SABAH FORESTRY DEPARTMENT

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1 SABAH FORESTRY DEPARTMENT Sabah Timber Legality Assurance System (Sabah TLAS) Sabah TLAS Audit Report Principles 1-4 Document No: FDS-TLAS-006 Approved by: Director Of Forestry This is a "CONTROLLED" document. Routine distribution is restricted to the approved distribution in Sabah Forestry Department. Page: 1 of 15 Date Effective: 25 October 2016 Revision Status: 01 For Internal Use Only. No Duplication Allowed 1

2 Sabah TLAS Audit Report Sabah Legality Standard Principles 1 4 FDS-TLAS-006 Licensee TSH Resources Berhad Reference # G Contact Person Office Address John Seng Sei Kui (Plantation AGM) Johnny Vun Tet Foh (Forest Manager) (Sandakan) Block 2, Lot 2, 1 st Floor, Taman Megah Phase 1, Mile 7, Labuk Road, Sandakan, Sabah, Malaysia. (Tawau) Bangunan TSH, TB 9, KM 7, Apas Road, Tawau, Sabah, Malaysia. sdkforestry@tsh.com.my tshtawau@tsh.com.my Date of Report Date of close out 02/04/2017 Telephone Fax Approved By Dr. Kevin T. Grace Statements Audit Statement GFS 064 LVS Issuance Date 1 April 2017 Expiration Date 31 March 2018 Assessment Dates March 2017 Assessment Details Scope of Assessment Species Lead Assessor Assessor(s) FDS Staff TSH Resources Berhad - FMU 4 / Ulu Tungud FR Rubber (Hevea brasiliensis) & Acacia Mangium (ITP) Seraya (Shorea spp.), Kapur (Drybalanops spp.), Keruing (Dipterocarp spp.), Kembang Semangkuk (Scaphium spp.). (Enrichment Planting) Mohd Akram Mansur Paramjit Karam Singh Badih Unai (ADFO Beluran), Jinis Ambong (Asst. KPPM Ulu Tungud) OBJECTIVES: The objective of this checklist is to verify compliance to the Criteria listed in the Sabah Legality Standard as defined by Principles 1-4 for Sabah dated 01 st January 2015 (FDS-TLAS-002). Compliance is defined when all applicable criteria are observed to be compliant. A Minor Gap to any indicator does not constitute non-compliance to a criterion. A Major Gap to any applicable indicator does reflect non-compliance to a criterion. Compliance for a criterion where multiple minor gaps are identified in indicators under the criterion may reflect non-compliance to the criterion. All issues identified under this standard shall be considered appropriate to the scale and degree of forestry operations undertaken by the parties under the agreement. 2

3 Summary Information Overview of Licensee: TSH Resources Berhad (TSH) is the signatory to the Sustainable Forest Management License Agreement (SFMLA) No. 07/97. The company is undertaking both Natural Forest Management (NFM) and Industrial Tree Plantation (ITP) Development, mainly using Hevea brasiliensis (Rubber), Acacia mangium, and Falcataria moluccana. Land tenure is based on the SFMLA 07/1997 which started on 10 th September 1997 and expires on 9 th September 2097 for all activities within the concession. The SFMLA area for FMU 4 is located within the Ulu Tungud Forest Reserve (123,385 ha), which is a Commercial Class II Forest Reserve. TSH is managing the SFMLA area based on the 2 nd Forest Management Plan ( ). To date, TSH has classified total of 28,375Ha from their own conservation area as Class 1 Forest Reserve. Land classification FMP Area (ha) Current (ha) Total Concession Area 123, ,385 Production Area - Natural Forest Management Area 50,891 47, Plantation Forest (ITP) 42,491 42, Progress: 9,767 Planted (4,700 rubber) (2,950 Acacia, 1,833 Albizia, 113 Binuang, 6 Laran, 165 Teak) Protected Forest & Conservation Areas 30,003 5, Class 1 Forest Reserve - 28,375 (Classified from their own conservation area) Social Community & Agriculture 0 0 Infrastructure, Roads Buildings, etc Environmental Context: The topography of the area is characterized by high hills and mountains interspersed with valleys along the rivers which pass through the area. Mixed Dipterocarp Forests occupy about two-third of the Forest Reserve, whereas the balance area is covered by forests developed on Ultrabasic Rocks, and Lower Montane Forest. The area is drained by two major rivers, which are Sungai Labuk and Sungai Sugut. TSH have conducted a wildlife survey during the creation of the book titled Biodiversity and Conservation of The Meliau Range: A Rain Forest in Sabah s Ultramafic Belt which was 3

