THE FOREST SECTOR, LAND AND DEVELOPMENT ISSUES IN PNG

Papua New Guinea has a land area of some 464,000 square kilometers. Of this, according to the Forest Inventory Mapping System, some 60% (280,000 km²) of that area was designated as: gross forest area. This area was reduced to an “adjusted forest area” of 266.000 km² by excluding small patches of natural or human disturbance

Of this, 122,000 km² has, or currently is being acquired for the purposes of commercial forestry utilization. 60,000km² of the acquired area is deemed in operable i.e. will not be logged as it falls outside the operating limits imposed by the Logging Code of Practice.

Forest land utilization to date can be summarized as:

• 24,000 km² has been logged and left to regenerate, of which apparently 15,000 km2 has ‘not yet done so’ ^*1 .
• 4,000 km² was logged and then cleared for permanent alternate land use, such as oil palm
• 11,000 km² was converted to alternate permanent land use without any prior logging, and
• the rest has neither been logged nor cleared for other land uses.

The regions which have seen the greatest transformation in PNG’s production forest are East and West New Britain, New Ireland, and West Sepik.

On the whole, the timber yield of PNG forests is low compared with moist forests in other tropical regions, such as Africa and Malaysia. PNG forests commonly yield in the order of 18-20 m³ per hectare^*2 although yields can go as high as 30 m³ per hectare. A Food and Agriculture Organisation report in 1993 indicates yields in Malaysia, for example, as high as 110 m³ per hectare.

A major aim of current forest policy is sustained yield management. A logging cycle of 40 years was adopted by the PNG Forest Authority for all species. This was reduced to 35 years by the World Bank as a conditionality of its first SAP program in the mid 1990’s. The scientific basis for this cutting cycle is open to question. (It is our view that 35 years was chosen solely because that is the period adopted in Indonesia, also with the support of the World Bank) The 35 year cycle was apparently chosen as the period required for the residual trees (after logging) to grow to the standard minimum 50 cm diameter cutting limit and thus become merchantable. Allowable annual cuts are estimated on the 35 year return period.

While the natural PNG forests are not generally high quality by world standards, nevertheless they play a very important role in sustaining the economic. social, and customary aspirations of the people and in helping to underpin the developmental needs of the country. Forests are often the only substantial capital resource owned by rural communities. The revenue source has predominantly come from log exports but as industry evolves to focus on processing revenue streams to both government and landowners will be reduced.

Changing global wood product markets and the Asian economic crisis, have provided the industry a window of opportunity for the industry to restructure and particularly to move towards greater diversification of its product base.

Landowners view forest utilisation projects as golden means of securing access to infrastructure and welfare services. They appreciate the presence of timber companies and the benefits that the forests will provide for their welfare, for example, by way of access roads, health and education facilities. However, the post-logging sustainabilitv of these benefits is often questionable due to a lack of resources and inattention to infrastructure maintenance by government, once the logging companies withdraw. This “difficulty” may reduce over time as the FMA process envisages an evergreen forest operation rather than the comparatively short term timber permit system which it replaced in 1991.

Although PNG has embraced the concept of sustainable forestry management as a guiding principle for forestry development, some would say this has been frustrated in the past by a low level of political commitment and the drive for export income. Communities have also been attracted to the financial benefits of rapid exploitation of their forests by logging companies.

Logging companies see themselves constrained by a lack of resource security to underpin major investment of capital in processing facilities and forest development; plantations and or intensive post logging forest management.

Ninety-five per cent of the land is owned by customary owners and suggestions of the acquisition by government of large tracts of land to support large new plantation estates to be created and operated by government are fanciful. The resource owners must be brought into the development and management of their forest estate, and the path to resource security must lie in properly working Incorporated Land Group and Forest Management Agreement processes.

Lessons Learned?

It is perhaps useful to examine some of the “difficulties” encountered in the past in order to establish some guideposts for future developments in the sector. The example of Turama Forest FMA project, located in Gulf Province, was the first, and up to the present, the only new forest project established wholly under the Forest Act 1991. Much of the debate on forest exploitation relates to the value landowners receive for their wood. They are of course the original owners of the wood and they are the first to receive some form of payment in the long production process from standing tree to end user.

Agreements
There are 2 agreements in place.

The Forest Management Agreement is an agreement between the PNG Forest Authority and Incorporated Landgroups (ILG’s) who own resource within the FMA boundary. ILG’s are more commonly known as clans. Through the FMA the PNGFA acquires the right to manage the resource contained within the FMA on behalf of the landowners.

No new FMA projects have commenced due to the moratorium placed on new logging projects in 1999 and the long lead time required to comply with the Act for project start up. Therefore TFI’s FMA project is probably a model in terms of landowner benefits and the types of benefits that may be provided to landowners in future timber projects throughout PNG.

