Robert Tate
Executive Research Officer
Forest Industries Association, P. 0. Box 229, Waigani. PNG

At a present conference in Lae titled ‘Building Partnerships for the Future’ the then Director of the National Planning Office, Kila Ai, said “it was hard to see how, even with PNG’s abundant resources, the country could sustain its mounting population with a standard of living that was acceptable”. That PNG currently enjoys abundant natural resources is not in doubt, but what of the future? What impact will a growing population have on our resources and sustainable development? And of our natural resources it must be said that forest products are the only true sustainable resources for future development.

The former Director of the Institute of National Affairs, John Millet, in a recent paper focused on the future of the forest industry in PNG and particularly the sustainability of the forest resource base, our only renewable base, our only renewable natural resource.

His concluding word “whether or not the rate of logging is sustainable is not the central issue, the absence of a clear land use strategy is”. This very clearly states the major problem to be overcome if PNG is to have a sustainable timber industry. This problem needs to be addressed both promptly and directly before any discussion of the correctness or other wise “of the numbers” associated with long term forest management.

The very foundation of a sustainable timber industry is the dedication of a secure resource base. This requires the allocation of land that will be given over for long periods of time; the very minimum would be 80 years, for the purpose of growing timber. It would then be necessary to determine a suitable management plan for these dedicated areas, which takes into account the natural growth rate of the forest, whether this rate can be increased by the application of silvicultural techniques, the impact of harvesting on remaining tree stands and the potential for tree plantation development.

Before such dedicated areas could be defined, it would be necessary to also determine what areas should be set aside for agricultural and subsistence farming use, for industrial and urban development, and areas to be preserved for conservation protection purposes.

In PNG there are no areas of natural forest currently dedicated or zoned as permanent timber growing areas. Land, and the forest growing on it, is privately owned by the traditional landowners.

The Government can not, and currently lacks any legal right to direct private (customary) land use through any form of zoning. For the foreseeable future it will be the traditional landowners themselves that must take the lead in setting aside land for sustainable forest management.

Traditional landowners firstly need to be educated as to the benefits of sustainable forest management. This would require a major shift in focus from the short term, “immediate development” outlook so prevalent today to one of long term, steady progress.

Secondly, landowners need to make the commitment of their land in large enough areas to support a sustained forest industry. Under existing laws this could be achieved by registering customary land and then entering into an appropriate joint venture with a forest management developer.

Such a scenario is envisaged in the new Forest Management Agreement (FMA) system which has replaced the Timber Rights Purchase as the main vehicle for forest utilisation and management.

Unfortunately, the current framework of the FMA does not go far enough to guarantee long term resource management and sustainability of the resource base.

Long Term Management

As a minimum, there should be a requirement to permanently set aside areas for long term management through agreement by the resource owners to a designated forest management concept for the area; such areas need to be of a size that will ensure repeated timber harvesting into the future and, if the area is suitable, to support the large scale downstream processing plants that are envisaged under the new forest policy.

Present policy limits the timber harvest each year to one thirty—fifth of the timber resource in an area. The policy assumes that thirty—five years after the first harvest, the land will still be available for logging and that the natural forest will have regrown, to at least its original composition and or value under a management policy of benign neglect.

This is a very doubtful foundation on which to build the future of the timber industry. As currently utilized Forest Management Agreements are little more than a revised TRP document. There is little attempt made to identify land boundaries, future land use patterns and different forest uses (commercial logging, conservation areas, potential plantation areas, etc.) within FMA areas. Although, improving the current weaknesses in PNG incorporation process builds in potential future disruptions to any forest management planning.

The assumption that the land area initially producing the harvest log volume will remain untouched after 35 years is extravagantly optimistic. It is obvious that over that period of time large areas of forest will be converted to other uses -agriculture, subsistence and commercial, will account for the largest conversion. This will be the natural result of increasing population pressure on the land.

