VZCZCXRO5675
PP RUEHGR
DE RUEHPO #0305/01 1441113
ZNR UUUUU ZZH
P 241113Z MAY 06
FM AMEMBASSY PARAMARIBO
TO RUEHC/SECSTATE WASHDC PRIORITY 8354
INFO RUCNCOM/EC CARICOM COLLECTIVE
RUEHAO/AMCONSUL CURACAO 1034
RUEHBR/AMEMBASSY BRASILIA 1432
RUEHSJ/AMEMBASSY SAN JOSE 0441
RUEHBJ/AMEMBASSY BEIJING 0107
RUEHGH/AMCONSUL SHANGHAI
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHRC/DEPT OF AGRICULTURE WASHDC

UNCLAS SECTION 01 OF 02 PARAMARIBO 000305 
 
SIPDIS 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR WHA/CAR LLUFTIG, OES, INR/IAA: RCARHART 
 
E.O. 12958: N/A 
TAGS: SENV ECON EAGR EINV SMIG TBIO CH NS
SUBJECT: UPDATE: PATAMACCA PALM OIL PROJECT 
 
 
PARAMARIBO 00000305  001.2 OF 002 
 
 
REFTEL: 05 PARAMARIBO 576 
 
Summary 
------- 
 
¶1. (SBU) A late breaking solution to difficulties securing 
financial guarantees has breathed new life into the Chinese 
Patamacca palm oil project, but this event has renewed 
controversy over the sound business sense behind the deal. 
Those opposed describe it as nothing more than a thinly 
veiled timber export scheme undertaken by an inexperienced 
Chinese firm, which has contributed none of its own capital 
to the enterprise. While residents in the Patamacca region 
fear jobs will go to Chinese laborers, leaving them with no 
economic benefits but rather saddled with environmental 
degradation resulting from clear cutting large swaths of 
tropical rain forest. The deal also highlights a 
politically thorny scenario rife with rumor mongering of 
its implications for rural Maroon political support, 
growing Chinese influence and tilting the ethnic balance 
among the broader business community. End summary. 
 
¶2. (SBU) Reftel outlined the difficult history of the 
Patamacca oil deal in which the Chinese investment company 
Zhong Heng Tai signed an MOU with the GOS to cut 40,000 
hectares of tropical rain forest in order to plant a oil 
palm plantation and produce palm oil for export to the 
Chinese market. After foundering for over two years in its 
ability to secure financial guarantees of 16.2 million USD 
to support the project, the GOS surprisingly extended the 
deadline to April 10, 2006. Under the terms of the MOU, 
after the first 2 years the company is expected to provide 
an additional bank guarantee in the amount of 30.9 million 
USD to the GOS. On April 4, Paul Rellum, head of the GOS's 
steering group leading the negotiations between GOS and the 
Chinese company, stated that Zhong Heng Tai was still 
negotiating with Caribbean and local Surinamese banks to 
secure the financial guarantee. Suddenly on April 6 the 
press reported that the company had managed to secure the 
bank guarantee from the Royal Bank of Trinidad and Tobago 
(RBTT) with no details other than to say that financing in 
China remained unavailable. RBTT offered to guarantee the 
project on a "back-to-back basis," whereby a bank in China 
would counter guaranteed the RBTT loan in order to 
revitalize the effort. In so doing, RBTT's action has 
reawakened the substantial controversy surrounding the 
deal. 
 
¶3.  (SBU) Opponents of the project have long cited the 
potential negative environmental impacts like loss of 
biodiversity, diminished habitat integrity and a higher 
potential for flooding brought on by the deforestation of 
old-growth forest and its replacement with a monoculture of 
oil palm trees. The NPS faction within the ruling coalition 
of the GOS has long pushed for this project discounting the 
criticism and believing it will create an estimated 5,000 
jobs in the remote district of Marowijne. They also cite 
the expansion of Suriname's timber exports, and eventually 
palm oil, to China.  In short, the ruling coalition  with 
some members barely on board (see para. 6) - expects to 
derive revenue, expanded infrastructure, training for local 
labor, and the creation of local spin-off industries. 
 