The Project Agreement is an agreement between the PNG Forest Authority and Turama Forest Industries. There is no direct agreement between landowners and TFI. The important point to remember here is the PNGFA is managing the landowners’ resource on behalf of landowners. The Project Agreement provides for a number of different types of benefits and these benefits are quite substantial.

The major and ongoing benefits of Royalty, Premium and Annual Benefits that are provided directly to landowners total approximately 15% of the gross receipts from the sale of logs. This is indeed a substantial return for landowners and is probably the highest of any resource project in any industry in PNG. The PNG Government however, currently receives approximately 34% of gross receipts from the sale of logs by way of Log Export Tax. This unfortunately leaves only 53% of gross receipts for TFI to carry out its business. Whilst we do not wish to get involved here in the ongoing debate regarding Log Export Tax a few pertinent points need to be noted. The amount of the Government’s Log Export Tax on gross turnover threatens the very existence of the Project which in turn threatens the continuing flow of benefits to the local rural people. These are of course the people the Government, through the PNGFA, has signed an FMA with to manage their resources. It is certainly an ironical situation.

It is an ongoing major logistical exercise to distribute benefits to 467 clans in 96 villages over such a large area, all of which is only accessible by river channels. This area stretches from the Purari River in the east through Baimuru and Kikori to the Turama River in the west.

These benefits have a substantial impact on the lives of a large number of people over a very broad area. This is a remote area that has not really progressed in any significant way. Apart from logging and an oil pipeline that traverses the area there is no industry or even any form of village cash crops in the area. There is virtually no activity in the area that allows local people to earn some form of income to provide for even the most basic things in life, such as school fees for example. Our landowners allocate a significant proportion of their Annual Benefits towards the cost of school fees for their children. Landowners in the FMA and Kuri project areas have this year allocated a total K750,000 for school fees assistance to provide secondary and tertiary education to 600 landowner students in 90 education institutions throughout PNG and Australia. Without the assistance of TFI’s benefits most of these students would not be receiving an education. This in time will certainly add value to their wood through better, and hopefully more informed, decision making.

TFI has for several years been advocating to landowners the merits of establishing cash crops in their villages. This is now starting to gather momentum aid people in a number of villages are now clearing land and planting shade trees in preparation for planting vanilla. Other people in the area are beginning to experiment with growing rice. It appears the interest in cash crops is growing and this is a major shift in the thinking of the local people.

Overall the landowner benefits appear to work quite well. Landowners acknowledge they are in a fortunate situation and receive fair payment for the extraction of wood from their area. In return TFI does not have major problems with landowners and we have not been shutdown due to disputes with landowners. TFI is continuously liaising with landowners on operational matters and benefits, and we are much more involved with landowners than we are required to be under the terms of our Project Agreement with the PNGFA. Because of the way the Project is structured the PNGFA has the responsibility to deal with landowners but in practice this is not so and TFI handles most matters at considerable cost to TFI. The system is not working as originally intended. It is the lack of government presence, both in terms of meaningful development and appropriate institution (D.P.I, S.B.C.D., etc.) that has resulted in the people of the area, indeed in virtually all timber project areas, being entirely dependent on the operation to act as the government body and the business entity.

Unfortunately, as is often the case in these situations, there are problems and experience has shown that more could be achieved. Much of the money received is spent in a way that produces little visible long-term benefit. Landowner business groups in particular are a problem. Business groups receive 30% of the Premium but the vast majority of the business groups have never carried out any of their intended functions. None of the business groups have initiated any business activities and they are often reluctant to assist ILG’s because the people in authority are corrupt. The chairman usually either spends the Premium personally, or the chairman and a few of his close associates share it. The needs and aspirations of the ILG’s are generally ignored and most ILG’s are of the opinion that the business groups’ 30% share of their Premium is being squandered.

Whist TFI does its best to encourage landowners to think long term with regards to benefits, TFI is however, a commercial organization endeavouring to operate a business. Its core business is not to provide assistance and counselling to people regarding how they might better run their lives. There is virtually no assistance provided to the local people by the relevant authorities and NGO’s. There are a lot of so-called do gooders out there who seem to do their best to knock the industry but if some of these organisations actually took a positive approach and provided some encouragement and assistance to the local people far more could be achieved. The benefits belong to the landowners and TFI does not have the right to dictate to them on how they utilise their benefits, but these benefits do provide the opportunity to bring change and development to the area. These benefits of course, should be used to convert the value of the landowners’ wood to sustainable income producing activities in the area.

