Forest utilization contracts on public land in the tropics

Franz Schmithüsen

FRANZ SCHMITHÜSEN deals with forestry legislation and utilization contracts in the FAO Forestry Department.

PART I: How to make forest contracts

Utilization contracts as the major instrument for timber allocation in the humid tropics

Forest utilization contracts - frequently also referred to as forest concessions - comprise all forms of legal arrangements such as permits, licences, leases, agreements and contracts which convey to an individual or a company the right to explore the forest potential (exploration contracts), to cut and remove commercial timber (timber harvesting contracts), and/or to manage forest land for a continuous raw material supply (forest management contracts). Utilization contracts may also include the right to construct and maintain forest roads and other traffic installations, to build logging camps and to establish wood-processing industries.

Most utilization contracts are granted by governments or autonomous government agencies on state-owned and other public land, such as communally or customarily owned forests; governments may also grant contracts on land, the ultimate ownership of which has not yet been decided upon, but over which the State may exercise some form of control. Such a combination of public land ownership and private or semi-private utilization of the related raw material may lead to a partial or complete integration between forestry production and wood transformation without affecting the ownership and management of the land itself.

A comprehensive analysis of the legal and economic nature of forest utilization contracts was published in Handbook on forest utilization contracts or public land (FAO 1971). This work examines recent improvements in the legal framework for granting such contracts and discusses some of the major problems which at present limit an efficient implementation of national forest concession policies.

From 1962 to 1973, total production of non-coniferous logs in developing countries rose from 723 to 951 million m³. Their total export earnings from forest products rose from U.S. $544 million to $3423 million during the same period; particularly steep increases occurred in the Far East and in the African regions, where total export values increased from $257 million to $2314 million, and from $191 million to $692 million. Most of this production comes from the tropical forest belt, the wood resources of which have become of increasing importance on world markets. In several countries of the tropical zone, forest utilization thus proved to be a major incentive for economic growth, offering a substantial contribution to the increase of export earnings, employment, industrial investment and government revenues. This mobilization of tropical forest resources was coupled with the allocation of very large forest areas under utilization contracts. A rough estimate indicates that during the last two decades approximately 100 million ha of tropical forest land have been granted to the industry for timber harvesting; an additional 2025 million ha is presently under request or offered by governments for new allocation. The most spectacular developments have taken place in Southeast Asia and West Africa which account at present for more than two thirds of the estimated forest concession area in tropical countries.

In Southeast Asia, the three main producers of tropical hardwood logs, Indonesia, the Philippines and Malaysia, have granted until now a total forest area of about 26 million hectares. In the Philippines, the distribution of large forest areas occurred mainly during the early sixties and it can be assumed that the presently allocated 8.5 million ha cover most of the country's commercially exploitable forests. The total area granted under permits, licences and agreements in Malaysia can be estimated at around 5.5 million ha and a considerable part of it is allocated under annual permits or short-term licences with a duration of less than 10 years. Indonesia reported in 1973 a total forest area of 12.5 million ha granted under final contractual agreements and licensed to operate; an additional 4 million ha were covered by forestry agreements but not yet definitely granted, and about 10 million ha more were being surveyed and are at various stages of request. Considering that the total area classified at present as operable forest is around 40 million ha, these figures indicate that a substantial part of the areas of commercial interest for timber harvesting has now either been granted already or is under application for granting. Another country in which utilization contracts have been granted on a large scale is Papua New Guinea. The actually allocated area can be estimated at around 1 million ha. The Government has acquired an additional area of 1 million ha, to be granted eventually for new timber harvesting operations. Utilization contracts of various kinds exist also in most other countries of Southeast Asia, such as Thailand, where 300 licences and permits are granted at present, covering the greater part of all exploitable forests in the country, the Solomon Islands and Fiji.

In West Africa, the total area of tropical high forest already under exploitation, or possibly of commercial interest according to present logging standards, may be estimated roughly at 75 million ha; slightly more than half of this area (some 40 million ha) is already covered by utilization contracts. The most striking feature in the West African region is the fact that more than two thirds of the forests actually granted have been allocated during the last 5 to 10 years. A particularly rapid distribution of contracts has occurred in Ivory Coast (1965/68), Cameroon (1968/71), Gabon (1968/72), Central African Republic (1967/70) and Liberia (since 1967). At present, an additional area of 6 million ha is under request or ready to be offered by the Government for additional granting. This leaves for the future about 30 million ha of forests in which more utilization contracts may be issued. The bulk of the land not yet allocated or earmarked for immediate development planning is clearly situated in the Equatorial part (Congo, Gabon, and part of Southern Cameroon). The figure of 30 million ha for additional contract-granting does not take existing infrastructural constraints into consideration, nor does it include such areas which may be rendered in the future prior to complete exploitation and which, consequently, will be available for reallocation. No detailed figures were available with regard to forest areas allocated under utilization contracts in other African regions. However, commercial forest utilization is carried out in most African countries exclusively or to a very large extent under various forms of permits and licences. It can be assumed that these allocated areas amount to another 5 to 10 million ha of forest land.

LOADING LOGS IN A SOUTH AMERICAN FOREST unseen in the background is a body of legislation

In Latin America, practically all industrial wood harvested on public land is cut under various forms of permits, licences and concessions, but the total area granted under utilization contracts is considerably smaller. According to available information, the total amount of forest land presently allocated may be estimated at around 10 million ha. Some countries in which the forest area granted through utilization contracts varies between 0.5 and 2 million ha are Colombia, Guyana, Peru, Surinam and Venezuela. In Brazil, forest utilization contracts are granted in the forest production reserves, and the forest administration tries to control cutting on other unclassified and vacant land.

A review of forest utilization practices in tropical forests thus shows that the wood harvesting is at present almost entirely carried out through the granting of utilization contracts. There are two reasons for this situation. The first is that in many tropical countries, especially in the Far East and in Africa, commercially exploitable forests are either exclusively or to a large extent publicly owned: in Latin America, private forest tenure appears to be more frequent, but even there the tropical low land forests of the Amazon Basin and along the coastal belts are mostly under public ownership; this situation could, however, change in the future, at least in the Brazilian Amazon region, in view of the present government's policy to allocate substantial areas of unclassified forest land (tierras devolutas) under private tenure, which may possibly favour the creation of private forest estates. This refers in particular to areas along the newly constructed federal highways, where the National Institute for Colonization and Agrarian Reform (INCRA) offers land to private interests. (See "Amazonian Forestry; present situation and perspectives for its development," pp. 1-8). The second reason is that forestry in tropical countries is generally still at an early stage of development. Governments may find it difficult to bring the available forest resources into use, because the infrastructure of the countries is not sufficiently developed and the forest administration lacks the technical staff and operational funds to open up the forests and carry out large-scale logging activities. State-operated logging (exploitation en régie) or other forms of wood allocation procedures such as stumpage sales - in spite of the fact that provisions are made for these in most forest laws - are either nonexistent or occur only on a rather limited scale.

Under these circumstances, the easiest - and often the only possible - solution for a government is to organize the exploitation of the unworked forests by granting utilization contracts to private companies which offer the required skills and capital for timber extraction and pay in exchange for the granted rights forest fees linked with the contracts and the timber purchased. Forest utilization contracts are thus the major element of any wood utilization policy in the humid tropics. All measures related to timber harvesting, establishment of new forest industries, and improvement of management methods have to take into account the inherent mechanisms, possibilities and limitations of such contracts.

In the last 20 years an estimated 100 million hectares of tropical forest land has been contracted to industry for harvesting

Improvement of the legal framework for contract-granting

With the increasing value of tropical forest resources, many governments have made a substantial effort to define more clearly the conditions under which they are prepared to grant timber harvesting rights on public forest land. This process has by no means already come to an end, and further improvement of the institutional requirements for concession-granting is required, either through appropriate legislation or well formulated and comprehensive agreements. The growing awareness among policy - makers, forestry professionals and representatives of the industry, that utilization contracts can only be acceptable to both parties concerned if they keep a realistic balance between transferred rights and obligations, will speed up this development. It is to be hoped that the experience of such nations which have been seriously concerned with improving the legal and contractual machinery for concession-granting will encourage other countries in the tropical regions, where present arrangement must be considered insufficient, inconsistent or obsolete to take similar actions.

General forest legislation and contractual arrangements

The rights and obligations of both partners in a utilization contract are defined by the general forest legislation (law and implementing decrees) and/or by contractual arrangements. In English-speaking countries, the forest legislation usually contains only a few provisions which determine the type of contract to be issued and the application procedures; the actual rights and responsibilities attached to a particular contract are largely settled by individual agreements. In most French and Spanish-speaking countries, the general forest legislation regulates in much more detail the conditions under which the granted timber harvesting rights may be exercised, whereas the actual concession title includes mainly a description of the allocated area. There is, however, a recent tendency to choose more flexible solutions and to settle the specific exploitation and wood-processing requirements through individual governmental decisions (arrêtés) or contractual agreements; this refers in particular to long-term utilization contracts, the conditions of which may vary considerably in each case.

