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]
Notes
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)
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.