Country loses $billion
Lost in Forestry revenues in last decade, warnings trend could worsen
A former commissioner of forest has estimated that the government may have lost a billion dollar or more in logging revenue as a result of lack of monitoring by forestry officers.
And Kennedy Hodu, who was Commissioner of Forest between 2004 and 2005, warned that unless drastic measures are taken to address the situation today, the trend would only worsen.
“The cash flow problem the government is experiencing right now is the direct result of what I am talking about,” Mr Hodu told Island Sun in an exclusive interview yesterday.
Mr Hodu headed the Commissioner’s Operations Unit before he was appointed Commissioner of Forest in 2004.
“I was pushed out in 2005 because I was hard on the industry,” Mr Hodu said.
He pointed out a number of areas in the process over which Forest officers have lost control in the last decade, costing the government $100 million or more a year.
“Delays in processing timber in terms of scaling, grading and declaration of timber species is the number one hole for loss of government revenue. What is happening today it seems is that the Commissioner and his officers have a preferred list of applications to deal with, leaving the rest in limbo,” Mr Hodu said.
“Delays in processing is a cost to the government in terms of revenue,” he said.
“In other words, if you narrow down the number of applications, and this is what is happening today to just five preferred companies, it automatically affects the level of government revenue in a huge way. The more companies you process, the more revenue there is for government. But that is not happening,” Mr Hodu said.
Determined Price v FOB Price is the second area the former Commissioner has pointed out. Determined Price is set by Customs while the FOB Price is set by logging companies on behalf of their overseas buyers.
“Loggers will always quote the lowest price possible. It is the forest officers that must stand their ground because after all we are using the South East Asia Lumber Association (SEALA) system here,” Mr Hodu said.
“But once forest officers cave in, we can lose a lot of money. The important thing is that the two prices must match. Of course there are checks and balances in place, but these are not strictly adhered to, sometimes because of political pressures,” Mr Hodu said.
He said the determined price and FOB Price begins with a 10 percent check of all logs at log ponds.
“This is where discrepancies in prices are often discovered.
“This is where these discrepancies must be rectified otherwise government revenue would suffer,” Mr Hodu said.
“This 10 percent check is followed by a 100 percent check when logs are being loaded onto barges and log ships. This is where discrepancies in log species often occur and when this happens it is government revenue that suffers.
“Wrongful declaration of log values is also an area which robs government of much-needed revenue. Wrongful declaration can only be detected if forest officers do their work properly. This is why the 10 percent check is so important,” he said.
Double Invoicing is another, Mr Hodu said.
He said some clever people used this method to avoid paying tax. “They would send one invoice to Customs and another to the Central Bank of Solomon Islands. The purpose is clear – tax evasion,” Mr Hodu said.
“To avoid double invoicing the invoice sent to Customs must be the same one sent to CBSI and the Ministry of Forestry and Research. Anything outside that falls in the category of double invoicing.”
Mr Hodu said the plethora of problems in the Ministry of Forest and Research and the Office of the Commissioner of Forests “demands strong leadership.”
“That strong leadership must be followed by establishing a Revenue Capture Team” to be led by an outside consultancy group. In neighbouring Papua New Guinea, they are using the SGS group to do this for them,” he said.
How do you address political pressure during your time as Commissioner? I asked him.
“As directed by the Minister, please process,” was my answer to this. In this way, it is the Minister that must answer for his action, not me,” Mr Hodu said.