Project: TCP/ZAM/8925(A) - Strengthening of revenue collection in the Forestry Sector

An Appraisal Of The Licensing AndForest Revenue System In Zambia

by

Adrian WhitemanForestry Officer (Outlook Studies)

FAO, Rome

Ministry of Environment and Natural ResourcesForestry DepartmentPO Box 50042Lotti House, 2nd FloorCairo RoadLusaka, ZAMBIA

Food and Agriculture Organisationof the United Nations

House No 5Addis Ababa Drive

PO Box 30653, RidgewayLusaka, ZAMBIA

This report is one of a series of reports produced as part of aTechnical Co-operation Project between the Food andAgriculture Organization of the United Nations and theGovernment of Zambia. The author wishes to acknowledge thehelp and co-operation given by staff of the Forestry Departmentof the Ministry of Environment and Natural Resources. Theconclusions and recommendations presented here are those ofthe author and do not represent the official policy of the Foodand Agriculture Organization of the United Nations or theGovernment of Zambia.

The designations employed and the presentation of the materialin this document do not imply the expression of any opinionwhatsoever on the part of the Food and AgricultureOrganization of the United Nations concerning the legal statusof any country, territory, city or area or of its authorities, orconcerning the delimitation of its frontiers or boundaries.

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LIST OF ABBREVIATIONS

K Kwacha – the national currency in ZambiaMENR Ministry of Environment and Natural ResourcesNWFPs Non-wood forest productsSI Statutory InstrumentZAFCOM Zambia Forestry CommissionZAFFICO Zambia Forestry and Forest Industry CorporationZAWA Zambian Wildlife Authority

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EXECUTIVE SUMMARY

Forest charges are paid to the government for the rights to produce forest products from forest areasowned by the state or held by the state on behalf of the people. The way that these charges are set,assessed and collected is referred to as the forest revenue system. There are two main elements toforest revenue systems that have to be examined, the overall level of charges that are paid and thestructure of the charges. The structure of charges is closely linked to the types of licences that areused to control production, so this report also examines the forest licensing system currently inplace in Zambia.

The forest revenue system concerns more than just the collection of money

The way that the licensing and forest revenue system is designed can have a major impact on theway that the forest is managed. In particular, any appraisal of licences and the forest revenue systemshould consider the following issues:

Economic efficiency. Do the arrangements promote economic efficiency or do they distort theeconomy? Do they meet other economic objective of government or work against them? Is theadministration of the system efficient (i.e. are the costs of collection reasonable compared with theamounts that are collected)?

Forestry policy. Do the licences and charges encourage sustainable forest management? Do theyresult in an equitable sharing of costs and benefits between all stakeholders? Will revenue-sharingwork?

Institutional capacity. Can the licensing and revenue system be properly implemented given theresources available? Do all staff understand exactly what the licences and charges are for and howthey should be assessed and collected. In the specific case of Zambia, another question that must beanswered is: do the charges supply sufficient revenues for the Forestry Department to become self-financing and adequately fulfil its obligations?

Political acceptability. Are the charges fair and is the law related to charges and licenses appliedevenly? Do the charging and licensing arrangements follow the principles of good governance (e.g.transparency and accountability)?

At the moment, a great deal of emphasis is placed solely on the collection of money from theforestry sector in Zambia. The current licensing and revenue system performs less well in some ofthe above areas.

The legal arrangements for licensing and forest charges

The current legal arrangements for licensing and charges are spread across a large collection ofdifferent documents, including: The 1999 Forests Act; Statutory Instruments; licence agreements;policy statements (e.g. the National Forestry Policy and the timber export regulations); and fellingregulations. These documents present a confusing mixture of instructions about what sort of licenceis required and what charges must be paid. For example, they contain references to the need for

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permission to enter forests, to cut trees, to produce products, to transport products and to operateequipment. There appear to be inconsistencies in some places between documents and within thesame document. In other respects they do not give any guidance at all (e.g. the definition of“personal use” of forest products). Where implementation of the law is left to the interpretation offorest officers, there is the risk that the law will not be implemented as intended or will beimplemented differently in different areas.

Currently, the licensing and charging system seems to try to distinguish between the following:

• five different types of land ownership (National Forests; Local Forests; Joint ForestManagement Areas; state/customary/open areas; and private land);

• two different types of use (personal use and commercial use);

• many different types of product (8 wood products – logs, poles, fuelwood and charcoal,each of these from indigenous or planted trees; several minor forest products; andservices such as site fees); and

• two different activities (production and conveyance).

It is extremely difficult to make all of these subtle distinctions with the very simple licensingarrangements currently in place and given the lack of supplementary guidance on how the lawshould be interpreted. For example, anyone wanting to produce or transport a forest product has toask three questions:

• Do I need a licence (and if so, how do I get one)?

• What can I or can’t I do when I have my licence?

• How much do I have to pay?

Some of these questions are not clearly answered and, where they are, the answers are spread acrossmany different documents.

Are the licensing and charging arrangements efficient?

The efficiency of the current licensing and charging system could be improved in several ways:

• Charges are too low, leading to waste and overutilisation of the forest resource.

• The production and conveyance charges more or less duplicate each other and could berolled into one volume-based charge.

• The conditions attached to licenses restrict flexibility in the amount of production andrestrict competition.

• The export licensing requirements are successful at protecting the resource, but may berestricting the export of value-added wood products.

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• The current arrangements for monitoring production require the Forestry Department toperform functions that the forest concessionaire should be doing (and the ForestryDepartment should be checking rather than doing them themselves). Thus, the cost ofthese activities is higher than it should be.

• The current emphasis on measuring volumes in the forest is a very expensive way ofassessing revenues and there are lower cost alternatives that can still perform quite well.

• Simpler charges could be designed to collect revenues from the large number of smallproducers, which would be cheaper to operate and still give an acceptable measure ofcontrol.

Do the licensing and charging arrangements support forestry policy?

The requirement to produce a plan of operations in a forest concession provides a basic level ofsupport to sustainable forest management. However, outside these areas, only verbal guidance isgiven to producers. Currently, a great deal of emphasis seems to be placed on capturing illegalproduction and punishing offenders rather than finding solutions to problems. The high level ofdemand for wood products will not go away and the Forestry Department should try to resolvesome of these problems. Joint Forest Management may help in this respect.

The current emphasis on volumes of production rather than the area of forests being used forproduction is leading to a gradual degradation of forest resources. This could be slowed down ifmore attention was paid to the production per hectare of forest. The forest revenue system couldhelp if there was greater differentiation in the charges between species and licensees were charged,in part, on the basis of the area of forest that they are using.

To a certain extent, the Forestry Department is already sharing most of the benefits from forestswith other stakeholders, through their inability to collect all of the charges due to them. This hasinteresting implications for the implementation of revenue sharing and Joint Forest Management.For example, under current laws, the largest share of the charges on charcoal production should bepaid by producers. These producers are members of local communities so benefit sharing would, ina way, be asking them to tax themselves. This problem could be addressed by shifting the majorityof the charge towards the conveyance charge.

