For the purpose of setting forest charges, forest products in Kenya are classified into two groups: major forest products (industrial roundwood, poles and posts and fuelwood) and minor forest products (grass and mosses, barks, resins and gums, medicinal extracts, seedlings, soil and murram, picnic sites and lodges and forest cultivation, etc.). For major forest products, production is the main forest management objective. For the minor forest products, forest management decisions are not specifically geared towards their production.
In determining the charges to be levied on the various products, the FD takes the following issues into consideration:
§ The FD is largely monopolistic (as it owns and manages almost all forests in the country) and is, therefore, a price setter.
§ Forests are public entities and, therefore, forest charges have to balance both the need for profitability and social goals. In some cases, social goals may outweigh the need for profitability.
§ The need for sustainable development in all sectors of the economy.
In forests that are specifically managed for timber production (especially plantations of pines, cypress and eucalyptus) the charges levied on roundwood production can be determined on the basis of either the replacement cost method or the residual value method.
The residual value method requires a readily available market price for the final product, from which the residual value or stumpage price can be derived. With this method, all processing costs, profits and risk margins are deducted from the market price of the final products to leave the residual price (which is the maximum that sawmills are willing to pay for the logs).
In recent years, there has been oversupply in the market with very cheap material from farms and other areas. This has resulted in low prices that would push the royalty rates below the cost of production if the residual value method of royalty calculation was used. Therefore, the replacement cost method is currently preferred by the FD for setting roundwood royalties for cypress and pines.
The replacement cost method has the following advantages over other methods of setting forest charges:
§ It has rationality, in that any producer of goods and services should recover their production costs and, therefore, need to know the break-even cost.
§ The approach has the flexibility to adjust royalty rates to reflect marketing and management objectives (such as raising the royalty for wood produced from clear-felling and lowering the royalties on thinnings).
§ It is possible to identify weak cost centres and, therefore, institute measures for improved productivity and cost reduction.
§ The method has the advantage of passing on the benefits of any improvement in management efficiency (i.e. lower production costs) to consumers.
The replacement cost methodology uses an average cost of production to arrive at an average price per unit of sale. This is summarised in the general formula:
Y x P = C
Where: Y = Yield
P = Price (royalty)
C = Replacement cost
In this calculation, the yield used is an average of volumes assessed by the FD Inventory Section in each year and the cost is the weighted average of production costs calculated by analysing costs from several sample forest stations. This method guarantees roundwood production cost recovery and also guarantees the producer a pre-determined profit (under the assumption that the producer is efficient).
In practice, the price calculated by the above formula is adjusted according to the management objectives that the price is supposed to achieve within the various timber assortments (e.g. cypress clear-felling, cypress thinning, pine clear-felling and pine thinning, etc). A profit margin and the prevailing rate of inflation are also included in the calculation to arrive at the charges to be levied.
The Government has deliberately restricted access to indigenous timber by imposing temporary harvesting bans and by setting high royalty rates. This has been done to ensure the recovery of indigenous forests after years of overexploitation and also to enhance their more important roles of environmental protection and biodiversity conservation. The current royalty rates for roundwood harvesting in indigenous forests are shown in Table 2.
Minor forest products are usually harvested by communities living near the forest and with whom the FD would wish to establish close linkages. The prices of these products have been set at a low level to make them affordable by the poorer members of communities. By doing this, it is expected that such people would be more inclined to support efforts towards conservation of their neighbouring forests.
Forest charges are revised annually and the charges are communicated to field officers and consumers through a Forest Departmental General Order (FDGO). The charges that are set administratively are adjusted every year for inflation. In order to make the exercise as inclusive as possible, there is consultation between the FD and senior government officers, but there is little consultation with wood users about the revision of forest charges.
While the responsibility for setting charges rests with the Chief Conservator of Forests, the system allows for arbitration by the Minister responsible for forests (should there be any disputes). Once revised charges have been agreed, enforcement is administered through the Forest Act (Cap. 385 of the Laws of Kenya).
Finally, it should be noted that the forestry sector has an obligation to support other sectors of the economy. In recent years, generally poor economic performance has led to a lowering of purchasing power with the result that the FD has been forced to lower charges on forest products and services. For example, the liberalisation of the economy has led to cheap imports of paper products from abroad and the only pulp and paper mill in the country has had to seek intervention measures to prevent closure. This has led to a reduction in the prices charged for pulpwood production.
Depending on the product to be sold, the FD employs several methods to assess the total value of charges that should be collected. For example, assessment of roundwood charges is based on three main methods.
§ Standing volume assessment (mainly used for forest plantations).
§ Ground scaling method (indigenous species and materials salvaged from plantations).
§ Weighbridge method (mainly used for pulpwood).
In 1985, the FD stopped selling felled logs and started to sell roundwood using a standing volume (stumpage) assessment method. This is used to sell standing crops in forest plantations (e.g. Cupressus lusitanica, Juniperus procera, Vitex kiniensis, Grevillia robusta, Pinus patula and Pinus radiata) and the assessment procedure is outlined below.
