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Created before Nov 2016
Last update: 2017-03-16 17:36:42 BankTrack
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The Amazar Pulp and Saw Mill (APSM) is being constructed on the shore of the Amazar river in the Zabaykalsky Province of Russia, near the border with China. The project will consist of a pulp mill, two wood processing facilities, a dam and reservoir on the Amazar River and supporting infrastructure. This enterprise is 100% owned by Heilongjiang Xingbang Investment Company (HXIC) from China.
The initial stage pulp mill is planned to produce 243,486 tonnes of pulp per year. The original plan was 400,000 tons of pulp per year, but downsized due to scarcity of forest resources. APSM was granted permission to lease almost 2.6 million hectares of forest for 49 years, almost half of it on traditional land-use areas of Indigenous Evenks and some of it in areas previously reserved for nature reserve creation. By early 2016, APSM leased and paid for only 220,000 hectares of primeval forest along the Sino-Russian border, half of which was put on the map of "last remaining old growth forests of the world".
APSM needs to clear cut forests to produce from 1 to 2.1 million cubic metres of wood per year, to annually produce the necessary pulp and lumber. However, current forest resources in a 250 kilometre radius will be hardly enough for 10 years of APSM’s operation. The problem with wood supply was officially acknowledged by the company and Russian Presidential Council on Human Rights in April 2016.
The APSM project has a complex history, with several shifts in ownership. For more details of the project's ownership, please see 'related companies' and 'financiers'.
In 2003, the first agreement on the construction of APSM was signed between authorities of Zabaykalsky region in Russia and the Heilongjiang Province of China. Originally, the launch of the mill was scheduled for 2007. The reason for this agreement was to sustain the import of raw logs to Northeast China, where logging was subject to increasing limitations. A "private" border crossing operated in the winters of 2000-2008, with 60 trucks bringing raw logs to China across the frozen Amur river every day. It was shut in 2008 due to multiple violations of Russian law and a corruption scandal. APSM kept pushing on the Russian authorities to reopen this channel of resource exports and even to build a bridge to facilitate year-round exports. In 2016, the Russia and China transportation ministries included Pokrovka-Louguhe Bridge and Border Crossing on the list of agreements to be discussed in 2017. HXIC claims that this border crossing is an important part of the China’s ‘Silk Road Economic Belt’ Initiative, an initiative criticised by environmentalists and researchers.
In 2010, a loan of USD 170 million and CNY 1.16 billion was granted to APSM by the China Development Bank through LongXin Co. The construction of a reservoir on the Amazar River was started in 2012, without proper EIA or public consultations. A year later, in 2013, the first timber processing factory was completed: it has the capacity to produce 100,000 cubic metres of lumber, but was not put into operation till 2016. In 2016 the second timber processing factory was completed. It has the capacity to produce at least 300,000 cubic metres of lumber annually. However no large-scale production has been reported so far.
From November 2015 till February 2016, the impacts of APSM were investigated by the Russian Presidential Council on Human Rights. This triggered two positive developments.
- The Verkhneamursky (Upper Amur) Wildlife Refuge in Mogochinsky district of Zabaikalsky Province was established and staffed, with an area of 239,639 hectares. Zabaikalsky Vice-Governor Aleksander Shemetov also promised to the High Council that biodiversity-rich old growth forests presently leased by Chinese loggers will be taken from them and added to the Upper-Amur wildlife refuge, but he was fired and nothing was implemented.
- Traditional use lands of the Indigenous Peoples, the Ewenki people, were promised to be excluded from logging plans.
Overall the APSM complex is expected to start operations at the end of 2017.
What must happen
Potential financiers should stay away from the project until/unless:
- the APSM Plan for Wood Supply and Forest Exploitation is redeveloped in a way that cannot lead to devastation of boreal forest ecosystems. This likely means further reduction in annual figures of pulp and timber production and/or sourcing significant part of wood from other provinces by rail;
- the companies ensure that APSM forest leases do not include intact old growth forests, lands important for indigenous communities or areas where nature reserves have been planned;
- a new business plan is adopted with alternative transportation routes for the needs of the APSM (to prevent destructive development of the Pokrovka-Louguhe border crossing);
- the dam is removed from the Amazar River and more sustainable water supply options (like repair of the old dam on Chichatka River) are pursued;
- APSM develops a long-term training system to enable it to meet its commitments to ensure at least half of its employees are local;
- a new plan for the APSM is subjected to a new EIA and public consultations in its entirety (as the previous EIA excluded the dam, forest leases and transportation scheme).
