FDS-TLAS-006

Sabah TLAS Audit Report Legality Standard Principles 1 – 4

Licensee: Rakyat Berjaya Sdn. Bhd. Licensee Contractor: Asiatic Organic Farm Sdn. Reference # GFSSBH 003-051 Bhd. (Asiatic Organic Farm) Contact David Yong (Rakyat Berjaya Officer In- Date of Report 11 October 2019 Person Charge, Region) Date of close out - Licensee +6089 772 939 Telephone 5th & 6th Floor, 255C, UMNO Building, +6089 775 418

Jalan Dunlop, P. O. Box 60793, 91007 +6089 771 066 Office Tawau, Sabah, . Address Contractor Fax +6089 763 192 TB 3478, Ground Floor, Jalan Masjid, 91000 Tawau, Sabah, Malaysia.

Email [email protected] Approved By Dr. Kevin T. Grace

Statements Audit Statement NA: Non Compliance - Criteria 1.5, 1.7, 2.1, 2.2, 1.9, 2.6, 3.1 Issuance Date NA Expiration Date NA

Assessment Details Assessment Dates 07 – 11 October 2019 Scope of Assessment TLAS Principles 1 - 4: Integrated Mosaic Planting and Integrated Wellness Centre Species Drybalanops spp. (Kapur), Dipterocarp spp. (Keruing), Parashorea spp. (White seraya), Shorea spp. (Red seraya, Yellow seraya, Melapi), Scaphium spp. (Kembang semangkuk), Sapotaceae spp. (Nyatoh), Shorea pauciflora (Oba suluk), Neolamarckia cadamba (Laran), Duabanga moluccana (Magas), Alstonia spp. (Pulai), Eugenia spp. (Obah), Sindora beccariana (Sepetir), Lauraceace (Medang), Cotylelobium spp. (Resak batu), Pentace spp. (Takalis), Hopea sangal (Gagil), Macaranga spp. (Sedaman), Dyera spp. (Jelutong), Dialium indum (Keranji) Lead Assessor Priera Bagang Assessor(s) Walter Marcus FDS Staff Suriansa bin Kadir (ADFO Kalabakan), RH Samson Francis (KPPM Brantian), RH Peter Lumambai (PPM Brantian)

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 01st 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.

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Summary Information

Overview of Licensee:

• Rakyat Berjaya Sdn. Bhd. (Rakyat Berjaya) is a subsidiary company of Yayasan Sabah Group that responsible to manage FMU 24 (SFMLA 09/97). • The project area covers a gross area of 1,957.30 ha, which is divided into Block A and Block B. Block A located partly at Kalabakan Forest Reserve (312.30 ha) while Block B is located partly in Kalabakan Forest Reserve (698 ha) and partly in Gunung Rara Forest Reserve (947 ha). Asiatic Organic Farm Sdn. Bhd. (Asiatic Organic Farm) is responsible for the FMP implementation. • The area is located in Block YT 05/04 is within the Government of Malaysia – UNDP – GEF Project on Biodiversity Conservation in Multiple Use Forest Landscapes in Sabah, Malaysia. • The project area has been zoned into three major land uses namely, Conservation, Integrated Wellness Centre and Integrated Mosaic Planting. • The previous FMP for the project area (2009-2018) was prepared and approved on 27 August 2009. According to the terms of the agreement between Yayasan Sabah wholly owned subsidiary, INNO FISHERIES Sdn. Bhd. and Asiatic Organic Farm Sdn. Bhd. the latter is required to develop approximately 131 ha net of the project area for an Integrated Wellness and Ecotourism Centre. This incorporates agro-silvopastoral activities, ecotourism and facilities (Resort and Spa) while the rest of the project area comprising an area of 1,826.30 ha had been set aside for conservation. • Asiatic Organic Farm activities concentrate on the Integrated Wellness and Ecotourism Centre. A mid-term review was conducted in early 2013 to evaluate the previous FMP operations, resulting a revision to the management plan. • The most significant change in land-use in the new FMP is that the areas that had been set aside for conservation and agro-silvopastoral in the previous FMP are now managed under an integrated mosaic restoration concept. • The previous assessment was conducted in October 2018 that resulted in 4 gap(s) and 2 observation(s) (report #: G161-284). • Land use classification: Land classification FMP Area (ha) Current Status (ha) Total Concession Area 1,957.30 1,957.30 Land use - Integrated Mosaic Planting 1,329.46 1,329.46 - Integrated Wellness Centre 181.71 181.71 Conservation 446.13 446.13