PNG’s population is now in excess of four million, and at current growth rates it is forecast to approach 7.5 million by the year 2030. This will coincide with the end of the first 35 years logging cycle under current FMA agreement. By the year 2100, the end of the third logging cycle, the population will approach 47 million if the current growth rate is maintained.

In one of the few studies conducted into population growth and land use in PNG, the Food and Agriculture Organisation of the United Nations indicated that an extra 1.5 hectares of land is needed for each additional person dependent upon subsistence agriculture.

Three and a half million more people, each requiring one and a half hectares of land would result in more than five million hectares of forest being cleared, in addition to the land already being used for agricultural purposes, by the year 2030. By year 2100, virtually all available forest land would have been cleared for agricultural production if current land conversion patterns continue unregulated.

In the immediate future it is more than likely that most of this land clearing will take place on land that is the most suitable for long term forest management and forest plantation development. Forestry competes with many agricultural developments which also require primarily flat or moderately hilly terrain, certainly less than the 30 degrees maximum ground slope on which current logging is allowed.

Indeed, it was a general conclusion of the F.A.O. report that in areas where it could be foreseen that alternative land uses would result in the loss of the natural forest, the rate of logging should be increased. This would capture at least some economic benefit from the forest resource before it is felled to waste.

One needs only to look around the now sparse bush land surrounding Port Moresby and other urban centers or the degraded grasslands of the Highlands and Papuan north coast to appreciate the impact that uncontrolled land clearing for subsistence purposes, which includes housing development, has had on the original forest resource.

The existing land area under some form of forest management, either Timber Rights Purchase or Forest Management Agreement, is approximately six million hectares. This may expand over the next 30 to 40 years to six and half to seven million hectares.

Taking into account that, on average, 25 percent of any timber area is inoperable i.e. unloggable, because of ground slope, waterway protection zones, villages and other developments ‘within the timber area etc. The real maximum potential area available for long term forest management is estimated at approximately five million hectares.

How much of this area will be ‘lost’ to agricultural and other development land clearing is uncertain, It would be reasonable to assume that as living standards improve there will be less reliance on subsistence agriculture. It is impossible to say, however, how this may result in the forest being protected from land clearing. Improving standards brings other types of developments—urban expansion. More road, etc. and significantly, a greater demand for forest products.

At this time we should take the prudent view that until traditional landowners, with government support and guidance, dedicate large areas of natural forest to long term sustainable forest management, the future of the natural forest as a resource base for a sustainable timber industry is under threat.

The mechanisms for forest conservation within sustainable utilisation rates could be developed under the Forest Management Agreement — but it would appear that they have yet to evolve.

Growing pressure from non-industry participants may eventually lead to landowners and government having to address the problem of long term land use planning and sustainable forest management. There is little evidence of this happening now, in PNG, certainly land use matters have been put in the “too hard basket”. However, an evolving policy frame work for forest management and greater public awareness of forest conservation and planning issues provides some hope that the forest resource base will continue to provide the basis for sustainable economic and industrial development.

Some would take the view that the closely related planning issues of land use and forest development need to be addressed as a precondition to future commercial forest development. FLA supports this view but would add that we in PNG have a long way to go before we will be able to attract the necessary foreign investment to realize government policy aims of large scale processing and plantation development.

With a largely intact, but, unregulated resource base, a relatively low level of domestic market demand, and significant logistical and economic constraints, the question of industrialisation in the timber industry is again under close scrutiny as Year 2000 gets closer.

What has not been put in place are the mechanisms for the advance of industrialisation policy within the timber industry. The Association recognises the need to develop sustainable processing industries within the sector in order to fulfill National Policy and those commitments undertaken internationally in regard to ITTO guidelines on sustainable forestry practices.

What is of greatest concern to investors are the conditions, both of resource security and operating parameters, under which, this is supposed to occur. Much is stated in National Forest Policy in terms of attracting reputable investors and establishing economic and operating conditions conductive to increased investment in a push towards industrialisation. However, it is the industry’s perspective that the commercial and operating realities are not adequately understood by the authorities and as a result conditions for investors lag behind those required for processing and plantation development generally. .