The following points to be covered by appropriate legislation and agreements illustrate the basic institutional requirements for a modern, well balanced and comprehensive forest concession policy:

Categories of contracts, application and granting procedure. Minimum require meets and obligations related to a certain type of contract; public announcement of new concession areas; documents and information to be submitted with the application; government services and committees to be concerned with the selection of candidates.

Concerned parties and objects of the contract. Responsible agency issuing the contract; name, address and legal status of the grantee; description of allocated areas; contract duration; date from which the contract becomes valid; official registration of granted contracts; renewal of expired contracts.

Rights granted and rights withheld. Exclusive or non-exclusive right to harvest timber; right to construct and operate logging roads; right to establish and operate logging camps, office buildings and wood-processing facilities; hunting and fishing rights; rights of access; customary rights of the local population.

Establishment or expansion of local wood-processing units. Minimum percentage of raw material to be processed; type of conversion unit to be established; investment to be effected; time-schedule for commencement of operations.

Felling, wood extraction and transport. Minimum and maximum volume to be harvested annually; annual allowable cut by species or groups of species; submission of felling programmes; working of area in subsequent coupes; felling restrictions and minimum diameter for cutting.

Road construction and improvement of infrastructure. Minimum construction standards for forest roads; responsibility for maintenance; legal status of roads constructed by the grantee; works of public interest to be constructed (e.g. community roads, school buildings and hospitals).

Forest management and reforestation. Preparation and revision of forest inventories, forest maps, and management plans; minimum tasks to be performed by the grantee with regard to forest protection and silviculture; annual reforestation programme; employment of technically qualified personnel.

Forest taxes, stumpage and other fees. Categories of taxes and fees to be levied in exchange for the granted harvesting rights; methods of assessment (stumpage appraisal); collection procedures.

Control, supervision and sanctions. Inspection of granted areas and premises thereon; control inventories by forest officers; records and documents to be regularly submitted by the grantee; annual cutting permit; deposit of surety bond; penaltry payments; suspension of operations; cancellation of contract.

Other general provisions. Applicable arbitration procedures; applicable law and jurisdiction; removals of equipment and machinery after cancellation or termination of contract; continuation of wood-processing units linked to a particular concession area.

The acceptability of utilization contracts depends upon both parties keeping a realistic balance between transferred rights and obligations

Applicable legislation and contractual provisions related to timber allocation and utilization contracts in the humid tropics have changed substantially from the time when concessions were granted without any particular requirements and technical specifications, to sophisticated legal documents which define the grantee's obligations in great detail. Only 10 years ago it was not uncommon to find concession documents which merely determined the boundaries of the granted area and transferred the logging rights to a company against payment of what seems today a rather modest exploitation fee. In some countries, the companies were even free to choose the particular logging site themselves after having acquired the exploitation rights for a certain number of hectares. The following were some of the most typical defects of many utilization contracts:

- Lack of provisions concerning local wood-processing, minimum logging and road construction standards, annual exploitation volumes, commercial species to be harvested, and silvicultural or reforestation obligations.

- Lack of provisions concerning an adequate control of the actual performance of the concessionaires.

- Inadequate provisions concerning the assessment and collection of forest taxes or royalties.

- Ill-defined or vaguely formulated obligations and technical terms.

These and other shortcomings, which still today can be found in the concession legislation or in current agreements of several countries, resulted principally from over-emphasis on immediate revenues from concession-granting and inadequate consideration of the long-term objectives and benefits which can be derived from planned and rationally organized forest operations on the basis of comprehensive and well-defined utilization contracts. However, many governments have realized in the meantime that a policy of giving away the country's forest resources without determining in detail the rights and obligations of the concessionaires seriously impairs the rational utilization of the forest potential and contributes little or nothing to a balanced social and economic development of the nation. New legal provisions related to the granting and operating of forest utilization contracts have consequently been adopted with the aim of:

- adjusting the size and duration of the contract to the particular situation of the operators;

- providing new types of long-term contracts for large wood-processing industries, and establishing clearly defined processing rules,

- planning and controlling the wood-harvesting in the contracted areas more efficiently;

- determining specific requirements related to road construction, infrastructural improvements, participation of national investment and training of national personnel.

In countries where concession-granting is mainly based on contractual arrangements, certain elements of already existing concessions have been renegotiated and standard agreements prepared which can serve as a model for new concessions, and possible revisions of agreements made during an earlier period.

Examples of countries in which important modifications of the institutional framework for wood allocation under utilization contracts have been adopted during the last 10 years, or in which the governments now consider introducing such measures, can be found in Southeast Asia (Indonesia, Papua New Guinea and Philippines), in the West African region (Cameroon, Congo and ivory Coast) and in South and Central America (Bolivia, Colombia, Ecuador, Honduras, Peru, Surinam and Venezuela). In spite of the fact that the newly adopted measures are perhaps not entirely sufficient and many need further improvement, the substantial number of countries that have amended their forest legislation indicates clearly the dynamic development of the concession policy and the determination of many governments to plan and control more actively the utilization of their forest resources.

Adjustment of contract duration and size of granted area to various types of operators

The duration of utilization contracts should be related to the size of capital investment and limited to the anticipated amortization period of such investments. The size of the granted area can then be determined for each operator by taking into account such factors as the long-term resource potential, the accepted contract duration, the projected annual raw material requirements of the operational unit and the amount of wood which under prevailing utilization standards can be removed per hectare of forest land. In principle, three types of utilization contracts may be distinguished:

Short-term permits; usually issued for a period of 1 to 3 years to small-scale operators; in some cases, permits may be issued for six months only and be restricted to the removal of a certain number of trees for local wood supply.

Medium-term contracts for logging companies operating sawmills only. The duration of the concession is usually within a range of 5 to 10 years; the concession document should indicate the maximum volume of timber to be removed annually.

Long-term contracts to be granted to large integrated forest industries for a duration of 15-25 years subject to detailed provisions concerning the establishment or expansion of large wood-processing units and in accordance with specific management plans.

In many tropical areas, the existing categories of utilization contracts did not allow a flexible adjustment of wood allocation policies to the requirements of forestry and forest industries development. Thus forest administrations did not have the possibility to issue long-term utilization contracts to attract new large integrated wood-processing industries. In other cases, the duration of the contracts was unnecessarily long and not related to the grantee's size of operation. Or, for example, as is the case in Venezuela, legislation provides only for long-term contracts and short-term (annual) per miss, with the result that one group of operators - such as the existing sawmill industry, for which a one-year arrangement is insufficient, but which, on the other hand, does not qualify for long-term contracts - cannot improve and expand its production units. Several countries have therefore changed their forest legislation either by introducing' new arrangements or by modifying already existing permits in such a way that it allows the granting of short-term, medium-term and long-term contracts.

Long-term contracts as a major incentive for local wood-processing

One of the most important aspects of forest resources allocation on public land is the granting of long-term contracts to companies which are prepared to establish an integrated wood conversion unit. The security of raw material supply obtained through such concessions has proved to be a strong incentive for the expansion of local wood-processing and the establishment of large industrial units which contribute considerably to the economic and social development of a particular region. The allocation of long-term contracts over large forest areas, usually 100-200000 ha, represents an important liability for both the granting government and the interested company. Both parties must therefore insist that the granting procedure, the nature of the rights to be granted, as well as the obligations and restrictions to be accepted by the concessionnaires, be defined in a clear and comprehensive manner.

In Southeast Asia, all major producers of tropical hardwood (Indonesia, Malaysia, Philippines) use at present long-term utilization contracts. In the West African region, Ghana and Nigeria had already granted such contracts during the period 1945-1955, but in the French-speaking countries, long-term contracts were introduced at a much later stage. Thus Ivory Coast started to vary concession duration according to the type of operation during 1965/1968; 5-year permits were given to mere logging companies, 10-year permits to companies operating a sawmill, and 15-year permits to integrated wood-processing units. This policy, however, was stopped in 1969, and expiring permits are now reallocated for 5 years only. In the countries of Latin America, long-term contracts have become a common feature during the last 10 years. In several cases, forest legislation has been modified in order to allow this form of timber allocation, but only a limited number of contracts has been granted so far.

Past experience indicates that long-term contracts have in general encouraged local wood-processing; companies having obtained such contracts convert on an average a higher percentage of the raw material within the country than other operators. In some countries log exports continued, however, to rise even faster than local wood transformation, and one of the main reasons for this unsatisfactory development has been the lack of clearly defined wood-processing obligations in the concession agreements. Clauses such as "the grantee will make all possible efforts to process the harvested material in his own plants," or "the concessionaire will utilize such material in his unit which can be economically processed within the country," will hardly help to foster the creation of a national wood-processing industry. Nevertheless, if properly negotiated and technically defined, long-term utilization contracts can still be regarded as one of the most efficient instruments to attract new integrated wood-processing units.

