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River-Killng Russian-Chinese Pulp Mill Project Resurfaced at the Hong Kong Stock Exchange

11 September 2019 Topics:
Dam on Amazar River that degrades habitat of giant Taimen Salmon (by RwB)

We do have both good and bad news from the Amazar River -the uppermost tributary of the Amur-Heilong, which was blocked by dam for alleged needs of the Amazar Pulp and Saw Mill “Polaris”( 阿玛扎尔林浆一体化项目 ) – being built by Heilongjiang Xingbang International Investment Co。 ( 黑龙江兴邦国际资源投资股份有限公司 ) with support of a loan from China Development Bank. The Polaris Project also threatens last remaining intact boreal forests on Sino-Russian border.

This unfinished project initiated in 2004 has completely blocked alternative development options for Amazar town on Transsibirskaya railroad. Even water supply of the town was poisoned because for 10 years no one bothered to repair old reservoir on Bolshaya Chichatka River (tributary to the Amazar river) which provided municipal water supply since 1911. In 2013 the RwB proposed that instead of blocking majestic and biodiversity rich Amazar the “Polaris” may fix old dam on its tributary and use it for both municipal and industrial water supply. Our suggestion was refuted and the dam was built illegally in the middle of the forest and ruined habitat of endemic salmonids and other fish.

After decade of suffering for locals, the repair of the old reservoir near the town on Bolshaya Chichatka River was completed only in 2019, finally supplying community with drinkable water. Funny enough current needs of “Polaris” are also served from this reservoir. It should have been done a decade ago and would allow to spare Amazar River and its migratory fish stocks.

Repaired 100-year old dam ensures water supply to Amazar Municipality. If there are “good dams” – here is one !!! (Courtesy of Dr. Igor Miheev)

Meanwhile Amazar Pulp and Saw Mill “Polaris” Project has never been completed, the CDB funds have been wasted, and this May Russian Government finally excluded the project from the List of Priority Forest Industry Investments, thus necessitating pay back multi-year discounts in forest lease and annulling the lease agreements. To save themselves the owners of the Heilongjiang Xingbang International Investment Co. are trying to find some naïve investor to buy or at least take over management of this hopeless endeavor. In 2018 environmental NGOs prevented them from making such a deal in Shenzhen Stock Exchange.  This year we spotted them making similar proposals at the Hong Kong Stock Exchange.

Ghostly Industrial Complex (RwB 2018)

On September 4 the Environmental Paper Network (EPN) has submitted a complaint to the Hong Kong Stock Exchange on possible violations of disclosure requirements by Kiu Hung International Holdings Limited (Kiu Hung is listed on the main board of Hong Kong Stock Exchange since 2001 with stock code 00381). This company is interested in buying the Amazar pulp mill project located in the Zabaikalsky Province of Russia, also known as Polaris Project or Polarnaya. The Amazar mill is still under construction but is already one of the best known risky and conflict-prone forest industry investments within Russia by Chinese entities. It has been accused of violating indigenous peoples rights, of threatening unique biodiversity-rich forests along the border, mistreating and discriminating local workers, and the illegal construction of a large dam that blocks migration of rare fish species.

Over the past few months, Kiu Hung has reported on two MOUs to buy the Polaris Project, as well as on a business model, a bond issuance to finance the deal, and the withdrawal of the bond.

A noteworthy aspect is that in these documents Kiu Hung makes no commitment to actually invest in the project, which is still not finalized. Meanwhile, due to lack of investments, the Amazar mill has been excluded from the List of “priority forest industry projects” by the Russian Ministry of Trade and Industry. This means that all the forest leases it obtained without tenders should be annulled in 2019. An important question is would a new owner be able to apply for inclusion in this list again?

There are multiple risks that the company has not disclosed which could result in material losses for shareholders once the transaction is completed. There risks include:

  1. The existence of a large debt to the China Development Bank, and the lack of clarity over who will pay this debt;
  2. The lack of access to sufficient forest resources for the planned operations;
  3. The lack of information about the responsibility for the debts from, and court cases against, Polarnaya Company in Russia;
  4. Disinformation about the ‘logistical advantage’ of being close to a port, which in fact has been closed since 2007;
  5. Lack of disclosure of ESG (Environmental, Social and Governance) risks;
  6. Lack of disclosure of key business details;
  7. Lack of a commitment to invest, which may indicate it does not actually plan to develop the project.

Kiu Hung was recently censured by the Listing Committee of The Stock Exchange of Hong Kong Limited for incomplete and inaccurate disclosure and believe that our observations may show another example of such misconduct. It is hoped that HKEX officials and regulators will pay attention to the lack of disclosure and the problems that would follow if transaction will go on in current form without evaluation and mitigation of all above mentioned risks. Furthermore, observers are seeking to know where and when the ESG reports related to due diligence on this proposed transaction will be made available to the public.

The RwB hopes that high standards of the HKEX leave this project no chances to proceed without radical adjustments, leading to sustainability and full environmental mitigation in place, including decommissioning of a dam on biodiversity rich river.

Source: RwB and EPN

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