MALAYSIAN TIMBER CERTIFICATION SCHEME: MC&I(NATURAL FOREST) (ASSOCIATED DOCUMENTS) MALAYSIAN TIMBER CERTIFICATION SCHEME

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1 MALAYSIAN TIMBER CERTIFICATION SCHEME: MC&I(NATURAL FOREST) (ASSOCIATED DOCUMENTS) Doc. Number: AD Version Date: 01 February 2013 Page: 1 of 15 MALAYSIAN TIMBER CERTIFICATION SCHEME PUBLIC SUMMARY OF RECERTIFICATION AUDIT OF TERENGGANU FOREST MANAGEMENT UNIT AGAINST THE REQUIREMENTS OF MC&I(NATURAL FOREST) Public Summary Date: 4 March 2016 Project Number: Client: Web Page: Address: Country: MY02661 Terengganu State Forestry Department Jabatan Perhutanan Negeri Terengganu Tingkat 8, Wisma Negeri Kuala Terengganu Terengganu Malaysia Certificate Number. SGS-MTCS/FM-0103 Certificate Type: Malaysian Timber Certification Scheme Date of Issue: 1 st April 2013 Date of Expiry: 31 March 2016 Forest Zone: Scope: Total Certified Area: Contact Person: Tropical Forest Management of 522, ha of Permanent Reserved Forest in Terengganu State for the production of timber. 522, ha Dato Haji Azmi bin Nordin - State Director of Forestry Tel: +6(09) Fax +6(09) Recertification Audit Date: Audit Team: azmi@forestry.gov.my / altifaizal@forestry.gov.my / hafny@forestry.gov.my May 2015 Abdul Haye S (Lead Auditor) Dr. Savinder Kaur (Auditor) Mohd Faisal Jaafar (Auditor) Mohd Saifuddin Rozlan (Auditor) SGS (Malaysia) Sdn. Bhd., No.26, Jalan Anggerik Vanilla 31/93, Kota Kemuning, Shah Alam, Selangor, MALAYSIA CONTACT PERSON: Abdul Haye S - Tel: +6 (03) Fax: +6 (03)

2 AD Page 2 of 15 INTRODUCTION The Terengganu Forest Management Unit (FMU) has been certified under the Malaysian Timber Certification Scheme (MTCS) since 2001; first under the Malaysian Criteria, Indicators, Activities and Standards of Performance (MC&I) for Forest Management Certification or in short MC&I(2001) and thereafter under the Malaysian Criteria and Indicators for Forest Management Certification or in short [MC&I(2002)]. The Terengganu FMU managed by the Terengganu State Forestry Department was issued with a forest management certificate (SGS/MTCS/FM-0103) under the requirements of the MC&I(2002) after a Stage 2 Audit which was conducted in November The certificate issued was valid for three years from 1 April 2010 to 31 March The Recertification Audit for the FMU against the requirement of the newly adopted MC&I(Natural Forest) was conducted on 9-13 September 2012 where subsequently the FMU was issued the new certificate with a validity from April 2013 to March During this certification cycle, two Surveillance Audits were conducted for the FMU under the new MC&I(Natural Forest) i.e. Surveillance 01 Audit on September 2013 and Surveillance 02 Audit on June Following to the Surveillances and in view that the FMU is due for another Recertification Audit, the Recertification Audit has been scheduled and conducted on May This report provides the findings of the said Recertification Audit. With a total land area of 1,295,566 ha, the Terengganu FMU is located to the east coast of Peninsular Malaysia. There are a total of 44 Forest Reserves within the Terengganu FMU covering an area of 544, ha of Permanent Reserved Forests (PRF) where 416, ha has been classified as production forest while the remaining 128, ha has been classified as protected forest under various functional classes defined in Section 10 of the National Forestry Act, There is also an area designated as National Park amounting to 77,507 ha that is a totally protected area which is not managed by the FMU and hence is not included in the scope of the certification. In addition, an area amounting to 33,000 ha has been designated as a stateland. Operations within such area carried out by the Terengganu Forestry Department are also not included in the scope of this audit. Logs produced from these sources are not certified and hence cannot enter the PEFC chain of custody system for forest products. Furthermore, although part of the PRF, operations within the following PRFs are also excluded from the scope: Plantation Forests 3,860 ha [Merchang Forest Reserve (FR)] Second Hydro Electric Dam 18,676 ha (within Tembat and Petuang FRs) Logs produced from the Merchang, Tembat and Petuang PRFs are denoted as P ( Pembangunan indicating that such forest reserves have been allocated for development). The special denotations on the RPs is to prevent logs harvested from these sources from entering the PEFC chain of custody system for forest products produced from logs harvested from PRFs. The process and mechanism for public or local stakeholders participation in forest management are in place. Overall, there are no claims or disputes with regard to land tenureship within PRF in Terengganu FMU either orally or in writing. The Terengganu State Forestry Department continues to collaborate with relevant parties in ensuring positive solution to any problem that may arise. As a government department, the State FD participates in inter-departmental discussions (Majlis Bersama Jabatan) pertaining to any community rights issues. The process found to be undertaken systematically through the various arrays of committees from the local village level right up to the State Government. A wide range of stakeholders were contacted four weeks before the planned audit to inform them and solicit their views on relevant FMU management issues. The stakeholders included environmental and social interest groups, local government agencies and authorities as well as local village heads. Until the end of the