LOG TRANSPORT FROM A CONCESSION IN ZAMBOANGA, PHILIPPINES where forest policy turns into money

General processing rules, log supply quota and ban on log exports

A number of countries - mainly in the regions of Southeast Asia and West Africa - have recently introduced additional measures, such as general processing rules, individual or general supply quota or a complete ban on log exports, which clearly show the governments' determination to increase the percentage of local wood transformation. These measures are of particular importance if large forest areas have already been allocated previously to companies mainly engaged in log exports, and governments find it difficult to ensure an adequate raw material supply for already existing or newly projected forest industries.

It has thus been the policy in Peninsular Malaysia to guarantee priority raw material supply to the local industry and to allow only surplus logs to be exported; as a consequence, the export of the so-called "preferred species" was terminated and the log export share fell from 21% in 1972 to 15% in 1973. In Sarawak, 30% of the annual cut is permitted to be exported during the first 5 year build-up of a large-scale industry so as to produce revenue to ease the initial heavy burden of capital outlay.- Among the West African countries, the measures adopted in Ivory Coast appear to be of particular interest. By 1970 some of the established wood-processing units could not get sufficient timber, since large concession areas had been allocated to companies mainly engaged in log exports. This artificial shortage of raw material has been stopped by a system of log supply quota obliging all concessionaires to process a determined part of their log production in their own units or to deliver the raw material to other forest industries in the country. The minimum quota applies only to the 19 major export species; other species not yet firmly established on the market may be exported in unlimited quantities. By the end of 1973 the quota to be processed locally had been generally established at 66% of total log export volumes (major species only), and at 100% of log export volumes in the case of companies with particularly large concession areas. On the whole, the new policy of the Ivorian Government has proved to be successful so far; sawnwood exports alone rose from cat 126000 tons in 1972 to 194000 tons in 1973, and to approximately 240000 tons in 1974. The new forest utilization contracts of Liberia provide that companies have to process a minimum volume, starting at 20% during the first year and increasing by 20% every following year. If the companies fail to comply with these regulations, government may deny the delivery of log export permits. Ghana introduced in 1973 a ban on log exports for the five largest wood-processing companies. In Nigeria, log exports of major redwood species were prohibited.

In Cameroon, the forest regulations of 1974 stipulate that at least sixty percent of all wood cut in concessions have to be transformed locally. A similar provision has been introduced by the new forest legislation of Congo, providing that wood transformation contracts may only be granted if a minimum of 40% is processed. The offers of new forest areas (1974) in the southern sector of the country provided for 100% local transformation of Okoumé logs and a minimum of 50% for other species. In Latin America, roundwood exports are less important, but some countries (e.g., export ban in Brazil for certain high value species, ban on Virola exports in Surinam) have introduced certain log export restrictions.

This review indicates that most of the important exporters of tropical hardwood logs have now adopted some global measures to reduce the export share of unprocessed timber to less than 50% of total production. The only major log exporting country where no such measures have been reported so far is Indonesia, which is at the moment the largest producer and exporter of tropical hardwood logs. This fact merits particular attention, since it may considerably influence the competitive position of other countries which have already introduced, or are at present considering, limitations of the log export trade.

The implementation of general wood-processing rules may be difficult in countries where exploitation is still almost exclusively geared to roundwood exports, since a too rapid enforcement may slow down the activity of the forest sector as a whole. The possible impact of such rules needs therefore careful investigation in each particular case. For this reason, new log export restrictions should be planned a few years ahead and possibly be discussed with the forest industry in advance in order to allow a build-up of wood-processing facilities. It could also be considered to apply processing rules and other log export restrictions - at least during the initial period - to major export species only, so as to avoid the risk of a severe breakdown in total log production. Such a practice will equally facilitate the introduction of lesser used species in the overseas markets. Once these species have become familiar to the industry in log form, they may eventually also be exported as processed products.

Log production, export values of forest products and estimated forest areas under wood utilization contracts in major tropical regions in 1973

	Total annual log production (industrial roundwood)1	Export value of forest products2	Estimated area under utilization contracts
	Million m3	Million dollars	Million ha
FAR EAST	93	2314	@ 40
Indonesia	27.3	633	12.5
Malaysia	26.4	642	5.53
Papua New Guinea	0.8	16	1.1
Philippines	13.8	406	8.5
AFRICA	43	693	@ 50
Cameroon	1.3	38	9.0
Central African Republic	0.5		1.2
Congo	0.7	49	1.7
Gabon	2.4	105	7.0
Ghana	1.9	111	2.9
Ivory Coast	5.7	278	6.7
Liberia	0.5	14	4.8
SOUTH AMERICA	42	377	@ 10
Colombia	4.9	8	0.5
Ecuador	1.9	6	0.3
French Guyana		0.5	0.1
Guyana	0.2	2	0.9
Peru	0.8	4	0.6
Surinam	0.2	4.7	1.5

These figures are based on the most recent country figures available, usually dating from 1972-1974; in the meantime, additional concession areas may have been granted in several countries.

¹ Yearbook of Forest Products 1973, p. 40-41.
² Yearbook of Forest Products 1973, p. 322-323.
³ Additional substantial log flow from agricultural conversion areas not under formal contracts.

Other incentives for local wood-processing

Many countries provide additional incentives, such as income tax exemption or reduction of import duties on logging and wood-processing equipment, for companies that are prepared to establish new wood transformation industries. General incentives of this kind are usually settled by national investment legislation. In exceptional cases, however, forest utilization contracts include specific investment incentives. As an example, the principal exemptions provided by the Liberian timber utilization agreement of 1973 (standard form) may be mentioned:

- Income tax not to exceed 50% of total net income in any one year.

- Full income tax exemption during the first 5 years if profits are used for the expansion of operations or investment in Liberia, and no income tax exemption of up to 20% on annual profits (if reinvested within the country) after the first 5-year period.

- Exemption from import duties on equipment, machinery and similar items with a useful life of 5 years and more; moreover, no import duties are levied on tires and spare parts for trucks, trailers and heavy equipment used in forest exploitation.

- Exemption from customs and other duties (but not royalties) on logs exported in accordance with the general log-processing rules during the first 5-year period.

Forest roads

The concessionnaires have in general the right to construct forest roads in the granted area. They may also construct roads through areas of other grantees at their own expense or use the logging roads of such concessionnaires, provided that they pay an appropriate share of the construction and maintenance costs. The companies usually settle these problems among themselves without government intervention, but in some cases, the construction of forest roads outside concession areas may be subjected to a special permit. Forest roads constructed by the grantee have frequently, in most West African countries, the legal status of public roads which may be used freely by the population; access may only be restricted if it interferes seriously with concession operations under way. In countries where forest roads constructed by the concessionnaires are deemed to be private, some legal provisions are required which determine that such roads may be declared to become part of the general road network for reasons of public interest. The maintenance of the forest roads used by the grantee and the general public may be settled as part of the obligations in a particular agreement.

Under the present logging and extraction conditions in tropical forests, the skidding distance of an efficient operation varies in general between 400 and 700 m; this amounts to a density of 10 m/ha of major logging roads. Forest exploitation thus comprises an important infrastructural investment which should be used as much as possible for the development of the country's general road network. However, present concession legislation or agreements frequently do not include adequate provisions related to planning and construction of logging roads. This is a serious shortcoming and more attention will have to be given to this problem in the future. In order to avoid that important road investments of the concessionnaires become subsequently of little use to the national road system, the location of logging roads of possible public interest needs to be identified. Minimum construction standards, compatible with those of the general traffic regulations, should be applicable for these roads. The whole question of public sector infrastructure investment requires, however, careful study, as it has an important bearing on investment cost and profitability calculations of the logging companies.

Forest utilization

In the early stages of concession-granting, the selection of the trees to be removed, the determination of the annual production volume, and the choice of current exploitation methods were largely left to the concessionnaires. Minimum utilization standards were either badly defined or not imposed at all important institutional improvements in this respect have been achieved during recent years. The present standard pattern, as can be found in the more recent legislation and agreements of the major log-producing countries in Southeast Asia, for example, the Philippines, Indonesia and the new draft legislation for Papua New Guinea; is that the grantees have to operate under a management or harvesting plan, and that they have to submit annual felling programmes. There is also a general tendency to stipulate that the log production of major commercial species in any one year may not exceed the annual allowable cut as established by the management or harvesting plan. Similar principles have recently been adopted in some West African countries. Ivory Coast (1972), Congo (1974) and to a certain extent also Cameroon (1974), have introduced provisions requesting the concessionnaires to submit logging and road construction programmes and to report annually on their past operations. Additional logging requirements (removal of obligatory species, utilization of low-grade material, working of areas by subsequent annual coupes) may be imposed on the companies by means of special concession clauses (cahier des charges particulières). In the forest reserves of Ghana and Nigeria, logging and extraction have already been subject to detailed management prescriptions for much longer periods. The preparation of management plans and the submission of annual exploitation programmes is also stipulated in the more recent forest legislation of Latin American countries (see Honduras, Peru and Venezuela, and the draft legislation of Surinam). On the whole, the institutional improvements in all three regions represent an important step towards enforcing a more rational utilization of the forest resources under stronger technical supervision.