Environmental Context: • FMU 24 comprises of Gunung Rara Forest Reserve (GRFR) and Kalabakan Forest Reserve (KFR) (Class II Commercial Forest Reserves), VJR Batu Timbang, VJR Ulu Sg. Napagon and VJR Nurod Urod (Class VI Virgin Jungle Reserves). • GRFR has been identified as a natural wildlife corridor and also known as an essential habitat for a few protected fauna species (e.g., Banteng, Orang Utan and Borneon Elephant). Sighted wildlife in the area includes the Rhinoceros, Orang Utan, Clouded Leopard, Proboscis Monkey, Wild Buffalo (Tembadau) and Asian Elephant. • Maliau Basin Conservation Area (55,840 ha) is also a part of FMU 24, subject to a separate Management Plan. Imbak Canyon Conservation Area (16,750 ha) is adjacent to the northern part of FMU 24. • The areas in between Maliau Basin Conservation Area and the FMU 24 production area are designated as a buffer zone - Maliau Buffer Zone Area 1 and Maliau Buffer Zone 2. Maliau Buffer Zone Area 1 is only allowed to be harvested once whereas Maliau Buffer Zone 2 is allowed to be

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harvested under Reduced Impact Logging (RIL) systems. Rakyat Berjaya coupes, which fall within Maliau Buffer Zone Area 2 are part of Coupes YL1/03; part of YL2/03; YT1/09; part of YT1/03; part of YT2/08; YT3/05(1); YT3/05(2); YT3/04; and YT4/08. Coupe YT 5/04 is not located within the Maliau Buffer Zone areas • The buffer zone areas are dominated by Mixed Dipterocarp Forest which has not been logged before, thus the area contains high volume and value of merchantable timber resources. The dominant commercial tree families include Dipterocarpaceae, Fagaceae, Apocynaceae, Euphorbiaceae and Lauraceae. • Two areas in FMU 24 are identified as Project Area under Conservation Environment Management Division (CEMD) - RIL 2 Project Area and SUAS Project Area; and 4 areas as conservation area - VJR Batu Timbang, VJR Ulu Sg. Napagon, VJR Nurod Urod and water catchment area (2,160 ha); as well as two areas identified for tourism - Tourism Area under CEMD (250 ha) and Wellness/ Eco - Tourism Project Area (1,200 ha). • An Environmental Impact Assessment of Proposed Integrated Mosaic Planting on 1,329.46 hectares in Yayasan Sabah Concession Area (YT05/04), within Part of Gunung Rara and Kalabakan Forest Reserve, , and , Sabah was prepared and approved on 11th November 2016 (Ref.#: JPAS/PP/21/600-1/01/3/59 (34)).

Social Context: • There are no communities settling inside or adjacent to the project area within FMU 24. The nearest village to FMU 24 is Kg. Kemandut, which is located at Luasong.

Scope of Assessment • The scope of the evaluation is to verify compliance of Rakyat Berjaya Sdn. Bhd. (Asiatic Organic Farm Sdn. Bhd.) with the Sabah Forest Management License Agreement (SFMLA 09/97) for FMU 24. • The assessment is in accordance on the terms of the agreement for the “Sabah Legality Standard Principles 1 - 4 dated 01st January 2015 (FDS-TLAS-002). • Site evaluation to verify and report the level of compliance by Rakyat Berjaya Sdn. Bhd. 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.

