Environmentalists warn Shenzhen Stock Exchange about risks of the Amazar  “Belt and Road” project in Russia

Environmentalists warn Shenzhen Stock Exchange about risks of the Amazar “Belt and Road” project in Russia


Environmental Paper Network and 7 other organizations on May 10 have sent a letter expressing our concerns to the Shenzhen Stock Exchange and other interested parties who need to be aware of the risks of investment in the Amazar Pulp and Saw Mill Project in Zabaikalsky Province of Russia. The Amazar Project and Pokrovka-Loguhe Border Crossing are being marketed by china’s Heilongjiang Province as a crucial part of China-Russia-Mongolia Economic Corridor under the Belt and Road Initiative.

EPN is not the first party to raise such concerns. The Russian Presidential Council for Human Rights had an inspection trip to Zabaikalsky Province in 2015 and made detailed inquiry into potential negative impacts from logging and damming activities by Polyarnaya (Xinban Guoji) a Chinese company since 2005 building  Amazar  Pulp and Saw Mill near the China border . Council proposed that old growth forests presently leased by Chinese loggers should be taken from them and added to the Upper-Amur Wildlife Refuge. The Council also requested to assess impacts from the large dam is being illegally built by the Polyarnaya  Co across the Amazar River – the first sizeable tributary of the upper Amur River. The Council also requested that national agencies reconsider development of Pokrovka-Louguhe Border Crossing, since much more beneficial alternatives are available in vicinity for a crossing  to connect China and Russia economies across the Amur River. Nothing has been done to fulfill those recommendations.

This time the letter addresses Shenzhen Stock Exchange, where Zoje Resources Co. is trying to undertake private placement aiming to raise money to continue construction of the Amazar Project:

Dear SZSE Chairman Wu:

We are writing to share our deep concern regarding ZoJe Resources’ (ZJR 002021) intended private placement which includes acquisition of Heilongjiang Xingbang Overseas Resource Investment Company(HXIC) and Amazar Pulp and Saw Mills (APSM)  in Russia. We understand that after this private placement, ZJR plans to conduct a second offering on the Shenzhen Stock Exchange.

Based on disclosure materials by the ZJR[1] and the New Times Securities Co[2]., we are concerned that these documents diminish and conceal major environmental, social, and financial risks associated with investment into the Amazar enterprise. When ZJR proceeds with its offering, we believe that ZJR’s failure to accurately disclose these risks fundamentally misleads potential and future buyers on the financial value and profitability of ZJR and its ability to comply with the Shenzhen Stock Exchange rules and regulations.

Undisclosed Environmental, Social, and Financial Risks

ZJR is primarily a sewing machine company and does not have any organizational experience in the pulp and paper industry[3], according to publicly available information. This lack of experience in understanding and recognizing key risks unique to the pulp and paper sector is evident in its failure to adequately disclose problematic hazards and liabilities of the Amazar pulp and saw mill.

Deficient Wood Supply

Disclosure documents, for example, optimistically refer to great forest resources in Asian Russia and insist that the great advantage of the enterprise is the fact that no large competitors log forests in the east of Zabaikalsky Province. This characterisation is misleading as several large wood processing projects have already tried and failed in the region due to a lack of economically and legally accessible forest resources (for example see fate of the Angara Paper Co[4]). Deficient wood supply has already been formally recognized both by the local HXIC subsidiary "Polyarnaya" enterprise and local authorities after a series of public discussions in 2012-2015. In 2013, project sponsor HXIC downsized capacity from 400 to 243 thousand tonnes of pulp, and in April 2016, HXIC declared a new strategy to "source 50% of low-quality wood"[5] from other forestry enterprises in recognition of the inadequate forest resources available for lease to sustain the pulp and saw mills with a proposed annual supply of 1.5 -2.5 million cubic metres of wood. However, there are virtually no other large forestry enterprises in the vicinity of Amazar, as the disclosure documents themselves confirm. Should the Amazar pulp and saw mill rely on other wood supply sources outside the region, this would ultimately make its wood supply less secure and likely more expensive. Naturally, a lack of secure wood supply jeopardizes the financial viability and stability of the project.