Forest legislation and agreements generally provide minimum diameter or girth cutting limits for most species of commercial interest. Minimum cutting limits vary for particular species, depending on their growth pattern; the point of measurement is usually fixed at breast height or above buttresses. The objective of minimum diameter or girth limits for forest exploitation is to prevent trees of smaller dimensions being cut before they reach their full growth level. Therefore, in areas that are to remain under forest cover in the future, minimum cutting limits should remain in force until the forests can be treated by more elaborate management and silvicultural practices. The shortcoming of existing regulations is that minimum diameter limits are prescribed indiscriminately for all forests. In areas where the forest is to be cleared for other land-use purposes, or where forest plantations are to be established, an exemption clause should be applicable.

In certain forest types of Southeast Asia - especially in the Dipterocarp forests of the Philippines and Malaysia - logging is or was carried out according to silvicultural selection systems. Tree-marking prior to felling, either by the concessionnaires or by the forest service, is usually prescribed. The present exploitation of West African dense tropical forests is mainly based on logging of an average of 1-3 trees per ha; concession requirements do not include provisions related to the practice of a special silvicultural selection system. Exceptions to this rule only exist in the reserved forests of Ghana and Nigeria, where trees are selected and marked by the forest services prior to exploitation. In Latin America, tree-marking is sometimes obligatory, but implementation is difficult due to the lack of an adequate number of trained field staff.

Under the conditions prevailing in dense tropical forests, regeneration techniques are not so well known that they could be successfully applied by the concessionnaires on large areas. The: future production from the natural forests, especially the harvest of the second logging cycle, depends exclusively on the increment of commercial trees of lower diameter classes remaining in the forest after the first exploitation, and on natural regeneration occurring without additional intervention. For this type of extensive forestry use, the prescription of minimum diameter limits and the prohibition to return to the over-logged area before the start of the second logging cycle are usually the only practical requirements to be imposed on the concessionnaires. However, at a later stage, when the forest service has been strengthened sufficiently to engage in more intensive forest management operations, the concessionnaires could be obliged to undertake, or cooperate in, silvicultural post-logging treatment such as the cutting of tree climbers.

Reforestation

The problem of renewing the national forest resources is of growing concern to many governments in tropical areas; various clauses which oblige the concessionnaires to participate in reforestation have been included in the utilization contracts. Two different kinds of arrangements are currently in use to ensure such participation:

- Provisions which oblige the concessionnaires to carry out reforestation projects in their granted areas.

- Provisions which stipulate payment of a reforestation fee that is subsequently used by the forest service or an autonomous government agency for large-scale reforestation programmes.

Resource planning should be done at every stage of forest development

Reforestation by the concessionnaires themselves has in many cases not proved to be successful, the main reason being ill-defined contract requirements and technical targets, lack of silvicultural and operational experience, and inadequate supervision by the public forest administration. Especially smaller and medium-sized operators have generally neither the necessary facilities and qualified staff nor any sufficiently long-term interest in the future crop that would induce them to engage actively in reforestation. If compelled to do so as part of their obligations, they tend to do the very minimum necessary to keep their concession. Forest plantations, if established at all, are badly looked after and inadequately protected. Moreover, the established plantations tend to be scattered all over the country. This makes the future management and utilization of the new crop extremely difficult.

If one considers the limited experience of most concessionnaires in reforestation work and the difficulties of forest administrations in supervising many small-scale plantation projects, it can be concluded that individual reforestation obligations may not be the most suitable instrument at present for ensuring future forest production. The levy of a reforestation fee - possibly as part of, or combined with, a general forest management tax-is a more appropriate method to make the companies participate in forest plantation work. The revenues from this fee can be used by the forest administration for large-scale reforestation projects planned at a national or regional level, as is now a well-established practice in peninsular Malaysia, for instance. Another typical case - which is rather representative of most of the West African region and of many Latin American countries as well is that of Liberia. The utilization contracts issued in that country included a formal obligation to reforest the part of the concession area which would be required for a continuous wood supply from the granted forests. This provision has not proved to be successful; concessionnaires have either failed to establish forest plantations or did not have sufficient experience to carry out efficient operations. It has now been proposed to create an independent reforestation agency which would carry out large-scale plantation programmes on behalf of the concessionnaires against payment of a reforestation fee. A similar procedure has already been adopted in several French-speaking countries (Cameroon, Congo, Gabon, Ivory Coast), where reforestation is carried out by specialized government agencies; operational expenses are met by reforestation and management taxes levied on the concessionnaires.

There are, however, a few examples, such as Mexico and the Philippines, where logging and wood-processing companies, with investments covering several million dollars and annual harvesting volumes of more than 100000 m³, have become actively engaged in successful plantation programmes within the granted concession areas. With new, large and integrated forest industries planned in several countries, the number of such concessionnaires may increase in the future. This refers in particular to projected pulp and paper units which require large-scale plantation schemes in order to assure their future raw material supply. The long-term production outlook of these companies implies consequently greater and more immediate interest in reforestation work.

The alternative of individual reforestation obligations versus the levy of general reforestation fees has to be examined in the context of each country. Responsibility for reforestation should only be given to companies from which efficient establishment and protection of plantations can be expected; such companies, if they can show that their annual expenditure amounts to at least the equivalent of general reforestation payments, should be exempt from reforestation fees. All other concessionnaires should not be required to carry out plantation or other silvicultural work, but logging should be subject to the levy of a reforestation or forest management fee.

DOWNING A GIANT dangerous work requiring good training

Training of technical and managerial personnel and participation of national capital

Concession legislation and individual agreements contain very little concerning training requirements of qualified national personnel that could eventually replace expatriates in technical and managerial positions. This point should be of special concern when long-term contracts for large areas of forest land are granted. Some noteworthy exceptions are to be found in the West African region. Thus the new standard agreement in Liberia provides that the concessionnaire has to train Liberians specifically for technical or administrative posts. Within five years after the beginning of operations under the concession agreement, at least 75% of the total number of all persons employed in such positions shall be Liberian citizens; ten years after the beginning of the concession, 95% of all posts have to be filled by nationals. The concessionnaire shall also provide training for supervisory and managerial posts, and 10 years after the commencement of concession operations at least 90% of these posts shall be held by Liberians. In Congo, the concessionnaires have to prepare training programmes and must report regularly on the progress of each trainee. Special training requirements are also part of all new large-scale harvesting agreements issued in Malaysia.

Capital participation of foreign investors and private national entrepreneurs, or joint ventures with government, are usually settled by general investment legislation, but some forest laws or utilization agreements include specific provisions on this subject. Joint venture partnerships, with the State holding a majority of equity on behalf of local citizens until these are in a position to participate, are increasingly influencing the investment scene in some timber-producing countries. Malaysia, in particular, has considerable experience in this field. Another solution has been adopted in the Liberian standard agreement, where it is stipulated that not less than 25% of the original shares, and of each successive issue of shares, are kept available for subscription and/or purchase by Liberian citizens; a quarter, but not less than two, of the directors of the company shall be Liberian nationals. In Ghana, the Timber Operations (Government Participation) Decree has established a government majority participation in the five largest forest concessions. The Congolese Forest Law of 1974 provides that companies held or managed by foreign investors shall pass gradually under national control, subject to contractual arrangements. Moreover, the present timber allocation policy has established a priority for concession-granting in favour of logging companies and government joint ventures.

COSTLY EQUIPMENT FOR TROPICAL LOGGING OPERATIONS more than justified by high value timber

Forest taxation

The principle that the combined charges of all forest taxes should be related to the actual raw material value of standing; timber, and that tax rates should regularly be adjusted to changes of the price and production cost level of a given species and log quality, has become more and more accepted during recent years. New provisions have been incorporated in forest legislation or individual utilization contracts, which establish that tax assessment is based on appropriate stumpage appraisal methods. Tax rates are to be determined by regulations and not by the law itself and should be revised at regular intervals. The following examples of recent legislative changes may be cited:

The Forestry Reform Code of the Philippines (1974) stipulates:

Sec. 25

(3): "The estimated volume and value of timber available from commercial sale shall be determined through an appraisal system by the Bureau."

Sec. 26

(1): "The Director shall institute a system of timber appraisal for all public forest areas or forested alienable and disposable lands, whether vacant or covered by existing concessions."

(2): "In the case of timber licence agreements, existing as the effective date of this Code, the first appraisal shall take place two (2) years following such effectivity; and in those that may be issued thereafter, said appraisal be made every five (5) years, reckoned from the original issuance thereof."

(4): "The Director, with the approval of the Department Head, shall promulgate the implementing rules and regulations to carry into effect the purposes of this section."

Sec. 27

(1): "In addition to the taxes, fees and charges imposed under existing laws and regulations, the Department Head is hereby authorized to impose, upon recommendation of the Director and in consultation with representatives of the industry affected, such fees, or require special deposits, for the privilege to occupy or use a portion of the public forest, or harvest or utilize forest products."