3 AD Page 3 of 15 consultation period, there is only one feedback obtained in the form of press-cuttings. Details of the feedback are as in Annex 3. For this on-site Recertification Audit, there were also on-site consultations held with the staff of the Terengganu FMU, field workers of the contractors at the harvesting sites, as well as other stakeholders i.e. government agencies and local communities including the Orang Asli.

4 AD Page 4 of 15 SUMMARY OF FINDINGS OF RECERTIFICATION AUDIT The Recertification Audit assessed the implementation of forest management practices in the Terengganu FMU against the requirements of the MC&I(Natural Forest). The summary of the outstanding CARs closedout and new CARs raised are listed in Annex 1 below. RECERTIFICATION AUDIT Issues that were hard to assess Number of CARs closed Number of CARs remained outstanding Number of Observations remained outstanding Number of New CARs raised Number of new Observation raised Certification Decision Nil Four (4) Minor CARs and Four (4) Observations closed Two (2) Minor CARs remained outstanding One (1) Observation remained outstanding Two (2) Minor CARs are raised Six (6) Observations are raised The forest management of the Terengganu State Forestry Department to be recertified as: The management system is capable of ensuring that all of the requirements of the applicable standard(s) are met over the whole forest area covered by the scope of the evaluation; and The certificate holder has demonstrated, subject to the specified corrective actions, that the described system of management is being implemented consistently over the whole forest area covered by the scope of the certificate. The issues highlighted as Minor CARs must be adequately addressed and the adequacy of the actions taken need to be verified during the first surveillance visit to be conducted within 12 months from the date of assessment.

5 MALAYSIAN TIMBER CERTIFICATION SCHEME: MC&I(NATURAL FOREST) (ASSOCIATED DOCUMENTS) Doc. Number: AD Version Date: 01 February 2013 Page: 5 of 15 Annex 1 SUMMARY OF CORRECTIVE ACTION REQUESTS (CARS) AND OBSERVATIONS Summary of CARs closed out (from Surveillance 02 Audit) CAR No. Indicator Non-conformance Objective Evidence Close-out Evidence Forest managers have not adequately determine the presence of HCVF attributes in the FMU in accordance with relevant federal, state and local laws, appropriate to scale and intensity of forest management operations in the FMU, and in consultation with relevant stakeholders. Forest managers have not fully assessed, identified and demarcated the presence of HCVFs in the forest reserves. E.g. Fauna such as Paedocypris fish (Rimba Bandar Bukit Bauk) (Pg.ix of MTR); endangered species (IUCN red List), e.g. Malayan tiger, Asian Elephant, Malayan Tapir etc. (prevalent in Tembat, Cherul, Pasir Raja FRs). There is no evidence of stakeholder consultation with relevant agencies on potential HCVF (all attributes) identified through scientific expeditions such as the Gunung Mandi Angin (2004) and Bukit Bauk (2006) and Dungun Timber Complex. Surveillance 02 Audit: Verification during the Surveillance 02 Audit showed that a Stakeholder consultation has been conducted on 25 May 2014 that was attended by various organisations such as government agencies, local authorities, NGOs, research institutions and the private sector. Among the matters discussed were During the re-certification audit, the audit team noted that the Terengganu FD has developed an HCVF management plan for Sal tree (Johannesteijsmannia altifrons) found in Compartment 34 of the Jerangau FR. The FD is also in the process of establishing two other HCVF areas (currently already designated but without a management plan) for keruing sarawak (Jerangau FR-Compartment 34) and chengal besar (Pasir Raja FR Compartment 5). The evidence for this is as per letter of appointment dated 19 April 2015 (ref: PHNT 63/8/5 (8)) titled, Menjalankan Kerja-Kerja Bancian Kepelbagaian Spesies Flora Di Kawasan Hutan Yang Mempunyai Nilai Pemeliharaan Yang Tinggi (HCVF) Di Kompt 34, Hutan Simpan Jerangau from the Terengganu FD to a local consultant who has been appointed to conduct species inventory where the keruing sarawak is located. In addition, the FD has also engaged with PERHILITAN to re-confirm the potential HCVF areas for fauna (which are already identified in previous scientific research and listed in the MTR (Table 24). Evidence of the engagement is per the letter dated 18 May 2015 (ref: PHNT6/3/8/17 (141) titled, Mesyuarat Konsultasi Stakeholder Bagi Hutan Yang Mempunyai Nilai Pemeliharaan Yang Tinggi (High Conservation Value Forest) HCVF Terengganu. Minor CAR 12 closed SGS (Malaysia) Sdn. Bhd., No.26, Jalan Anggerik Vanilla 31/93, Kota Kemuning, Shah Alam, Selangor, MALAYSIA CONTACT PERSON: Abdul Haye S - Tel: +6 (03) Fax: +6 (03)