Many people talk about spin-off businesses for landowners but the problem with spin-off businesses is that they die when the project they rely on is completed. Any activity that benefits landowners is commendable but landowner benefits need to be used to establish something that is totally independent of the Project and will continue to operate indefinitely. This needs to occur on at least 2 levels. Village people need cash crops so that they can earn money to provide for themselves. The area also would benefit enormously if some type of large scale agricultural industry could be established. This could be set up using existing benefits if landowners were prepared to forgo a proportion of their benefits. There are large tracts of land in the area that could be utilised and there is a flow of money available over a long period of time. There would also be the possibility of forming partnerships with other local investors such as superannuation funds etc. The possibilities are enormous if the people in the appropriate authorities took the initiative and remained committed. Landowners would be the owners and the long-term beneficiaries of any such activity.

A potential opportunity for landowner “ownership” in the forest sector exists in the establishment of commercial forest plantations.

Forest Plantations
There is an emerging realisation in PNG that the long-term commercial viability of the forestry sector in PNG should not rely solely on the successful regeneration of logged over areas but focus far more on establishing a plantation estate which would return far greater volumes of timber than is possible from natural forest and from a comparatively small area. Every encouragement should be given to the retention of natural forest. However, reforestation is not likely to occur where logged land is deemed suitable for the development of agricultural tree crops or other more intensive forms of agriculture.

It should also be recognised that shifting cultivation is a greater cause of forest degradation and destruction than logging. Unisearch (1991)(then a division of Unitech), commented that the expansion of subsistence agriculture into previously forested areas, largely because of population pressure, is causing major environmental damage in some areas. Unisearch estimated that more than 200,000 ha of forest are cleared annually through shifting cultivation, while commercial logging leads to about 100,000 ha being cut over each year (and then “theoretically” available for regeneration), with mining, urban and other infrastructure developments combining to account for 60,000-90,000 ha of cleared forest each year.

Even with a reduced rate of logging activity large areas of forested land will continue to be cleared resulting in a rapidly diminishing natural forest estate. It is considered therefore, that with a need to diversify the resource base, and most importantly to increase the level of resource security for industry and reduce the investment risk, far greater attention needs to be given to the establishment of industrial scale plantations. In terms of sawlog and veneer log production, plantation establishment now would place the forestry sector on a secure and commercially viable footing from, say, 2030 onwards.

The following advantages are noted for plantations compared with natural forest:

• more productive by an order of magnitude (e.g. 20 m³ per ha per year increment compared with 2 m³ per ha per year for natural forest)
• more intensive
• easier to manage
• less environmental impact
• less demanding on infrastructure (e.g. roads, bridges)
• create more employment
• easier to obtain advantages of scale
• more compact (take up less land for a given production level)
• more uniform quality and sizes with greater productivity
• lower wood waste
• can take advantage of tree breeding technologies
• better suited to production of wood as a commodity (e.g. building material, wood chips for paper production)
• give a better economic and financial internal rate of return on investment

However, plantations:

• have low biological diversity
• ecological aspects not well understood (e.g. loss of soil fertility)
• do not usually provide valuable timber e.g. for quality furniture (although Fiji’s mahogany plantations are one exception : as were PNG’s teak plantations until they were largely felled and exported in log form purely for short term gain)
• delayed return on investment

The development of a commercially attractive plantation estate would require rehabilitation of some existing, but neglected, government plantations, continued production from existing private plantations, and the establishment of significant areas of new plantations. The new plantation areas could feasibly comprise large nucleus’ estates created by joint ventures between investors and landowners, supplemented by agglomerations of a large number of small woodlots and tree farms established by landowners themselves.

Successful examples of such enterprises exist in South Africa and other parts of tropical Africa, where unalienated, indigenous owned land provides the “capital base” for landowner entry and long term participation in the forest industry. The enlightened and pro-active application of the lease/lease back system of land mobilization, based on effective ILGs and widely used in the oil palm industry, could provide the framework for such undertakings.

Mr. Bob Tate
Executive Officer, Forest Industries Association

Further reference:
“Production, Privatisation and Preservation In PNG Forestry”, I.I.E.D. 2002, Ed. Dr Colin Hunt.

Attachments:
Forest Classification of PNG, source National Forest Plan, 1996
PNG Forest Industries, Key Indicators 1992-2004

__________________________
^*1 It is unclear from Filer with Sekhran whether the 15,000 km² left to regenerate but not done so yet’ refers to land logged perhaps some years ago which has failed to regenerate back to potential forest, or whether the area also includes areas recently logged but which have not yet had sufficient time to regenerate.

^*2 However, for example, at Sogeram inland of Madang, there are logging areas which would not yield more than 10 m³ per hectare, that is 2-3 trees per hectare. The cost of construction of feeder roads and snig tracks would make such a logging operation economically non-viable, even though the main species being extracted is kwila, which commands a high market price.