‘Very hush-hush’: Borneo’s $80bn carbon deal stokes controversy

Figures behind the deal include a politician linked to deforestation in the 1990s and an associate named in the Panama Papers.

Rainforest in Borneo, Malaysia
Activists say the Nature Conservation Agreement in Sabah, Malaysia lacks transparency [File: Fazry Ismail/EPA]

A politician linked to wide-scale deforestation in the 1990s and his Panama Papers-named associate, a Singaporean shell company, and the owner of an agricultural consultancy in Australia are among the figures behind a controversial carbon trading deal worth an estimated $80bn in Borneo.

The Nature Conservation Agreement (NCA) ostensibly protects 2 million hectares (4.9 million acres) of jungle in the Malaysian state of Sabah from logging for the next 100 years.

But the deal, signed in October between Sabah state officials and a Singaporean shell company, was hammered out in absolute secrecy and without credible due diligence, a tender process or public consultation, according to Indigenous leaders, activists and NGOs that spoke to Al Jazeera as part of a months-long investigation.

From the outset, the NCA gives 30 percent of Sabah’s revenue from carbon credit sales – estimated to be $24bn over the life of the contract – to a company in Singapore, Hoch Standard, with no obvious history in carbon trading.

“It makes me sick to my stomach,” a whistleblower with firsthand knowledge of the deal told Al Jazeera, speaking on condition of anonymity due to fears of retaliation.

“I got involved in this deal because I knew that if we did it right, Sabah could become the world leader in the monetisation of natural capital and carbon credits. But instead, we created a template other countries can use to pilfer and abuse the system.”

An estimated 25,000 Indigenous people live in forest reserves in Sabah, with an undocumented number living on the fringes of reserves, according to a 2005 report commissioned by the the Food and Agriculture Organization, making up 39 different ethnic groups. Yet Indigenous leaders in the state, where about 60 percent of the population belong to native ethnic groups, say they were kept in the dark about the deal.

“The whole thing was very hush-hush,” Adrian Banie Lasimbang, a former Malaysian senator and Indigenous activist, told Al Jazeera.

“The Sabah Government and whoever is responsible for brokering this agreement care nothing about the rights or welfare of Indigenous people.”

Indigenous homes in Borneo Malaysia
Malaysia’s Sabah state is home to 39 Indigenous ethnic groups [File: Ahmad Yusni/EPA]

The NCA was only made public on November 9, 10 days after it was signed, after US-based environmental news site Mongabay published an expose on it.

Peter Burgess, CEO of Tierra Australia – believed to be one of the brokers – has denied sidestepping Indigenous rights or that he or his company have been involved in carbon trading, which involves buying and selling credits that allow an entity to emit a certain amount of carbon dioxide.

“I own a very small company which specialises in analysing [water] catchment functions,” he told Al Jazeera.

“We have never been a carbon company, currently not a carbon company and never plan to be one.”

Yet only weeks earlier, Burgess – who was reported by Mongabay as saying the project would never happen if “we had to go and sit around every campfire” – presented slides at the virtual International Heart of Borneo conference in which he promoted the benefits of Sabah’s participation in a “$16 trillion” global carbon market, according to screenshots posted on social media by Yin Shao Loong, a senior research associate at the Khazanah Research Institute.

During his presentation, Burgess, whose exact involvement in the NCA or relationship to Hoch Standard remains unclear, claimed technologies such as blockchain and artificial intelligence would “eliminate corruption”, according to the screenshots of the event.

The NCA was signed on behalf of the State of Sabah by Chief Conservator of Forests Frederick Kugan, according to a copy of the document seen by Al Jazeera. Kugan signed the deal in the presence of Chief Minister Seri Panglima Haji Hajiji bin Noor and Deputy Chief Minister Jeffrey Gapari Kitingan, who provided their signatures as witnesses, according to the document.

Hajiji and his office did not respond to requests for comment.

Kugan told Al Jazeera he had been “pressured” to sign the agreement on the understanding it was a preliminary document with “no map or designated area”.