Are the arrangements for licensing and forest charges acceptable from an institutional andpolitical point of view?

The amount of revenues currently collected from forest charges is not sufficient for the ForestryDepartment to fulfil its mandate. However, the potential is there to collect sufficient charges andlow-cost alternatives to some of the current arrangements could be found.

Staff of the Forestry Department do seem to be clear about the most of the technical aspects oflicensing and charging. However, there appears to be some uncertainty in a few areas and theorganisational culture of the Forestry Department seems to be more orientated towards command

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and control rather than problem solving with the participation of stakeholders. There also seems tobe little incentive to take the initiative at lower levels of the organisation.

Suggestions for future development

Planning forest harvesting and awarding licences. The Forestry Department should develop anoverall strategy for the identification of production forest areas, which will be managed as forestconcessions on a sustainable yield basis. Such areas may be parts of larger contiguous blocks offorest or may be groups of smaller blocks. They may vary in size and may run across currentboundaries for different land-uses. A process should be developed for awarding licenses that is openand transparent and encourages licensees to take a more long-term view of the development of theforest.

As part of the above process, areas should also be identified for short-term licences for pole,fuelwood and charcoal production. Where illegal production is discovered, efforts should be madeto resolve the situation using such areas.

Charging by area. Once a concession area has been identified, it should be divided into fellingcoupes that are appropriate for the planned level of production. Forest concessionaires should becharged a fee based on the area of forest that they want to harvest (i.e. the coupe size). This shouldbe set at a level that is roughly equal to half of the stumpage value of a minimum reasonableharvesting intensity (e.g. six trees per hectare). This charge should be collected in advance on a“pay as you go” basis.

For the production of other forest products using different types of licences, the ForestryDepartment should also introduce an element of area control and charging by area. For example, acasual licence to cut some fuelwood could be set as a charge per hectare based on an averagestocking level. A kiln levy for charcoal production (over a fixed period of time) would be aneffective way of collecting production charges for charcoal production.

Monitoring production and area use. The Forestry Department should switch emphasis fromtrying to measure and count every tree cut in the forest to checking that forest concessionaires staywithin the felling coupes and use good harvesting techniques. Waste and felling damage foundduring inspections should be charged the volume-based charge (see below). Information about areasused and volumes produced from areas should be collected and kept in an information system thatprovides useful forest management information as well as serving the purpose of monitoringrevenue collection.

Volume based charges. The current conveyance charge would become, in effect, the only volumebased charge on production and should be adjusted appropriately. Logs and poles should be chargedper cubic metre on the basis of the volume of wood coming out of the felling coupe. These volumesshould be measured and recorded by the licensee and checked by the Forestry Department at agreedlandings and extraction points. It should be stressed that licensees must not take roundwood out ofthe forest (or to the sawmill, if this is in the forest) before it has been marked and charges have beenpaid. High penalties should be used to enforce this. Conveyance of sawnwood products would nolonger be charged.

For commercial charcoal production, a system of labelling would be more efficient to operate thanthe current system of conveyance licences and, probably, more effective at controlling production

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and revenue collection. A label should be designed that includes: the Forest District name; a serialnumber; and explicit instructions that the label has to be put on the bag of charcoal and remain therefrom as soon as it leaves the kiln site until it is finally sold in the market.

Types of licence. Eight types of licence might be used in the future:

Forest Concession Licence. A forest concession licence would be issued for five years for anarea of forest of between 2,000 ha and 20,000 ha. This forest area should be fully stocked andmay be made up of several separate contiguous areas managed together as one unit. The forestconcession licence would replace the current Forest Licence (Commercial Sawmilling) andForest Licence (Pitsawing). It would allow the concessionaire to cut timber logs fromspecified areas at specified times agreed between the licensee and the Forestry Department(i.e. to harvest felling coupes arranged so as to promote sustainable yield). It would also allowthe licensee to cut poles as by products and operate one charcoal kiln for the processing ofwaste. An area-based fee would be paid under this licence, plus commitment fees and sitefees.

Standing Sales Licence. Standing Sales Licences would operate in a similar way to thecurrent casual licences. They would, however, also include a simple plan specifying the areaof forest that will be used along with any other felling regulations or conditions that mightapply to the felling area. Charges would be set competitively, with reserve prices equal to thecharges fixed under other types of licence.

Charcoal Production Licence. A licence would be issued to permit the operation of a“standard sized” charcoal kiln for a specified period of time in a specified area (shown on asimple plan). This would specify the area of forest that should be used for this purpose andany other felling regulations or conditions that might apply to the operation of the kiln.

Fuelwood Production Licence. This would operate in the same way as a CharcoalProduction Licence.

Non-Wood Forest Products Permit. A licence to collect NWFPs in National Forests andLocal Forests and to use forests for other odd purposes (e.g. removal of top soil).

Conveyance Licence. The conveyance licence will operate as at present, as a relativelysimple receipt that a volume charge has been paid. The hammer mark of the ForestryDepartment or an official label (in the case of charcoal production) will be the method ofcontrol and anyone found conveying products without these marks would be conveyingproducts illegally. It should not be necessary to carry the conveyance licence as well.

Sawmilling and Pitsawing Licences. These licences will be used mainly as a means ofcollecting statistics about the ownership of production facilities, capacity and location. Anominal charge should be levied to acquire one of these licences each year.

When a licence is issued, the licensee should be given a complete set of all relevant rules,regulations and other instructions related to the operation of that licence. Clearer guidance shouldalso be developed to assist Forestry Department staff to interpret the law consistently in areas suchas the definition of personal use, the charging of products from forest plantations and marking andmeasuring conventions.

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1 INTRODUCTION

In many countries, forest resources represent a significant natural asset that can be used to producea wide range of economic, environmental and social goods and services. Where they are held by thegovernment on behalf of the nation, they can also be used to generate government revenues tosupport forestry policy, economic development and other government policies and programmes.

Governments can choose to earn revenues from the management of their forest resources either bydirectly managing them themselves (e.g. through state-owned forestry companies) or by allowingthe private-sector1 to manage them (e.g. as community forests or forest concessions) in return forthe payment of a charge, fee or levy.2 In many countries, governments choose the latter option as away of generating government revenues. This allows them to benefit from the perceived greaterefficiency of the private-sector in the production of commercial goods and services. It also enablesthem to concentrate their attention on forestry policy development. However, under sucharrangements, governments are presented with two major challenges:

• the effective monitoring and control of private-sector forest operations; and

• the design and implementation of an appropriate system of forest charges and revenuecollection.

This report will deal mainly with the latter of these two issues, although it will touch on the firstissue in as much as the forest revenue system can have a considerable impact on the implementationof sustainable forest management.

Forest charges are paid to the government in return for permission to utilise forest resources. Thefollowing two main issues have to be addressed when setting forest charges and designing a forestrevenue system:

• the overall level of charges that the private-sector has to pay; and

• the structure of the charging mechanism.

In addition to this, in this particular project, the issue of sharing revenues with local communitieshas also been raised. This presents a further complication to the forest revenue system in Zambiathat will be covered in this report.