6 AD Page 6 of 15 as follows: Status of conservation and management of HCVFs containing the following: o Gigantic Chengal tree in Compt. 5, Pasir Raja FR; o o Keruing Sarawak tree area in Compt. 31, Jerangau FR; and Pokok Sal in Jerangau FR;. Proposal to include a new area as HCVF; o Compt. 129 of Cherul FR where such area known to have Keruing Mengkai that is endemic to Terengganu only. The audit team notes that the Terengganu FMU is in the process of engaging a consultant to conduct a landscape-level high conservation value assessment for flora and fauna. Although the stakeholder consultation process has been conducted, the assessment is yet to be done. This will remain a Minor CAR until a report on the assessment, identification and demarcation of HCVFs has been completed (next audit, re-certification) Inadequate implementation of guidelines to identify and protect endangered, rare and threatened species of flora and fauna, including features of special biological interest such as seed trees, salt licks, nesting and feeding areas in the FMU. There is no up-to-date information on features of special biological interest such as salt licks, nesting and feeding areas in the FMU Recertification Audit: During the Recertification Audit, the Terengganu FD has incorporated a baseline assessment of features of special biological interest such as salt licks, nesting and feeding areas in the FMU during the pre-f and post-f surveys (refer to letter dated 20 August (ref: P.H.N.T.100/6/16 Bhg.8 () from the Terengganu State FD to all DFOs, titled, Minor CAR 14 be maintained to be verified during next Audit

7 AD Page 7 of Inconsistency of implementation of management guidelines to assess post-harvest natural regeneration and measures to supplement natural regeneration in the FMU Harvesting is designed not taking into consideration the need for the conservation of biological corridors and buffer zones for features of special biological interest for wildlife Maklumat Mengenai Kedapatan Hidupan Liar Dan Kepentingan Biologinya Di Kawasan Lesen. However, the audit team is unable to evaluate the effectiveness of this initiative as the actual implementation only commenced in April 2015 Generally, the audit team noted that the measurements taken during the audit tallied with the measurements captured during the actual activities i.e. Pre-Felling, Post-Felling and Tagging, with a slight deviation of 0.5cm 3cm. However, audit team observed that some of the measurements were found to be inconsistent whereby out of 56 trees measured for each areas: 6 trees were missing; 4 trees were of the wrong species; 1 tree was not recorded; and 4 trees were with inaccurate measurement (with deviation >3cm). Verification within the Forest Harvesting Plans at Terengganu Selatan and Terengganu Barat District Foresty Offices showed no evidence of the need for the conservation of biological corridors and buffer zones for features of special biological interest for wildlife for the proposed licence areas. During the recertification audit, the audit team has visited the following areas: Pre-Felling Inventory area: o Compt. 43, Belara FR; o 3 inventory plots within 1 lines has been verified where 29 trees has been measured. Post-Felling Inventory area: o Compt. 92, Jerangau FR; o 4 inventory plots within 2 lines has been verified where 31 trees has been measured. Based on the verification, the audit team noted that the measurements taken during the audit tallied with the measurements captured during the actual activities i.e. Pre- Felling, Post-Felling and Tagging, with a slight deviation of 0.5cm 2cm. The audit team observed that there is also no discrepancy in recording the tree species and there is also no missing tree observed during the audit hence agreed to close the minor CAR issued during previous audit. Minor CAR 15 closed The Terengganu FD has provided evidence of a clause inserted into the Rancangan Mengusahasil Hutan which stipulates the need for maintenance of biological corridor in a letter dated 30 April 2015 (ref: PHNT 100/0/16/Bhg.6 (93) from the Terengganu FD to all District Forestry Offices titled Maklumat Mengenai Pemuliharaan Koridor Biologi Dan Zon Penampan Untuk Ciri-Ciri Kepentingan Biologi Yang Istimewa Bagi Hidupan Liar Di Kawasan Lesen The forest manager does not The audit team notes that there is no evidence provided to show that the forest Moreover, the FD maintains the river buffer zones which are one of the ways to maintain biological corridors. Minor CAR 16 closed During the Recertification Audit the audit team has taken action to verify the Minor CAR and observed that the FD has

