Plunder“.

And as the Oakland Institute’s 2013 film documents, it is the people of PNG who are suffering the impacts of the logging industry.

The parallel universe of REDD

On the same day that the Oakland Institute released its new report, the UNDP put out a press release:


Needless to say, the press release makes no mention of what to do about PNG’s 5.5 million hectares of Special Agriculture and Business Leases, or the country’s 10 million hectares of logging concessions. It also does not mention Rimbunan Hijau.

Nor does it mention that the World Bank’s Carbon Fund has said that it will not pay more than US$5 per REDD credit. Back in 2005, when Heal and Conrad were writing about REDD making standing timber an “income-earning asset”, they assumed a price of US$25.

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  1. Shame on them! This is illegal and fraud on a large scale, aka white collar crime, to provide tax havens for this Malaysian logging company, as they wilfully pursue the getting of timber, not their own… aka stealing. No wonder the climate is changing ! not by El Nino alone, but also by the deforestation throughout the Pacific/ Oceania ! Who has the intestinal fortitude to stop this ?

  2. Developed countries wants to reduce the levels of their offending emissions, their is of course, the Reduce Emissions from Deforestations and Degradation (REDD) Initiative .
    Emission from Deforestations -,it is the process of letting something out or giving out the nutrients on the forest ground. When the forest land open by illegal loggers the forest land resulted deforestation, the forest environment reservoir that absorbs and stores more carbon than it releases, thereby off setting greenhouse gas emissions. Forest and oceans are examples of carbon sinks. Vegetation will also absorb large quantities of carbon dioxide from the atmosphere.
    So when the relevant authorities can’t stop the big companies operating illegally then the problems of global warming becoming worse as we now observed that it is already a long drought season as the BBC news its El Niño declared this year 2016.

  3. Why no mention of the FCP (World Bank)programme which sponsored the largest field audit ever carried out on logging projects in PNG, the Independent Review of Current Logging Projects, 2003/4……14 field reports of the largest conce4ssion areas in PNG, and a final report containing recommendations for sustainability? How quickly people either turn off or conveniently forget. And what about the videos, “Lukautim Bus” and “Reforestation Naturally The Tecnique” both available from NFI Goroka.

  4. @Tom Diwai Vigus (#4) – Thanks for your comment and references to the reports and videos not mentioned in this post. I’m sure there are many more reports that I didn’t mention. because it’s a post about a report by the Oakland Institute: “The Great Timber Heist: The Logging Industry in Papua New Guinea“.

    Is there specific information in the reports and videos that you mention that is relevant to the Oakland Institute’s report, or that challenges the arguments made in this post?

  5. No Chris, it was just a “comment”, and I suppose related to fact that “Bigpela Bagarap” was noted as a ” related theme” so why not the many other relevant reports and videos, there is a danger that lessons learned in the past are easily forgotten. I used to teach the concept of “transfer pricing” in the early eighties at UNITECH Forestry Department and this was vehemently denied by the then Minister (The Honorable) Ted Diro.(I used to take the final year students to meet the relevant minister for forests as part of the course)…then The Barnett Inquiry etc. Keep up the good work, Tom Diwai.