Since the 1975 land proclamation, which turned over all ownership rights of land to the state, the use of forests has been based on a system of production quotas issued by the forest administration. Technicians in the field locate the areas of forest from which the quotas may be cut and assess charges. This assessment depends on the volume of each tree species that will be cut, the quality and type of roundwood that will be produced and the location of the forest.

Until 1990, the government determined or approved the prices for all forest products, based on technical guidelines and estimates of the value of the products. The guidelines focused on the royalty fees and stumpage fees that should be charged for different types of roundwood. However, these charges did not take into account the cost of production or the cost of replacing the forests that would be cut. Instead, they were mainly based on the local market prices of different forest products, taking into account the distance of each forest from major towns. This resulted in prices that were generally too low. Along with the inadequate recognition of many of the goods and services provided by forests in Ethiopia, this is believed to be one of the main reasons why it has been difficult to implement sustainable forest management in the country.

The 1990 forest products pricing and marketing study

In 1990, a study was conducted in order to improve the estimation of forest charges (see: Ministry of Agriculture, 1990a and 1990b). The objective of the study was to rationalise stumpage fees, based on two alternative methodologies:

the residual value method – where the stumpage value is based on the market price of forest products minus all costs of production (i.e. harvesting, extraction, transport and other costs); and

the production cost or replacement cost method – where the stumpage value is based on the cost of forest management (including all forest costs from the production of seedlings to production of the final product).

In the first method, the stumpage fees for different types of roundwood were to be determined from the market prices of different forest products in 23 selected towns, minus the costs of production. However, this methodology did work very well because it was difficult to obtain the true sale prices of forest products from many producers. For this reason, this methodology was not used to estimate stumpage fees.

The second methodology was also difficult to use because detailed research was required to estimate the production cost of each tree species, starting from seed collection to the end of the rotation. Therefore, in order to overcome these difficulties, a special study was carried out to estimate the costs of production. Information was collected about the costs of producing trees, plus harvesting and transportation costs. In addition, computer models were developed to help the study group to include interest rates and a profit margin (estimated at 8 percent and 15 percent respectively) in the calculations. The study also assumed a 45 percent sawnwood recovery rate in the calculations.

The species and forest products included in the study were as follows:

• roundwood;

• sawnwood;

• Eucalyptus poles;

• fence posts;

• charcoal;

• fuelwood;

• bamboo; and

• incense and natural gum products.

Following this study, forest charges were updated in 1993 (see Table 12). As the table shows, the stumpage charges for different tree species were increased dramatically, so that the charges for indigenous tree species such as Podocarpus gracilior, Juniperus procera and Olea africana were increased to over 200 Birr per cubic meter.

Table 12         Increases in average stumpage charges as a result of the 1990 forest products pricing and marketing study

The stumpage charges shown above are averages but, as noted earlier, stumpage charges also vary by species. For example, the current stumpage prices paid for fuelwood (in the free market) are as follows:

Eucalyptus spp                        46.8 Birr per cubic meter

Cupressus spp                       14.8 Birr per cubic meter

Indigenous species                 54.8 Birr per cubic meter

It should also be noted that, before 1993, there were two types of prices for forest products in the market. In the free market, prices were determined by market forces (i.e. the interaction of supply and demand). However, government forestry enterprises had to sell their forest products at prices set by the government. Table 13 below compares the market prices for sawnwood in 1993 compared with the prices set by the government. As the table shows, the difference between the prices charged by government forestry enterprises and the private sector was over 1,000 Birr per cubic meter of sawnwood. Thus, in view of this, the increase in stumpage charges introduced in 1993 can still be considered insignificant.

Table 13         The market price of sawnwood compared with the fixed prices of government forestry enterprises in 1993

The current process used to calculate forest charges

As already noted above, for many years stumpage charges did not reflect the cost of growing trees or the markets ability to pay for roundwood and forest products. For example, a number of studies have shown that if stumpage charges had followed forest management and production costs, the selling prices of forest products such as lumber would have doubled a long time ago. 

