By Andrew Richards
Malaysian-owned timber company Demerara Timbers Ltd (DTL) is one of the larger investments in Guyana facing crisis due to the depressed international market and is considering its options.
Stabroek News
July 23, 2001
Up to last year March, DTL has had US$30 million plugged into it by parent company Prime Group Investments Ltd.
Chief Executive Officer of DTL, Lu Kui San, said last week in an interview with Stabroek News, that to continue running the company as it is, given the market conditions, is not viable.
"There is a price for everything in life. If a company comes in and the price in right the option [to sell or not] is ours," Lu said when prodded if selling out is on the cards.
Other options being looked at include capturing new markets and working in collaboration with other local timber companies.
The CEO said that it was the marketable greenheart timber which attracted the current owners to invest in Guyana but his company was finding it very difficult to market the product now.
DTL was formerly government-owned Demerara Woods Ltd which started up in 1981 with funds from the World Bank. Government divested the company in 1991 for US$16.5M.
One of the new owners, Lord Beaverbrook subsequently sold his interest in the business and the United Dutch Group NV operated the company until 1994 when DTL went into receivership.
After being placed on international tender, the Ling group from Singapore stepped in and worked for six months before pulling out.
When Prime Group took over in 1995 it had to pay off a US$3.5 million debt to the government and US$1.7 million to the Guyana Bank for Trade and Industry.
Restructuring of the operations is still ongoing at DTL.
"We have to be lean and mean. The restructuring is to improve the efficiency of the operations," Lu said. The CEO said DTL is not being helped by the fact that debtors have large amounts outstanding to it.
"Some people have a concept of foreign companies that we are just here to rip them off. Instead we are being owed millions of dollars," he stated.
Lu noted that tropical timber was a highly saleable product in the early 1990s. The timber industry was booming with ready markets in Japan, South Korea, China, Thailand, India and Taiwan.
But companies began to feel the crunch in 1998 just after the Asian meltdown. Lu said Prime Group was still funding DTL's operations but not on the same magnitude as was initially done.
The company has a concession of 520,000 hectares from Mabura to Kurupukari.
DTL was to construct a US$20 million sawmill complex at Dallawalla, Linden as part of its plans. The then President Sam Hinds broke ground at the site on October 31, 1997, with much fanfare to officially start construction. Since then little has been done.
Phase one of the project entailed access and internal roads, houses, water supply, electricity and telephone facilities.
A wharf capable of loading ships up to 25,000 tonnes and three storage sheds were also to be part of the first phase, together with a trucking depot and workshop.
The first phase was targeted to be completed by August 1998. Phase two comprised the erection of a kiln drying plant and the building of a veneer slicing plant.
Phase three entailed the construction of a sawmill and the erection of a steam turbine generating plant utilising wood waste. The last phase was earmarked to be completed in 2000.
One thousand jobs were to be created.
Lu explained that after the Asian crisis in late 1997 the company could not have proceeded with the project immediately.
He disclosed, however, that construction of the wharf and the road to the site has begun.
The plan was to shift the Mabura operations to Dallawalla to cut down overhead costs and make the Mabura location a storage area for logs.
Lu came to Guyana in December 1999 and took over DTL's helm in February, 2000.
"I know the company was bleeding...losing money every year and I know it was a difficult company to operate," Lu said. "But I also believed that with my knowledge I could have turned the company around."
"My expectations have not been realised. I had expected to do better for the company," Lu said. He declined to give details on annual production and the financial performance of the company citing the need to keep this confidential.
Right now DTL has linked with small companies and loggers to send off shipments. It is not viable for DTL to ship alone because of the high freight costs. By joining with the others, a full shipment is made up.
DTL cannot compete with chainsaw lumber in the local market because of the high cost of production. For DTL to produce one board foot of greenheart lumber it would cost $120 while chainsaw lumber is produced at $55.
DTL is now concentrating on exporting greenheart dragline mats to the United Kingdom and a small amount of logs to India. Logs are also being sold on the local market.
"If the government decides to ban the sale of logs the company's workforce will be cut down to 30% of what it is today," Lu said.
He pointed out that part of the divestment agreement with government states the company could "export and market worldwide all its products whether in the form of logs, dressed lumber or otherwise without restriction."
Lu emphasised that DTL was complying with all environmental regulations. It has an annual operational plan and a five-year management plan which are lodged with the Guyana Forestry Commission (GFC).
The company practises sustainable forest management and staff have been trained in reduced impact logging by Tropenbos, Lu stated.
The company keeps a database for every block where timber is harvested. According to the CEO, DTL worked in close collaboration with the GFC to ensure all regulations are complied with.
The DTL workers at Mabura Hill are still to have their safety concerns addressed by management whom they also accuse of dishing out preferential treatment to expatriate employees.
Stabroek News understands that on June 28 a branch fell on a worker's head injuring him. This follows the fatal incident several weeks ago when a contract employee was crushed to death by a skidder.
The workers at DTL's Mabura operations have long complained about the absence of safety equipment. This was one of the reasons the workers went on strike last month and part of the resumption agreement was that management would address the safety concerns.
During the strike, the Occupational Health and Safety Department had indicated it would have checked out the concerns of the workers but no personnel has visited the site as yet. Lu said there is a safety committee in place and the concerns are being addressed.
In relation to charges that expatriate workers receive preferential treatment over their Guyanese counterparts, Lu dismissed this as "rubbish." Lu explained that the divestment agreement allows DTL to employ expatriates. He said that the Malaysians are employed in key positions and their salary is in line with the overseas posting.
He added that while the Guyanese workers are good, there are some categories in which Malaysians have to be posted because of their familiarity with the equipment.
The Ministry of Home Affairs had requested the divestment agreement and a list of the Guyanese and Malaysian workers.
Lu said the agreement does not specify a percentage of expatriate workers but disclosed DTL employed 24 expatriates out of 500.
In a letter to Stabroek News recently, executive director of the Forest Products Association, Mona Bynoe, noted that 4-5,000 jobs have been lost over the last five years in the industry and another 3,000 will be lost by the end of August this year unless solutions could be found.