4 published in The book describes the major identified species occurring in the area, such as Orang Utan, the Bornean gibbon, maroon langur, sun bear, otter, pangolin, wild boar, long tail macaque, pig tail macaque and mouse deer. The existing Special Environmental Impact Assessment (SEIA) reported common mammal species such as bearded pig, common palm civets and gibbons. A diverse birdlife is also present with as many as 170 bird species present in the area. There are also a number of amphibian species located in the FMU, including various species of frogs, snakes and river toads. Social Context: According to the 2 nd FMP there are 5 villages located adjacent to the FMU: Kg. Ensuan and Kg. Baba are located near the south-eastern boundary, whereas Kg. Paginatan, Kg. Matupang and Kg. Nalapak are located near the western boundary, comprising an estimated total population of 2,013 inhabitants in 296 families. Since the allocation of the FMU to TSH, the company has implemented an independent social impact assessment during preparation of the 1st FMP (December 1999) and a second social assessment, which formed part of the Special Environment Impact Assessment Study for the FMU conducted in June PACOS Trust (a Sabah based NGO focusing on community support and enhancement) has identified three cultural sites, which are located in Compartments 93 and 94. These sites were estimated to be not more than 30 ha in size and would not impact the forest activities as these compartments had already been allocated for Conservation under the Natural Forest Management (NFM) scheme. A buffer zone will be demarcated on the ground and the sites will be subsequently excluded from preparation of Comprehensive Harvest Plans (CHP) and harvesting. Scope of Assessment The scope of the evaluation is to verify compliance of TSH Resources Berhad with the Sabah Forest Management License Agreement (SFMLA 07/97) for FMU 4. The assessment is in accordance on the terms of the agreement for the Sabah Legality Standard Principles 1-4 dated 01 st January 2015 (FDS-TLAS-002). Site evaluation to verify and report the level of compliance by TSH Resources Berhad and contractors to the standard in respect to each of the criteria within this report. Compliance is defined when the auditee demonstrates that the indicators consist of none or only minor gaps against any applicable criteria of the standard. Non-compliance to the Sabah Legality Standard occurs when the auditee does not demonstrate adequate compliance to a criterion. Date 27 Mar 2017 Mon 28 Mar 2017 Tues Itinerary of Assessment 4 Activity Transit to TSH base camp, Opening Meeting, Document Review. Site visit to C.173 Research plot, C.174 riparian reserve, C.149 Planted rubber trees maintenance, C.149 campsite (labour quarters and generator house), C.143 Planting site for rubber, C.151 Workshop, Labour quarters, Schedule waste store, oil store, diesel tank, C.128 Riparian reserve, C.127 Riparian reserve, C.126 Nursery (Chemical store, fertilizer store, campsite, diesel tank), Manned gate. 29 Mar 2017 Site visit to license boundary re-brushing TSH/IOI Plantation, visit to TSH converted

5 Itinerary of Assessment Wed 30 Mar 2017 Thurs 31 Mar 2017 Friday Class 1 forest (Meliau Range), Riparian reserve. Document review, Closing meeting at TSH base camp and travel to Sandakan. Document review at TSH Sandakan Office. Highlights of Assessment (Major Gaps = 1; Minor Gaps = 2; Observations = 4) 30 March 2017 (Major Gaps = 0; Minor Gaps = 2; Observations = 4) TSH Resources Berhad has complied with the Sabah Legality Standard (FDS-TLAS-002) as one noncompliance was identified and addressed for criterion 2.1 during the assessment on March Summary of status of operations: Currently TSH in process of preparation CHP for NFM area where it was planned to conduct RIL harvesting for year Also, salvage logging operation for two approved coupe compartment planned this year. No planting operation conducted this year where only maintenance of planted trees taken places. A total of 28,375Ha from license area has been converted to Class 1 Forest reserve. Therefore, the licensee in process revising their FMP. Principle 1. All permission and document required to harvest the area such as Licensed agreement, EIA, FMP and AWP were available. One observation raised under principle 1. Observation Checklist 1.4.3: TSH planned to prepared new FMP (3 rd FMP) instead of revision the 2 nd FMP. However, application to the Chief Conservator of Forests are yet to be made. Principle 2. One (1) Major, two (2) minor gaps and three (3) observations were raised during the assessment as follow: Major gap Checklist 2.1.3: Lack of implementation of environmental mitigation measures was observed in term of Scheduled waste management, waste management and chemical storage at labour quarters (C.149, C.126 & C.151), workshop and chemical store. Status: 30 March 2017 All relevant environment mitigation measures as prescribed in the approved EIA report in regards of scheduled waste management, waste management and chemical storage has been implemented. (Refer checklist 2.1.3) - Closed Minor gap Checklist 2.1.3: Unsafe structure (abandoned sawmill) used for storage can posed safety threat to the workers Checklist 2.1.5: Minor disturbance was observed at two (2) riparian reserve at Compartment 174 for road construction. Observations Checklist 2.6.1: Two new workers (1 month) still in process registration of Certificate of Identity (COI) to Forestry Department. 5