The lack of wood supply has become such a major, recognized problem that in 2016 the Russian Forest Service and HXIC-APSM "Polyarnaya"[6]Management signed a document stressing necessity to develop a new Wood Supply Plan for the operations of the mills, as previous plans could not ensure sustainable production. Disclosure documents state that "according to [the] agreement, Russian authorities have to lease to the APSM (at discount prices) a forest area sufficient to supply at least 1.5 million m3 annually". However, such leases have not been fully delineated and no new credible Wood Supply Plan has been presented so far either by HXIC or by the Russian Forest Service. According to a study on "stand replacement return interval"[7]by Greenpeace Russia the wood supply currently available in the 200 km radius around town of Amazar in Russia is barely enough to support 10 years of the APSM operation.

Insufficient arrangements for forest fire prevention.

Despite the fact that forest fires are the main reason for resource base depletion in the area of operation, Amazar PSM’s 220000 ha forest lease agreement includes insufficient commitments by the company to support efforts to prevent and combat forest fires in the lease area. As a result several long-lasting forest fires have already affected the area in 2015-16. No information is available in disclosure documents on this problem and measures taken to address it.

Biodiversity and Indigenous Peoples

ZJR disclosure documents overlook the project’s impacts on biodiversity, local communities and Ewenki indigenous people.  For instance, they do not contain any information for potential buyers on:

– potential impingement on livelihoods of local communities engaged in hunting, fishing, berry and mushroom collection;

– leasing for logging of traditional land of indigenous peoples;

– lease of internationally recognized intact forest landscapes, some of which were earmarked for protected area establishment;

– leasing for logging of biodiversity rich areas, which the provincial government promised to protect;

– damming of the most important local river, for the APSM water supply, without an environmental impact assessment (EIA), which will severely affect local subsistence fisheries and endangers population of the IUCN Red-listed Siberian Taimen fish.

For more details of these impacts see the Russian Human Rights Council Report[8] and BankTrack documentation[9].

We are concerned that, perhaps due to organizational inexperience in the pulp and paper sector, or willful neglect, ZJR is mischaracterizing and misleading potential buyers on the environmental, social, and financial feasibility of its proposed acquisition of the Amazar pulp and saw mill.

Failure of ZJR/HXIC to react in a timely manner when informed about project risks

As well as not disclosing those problems, ZJR/HXIC has failed to react in a timely and responsible manner to most of these challenges. This led to a special investigation conducted in the Zabaikalsky Province by the Human Rights Council under Russian President (HRCRP), which released a report in February 2016 with a special section raising questions on the Amazar PSM’s environmental and social responsibility as well as transparency of operations when trading on the SZSE. This has not been reflected in the ZJR disclosure documents and many of those questions are yet to be answered.

Unsustainable nature of planned operation does not fit SZSE rules and guidelines

The gaps in disclosure raise critical questions about the overall financial and environmental sustainability of the Amazar pulp and paper saw mill, which ZJR is attempting to raise funds to acquire via private placement and secondary offering.

According to the Shenzhen Stock Exchange Social Responsibility Instructions to Listed Companies (2006), listed companies shall formulate environmental protection policies based on their impact on the environment., in particular:

(6)to minimize the adverse impact of corporate performance on environment;

(8)to create an environment for sustainable development.

Company shall allocate dedicated human resources for regular inspection of implementation of environmental protection policies

Reputational issues arising from 2016"Hua-E XingBang Pig Farming Deal"

The above-mentioned gap in risk disclosure is not unique.  ZJR has a record of inaccurate reporting and misleading statements. In the middle of 2015, when first advertised, this private placement also included investment into a large-scale lease of agricultural land for pig and sheep farming. However, inquiries made by press and civil movements revealed that there was no such agricultural land readily available for lease, although it was promised  to the ZJR subsidiary HuaEXingbang Co. by the government of the Zabaikalsky  Province . Although the fictional pig farm has been removed from  the  private placement, now the forest lease is also undergoing a somewhat similar process.

