For citation
Kim Phat, N., Ouk, S., Uozumi, Y., and Ueki, T. (2001) A case study of the current situation for forest concessions in Cambodia – Constraints and prospects. Journal of Forest Planning 7 (2), 59-67

Abstract
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Approximately 90% of industrial wood worldwide is harvested under concessions agreements. Failure to capture the problems within forest concession operations has encouraged unclear or wrong management decision making, which have resulted in change to the forest cover. Cambodia was chosen as a case study. The aim of this report was to examine the existing problems within forest concession management, which is very important for the present and future policy-decision making.
Cambodia currently has 10.6 million ha of forest cover; 4.7 million ha of which are managed by forest concessions. Owned by multi-nationalities, forest concessions play a vital role in economic development in Cambodia, whilst at the same time they protect the forests from illegal encroachment. However, illegal logging and over-exploitation of forest resources were regularly reported to have taken place both inside and outside the concessions. Wood production in Cambodia in 1997 was 3.4 million m3 (5 times higher than the sustained yield rate), 68% of which came from illegal logging. Various unofficial payments imposed on forest concessionaires and high logging production cost have put logging operation in Cambodia in a loss of $26.5-67.4/m3 of veneer at the current veneer market price. Additionally, due to the intensive illegal logging, approximately 10%, 40% and 50% of operable forests will be logged out in 10-15 years, 5-10 years, and less than 5 years, respectively. It clearly showed that forest industry crisis will be likely to occur in the next 15 years from now. The lack of clear land use policy, mapping, boundary demarcation and law enforcement provide incentive for illegal logging and corruption in Cambodian forestry sector. Therefore, all these mentioned aspects must be addressed to bring the remaining forests under sustainable use and management. Since illegal logging activities are always involved with various parties, all cooperation from individual, local, national and international institutions is required. Additionally, a pilot project on forest concession management should be initiated to provide the right direction for future management decision making.

Keywords: Cambodia, forest concession, forest management, unofficial payments, illegal logging

INTRODUCTION
Since the 1992 Earth Summit was held in Rio de Janeiro, sustainable forest management has become a core issue in sustainable development worldwide. International Tropical Timber Organization (ITTO) has published a number of guidelines, criteria and indicators for sustainable forest management. ITTO’s year 2000 objective was to harvest the timber products from the sustainably managed forests by the end of that year. It clearly showed that ITTO has failed to achieve its goal because the year 2000 was already replaced by the year 2001, and forests are still harvested on the unsustainable basis e.g. those in Cambodia. To find the reasons behind this failure, Cambodia was chosen as a case study by approaching from analyzing the current situation of forest concession operations in Cambodia. Forest concessions have been reasonably successful in encouraging forest based economic development in a number of rich developing countries. With regard to long-term sustainability, forest concessions have not been very successful in encouraging sustainable management of tropical forests (GRAY, 1999), and tropical forests still remain in a trend of decline. In 1995, tropical forests comprised of 861.1 million ha, or 24.9% of the world’s total forests. The annual rate of tropical deforestation is approximately 6.9 million ha, or 0.7% (FAO, 1997). Cambodia, a country rich in its natural resources has passed through three decades of wars, and the consequences of these wars have affected both human beings and natural resources. Forests alone, have sharply declined over recent years and this phenomenon has great impact on the society and environment. All productive forests (evergreen, mixed and deciduous forests) in Cambodia are managed under forest concession system. Failure to address the problems within forest concession operations has resulted in unsuitable management decision making, which has led to forest degradation and deforestation in recent years. The aim of this report, therefore, was to examine the existing problems within forest concession management, which is very important for the present and future policy-decision making. It was made based on the current findings of a consulting group hired by the World Bank and Asian Development Bank. Continuing research and immediate action must be undertaken to combat deforestation and properly manage the remaining forest area.

