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World Bank criticized for ties to timber firm

Its financial arm is an investor in a company that Congo says underreported the amount of timber it was transporting.By Judy Pasternak and Nicole Gaouette, Los Angeles Times

August 17, 2007 - For five years, the Washington-based World Bank Group has been trying to save one of Earth's last great forests in the Democratic Republic of Congo. But the bank's private-sector arm is also an investor in a company that is drawing criticism for its connections to logging operations there.

World Bank environmental officials say that deforestation is the second leading human contributor to global warming, after power plants and ahead of vehicle emissions.

In Congo, a moratorium on new timber harvesting contracts was imposed in 2002 to slow the rapid cutting of the country's forests. The government, reeling from years of war and corruption, decided it needed time to improve management of its vast rain forest, second in size only to the Amazon.

The moratorium was widely ignored, however, and some contracts were negotiated by people with no authority to do so, said Giuseppe Topa, a forestry specialist at the World Bank.

Now the Congolese government has commissioned a reexamination of the allotments and also has pledged to cancel contracts for companies that don't report their timber harvests.

The World Bank's website says that its private credit organization, the International Finance Corp., "has no client in the field of forests in DRC." But the IFC has invested millions in Singaporean-based Olam International.

Congolese officials said that this month, two cargo boats owned by Olam and two partners were discovered to have underreported the amount of timber they were carrying.

An Olam executive, Vasanth Subramanian, acknowledged that the company obtained two timber concessions in May 2005, three years after the moratorium and two years after the IFC invested $15 million in the firm. Since a public stock offering by Olam, the IFC has reduced its investment to $11.2 million.

Subramanian said in an e-mail that Olam was unaware of the moratorium at the time it received its allotments.

The company is not conducting logging but buying wood from suppliers, he said, adding that Olam will abide by the World Bank's decision about the contracts' legality.

Roger Pembe Coco, the environment minister in Bandundu province, said the shippers underreported the amount of timber they were preparing to ferry in the two cargo boats down the Kwilu River to the Congolese capital, Kinshasa.

He identified the owner of the timber as Olam and two other firms that he said work in concert with Olam: Isca and Timberwood.

"They didn't have the proper documents. They didn't make any declaration. They paid a little bit of tax and tried to conduct fraud," Pembe said.

The boats held logs from 120 wenge trees, he said. Provincial authorities believed $100,000 in taxes was due, he said.

Subramanian wrote that the boats were released after a payment of $34,700. He blamed the incident on the suppliers. He said that Olam hoped to implement a procedure for independent verification of the origin and legality of the logs it purchases.

The incident at Bandundu raises "issues that IFC takes very seriously and we are investigating them further," said Desmond Dodd, a spokesman for the finance group's office in Johannesburg, South Africa.

Susanne Breitkopf, forest policy advisor at the environmental group Greenpeace, said the IFC should divest its interest in Olam. "While the left hand of the [World] Bank claims to save the Congo rain forests, its right hand helps destroy them," she said.

But Dodd said that "IFC's partnership with Olam is important," noting that the company is involved in many countries in Africa and Asia, and in other businesses besides timber.

Copyright 2007 Los Angeles Times


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