KOTA KINABALU, Feb 28 — The cause of the delay in implementing the controversial carbon credit project in Sabah is due to legal and technical flaws in the agreement and not from any “ploy” to derail the project, said legal advisor to the state government Datuk Tengku Fuad Ahmad.

Responding to claims that the Nature Conservation Agreement (NCA) was delayed due to “hidden agendas”, Fuad said that legal and technical defects in the agreement itself were in contravention of Sabah’s environmental laws.

“The NCA’s terms do not comply with the requirement of the Sabah Biodiversity Enactment 2000 in that any exploitation of biological resources in Sabah must first be approved by the Director of the Biodiversity Institute with the approval of the Biodiversity Council,” he said during his presentation at the Borneo Rainforest Law Convention.

Among this contention was that the terms do not state an approved “benefit sharing agreement” with local native communities with the funds generated from the natural resources.

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“The NCA only provides for the profits to be shared with the Sabah government and fails to acknowledge or compensate local native communities directly,” he said.

Fuad, who also sits as a member of the state’s Forest Climate Carbon Committee (FCCC), said that there were too many details in the agreement that were unclear.

“For example, Item 6 of the Schedule simply state “details of the designated area”, what does this mean? Since the designated areas is to comprise up to two million hectares and is the heart of the NCA, why then is the exact location of the Designated Area not stipulated in the NCA?

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“If the Designated Area is yet to be ascertained, why the rush to execute the NCA?” he asked.

He also pointed out that there was no price discovery or control mechanism in the NCA, and no obligation for the management, a Singaporean-based firm named Hoch Standard, to market carbon credits at a fair market price.

“Nothing in the NCA prevents Hoch from selling Sabah’s carbon credits to itself or its subsidiary for US$1.00 (RM4.76) and then re-selling the sale to the end buyer for US$10.00, for example.

“There is also no profit guarantee or cash consideration provided to the state government from the company,” he said.

The legislation also does not support most commercial exploitation of Sabah’s forests, given that the “designated area” purportedly involves some 2 million hectares of “Designated Area”.

Sabah’s expansive forest covers a total of 4,679,594 hectares, of which 82 per cent are located in Protected Areas, and 42 per cent in Totally Protected Areas (TPAs). The NCA proposed TPAs but to do so would breach Section 15 of the Forest Enactment 1968.

Furthering that dilemma is that TPAs are unsuitable for carbon credit-generating projects. Under Article 6 of the Paris Agreement, carbon credits can only be generated if the area concerned is under threat of deforestation and financing from the sale of carbon credits is needed to remove such threat.

TPAs areas are not under threat of deforestation nor is carbon financing required to maintain their totally protected status therefore, they do not qualify as carbon credit generating areas.

Aside from these, Fuad also said the state attorney general was waiting for several items to be furnished before it can be approved as part of its due diligence.

Among them is Hoch Standard’s owner Ho Choon Hou and his past experience in carbon credit generation and sale, as well as previous projects’ records, proof of funding and financing plus other addendums in the NCA.

“It is difficult to see how the NCA in its present form can be implemented. Domestic laws alone relating to the exploitation of natural capital have rendered the fundamental terms of the NCA void.

“In respect of carbon credits, the NCA cannot provide proof of concept since the 600,000 hectares of pilot project cannot proceed because no unencumbered forest areas are currently available. Without that, the NCA cannot proceed in so far as carbon credits are concerned,” he said.

Fuad concluded that although carbon projects are viable and progressive ideas for the state, the NCA needs to be either substantially reconsidered or set aside entirely for a more selective and cautious process.

There is still some confusion about the status of the NCA as the project’s main proponent, Deputy Chief Minister Datuk Seri Jeffrey Kitingan insists it is going ahead with the 600,000-hectare pilot project, of which about a third (190,000 hectares) is located in the Nuluhon Trusmadi forest reserve.

Yesterday during the same forum, Kitingan’s political secretary Anuar Abdul Ghani said that the controversy surrounding the project was a setback for the state which lost out on being the forerunner in the region.

Anuar, who heads Steering, Management and Implementation of the NCA Committee (SMIC), said controversies like a statement issued by the state AG saying that the NCA agreement was “legally impotent”, sent “shockwaves” and greatly undermined the legal status of the NCA as well as Sabah.

He said major companies and investment firms backed off following the news although the statement even though the agreement had a solid foundation.

The deal was signed on a fairly low profile in October of 2021, granting two million hectares of land to Hoch Standard for a 30 per cent profit-sharing deal.

After it came under the spotlight, several conservation groups as well as the opposition protested the agreement and Chief Minister Datuk Seri Hajiji Noor eventually stated that the project would not proceed without comprehensive due diligence.