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Mitsubishi's Deforesting Role

The "world's worst corporate destroyer of rainforest" has played a significant and disreputable role in the rapid deforestation of Papua New Guinea (PNG). What follows is adapted from one of the Rainforest Action Network's (RAN) recently-released series of backgrounders on Mitsubishi's role in deforestation on a country by country basis.

Environmentalists say that all timber in PNG with a commercial value could be felled within a generation, possibly within a decade. Also endangered are some of the world's most ancient cultures.

The amount of wood exported from PNG has skyrocketed since 1980, when 62,000 cubic metres of logs left the country. In 1992, 2 million were exported. By 1993, the exports rose to 2.7 million, equal to about 3 million trees. Government figures show that nearly $500 million worth of logs were shipped out in 1995, while the payment to the tribes that actually own the forests was less that $15 million. The two-year Barnett Commission of Inquiry into Aspects of the Timber Industry in PNG, released in 1989, revealed massive corruption in the industry. As can be seen below, Mitsubishi has played a significant role in that corruption.

* Before moving to PNG, United Timber's holding company, United Kalimantan Timbers Pte. Ltd., had operated a concession in Indonesia under the name of Baltimur Lumber. In the Barnett Commission's hearing, United Kalimantan's founder, Soemantri Bataranata, said that the Indonesian operation had sold exclusively to Mitsubishi after 1972. The relationship between Mitsubishi and United Kalimantan was based on mutually profitable transfer pricing.

* In August 1984, United Kalimantan Lumber incorporated United Timbers as its PNG subsidiary and began looking for timber concessions. This was Mitsubishi's first supply foothold in PNG. United Timbers and Mitsubishi effectively operated as one company. Bataranata said that to expand United Timbers' operation in PNG, he needed the support of Mitsubishi and that "if I get more areas, I get backing from Mitsubishi." He added that the transfer pricing to Mitsubishi was "the price for (Mitsubishi's) financial assistance." "Transfer pricing to Mitsubishi was the price for financial assistance"

* When United Timbers was accused of transfer pricing in PNG, and the government demanded approximately US$250,000 in backdated tax, it was Mitsubishi which bailed out United Timbers. The Inquiry found numerous occasions when other foreign customers had provided hidden foreign funding and bribes in the form of loans, invariably with no fixed repayment terms.

* United Timbers/Mitsubishi used three methods to defraud the landowner company, Mussau Timber Development (MTD) and the government: undergrading, under-measuring, and under pricing. All of these are transfer pricing mechanisms which ensured that the declared value of the exported timber was as little as half its true value.

* In PNG, where tribal landowners have rights, the logging permit is usually issued to a landowner company which then brings in the logging company as a contractor. The Barnett Commission found that almost all landowner companies in New Ireland Province had been created, advised, guided and funded by the logging company itself.

* This appears to be the case on Mussau Island, a small island north of New Ireland Province, where United Timbers and the landowner company, MTD shared the same lawyers, the same accountants, the same forestry consultant and the same company secretary. * In the early 80s, Indonesia began restricting the export of whole logs, and demanded that companies export processed timber. This made transfer pricing and misdeclaration far harder, so United Kalimantan (and Mitsubishi) turned their attentions to PNG, where processing restrictions were nonexistent or unenforced. PNG was widely regarded in Japan as the next large source of tropical timber following the imminent exhaustion of supplies from Malaysia.

* The most advantageous arrangement for the Soga Shosha (trading houses) is to work closely with ostensibly independent log suppliers, keeping a distance from any controversy, yet maintaining effective control through transfer pricing agreements and the provision of funding when required. This was the basis of the 20-year relationship between United Timbers and Mitsubishi. Although they behaved like a single company, Mitsubishi could distance itself from the controversy surrounding United Timbers' activities, the Inquiry, and any direct indictment.

