The Sunday Leader

BOI Embroiled In Sandalwood Controversy

By Nirmala Kannangara

The Board of Investments (BOI) is once again embroiled in a controversy, this time for allegedly overstepping their powers by allowing investors to violate government regulations openly.

Startling revelations have come to light as to how the competency of the BOI has lessened over the years as they have opted not to follow the necessary rules before signing agreements with the investors. Although the BOI is bound to get observations from respective line agencies before signing agreements, the Investment Board has noticeably failed to follow the guidelines and has signed agreements with investors without the line agency approvals.

As this newspaper has reported earlier, it is now seemingly evident that BOI wants only to bring Foreign Direct Investments (FDI) to show that they have attracted a number of investors to the country but not consider whether they are giving approvals to illegal activities or not.
Following the detention of four consignments of sandalwood oil and other sandalwood by-products last week at the point of export by the Bio Diversity Protection Unit of the Sri Lanka Customs, the BOI actions have came into the limelight.

BOI has signed agreements with investors granting permission to export/ import sandalwood without consulting the Department of Wildlife Conservation (DWC), the sole authority to decide whether or not to give permission to import/ export sandalwood or its by products. Sandalwood is a protected plant and under Section 45 of the Fauna and Flora Protection Ordinance (FFPO), it is illegal to damage, destroy, sell or offer to sell any part of a protected plant.

A stock of sandalwood by-products, Officials inspecting the export consignment (L) and a bag of sandalwood products meant for the export market (R) and Another by-product of sandalwood

Out of the four nabbed consignments, three were from BOI ventures – Kwality Perfumes (Pvt) Ltd. of 187/76 Jayasamagi Mawatha, Kalubowila. The customs forfeited 125kg of sandalwood oil and 600kg of perfumed stick that were to be exported. EOAS Organics (Pvt) Ltd. of 34/3, Lumbini Avenue, Ratmalana was to export 50kg of sandalwood oil at the time of the arrest while HDDES Extracts (Pvt) Ltd. of 309, Jayantha Weerasekara Mawatha, Colombo 10 was to export 1kg of sandalwood oil together with some samples of herbal oils. However the fourth consignment, which was owned by Bio Power Lanka (Pvt) Ltd, is not a BOI company. A consignment of 50kg of sandalwood oil was among their consignment of fragrance oil at the time of the arrest.

The Sunday Leader is in possession of documentary proof that BOI has signed agreements with the said three investors to import/ export sandalwood based products for the export market and yet another agreement with Indus Aromatic and Essential Oils (Pvt) Ltd. of 426C, Dippitigoda Road, Hunupitiya, Wattala also to manufacture sandalwood oil for the export market.

In regard to Kwality Perfumes (Pvt) Ltd., which is an Indian venture, the BOI has given permission in 2011 to import sandalwood pieces to the country for extraction of sandalwood oil and by products to the export market.

EOAS Organics (Pvt) Ltd. signed an initial agreement in 1999 with the BOI to set up a project for cultivation of spices and extraction of essential oils and oleoresin of spices and fractionation and rectification of essential oils for isolation of compounds for the export market. However, later in 2008, through a supplementary agreement the company got the BOI approval to cultivate sandalwood and to export sandalwood oil.

HDDES Extracts (Pvt) Ltd. too got the BOI approval in 2001 to manufacture sandalwood oil for the export market.

The BOI has also granted approval to Indus Aromatic and Essential Oils (Pvt) Ltd. in 2013 to set up a project to manufacture sandalwood oil, cinnamon oil, pepper oil and clove oil for the export market.

BOI has now come under severe criticism for signing agreements with the said four ventures to import/ export sandalwood without getting the approval from the Department of Wildlife Conservation.

Instead of writing to the DWC to get their approval to Kwality Perfumes, Acting Executive Director BOI in a letter dated February 9, 2011 has written to the State Timber Corporation, Department of Forests and Ministry of Plantation Industries seeking their observations as to whether they have any objection for approval being granted to manufacture sandalwood oil for export market under Section 17 of the BOI law.