In situations where it is possible to use a competitive process (such as an auction or tender) to setthe overall level of charges that should be paid, the first issue above is generally not a majorproblem. However, it is often not possible to use such mechanisms and, in such cases, it becomesnecessary for the forest administration to set the level of forest charges. In such situations, forestcharges are often set with reference to the economic rent from roundwood production. There hasbeen a long-running debate about whether forest charges in many countries have been set atsufficiently high levels to capture a significant share of the economic rent from roundwoodproduction (see, for example: Repetto and Gillis (1988) for an early review of the level of forest

1 The private-sector here is defined to include local communities and individuals as well as companies and corporations.2 To try to minimise confusion, general statements about payments from the private-sector to the government will be referred

to as “charges” in this document. The names of specific charges will be used where these are currently applied in Zambia.

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charges in place around the world). Overall, the conclusion of this debate has been that, in mostcountries, forest charges do not collect a significant share of the economic rent from the productionof forest products (i.e. forest charges are nearly always set too low and/or collection is poorlyimplemented).

The terms of reference for this report (see Annex 1) do not specifically ask for an examination ofthe level of forest charges currently in place in Zambia. However, a brief explanation of economicrent and its relationship to the level of forest charges is given in Annex 2 and some generalobservations and suggestions about the current level of charges in place in Zambia are given inSection 4.3.1 and Annex 4 of this report.

In terms of the structure of forest charges, forest charges can be structured in a variety of ways. Themain types of forest charge commonly used around the world are as follows:

• charges based on the area of forest used (e.g. annual charges based on the area of forestin a forest concession or the area cut);

• charges based on the volume of forest products produced and/or transported (e.g.charges per cubic metre of roundwood cut or taken from the forest);

• charges based on the value of forest products produced or traded (e.g. charges on theexport of forest products – usually set as a percentage of the export value, with aminimum export value);

• charges for an activity or service carried-out by the forest administration (e.g. forestconcession approval charges; marking and measuring charges; road maintenancecharges);

• charges for permission to carry-out a specific activity (e.g. a monthly charge for theright to collect fuelwood or hunt in the forest); and

• charges levied on the means of production (e.g. an annual charge on the ownership of achainsaw).

For various reasons, the above charges are often combined in the forest revenue system. Moredetails and explanations of the strengths and weaknesses of each of these different approaches tocharging are given in Annex 3 and a comprehensive discussion of the different types of forestcharges commonly in use around the world can be found in Gray (1983).

1.1 Structure of this report

This report presents the results of an appraisal of the forest revenue system currently in place inZambia. It has been produced to help staff of the Forestry Department of the Ministry ofEnvironment and Natural Resources (MENR) to evaluate the efficiency and effectiveness of thecurrent forest revenue system. In particular, it aims to examine how well the system will meet theobjectives of self-financing and revenue sharing as proposed in The Forests Act, 1999 (Governmentof Zambia, 1999). It also presents some proposals for changes to the forest revenue system, basedon experiences gained in other countries in the world.

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The remainder of this report is in four main sections. Section two briefly describes some generalprinciples that should be applied to the design of any forest revenue system. The third sectiondescribes the legal basis for forest charges in Zambia, as set-out in The Forests Act, 1999. Sectionfour describes and appraises the structure and level of forest charges currently in place in Zambiaand section five presents some suggestions for changes to the licensing and forest revenue system.In sections three and four, a description of the current situation is given first, then an appraisal ofthe strengths and weaknesses of the current system is given at the end of the section.

Annexes to the report give further details and explanation of how forest revenue systems aregenerally designed and implemented along with more detailed calculations supporting some of thefigures quoted in the main text.

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2 SOME GUIDING PRINCIPLES UNDERLYING THE DESIGN OFANY FOREST REVENUE SYSTEM

As already noted in Section 1, wherever it is not possible to use competitive processes to establishforest charges, it is necessary for the forest administration to calculate and set charges. Thus, from apurely economic point of view, the charging system should attempt to replicate the prices thatwould be paid if forest products were sold competitively. However, the forest revenue system usedin a country is also often designed to meet a number of other objectives. In general, forest revenuesystems are usually designed to meet the following four different types of objectives:

• Economic objectives. Forest charges should promote efficiency in the use of the forestresource and in the use of all other resources involved in the forestry sector. The systemof charges should not introduce distortions into the economy that reduce economicefficiency overall or are counter to any other economic objectives of government policy.The charging system should also aim to minimise the costs of implementation (to boththe government and the private-sector).

• Forestry policy objectives. Forest charges should reflect the overall objectives offorestry policy, i.e. they should encourage forest concessionaires to carry-out activitiesthat meet the objectives of forestry policy and discourage activities that work against thepolicy. In the case of Zambia, the forest revenue system should also accommodate thenew policy of sharing revenues with local communities.

• Institutional objectives. The forest revenue system should be designed so that theforestry administration has the capacity to implement revenue collection and monitoringactivities and, in this particular case, it should provide sufficient revenues to support aself-financing forestry administration.

• Political objectives. Forest charges are often seen as a form of taxation and shouldtherefore, as with any tax system, have the broad support of the people and be viewed asfair. Thus, the charging system should take into account the impact of charges ondifferent groups within the sector and should reduce the scope for evasion andcorruption. It should also be implemented in a way that is open and transparent and iseasily understood by all stakeholders.

In many countries in the world where forest charges are set administratively, the forest revenuesystem in place usually fails to meet one or more of these objectives. In some cases, it fails in allfour areas. Often, the forest revenue system in a country looks excellent in terms of meetingeconomic and forestry policy objectives, but implementation is very weak. Recent debate hasgenerally come to the conclusion that this often occurs where is implementation is difficult forinstitutional or political reasons.

It is likely that the revised system of forest charges that is finally chosen in Zambia will have tomeet all four of the above objectives to some extent. Therefore, the remainder of this section willbriefly describe why it is so important that these objectives are met and examine how the forestrevenue system can assist in this process.

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2.1 Forest charges and economic objectives

The two main economic objectives that a forest revenue system should meet are economicefficiency and administrative efficiency. To a certain extent, these objectives also overlap withsome of the other objectives that the system should meet.

2.1.1 Economic efficiency

One of the most important concerns about forest charging policies is that, if the policies are not welldesigned, they can encourage low levels of efficiency in roundwood and forest product production.This leads to waste and the misallocation of resources (in terms of not only forest resources, butalso labour and capital). Deficient charging policies can also lead to incorrect land-use decisions,which can subsequently have negative social and environmental consequences as well.

Examples of some of the detrimental effects of poorly designed forest charging schemes, include:

• low charges reduce the incentive for forest concessionaires to reduce production costs toa minimum;

• charges on only the volume removed from the forest discourage concessionaires frommaximising production from each area of forest; and

• low charges also reduce the incentive to improve the marketing of roundwood.

