An overview of the forestry sector in Papua New Guinea including markets, plantations, legislations and sustainability.

A PNG timber processing facility. Credit: ACIAR

Industry snapshot

Papua New Guinea’s forestry sector has moved from a small domestic processing industry in the 1950s to a large log export-oriented industry. Over 60 per cent of PNG’s total land area (about 30 million hectares) is covered by forests and owned by landowners. Approximately 10 million hectares produce high-quality tropical hardwoods, which are considered suitable for forestry development. The forests are under pressure from small-scale agriculture and commercial agriculture, which may result in deforestation.

Papua New Guinea hosts the third largest expanse of tropical rainforest on the planet. Its current forestry products are raw log exports, sawn timber, veneer sheets, domestic log sales, plantation logs, plywood, processed timber exports and wood chips. According to the Bank of PNG, exports were worth K1.27 billion in 2018.

The PNG Forest Authority (PNGFA) estimates 12,000 people are directly employed in the sector and 20,000 indirectly. All commercial timber production is controlled by private companies, with Malaysian multinational companies dominating the industry. There are 175 Special Agricultural Business Leases (SABLs), which are currently under review. Malaysia’s Rimbunan Hiujau Group controls more than two-fifths of log exports. Annual payments to landowners are K87 million, and tax revenue to the government is K300 million a year, according to the Authority.

There is a growing push for more downstream processing of logs, especially with the National Government announcing a cessation of all exports of round logs, due to occur in 2020.

According to the Australian Centre for International Agriculture Research (ACIAR), engineered wood products (EWPs) offer a significant opportunity for increasing downstream processing and value adding in both PNG and Australia. EWPs are manufactured composites that provide consistent and reliable building products with improved structural characteristics and allow the most efficient use of forest resources.

Downstream processing of balsa wood and veneer sheets has been increasing. PNG has more than 25 furniture-making factories and joinery shops, while other processing activities include: furniture making, plywood, flooring and other building products.

Markets

Most of PNG’s timber is exported, with 4.04 million cubic metres exported in 2018.

More than 80 per cent of production goes to China; India and South Korea are the second and third markets for PNG’s timber. The key markets for processed timber products are Australia, New Zealand and other South Pacific countries.

Plantations

There is currently about 86,000 hectares of plantations of mostly exotic species but many of them are of poor quality, according to ACIAR.

Regulations and legislation

The overarching legislation governing the forest sector is the National Forest Policy, which covers forest management, industry, research, training education and forest organisation and administration.

The PNGFA was established under the Forestry Act 1991, and provides for regulations on the acquisition and allocation of land for forest development.

There are several policy areas under review, including the review of the Special Agricultural Business Leases.

Under the Reducing Emissions from Deforestation and Degradation (REDD) project, countries such as PNG could receive funds for cutting emissions that result from deforestation and land use change, giving the country an incentive to maintain its forests.

Forest resources of PNG are customary owned. There is a 34-step project development process for timber concession areas, which includes national and provincial planning, surveys of the timber resources, infrastructure and economic potential, a tender process, formal stakeholder negotiations, environmental planning and annual and long-term working plans.

The PNG Government issues two types of timber licences: Timber Permits for big timber concession areas and Timber Authorities for smaller operations. Companies and investors new to PNG must register as a forest industry participant or consultant with the Forest Authority in order to get the permits and approvals necessary for beginning business of any kind in the sector.

Governance

The PNGFA is responsible for monitoring, controlling and managing the country’s wood and forest-based industries and resources. The Authority has 19 provincial officers and three key arms:

• National Forest Board, which advises the Minister for Forests on forest policies and legislation and give directions to the National Forest Service. Board members represent national and provincial governments, landowners, NGOs, Chamber of Commerce and Industries and the National Council of Women.
• Provincial Forest Management Committees, which provide forums for consultation and coordination on forest management between national and provincial governments.
• The National Forest Service, which is the operational arm of the Authority.

Sustainability

Under PNG’s Constitution, a national objective is ‘to ensure the forest resources of the country are used and replenished for the collective benefit of all Papua New Guineans now and for future generations’.

There are no areas of natural forest currently dedicated or zoned as permanent timber growing areas. Land, and the forest growing on it, is privately owned by the traditional landowners.

The Government lacks the legal right to direct private (customary) land use through any form of zoning. For the foreseeable future it will be the traditional landowners themselves who must take the lead in setting aside land for sustainable forest management.

Customary landowners own and manage about 97 per cent of Papua New Guinean land. Extensive consultation between the owners, government agencies and forest companies is necessary before any forest activity can take place.

The government and its implementing authorities understand their obligation to protect the nation’s environmental heritage while developing its forest resources. Each new project is scrutinised on the basis of its environmental impact and the needs of resource holders as well as investors.

According to the PNGFA, present policy limits the timber harvest each year to one thirty-fifth of the timber resource in an area. The policy assumes that 35 years after the first harvest, the land will still be available for logging and that the natural forest will have regrown to at least its original composition and/or value under a management policy of benign neglect.  The Authority has adopted the criteria and indicators of sustainable forest management proposed by the International Tropical Timber Organisation (ITTO).

While PNG’s Department of Environment and Conservation (DEC) is the primary agency charged with the conservation and protection of PNG’s plant and animal species, protection strategies are integrated in several pieces of legislation and policy. The PNGFA’s forest plans set aside areas for protection, which are excluded from any forestry timber harvesting operation.

PNG also has an NGO sector monitoring the industry. The PNG Eco-Forestry Forum was established in 1999 and has become an umbrella for many community groups and NGOs concerned with creating a sustainable forestry sector.

Challenges and opportunities

The PNG Forest Industries Association – an incorporated association of companies involved in all levels of PNG’s timber industry – identifies several challenges for operators in PNG’s forestry industry. It says high tax and royalty payments limit the scope to return profits to local areas of production, and could adversely affect investment levels in future. Limited transport infrastructure further creates high costs for forestry companies.

However, the industry body says the country has a number of competitive advantages over other timber-producing nations, including substantive wood and labour resources, and close proximity to world markets, especially China for low-end forestry products, and Australia and the US for high value and value-adding forestry products.

The Authority identifies non-timber forest products – such as eaglewood and sandalwood, rattan and medicinal plants – as having high potential for investors seeking new opportunities. Another area of potential is carbon trading under international climate treaties.

PNG’s Investment Promotion Authority says: ‘The potential for converting … premium species, such as rosewood, kwila, blackbean and taun, into high-quality furniture and other wood products, is an investment opportunity with a growing market. Stocks of premium wood species will be maintained for wood manufacturers, so the markets they establish in the near future can be guaranteed of a continued supply.’

Forest products companies are typically required to invest in their own infrastructure. For example, processor PNG Forest Products has invested in roads and three hydro-power stations.

Taxes

An export tax on logs (excluding plantation logs and sawn timber) is applied at a varying rate according to the price of the logs.

Resources

• PNG Forest Authority
• The Forest Industries Association
• The PNG Eco-Forestry Forum
• PNG Forestry Act
• International Tropical Timber Organisation (ITTO)

What else would you like to know?

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