Itinerary & Mandays: FMU 24 / Rakyat Berjaya Sdn. Bhd. (Asiatic Organic Farm Sdn. Bhd.) / Kalabakan District 07 – 11 October 2019 (Total Mandays = 17)

Date Activity GFS Staff Mandays 07 October 2019 Priera Bagang, Travel to Tawau 2 Monday Walter Marcus Opening meeting at Asiatic base camp 08 October 2019 Priera Bagang, and field visit to Coupe TWU 02/17 & 2 Tuesday Walter Marcus TWU 09/14. 09 October 2019 Document review at Asiatic’s base camp Priera Bagang, 2 Wednesday and Kalabakan Forestry office. Walter Marcus 10 October 2019 Document review and closing meeting at Priera Bagang, Walter 2 Thursday Asiatic’s office Tawau. Marcus 11 October 2019 Priera Bagang, Travel to 2 Friday Walter Marcus 12 – 13 October Dr. Kevin Grace, 2019 Reporting GFSSBH 003-051 2 Priera Bagang

Total 12

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Highlights of Assessment

(Major Gaps = 7; Minor Gaps = 2; Observations = 1) Rakyat Berjaya Sdn. Bhd. (Asiatic Organic Farm Sdn. Bhd.) has not complied with the Sabah Legality Standard (FDS-TLAS-002) as non-compliance was identified for criteria 1.5, 1.7, 2.1, 2.2, 1.9, 2.6, 3.1 during the assessment on 07 – 11 October 2019.

Summary of status of operations by Principle:

Principle 1. October 2018: Gap 004/2018 (Minor) - Checklist 1.4.2.2, 1.4.2.8, 1.9.1 Conflicting statements in forest quality from 3.4 commercial trees /ha (>60cm) (Strata IV) versus inventory summary data presented in Table 3.1 that documents commercial tree volumes of 78.32 m3/ha that reflects over 12 trees/ha (Strata II) which should not be eligible for mosaic system based on current draft mosaic guidelines.

October 2019: Gap 004/2018 (Minor) - Closed The inventory summary for trees 60-120cm DBH resulted in 2.6 trees/ha which reflect the forest strata IV. This is based on the approved 2nd FMP (3rd revision) by the CCF on 28 February 2019.

October 2018: Observation 001-2018 – Checklist 1.4.2.7 Estimates of yield of 300-400 m3/ha for planted trees are unrealistic in respect to sustainability.

October 2019: Observation 001-2018 (Addressed) Based on the approved 2nd FMP (3rd revision), the estimated yield for planted species with a rotation age of 10-15 years ranges from 200-250 m3/ha upon clear felling.

October 2019: Observation 001-2019 – Checklist 1.4.2.5 The current FMP does not identify a land use for each compartment. The Compartment Register was also not available.

October 2019: Gap 008/2019 (Major) – Checklist 1.5.1, 2.1.10 No evidence that the company amended the data for the AWP as required by FDS. The company conducted forest operations prior to approval of AWP.

October 2019: Gap 009/2019 (Major) – Checklist 1.9.2, 2.1.6 No evidence of monthly production record by Coupe during the assessment.

Principle 2. October 2018: Gap 005/2018 (Minor) – Checklist 2.1.3, 2.2.9 Four non-compliances were reported in the 2nd quarter 2018 (May – August 2018) ECR report and corrective actions have yet to be addressed by the contractor. Inadequate implementation of environmental mitigation measures in regards to schedule waste management system (segregation, labeling and spillage control) as stipulated in the FDS Circular 07/2013.

October 2019: Gap 005/2018 (Raised to Major) No evidence of ECR has been produce for the 3rd quarter 2018 as well as 1st and 2nd quarter of 2019. Temporary logging camp was constructed near to the waterways (less than 30m). According to the Coupe permit TWU 02/17, riparian reserves (30meters on each side) are to be kept for all rivers, streams and waterways (Ref.#: JPHTN/FRM 700-2/1/09/45/Klt.4/58 dated 28 April 2017).

October 2018: Gap 006/2018 (Major) – Checklist 2.2.3 Based on the approved coupe permit TWU 02/2017, item 3 of Coupe Permit Conditions, ‘if there is a necessity to clear up an area for recreational activities, it must have the prior consent from the Chief

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Highlights of Assessment Conservator of Forests’. Planting of Durian at the approved coupe area involved land clearing, staking, and terracing, however, an approval letter was not available during the assessment.