¶4. (SBU) Beyond the environmental concerns, the terms of 
the investment are rather unconventional in that the 
sweetheart deal allows for the sale of the cut timber to 
create a pay as you go method of financing the costs. Zhong 
Heng Tai would begin by clear-cutting 40,000 hectares of a 
total 50,000 hectares concession on which the palm oil 
trees will be planted. Beginning in the first year with an 
initial 1,000 hectares to be converted to palm oil 
production followed in the second year with an additional 
2,000 hectares and in the third year another 3,000 and 
finally 4,000 hectares per year for the next 9 years until 
the entire 40,00 hectares are under cultivation.  The wood 
harvested is meant for export to China for sale generating 
the revenue needed by Zong Heng Tai to pay the GOS a pre 
arranged fee of 12 USD per cubic meter for the export of 
milled lumber and 24 USD per cubic meter for the export of 
whole logs. 
 
 
PARAMARIBO 00000305  002.2 OF 002 
 
 
¶5. (SBU) With the new financial guarantee, the project has 
reinvigorated political opposition to the deal. According 
to NDP member Jenny Simons, the deal with China Zong Heng 
Tai is nothing more than a front for a wood processing 
business.  Simon believes the structure of the deal proves 
that the Chinese company intends to clear-cut Suriname's 
forest and use the income from the export of the wood to 
finance a palm oil project.  Simons went on to say that the 
oil derived from such an operation could then only be sold 
on the Chinese market since international environmental 
regulations would prohibit other countries from purchasing 
palm oil produced under these conditions. 
 
¶6. (SBU) Before A-Combination (AC) leader and convicted 
drugs trafficker Ronny Brunswijk was elected to the 
National Assembly in May 2005, he promised voters in his 
home district Marowijne that he would do everything in his 
power to stop the deal from going through.  Now part of the 
governing New Front Plus coalition, Brunswijk and his 
fellow party leaders are under intense pressure to deliver 
on the high expectations for economic development they 
raised during their campaign.  Local Maroon communities 
fear that they will lose out on the estimated 5,000 new 
jobs generated from the project, believing that the 
employment opportunities will go to "cheaper" Chinese 
laborers.  Locals also dread the potential for 
environmental damage to the land and water on which they 
heavily rely. 
 
¶7. (SBU) On April 27 local resentment reached a peak when 
people in the town of Moengo, which is the largest town 
near the Patamacca area, protested against the deal by 
calling on AC politicians in the National Assembly to step 
down for failing to stop the project. Others dubbed the 
arrival of the Chinese company and its staff as a Chinese 
invasion.  Shortly thereafter, AC leaders held town hall 
meetings in Marowijne to clear up, as they claimed, 
apparent misunderstandings about the nature of the project 
and the AC position, which precariously straddles both 
sides of the fence.  AC leaders are not categorically 
opposing the deal, which would greatly upset their 
coalition partners, but at the same time are insisting on 
significant changes to the original agreement that would 
address their constituency demands. 
 
COMMENT 
------- 
 
¶8. (SBU) Despite the Deus ex machina intervention at the 
last minute by the local RBTT Bank to keep the Patamcca 
Palm Oil project alive there remain many skeptics who still 
see significant investment, environmental and political 
risks ahead. Some fear that the project is overly dependent 
on revenue generated from the cleared timber, which is 
meant to provide the investment capital for the first six 
years. Out of this revenue come start-up costs, 
infrastructure expenses and concession fees. With the 
Chinese firm Zhong Heng Tai risking none of its own 
capital, many wonder whether the project can even be 
classified as direct foreign investment by China. The fact 
that numerous Chinese logging firms have tried and failed 
to market Suriname's relatively unknown species of tropical 
hardwoods over the past decade does not bode well for the 
ultimate success of the Patamacca Palm Oil project. The 
project appears to critics to be little more than a 
concession granted to clear-cut 40,000 hectares of forest 
at a fixed price justifying the importation of Chinese 
workers. Others fear the inexperienced Zhong Heng Tai will 
fail leaving large-scale environmental damage in their 
wake. Finally, the most skeptical see the entire effort as 
being supported by the Creole dominated NPS political 
faction as an attempt to undermine the business strength of 
the Hindustanis through growing Chinese business interests. 
End comment. 
 
BARNES