Not only are these effects wasteful, but they encourage the development of a processing sector thatis too large (i.e. if roundwood is cheap – more companies want to use it). This discouragesefficiency in roundwood utilisation in the processing sector3 and reduces the incentive to improvethe marketing of forest products. It can also distort capital investment towards a poorly performingforest processing sector, when some of this capital would be more profitably employed in othersectors of the economy.

In terms of land-use policies, if forest charges are too low (or are unevenly distributed), the forestresource appears to be of little value. This reduces the incentive to manage forests for productionand gives a greater incentive to either set them aside for conservation purposes or to convert them toother land-uses. Thus, where forests are undervalued, too much forest will be converted to otherland-uses (such as agriculture).

These issues are critical because they have the potential to distort the economy and trap economicdevelopment into the pursuit of low-value activities supported by the wasteful use (and eventualdepletion) of the forest resource. At first glance, low revenue collection (due to low levels ofcharges and low levels of collection) would seem to be a major issue for charcoal production inZambia. Industrial wood production (i.e. for sawnwood and panels) appears to be relatively lessimportant here than in some other countries, although the above problems probably also apply tothis part of the sector as well.

3 For example, there is no incentive to invest thousands of dollars in machinery with high product recovery rates to save a

few hundred dollars on wood raw material costs.

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2.1.2 Administrative efficiency

There are three main costs of administering any forest charging system:

• the cost of calculating the charges that are due;

• the cost of collecting these amounts; and

• the cost of policing the system (i.e. detecting and pursuing any individuals that have notpaid the charges).

Generally, the cost of administering a forest charging system increases with the complexity of thesystem. If additional complexity does not bring in higher levels of revenue, then the overalladministrative efficiency of the system goes down.

However, there is a major trade-off between administrative efficiency and the pursuit of otherobjectives within the system. It is quite common for forest revenue systems to be complex notbecause the complexity is expected to increase revenues, but rather because the complexity isdesigned to meet the objectives of forestry policy. The most common example of this trade-offoccurs in the choice of where to assess forest charges. Assessing charges in the forest is generallymuch more expensive than assessing them on roads or at the mill. However, assessing charges atthe roadside or in the mill does not encourage the monitoring agents to get into the forest to seewhat is going on.

Given the relatively small size of the industrial wood production sector in Zambia, theadministrative cost of assessing charges from this sector should be relatively small. However, thiswill depend upon the extent to which policing requires activities in the field or can be concentratedon transport routes. The presence of a large number of small charcoal producers would suggest thata relatively simple and low-cost method of assessing and collecting charges should be identified.Certainly, the involvement of local communities could also help considerably here.

2.2 Using the forest charging system to promote forestry policy

Economic efficiency is mostly encouraged by setting the right overall level of charges, although thestructure of the charging system is also important. However, in terms of encouraging forestconcessionaires to follow forestry policy, it is usually the structure of the forest charges within therevenue system that is more important.

2.2.1 The relationship between forest charges and maximum sustainable yield

In terms of the production of forest products, the main aim of forestry policy is to ensure that thevalue of production of all products is maximised while, at the same time, the forest is regeneratedadequately so that another harvest of products can be obtained at a later date (maximum sustainableyield). This is promoted through a combination of forest management regulations, the terms andconditions attached to forest concession or harvesting licences and the forest revenue system. In

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combination, these three factors largely determine the way that forest management and harvesting isplanned and implemented by the private-sector.

In order to maximise sustained yield, forest management and harvesting is usually structured on twolevels. Firstly, at the broad level, the area of forest that should be cut in any given year has to beidentified and organised.4 This is usually done by first identifying and excluding any areas thatshould not be harvested within the forest concession (e.g. for watershed or biodiversity protection),then by arranging the forest concession area into annual cutting areas or harvesting coupes.5Following harvesting in one coupe, the coupe is closed to allow the forest to regenerate. The periodrequired for regeneration will vary from species to species, but is usually determined by the overallgrowth rates of the majority of the commercial species.

At the more detailed level, once the appropriate area and location of felling coupes has beendetermined, forest management should then aim to maximise the production from each fellingcoupe, while leaving the forest in a condition in which it can recover. This aim is mostly enforcedthrough harvesting regulations, but it can also be encouraged (or, more importantly, it is sometimesdiscouraged) by the structure of charges in the forest revenue system.

Harvesting regulations usually specify a minimum cutting diameter, so that some smaller trees willbe left behind to grow into the next crop. They may specify tree species that should not be cut6 andthe type of harvesting operations that will be allowed in the forest. They sometimes also specifyparticular procedures or types of equipment that should be used for harvesting.

The revenue system has a more indirect effect on whether production from felling coupes ismaximised or not. For example, volume-based charges on their own do not encourage maximumproduction. Rather, they encourage the forest concessionaire to select only the most valuable trees.This process (called “high grading”) can lead to gradual degradation of the forest over time. Area-based charges encourage the use of all commercial trees within a felling coupe, but they are difficultto implement because of the variability in commercial tree stocking within the forest. Thus, area-based charges are usually combined with volume-based charges that can account for some of thisvariability.7

Another problem arises with the calculation of volume. Ideally, volume-based charges should beassessed on the standing volume of commercial trees that are present in the felling coupe. However,this requires detailed forest inventory information and such a system is very expensive and difficultto monitor. Thus, volume-based charges are usually assessed on the volume actually cut or removedfrom the forest (and, it is hoped, if there is also an area-based charge, it will encourage themaximisation of production).

4 The discussion here centres on the organisation of timber harvesting, but similar considerations should also apply to the

regulation of harvesting of non-wood forest products (NWFPs).5 Forest harvesting operations cause a certain amount of short-term damage to the forest due to the felling of the trees and the

use of heavy machinery in the forest. Thus, it is generally best to harvest all of the commercial timber in a felling coupe inone go, then to leave that part of the forest to recover and regenerate. By causing damage over a small area and movingfrom year to year, the impact of harvesting operations also has less of an impact at the landscape level than if less intensiveharvesting operations were repeatedly carried-out over a much larger area.

6 For example, for reasons of biodiversity or socio-economic reasons such as the production of fruit or medicines.7 See Annex 3 for a discussion of the strengths and weaknesses of each of the different ways of assessing forest charges.

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With volume-based charges, it is also possible to account for the different value of different species,by setting a higher charge for more valuable species. Area-based charges on the other hand, canaccount for differences in the profitability of forest harvesting operations due to distance frommarkets.

There is currently no area-based charge in the forest revenue system in Zambia. Discussions withforest concessionaires and MENR staff suggested that a certain amount of high grading may betaking place in the forest, so this is something that should be considered in the appraisal of theforest revenue system.

2.2.2 Revenue sharing

An important recent initiative in Zambia is the proposal in the 1999 Forest Act to introduce revenuesharing with local communities into the forest revenue system. This should have major benefits interms of encouraging local communities to protect and invest in the forest resources surroundingthem. It should also have an impact on the distribution of income within the population, but muchwill depend upon the arrangements that are eventually chosen in terms of the amount of revenuesthat will be shared and the processes that will be used to implement this policy.

