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C O N F I D E N T I A L SECTION 01 OF 03 RANGOON 000699 
 
SIPDIS 
 
STATE FOR EAP/MLS, INR/EAP, EEB/TFS 
OES FOR ANN COVINGTON 
BANGKOK FOR REO OFFICE 
PACOM FOR FPA 
TREASURY FOR OASIA, OFAC 
 
E.O. 12958: DECL: 09/02/2018 
TAGS: ECON SENV PREL PGOV ETRD BM
SUBJECT: BURMA: HOW MTE PROFITS FROM TIMBER SALES 
 
RANGOON 00000699  001.2 OF 003 
 
 
Classified By: CDA Tom Vajda for Reasons 1.4 (b and d) 
 
¶1.  (C) Summary.  The Burmese Government, through state-owned 
Myanmar Timber Enterprise (MTE), heavily regulates Burma's 
timber trade, exporting logs, sawed lumber, and finished 
products for substantial profits.  In order to earn the 
regime's annual revenue quota of USD 300 million, MTE holds 
monthly auctions, selling teak and hardwood logs to the 
highest bidder.  Additionally, MTE pre-sells uncut timber to 
well-connected Burmese companies at below-market prices, 
enabling it to secure hard currency quickly.  Timber industry 
officials confirmed that for the past five years, MTE and 
private Burmese logging companies exceeded the Forestry 
Department's annual allowable cuts (AAC), contributing to 
significant deforestation.  According to private consulting 
firm Business Investment Group, MTE and private Burmese 
companies earned more than USD 560 million in timber exports 
in 2007.  End Summary. 
 
Timber Resources Abound, For Now 
-------------------------------- 
 
¶2.  (C)  Burma is home to more than half of mainland 
Southeast Asia's closed forests and holds more than 70 
percent of the world's teak.  While the Ministry of Forestry 
claims that 51 percent of Burma is forest, former Director 
General of the Forestry Department Dr. Kyaw Tint told us that 
with the recent rate of timber extraction, forests cover 
approximately 47 percent of the country.  Burma is known for 
its teak forests, but also has large reserves of ironwood, 
rosewood, and other valuable hardwoods. 
 
Seeing the Profits through the Trees 
------------------------------------ 
 
¶3.  (C)  The Burmese Government uses two Ministry of Forestry 
institutions - the Forestry Department and Myanmar Timber 
Enterprise (MTE) - to regulate the timber industry.  The 
Forestry Department, which is responsible for forest 
conservation and management, sets each year the annual 
allowable cut (AAC) for the industry and physically marks the 
specific trees MTE can cut down.  Since 2003, the AAC has 
been set at 250,000 cubic meters for teak and 1.5 million 
cubic meters for other hardwoods, according to former 
Forestry Department Director General Dr. Kyaw Tint.  The 
Forestry Department also monitors the felling of trees, and 
has the power to sanction any company (except MTE) that 
illegally cuts logs.  State-owned MTE is responsible for the 
utilization and extraction of the forests.  Burmese law 
stipulates that only MTE can export cut logs, although MTE in 
recent years has allowed specific companies to both cut and 
export timber.  Additionally, MTE sets the local price of 
teak and other hardwoods.  According to official MTE 
documents, the price of timber varies between USD 431 and USD 
8324 per cubic ton, depending on the type and quality. 
 
¶4.  (C)  U Khin Zaw, former Deputy General Manager of MTE, 
confirmed that the regime's interest in the timber industry 
was profit rather than conservation.  While the Forestry 
Department pursued sustainable forest management, MTE 
practices undermined these efforts, he noted.  The Ministry 
of Forestry required that MTE earn at least USD 300 million 
in revenues annually.  Since the quality of Burmese timber 
had eroded over the past 15 years, MTE had been forced to 
exceed the AAC and cut a greater number of lower-priced trees 
to reach its revenue quota, he explained.  When we pointed 
out that the price of Burmese timber, set by MTE and 
 
RANGOON 00000699  002.2 OF 003 
 
 
influenced by world demand, had increased in the past five 
years, he agreed, admitting that the regime's desire for more 
revenue led MTE to over-cut.  According to MTE statistics, 
MTE in 2007 cut down more than 300,000 cubic meters of teak 
and two million cubic meters of other hardwoods, the majority 
of which was exported at a total value of $561 million. 
Former Forestry Department official Dr. Kyaw Tint criticized 
the Forestry Department's inability to sanction MTE and 
promote sustainable forestry, noting that the Minister of 
Forestry encouraged MTE to cut down "as many trees as 
possible." 
 
¶5.  (C)  U Khin Zaw explained that to maximize profits, MTE 
sold teak and other hardwood logs to private Burmese 
companies via monthly auctions.  (Note: Burmese law prohibits 
foreign companies from engaging in Burma's timber trade. End 
Note.)  In 2007, MTE sold an average of 6,500 cubic meters of 
logs per month, yielding a gross income of USD 230 million. 
Private companies either processed the wood into sawed lumber 
or furniture for export or domestic sale.  Some companies 
opted to resell the cut logs to overseas buyers, but since 
MTE by law was the only entity that could export logs, 
companies must export under MTE's name.  MTE, which 
reimbursed the companies for the sale of logs, often took a 
percentage cut, bringing more money into the regime's 
coffers, U Khin Zaw stated. 
 
¶6.  (C)  U Win Aung of United International, one of Burma's 
larger private timber companies, told us that MTE also earned 
hard currency by pre-selling logs (before they are cut) to 
select private companies at below-market value.  Even though 
this process reduced slightly MTE's profits, it guaranteed 
that MTE would reach its revenue goal, he noted. 
Well-connected private companies, including Tay Za's Htoo 
Trading, Win Aung's Dagon Timber, Tin Win's Tin Wun Tun 
Company, and Nay Aung and Pyi Aung's (sons of Minister of 
Industry 1) IGE Company Ltd., purchase the logs, secure 
overseas buyers, and then eventually ship them out under 
MTE's name. 
 
¶7.  (C)  According to Win Aung, these private firms used 
their connections to ensure they received the best quality 
timber, and often felled them in place of MTE.  The 
companies, like others in the industry, exported all logs 
under MTE's name, but in their case MTE did not take a 
percentage cut.  Because official figures list MTE as the 
exporter of all logs, we are unable to ascertain how much 
these private companies earn from timber sales.  However, 
representatives of Tay Za's Htoo Trading told us that in 2007 
the company earned more than USD 75 million from registered 
exports of teak.  (Note:  There is a vibrant illegal trade of 
timber across Burma's porous borders, which is not included 
in official trade figures.  End Note.) 
 
Comment 
------- 
 
¶8.  (C)  Burma's forests are quickly eroding as the regime 
sells the country's finite timber resources to secure foreign 
exchange and pad the elite's own pockets.  Arguments 
justifying MTE's over-cutting of trees to compensate for the 
eroding quality of timber appear flawed, since the price of 
Burmese timber has increased substantially in the past few 
years.  MTE could cut down less and still meet its USD 300 
million revenue government quota, but like all Burmese 
state-owned enterprises, it is driven by profit.  Forestry 
Department officials recognize the problem, but have no power 
 
RANGOON 00000699  003.2 OF 003 
 
 
to sanction MTE or the crony companies, so the over-felling 
continues. 
VAJDA