The Forestry Code of Congo provides:

Art. 25

(1): "Les taxes domaniales et forestières seront fondées sur des critères économiques de manière a épouser la valeur des produits sans interrompre ni freiner l'expansion et la permanence de l'économie forestière dans les régions."

(3): "La fiscalité demeurera stable par période quinquennale et ne pourra être revisée que tous les cinq ans".

A special law on forest taxation complements these provisions and establishes a tax assessment procedure based on a general stumpage appraisal. In Bolivia, the new forest law (1974) stipulates that payments for raw material are to be considered as a timber price.

Art. 87:

"Los derechos de monte son el precio estipulado por el aprovechamiento de los bosques del Estado, y no constituyen impuesto alguno."

Similar provisions have been inserted in the draft legislation prepared for Surinam and Papua New Guinea.

Considering the dynamic development of world market prices of tropical forest products, especially where high-quality export logs are involved, the provision included both in Philippine and Congolese legislation that forest taxes should only be revised every five years does not appear to be in the interest of these countries. A more appropriate regulation might be to stipulate that "the rates of fees shall be revised regularly, at least every five years," a formula which, for instance, has been chosen in the Surinam draft law. However, it is important to note that a new concept of forest taxation is becoming more widespread in tropical areas.

PART II: How to implement forest concession policies

Implementation of natural forest concession policies; strengthening of public forest administrations

While improvements to the institutional basis for granting utilization contracts have been achieved, the most urgent problems arise at present from inadequate implementation of national forest concession policies. Coherent legal provisions and well formulated agreements will fail to show any practical effect - and this is the experience in many areas - if the allocation of forest resources and their subsequent utilization is not planned and supervised in a comprehensive manner. The granting of utilization contracts should consequently not be considered as a legal issue only, as has been done sometimes in the past, but also as a problem of forest development planning, forest management and timber harvesting organization. The strong impact of technical forestry aspects on all timber allocation systems is in fact the main reason why in most countries of the tropical belt utilization contracts are granted by, or on the advice of, the competent national forest administration. If, however, other government agencies are responsible for timber allocation, it will be essential to insist on effective coordination with the existing forest administration in order to ensure the successful implementation of national forest concession policies. It may even be useful to reconsider the organizational structure with the aim of improving the feedback between forest management and concession-granting.

Some of the most obvious constraints that limit at present a coherent system of timber allocation through utilization contracts are:

- Lack of well-defined national land-use programmes which could help determine long-term forest land use, management standards and concession requirements.

- Lack of adequate resource information when negotiating new utilization contracts. Without this information it is impossible to decide what the best use of the raw material should be, what type of forest industries would be feasible, and what stipulations with regard to local wood-processing could be included in a particular agreement.

- Lack of management information which would allow an adjustment of the annual logging volume to the long-term production potential of a certain forest area and a definition of the minimum requirements with regard to logging and skidding practices, removal of commercial species, and construction of forest roads inadequate knowledge of the possible range of companies, either at the national level or from abroad, that may be interested in a particular contract. It is thus impossible to select companies with experience in wood-processing and access to international markets.

- Lack of experience in negotiating individual concession agreements.

- Inadequate information about the price/cost relationship in logging (e.g., accessibility of the resource) and wood-processing as required for a consistent assessment of forest taxes.

These constraints result of course mainly from the chronic weakness of public forest administrations in most tropical countries. Ineffective forest administrations, suffering from shortage of professional and technical staff, scarcity of operational funds and inadequate organizational structures, are certainly among the main obstacles in implementing national forest concession policies. This refers in particular to tile field organization of national forest departments; in some countries, the territorial structure is still almost nonexistent or so little developed that the planning of forest utilization as well as the control and supervision of concession operations in the forest are virtually impossible. In several cases, forest officers do not even possess transport vehicles and consequently must rely on the concessionnaires when they are on field duty. Such a situation can make the forest administration dependent on the logging companies, which cannot be in the interest of a proper management of the forest resources. If national forest concession policies are to be implemented more adequately in tropical forest areas, a major effort will be required to strengthen the public forest administrations.

There is little doubt that the increased expenditure with improving the forest administration will be counterbalanced by additional benefits resulting from a more rational utilization of the forest resource. In qualitative terms, the benefit of a strong and efficient forest administration consists in the implementation of a coherent national forest policy and the application of appropriate management methods which safeguard and develop the forest potential. This would, for example, include: the planning of wood-processing and timber allocation at the national level; a more detailed evaluation of the forest resource potential; appropriate selection of suitable candidates for new concessions; an adequate supervision of the operations of the concessionnaires in the field; and a more realistic assessment of forest taxes. Some of these factors can be quantified at least partially; for instance by evaluating the additional raw material output and tax revenues if the encroachment on forest land is reduced or if the prevailing utilization standards can be improved through more efficient planning and supervision of timber harvesting operations. It is also possible to quantify the additional raw material supply, as well as the social and economic benefits resulting from increased local wood-processing, through appropriate methods of concession-granting. Future increases of government revenues due to the implementation of coherent forest taxation policies will equally indicate that the strengthening of forest administrations is in the immediate interest of tropical countries.

Public announcement of forest areas and negotiation of contracts

In the past, the initiative to apply for new utilization contracts for timber harvesting was frequently left to private entrepreneurs; the public forest administrations reacted merely to a rising demand for new concession areas. This situation has not helped national forest development. Governments should take an active part in forest resource allocation by indicating publicly in what particular areas of the country new concessions may be granted. In principle, such areas should have been covered previously by a forest inventory and a management or timber harvesting plan. Applications for forest land not publicly identified should not be acceptable. If long-term utilization contracts are to be granted, governments will be in a better bargaining position if they request a range of national, and possibly international, investors to submit industrial projects. In this case, the announcements should: include a summary of the inventory results; indicate the expected annual logging volume and the type of wood-processing industry envisaged; state the technical requirements for logging and road construction; and describe the special conditions (contract with private companies, joint venture with government agency or private national investors) under which a possible foreign investor may have to operate.

Once the offers have been received from the interested investors, a certain period of time is required in order to examine the technical aspects of the proposals and to prepare a short list of the most promising candidates for preliminary negotiations. Selected candidates should have an opportunity to review the available information on inventory and management plans, to carry out field investigations, and to collect data that are relevant to the proposed project. In a number of countries, the selection of the candidates and the decision as to which project ought to be retained are subject to the advice or appraisal of an interministerial committee in which all services interested in the economic, social and financial aspects of the proposed contract are represented.

The granting of utilization contracts thus becomes increasingly a problem of individual negotiation, especially when long-term contracts covering large forest areas are to be issued. For negotiations to be successful from the granting nation's point of view, comprehensive knowledge will be required of the value of the resource and its possible uses for industrialization, of the social and economic potential involved, and of the eventual groups of investors that might be interested in the resource. Such information can only be obtained from serious feasibility studies prepared prior to the start of the negotiation period. It is the quality of these studies which will to a large extent determine the success of future national forest concession policies

Supervision of forest utilization

Regular and competent supervision of the grantee's operation in the forest is an essential complementary element of more intensive planning of timber allocation and more specific concession obligations. The control and supervision of the concessionnaire's operations constitute the necessary feedback for national concession policies and forest management regulations. In fact, both become meaningful only after the public forest owner has clearly defined his strategy for resource utilization. To have no management plans and no forest inventories meant in the past to have little or no control over forest resource utilization; increased management planning and better defined concession obligations will imply more control and supervision for the forest owner.

An examination of the present situation in tropical countries reveals, in general, a proliferation of reports, tables, maps and other documents to be submitted by the grantees at regular intervals. This mass of information tends to accumulate in the offices of the regional forestry officers and then percolates to the central unit of the Forest Service. None of the various organizational levels has sufficient staff to use - and synthesize - this information; on the contrary, the accumulated paper succeeds in using up most of the time the technical personnel has available. Moreover, it gives the false impression that everything is - at least statistically - under control, and that the supervision of the forest owner is more than adequate. This situation seriously impedes national forest development. What is esentially needed for successful concession-granting is:

Strong supervision in the forest based on regular field inspections by competent forest officers, control inventories and updated management or timber harvesting plans. The aim of this supervision is to assess whether the provisions referring to annual allowable cut, timber harvesting standards, road construction, forest protection and other technical requirements are respected by the concessionnaire;

TROPICAL FOREST LAND IN THE PROCESS OF BEING OPENED UP poor policy decisions can endanger future use

Limiting the information submitted by the concessionnaire to a few key figures such as production volumes by species and grades, quantity of logs processed locally, extension of annual logging areas, constructed roads. Such information should be submitted regularly, i.e. on a yearly basis. In countries with large concession areas and many concession units, this information will have to be aggregated by regions and at the national level; the: reorganization of data-processing, including the use of computer programmes, will need further investigation.