BOI approval to Kwality Perfumes to manufacture sandalwood oil by-products for export, BOI letter seeking observations from irrelevant line ministries and BOI approval to Indus Aromatic and Essential Oils to manufacture sandalwood oil

The letter further states, “Seven Indian nationals have submitted an application jointly requesting BOI approval to import sandalwood pieces to manufacture sandalwood oil and its by-products such as sandalwood cosmetic sticks, sandalwood powder, sandalwood face powder, sandalwood nice powder, sandalwood spen dust and sandalwood red oil for export.

The envisaged investment is around US$ 3.255 million and the project will provide around 75 local employment opportunities at the capacity level. The project will be located at WYE Estate, Ambegoda, Bandarawela. We shall be thankful to have your observations as to whether your institution has any objection for approval being granted for this project under Section 17 of the BOI Law where fiscal incentives such as tax exemptions period and duty free facility to import project related items will be permitted. An early reply will be greatly appreciated”.

BOI’s request to obtain DWC approval only to import sandalwood , The illegal transport permit issued by RFO Welimada and BOI approval to EOAS Organics (Pvt) Ltd., to cultivate and process herbs and sandalwood for export

However Assistant Secretary, Ministry of Plantation Industries R. A. D. S. Ranathunga in a reply dated march 1, 2011 to the Acting Executive Director Investment BOI has stated that sandalwood industry does not come under the purview of his ministry.

The letter states, “I regret to inform you that this ministry is not in a position to submit observations as the sandalwood industry or any related industries do not come under the purview of this ministry. You may refer this proposal to Ministry of Coconut Development and Janatha Estate Development Board”.

However, Forest Department in their observations have stated that Kwality Perfumes cannot be allowed to have their factory in Bandarawela since locally planted sandalwood trees could be exploited for the project as there are lot of sandalwood trees in Bandarawela and Badulla areas and has informed that they have no objections if the project is undertaken in a BOI zone closer to Colombo.

Meanwhile the BOI further made a request to the Director General Export Development Board (EDB) on June 20, 2011 seeking their observation to allow Kwality Perfumes to import sandalwood pieces to manufacture sandalwood based products for the export market.

However, the Director General EDB in a letter dated June 24, 2011 to Acting Director Investment has clearly stated that exporting sandalwood to the country is banned.

The letter further states, “Reference your letter dated June 20, 2011 regarding manufacture of sandalwood based products for export, it is noted that the company intends to manufacture sandalwood based products for exports using imported sandalwood pieces. At present exporting sandalwood is banned by the government due to environment reasons. It is informed that the EDB has no objection for this investment provided the environment concern raised by the Department of Forests is cleared”.

Although the BOI was not concerned to get the DWC approval before signing agrrements, following the Customs raid last week, Executive Director Investor Services Department BOI Niranjali Weerasekara has sent a letter to Executive Director (Sector Group III) suggesting that the investors have to be informed to obtain the approval from the DWC when sandalwood is imported for processing oil in future.

Meanwhile, Publicity Officer DWC Hasini Sarathchandra when contacted said that the Wildlife Department had not given any approval either to the BOI or to the said projects to import/ export sandalwood for any purpose.

“According to the FFPO it is strictly prohibited to cut down sandalwood trees or to transport or sell any part of sandalwood or any other protected plant or tree. It was the duty of the BOI to get wildlife approval before signing the agreements. Also the investors cannot say that they did not know that it is compulsory to take wildlife approval as there are no provisions to say that people do not know the law. We all are bound to abide by the law,” said Sarathchandra.

Although it is strictly against the FFPO to cut, remove, sell or transport sandalwood, The Sunday Leader is in possession of copies of licences issued by the Regional Forest Officer (RFO) Welimada to EOAS Organics (Pvt) Ltd. to transport sandalwood from Welimada to Koralawella, Moratuwa.

“These are illegal licences and we are now investigating as to why the RFO Welimada issued these licences knowing it is illegal. Strict action would be taken immediately against the DFO for issuing these licences,” reliable sources from the Forest Department said.

