Government under pressure to get better deal for Solomons' loggers | Pacific Beat

Government under pressure to get better deal for Solomons' loggers

Government under pressure to get better deal for Solomons' loggers

Posted 10 November 2010, 9:15 AEDT

The Solomon Islands Government is under pressure from major aid donors and the International Monetary Fund to extract more revenue from the country's biggest industry and biggest export earner - logging.

The Government can't trust the industry to reveal the real prices the loggers get for their log exports so it sets a benchmark price to work out what its take in tax should be.

But critics say that even the new increased benchmark price is well short of current world log prices.

This report from Australia Network's Pacific Correspondent, Sean Dorney.

Presenter, Sean Dorney

Rick Hou, former Governor of the Solomon Islands Central Bank; Fox Qwaina,Transparency International; Gordon Darcy Lilo, Solomon Islands' Minister for Finance and Treasury; Matthew Wale Solomon Islands' Deputy Opposition.

DORNEY: Some thirteen million cubic metres of logs have been exported from Solomon Islands in the past sixteen years - and forestry experts have warned that harvesting is so unsustainable there will be little left to log in four years time. The loggers have wielded a lot of power because the industry has been so important to the economy.

HOU: Even with low export prices it has always been the major source of government revenue.

DORNEY: Rick Hou is the former Governor of the Solomon Islands Central Bank. He's now an Opposition Member of Parliament having returned from working for the World Bank in New York to contest the recent elections. Mr Hou says the low prices for Solomons logs has never made any economic sense if the logging companies, some of which are locally owned had the real interests of the Solomons at heart.

HOU: But imagine if the price was tagged at what is a proper price! It would have really been good for the Government, good for the economy, good for the resource owners and good for the companies themselves. Now you have to ask why anyone would resist raising the export of round logs to be as fair a price as possible?

DORNEY: The Executive Officer of the Solomon Islands chapter of the anti-corruption agency, Transparency International, Fox Qwaina, claims there is a simple answer.

QWAINA: The logging companies have been grounds for a lot of corruption to take place especially to the few Solomon Islanders, lucky ones, who get access to the services provided by the loggers.

DORNEY: The export tax that the Government does get from logging is a proportion of what is called the Determined Value. And that benchmark price is set by the Minister for Finance and Treasury, Gordon Darcy Lilo.

LILO: The responsibility is given to the Minister of Finance through consultation with the Ministry of Forests to set the value of what would be determined as the appropriate value for logs exported out of Solomon Islands.

DORNEY: And Mr Lilo as Finance Minister recently increased that Determined Value to ninety US dollars a cubic metre - which he admits is still short of what the International Monetary Fund believes is a realistic Free On Board price for log exports from the Solomons.

LILO: We have been abel to come up with an eighty-two percent, just in between eighty-two and eighty-three percent of that overall formula based valuation. And that represents an increase from eighty-three US dollars on average to about ninety US dollars. To meet the guideline with the International Monetary Fund we have decided, you know, to make an automated increase to be effective as of January next year which will bring the total Determined Value to about ninety percent of the formula based valuation.

DORNEY: That is up from about seventy-five percent several months ago. But Fox Qwaina from Transparency Solomon Islands asks why it is not one-hundred percent.

QWAINA: We should have the closest to the world price instead of moving at a snail's sort of pace with regards to price increase.

DORNEY: The Deputy Opposition Leader in Solomon Islands, Matthew Wale, claims senior Ministers in the current Government are too close to the logging companies.

WALE: Well we feel it is not high enough, the increase is not high enough. Of course the logging industry feels that it is too high and the Minister for Forests allegedly wrote on behalf of the Forestry Association to the Minister of Finance on the matter.

DORNEY: I asked the Finance and Treasury Minister, Mr Lilo, what the reaction of the logging industry had been to the rising level of the Determined Value on Solomons logs.

LILO: Any increase will receive resentment. There's no doubt about that.but there is a climate of, of, of acceptance, you know, especially, you know, with the industry having to deal with this issue in a very aggressive manner initially, in the first place, ah, when the changes were introduced and this was, you know, some ten years ago.

DORNEY: The former Governor of the Central Bank, Mr Hou, remembers that aggressive response that greeted the first two attempts by previous Solomon Islands Governments to set a realistic Determined Value on the logs to be exported.

HOU: The loggers went on a stockpiling sort of action which for several months saw both government revenue falling because this is where we got all our revenue from but at the same time all the stockpilings everywhere in the country seeing logs rotting. So we lost out really, really badly on those two occasions. Ah, we lost all our stock because they were bad - you can't even cut them. They're all rotten. And then of couse we lost the revenue.

DORNEY: Back then the Solomon Islands Government gave in. But this time international donors are telling the Government if it wants help, it needs to demonstrate it is serious about collecting its own revenue. Rick Hou:

HOU: The amount of revenue that is being forfeited or given away and all that is huge. And logs being one of the major sources of revenue for Government, the fact that Solomon Islands is not fetching the best price for its resources is definitely a give away. So you can't, sort of, ask for financial assistance when you are giving away money you should have in the first place. So it just doesn't make sense to be asking for budget support when you are prepared to give up money.

DORNEY: The former Central Bank Governor says the IMF has been mandated by major donors, like the European Union, to ensure the Determined Value reflects a realistic price. And Finance Minister Lilo says perhaps it is time the discretion on setting the Determined Value is taken away from politicians like him.

LILO: We are going to do that in the case of forestry, that instead of using Ministerial Orders, you know, to set prices we need to look into something that is more of an automated process and not subject to Ministerial arrangement - automated process that fully captures, you know, the realities of the market and it must be fair and free.

DORNEY: Large scale logging of the Solomon Islands forests may have a limited future - the resource is running out. But at least the pressure is now on for the country to set a proper value on what is left. This is Sean Dorney for Pacific Beat.

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