Sabah 100-year carbon trading deal: Controversy as indigenous communities bemoan lack of consultation, details

KOTA KINABALU: The road to Kampung Buayan in Ulu Papar on Sabah’s west coast changes from asphalt to gravel, and then just red earth which turns almost muddy instantly after a short spell of rain.

Even with an off-road vehicle, it is still necessary to break out the shovel or slowly winch the car out from the mud when it is stuck.

Residents of Kampung Buayan and the surrounding villages live on the fringe of the Crocker Range National Park, just 40km south-west of Kota Kinabalu, where they plant hill paddy and other crops for subsistence.

A number of them also venture into a nearby forest regularly to obtain forest products including food, traditional herbs and firewood for their personal use.

News of the Nature Conservation Agreement (NCA), a carbon trading deal signed in late October last year, has such indigenous communities concerned. 

The NCA, an agreement signed between the Sabah state government and a Singapore-registered company named Hoch Standard Pte Ltd, is a profit-sharing agreement based on carbon trading and monetising other non-carbon and natural capital from 2 million ha of Sabah’s forest reserves designated under the NCA. 

Carbon trading involves the buying and selling of carbon credits, which would permit companies and other organisations to emit carbon dioxide or other greenhouse gases. The aim of the market-based system is to reduce emissions that contribute to global warming. 

Under the NCA, 70 per cent of the revenue from the sale of Sabah’s carbon credits and other natural capital will go to the state government. The remaining 30 per cent will go to Hoch Standard, according to media reports.

The agreement also requires Hoch Standard to develop a Nature Conservation Management Plan to help conserve and reforest degraded areas within the designated 2 million ha of forests, with the restoration costs paid up front by the Sabah government.  

Under the agreement, Hoch Standard will restore and commercialise 50,000 ha from this designated area over the first two years of the agreement’s term.

At this juncture, other implementation details such as the exact demarcation of the affected area, as well as whether indigenous communities can continue to extract resources from the designated area, have yet to be spelt out.

The agreement has come under criticism from indigenous communities and Sabahan activists alike, citing a lack of prior consultation and implementation details.

The state’s attorney-general also issued a statement noting that the signed agreement is not legally binding in its current form. 

However, the state government remains bullish about the long-term economic benefits and viability of the project.

“NO GOVERNMENT OFFICIAL EXPLAINED THE AGREEMENT”

Details about the NCA first emerged late last year, after environmental news portal Mongabay reported that Sabah’s indigenous communities had been locked into a 2 million ha carbon deal that they were not aware of. 

Sabah native Stan Lassa Golokin, the corporate advisor of Hoch Standard Pte Ltd, reportedly signed the agreement on the Singapore company’s behalf with Sabah’s Chief Conservator of Forests Frederick Kugan. Sabah Chief Minister Hajiji Noor and Deputy Chief Minister Jeffrey Kitingan witnessed the signing.

Malaysian media have also quoted Dr Ho Choon Hou, who is Hoch Standard’s project director and strategic funder for the NCA deal, as saying that he has presented to the state government evidence of funds and the monies required for the project to take off.

Dr Ho, who is also Singapore’s non-resident ambassador to Mexico, reportedly said that the company is in active discussions with Sulawesi, Western Australia and East Timor on other carbon trading projects. 

Activists and politicians have queried the agreement’s details as it did not appear to have undergone any consultative process, especially with the indigenous communities in the nearby areas. 

"We never saw any government official come in to explain what the NCA was,” said Mdm Irene Kodoyou, a kindergarten teacher and former village head in the Ulu Papar area, which is at the fringe of the forest. 

“I had to find out from the media. And I still did not understand what it meant, until I got in touch with activists and non-governmental organisations (NGOs) concerned with the agreement.” 

She added: “We do not know where the NCA, or even the pilot project, will be implemented. I fear it could disrupt our lives.”

Likewise, former Sabah senator Adrian Banie Lasimbang, an activist who has been working with the indigenous communities on various development projects over the years, said he only learnt about the deal after he saw media reports. 

He told CNA that he was initially enthusiastic, as it would be a revenue generator for the state while ensuring its trees remain standing.

But that enthusiasm turned to shock as more details came to light, including the fact that all of Sabah’s totally protected forest areas would come under control by Hoch Standard for 100 years, according to media reports.

“It’s basically letting go of the sovereignty of our forests to a company that has little or no experience on forest management or carbon trading,” he stated.

According to the company’s listing on Singapore’s Accounting and Corporate Regulatory Authority, it is an investment holding company. Hoch Standard’s activities were not detailed.

Similarly, head of non-governmental coalition Sabah Environment Protection Association Alexander Yee said he was not against the idea of a carbon trading deal. However, he expressed misgivings over how the NCA was finalised.