Meanwhile, Sri Lanka Export Development Board has assigned Exporters Registration Numbers to the said companies to export their products.
“This is the state of government institutions. Without looking as to whether the exporters have obtained the necessary approvals from the line agencies, the EDB has granted temporary exporter’s registration numbers to these illegal ventures.

Why I say that these are illegal ventures is that the agreement they have signed with the BOI is not legal. Had the EDB and other departments and ministries who were contacted by the BOI seeking their observations knew the law they would have requested the BOI to contact DWC but not any other line agency. Since the higher officers in most of these government institutions are political appointees, they are not aware of the existing laws. If they are well trained officers in their respective posts this would not have happened,” said the BOI sources.

The sources further said that the absence of a Customs office in the Meerigama BOI Zone has raised many questions over the years.

“Why haven’t they installed a Customs office in the Meerigama Zone? Kwality Perfume (Pvt) Ltd. has their factory in the Meerigama Zone. This company imports sandalwood and who is there to check whether they extract oil from the imported sandalwood or from local sandalwood. Since the BOI is behind these rackets, they may have allowed Kwality Perfumes to get local sandalwood for extraction without any restrictions,” the sources claimed.

Meanwhile, Bio Diversity Protection Unit of the Sri Lanka Customs confirmed that four consignments of sandalwood oil and sandalwood based products have been forfeited for not having the necessary approvals for exportation.

“We are in the process of investigating the matter,” said one of the officers.

Meanwhile, Factory Manager Kwality Perfumes M. Rashik said that they had already exported four shipments of sandalwood oil and perfumed sticks.
“We started operations in October 2012 and we were importing sandalwood pieces from Middle East and African countries and have exported oil and other by-products earlier. The BOI did not ask us to get the DWC permission. We were left in dark,” said Rashik.

Although it is compulsory for any BOI project to get the local manpower in their project other than for foreigners for expertise, Kwality Perfumes, which is an Indian Company, has employed Indians but not any Sri Lankans.

When contacted, Niranjalee Weerasekara, Export Director Investor Services Department BOI to find out as to why she had suggested to obtain wildlife approval when sandalwood is imported but failed to suggest to get the approval when sandalwood is exported as well, she wanted this reporter to talk to the Media Director for a comment and disconnected the line.
It was the same with Renuka Weerakoon, Director Investment when contacted for a comment. She too wanted the reporter to talk to the Media Director and cut the telephone line.
Although Media Director was contacted he promised to make a comment in few minutes but he did not return the call.
When the Conservator General Forest was contacted as to what action he would take against the Regional Forest Officer, Welimada, who had issued permits to transport sandalwood from Welimada illegally, the telephone line was disconnected.


First time our consignment was arrested – MD, EOAS Organics

Managing Director, EOAS Organics D. A. Perera when contacted said that they had exported sandalwood oil on previous occasions but added that this was the first time their consignment had been arrested by the Customs.

“We were never told that we had to get the DWC approval to export sandalwood oil. If not we would not have taken any attempt to export these without a licence as I am a law abiding citizen. My company has already exported 15 consignments of sandalwood oil over the past two years,” said Perera.
When asked as to from where he gets sandalwood to extract oil, Perera said that he has been allowed to have a sandalwood plantation by the BOI and he gets these trees from his estates in Thalathuoya in Kandy District and Gonapola in Horana.

“I have already planted 6,000 trees in 25 acres in Thalathuoya and 900 in Gonapola,” he added.

When asked as to why he then got sandalwood from Welimada, Perera said that private parties who owned Sandalwood trees wanted him buy the trees in their lands in Welimada.

“My factory is in Gonapola and when I got the request I bought the trees which were not matured enough for oil extraction,” said Perera.
Although Perera said that he has his factory in Gonapola, RFO Welimada has issued the transport permit to a place in Koralawella, Moratuwa.
However later, Perera said that he has yet another factory in Moratuwa which he forgot to tell earlier.

