PAPUA NEW GUINEA PUSHES FOR DOWNSTREAM LOG PROCESSING

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By Moresi Ruahma'a

PORT MORESBY, Papua New Guinea (September 4, 2000 - The National/PINA Nius Online)---The Papua New Guinea government hopes to implement a range of policies this year designed to reform the forestry sector. One aim: To promote downstream processing within the sector where activity is dominated by export of logs.

Downstream processing of PNG resources has been a top priority since independence 25 years ago. But it has been badly hampered by the small size of the domestic market, and a lack of interest in the start-up of export operations.

Some of these issues were addressed at the recent seminar, "Forest Policy for the New Millennium,'' in Port Moresby.

There are more than 40 participants in the processing sector in Papua New Guinea. These do not include the small-scale "eco-forestry" projects.

Among them are seven major players, and all are foreign owned. Most of them are involved in downstream processing in one way or the other, while large quantities of logs are still being exported.

Pushing for the processing industry, Forest Minister Michael Ogio, who opened the seminar, said that there should be a policy on domestic processing by the end of this year.

The government was canvassing all available options to encourage a viable domestic processing industry, he told the seminar hosted by the National Research Institute (NRI).

One of the processing projects is the new multi-million kina veneer and plywood factory, owned and operated by Rimbunan Hijau and located in Panakawa, Western province.

Japanese Woodchip factory in Madang is another, which has been operating since 1980s.

While plans are being made to shift the forestry sector into the new market, there are at the same time moves to impose tax on downstream processing.

The timber companies are unhappy with the idea, which is proposed by the World Bank.

The NRI supports tax on processing and wants it to be imposed on all logs for both domestic consumption and export.

In its proposed Forestry Policy on Tax Revenue System, the NRI wants a transparent policy for everyone.

NRI senior research officer Dr. Collin Hunt said: "Presently the harvesting of logs domestically is free of tax. It is recommended that the proposed royalty structure be imposed uniformly on all logs harvested.''

He says that the application of a "fixed percentage rate royalty on price per unit volume reduces production but also reduces harvesting in environmentally sensitive areas that are more costly to log.

"The royalty can be set to achieve the long run efficient harvesting level by equating royalty to the marginal social cost of harvesting,'' he said.

Among others, the proposal also reduces the government's tax income by 20 percent in order to restore profitability to the industry by easing the export tax burden on companies, and to encourage increased production.

The PNG Forestry Industry Association (FIA), whose members are comprised of timber companies, opposes the tax policy on processing, which it describes as "not sustainably viable."

Simply, it says, the move would deter foreign investments, particularly in the forest sector.

"We do not see the moves to impose a tax on downstream processing, as advocated by the World Bank under its SAP, as furthering the development of the industry," said FIA representative Bob Tate.

"Rather, it will have the opposite effect and could result in the abandonment of large scale processing in PNG.''

FIA believes a competitive domestic forest sector must be developed first and be supported with sufficient resources and sound and competitive policies.

Mr. Tate also told the recent seminar that last year the timber processing sector "more than doubled exports to over K 40 million (US$ 15.13 million) from K 19 million (US$ 7.19) in 1998."

He said that this trend on value adding was taking place at a time when raw log exports was coming under increasing competition from other supplier countries and other mainly softwood-based products.

The processed products in Papua New Guinea include veneer, plywood, sandalwood, balsa, chipwood and sawn timber. Last year a total of 36,810 cubic meters of products were processed in the country.

Proponents for a stronger processing industry argue that it should resist the imposition of the developed world's economic theory and belief that an emerging sector in PNG should compete, without any assistance or advantage, with the developed countries.

The PNG domestic market is relatively small but this should not stop the country from processing or making its own products, even if they are substitutes for imports.

The FIA, for example, says imports could be minimized if the government would "identify areas where processing can be viable to establish the processing resources.''

Also involved in the forestry processing sector are the small-scale eco-forestry industries promoted by the NGO groups and mostly involved in producing sawn timber mainly for domestic use.

An obvious problem with these small-scale projects is that they can only be viable in areas where logs are accessible, either by road or river systems. In other words, remoteness of timber resources makes small-scale eco-forestry logging difficult for commercial purposes.

As such, resource owners sometimes need to invite the big loggers as partners to develop their communities as they work on their resource.

And this in turn brought about the National Forestry Policy (and subsequent amendments) to make the industry more viable in order to provide equitable benefits to all the participants. 

The emphasis of the policy was on orderly and sustainable development of the forest resources. The need for reforms is well supported by all parties involved in the sector including the landowners, timber companies, NGOs, overseas donors and others.

But they differ in their reform ideas and approach. The NGOs seek "sustainable forest development and management, or sustainable forest conservation" to promote development for the people. The World Bank and other overseas share the same view.

For the timber companies there first must be an "attractive" environment for them in which to invest and commit their resources.

"There is no suitable forest management without suitable economic management, '' said Mr. Tate. "Reforms should first involve the competitiveness of the forest sector before we can talk about forest sustainability projects." It would appear that the resource owners are caught between the two views and "confused" by the alternatives offered by the various groups.

Dr. Wari Iamo, Director of Environment and Conservation, when describing some of the donor-funded eco-forestry projects as failures, said: "They failed because people or the resource owners promoted one set of values and the donor-driven promoters promoted another set of values, which were often in conflict.

"To make eco-forestry work in PNG, it needs to be supported by resources within the country, current laws and regulations, and government policies," he said.

Dr. David Mowbray, of Australian National University, said because of different agendas by various groups, sound developmental policies in many cases never get implemented.

It is therefore hoped that the proposed policies being formulated will address the many aspects of the forest sector in an orderly manner for the benefit of all parties concerned.

For additional reports from The National, go to PACIFIC ISLANDS REPORT News/Information Links: Newspapers/The National (Papua New Guinea).

Pacific Islands News Association (PINA) Website: http://www.pinanius.org 

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