8 AD Page 8 of 15 ensure that conversion from natural forest to forest plantations or nonforest use secure long term conservation, economic and social benefits Forest managers does not gather adequate relevant information, appropriate to the scale and intensity of the forest management operations, needed to monitor the items (a) to (e) listed in Criterion 8.2. conversion from natural forest to iron mine within Compartment 1 to Compartment 6 of Besul (T) FR [e.g. Lesen L /2014 (HS) (P)) (Kawasan Kelulusan Lombong)] will enable clear, substantial, additional, secure, long-term conservation, economic and social benefits across the FMU. This is not supported by any social, environmental and economic cost-benefit analysis for the conversion of the above area. In addition, there was no mention of the proposed forest conversion in the FMP or Mid-Term Review of the FMP The audit team notes that there is no evidence of wildlife /biodiversity inventory analysis or research which can provide information on the composition and observed changes in the flora and fauna, especially for proposed licence areas, as specified in item 8(c). Recertification Audit: Verification during the Recertification Audit showed that the Terengganu FD has incorporated a baseline assessment of features of special biological interest such as salt licks, nesting and feeding areas in the FMU during the pre-f and post-f surveys (refer to letter dated 20 August 2014) (ref: P.H.N.T.100/6/16 Bhg.8 () from the Terengganu State FD to all DFOs, titled, Maklumat Mengenai Kedapatan Hidupan Liar Dan Kepentingan Biologinya Di Kawasan Lesen. However, the audit team is unable to evaluate the effectiveness of this initiative as the actual implementation only commenced in April 2015 (Minor-CAR 18 maintained). taken action to request the concession owner of the area i.e. Kumpulan Pengurusan Kayu Kayan Sdn Bhd. to prepare the Cost Benefit Analysis for the area to be utilized as mining in Compartment 1 to Compart 6 of the Besul (Tambahan) FR. Letter [Ref No.: P.H.N.T. 100/6/16/Bhg. 8] dated 08 July 2014 is evidenced. However, further verification revealed that though the area has been approved by the state government for conversion, the project has been put on halt and there is a decision from the concession owner of the area i.e. KPKKT to revert back the area into the PRF. Unfortunately, there is no written documentation to confirm the decision. Nevertheless, the audit team is of the view to close the Minor CAR 17 due to this development. However, Observation 05 has been issued to monitor this and to be verified during the next Surveillance Audit. Minor CAR 18 be maintained to be verified during next Audit