Meanwhile it is necessary to inform all potential financiers that the forest resources in the APSM vicinity are not sufficient for sustainable operation of this enterprise.
The APSM destroys ecosystems on which livelihoods of the local population depends. 4,000 people live in the Tungiro-Olekminsky District, of which 2000 are native Evenki Indigenous Peoples. Their land will be devastated, because up to two million hectares has been offered for forest lease. One million hectares of the Mogochinsky District are offered for forest lease, as well as the pulp mill, roads and border crossing bridge. The district is however home to 14,000 people, mostly employed in rail and mining. 2000 of them are subsistence hunters and 100 are professional hunters, all of whom will suffer from devastation of forest resources and poaching by incoming loggers from China. Locals are also deprived of subsistence and recreational fishing due to the dam blocking the Amazar river, built without EIA or public consultation.
There is a high level of unemployment among the local population in the region, but the company is living up to its commitment to employ local workers. In 2016 it employed 90 workers from Russia and 300 from China, although agreements prescribe at least 50% of the workforce should be local.
Moreover, the APSM has brought continuous disruption to the local community and the development of Amazar township and its regional economy. The company forms its own isolated community that competes for resources and influence with local people. It seeks to develop its own transportation routes and system, ignoring the fact that Amazar is a hub-station on the Trans-Siberian railroad. Chinese forest enterprises outcompete local businessmen in securing forest leases and make it more difficult for locals to access fire-wood and non-timber forest products. The local forest management department is overburdened by overseeing large Chinese leases and has limited capacity to serve the subsistence need of local population. The officials at the local and district level are often corrupt and provide preferential treatment to the APSM at the expense of local interests.
At the wider interprovincial level, the whole development scheme is distorted to please the APSM and its sponsors, which is best illustrated by the border-crossing issue (see ‘environment’ for more explanation).
Local activists in the town of Amazar have many times engaged in direct action to prevent violations by APSM, like extracting construction material near residents’ homes.
APSM plans to log between 1.15 million and 1.6 million cubic metres of timber every year by clearcutting, which will lead to several detrimental consequences:
- APSM will destroy biodiversity hotspots: Most of the logging is planned in primary forests. Forests presently leased by the mill for the most part are intact old-growth forests of the highest biodiversity value, home to many rare species of flora and fauna.
- APSM will lead to deforestation and devastation of resources: A Greenpeace Russia analysis of the availability of timber for APSM operations shows that the wood resources in a 250 km radius are insufficient even for 10-year operation of the pulp mill. This is supported by a report of the President's Council on Civil Society Development and Human Rights in Russian Federation.
- Boreal forests of the region are slow-growing and not very productive. The area is severely affected by climate fluctuation, which causes permafrost melt and makes forest regrowth more problematic. Subsequently, regional officials also recognized that the area after fires has insufficient forest resources to support sustainable production.
- The project destroys important aquatic ecosystems: The dam built on the major tributary of the Amur river threatens the population of IUCN Red List rare salmonid fish (Hucho taimen). A smaller dam on an adjacent river has already driven down fish species numbers from 22 to just three species in less than 100 years. Significant water pollution and waste production is also expected from the pulp mill operation.
- Industrialisation of the region: The company plans to reopen the border gate Porkovka-Loguhe (Russia-China) to bring raw logs and lumber to China, as was the case between 2000-2008. Locals fear that this project and the reopening of the border will be the beginning of endless industrial devastation of the region. This road and bridge will dissect two nature reserves and open the last old-growth forests that to exploitation. The forests are present in Russia along Amur and Argun rivers, which are trans-boundary rivers. HXIC, the owner of the mill, has lobbied for this construction.
The concession given to the company is partly on the land of the Evenk Indigenous Peoples of central and eastern Siberia, Mongolia and Inner Mongolia. As such, the project threatens livelihoods of this indigenous group.
Although the company made a statement it won’t touch land of the Indigenous Evenks, in legal terms it still has the concessions over it. The Zabaikalsy Province goverment is currently seeking a way to partly replace APSM's forest consessions by 721 hectares elsewhere with maximum possible production of 465,000 cubic metres of wood annually.
Most of the workers employed by the Amazar pulp mill are men. Traditionally, women collect non-timber forest products from the natural forests such as berries, mushrooms, and edible or medicinal herbs. The pulp mill is destroying such forests including its non-timber products.
Applicable norms and standards
Other applicable regulations
2012 Green Credit Guidelines obligate Chinese banks to comply with “international norms and best practices” when abroad, and the 2009 Guidelines on Corporate Social Responsibility of Financial Institutions ask that Chinese financiers should develop their business plans “in light of international treaties, international practice and industry guidelines”.