Therefore, the replacement cost method is now used to estimate stumpage charges. As before, this involves calculating the cost of production from seed collection to the end of the rotation, using the most up to date cost and price information available. However, market-based stumpage prices are also now used to cross-check and correct the prices calculated by this method. Indeed, in most regions, the level of market demand and forest product recovery rates are now very important factors that influence the level of royalties that are set. Furthermore, some states are introducing more market-orientated methods of selling standing trees (see, for example, the comments on stumpage auctions in Oromiya state in Section 1.1.1 above) and, where forest products are sold by auction, this is believed to benefit the forestry sector.

The administrative and legal process used to set and enforce forest charges

The administrative process used to set and enforce forest charges is as follows:

The details of any new fees and charges and of any changes to existing fees and charges are always widely publicised by the forestry administration in media such as the press. These notices also give information about the dates from which any new fees and charges will become effective.

 In terms of the legal instruments used to set forest charges, the Government Decree No. 50 of 1963 was the original instrument that gave the government the power to set the prices of forest products. However, this decree was repealed as part of the free market economic policy declared in March 1992.

The legal instruments currently used to enforce forest charges are:

Collection of charges and monitoring

In previous years, royalty collection was the responsibility of the central government and royalties were collected and deposited in the Central Treasury. Currently the regional offices of the Ministry of Agriculture collect royalties and the Federal Forest Conservation and Development Team of the Ministry of Agriculture has little knowledge of the revenue collected and has no mandate to collect this information. Furthermore, different regional governments have different royalty systems and there is no uniform royalty across the whole of the country.

Charge assessment and monitoring in the field

The Forest Conservation and Development Departments at Regional Agricultural Offices have the mandate to issue logging quotas to government and private sawmillers and are also responsible for the control of logging and monitoring compliance with forestry rules and regulations. The site forest technician is responsible for the marking of compartments and the trees that will be harvested. The technician also makes follow-up visits to sites to see whether felling regulations have been followed. However, this procedure does little to prevent loggers from cutting other trees. 

Nowadays, logging is normally carried out by the sawmillers and charges are assessed by the forest technician. The forest technician is responsible for the assessment of the grades of both wood and non-wood forest products at the forest site. The forest technician measures the volume of logs that will be harvested and calculates the charges that should be paid, then this information is included in a summary report that is sent to the Woreda Office of Agriculture. This report includes information about the logging site, the type of logs harvested, the identification numbers of the logs, volume estimates, the date of removal and the number plate of the truck that will be used for transporting the logs. It also includes the total estimated charges that must be paid. The Woreda Office of Agriculture checks the all of these reports and then aggregates this information and sends a report to the Zonal Office of Agriculture. The Zonal Office of Agriculture then does the same and sends a report to the Regional Bureau of Agriculture.

Charge payment

All forest charges are paid in advance of harvesting operations. Every time forest revenue is collected on behalf of the Regional or Federal Government of Ethiopia, serially numbered official receipts from the Ministry of Finance are issued and used.

The charges for forest products are usually paid by cheque to the Commercial Bank of Ethiopia, where there is an account for forest revenues. This money is then transferred to a government account under the control of the Ministry of Finance or one of the regional finance bureaus.

All forest revenue from the use or disposal of forest products is deposited in the Consolidated Fund, unless the department is authorised to retain and spend some of this money. When this is permitted, this money is included as both income and expenditure in the department’s accounts.

Financial accounting and auditing

The Ministry of Finance has the overall responsibility for supervising the management of public funds, which also include subsidies from the Federal Government to the states. Although, states have a substantial degree of autonomy, the Federal Government takes the lead in setting financial management standards and the states are required to report their expenditure to the Ministry of Finance of the Federal Government.

The administrative process of forest revenue collection is supervised and controlled by the Ministry of Finance at the federal level and the regional bureaus of finance are responsible for administering revenue collection in the field. The regional bureaus of agriculture are responsible for the collection of statistics about the production and utilisation of forest products. This information is used by the Auditor General or the auditor of the Ministry of Finance to compare the amount of revenue generated with the recorded production of forest products.

The Ministry of Finance has unrestricted access to all books, papers, accounts and records of all public bodies, including the Ministry of Agriculture.  In addition, all regional governments have a financial management and reporting system. The regional bureaus of finance also have access to the accounts of the regional government bureaus and can conduct audits of the use of budget subsidies and revenue collection. Development budgets for departments are only released after departments have passed an audit by the Ministry of Finance or Regional Finance Bureau.

Centralised and decentralised levels of government in revenue collection and administration