Perera further said that he met Wildlife Minister Vijith Wijayamuni Soyza to get the permission for him to export sandalwood oil but added that he was not able to get a favourable response.
‘Offenders can be charged under FFPO’

Meanwhile Jagath Gunawardena, Attorney at Law specializing in Environmental Studies said that action can be taken against those who destroy protected plants and also for trying to export illegal items made from the parts of the sandalwood plant.

“Under the FFPO they can be charged for illegally exporting parts of a protected plant. According to Section 45 of the FFPO, no one can damage or destroy a protected plant or sell or offer to sell any part of a protected plant. So all secretion, all distilled or extraction from a protected plant falls under the category of ‘part’ and hence it is a violation of the FFPO,” said Gunawardena.

Gunawardena further said that if a particular plant is not a protected plant under the FFPO, permission has to be obtained from the Department of Forest Conservation.

“If a plant is not protected under the FFPO they have to get the permission from the Forest Department. The provision of Section 20 and 24 and Forest Rules No: 1 of 1979 applies to anyone who wants to harvest, remove, cut or transport any part of a forest plant or a tree,” added Gunawardena.


BOI’s illegal deals with four companies

Meanwhile, reliable BOI sources on condition of anonymity said that the agreements BOI signed with the four companies are in violation of the FFPO.
“Under Section 45 of the FFPO, sandalwood has been named as a protected plant. As a result the whole agreement becomes null and void. That is because fulfilling the terms of the agreement leads to the violation of laws,” she added.

She further accused the BOI for the procedure followed not to write to the DWC but to other line agencies that have no role to play with sandalwood importation or exportation which was merely to facilitate the investor.

“The reason why letters have been sent to State Timber Corporation, the EDB, Ministry of Plantation Industry, Ministry of Minor Export Crop Promotion and Department of Export Agriculture is to show that they have written to so many line agencies to get the permission. These institutions do not have any role to play in regard to import and export of sandalwood. It is from the DWC that approvals have to be sought as sandalwood is a protected plant under the FFPO,” added the sources.

She further stated that BOI does not have any mechanism to monitor whether the approved projects follow the guidelines imposed by the BOI in their agreement.

“Although it is the sole responsibility of the BOI to monitor whether the investors follow the BOI guidelines before and after commencing operations, it is disheartening to state that it is not happening. The relevant BOI departments should coordinate with each other to find out as to how these ventures have fulfilled the requirements. Since there is no coordination within the BOI departments there are many loopholes where the investors have got the opportunity to glide through. Other than checking financial accounts, the number of employees and whether EPF and ETF are paid, the BOI monitoring unit does not have any methodology to monitor the manufacturing process and to see the value addition. If the institution does not have any trained officers to carry out these monitoring process, then the BOI should get the services even from a private organization who are qualified enough to do the job for BOI. In the manner the private institutions get the services of reputed audit firms to check their finances, the BOI too should get the services of even a private firm to monitor the manufacturing process,” the sources added.

The sources further said when preliminary approvals are taken to import raw materials or machinery, the Customs Declaration (CusDec) has to be obtained from the Investment Department.

“To obtain the duty free concession, the investor has to get the import CusDec from the Investment Department and send the copy to the Customs. Once the consignment arrives, it is up to the Customs to check whether the consignment carries the items described in the import CusDec. If the consignment carries any item which is not declared in the CusDec they have to be taken into custody. When it comes to export, the investor has to produce all relevant licences that have been obtained from line agencies and the BOI approval to the Investor Services Department together with a detailed report of the items to be exported to get the Export CusDec. A copy of this too has to be sent to the Customs. When the consignment arrives for export, BOI and Customs carry out the verification,” said the sources.

In regard to the import/ export of sandalwood products, the sources accused both BOI and Customs for their failure to carry out their duties.
“The BOI is anyway at fault from the beginning as they have not got the DWC approval before signing the agreements. As a result the BOI Investment and Investor Services Department allow the investor to import /export without the WDC approvals. When the import CusDec states that sandalwood sticks are in the consignment the Customs Department should have arrested it immediately. Likewise, if the export CusDec states that there are sandalwood products in the consignment it should be arrested immediately,” added the sources.

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