October 2019: Gap 006/2018 (Major) - Outstanding No evidence of approval from FDS to allow terracing activity for Durian planting in Coupe TWU 02/2017. The DFO Kalabakan requested approval from CCF on 23 February 2019 Ref.#: JPHTN/KA 700- 2/1/1/93/Jld.2/41 and pending for feedback.

October 2018: Gap 007/2018 (Minor) – Checklist 2.2.8 The stumping occupational permit (JP/KA (OP) 37/2017) expired on 20th August 2018. The renewed occupational permit was submitted to FDS (Ref.#: AOFSB/3.0/OP/2018 (62)) on 3rd September 2018, as there are log stocks stored at the stumping. However, the renewal process is still pending for approval.

October 2019: Gap 007/2018 (Raised to Major) No evidence of stumping Occupational Permit No. JP/KA (OP) 37/2017 being renewed during the assessment.

October 2019: Gap 010/2019 (Major) – Checklist 2.6.1, 2.6.6 No evidence of SOCSO contribution or insurance payment to the company’s forest workers.

October 2019: Gap 011/2019 (Minor) – Checklist 2.6.4 No accident was reported in 2018. However, no evidence of JKKP Form 8 submission to DOSH for 2018.

October 2018: Observation 002-2017 (Outstanding) – Checklist 2.6.10 Asiatic Organic Farm (with the advice from RBJ) is in the final stage finalizing the draft of Forest Fire Prevention and Management Plan. The draft was made available during the assessment.

October 2019: Gap 012/2019 (Raise to Minor) – Checklist 2.6.10 The FFMP is still in a draft form since 2017. No evidence of FFMP submission to the FDS for approval.

Principle 3. October 2019: Gap 013/2019 (Major) – Checklist 3.1.2 No evidence of record royalty payment from October 2018 to September 2019 during the assessment.

Principle 4. Not Applicable – There are no human settlements within the project area.

Summary Results: (Major gap = 7, Minor gap = 2, Observation = 1)

Gaps raised against indicators & criteria during the October, 2019 assessment. GAP Type Checklist Status Description

004/2018 Minor 1.4.2.2 Closed October 2018: Conflicting statements in forest quality from 3.4 1.4.2.8 commercial trees /ha (>60cm) (Strata IV) versus 1.9.1 inventory summary data presented in Table 3.1 that documents commercial tree volumes of 78.32 m3/ha that reflects over 12 trees/ha (Strata II) which should not be eligible for mosaic system based on current draft mosaic guidelines. 5

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GAP Type Checklist Status Description October 2019: The inventory summary for trees 60-120cm DBH resulted in 2.6 trees/ha which reflect the forest strata IV. This is based on the approved 2nd FMP (3rd revision) by the CCF on 28 February 2019. 005/2018 Minor 2.1.3 Raised to October 2018: nd 2.2.9 Major Four non-compliances were reported in the 2 quarter 2018 (May – August 2018) ECR report and corrective actions are yet to be addressed by the contractor. Inadequate implementation of environmental mitigation measures in regards to schedule waste management system (segregation, labeling and spillage control) as stipulated in the FDS Circular 07/2013.

October 2019: No evidence of ECR has been produced or submitted to EPD for the 3rd quarter 2018 as well as 1st and 2nd quarters of 2019. Observed temporary logging camp constructed within a buffer area for permanent stream. 006/2018 Major 2.2.3 Outstanding October 2018: Based on the approved coupe permit TWU 02/2017, item 3 of Coupe Permit Conditions, ‘if there is a necessity to clear up an area for recreational activities, it must have the prior consent from the Chief Conservator of Forests’. Planting of Durian at the approved coupe area involved land clearing, staking, and terracing, however, an approval letter was not available during the assessment. October 2019: No evidence of approval from FDS to allow terracing activity for Durian planting in Coupe TWU 02/2017. The DFO Kalabakan requested approval from CCF on 23 February 2019 Ref.#: JPHTN/KA 700- 2/1/1/93/Jld.2/41 and pending for feedback. 007/2018 Minor 2.2.8 Raised to October 2018: Major The stumping occupational permit (JP/KA (OP) 37/2017) expired on 20th August 2018. The renewed occupational permit was submitted to FDS (Ref.#: AOFSB/3.0/OP/2018 (62)) on 3rd September 2018, as there are log stocks stored at the stumping. However, the renewal process is still pending for approval. October 2019: No evidence of stumping Occupational Permit No. JP/KA (OP) 37/2017 being renewed during the assessment. 008/2019 Major 1.5.1 New October 2019: 2.1.10 No evidence that the company amended the data for the AWP as required by FDS. The company

conducted forest operations prior to approval of AWP.