2013 Guidelines on Environmental Protection for Foreign Investment and Cooperation “encourage enterprises to research and learn from principles, standards and practices with respect to environmental protection that are adopted by international organizations and multilateral financial institutions”, which include standards such as the Equator Principles.
Shenzhen Stock Exchange has very extensive disclosure requirements judging from at least 30 detailed documents related to this single unfinished transaction posted on web-sites.
See 'documents' for two analyses of China Development Bank's foreign investment policies.
Termination of non-public offering Zhongjie Resources Investment Co.
Shengzhen Stock Exchange has reported that the Board of Directors of the Zhongjie Resources Investment company (ZJR) decided to terminate the non-public issuance of stocks, and applied for withdrawal from the China Securities Regulatory Commission. The centerpiece of that bundle was the Amazar Pulp and Saw Mill.
Amazar pulpmill project started with beam production
Chita, Transbaikal, Russia. Another media confirmed that first stage of Amazar pulpmill project ‘'Polyarnaya'', is launched in Zabaikalskiy region. It is a joint Russian-Chinese project with total investment scope of USD 215 million, including the infrastructure (source: whatwood.ru).
Heilongjiang Xingbang Investment Co (HXIC) is the owner of the APSM. As of June 2016 it has raised only half of the investment needed to complete the mill’s construction phase, according to an official audit, investment reached CNY 2.2 billion out of CNY 4.9 billion required.
Investment in the project can be divided into three broad groups:
- Funds provided by HXIC’s shareholders (see 'related companies'): At least CNY 750 million.
- Loans from private banks and development banks (see below): At least USD 170 million and CNY 536 million.
- Funds obtained through Shenzhen Stock Exchange by Zoje Resources. Zoje Resources is a company raising money to buy 60% stake in HXIC. See below for a description of Zoje Recourses attempts to raise funds at the Shenzhen Stock Exchange.
Shenzhen Stock Exchange
The JinMa Group is selling its 60% stake in HXIC because its lacking the investment to complete the construction of APSM and to pay back the loans to China Development Bank. Zoje Recourses, also a Chinese company, signed an agreement in June 2015 with one of the owners of JinMa Group to buy its 60% stake in HXIC if Zoje Resources managed to raise sufficient funds on the Shenzhen Stock Exchange (SSE).
The funds (of Zoje Resources) to acquire HXIC and invest in APSM should have been raised by a non-public share offering, according to the orginal plan of Zoje Resources. However, due to falsifications, faked projects, and as a result massive public protest in Russia, potential shareholders and China Securities Regulation Commission doubted the validity of the sale until November 2015. From November 2015 to January 2017 the purchase agreement was rewritten six times, one potential buyer quit the deal, while nine other buyers decreased the amount of Zoje shares they want to buy from 5 billion to 3.5 billion. According to a Zoje disclosure document (from 21 January 2017) the China Securities Regulation Commission is yet to provide clearance for this deal. During this process the share price of HXIC decreased by 30% from CNY 600 million to CNY 400 million. So, the most recent share offering envisions that out of CNY 3.5 billion raised on the stock market, CNY 240 million will be used to buy 60% of HIX, while not more than CNY 1.32 billion will be invested into the Amazar Pulp and Saw Mill.
Further, Zoje Resources may decide to undertake a public offering once the private placement of the shares is successful. The public shares will be traded on the SSE 36 months after the end date of the initial private offering.
As of 2 February 2017, Xu Jianchu, the owner of JinMa Group, continues to control HXIC. He also now partners with a Chinese plant registered in Vladivostok, Russia in planning and development of the border-crossing on the Amur River.
See for more information on the Zoje Resources and SSE here and here. Zoje Resources commissioned New Times Securities Co to be its sponsor for the private offering. The SSE disclosure documents are listed here.
Heilongjiang Xingbang Investment Co (HXIC) fully owns the Amazarsky pulp and saw mills. APSM is the only current activity of HXIC. HXIC is a 100% Chinese owned company operating overseas and domestically. It is the principal owner and operator of all forest industry assets that comprise APSM. HXIC is currently owned by two companies: JinMa Group (95%) and Long Xin Overseas Resource Investment Co (5%). Zoje Resources Investment has tried to buy a 60% stake in HXIC since June 2015, but has not managed to raise funds at the Shenzhen Stock Exchange as of February 2017.
See below for more information, and other related companies.