We often hear uniformed statements that “operators don’t want to get involved in processing”.

The reality is that if secure and profitable operations were possible, investment in industrialisation would increase.

Therefore, what is required is action on favourable operating conditions to achieve increasing industrialisation.

The FIA has advocated for some time that incentive conditions, developed in tandem with the availability of a secure and sustainable resource base, will do much to reduce the competitive disadvantage of PNG in respect of remote international markets, multiplicity of species, and high unit operating costs. if increasing industrialisation is the goal, government must urgently develop or modify incentives and remove disincentives to encourage expansion of existing processing operations and to develop new viable and sustainable investment.

Overview on Incentives.

The NFA make comments as to what might be a productive approach, which will show early, and hopefully, long term success.

Basically, we suggest three (3) approaches:

1    Retain, publicise and apply existing incentives to the forest sector across the board, i.e. incentives must be uniform across the sector and available to all participants.
2    Modify sectoral incentives for the agriculture, fishing and mining sectors to also apply to forest industrial development as well.
3    Develop new incentives for industrial development in the forest sector.
4    An immediate, comprehensive review of the forest revenue system and the immediate application of zero rating to the sector for VAT purposes.

Recommendations I and 2 are self explanatory and need no elaboration other than the clear establishment and consistent application of approved incentives. The matters by 3 and 4, however, warrant some additional comment.

Recommended new incentives for industrialisation.

• a) Import duty exemption on all processing and plantation equipment purchases, consumables and spare parts not manufactured in PNG, for both existing and new sustainable forest activities.
• b) A review of the log export tax regime as it applies to sustainable by review operations, either new or existing, which are also engaged in processing and or plantation activities for five years from commencement of commercial product ion of the processing facility.
• c) If existing unsustainable log export operations are made sustainable by review or voluntary, they may also benefit from the log export tax review if they move into processing themselves or supply logs to bona fide existing processors with inadequate resource availability, for processing, for five years from commercial production of the processing facility or from commencement of log sales to existing local processors.
• d) No export tax or levy on finished product and plantation production and no new additional charges or levies, except statutory charge levels, on raw materials for a period of 10 years.
• e) No restrictions on future log exports from approved sustainable log export operations. i.e. no enforced processing quotas on such operations.
• f) No restrictions on future overseas recruitment of technical and professional staff needed to maintain and operate processing facilities far at least five (5) years.
  g) In line with the recommendations of the recent studies into the marketing and processing of PNG forest products, there needs to be a review and redesign of the export tax system to take account of location, production and market variability’s that occur in the sector. In addition there are at least six new levies and taxes being proposed for the sector. There is no overall plan or co-ordination between the various government agencies proposing these new charges. The adverse and discriminatory treatment of the sector under VAT will see significant cost increases in logging, processing and plantation activities. Because of VAT, PNG’s forest product exports become more expensive on export markets putting us at a competing disadvantage with other countries and producers of competing substitute and softwood products.

Conclusion

The move to processing involves long term planning on the basis of stable conditions. The FIA considers that a confirmed incentives package is the surest way to develop the climate for integrated competitive and viable processing operations in selected production forest zones when coupled with a secured sustainable resource base.

Further, the package, once finalized, should be included in the review of the National Forest Development Guidelines. The government will then have fulfilled its role in creating the economic and operating conditions promised by the National Forest Policy and the industry can reasonably be expected to respond in a positive manner.

However, in the absence of positive Government action, it appears that there is little chance of programmed industrialisation in the forestry sector as intended in the National Forest Policy.

(Source: Beyond the First Harvest; PNG FRI Bulletin No.12; Proceeding of the PNG FRI –JICA Forest Research Seminar 23-24 February, 1999 – Sponsored by JICA.)