Very careful attention will have to be given to the effects of revenue sharing on income distribution,to make sure that the policy has the desired effect. It must be remembered that every additionalKwacha that is raised and either given to the government or shared with the community, will be aKwacha that somebody somewhere else will have to pay, either in terms of lower income or profits(producers and traders) or higher forest product prices (consumers). Thus, increased revenuecollection, even with revenue sharing, may not necessarily lead to desirable changes from the socio-economic viewpoint.

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Figure 1 Different impacts that improved revenue collection and revenue sharing policiesmight have in the distribution of costs and benefits from charcoal production

For example, Figure 1 shows three possible outcomes of the policy. In the first, governmentrevenues are increased and are shared with communities and the cost is borne by traders. In thesecond, government revenue increases and traders’ income falls. Some revenue is shared withcommunities, but producers are paid less for their product, so the overall benefit to communitiesdoes not rise. The last scenario presents a worst case scenario. Government revenues increase,benefits to communities do not change and traders use the policy as an excuse to raise retailcharcoal prices. Therefore, traders also benefit at the expense of urban consumers.

The eventual outcome of who wins and who loses from increased revenue collection and revenuesharing will depend upon how this policy is implemented and the relative bargaining strengths andweaknesses of individual stakeholders.

2.3 Institutional aspects of forest charges

The main institutional objective of any forest revenue system is to provide the Government withrevenues, which it can then spend on its policies and programmes. However, it is also important forthe system to be within the capacity of the institution collecting the charges.

2.3.1 Revenue-collection and self-financing

In theory, from the point of view public sector financial management, there is no good reason whythe collection of government revenues and government expenditure should be linked within one

Impa

ct o

f rev

enue

shar

ing

The current situationProduction

costProducers

income

Productionfee

Transport cost

Conveyance fee

Traders income

Government and communities win, traders loseCommunity share

Government wins, communities win but producers lose, traders lose

Government and traders win, communities win but producers lose, urban consumers lose

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sector or Ministry. Revenue collection should be based on the value of the resource being taxed (orability to pay, in the case of general taxation), while government expenditure should be determinedby the net benefit from public investment projects (or need in the case of welfare payments).

Indeed, harvesting of public forest resources (a commercial activity) should cover the cost ofmonitoring and control and leave a significant amount of money left over for the government to useto promote its other policies and programmes. These could be in the forestry sector, or they couldbe in another sector. How they are spent across sectors should be determined by the democraticpolitical process. The forestry sector could be a net contributor to government finances or a netbeneficiary, depending on the commercial value of the resource and the value of non-commercialbenefits requiring investment in public policies and programmes.

However, in reality, this process appears to have failed in many countries. Often, forestryadministrations are not effective at securing general government funds to cover the cost ofimplementing forestry policies (even where they have high benefit to cost ratios). In some cases,they do not even obtain enough funds to effectively monitor and control commercial exploitation. Inother words, a lack of public financing may actually results in governments losing significantrevenues. These general failures in public finances have led to the recent trend towards theestablishment of self-financing and autonomous forestry administrations in a number of countries.

Given the intention to create a self-financing forestry administration (the Zambia ForestryCommission or ZAFCOM), it will be necessary to ensure that the level of revenues collected (net ofany revenue given back to communities) is sufficient to cover the costs of this institution. At thevery least they should cover monitoring and control costs and, in the longer term, they should coverthe cost of other public-sector forestry activities such as extension and conservation.

2.3.2 Capacity to understand and implement rules and regulations

The second institutional objective for any forest revenue system is that it can be implemented by theforestry administration. Funding is, of course, a major factor influencing implementation. However,it is also important for the forestry administration to be able to understand the system, enforce itfairly and defend it when criticised by other stakeholders. To some extent, the ability to implementrevenue collection is determined by the quality of the laws, rules and regulations supporting theseactivities.

2.4 Political aspects of forest charges

The last set of objectives for a forestry revenue system concerns the political acceptance of thesystem. Forest revenue systems often fail this test (and are, consequently, poorly implemented)when the system is not transparent or appears to favour one group over another.

2.4.1 Good governance

Good governance covers a number of issues such as: arriving at policy objectives through thedemocratic process; openness or transparency; and accountability of the forestry administration.Specifically, in terms of the forest revenue system, good governance includes the following:

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• the forest revenue system should, as already discussed, support other objectives ofgovernment policy wherever it has an effect on them;

• stakeholders should be consulted and informed about forest charges and should beconvinced that they are reasonable and fair;

• the system should not be ambiguous and the forestry administration should have thecapacity to implement the system, so that all stakeholders are treated the sameaccording to the law;

• information should regularly be made available about the performance of the forestrevenue system and the forestry administration; and

• the forestry administration should be held accountable for any failures in implementingthe system (and, of course, should be rewarded when it is implemented well).

The forestry administration in Zambia would appear to be facing challenges in some of these areas,due to a lack of capacity.

2.4.2 Equity

The other major consideration in the design of any forest charging system is the impact of thesystem on different groups within the forestry sector. A number of different stakeholders currentlyharvest or trade in forest products in Zambia, including: large and small-scale forestconcessionaires; individual commercial producers of charcoal and NWFPs; timber traders; and localcommunities. Some of these stakeholders only produce or trade in the domestic market, others areactive in both the domestic and export markets and some just use forests for the collection ofproducts for their own use.

These stakeholders all face different levels of costs and benefits for their use of the forest resource.Charging policies can be used to try to favour one group over another. However, such policies oftenlead to other problems, such as:

• the policies often do not benefit the groups that they were originally intended to benefit;and

• distortions in prices that arise from such policies may lead to inefficiency rather than tobenefits for the groups that are supposed to be supported.

As a rule therefore, a policy of equal charging for all producers is often the best policy to follow.Other explicit measures can be used to support particular groups. The one exception to this might bean exemption from charges for production for personal use. As already noted, the proposals forbenefit sharing will result in a change in the share of costs and benefits between stakeholders andthis is a probably a better way of trying to redistribute costs and benefits rather than a differentialcharging policy.

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3 THE LEGAL BASIS FOR FOREST CHARGES AND LICENSING

A very important feature of any licensing and forest revenue system is that the activities requiring alicence are clearly defined and explained in relevant laws and regulations. These regulations shouldalso specify what charges are to be paid (if any) for permission to perform these activities, specifyany penalties for non-compliance with the terms of the licence and explain how, where and towhom, any charges and penalties should be paid. Any appraisal of forest revenue system shouldstart, therefore, with an appraisal of the legal basis for licensing and revenue collection.

The new arrangements for forest charges and proposals for revenue sharing are set-out in the 1999Forests Act. The Act establishes the need for licences and lists some details of proposed licences,but it does not go into detail. The Act was entered into the Government Gazette on 8th October 1999but has not been implemented yet. Therefore, during this transitional phase, the ForestryDepartment is still using licensing and charging arrangements developed under previous Acts andStatutory Instruments.

The remainder of this section examines the laws and regulations underlying the licensing and forestrevenue system currently in place in Zambia.