“I was told to sign the document based on the understanding that it is incomplete and will require much more work,” Kugan said, declining to say who had pressured him to sign.

Kugan said that while he believed the NCA had “good intentions”, he was concerned about Hoch Standard’s background and the firm’s 30-percent cut.

“The state attorney general is now conducting due diligence, seeking more clarification, and this is still ongoing,” he said.

Kugan also said Indigenous people had not been consulted about the NCA as it was still only a “generic framework”.

“Consultation with Indigenous people and other stakeholders is only required when they come up with a more detailed plan,” he said.

Stan Lassa Golokin, a longtime ally of Deputy Chief Minister Kitingan and Burgess’ business partner at Tierra Australia, signed the NCA on behalf of Hoch Standard, according to the document seen by Al Jazeera.

Golokin and Kitingan’s relationship dates back to the 1980s when Kitingan was director of the Sabah Foundation, a 1.1-million-hectare (2.7-million-acre) logging concession created in the 1960s with the stated goal of promoting educational and economic opportunities for people in Sabah.

‘Open secret’

An audit by Pricewaterhouse in 1994 discovered about $1bn missing from the Sabah Foundation’s coffers between 1986 and 1993 – a period that coincides with most of Kitigan’s tenure, according to a claim by former Malaysian Prime Minister Mahathir Mohamed cited in Why Governments Waste Natural Resources, a book by American economics professor William Ascher.

During the same period, Golokin was general manager of Innoprise, a holding company responsible for the harvest and sale of thousands of tonnes of top quality timber.

In 1990, Kitingan was arrested and charged on seven counts of corruption following allegations he received money or shares in shipping companies worth more than $370,000 as an inducement for assisting certain companies in the carriage of logs for the Sabah Foundation, according to the Union of Catholic Asian News service.

Kitingan was also charged with sedition but all the charges were dropped in 1994 after he changed political parties and professed loyalty to Prime Minister Mahathir– a strategy Kitinganhas used repeatedly during his career, earning him the nickname “katak”, or frog.

“It’s an open secret that these two figures are responsible for the majority of the deforestation in Sabah,” said Lasimbang, the former senator, referring to Kitingan and Golokin.

“There were a million hectares of trees in the [Sabah Foundation logging] concession, they were supposed to log it sustainably but it is mostly gone or very much degraded. No one knows how much money was made. The money was supposed to be used as an endowment for Sabahans but the net economic benefits were almost zero.”

In 2016, Golokin was linked to four companies in the Panama Papers, a leaked database containing the personal financial information of wealthy individuals and officials.

The next time he surfaced was at COP26, the 2021 UN Climate Change Conference in Glasgow, trying to raise funds for the NCA.

“Do you know by protecting the forests [through carbon trading], you can actually generate more income than felling it,” Golokin told a reporter at the summit, according to a COP26-branded video posted online.

Man stands on timber harvested in Malaysia
Deforestation has long been a concern in Malaysia’s Sabah state [File: Jarni Blakkarly /Al Jazeera]

Sabah’s Attorney General Nor Asiah Mohd Yusof refused to sign or even witness the NCA.

On November 8, she sent a letter to Hoch Standard instructing the company to stop “inviting third-party investors, financiers or financial institutions to participate” in the NCA as it is subject to finalisation because “the proposed Designated Area under the Agreement is yet to be ascertained and to this point remains uncertain due to previous third party rights”.

Golokin could not be reached for comment.

Ho Choon Hou, Singapore’s non-resident ambassador to Mexico, whose name and purported signature are on a letter describing Golokin’s role in the project, declined to comment.

According to the letter seen by Al Jazeera, Ho wrote to the Sabah chief minister in October to confirm that Golokin was authorised to sign the NCA on behalf of Hoch Standard.

In an email dated May 12 that was leaked to Al Jazeera, Burgess wrote that Ho, “major shareholder and director, advised us that someone in Sabah was doing due diligence on him”.

“This is deeply disturbing as … Doctor Ho has an impeccable reputation in Singapore as a corporate person, a successful businessman and currently holds the position of the Singapore [non-resident] Ambassador to Mexico.”