9 AD Page 9 of 15 Summary of new CARs raised during Recertification Audit CAR No. Indicator Non-conformance Objective Evidence/Close-out Evidence Status Forest managers did not evaluate, through consultations, social impact of forest operations directly affecting communities, and the people and groups directly affected by the forest operations did not have access to information on the results of the social impact evaluations. There is insufficient consultation with affected communities pertaining to forest operations (i.e. timber harvesting). There is also no mechanism to gauge long-term socialenvironmental impacts to local communities. Local communities do not have access to information on the results of the social impact evaluations. The village head (Pengerusi JKKK) of Kg. Air Putih (in an interview on 20 May 2015) voiced his grievance that he was not consulted during the rapid SIA exercise prior to timber harvesting (only Kg. Teladas headman was consulted) for the two license at Sg. Nipah FR. The social impact form only indicated consultation for post-logging impact assessment (no free, prior and informed consent). He expressed his desire to have access to information on results of social impact evaluations. The community interviewed also has a host of issues pertaining to damage to access roads, reduced river water quality, etc. and are requesting an inter-agency dialogue with the community to resolve their issues. Moreover, the long-term social-environmental impact is not assessed as the current social impact form only gauges impact to communities immediately after the logging license is closed without subsequent follow-up. An interview with the village head of Kg. Basong on 18 May 2015 indicated that long-term social and environmental impacts from past logging at Telemong FR such as reduced water quality, sedimentation and flooding have not been assessed by the FD with the communities. In view of this, there is a need to have more consultations with local communities as per recommendations in the MTR (Pg.123) which states that the Terengganu FD is encouraged to conduct an SIA involving forest-fringed communities to ascertain their grievances and employ mitigation measures to reduce the impacts to the communities. New Minor CAR raised during Recertification Audit

10 AD Page 10 of Investments and reinvestments are not adequately made in forest management, including for forest administration, research, human resource development, protection, economic, conservation, environmental and social aspects, consistent with the tenure of the FMU. The audit team notes that budget constraints impede the implementation of management prescriptions to maintain ecological productivity of the forest as follows: HCVF management plan for keruing sarawak and cengal besar (9.1.1) To conduct inventory for fauna and subsequently assess, identify, demarcate HCVF areas for fauna and other attributes recommended in the MTR (2012) (9.1.1); To conduct periodical patrolling of forest areas, especially access points to forest reserves through Orang Asli villages and logging concession area as to prevent inappropriate activities within the FMU (6.2.4); and To allocate sufficient staff to fill in the vacant positions, e.g. no ADFO for Besut (Terengganu Utara), lack of field staff to conduct forest patrolling activities, to implement the HCVF (this has already been recommended within the MTR). New Minor CAR raised during Recertification Audit Summary of Observations status (from Surveillance 02 Audit) CAR No. Indicator Observation There is evidence of a request made by the Terengganu FD to the JAKOA, through a letter dated 23 October 2013 [Bil. (49) dlm. PHDTB.1/2/1/6 bhg.4] entitled Memohon Maklumat Berkaitan Aktiviti Pengeluaran Kayu Gaharu Oleh Penduduk Orang Asli Kg.Sg.Berua, Hulu Terengganu. However, there has been no response from JAKOA pertaining to the request sent. The Terengganu Barat District Forestry Office needs to follow up on the letter sent to JAKOA as part of its effort to maintain updated records on Orang Asli special sites of cultural, ecological, economic or religious significance in the district The AAC for Terengganu FMU for has been set at 25,265 ha or 5,053 ha/year. Nevertheless, during the recertification audit it was noted that an approval has been given by the FDPM HQ to absorb an area of 1,000 ha of AAC allocated for to be utilized in Following to the above development, since then, other proposals has been made to absorb an area of allocated AAC Follow-up Evidence The Terengganu Barat District Forestry Office has sent two followup letters to JAKOA dated 25 August 2014 (ref: (4) dlm. PHDTB 1/5/2/14) and 9 April 2015 (ref: (5) dlm. PHDTB 1/5/2/14) of the same title. The JAKOA responded, in letters dated 2 September 2014 (ref: JHEOA. TR/TA1.009 Jld.4) from the Terengganu State JAKOA and 25 April 2015 (ref: JAKOA.SA1.120.Jld.5 (30)) from the JAKOA headquarters that JAKOA does not have such information. Hence, the onus is now on the FD to map out such areas on their own. Summary of the AAC allocated to Terengganu FMU for RMK 10 as of Recertification Audit are as follows: Status Observation closed Observation closed

