Wednesday, August 06, 2008

Due Diligence Exposes Several Bidders For Forest Concession

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Due Diligence Exposes Several Bidders For Forest Concession
The NEWS (Monrovia)

NEWS5 August 2008 Posted to the web 5 August 2008
By George BardueMonrovia

The Forest Management Contract (FMC) Due Diligence Committee has submitted its report to the Inter-Ministerial Concession Committee (IMCC) on the financial and technical capabilities of companies that submitted bids for logging operations in Liberia.

The bids, which were publicly opened for three Forest Management Contracts on April 21, 2008, brought 13 companies bidding for different categories.

Following the bidding process, the Concession Bid Evaluation Panel placed seven companies in the "A" category, three for the "B" category and another 3 in the "C" category with the Tropical Reserve Entrepreneurial Enterprises (TREE) scoring 95 percent.

However, when Due Diligence was conducted on the companies, the Committee discovered that TREE did not provide substantive financial and technical evidence although the Bid Committee declared TREE as provisional winner in the "A" category.

The prequalification standards for a medium FMC require US$15 million in capital including cash and equipment.

The Due Diligence committee's report indicated that TREE claimed to have vehicles and equipment valued at US$1.9 million, adding "it presented bank statement showing funds totaling US$0.3 million. This leaves a net financing requirement of US$14 million. "

In addition to financing its own operations, the Due Diligence Committee noted that TREE has committed itself to finance the operation of five timber sales contracts, three by B&V Timber Company and two by Tarpeh Timber.

The committee said they found out that over the first six months of operations, these companies together will require about US$1.2 million in investment funds.

However, TREE was asked by the Forestry Development Authority (FDA) to provide evidence of additional funds to support five timber sales contracts but it failed to do so, the Due Diligence Committee noted in its report.

The Due Diligence Committee's report also indicated that TREE offered no evidence of financial capability.

"TREE had entered into an agreement with firm named Tropical Africa Business wherein the latter committed to provide US$1.0 million in equipment and spare parts. TREE has also entered into an agreement with a firm named Ningbo Jujin Investment Company Ltd. of the People's Republic of China wherein the latter committed to provide US$2.5 million in equipment and funds," the Committee pointed out.

But it said that these agreements provide an amount far short of the US$14 million required.
The Due Diligence Committee also observed that the agreement with Tropical Africa Business, along with the commitment of US$1 million seems to be flawed.

The Liberia Tree and Trading Company, a declared winner of category "C" of the Forest
Management Contracts with 85 percent also underwent due diligence and participated in the bidding process.

According the Due Diligence Report, the Liberia Tree and Trading Company owed government US$165,000 in back taxes for which the Ministry of Finance advised FDA not to enter into a contract with the company until the matter was cleared.

On the issue of technical capability, the Committee reported that the Liberia Tree and Trading Company holds no equipment, either owned or leased.

"In its business plan, the company indicated that it would lease all of its logging equipment from Logs & Lumber, a Ghanaian company and a parent of Eco Timbers. In discussion with the FDA team in May 2008, the firm indicated that the equipment would be leased directly from Eco Timbers," the report disclosed.

Additionally, the Due Diligence report noted that FDA requested for a copy of the lease agreement or other evidence of Eco Timbers' commitment to provide equipment along with evidence of Eco Timbers' control over the equipment that it proposes to lease.
Touching on the financial capability of the company, the committee found out that the company has a cash bank balance of US$0.1 million as of June 16, 2008, adding "unaudited financial statements shows net assets of US$0.3 million as of December 31, 2007."

"The business plan projected an investment of US$6 million, including equipment, to be made in the first five years of operation. This is to come from three sources: bank loan US$3 million; suppliers US$2.4 million and shareholders US$2.4 million," The Due Diligence Team said.
The FDA's Due Diligence Team in a discussion with the company on May 30, 2008, said it was informed that the capitalization plan was had changed and that a new investor in the firm, Ecotimbers, would lend the company US$6 million.

Of this amount, US$4 million would come from a loan from the Bank of Beirut to Ecotimbers, the Due Diligence Committee indicated in its report.

The winners of the Forest Management Contracts are yet to be announced by the Inter-Ministerial Concession Committee (IMCC).

When authorities at the Forestry Development Authority (FDA) were contacted, Public Relations Manager Anthony Varwen said all of the companies that participated in the bidding process demonstrated financial and technical capabilities.

Mr. Varwen told this paper that no company that did not provide evidence of their financial capabilities was given contract.

He said the Due Diligence Report is in the office of the FDA Managing Director John Woods and cannot be accessed.

Varwen disclosed three companies won the PFC bid but added that the FMC bidding process is still going on.

He noted that the due diligence report would be made public went the Inter-Ministerial Concession Committee (IMCC) approves it. He did not say when it would be approved.
Copyright © 2008 The NEWS.

###

EarlyBird

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