Knock on wood: Logging continues to be an important industry

With valuable hardwood forests blanketing the country, timber has been an export mainstay for PNG long before the multibillion-dollar mining and oil and gas projects began pouring in. Recently the logging industry consistently averaged exports of 84,950 cu metres of logs per annum, according to Bob Tate, executive officer of the PNG Forest Industries Association.

Output ballooned to some 3.8m cu metres in 2011, according to estimates from the PNG Forest Industry Association, with much of this spike attributed to the increase in special agricultural business leases (SABL), which can make land officially cleared for plantation usage. As a result, PNG is now the second-largest exporter of tropical hardwoods in the world behind only Malaysia. According to the Bank of Papua New Guinea, 2.86m cu metres of logs were exported in 2010, valued at PGK700m ($333.13m).

RAW MATERIAL: The most prominent logging areas are located in the Western and Gulf provinces and in the southern region of New Britain Island. Of the total 30m ha covered by forests, roughly half is considered suitable for forestry development of high-quality tropical hardwoods, according to the PNG Investment Promotion Authority (IPA). The country currently operates 62,277 ha of commercial sustainable forest plantations, although the PNG Forest Authority expects this figure to hit 230,000 ha by 2030. More than 40 sawmills carry out downstream operations in addition to other value-added activities, such as making plywood, furniture, flooring, siding and other building products.

The country’s primary exports consist of raw logs, sawn timber, veneer sheets, plywood, processed timber exports and woodchips. Malaysian logging companies are prevalent in the sector, led by the timber giant Rimbunan Hijau Group (RH), which is responsible for roughly 45% of log exports. These encompass a diverse array of tropical hardwoods and plantation logs used for a wide variety of purposes.

CHALLENGE OF THE WOODS: It is possibly the country’s stunning diversity that also hampers its efficiency as a bulk wood exporter, because the highly varied nature of its forest, which is composed of different species within each concession, poses a problem for timber companies in putting together larger blocks of homogenous supply usually preferred by purchasers.

By contrast, other developing countries in parts of South-east Asia or in Africa have larger expanses of uniform forests populated with largely identical species, while more developed countries produce a standardised product through established tree farms.

Ever hungry for raw material to feed its rapid economic rise, China is now by far the largest importer of PNG’s timber, followed by Korea and Japan. According to the IPA, some 80% of all timber exports are shipped to these three countries – virtually all of it unprocessed round logs. Vietnam and India also import wood, but are more selective and generally target specific hardwoods that lend themselves to furniture construction and other value-added purposes. The export market has undergone substantial shifts over the past few decades, with domestic timber first supplying Japan, South Korea and Taiwan until the Asian financial crisis in the late 1990s when demand dried up.

FOREST MANAGEMENT: As the second-largest exporter of tropical hardwoods in 2011, the task of effectively policing and sourcing logs is daunting. The Forest Authority carries out the regulation, monitoring and management of the forests, and has adopted the International Tropical Timber Organisation criteria and indicators for sustainable forest management.

The Forest Authority issues two types of licences for timber: permits for larger concession areas and those for smaller operations. “It is not an easy battle, but we have a very comprehensive policy,” Tate told OBG in an interview. “The national forestry service has an effective, widespread presence and we are also one of the few countries to employ third-party auditing.”

The Forest Industry Association’s largest members have all employed independent third-party auditors in addition to the measures to protect national forests that have already been deployed by the government. Some of these companies include the Malaysian timber giant, RH, as well as Stettin Bay Lumber, Open Bay Timber and Cloudy Bay Sustainable Forestry.

EXPORT MARKETS: By employing these more rigorous sustainability standards, companies in PNG are hoping to gain access to Western markets where uncertified forest products are prohibited. The US, EU and Australia all have stringent certification standards to prohibit the import of non-sustainable wood imports in both raw and processed forms.

US policy is dictated by the Lacey Act, first passed in 1900 but amended in 2008 to include timber, paper and other forest products. Meanwhile, the EU presents its own Forest Law Enforcement, Governance and Trade regulations, which are designed to similarly exclude all illegal timber from markets, help improve the supply of legal timber and push to increase the demand for responsible wood products.

While there are complaints that these strict regimens violate World Trade Organisation free trade agreements as non-tariff trade barriers, these restrictions are unlikely to be rescinded at any point in the near future, Tate noted in a recent interview.

Of what could be the most concern for PNG’s exporters in recent times is the divisive Illegal Logging Prohibition Bill that had been making its way through the Australian parliament in 2012. The legislation calls for similar requirements to those laid out by the US and EU but was met with some initial resistance from lawmakers. The proposed Australian law would require additional more costly, rigorous and difficult-to-implement standards than those already in place under the International Tropical Timber Organisation guidelines.

If the legislation is passed, PNG exporters and, more importantly, downstream processors, could stand to lose their single largest market for processed wood products, which could heavily impact the sector.

Similarly, regulatory restrictions could soon become enforced even by PNG’s primary export market if current trends are any indication. China, as the one of the largest importers of the bulk of PNG’s raw logs, could soon find itself saddled with the responsibility of proving the sustainability of all its input components of the goods it manufactures and exports to Western markets under their more stringent measures.

As they stand, these new regulations would mean a major blow for raw exporters not only in PNG, but for other Asian and African countries as well, while accredited timber operations in countries such as Canada, New Zealand or Chile would stand to benefit substantially from the new regulations.

Whether it is the Australian illegal timber bill, new sustainable sourcing regulations targeting China or other such requirements, the increased costs of compliance will more than likely make life very difficult for PNG timber operators, with a cascade effect on wood crafting and carving artisans and other small-scale downstream wood-based businesses.

FOREST FOR THE TREES: In addition to attaining one of the two logging permits issued by the Forest Authority, logging companies must also navigate the considerably more tricky waters of first attaining the usage rights for the land in question.

These land rights and land usage issues are currently some of the most complex and important problems facing both the PNG forestry industry and the country’s agricultural sector today.

Under PNG law, all land is owned by its ancestral claimants by default. It can therefore only be leased out to private interests or even the government for other use. Selling it is complicated, and often unworkable Because of this, approximately 97% of PNG land is owned and managed by customary landowners and extensive, often complicated, consultations between resource owners, government agencies and commercial forestry companies is usually necessary before any forest activity can take place.

Substantial changes to the land usage structure have been enacted since the post-independence period of the 1980s and 1990s when forest concessions were pointedly a great deal more brief.

Usage contracts of just 10 years were common, with 20 years representing the long range of the spectrum, whereas modern contracts are now normally issued for a period of 35-40 years and the new SABL contracts can last as long as 99 years.

In a bid to reinforce sustainable forestry practices, timber companies were initially also required to reforest depleted concessions at their own expense. This practice has evolved over the years, however, as it became apparent that in some cases companies made only a cursory effort to replenish the logged areas with poorly planned and executed replanting efforts.

As a result, the government has migrated to a feebased system in which logging operations are charged a reforestation levy. The money collected is then used for reforestation efforts. These funds are now utilised for replanting existing logged concessions from which the fees were levied in addition to funding reforestation efforts located elsewhere on government land.