11 AD Page 11 of 15 for a subsequent year to be utilized in the preceding year. Examples of documented evidence and communications verified during the audit are as follows: Letter Ref No: Bil (7) dlm.phnt.sulit.121/bhg.2 dated 8 April 2010 Penyediaan Kertas Kerja Majlis Perhutanan Negara (MPN) bagi Catuan Tebangan Tahunan (CTT) Rancangan Malaysia Kesepuluh (RMK-10) Letter Ref No: JH(S) 443 Jld. 6 (9) dated 23 July 2012 Permohonan Tambahan Kuota Catuan Tebangan Tahunan (CTT) Seluas 1,000 Hektar bagi Tahun 2012 Letter Ref No: JH(S) 443 Jld. 6 (16) dated 5 August 2013 Permohonan Tambahan Kuota Catuan Tebangan Tahunan (CTT) Seluas 1,000 Hektar bagi Tahun 2013 Letter Ref No: JH(S) 443 Jld. 6 (31) dated 29 May 2014 Permohonan Tambahan Kuota Catuan Tebangan Tahunan (CTT) Seluas 1,000 Hektar bagi Tahun 2014 Summary of the AAC allocated to Terengganu FMU for RMK 10 are as follows: Year Allocated AAC AAC approved after absorption as of 2013 Proposed AAC after absorption as of 2014 Actual AAC achievement in the respective year ,053 5,501 5,501 5, ,053 6,405 6,045 6, ,053 4,605 4,586 4, ,053 4,377 5,567 5, ,053 4,377 3,566** 1,719.82* Note: * until 1 st Quarter ** the AAC is as per in 2014, for 2015 the AAC is set at 3, additional of 128 ha brought forward the unutilized AAC from 2014 Although there is a change in the AAC per year as a result of the approval of the proposed absorption of AAC to the allocated AAC, the overall AAC for remains unchanged. Year Allocated AAC AAC approved after absorption as of 2013 Proposed AAC after absorption as of 2014 Actual AAC achievement in the respective year ,053 5,501 5,501 5, ,053 6,405 6,045 6, ,053 4,605 4,586 4, ,053 4,377 5,567 2,032* ,053 4,377 3,566 - Note: * until 1 st Quarter Although there is a change in the AAC per year as a result of the approval of the proposed absorption of AAC to the allocated AAC, the overall AAC for remains unchanged. An Observation 12 is raised on this issue for the FMU to continue to monitor and control the AAC for 2015 in view that the total AAC available for 2015 is only 3,566 ha after the absorption exercise, in order to avoid over extraction Interviews with PERHILITAN has indicated that there is reason to suspect that forest workers are conducting The Terengganu FD has instructed all DFOs to carry out monitoring of forest workers to curb any prohibited activities Observation closed

12 AD Page 12 of 15 inappropriate activities such as hunting, fishing and trapping fauna as well as being conduits for outside poachers. Unfortunately, there is no concrete evidence to support the allegation made by PERHILITAN. In view of this an Observation 13 is issued for the Terengganu Forestry Department to closely monitor the activities of foreign workers in logging concession areas, as per the recommendation of PERHILITAN Interviews with the Forester In-charge at Bukit Diman FCS revealed that the copy of delivery order (DO) from the licensee is not kept at the FCS or district office. The DO from the licensee is important for counterchecking since the details in the RP must tally with that in the DO The Terengganu Forestry Department has to take special care not to compromise any potential HCVF values identified through scientific expeditions, such as the habitat of the Paedocypris fish at Rimba Bandar Bukit Bauk (identified through the Bukit Bauk expedition due to it being an endemic species). in the forest reserves. This is evident in a letter dated 13 August 2014 (ref: PHNT.100/6/16/Bhg. 8() titled, Pekerja- Pekerja Hutan Menjalankan Aktiviti-Aktiviti Yang Dilarang Di Dalam Hutan. The implementation of this was seen in a document dated 15 April 2015 (ref: Bil (19) dlm. PHDTU: 1/3/174) of the same title from the Terengganu Utara District Forestry Officer to the range offices at Kuala Terengganu, Setiu and Kampung Raja instructing the forest rangers to take immediate action against any forest worker found to have engaged in prohibited activities Further verification at all three FCS visited found that the delivery order (DO) from the licensee is kept together with the copy of the Removal Pass issued by the FCS before being submitted to the DFO. Maintained and to be verified during next Surveillance Audit Observation closed Observation maintained Summary of new Observations raised during Recertification Audit CAR No. Indicator Observation In the re-certification audit, the audit team strongly recommends that the FD ensures adequate record-keeping on information pertaining to special sites of the Orang Asli Workers of the logging contractors are subjected to the terms and conditions stated within their employment agreement. However, the terms and conditions that spell out in the employment contracts are found to be inconsistent between contractors. This situation may cause incompliance to the Employment Act 1955 in the future The FMU manager does not have an effective system for community policing which can assist the FMU manager to tackle such issues. An interview with the Kg.Orang Asli Sg.Sayap (Terengganu Utara) on 19 May 2015 revealed that there are foreign nationals who encroach into the Hulu Besut FR. There is a need for Follow-up Evidence Status New Observation raised New Observation raised New Observation raised

