FORESCOM

Lessons Learned in Central America

31 January – 2 February 2012.

Carlos Natareno

Country Manager

Guatemala

Mayan Biosphere Reserve

• In 1990, Guatemalan Government established the Maya Biosphere

Reserve (MBR) in Petén. It was created with the purpose of

protecting natural resources from harmful agricultural practices

illegal logging, such as “slash-and-burn”, illegal logging (mahogany)

and intensive farming/livestock.

• The MBR covers 2,113,000 ha and is divided into three zones with

different functions: core zone, multiple use zone and buffer zone.

FORESCOM

Between 1998 and 2002, thirteen concessions were granted to eleven

community organizations and two private enterprises.

Thus, FORESCOM was created to support the communities and

cooperatives in managing their forests concessions and market their

products.

Main activities of FORESCOM: FSC certifications, technical

assistance, “add value” to timber products (drying and moulding)

and market access services.

FORESCOM

FORESCOM has a cooperative structure and its members are the

communities that hold concession rights. Name of shareholder community Abbreviation Concession

size (ha)

Asociación Forestal Integral Cruce a la Colorada AFICC

20,469

Asociación Forestal Integral San Andrés Petén AFISAP 51,940 Cooperativa Carmelita R. L. CARMELITA 53,797 Sociedad Civil Laborantes del Bosque LABORANTES 19,386 Sociedad Civil Organización, Manejo y Conservación / Uaxactún OMYC 83,558

Sociedad Civil Árbol Verde ARBOL VERDE 64,974 Sociedad Civil Custodios de la Selva CUSTOSEL 21,176 Cooperativa Unión Maya Itzá R. L. UMI 5,924 Cooperativa Técnica Agropecuaria R. L. TECNICA 4,607 Asociación Forestal Integral La Colorada AFIC 22,067 Asociación de Productores Agroforestales de San Miguel APROSAM 7,039

TOTAL 354,937

Loan from Oikocredit…

Oikocredit approved a USD 300,000 loan, 5 year term, on August 10 2006. Due

to management changes the disbursements were postponed until 2007, and

reoriented to the acquisition of machinery, construction of kilns, construction

of storage facility and working capital. These new fund destinations were

essential to the implementation of a business plan developed in part by RA.

Forescom was able to comply with its first interest payment in March 2008

(USD 10,862) and its first capital payment in September 2008 (USD 52,582

including interests). Existing guarantees include a mortgage on Forescom’s

main production facility and a guarantee from ICCO (70% of financial

exposure).

History

General Manager was replaced shortly after the approval of the

Oikocredit loan, by an interim representative from RA during the first

semester of 2007.

Huge pressure by cooperating agencies to achieve sustainability:

USAID, ICCO, Oikocredit, Rainforest Alliance, IUCN, ACOFOP and.

Agexport.

The management team and board of Forescom lacked of a “business”

approach.

Inability to Meet Financial Obligations.

Several changes on the General Management position. Lack of

management generated inadequate strategic decisions: Forescom

became a trader instead of a service provider.

The “new business model” demanded huge quantities of working

capital and a fast cash conversion cycle to pay on time to the

communities.

Increasing liquidity gap.

Adjustments to the loan from Oikocredit

Oikocredit approved a CB to develop the strategic and operative plans

(2008).

A rescheduling of the loan, in order to reduce the pressure over liquidity

position. The payment schedule was changed, from 6 month

payment to quarterly payments (2009).

After a 2 year intervention, the consultants were fired because of lack

of results (2010).

More Problems Emerge

There was a make up on the financial statements by the Financial

Manager. All the data from 2007, 2008 and 2009 was not real.

In a period of 3 years, 3 General Managers resigned from the position.

More debt was acquired with energy providers (gasoline and

electricity), suppliers (shareholders) and transportation companies.

New Solution

Forescom reached “technical bankruptcy”: no equity, huge debts and

no internal control.

In March 2010, a new general manager was hired (Mario Reynoso):

• Review and adjustment of financial statements

• Reduction of staff.

• New business model: service provider.

• Reduce liabilities.

• Rebuilt trust and business relationships.

• Mitigate pressure from RA.

• Improve quality of operations.

New Solution

Oikocredit approved a new rescheduling of the loan: monthly payments

during the last for months of the year.

A CB (technical assistance) was approved, in order to assure the

continuity of the management team (RA, Oikocredit, Heidehof and

Acofop). The CB support was conditioned: good performance and

sale of unused assets.

Current Status of the Loan

Outstanding: USD 115,827

Installments in 2011: USD 126,856

Interest Payments in 2011: USD 32,647

Penalties paid in 2011: USD 8,379

The Main Causes

FORESCOM was created as an initiative of the cooperating agencies

(RA), as a respond of a market opportunity for timber products.

The enterprise was designed by the cooperating agencies, and not by

the communities. This triggered and evidenced several weaknesses

in terms of governability, internal control, accounting and

management.

Lack of commitment and know how in management and

entrepreneurial skills.

The Main Causes

Mission Drift: the original idea was to create a service provider

enterprise, not a commercial intermediary.

Weak monitoring from Oikocredit, resulted in inaccurate measures to

mitigate credit risk (first CB and rescheduling).

To much intervention by RA, which affected the governability and

decision making oriented to sustainability

Follow up & lessons learned

• Close monitoring and constant communication with General

Manager.

• Promote the continuity of current management team.

• Include the securities into a guarantee trust fund.

• Constant communication with RA and Acofop, in order to promote

the autonomy of Forescom.

• New rescheduling of the loan in 2012, given the excellent credit

history of Forescom during 2011.

• Coordination with Agexport for commercialization strategy and

market access.

Thank you for your attention

Q&A