3.1 Sections of the 1999 Forests Act establishing different types of forest and the needfor a licence

Part I (Section 3) of the Act states that:

“The ownership of all trees standing on, and all forest produce derived from, customaryareas, National Forests, Local Forests, State Lands and open areas is vested in thePresident on behalf of the Republic, until lawfully transferred or assigned under thisAct or any other written law.”8

Following parts of the Act, establish the need for licences on different types of land.

3.1.1 The need for a licence in National Forests and Local Forests

Parts III and IV define National Forests and Local Forests, their purpose and restrictions. Thepurpose of National Forests and Local Forests is presented in Table 1.

8 This leaves some ambiguity about the ownership and control of trees and forest products in National Parks, National

Monuments and Game Management Areas. Presumably, this is covered in other government legislation such as theWildlife Act.

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Table 1 The purpose of National Forests and Local Forests in Zambia, as defined in the 1999Forests Act

Purpose of National Forests Purpose of Local Forests• security of forest resources of national

importance;• security of forest resources;

• the conservation of ecosystems andbiological diversity;

• the protection of ecosystems,particularly the protection of land andwater supplies of local strategicimportance;

• improved forest resource managementand sustainable utilisation of forestresources; and

• improved forest resourcesmanagement and sustainableutilisation of forest resources at locallevel; and

• the management of major watercatchments and headwaters, subject toany other written law.

• meeting the social, cultural andeconomic needs of the localcommunity.

The need for a licence is established in the section of the Act describing the restrictions placed onNational Forests and Local Forests. A licence is needed to enter a National Forest. Entry to a LocalForest, without a licence, is not forbidden, but a long list of activities is forbidden without a licence.This list appears to exclude almost all activities except hunting wildlife9 and non-consumptiveactivities (e.g. walking in the forest for recreation).

The Zambia Forestry Commission (ZAFCOM) will be responsible for the management of NationalForests and Local Forests.

3.1.2 Joint Forest Management Areas

Part V of the Act states the procedures for establishing and managing a Joint Forest ManagementArea. It does not place any restrictions on Joint Forest Management Areas or establish the need forlicences in such areas. However, a Statutory Instrument (SI) will be needed to establish a JointForest Management Area so, presumably, this would cover these issues.10

Joint Forest Management Areas will be managed by a Forest Management Committee and this partof the Act gives some details about how this committee will operate.

3.1.3 State Land, Customary Land and open areas

Part VIII of the Act addresses major forest produce in State Land and Customary Areas. In somesections, it also refers to open areas. Presumably, with respect to licensing, it is actually meant to

9 Forest produce is defined in the Act (Section 1) as a list of products. With the exception of bees, the Act does not mention

any other animals found in the forest. However, the definition of minor forest produce presented later in the Act is: “non-wood forest produce which is part of a tree or found on its own in the forest”. This raises the question of whether otheranimals are supposed to be counted as minor forest produce or not. It is assumed here that they are not. Regulationsconcerning the utilisation of wildlife resources are, anyway, the responsibility of the Zambian Wildlife Authority (ZAWA).

10 An SI for Joint Forest Management Areas has already been drafted, but is not yet publicly available.

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apply to open areas as well, but this is not clear in the Act. Some of the sections of this part of theAct appear to be contradictory and ambiguous. It is assumed here that the intention of this part ofthe Act is that:

• felling and removal of major forest produce from these areas is allowed for personal usewithout a licence;11

• production of charcoal from wood taken from these areas is allowed for personal usewithout a licence;

• collection, removal and trade in minor forest produce from these areas is allowedwithout a licence;

• felling, removal and trade in major forest produce for commercial purposes from theseareas requires a licence (and the permission of the landowner); and

• commercial production of charcoal from wood taken from these areas requires a licence(and the permission of the landowner);

It is not clear whether the permission of the landowner is required in the first three cases above, butpresumably this is the case. This section of the Act is also a little confusing in that some parts onlyrefer to production, while others also refer to removal and trade.

Control and management of the licensed felling and removal of major forest products in these areaswill be the responsibility of ZAFCOM.12

3.1.4 Private land

The Act says very little about trees on private land. Discussions with Forestry Department staffrevealed that planted trees on private land would not be considered as belonging to the state (asstated in Section 3 of the Act). Presumably, therefore, production of forest products from plantedtrees in these areas does not need to be licensed and charges do not have to be paid. This leavesopen the question of how indigenous trees on private land and planted trees on other types of landshould be treated with respect to licensing and charging.

It is also unclear whether the conveyance of forest products from planted trees needs to be licensedand a charge paid, but presumably this is the case.

11 It is questionable whether cutting a timber log for personal use is allowed without a licence at all. The Act says that

removing all major forest produce for personal use is allowed from these areas without a licence. However, the StatutoryInstrument setting-out forest charges does not distinguish between commercial and personal use. Discussions with staff ofthe Forestry Department also revealed a difference of opinion – some said personal use of a timber log was recognised andallowed without a licence, some said that permission was needed but that a charge would not be paid, while others said thatcutting a timber log always needs a licence and would be charged.

12 This is what the Act says. However, other authorities (e.g. local Chiefs) currently also appear to have some say in themanagement of these areas at the moment. It seems likely that they will continue to want to have this influence in thefuture.

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3.2 Types of licences described in the 1999 Forests Act

Part IX of the Act lists five types of licences that may be issued. The types of licence listed are:

• Sawmill licence – permitting timber processing using a sawmill or any other type ofwood processing equipment for up to 5 years;

• Pitsawing licence – permitting cutting, felling and processing of timber using a pitsawfor up to 3 years;

• Concession licence – permitting operation in a specified area on condition that thelicensee holds a sawmill or pitsawing licence;

• Casual licence – permitting the collection and sale of minor forest produce from aspecified area for 2 weeks; and

• Conveyance licence – allowing the licensee to transport forest produce.

This part of the Act also gives the Minister the option to create new types of licence.

The licences listed above are roughly the same as the licences currently used in Zambia. The mainexception is the concession licence, which does not currently exist. The forest licences currently inuse combine the functions of a licence to operate a sawmill or pitsaw along with the licence toharvest an area of forest.

If the licences described in the Forest Act are supposed to be similar to those currently used, therealso appears to be a mistake in the Forest Act. Currently, a casual licence can be issued for anylength of time, but a conveyance licence only has a validity of two weeks. However, in the Act, thetwo weeks restriction is placed on casual licences, not on conveyance licences.

The remainder of this part of the Act establishes the right to charge fees for these licences and liststhe conditions attached to licences, limitations, penalties and the appeals procedure.

3.3 Other legal documents related to licences, restrictions and forest charges

Other legal documents concerning licensing, forest charges and restrictions on forest production andtrade include: SIs; licence agreements; and the 1996 Timber Export Policy (Government of Zambia,1996). The National Forestry Policy (Government of Zambia, 1998) also contains some generalpolicy statements about sustainable forest management and licensing, which are relevant to thedesign of the licensing and forest revenue system.