"Most advantageous is to keep a distance from controversy, yet maintain control through transfer pricing and funding"

* While declaring no taxable profit during the period of its operation, United Timbers successfully transferred millions of dollars in illegal profits off-shore to be divided between itself and its sole customer and financier, Mitsubishi Corporation. The Commission concluded that United Timbers and Mitsubishi had defrauded the government of US$150,000 in export duties and US$360,000 in company tax and MTD and the landowners of US$300,000 in royalties.

* During the period of United Timbers' operations, the landowners became increasingly angry about their treatment, and burned three of United Timber's bulldozers, forcing the company to withdraw its equipment for fear of further attacks.

* MTD took United Timbers to court in September 1987, claiming that it had been cheated of US$960,474 and that MTD had been deprived of its 30% share of this price, US$183,542. As a result, the permit was terminated.

* According to the Commission of Inquiry (Interim Report 5), after being thrown out of Mussau, United Timbers reappeared on Manus Island in another timber company battle over logging in Kali Bay. When the Manus provincial government made it plain that it would issue a timber permit to neither company, both United Timbers and its rival, Monarch Investments, set up "puppet landowner companies", mounting intensive pressure on the Minister. In September 1988, the companies pressured the Department of Forestry to issuing a timber permit against the provincial government's opposition. Exploiting the widening split in the community, the companies then shipped in their equipment and started logging illegally. After prolonged court battles, the area was issued to Monarch.

* A report prepared for the Government last year by an outside consultant found that "the customary landowners whose forests were logged have received nothing of substantial benefit; indeed, have suffered long-term harm" as their forests are devastated.[1]

Most information from the Commission of Inquiry Report 4 by the PNG government in 1988 unless otherwise cited.
1 Philip Shenon, "Last Rain Forest: Timber vs. a Culture", New York Times, June 5,1994)

Source: Rainforest Action Network, San Francisco

Ok Tedi Mine: Tailings Impact Substantial

The PNG paper, the Saturday Independent (1/5/96) reviewed a Department of Environment and Conservation report on Ok Tedi mine tailing effects. The Independent reported that there appears to be no scientific basis for any of the environmental criteria used to monitor the impact of tailings dumped into Ok Tedi River from the giant Ok Tedi copper mine.

The departmental review was presented in a cabinet submission of August 2 1995, titled "Ok Tedi: Environmental Compensation and Waste Management". According to the Independent, the submission was made by the then Minister for Environment and Conservation and Member for North Fly Parry Zeipi pushing for the construction of a tailings dam.

The Independent article said the DEC's review of the environmental management framework shows that:

* The criteria for maximum level of suspended sediment in the Fly River were much higher than those recommended to the government.

* The criteria refer only to the Fly River. In effect, the Ok Tedi River below the mine (about 200 km of river) is sacrificed to the mine as a virtual waste disposal site.

* Environmental criteria are far more permissive than anything used in Australia or other western countries.

* The criteria were established by OTML itself and are essentially the company's own predictions of its environmental impact and so allow the continued operation of the mine without environmental controls.

* During the gold mining stage of the operation, when cyanide was being used, cyanide levels in Ok Tedi at Ningerum were regularly several times higher than the accepted Australian levels. Apart from these long-term levels, the river was subjected to periodic spills of high-cyanide solution, resulting in kills of fish, turtles, and crocodiles over 100km downstream.

* Little data are available to qualify the major impact on this river, namely the effect of the deposition of the tailing particles along the river channel, accumulation of extensive tailings mud flats on both sides of the channel and the inundation of large areas of adjacent rainforest and the region's most fertile subsistence gardens. All visual observations are that these effects are worsening steadily.

According to the Independent, impacts from the mine were measurable in the Fly River soon after the start of mining operations. Data up to 1993 showed harmful concentrations of dissolved copper in the floodplain, the paper reported. Rapidly declining numbers of of barramundi caught in the Middle Fly, Nukumba and Obo Rivers betrween 1990 and 1993. Catfish catches show a similar decline. The Independent said that In the latest data of March 1995 show that copper levels and declining fish populations have become more severe. The full report of progress of the impact on the Fly River floodplain is not yet available but preliminary data show that this has also worsened, according to DEC.

Source: The Independent, PNG, 1/5/96

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