Standing volume assessments are implemented by 13 Inventory Units that are strategically located to cover each plantation area in the country. These units have a forester in charge, an assistant and two or three enumerators. In each area where harvesting will occur, the Inventory Units collect information about the diameter at breast height and the height of trees, either through complete enumeration or systematic sampling. Based on this information, the volume of each tree is then calculated using different formulae for different species. After this assessment in the field, the data is then sent to FD Headquarters, where the Inventory Section applies regression models to determine the total volume of trees enumerated or sampled. This information is then used to calculate the total volume that will be harvested and the charges that should be paid.
The main reason for introducing this methodology was to improve revenue collection by the FD and to improve the efficiency of the wood processing industry. However, inaccurate data collection could lead to errors in computing standing volumes and charges. Possible sources of error include: the use of faulty instruments; a lack of appropriate training of the measuring crews; underestimation or overestimation of horizontal distances; and deliberate manipulation of the data. Any of the above will result in inaccuracies in the expected volume, which could lead to low revenue collection.
For sales to sawmills, roundwood volumes are assessed on the basis of a complete (i.e. 100 percent) enumeration. In the case of sales to the pulp and paper mill (pines and cypress), systematic sampling is used to establish the roundwood volume. This is because of the large areas allocated for harvesting. For systematic sampling, the size of the plot is determined by the condition of the stand, but it ranges from 0.07 ha to 0.10 ha. This plot size is used to ensure that a sampling error of less than 10 percent is achieved with a sampling intensity of 10 percent.
A team based at FD Headquarters monitors the performance of the Inventory Units by cross checking data from the field. If significant differences are found, the team implements quality controls in the field.
Where there are very steep slopes, species without volume equations or serious defects in the trees, volume is assessed using the ground scaling method. For this method, trees are felled and cross-cut into logs and then classified into log classes. The logs are then measured and recorded in timber statements that are used to calculate total roundwood volume. The forester in charge of a station measures and grades the logs and the District Forest Officer is usually supposed to cross check this work. This method is used mainly for indigenous species that are difficult to measure standing due to the nature of their growth (i.e. they are mostly crooked and bent).
The assessment of volume and charges using this method depends entirely on the measurements made by the forester in charge of the station. According to a study by the FD Economics Section, this method of volume assessment tends to result in assessments of volume that are very low. The main problem is the common practice of allowing the industry to purchase only what it wants rather than all of the timber available in a stand. This results in significant waste and low royalty collection. The method is also open to abuse by corrupt field officers. Therefore, this method is characterised by very low recovery of forest charges.
This is a method where a loaded truck is weighed on platform scales at the delivery point. The net weight of the wood is then obtained by deducting the weight of the empty truck. The volumes and charges assessed by this method are calculated from the recorded weights using records of volume-to-weight relationships.
The volume-to-weight conversion factors have been tested (and shown to be unbiased) and this method is easy to apply. In particular, this method is very useful for measuring pulpwood volume. It also has the following advantages: it is safer (because a scaler does not have to climb over and around the load); judgement is not required to decide where to measure the size of a load; non-uniform lengths can be weighed to determine the total volume of the truck load; and there is no sampling error using this method.
Charges for other products are based on weights and lengths (running metres) as indicated in Table 1 and Table 3.
Once charges have been assessed, bills are issued and revenue is collected by the station forester who uses prescribed receipt books to receive payments at the station level. Payments for major forest products are made by cheque while cash payments are usually made for minor forest products.
According to the FDGO, all payments should be made in advance and the FD should forward all payments to the local district treasuries. However, unauthorised cases of credit sales have been reported in the past, resulting in arrears of revenue.
All revenue from major forest products is subsequently sent to the Treasury to form part of the Consolidated Fund. Revenue from other sources (minor forest products and licence fees) is credited to the FD Appropriation in Aid (AIA) account. This revenue is sent to the same local district treasury, but is then submitted to the FD Accounting Officer to be used to meet part of the Ministry’s expenditure.
Revenue collection is monitored through a reporting system that has been developed to capture the necessary data related to both production levels and the amount of revenue collected. There are also regular field inspections by staff from FD Headquarters and independent auditors from the Office of the Controller and Auditor General. However, the absence of precise information about plantation stand developments, the potential annual yield and cutting plans, make it practically impossible to monitor the amount of timber actually harvested and extracted from the forest each year.
The revenue collected by the FD is banked by the Treasury and forms part of total government revenue. The disbursement of these funds is controlled by the central government through the Appropriation Act of Parliament and expenditure is monitored and audited by the Controller and Auditor General, who forwards the FD accounts to the Parliamentary Public Accounts Committee for scrutiny. Therefore, all of the revenue collected from the forestry sector is managed and administered by the central government.
Local communities are not involved in the collection of forest charges or the monitoring of production levels. However, cases of unsustainable utilisation have often been reported by local communities and these are followed-up by staff of the FD.