FOREST RESOURCE IN CAMBODIA
Consisting of 19 provinces and two cities, Cambodia is bordered by Thailand (west and northwest), Laos (north), Vietnam (east and southeast) and Thailand Gulf (west) (Fig. 1). Cambodia has a total population of 11.2 million people, approximately 92% of whom depend mainly on fuelwood for cooking energy. This indicates that not only will the environment be degraded, but a social crisis is also likely to occur if the forests are still logged at the current unsustainable rate. Two major forest types have been recognized in Cambodia; the edaphic and dryland forests. In 1997, the total forest cover was 10.6 million ha or 58% of the country’s total land area. Evergreen, mixed and deciduous forests, the only forests granted to forest concessions for commercial logging, covered 4.1 million ha, 1.4 million ha and 4.0 million ha, respectively (Table 1). In terms of growing stock, Cambodia’s forests are estimated to contain 1.4 billion m3 (all trees within DBH greater than 5 cm), of which evergreen, mixed and deciduous forests share 67.1%, 14.0% and 17.0%, respectively (Table 1). Other forests cover the rest. However, it has been estimated that the sustained yield of Cambodia’s forests is between 0.5 million m3 to 1.5 million m3 per year (DAI, 1998), and can sustainably generate forest revenue of US$ 19-57 millions per annum, based on the current average royalty rate of US$ 38/m3.
Fig. 1, Table 1

FOREST CONCESSIONS IN CAMBODIA
Approximately 90% of industrial wood worldwide is harvested under concessions agreements, by which the government, as forest resource owner, grants rights to exploit or manage a specific area (World Bank, 1996). Forest concessions have been an established means of promoting forest-based development in Cambodia. They were reintroduced to Cambodia in 1991 as a mean of 1) bringing larger forest areas under active management, and, inter alia, reducing the extent of illegal logging; 2) speeding growth of value-added wood processing in Cambodia; and 3) increasing government timber royalty revenues, while maintaining the ban on export of logs. Until recently, 3.74 million ha of Cambodia’s forest resources were granted to 25 forest concessions, to 21 local and foreign logging companies. The concession area ranges from 34,924 ha (Cambodia Timber Product Pty Ltd.) to 467,484 ha (SL International Ltd.) (Table 2). To reflect the changes of forest conditions, local and international demands for wood, the government has frequently revised the concession contracts. The forest concession area increased from 2.2 million ha in 1994 to 6.9 million ha in early 1999, and declined to 4.7 million ha in late 1999 (Table 2).
Table 2

CURRENT SITUATION OF FOREST CONCESSIONS OPERATIONS IN CAMBODIA

The impact of timber royalty rates and unofficial payments
In the overwhelming majority of countries with tropical forests the most important monetary incentive facing forest users is the timber royalty, or stumpage fee. Timber royalties take several different forms but may be grouped into three general categories: specific royalties based on volume, per-tree royalty, and ad valorem royalties (World Bank, 1996). Specific royalties based on volume is implemented in Cambodia. Based on durability and potential utilization, tree species are economically classified into 4 grades – Luxury, Grades I, II and III, for which different royalty rates are applied (Ministry of Agriculture, Forestry and Fisheries, MAFF, 1985). In addition, there is a number of tree species, which have been temporarily classified into another class pending evaluation of their potential uses (MAFF, 1985). Luxury Grade: The wood is very durable and is used for long-term construction material. The extraction of trees of this grade is strictly prohibited. However, in the unavoidable circumstances (trees to be cleared for road and camp construction), the special permission from the Ministry of Agriculture, Forestry and Fisheries is required to extract timber of this grade. Grade I and Grade II: The wood is durable. These grades are dominated by Dipterocarp trees. They are subject to commercial exploitation. Grade III: The trees are non-commercial. Trees in this grade are mainly used for fuelwood. Other: The potential utilization of these tree species has not yet been studied.
Until early 1995, the royalty rates imposed on Grade I, Grade II and Grade III were US$ 20.0/m3, US$ 14.0/m3 and US$ 11.0/m3 for domestic processing, and US$ 55.0/m3, US$ 38.0/m3 and US$ 30.0/m3 for export (if permitted), respectively. The new royalty rates, which were taken effect from 1995 are US$ 60.0/m3, US$ 40.0/m3, US$ 32.0/m3 and US$ 20.0/m3 for Grade I, Grade II, Grade III and Grade Other, respectively. Logs that were legally and illegally felled before 1995 were classified as old logs, and their royalty rates US$ 43.5/m3, US$ 29.0/m3, US$ 23.5/m3 and US$ 14.5/m3, respectively (Table 3).

