A preliminary investigation into two years of unpaid forestry royalties has determined

that logging companies were permitted by the Ministry of Agriculture, Forestry and

Fisheries (MAFF) to 'offset' around $3 million owed in royalties against expenditure

incurred.

The Ministry of Economy and Finance report stated the practice was contrary to the

Finance Law which prohibits offsetting directly against expenditure. Worse still,

the offsetting operations were made between private companies, and with MAFF's consent.

By way of explanation: if company A incurred legitimate expenditure costs which it

was allowed to claim from the government, and logging company B owed royalties, then

B simply offset the amount it owed the government and paid it to A instead.

The danger is that the state could lose track of amounts owed, confusing what should

be a relatively straightforward payment procedure. The MEF report described this

"as a fait accompli for which someone must be responsible".

The report gives a small insight into how the government has handled monies owed,

and goes some way to explaining the mess the logging royalties system is in.

The question of unpaid royalties was raised by donors at June's Consultative Group

meeting. It was also highlighted in a 1999 concession review by the Asian Development

Bank, which noted that all but two of the 20 logging concessionaires had unpaid royalty

obligations, some stretching as far back as the mid-1990s.

However MEF's preliminary audit report only covered offsetting of royalties in 2001

and 2002. It made no mention of other unpaid royalties from that period, nor gave

any indication of the backlog, which the ADB said was at least $3.1 million at the

end of 1999. Partner agencies and ministry officials contacted by the Post did not

know what the correct figures were.

Changes underway, said Dennis Cengel, an advisor at the Department of Forestry and

Wildlife, said MEF, MAFF and DFW had established a joint task force to examine the

process of royalty payments.

"The main focus is on how royalties are administered and collected in accounts,"

he said, adding that they would also examine making the figures available to the

public.

The MEF report noted that one logging company, Sun Ly Seng, received both its expenditure

repayment of around $435,000 from MEF, then reclaimed the full amount from MAFF.

Investigators said that was fraudulent, and MAFF had been instructed to recoup the

money and take legal action.

In his June 7 letter to MAFF's Minister Chan Sarun, which accompanied the report,

Finance Minister Keat Chhon said all six companies in the report should transfer

the monies owed. Then MEF would prepare expenditure payments to reimburse five of

them.

"Henceforth," Chhon's letter warned, "[MAFF] must, in principle, comply

with the Financial Law on Income and Expenditure."