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GAP Type Checklist Status Description

009/2019 Major 1.9.2 New October 2019: 2.1.6 No evidence of monthly production record by Coupe during the assessment. 010/2019 Major 2.6.1 New October 2019: 2.6.6 No evidence of SOCSO contribution or insurance payment for forest workers. 011/2019 Minor 2.6.4 New October 2019: No accident was reported in 2018. However, no evidence of JKKP Form 8 submission to DOSH for 2018. 012/2019 Obs 002- 2.6.10 Raised to October 2018: 2017 Minor Asiatic Organic Farm (with the advice from RBJ) is in the final stage finalizing the draft of Forest Fire Prevention and Management Plan. The draft was made available during the assessment. October 2019: The FFMP is still in a draft form since 2017. No evidence of FFMP submission to FDS for approval. 013/2019 Major 3.1.2 New October 2019: No evidence of record royalty payment from October 2018 to September 2019 during the assessment.

Observation raised against indicators & criteria during the October, 2019 assessment Obs # Checklist Description

001-2018 1.4.2.7 October 2018: Addressed Estimates of yield of 300-400 m3/ha for planted trees are unrealistic in respect to sustainability.

October 2019: Based on the approved 2nd FMP (3rd revision), the estimated yield for planted species with a rotation age of 10-15 years ranges from 200-250 m3/ha upon clear felling. 001-2019 1.4.2.5 October 2019: The current FMP does not identify a land use for each compartment. The Compartment Register was also not available.

Highlights of Close Out Visit (if applicable) Dates Major Gaps shall be addressed within two months by December 2019.

Recommendations Rakyat Berjaya Sdn. Bhd. (Asiatic Organic Farm Sdn. Bhd.) has NOT demonstrated compliance with the Sabah Legality Standard (FDS-TLAS-002) as non-compliance was identified in criterion 1.5, 1.7, 2.1, 2.2, 1.9, 2.6, 3.1 and is NOT eligible to receive a GFS Audit Statement and STCC from FDS.

Major Gaps shall be addressed within two months by December 2019. Gap 005/2018 (Raised to Major) - Checklist 2.1.3, 2.2.9: Ensure the ECR is conducted quarterly and submitted to EPD with copies maintained in the office. All campsites shall be constructed outside of the buffer zones for all permanent streams. Gap 006/2018 (Major) Outstanding - Checklist 2.2.3: Seek FDS for approval of terracing and planting

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Durian trees. Gap 007/2018 (Raised to Major) - Checklist 2.2.8: Occupational Permits shall be renewed to avoid expiry. Gap 008/2019 (Major) - Checklist 1.5.1, 2.1.10: Complete required revisions for the AWP and obtain approval from FDS on the 2019 AWP. Gap 009/2019 (Major) – Checklist 1.9.2, 2.1.6: Maintain records of log production and submission to FDS. Gap 010/2019 (Major) – Checklist 2.6.1, 2.6.6: Maintain SOCSO contribution as required and maintain records of contributions. Gap 013/2019 (Major) – Checklist 3.1.2: Maintain record of royalty payment in the office.

Gap(s) and observation(s) identified in this assessment should be addressed before the next surveillance visit. Actions required to close the gap(s) and observation(s) include: Gap 011/2019 (Minor) – Checklist 2.6.4: Maintain record of JKKP Form 8 submission in the office. Gap 012/2019 (Raised to Minor) – Checklist 2.6.10: Finalize the FFMP and submit to FDS for approval.

Observation 001-2019 – Checklist 1.4.2.5: Update the FMP to include land use for each compartment and produce the Compartment Register document.

The next annual surveillance assessment will be scheduled for August 2020.

End of Summary Report

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