Table 3
P Concessionaire, a professional logging company from Malaysia was chosen as an example for examination. The authors analyzed the average production cost of P concessionaire (one of the company in Table 2) from the logging area to the final sales. With previous and new royalty rates of US$14.00/m3 and US$ 40.00/m3, respectively, Grade II was used for this analysis. To get one cubic meter of log from the logging area to processing factory, the company spent US$ 86.90, of which US$ 34.00, US$ 15.00, US$ 14.00, US$ 2.40, US$ 5.00 and US$ 16.50 were spent for log production, barging, royalty, reforestation, transportation formalities and unofficial payments, respectively (Table 4). With log recovery rate of 59%, factory processing cost of US$ 70.00 and storage cost of US$ 8.00, the company must spend US$ 200.52 to get one cubic meter of veneer, and to get the final product to the FOB (Freight On Board), the company must totally spend US$ 227.47. Since the market price of veneer was only US$ 221.00 (in 1998), the company lost US$ 6.47 per cubic meter of veneer. With new royalty rate, the loss rose to US$ 93.78/m3 (Table 4). The FOB price of veneer was US$ 430.00/m3 in middle of 1997 (RUZICKA, 1997) and dropped to US$ 221.00/ m3 in 1998. This clearly showed that the logging operation of this company was already running at a loss (economically infeasible). As a result, this company subsequently suspended their operations in 1999. The impact of this suspension was that not only the forests are left unmanaged, but also employees temporarily lost their jobs. In the context of sustainable forest management, management must be economically feasible, socially viable and environmentally acceptable.

Table 4

Illegal logging
Illegal logging and timber tax evasion have and profound economic and environmental impact on Cambodian society. Between 1994-’95, forest revenue average 13.5% (86 billion riels) of the national budget and 1.3% (15 billion riels) of the Cambodia’s GDP (World Bank, 1996). These figures have since dropped to 2.8% and 0.3% of national budget and Cambodia’s GDP, respectively. These resulted from illegal logging and corruption in forest industry and forestry sector in Cambodia. Unless effective management takes place, the sustainability of forest resources will still remain a central issue for sustainable development. Over-exploitation of forest resources has had a major impact on current logging operations in Cambodia. In 1997, total wood production in Cambodia was 3.41 million m3 (2-7 times higher than annual sustained yield), of which 0.24 million m3, 0.36 million m3, 1.85 million m3 and 0.11 million m3 were logged in central, eastern, western and northern regions of Cambodia (Table 5). Approximately 2.32 million m3 or 68% of the total wood production came from illegal logging (Table 5). According to table 5, illegal logging occurred mainly in western and eastern regions (Fig. 1), from where the wood production was exported to the two giant wood consuming countries; Thailand and Vietnam.

Table 5

Forest concession holders in Cambodia usually plan to manage their forests on a selective felling cycle of 25-30 years. Their concessions are divided into 25-30 operational coupes, and each coupe is logged every felling cycle. However, after four or five years of logging operations the companies realized that, due to the intensive illegal logging, they will have no productive forests left to harvest after the next five years. The recent survey on forest concessions in Cambodia showed that approximately 40%, 50% and 10% of harvestable coupes will be logged out in 5 years, 5-10 years, and 10-15 years, respectively (Fig. 2). Thus, forest concessionaires are likely to be suspended or completely stop their forestry operations in the next five years time from now. This is really the serious problem to Cambodia’s forestry sector and national development.