“First, a carbon credit operator would know that FPIC (Free, Prior and Informed Consent), which is part of the United Nations Declaration on the Rights of Indigenous Peoples (UNDRIP), is a requirement.”

“Our DCM (deputy chief minister) said the area has not been identified. And yet he went on to say that it will be a protected area which means consent has been given,” Mr Yee pointed out.

Mr Lasimbang has filed a suit over the NCA, naming Mr Kugan and the Sabah government as respondents to obtain a copy of the agreement and other correspondences surrounding it. 

He is seeking more clarity on how the different indigenous Sabahan communities, whose native customary rights including access to forest resources, might be affected by the NCA. 

A copy of the leaked agreement has been posted on online forums and critics of the deal argue that some of the clauses might put the local communities at a disadvantage. 

For instance, one clause states that Sabah is to grant Hoch Standard all rights to both the carbon capital and non-carbon capital (excluding timber, oil and gas and other mineral resources) for the period of the agreement. 

Granting Hoch Standard the rights to non-carbon capital means it might have control over matters such as those related to biodiversity and even water resources. 

Additionally, the agreement binds future Sabah governments, even if there is a change in personnel in the state legislative assembly and executive branch.

Mr Golokin, Hoch Standard’s advisor who signed the agreement on behalf of the company, declined to comment when approached by CNA. 

Dr Ho, the project director, did not respond to CNA’s queries.

“WE DEPEND ON THE FOREST”

In Ulu Papar, there are five villages with over 1,000 residents. From their perspective, they are concerned that the carbon trading deal might affect their livelihoods which are dependent on what nature provides.

Mr Mozes Gisu, who lives in Kampung Tiku on the road to Kampung Buayan, told CNA: “We depend on the forest.” 

He explained that the villagers farm their own hill rice and tend to their own orchards. They also hunt for wild boars and collect herbs such as forest ginger to supplement their diet. 

Both Mdm Kodoyou and Mr Gisu noted that there was an understanding between the indigenous communities and Sabah Parks, one of the state agencies managing its Totally Protected Areas (TPAs) designated as parks. The understanding states that villagers living in or on the fringe of forests can collect forest produce for personal use. 

This formal understanding was struck over a decade ago, Mdm Kodoyou said, as the state park authority had certain restrictions but they were relaxed to allow the villagers to continue with their customary lifestyle. 

In return, the villagers refrained from hunting many animal species, she said. They also kept an eye out for lumber poachers, particularly those searching for gaharu (agarwood).  

Mr Gisu said the villagers were worried over the vague wording in the NCA, particularly the references to non-carbon capital.

“With what we now know about the wording of the agreement, we might not be able to enter the forests for our traditional herbs and hunt for food.”

“Our way of life would be greatly affected,” he noted.

AGREEMENT IS “LEGALLY IMPOTENT”: STATE ATTORNEY-GENERAL

Sabah’s Attorney-General Nor Asiah Mohd Yusof has also weighed in on the issue.

On Feb 9, she stated that the NCA signed in October 2021 was a “non-binding framework agreement” and “legally impotent”.

In a press release, she explained that certain issues, such as the designated area for the NCA and the pilot area, have not been identified.

Until the areas have been incorporated into the agreement, each of the NCA’s terms, conditions and penalties was non-binding and unenforceable, she wrote.

“In short, the NCA in its present form is legally impotent.” 

Other problems included the development of a nature conservation management plan and consent from affected indigenous communities, said the state attorney-general.

She added that the state government would require an addendum to the NCA to be executed, where absurd and unfair contract terms are removed.

“The addendum will also put in place clear safeguards and protections for the state. Unless the addendum is executed, the NCA will not be finalised,” she wrote. 

She also noted that any clause in the NCA seeking to bind the state legislature was illegal under Malaysian contract law.

“The proposed NCA and its promoters are now being scrutinised by the State Attorney General’s Chambers as part of a wide-ranging and ongoing due diligence exercise,” she added in her statement. 

Ms Cynthia Ong, the interim chairman for Forever Sabah, an NGO focusing on Sabah’s rural economy, said she was heartened by the attorney-general’s statement.

“And at the same time, it concerns many of us how we got here. How was it possible that something like this was pushed or forced through by a few (people)?” she said. 

“It may be ‘legally impotent’, but how did it even happen, and why is it still not dead?” Ms Ong remarked.

The NCA was also discussed at the federal level, with Environment Minister Tuan Ibrahim Tuan Man noting that his ministry is the National Designated Authority based on the United Nations Framework Convention on Climate Change (UNFCCC).

As such, the ministry is responsible for authorising Malaysia’s international carbon credit transfers as well as monitoring and ensuring the transactions’ transparency, he explained in parliament on Mar 1. 

The minister stated that any involvement in carbon trading must be referred and reported to the environment ministry, as the country’s involvement in international carbon trading has the potential to affect its Nationally Determined Contributions towards combating climate change and its target to achieve net zero emissions under the 2015 Paris Agreement. 