Reorganization of existing utilization contracts

In areas where utilization contracts - especially mere logging contracts - have already been allocated, a reorganization of the existing pattern may become necessary in order to allow the establishment of new integrated transformation units or to improve the structure of the existing industry. Possible solutions are the regrouping of smaller companies in some cooperative arrangement or contractual agreements between the companies with supply obligations towards the forest industry located in the vicinity. The implementation of such arrangements will, however, in most cases be rather difficult. A more effective procedure could be the official identification of forest zones with already allocated concessions which, in view of their still remaining forest potential, could support large wood-processing units. As a consequence, no new logging concessions would be issued and existing ones only be renewed up to a certain time limit; after this period, the whole area will become available and be allocated to integrated forest industries through new long-term contract,.

Control of subcontractual logging

The term "subcontractual logging" is used for companies which do not exploit their own concessions but have acquired by some private arrangement the right to harvest forest areas granted to third parties. Subcontracting is usually prohibited by legislation, but some countries have legal provisions which allow this practice under certain conditions. In English-speaking countries, the utilization contracts usually have a special clause forbidding subleasing without official approval. Whether officially admitted or not, subcontracting has become of increasing importance during the last decade. The main reason has been the allocation of concession areas to individuals who are not actively engaged in timber harvesting and do not have the interest nor the managerial experience to organize such operations. Subcontracting of utilization contracts, if not authorized for very specific reasons and properly supervised by a competent forest administration, tends to favour creaming operations in the forests, creates additional difficulties for the establishment of large wood-processing units, and may lead to speculation with concession areas by allowing substantial profits for middlemen which are difficult to justify socially and economically. As such practices cannot be considered in the interests of the granting nations, governments should closely examine this particular problem and take appropriate measures either to put a stop to subcontracting or to control the already established pattern, for example through supervision and official registration of subcontractors and subcontractual agreements. One of the most efficient tools to avoid subcontractual logging is a coherent forest taxation policy which does not allow excessively high logging profits, out of which sub-letting charges can be paid to the middlemen.

Experience shows that without/planned and supervised utilization of forest resources even the best laws and agreements do not work in practice

In the past, subcontracting has sometimes developed in connection with concession policies aimed at a greater participation of nationals in logging and wood-processing. Concessions were granted to nationals without ascertaining whether they really intended to take up business in forestry and had sufficient capital and experience to start an efficient logging operation; the granted areas were then frequently subcontracted to foreign-based logging companies. Such a policy does not attain its main objective, but rather leads to a shadow participation of nationals in the forestry sector. This experience clearly indicates that increased national participation cannot be encouraged by indiscriminate concession-granting, but will rather require a series of well-planned measures such as:

- Priority of concession-granting to national companies already engaged in forest exploitation or willing to be involved in the future.

- Credit facilities for logging, road construction and transport equipment for these grantees; national development banks should investigate more closely the possibilities of such financial arrangements.

- Technical assistance from national government agencies such as the provision of various forms of technological aid to small-scale loggers in exploitation planning (stock mapping, tree-marking prior to exploitation) and logging operations (loan of logging and transport equipment).

- Participation of nationals in capital investment of foreign-based companies (as for instance required in Liberia).

- Joint ventures between government and local enterprise or foreign-based companies.

Introduction of additional wood allocation procedures

The granting of long-term utilization contracts to large integrated wood conversion units under appropriate terms will be in the future a major option of forest resource allocation in tropical countries. On the other hand, certain categories of contracts, such as short- and medium-term cutting permits, may eventually be replaced by other forms of timber allocation, in particular by stumpage sales. Whereas a contract transfers a general cutting right, the object of a stumpage sale is a defined quantity of wood of deter mined species and grades to be harvested within a specific area. The conditions of such a sale and the price for the raw material are settled by negotiation between seller and buyer. The advantages of stumpage sales are mainly threefold:

1. The Forest Service may exercise a stronger control over forest utilization; trees to be harvested may be marked prior to the start of logging operations.

2. The price level for the raw material can be determined through timber-auctioning procedures.

3. The fact that the buyer may choose different companies in subsequent sales facilitates the creation of an open log market.

PART III: What to do for management plans

The introduction of stumpage sales is, however, only feasible in countries where the forest administration has been strengthened sufficiently to be able to provide adequate resource and management information. Under the prevailing circumstances, stumpage sales could be considered in the presently reserved forests, but at a later stage they will become of general importance as an alternative wood allocation procedure.

Legislation on utilization contracts and individual concession agreements tend to be vaguely formulated and faulty because there is no clear understanding of what the forest can yield, how it should be managed, how the available raw material can be processed within the country, and what responsibilities should consequently be given to the concessionnaires. The problem of concession-granting is therefore intimately linked to the central issues of national forest policies and general forest management concepts. Aspects such as land-use classification, inventories, management plans and planning of wood-processing industries, which in fact determine the scope of a particular utilization contract, have not been sufficiently examined in the past, and this is the very reason why new concessions may have contributed less to long-term economic and social development than the granting governments had expected. This situation can only be improved if the issues related to forest resource management in its broadest sense are considered to be an indispensable prerequisite for successful national forest concession policies and of equal importance to the formulation of appropriate legislation or agreements.

On the other hand, it sometimes appears as if the issues of "forest management" have received until now a somewhat theoretical treatment in tropical countries. It must be realized that in tropical forestry, management on a large scale means today above all implementation of timber allocation policies, since such policies give in practice access to resource utilization. Forest management, if it does not take into consideration the mechanism of utilization contracts with its inherent possibilities and limitations, risks in many countries being restricted to a few research plots.

Forest management and timber harvesting plan

At the present stage of forestry development in most developing countries, forest management should generally be understood as a concept of forest resource planning in a particular area; it is used in a much broader sense than the one usually given to it in countries where the permanent forest estate is clearly defined and the term restricted to mean sustained yield control in reserved forests. Any rational allocation of forest resources on a regional and local level will thus have to be supported by specific plans which determine how the forest potential can be used in the interest of the country. When discussing the issue of "management" and "management plans" in the context of tropical forests, the following could be useful in order to avoid some widespread confusion:

- Unfortunately, very little knowledge exists at present of how tropical forests can be used on a long-term basis; more definite criteria for management cannot be established until results from large-scale applied silvicultural research become available.

- In the immediate future, "management plans" - or "timber harvesting plans" as they can also be called in the early stage of forest resource planning - can only attempt to regulate the flow of logs and the manner of their extraction in accordance with some basic assumptions on resource utilization, considering, for example: the likely future land-use pattern; the composition of the commercially usable timber resource; the likely increment pattern of main species before and after cutting intervention; and the minimum supply period (usually 20-30 years) required for establishing viable forest industries and stable community development.

- The lack of detailed information on inventory should not obscure the fact that resource planning can and must be done at any stage of forest development, and that it is an essential element for the implementation of national forest resource allocation policies in all countries.

- It should also be realized that log flows and harvesting techniques, for instance, cannot be regulated without effective supervision, and that plans of any kind are quite meaningless unless they can be put into practice. Management, - both at the planning and implementation level - is therefore intimately related to the problem of institutional strengthening of public forest administrations.

- Considering the dynamic development of land-use patterns and forest utilization possibilities in the tropical zone, forest resource planning is bound to be modified in the future and possibly even after comparatively short periods of time; consequently, management plans must be revised at regular intervals, that is, every five or ten years.

- In view of the limited staff of forestry departments, management should not be directed to too small units during the first stages of forestry. The first priority is clearly to cover the entire timber harvesting zone, and in addition those forests which in the near future are bound to be opened up to exploitation.

The formulation of management rules and concession requirements for the rational harvest of timber resources depends - at least at an early development stage - to a very large extent on the established land use and the anticipated future changes of the land-use pattern. In accordance with the general principles of national land-use planning, forest management plans have to determine specific utilization strategies that are realistically related to the present status of forest land and the foreseeable changes. Three broad categories with different management implications may usually be distinguished:

- Areas which will be required for agricultural development projects and other non-forestry purposes, or areas in which the forests are to be cleared for an expanding shifting cultivation. Such forests are to be classified as salvage logging areas and their exploitation should have priority. Concessionnaires should be obliged to remove all commercially usable timber.

- Areas which have been classified and demarcated as permanent forests, either for long-term wood production purposes or for yielding other, such as protection or recreational, benefits. Part of the permanent forest may have to be managed under a special regime (for example as protection forests) which restricts or even excludes timber harvesting. Silvicultural operations and reforestation should be concentrated in this part of the forest land.

- Areas for which no definite land-use decision has been taken yet and which for the time being should be preserved under forest cover. Areas with a large number of trees of desirable species in smaller diameter classes, or with sufficient natural regeneration indicating a high production potential, or being of importance for environmental protection purposes, should be earmarked and proposed for future reservation as permanent forest land.