Fig. 2

DISCUSSION

Reduction of log production cost
A case study of two harvesting systems in Jengai and Tembat forest reserves of Peninsular Malaysia where the slope of 5-20 degrees (similar to those in Cambodia) showed that the log production cost varies from US$14.54 to US$ 15.21/m3 (Malaysia Riggit 50.89-52.91) (AHMAD, 1998). Improvement of harvesting techniques will reduce the log production cost. Due to the fact that the labour costs in Cambodia are cheaper than those in Malaysia, the forest concessionaire in Cambodia, by improving their harvesting techniques, can reduce the cost of its current log production. Assumed that the production cost is reduced to US$ 20.00/m3 and unofficial payment is completely cut, P Concessionaire can reduce its loss to US$ -10.60/m3 (Table 6) at 1998 market. However, the market prices for veneer are elastic. The veneer price rose to US$ 258.8/m3 in January 1999 and dropped to US$ 252.2.00/m3 in November 1999. It rose again to US$ 288.3/m3 in January 2000 and dropped to US$ 226.3/m3 in November 2000 (Fig. 3). These veneer price variations have its means of US$ 259.2/m3. Giving that company is willing to risk 5% of the its business, the confidence limits for 95% probability for market prices of veneer are US$ 248.4/m3 (lower) and US$ 270.1/m3 (upper). While maintaining its log production cost at US$ 20.00/m3, the company can get profit US$ 16.8-38.5/m3 (economically feasible) (Table 6).

Table 6, Fig. 3

CONCLUSION

Forests have always been a defining element of the economy, culture and environment of Cambodia. Sustainability of the economic development requires that the remaining forests be managed on a long-term basis. Two problems were identified within forest concession operations, namely unofficial payments as a result of low wage and illegal logging as a result of non-existence of land use policy. The legal and illegal extracting of 3.4 million m3 of wood (2-7 times higher than the sustained yield rate) should be reduced to the sustained yield level, which is a key to ensure the perpetual supply of forest products. To avoid illegal logging as well as to attain the sustainable forest management requires that all allocated lands be properly marked on the map and in the field. It is also required that, for special management objectives, proper zoning be conducted inside each operational coupe of forest concessions. Since illegal logging activities involve the district, provincial and international cross-border trades, it is important that all institutions and parties involved in forest management must join hand-to-hand to combat illegal logging. The international forest policy should be established and every government should be encouraged to participate for the benefits of our planet that is already unhealthy because of human’s mismanagement of natural resources.
Harvesting systems have positive influence on log production cost. Therefore, the government should provide guidelines to forest concession holders for best harvesting practices, as to reducing environmental degradation and reducing the operations cost. In addition, to allow the forest operators with profits, the royalty rates should be flexible in relation to wood market price. This is a good incentive for forest concessionaires. With regard to unofficial payments, a law enforcement mechanism is required to ensure the non-existence of such payments so as to facilitate the smooth operations of forest concession holders.
The improvement of wood processing technology is required to increase the current recovery rate. Modern technology and equipment should be introduced, while at the same time making use of the rest of 41% of veneer producing and residues (non-commercial use trunks and branches) because this use will help reduce the removal of trees for fuelwood consumption. Approximately 92% of Cambodian population depend largely on fuelwood for daily cooking energy.
Above all, long-term political commitment to research and development is required to ensure the long-term sustainability of forest resources as well as sustainable development.

ACKNOWLEDGEMENT
The first named author would like to thank Dr. Mihoko Shimamoto, associate professor of department of social science, Hosei University, Japan for funding this research. The authors also thank Mr. Geoff Dean of North Forest Products, Australia, for editing of our English.

LITERATURE CITED
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ITTO (2000) : Marketing information for year 2000
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