“The federal government was not informed, referred to or involved by the Sabah state government in the negotiation process for the NCA,” Mr Tuan Ibrahim said, adding that he had only received information on the deal through media reports. 

"The Environment and Water Ministry always welcomes the Sabah state government to refer and involve the federal government and other stakeholders in discussions regarding the NCA agreement and carbon trading mechanisms in the future.”

Responding to a similar parliamentary question on the NCA on Mar 10, the minister said the environment ministry’s status as designated national authority is also important to ensure both the country’s and related stakeholders’ interest are protected.

“This will also prevent domestic entities, such as state governments, from accepting unequal investments which do not match the effort put in,” Mr Tuan Ibrahim said.

EXPERTS CITE IMPLEMENTATION HURDLES

Experts have also pointed out the implementation hurdles.

On Feb 15, Professor David Burslem from the University of Aberdeen and Dr Glen Reynolds, the director for the South-East Asia Rainforest Research Partnership (SEARRP), issued a joint statement on issues affecting the NCA’s viability. 

Both have worked in Sabah for over two decades, with a focus on forest restoration.

The two experts explained that for the NCA to be profitable, it would have to demonstrate that the emission reductions are beyond “business as usual”, and the reductions would not have happened unless the NCA was implemented.

For the NCA to create such “additionality”, it would have to show that the actions taken under the project would be responsible for reducing carbon, beyond its existing forest protection and restoration programmes. 

However, they noted that Sabah’s existing TPAs under the state’s conservation schemes were already held high carbon stocks and would not meet this “additionality” criteria. Therefore, the carbon credits would not be saleable under the NCA, they opined.

The only feasible route to achieve “additionality” would be through forest restoration to increase the capacity of forests to absorb carbon, over and above that which would have been absorbed through natural regeneration.

Mr Yee of Sabah Environment Protection Association added: “For carbon credits to work, the area must give additionality. It is a defining concept for carbon trading. You can’t just use areas which have already been protected.”

Prof Burslem and Dr Reynolds also claimed that the projected revenues for the NCA had relied on grossly-inflated estimates regarding the quantity of carbon absorbed and pricing estimates for carbon sales. 

Moreover, the NCA proposed to restore 50,000 ha of degraded forest in the first two years. The duo said that this would not be achievable, based on the track record of previous reforestation projects in the state.

DEPUTY CHIEF MINISTER DEFENDS PROJECT

The NCA’s chief proponent, Dr Kitingan, has been active in defending the agreement. He said the NCA would earn the state between RM2.2 billion (US$523 million) and RM5.6 billion per year through carbon trading and the commercialisation of other natural assets. 

Speaking during the Sabah International Business and Economic Summit in mid-January, Dr Kitingan said that the success of the NCA was expected to attract private funding of up to US$10 billion.

This would enable the state, he added, to implement its economic and social development programmes.

The deputy chief minister also hit out at critics of the agreement, stating the latter did not understand the deal.

“They have personal interests, private interests which become obstacles.”

“Actually, there is nothing not good, everything is good. The only thing is that we didn’t open up about it earlier,” Dr Kitingan said during a press conference at an environmental event in Putatan on Feb 19. 

When asked by reporters on why 2 million ha of land has been set aside, Dr Kitingan replied that if the NCA had not covered 2 million ha, it would not be profitable.

“Right now, there is no revenue from carbon. Zero. So if we can use science to verify the carbon (absorption), it can be measured.”

“If it can be measured, then there is value for money for the economy, although you cannot see it because you’re not cutting down the trees,” he noted. 

Responding to CNA’s query on how the state government would ensure that the deal was transparent, the deputy chief minister replied that the agreement would be put on blockchain, and “open for scrutiny all over the world”.

Commenting on the state attorney-general’s position that the agreement is currently unenforceable, the deputy chief minister said: “Of course it is still viable.”

“But there is a court case, I cannot talk about it now,” he added, referring to the suit filed by Mr Lasimbang, the former senator.

On Mar 7, local media reported that Sabah Foundation, a state government body, had been appointed as the local partner to implement the NCA.

Dr Kitingan reportedly said that Hoch Standard would assist the state agency by providing the necessary technology and knowledge to implement the agreement. 

This would see a separate service agreement signed between Sabah Foundation and Hoch Standard, with the latter paying 5 per cent of its gross revenue from the NCA to Sabah Foundation for NCA-related activities. 

Sabah Foundation, or Yayasan Sabah, was originally set up to provide education opportunities for Sabahans in 1966, although its scope has since expanded to include economic and social advancement. 

On the ground, Mdm Kodoyou said that some of her fellow villagers are sanguine about being able to reap the economic benefits. 

But she still has reservations. “I need more information to help other villagers understand how our way of life could be affected if it is implemented.”