SZSE’s Social Responsibility Instructions to Listed Companies Article 34 states that companies shall accept the supervision and inspection of the competent authorities and pay due regard to the public comments and media reports on themselves.

While it has not yet acquired any property in Russia the ZJR has already suffered high reputational damage there and world-wide because of its activities in Russia.  Not only mass-media, but also governmental officials have made public statements that the ZJR was fully aware of the non-feasibility of an agricultural land lease when including the fake pig farm in its initial private placement package. Besides, this deal was announced in  such a provocative manner that it resulted in a huge outburst of nationalistic protest[10]  throughout Russia, which (as some believe) contributed to the firing of the Governor of the Province. This "pig farm fraud", according to the Russian Ministry of Foreign Affairs, is now the best known fact about Zabaikalsky Province in  many countries. That is why the Russian President’s Human Rights Council emphasizes in its  2016 report not only Amazar PSM’s environmental  and social irresponsibility but also lack of transparency of operations and trading on the SZSE. Therefore early ZJR activities harmed SZSE’s reputation in Russia. To the best of our knowledge nothing has been  done by the ZJR to "pay due regard to the public comments and media reports on themselves" as stipulated  in article 34 of SZSE’s Social Responsibility Instructions.


Based on the evidence presented above we ask SZSE to stop the private placement procedure and conduct an investigation into compliance of ZJR’s proposed deal with SZSE regulations as well as its  possible impact on SZSE’s reputation. The easiest solution is to remove HXIC/AmazarPSM from the list of companies suggested by ZJR to potential subscribers in the course of public placement, as was done earlier with the "HuaEXingbang Pig Farming Project".

As for the possibility of investment into HXIC/Amazar PSM we are also recommending to potential financiers and future private placement buyers that they should stay away from the project until and 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 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. Additional information on the financial risks for potential financiers is available on the BankTrack web-site[11]. We look forward to receiving an assurance that all relevant parties are being informed about these risks. Please do not hesitate to contact us through the address above for more information.

Yours sincerely

Johan Frijns, BankTrack, Netherlands

Alexey Zimenko, Biodiversity Conservation Centre, Russia

Mandy Haggith, Environmental Paper Network

Andrey Laletin, Friends of Siberian Forests, Russia

Katharine Lu, Friends of the Earth, USA

Monika Nolle, ARA, Germany

Alexey Yaroshenko, Greenpeace Russia

Eugene Simonov, Rivers without Boundaries International Coalition


Ye Jinwei: Party Committee member, Commission for Discipline Inspection

Wei Xuechun: Former party member, Commission for Discipline Inspection

Yan Zhihua: Board of Supervisors

Minister of Environmental Protection

Shenzhen Securities Information Company, Ltd

Shanghai Co-operation Organisation

Secretary General Li Pumin, China National Development and Reform Commission

Minister Gao Huchen, Ministry of Commerce of the People’s Republic of China
Director Zhou Liuju, Department of Outward Investment and Economic Cooperation

Chairman Hu Huaibang, China Development Bank

President Liu Liange, China Exim Bank


[2]Review of Zoje Resources Non-public offering January 21, 2017  http://pdf.dfcfw.com/pdf/H2_AN201701200282746942_1.pdf


[4] A lesson to learn: the largest investment project ‘Angara paper’ in Siberia has crumbled with half a billion ruble debt and declaration of bankruptcy http://www.forestforum.ru/viewtopic.php?f=28&t=18507&p=132366&hilit=Angara+Paper#p132366


[6] Polyarna is the name of the pulp and saw mill project.

[8] The Report on special investigation  conducted in the Zabaikalsky Province by the Human Rights Council under Russian President (in Russian)http://president-sovet.ru/presscenter/news/read/2988/

[9]Amazar Pulp and Saw Mill Dodgy Deal http://www.banktrack.org/project/amazarsky_pulp_and_paper_mill