Control and supervision of timber concessionnaires a so provide governments with the kind of information they need for the formulation of management policies and concession regulations

After such a classification of the available forest areas and the inventory results obtained, it will be possible to evaluate the total log production volume (or allowable cut) that may be harvested every year in a certain area in view of a chosen strategy. At an advanced stage of forestry development, the annual allowable cut is generally related to the renewable production capacity of the forest and determined in accordance with the principle of sustained yield in many countries, however, major land-use changes are still to be expected, very little knowledge and experience on natural regeneration is available, and funds for the establishment of forest plantations are limited. Under these circumstances, the annual allowable cut may frequently only be determined by what could be described as a controlled felling cycle. The basic idea underlying this approach is to spread the available stock of commercially usable timber over a period sufficiently long so as to:

- ensure the long-term raw material supply for large integrated wood-processing units;

- stabilize forest exploitation and allow for the development of stable communities in the forest regions;

-leave the smaller diameter classes to grow until the trees become exploitable under a second cutting cycle;

- increase gradually the output from lower grades and secondary species by improved marketing and better timber harvesting methods.

The determination of the annual allowable cut by main species or groups of species is a valuable indication for forest industry planning' end concession allocation. The planning of a continuous log flow helps to attract new wood-processing companies or to reorganize the structure of already existing logging and wood transformation units. Annual logging volumes should be calculated for each important commercial species or for groups of species; during the initial period, no restrictions will be necessary for species which are of limited commercial interest. Considering that utilization standards may be improving (harvesting of lower-grade material and additional species), the annual allowable cut should be adjusted through periodical revisions of the management plan. Forest land in the vicinity of expanding zones of shifting cultivation or officially earmarked for conversion to other land uses (salvage logging areas) should also be considered when determining the annual production volumes. Production and marketing needs of the industry require that the level of' annual removals should be subject to a reasonable fluctuation; an average 3-5 year target, together with an acceptable margin (10-20%) for yearly fluctuations, may be an appropriate solution, reconciling forest resource planning and the industry's need for flexibility. The application of longer term cutting regimes along the described lines represents a first step towards a long-term management strategy; in a subsequent phase - once a national land-use policy has determined which areas should be demarcated and managed permanently under tree cover - the annual production volume from this part of the forest could be related to sustained yield principles based on natural regeneration and/or reforestation.

AERIAL PHOTOS OF CONCESSION BANDS BEING INTERPRETED FOR THE MAKING OF MANAGEMENT PLANS management, the indispensable part of rational forest use

A review of some management plans prepared by tropical countries indicates that they tend to be very comprehensive and bulky documents which contain much background information on forest conditions in general, but little on actual operational issues. The rather traditional approach of an elaborate and time-consuming preparation is not geared to the pressing needs for an improved resource utilization. What is needed is a clear concept focusing on the key problems of timber harvesting in a particular area and specific regulations that can be implemented in concession-granting. It is certainly not the number of pages nor some learned explanation of geology and precipitation which will determine the value of such a plan, but the relevancy of the utilization requirements. The following points seem to be of particular importance:

- Forest land-use pattern in the management unit and obligations (salvage logging, logging restrictions) for the concessionnaire which derive from this pattern.

- Determination of annual production level and applicable timber harvesting methods.

- Determination of log flows by location (e.g. sequence of annual logging coupes), volume (e.g. species, size and log quality) and time.

- Distribution of log flows to existing industries based on transport minimization.

- Potential for new forest industries.

- Basic road network and other necessary infrastructural facilities.

- Regeneration (natural and/or artificial) and required silvicultural operations.

- Provisions related to forest protection, supervision and logging control.

Forest management units

The first step towards any form of rational resource utilization is the subdivision of the forest area into management units for which a regional inventory and a management plan can be prepared. The size of the units should normally be determined so as to allow the establishment of larger integrated wood-processing units. Utilization planning by regional units is also an essential requirement for a coherent concession policy. Once the resource potential is known, the government can decide more easily what types of utilization contracts are to be envisaged in a particular unit and what sort of timber harvesting conditions can reasonably be imposed on the concessionnaires to ensure an optimum use of the raw material.

Short or long term?

The total area of a management unit can either be granted in one long-term concession or be split up into several short- and medium-term concessions. If an entire management unit is granted under a long-term contract, the provisions of the management plan are directly applicable to the company. If a management unit includes several short or medium-term concessions, additional logging plans for each concession, compatible with the management plan itself, will have to be prepared. Management or logging plans should be referred to in the document transferring the utilization rights, or be attached as an annex or special schedule to such a document. In management units with already allocated areas, existing concessions may either be regrouped or gradually consolidated into larger lots.

Regional forest inventories

Regional forest inventories are an important aspect of resource utilization and are required in particular when dealing with such issues as land use, forest industry planning, timber harvesting regulations, distribution of concession areas and negotiation of individual agreements. Such inventories, to be prepared for each management unit, have to be management - and industry-oriented. Both the forest owner and the industry may need to know details about species by marketing groups, distribution of size classes within these groups as well as details about log quality (such as peeler and sawlog grades) and current defects. Raw material stock estimates should be related to net volumes which can be used for feasibility calculations. The following points illustrate the type of information to be extracted from current regional inventories for tropical forest zones in West Africa:

- Total volume (gross volume and actual merchantable volume) of trees above exploitable diameter limits (usually between 60 and 80 cm DBH) and its distribution by inventoried species. Presently exploitable species may then be grouped according to their commercial value and uses (e.g. main redwood species, main peeling and sawnwood species, other species acceptable to the market); species not yet marketable but with identified potential may be grouped according to their eventual utilization possibilities.

- Total volume (gross volume and actual merchantable volume) and number of trees by diameter classes 60/80 and 40/60 cm DBH of main groups of species; these figures indicate roughly the utilization possibilities of a second cutting cycle.

- Number of trees of diameter classes 10/40 cm DBH and distribution by main groups of species; this information is needed in order to determine the areas with a higher frequency of young trees of commercial species to be left under forest cover for future production.

- Maps indicating the geographic pattern of forest types and showing the frequency of commercial species or groups of species; this will give a first indication of the distribution of exploitable volumes.

- Maps indicating the penetration zones of shifting cultivation.

In other circumstances (e.g., specific pulp wood inventories for example additional information on a wider range of species and on the volume distribution of smaller diameters may be required.

Preparation of inventories and management plans

It seems appropriate to distinguish clearly between:

The need for inventory and management information required as a basis for strategy formulation at the national level and for the identification of those specific areas which are available for major industrial investment. This information has generally to be provided by government agencies.

The need for an evaluation of investment possibilities in a particular area and for minimum management requirements; this should also be carried out by the public administration in order to protect the interest of the forest owner.

The need for detailed inventory and operational cruising in order to produce a sound basis for feasibility studies and ongoing operations. This could either be done in a joint undertaking or under the responsibility of the investor.

In several countries in Southeast Asia and Latin America (Colombia, Ecuador, Indonesia, Philippines and Venezuela), private companies applying for new contracts are made directly responsible for the preparation of inventories and management plans. This solution has usually been adopted in view of the heavy staff and budgetary limitations of the public forest administration; it may provide an immediate answer to the rapidly increasing demand for new concession areas in these countries. In principle, it is doubtful, however, whether such an approach is ultimately in the best interest of the granting nations. The results of forest inventories should enable the governments to define a global development strategy for a certain unit, to attract the most suitable investors, and to strengthen their position when negotiating new contracts. It is difficult to see how these objectives can be reached when the inventories are prepared by the applicants. Similar considerations concern the preparation of management plans. The forest owner's objective of adjusting the rate of annual timber harvesting to the production potential of the resource is not essentially identical with the immediate business interests of private companies acquiring timber rights, and it may be difficult to settle conflicts in the long-term interest of the country. In view of these considerations, the preparation of inventories and management plans by the public forest administration representing the forest owner should rather be the rule than the exception.

If for some specific reason, for instance, lack of staff and funds of the administration, or the granting of contracts to very large integrated units with greater interest in coordinating timber harvesting with long-term forest development the preparation of inventories and management plans is left to the grantee, the following rules should be applied:

- The inventory standards and the subjects to be covered in management planning should be specific in advance.

- The inventory results and the proposals of management plans should be carefully checked and approved by the national forest administration.

- The executing company should be required to submit all information received during the preparation of inventories and plans, irrespective of whether a contract will be granted or not.

The salient point is of course that a satisfactory solution can only be found by a closer and more effective working relationship between public forest administrations and the industry. Unless the industry cooperates fully with the government in a spirit of understanding for long-term resource utilization, it will never be possible to guarantee a successful implementation of management plans. Improvements of this kind require a substantial amount of good will both on the side of the forestry officers responsible for resource management and the industry managers concerned with its use.

National land-use programmes as the general framework for resource allocation under utilization contracts

To sum up, one of the main problems with forestry and timber allocation systems in many tropical countries is, at present, the need for a general forest land-use policy which, within the framework of national development planning, defines:

- What forest land should be released for other uses such as expansion of the agricultural sector

- what forest land can be retained as a resource basis for future raw material supply to wood-processing industries since no alternative land use offering a greater contribution to national economic growth can be expected

- what land should be kept permanently under forest cover for purposes of soil conservation, erosion control or water resource management

- what forest land should be classified as national parks, game reserves, nature sanctuaries, etc.

- what areas presently not under forest cover will be required or be available in the future for additional raw material production.