Burgess refused to comment on the email and all subsequent issues raised by this investigation.

Holly Jean Buck, an assistant professor in environment and sustainability at the University of Buffalo, told Al Jazeera it was questionable whether Sabah needed a foreign company to sell its carbon credits.

“The way I see it, they are giving a foreign corporation a 30-percent cut for measuring and packaging the carbon stores in their trees into something that can be traded and exchanged and turned into a commodity,” Buck said. “That’s all they are doing.”

Brice Böhmer, who heads climate and environment at Transparency International in Berlin, told Al Jazeera the lack of stipulations for funnelling revenue directly to local communities amounted to a “huge red flag”.

“There also appears to have been no community consultation. That’s another red flag – and quite illegal,” Böhmer said.

Kitingan is among the few individuals connected with the NCA who have not gone silent since Mongabay broke the story.

On November 19, he held a public meeting in the state capital Kota Kinabalu attended by NGOs and the media, during which he shrugged off questions about why the NCA was forged in secret.

“Hoch Standard is a global player, it is backed up by Temasek Holding,” he said, naming Singapore’s state-owned investment agency, which is committed to halving the carbon emissions of its investments by 2030.

A spokesperson for Temasek told Al Jazeera “we have not been able to identify any link we may have with Hoch Standard”.

In a subsequent telephone interview with Al Jazeera, Kitingan said consultation with the Indigenous population was “not an issue” because they were already consulted when the area became a forest reserve under the 1968 Sabah’s Forest Enactment.

‘Obvious con’

Kristen Lyons, an expert in Indigenous rights at the University of Queensland, told Al Jazeera the failure to win the support of the Indigenous people could be the NCA’s downfall.

“These schemes are quite vulnerable and we have seen around the world when local communities are not on board, they are able to disrupt them,” Lyons said.

Lyons also warned the absence of community consultation could see Sabah carbon credits rejected by the market.

“The world has become increasingly aware of the rights of Indigenous people and is moving away from unethical businesses,” she said.

Kitingan does not believe bad press will affect the NCA because he claims it has already been debated and approved by Sabah’s legislative assembly. But records show the Cabinet in Kota Kinabalu has not approved the NCA – only the theoretical monetisation of carbon and natural assets subject to strict due diligence.

“I did my own due diligence on Hoch Standard and Dr Ho,” Kitingan said. “Everything is above board. He is a very professional person.”

Ho’s name does not appear on company records for Hoch Standard supplied by the Accounting and Corporate Regulatory Authority of Singapore. The director is identified as Benjamin Ng, a Singaporean citizen mentioned in the Pandora Papers, a leak of financial information involving the rich and powerful.

The major shareholder is identified as Lionsgate, a shell company registered in the British Virgin Islands – a tax haven that has criminalised the disclosure of corporate information such as the name of the major shareholder.

Kitingan acknowledged to Al Jazeera that Hoch Standard was not backed by Temasek, despite his public comments suggesting otherwise, but claimed it had the backing of other “big funding agencies”. He maintained the company is valued at $10m even though company records show Hoch Standard has paid-up capital of only $1,000.

Lasimbang, the former senator, said he feared Kitingan, whom he described as a “friend”, was being conned by other people.

The whistleblower at the centre of this investigation shared similar sentiments.

“Dr Jeffrey is getting old and I think he is not as sharp as he was because this deal is such an obvious con,” the whistleblower said.

“He’s been misled to think that all we have to do is sit back and the money will come rolling in – the same story we Sabahans were sold in the 1990s with logging. But today carbon is the new gold. I don’t even think he knows he did anything wrong by doing the deal in secret.”

Kitingan brushed off any suggestion he had been fooled.

“I am better and wiser now than I ever was before. I have put my reputation on the line for this and I am certainly not going to be taken for a ride at the very end of my career,” he said, adding that he would leave the ruling coalition if the project was blocked.

“I still believe this deal will go ahead. I believe it is the best option for Sabah and the environment, and the best for the global climate.”

Source: Al Jazeera