6 Highlights of Assessment Checklist 2.6.2/2.6.7: No training on regards of workers safety and health conducted for year 2016 as the licensee only focusing on planting, maintenance and silviculture activities. Harvesting operation planned to be conducted in year 2017 as prescribed in AWP Checklist : Two (2) fire extinguishers have valid expiry dates but observed no pressure at Labour house C.151. Principle 3. All records of fees, royalties payment and transit pass fee payment were available during document review. No issued raised under principle 3. Principle 4. No community was identified within the licensed area. However, the licensee has conducted Social Base line survey and conducted meeting with communities adjacent to the license area. Results: (Compliance = 13; Non-Compliance = 0) Gaps were raised against indicators & criteria during the March, 2017 assessment. GAP Type Checklist Description 016/2017 Minor TSH identified an abandoned sawmill as an unsafe structure that is still being used for storage poses a safety threat to the workers. 017/2017 Minor Minor disturbance for road construction was observed at two (2) permanent streams in Compartment 174. Status of previous outstanding Gaps. GAP Type Checklist Status Description of Close Out 011/2015 Minor Lack of implementation of environmental mitigation measures was observed at labour quarters (C.142, C.129 & C.151), workshop, diesel tank and store room. Raised to Major March 2017 Continued lack of implementation of environmental mitigation measures was observed in term of Scheduled waste management, waste management and chemical storage at labour quarters (C.149, C.126 & C.151), workshop and chemical store. Closed 30 March 2017 Relevant environment mitigation measures as prescribed in the approved EIA report in regards of scheduled waste management, waste management and chemical storage have been implemented. (Refer checklist and appendix for photo evidence) 6

7 GAP Type Checklist Status Description of Close Out Revision of the Forest Management Plan was due by March 2015 but has not commenced yet. 014/2016 Minor Closed 015/2016 Minor Closed March 2017 TSH has been directed by Forestry Department of Sabah to revise their 2 nd FMP as overall achievements in implementation the main activities as prescribed in the 2 nd FMP have lagged far behind of the target. (Ref: JPHTN/SFM 800-1/1/6(KLT.3)85 dated 28 th January Refer to the letter from Chief Conservator of Forests, TSH has been directed to include the revision of 2 nd FMP as a new prescribed activity in their AWP 2017 (Ref: JPHTN/SFM 800-1/1/6(JILID.4)/2 dated: 14 February Therefore, TSH need to complete and submit their revision of 2 nd FMP in year Lack of adequate firefighting equipment observed at TSH site office. Only water tank and 1 water pump available in case of fire incident. March 2017 Adequate firefighting equipment observed at TSH site office consist of heavy machineries & vehicles, hand tools and water delivery system as prescribed in the approved fire management plan Observations: 2017 OBS # Checklist # Description 001/ / / / TSH planned to prepared new FMP (3 rd FMP) instead of revision the 2 nd FMP. However, application to the Chief Conservator of Forests has yet to be submitted. Two new workers (1 month) still in process registration of Certificate of Identity (COI) to Forestry Department. No training on regards of workers safety and health conducted for year 2016 as the licensee only focusing on planting, maintenance and silviculture activities. Harvesting operation planned to be conducted in year 2017 as prescribed in AWP Two (2) fire extinguishers had valid expiry date but observed no pressure at Labour house C.151. Highlights of Close Out Visit (if applicable) Dates 30 March 2017 Major gap 011/2015 was addressed as follows: Checklist 2.1.3: Relevant environment mitigation measures as prescribed in the approved EIA report in regards of scheduled waste management, waste management and chemical storage have been implemented. (Refer checklist 2.1.3) Photo evidence was provided during closing meeting. All evidence has been checked by Asst. KPPM Ulu Tungud and been verified by ADFO on 30 th March

8 Recommendations TSH Resources Berhad has demonstrated compliance with the Sabah Legality Standard (FDS-TLAS- 002) for its designated area and is recommended to receive a GFS Audit Statement and STCC from FDS. Several recommendations as follows: Minor Gap 016/2017 / CL Point 2.1.3: Repair the falling structure or designate new location for storage. Demolish the unsafe structure completely to avoid any accident occurs. Minor Gap 017/2017 / CL Point 2.1.5: Rehabilitate disturbed areas after road construction work using indigenous tree species (e.g. fruit trees supporting wildlife populations). Ensure water flow not blocked by any kind of construction material such as logs. Observation #001 / CL Point 1.4.3: Submit application to the Forestry Department on regards of preparing new FMP instead of conducting mid-term review. Observation #002 / CL Point 2.6.1: Ensure all workers working in the license area registered and possess valid COI. Observation #003 / CL Point 2.6.2/2.6.7: Conduct training on regards of worker safety and health subject to the commencement of harvesting operation. Observation #004 / CL Point : Replenish any unworkable fire extinguisher. The next surveillance audit will be scheduled on March End of Summary Report 8