3.3.1 Statutory Instruments

An SI is used to revise the levels of forest charges. The current SI (Government of Zambia, 1997)covers the following forest products:

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• timber – covers trees13 felled for any purpose (charged per tree and varied by speciesgroups);

• poles and bamboo – only covers poles and bamboo for sale (pole charges are varied bybutt diameter - between 14 and 30 cm – and are charged per pole, bamboo is chargedper 20 canes);

• fuelwood – only covers fuelwood for sale and made from indigenous trees (charged bythe stacked cubic metre, cord14 or headload);

• hut materials – levied on licensed campers in the gazetted forest using temporary,semi-permanent and permanent huts (charged per hut);

• miscellaneous – covers a number of NWFPs;

• conveyance – covers timber (sawn),15 firewood and charcoal (timber and firewood arecharged by the cubic metre, charcoal by the “standard grain bag measure”);16 and

• fees for service – covers charges for siting sawmills and other production infrastructurein the forest (charged per hectare per year) – these fees are also charged for areascleared to grow crops (cultivation) or for mineral exploration in National Forests andLocal Forests.

In Statutory Instrument No 133 of 1994 (Government of Zambia, 1994) fees were set in Kwachawhile, in Statutory Instrument No 48 of 1997 (Government of Zambia, 1997), they were set in “FeeUnits”. The Fee Unit is a measure used across all Government Departments for the setting of feesand one Fee Unit is currently (January 2001) equal to K 180. The Fee Unit has not been revisedsince the charges were designated in Fee Units in 1997. The Forestry Department can not revalue aFee Unit (this would probably be done by another Department such as the Ministry of Finance).Further information about the structure and level of charges is contained in Section 4.1.

3.3.2 Existing licence documents

The two main licence documents currently in use in Zambia are the Forest Licence (CommercialSawmilling) and the Forest Licence (Pitsawing). These serve the purpose of the forest concessionlicence plus the sawmilling or pitsawing licence, proposed under the 1999 Forests Act. The other

13 The reference to “trees” in the SI is replaced in places in the current licences by the term “timber log”. The definition of a

“timber log” is stated in a forest licence. One of the specifications is that it is any part of a tree that is over 30 cm diameterat breast height (dbh). However, once a tree has been cut into logs, it would be difficult to monitor whether the dbh wasover 30 cm or not (from either the logs produced or the stump). It is suggested that this part of the definition of a timber logshould be changed to “with a butt diameter of over 30 cm” (the minimum diameter could be increased slightly to accountfor the fact that the bottom of a tree will be slightly larger than the diameter at breast height). This way of describing andenforcing a minimum cutting diameter would be comparable to what is done in most other countries.

14 One cord equals three stacked cubic metres.15 As will be discussed later, the term “timber (sawn)” is currently interpreted to include logs and cants conveyed from the

forest.16 One standard grain bag measure is equal to about 50 kg of charcoal.

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two types of licence currently in use are casual licences and conveyance licences and these are alsomentioned in the 1999 Forests Act.

Forest Licence (Commercial Sawmilling). A commercial sawmilling licence is issued for an areaof up to 10,000 ha (specified on an accompanying plan) for up to five years. The licence givespermission to enter the forest and “to fell, cut, take, work and remove timber logs within and fromthe licence area to the sawmill....”.17 The licence specifies some basic operational restrictions thatmust be followed and requires the licensee to submit a plan of operations every year. A forestconcessionaire must get permission from the Forestry Department before starting operations in anycompartment and should not re-enter a compartment once it has been harvested and officiallyclosed by the Forestry Department.

The forest concessionaire is required to mark and measure all logs taken from a compartment. Themid-length diameter of logs must be measured underbark (or converted to an underbark measure) incentimetres along with length in tenths of a metre. A list of logs felled in a month must besubmitted to the Forestry Department and all sawn timber, logs and cants must be marked by aForestry Officer before they are removed from the licence area.

A Commitment Fee of K 200,000 is charged for issuing the licence. Timber fees are charged on a“per tree” basis and the licensee has to pay for a specified number of trees every month in advance.Licensees are restricted to paying for a minimum of 200 trees per month. If they cut more than 200trees, they are billed for the additional trees in the next month. A maximum of 600 trees per monthis set and the licence says that excess trees will be charged at two times the normal fee.18 A numberof penalties are specified for non-compliance with various conditions set in the licence.

The remainder of the licence agreement sets out the arrangements for suspension, cancellation,arbitration and termination of the licence.

Forest Licence (Pitsawing). A pitsawing licence is issued for an area of up to 5,000 ha (specifiedon an accompanying plan) for up to three years. A pitsawyer has to pay for a minimum of 20 treesper month and the maximum is set at 60 trees per month.

The other terms and conditions of a pitsawing licence match those for the commercial sawmillinglicence.

Casual licence. A casual licence is currently issued for any period of time, for the production of allother forest products (i.e. anything except timber logs produced by a sawmiller or pitsawyer). Forexample, casual licences are currently being used to cover the production of poles, fuelwood,charcoal and bamboo. In the past, casual licences have been used to licence and collect charges forthe production of up to ten timber logs outside of the formal concession arrangements. However,this practice has been stopped.

17 This is only true however, if the sawmill is in the licence area. If the concessionaire wanted to take logs to a sawmill

outside of the licence area, they would also need a conveyance licence. Alternatively, current practice in some areas is tomark logs and charge the conveyance fees before logs are taken to the sawmill, even in cases where the sawmill is locatedin the licence area. In such cases, the timber (sawn) conveyance fee is charged and volume is calculated as the volume oflogs removed from the forest.

18 “Excess” means the number of trees cut over the maximum of 600 per month.

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A casual licence is, more or less, a simple receipt saying that fees have been paid for production ofthe specified product from a specified area and for a specified time period. In most cases, it does notrequire the licence holder to follow any particular forest management practices or place anyoperational conditions on their activities. In the case of charcoal production however, there is someorganisation of felling into coupes and control over what can and can not be felled.19 Charcoalproducers are supposed to move on once an area has been harvested, but this is difficult to enforce.

The 1999 Forests Act says that this licence should only be used for minor forest products and that itshould only be issued for two weeks. This is very different to current practice and, presumably, therules governing casual licences will have to be clarified.

Conveyance licence. A conveyance licence is also a relatively simple receipt saying that the licenceholder has paid the conveyance fees for forest products and is allowed to transport them over aperiod of two weeks. Products should be marked by the Forestry Department and a listing of theproducts, along with evidence that the production fee has been paid, should accompany the productswhile they are conveyed.20

The requirement to show that the production fee has been paid is not specified anywhere in the law,but this is current practice (i.e. people found without conveyance licences are charged for bothproduction and conveyance).21 Legal producers usually pay for production and conveyance at thesame time.

Other types of licence. If someone wants to collect a forest product that is not charged but,according to the law, is licensed (e.g. to collect mushrooms from a Local Forest), there is currentlyno standard procedure for issuing a licence to do this. Discussions with Forestry Department staffrevealed that they usually issue an official letter to someone if they ask for permission for thesesorts of activities.