13 AD Page 13 of 15 FD to increase cooperation with the Orang Asli to address foreign encroachment in the state The Wildlife Department (PERHILITAN) suggests (in an interview on 20 May 2015) that the current system of inviting logging contractors for the taklimat lesen to raise awareness on the prohibition of inappropriate activities such as hunting, fishing and trapping fauna should be conducted on-site together with all forest workers as the information may not trickle down to the workers. PERHILITAN has reiterated its request for regular monitoring of the activities of forest workers in logging concession areas Refer Minor CAR 17: During the Recertification Audit the audit team has taken action to verify the Minor CAR and observed that the FD has taken action to request the concession owner of the area i.e. Kumpulan Pengurusan Kayu Kayan Sdn Bhd. to prepare the Cost Benefit Analysis for the area to be utilized as mining in Compartment 1 to Compart 6 of the Besul (Tambahan) FR. Letter [Ref No.: P.H.N.T. 100/6/16/Bhg. 8] dated 08 July 2014 is evidenced. However, further verification revealed that though the area has been approved by the state government for conversion, the project has been put on halt and there is a decision from the concession owner of the area i.e. KPKKT to revert back the area into the PRF. Unfortunately, there is no written documentation to confirm the decision. Nevertheless, the audit team is of the view to close the Minor CAR 17 due to this development. However, Observation 05 has been issued to monitor this and to be verified during the next Surveillance Audit The audit team found that the revision of the forest management plan for Terengganu Forestry Department is still pending. The FD explains that this is due to a new JPSM format (final draft) which differs from the previous format. Since the previous forest management plan expires in 2015, the FD must hasten its appointment of a consultant to draft the new plan, which should incorporate the results of monitoring or new scientific and technical information, as well as to respond to changing environmental, social and economic circumstances New Observation raised New Observation raised New Observation raised

14 MALAYSIAN TIMBER CERTIFICATION SCHEME: MC&I(NATURAL FOREST) (ASSOCIATED DOCUMENTS) Doc. Number: AD Version Date: 01 February 2013 Page: 14 of 15 Annex 2 Forest Reserves in Terengganu FMU SGS (Malaysia) Sdn. Bhd., No.26, Jalan Anggerik Vanilla 31/93, Kota Kemuning, Shah Alam, Selangor, MALAYSIA CONTACT PERSON: Abdul Haye S - Tel: +6 (03) Fax: +6 (03)

15 AD Page 15 of 15 Annex 3 ISSUES RAISED BY STAKEHOLDERS Nr Comment Response Recertification Audit 1 Newspaper cutting from Berita Harian dated 09 March 2015 on encroachment in Rasau-Kerteh Forest Reserve (Compartments 41 & 42) There is no visit made to the site during this audit as the case has been placed under investigation by the State FD following the publication of the news Berita Harian. The audit team has verified the report which is incorporated in the letter dated 19 March 2015 [ref: Bil. (17) dlm. PROD 134/02/13] from the Dungun Range Office to the Terengganu Selatan District Forestry Department, entitled Laporan Pencerobohan Hutan Kompatmen 41 & 42 Hutan Simpan Rasau Kerteh, Dungun, Terengganu. This is a report on encroachment in the Rasau Kerteh Forest Reserve. It was reported that the area involved an area totalling to 17ha and is complete with photographs and site plan of the encroached area. Based on the report, the audit team observed that a total of 2 excavators, 1 tractor and 1 back-hoe were confiscated and a total of 245 logs with an average of 198m3 have been seized. The case has been brought up to the State Forestry Department Headquarters for further investigation SGS (Malaysia) Sdn. Bhd., No.26, Jalan Anggerik Vanilla 31/93, Kota Kemuning, Shah Alam, Selangor, MALAYSIA CONTACT PERSON: Abdul Haye S - Tel: +6 (03) Fax: +6 (03)