Land-use planning is an important prerequisite for any coherent policy of resource allocation through utilization contracts, since the status of forest land will directly affect the conditions under which the grantees should operate. On land to be turned over to non-forestry uses (salvage logging areas), provisions other than those on land permanently reserved for forestry or on land with special protection functions are to be imposed. It should, however, be kept in mind that under prevailing conditions, land-use decisions can hardly be based on static assumptions; but it may be feasible to think, for instance, in terms of 25 years, a period that would at least justify substantial investment in forest industry development.

PART IV: Assessment of forest taxes

Shortcomings of present forest taxation policies

Forest taxes in the present context may be so defined that they comprise all fiscal payments specific to forest utilization and which have to be paid by the companies in exchange for wood-cutting rights on public land. They include, in particular, export duties on logs and processed timber and payments related to the granting of utilization contracts. They do not encompass taxes and fees not specifically applicable to the logging and wood-processing industry, for instance, general business taxes, profit and income taxes, import duties on machinery, equipment and spare parts. Forest taxes may be classified into export taxes usually collected by the Customs Service and internal taxes assessed and collected by the Forest Service and/or Internal Revenue Office. The notion that payments of the grantee in exchange for utilization contracts are referred to as "forest tax" is particular to most French-speaking West African countries and to some countries in Latin America and Southeast Asia. In English-speaking countries, these payments are usually referred to as stumpage, timber royalties and forest fees.

Three major shortcomings of forest taxation experienced in many tropical countries should be mentioned:

1. Payments are fixed at uniform rates and do not consider the economic value of the harvested raw material. This practice generally discourages utilization of lesser known species or low-grade material and favours over-exploitation in areas close to the main lines of communication.

2. Rates are fixed in the forest law itself and can only be changed with great difficulties; substantial losses of revenue, due to an inadequate adaptation to changing raw material prices and production cost levels, may result from such an arrangement.

3. Tax rates are determined by individual contractual arrangements not including tax revision clauses.

These difficulties arise from misinterpreting the nature of forest taxes which in many countries have been considered as a mere device for revenue collection purposes. Forest taxes should, however, be understood as payments corresponding to raw material values - usually the value of standing trees - paid by the grantee of a utilization contract in exchange for the harvesting rights. For this reason, the payments of the concessionnaires are in some countries explicitly referred to as "stumpage," meaning the value of the trees on the stump prior to the harvest that is to be paid to the forest owner. (In spite of the fact that the term "stumpage" or "wood costs" appears to be more appropriate, we continue to use the term "forest taxes," since many countries in the tropics refer to concession payments in this manner. For a review of current nomenclature of the various terms, see "Handbook on Forest Utilization Contracts on Public Land," p. 62-64.)

Stumpage appraisal

The assessment of forest taxes should be based on a stumpage appraisal of the harvested material. Such an appraisal determines the value of the harvested raw material (stumpage value) by subtracting the total exploitation and transport costs and a reasonable profit margin for the entrepreneur from the price obtainable for exported or locally processed logs. The remainder represents the reimbursement or wood costs which is expected from the concessionnaire either in the form of a direct stumpage payment or the aggregate payment resulting from the various forest taxes. Under the prevailing conditions of forest exploitation it is of course not always practical to make such calculations for particular exploitation units; stumpage appraisals should rather give a broad indication of an estimate for the combined forest tax burden which can be assessed on the important commercial species, log grades and in the main forest regions of a country.

The principle and usefulness of stumpage appraisals can easily be understood. But the major difficulty of tax assessment arises from the fact that many governments have at present insufficient information about timber prices and production costs; for this reason they are unable to put such a system into practice.

There are, of course, at least in principle, other possibilities to capture the resource rent of the raw material. The main alternative would be to rely entirely on non-forestry taxes (such as business and profit taxes); however, due to practical obstacles in assessing and collecting such taxes, such an alternative may not yield the highest possible revenue from forestry under the prevailing circumstances. Moreover, forest taxes are not only a fiscal device for revenue collection, but, if assessed in an appropriate manner, they have important effects on timber harvesting practices. On the other hand it should be understood that the argument in favour of forest tax assessment as related to raw material value does not mean a plea for cumbersome collection procedures still used by some forest departments. Adequate forest tax assessment procedures are mainly a conceptional issue and do not necessarily imply the use of a substantial part of the field staff for revenue collection. It would thus be advisable to concentrate in the future on the determination of realistic tax rates and fewer payment categories which could, for instance, be collected at the entrance of processing units or, in the case of exported logs, at central checking points or the ports.

Application of more coherent taxation policies implies a definite need to examine more closely the economic aspects of forest utilization and stumpage appraisal than has been done so far. It can be assumed that such an activity will show rapidly some results and may lead - at least in some major log-producing countries - to substantial additional government revenues. Appropriate tax evaluation requires in particular a regular analysis of timber price developments and related production costs in reasonably efficient operational units. As an indicative price level for stumpage appraisals, actual FOB prices for species and grades, or prices at mill site for logs processed locally, may be used. From these prices, the following costs will have to be deducted:

Exploitation costs, comprising exploration and logging inventory costs, construction and maintenance of forest roads, felling and skidding, bucking and wood-handling in log yards, loading on trucks, and general overheads of the logging camp.

- Transport costs to port or mill site.
- Port handling costs, excluding forest taxes.
- Overheads of central services
- Costs of export and marketing agencies.
- A reasonable profit margin for the concessionnaire.

These data make it possible to calculate the unit value of a certain species, of a certain quality and at a certain location, and the margin which might possibly be collected in the form of taxes. For lower quality logs, wood cut in a salvage area and species to be introduced on the market, rebates could be considered in order to encourage a more intensive use of the resources.

Possible modifications of forest taxation policies

The present division of responsibilities for forest tax assessment among various government agencies - as it exists in certain countries - does not encourage improvements in this field. Changes in forest taxation may be decided in the Ministry of Finance, whereas the technical administration has little or nothing to say in this matter. A clearer understanding of the nature of: forest taxes and closer cooperation between all government agencies concerned would certainly contribute to design and implement more appropriate tax collection procedures.

It is usually not possible to change established forest taxation methods overnight so as to reflect completely the principle of economic value. But substantial modifications can be made which are in line with the advocated principle of stumpage appraisal; a policy of gradual revision is also more realistic. Furthermore, in view of the somewhat different conditions and the prevailing patterns of forest taxes, it is not possible to advocate the same tax assessment system for all countries. The following considerations are, however, of general relevance in countries with large concession areas:

· Tax assessment should mainly focus on area tax, volume tax and export tax; the possibility of reducing the number of other forest taxes should be examined.

· The assessment of export taxes, and possibly also volume taxes, should be based on current FOB prices or local mill site prices; if officially determined tax values are still retained for some reason, such values should be adjusted frequently (e.g., every six months) to FOB price developments.

· The tax rates of export and volume taxes should be increased more rapidly on high value species than on low value species; tax rate adjustments should be based on an analysis of the combined effect of the FOB price and production cost level on the expected profit margin.

· Area tax, roundwood tax or export taxes should be varied in such a way that the total forestry tax burden per m³ reflects differences in transport costs.

· The combined forestry tax burden on species to be introduced on the market may be reduced below the average tax burden; forest taxes could even be waived completely during the promotion period.

· Taxation policies which assess lower taxes on locally processed wood may be justified during an initial period in order to encourage the expansion of forest industries. Taxes should preferably be levied on roundwood entering the transformation units and not on processed products.

· Strong and independent supervision in the forest, at the production units, railway stations and ports is required in order to ensure that origin, species and grades declared for taxation purposes correspond to reality.

· Forest tax revenues collected by the Customs Services should be indicated separately from other export tax revenues and the annual reports of forest services or other government agencies should indicate the combined revenue from all forest taxes.

· The major producers of tropical hardwood logs should consider the creation of a special forest economics section within the forest administration, or, if appropriate, in other government services which could regularly deal with forest taxation problems. The main tasks of this section would be (i) to follow price developments, (ii) to collect information on logging, transport and wood-processing costs, and (iii) to evaluate the effect of tax rates on general forest policy objectives.

· Applied forest research in countries with substantial forest resources should be more concerned with studies related to the economics of forest exploitation and wood-processing, the results of which can be used for tax assessment purposes.

FOREST DWELLERS' VILLAGE IN SOUTHEAST ASIA concession practices also influence the way people live

Exchange of information on concession-granting and forest taxation

Obviously, the exchange of information between countries with rather comparable tropical forest resources with regard to the conditions under which utilization contracts may be granted and the requirements which the concessionnaires have to fulfil, will help to improve national concession policies. In many cases, investors are interested in acquiring utilization contracts in more than one country, and a comparison of concessions in other countries will improve the negotiation position of the governments concerned. The exchange of information appears to be particularly relevant in the field of forest taxation. The prices for logs and processed forest products are closely linked, at least in some of the major tropical regions; exchange of information on assessment and collection procedures, price developments and production costs will thus be of common interest at the regional level.