3.3.3 The 1996 Timber Export Policy

The 1996 Timber Export Policy banned the export of peeler logs and sawlogs and restricted theexport of wood products to value-added products, which it defined as: sawnwood; sleepers; poles(only from forest plantations); and finished wood products (such as wood panels, furniture and 19 At least, this appears to be the case in Copperbelt Province. It is not known whether such rules are applied in other areas.20 Sometimes the Forestry Department goes even further than this and inspects charcoal sellers in the market. They ask to see

evidence that production fees and conveyance fees have been paid for products being sold in the market. If the evidence isnot produced, they charge sellers the production, conveyance and penalty fees based on whatever they find.

21 There are currently no clear guidelines about how the production fee should be calculated in such circumstances. This canlead to significant differences in the way that charges are calculated. For example, during interviews with sawmillers, oneof them complained that if he is stopped with unmarked cants on one of his trucks, the Forestry Department now works outthe production fee assuming one tree is cut for every two cants transported. Previously they had been using a ratio of one tothree.

During later discussions with Forestry Department staff, it was revealed that they sometimes make even greaterassumptions about non-payment of production fees. It was said that, if the Forestry Department is making a concertedeffort to collect charges, then if they find someone selling charcoal at the roadside with two bags of charcoal and nolicence, they will assume that this person probably made ten bags for sale and will charge them the production fee,conveyance fee and penalties on the basis of ten bags.

This sort of ad-hoc lawmaking may serve as punishment for not complying with the licensing requirements, but thesepunishments go far beyond the penalties that are already stated in the law. This could be avoided if the production andconveyance fees were all rolled into one fee and a simpler way of identifying illegal production was used.

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doors). The export of charcoal was also explicitly banned (although the policy does not sayanything about the export of firewood). The Policy also introduced a system of quotas and a chargeon the export of wood products.

The export quota was set at 75% of production in 1996 and should have been reduced to 20% by2001. This means that, in the current year (2001), no licence holder should be allowed to exportproducts accounting for more than 20% of the total annual production of their concession. If atimber merchant is exporting the wood, they have to get a certificate from the forest concessionairethat supplied the wood to say that this condition has been met.

The exporter has to declare the total value of the exported wood products and the charge paid to theGovernment is calculated as a percentage of that value. This charge was initially set at 6% in 1996,with the intention to raise it to 10% by 1999. The charge is supposed to be paid into a RegenerationFund, but the Forestry Department’s Annual Report makes no mention of this (Government ofZambia, 2000).

The remainder of the document contains a number of forms that have to be completed by thefollowing: the wood producer; the exporter; the Provincial Forest Officer; the Forestry Department;the Zambia Bureau of Standards; and the Zambia Revenue Authority.

3.3.4 National Forestry Policy

Three sections of the National Forestry Policy (Government of Zambia, 1998) are most relevant tothe discussion of licensing and the forest revenue system: the section on sustainable forestmanagement; the section on licences; and the section on export of forest products.

Two parts of the section on sustainable forest management refer to: “encouraging forest ownershipby individuals” (p20) and “facilitating private sector participation in plantation forestry” (p21). Forthese strategies to be implemented, the licensing and forest revenue system may have to adapt torecognise more types of privately owned forest resources (see Section 3.1.4). This section alsohighlights the importance of having good information about forest management and utilisation.Because most of this information will probably come from the licensing system, a strongermonitoring and reporting system for forest revenues and licences will help to achieve this aim.

The section on licences (pp 29-31) list a number of shortcomings of the present system that willprobably be repeated in this appraisal. An important strategy raised in this section is the need todevelop guidelines for the issuance of licences. This will help to raise transparency and improveadministration and a later section of this report will make some suggestions in this area (seeSection 5.1.1 and Annex 5).

The section on export of forest products (pp 31-32) presents as a strategy: “encouraging the exportof value-added forest and non-wood forest products”. A charge on the export of forest products is arelatively easy and lucrative way to raise revenues, which is used in many countries. However,export charges discourage the export of products. Thus, the question of whether to continue usingan export charge should be considered very carefully in the design of the licensing and forestrevenue system.

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3.4 Appraisal of the legal basis for licensing and forest charges

The documents reviewed above reveal a number of ambiguities and inconsistencies with respect tolicensing and forest charges. The 1999 Forest Act is not consistent in some places and contradictssome clauses in current licence agreements and SIs. It also seems to contain some major differencesto current practices. Therefore, the exact way in which the new licensing and revenue system willbe implemented should be more clearly spelled-out in supplementary guidelines and regulations.These should be reviewed in consultation with all stakeholders and should be made available to thepublic when they are finalised.

A few observations on the current situation are given below.

3.4.1 How clear are the statements on licensing and charges?

The first problem with the existing system is that it is necessary to read several different documentsto get an idea of exactly what is expected in any particular circumstance. For example, anyonewanting to produce or transport a forest product has to ask three questions:

• Do I need a licence (and if so, how do I get one)?

• What can I or can’t I do when I have my licence?

• How much do I have to pay?

The first question is partly answered by the Forests Act. However, even this contains gaps (e.g. theexact rules governing planted trees) and it does not explain how to get a licence. The secondquestion is answered fairly well in the two main types of licence (sawmilling and pitsawing) but notin the casual licence.22 In addition, even the sawmilling and pitsawing licences refer to otherdocuments, such as felling regulations, so the licensee has to get hold of these as well if they wantto get a complete picture of what is expected of them. The third question is answered by the SI oncharges.

It would be very helpful to put all of this information together in a set of clearly written and easy tounderstand packages (e.g. one for commercial, sawmillers, one for pitsawyers, one for commercialcharcoal producers etc.). This should help both licensees and Forestry Department staff.

The second problem with the current legal documents is that it is confusing when they say differentthings about the same activity. For example, the Forest Act says that a sawmill licence grantspermission to “process timber using a sawmill” while a pitsawing licence allows the holder to “cut,fell or process timber or to remove or sell such timber”. It is unclear whether the difference inwording actually means something because the two licence agreements currently used are wordedalmost exactly the same.23

22 Discussions with Forestry Department staff revealed that they do, in some cases, provide verbal guidance when they issue

casual licences and the Forestry Department has started to formalise rules and regulations for commercial charcoalproduction. However, there is considerable room for improvement in the way that production outside the formal concessionsystem is controlled.

23 For example, it seems that some pitsawyers are currently using their licences to cut cants, which they then sell on tocommercial sawmillers for resawing into sawnwood. This seems reasonable, but it is not really pitsawing. If this is

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There also appear to be a few mistakes in some of the documents. For example, the CommitmentFee referred to in Clause 1 of the sawmilling and pitsawing licence agreement is then referred to asa Deposit Fee in Clause 6c.

The third problem is that the Forestry Department has developed a number of operational guidelinesor working practices that are not clearly set-out and made publicly available. The legal basis forlicensing and charging would be much stronger if these practices were formalised and set-out inpublicly available guidelines (for example, in the packages suggested above).

One final major challenge concerns the overall complexity of all of the different circumstances,which the various legal documents recognise. Currently, the licensing and charging system seems totry to distinguish between the following:

• five different types of land ownership (National Forests; Local Forests; Joint ForestManagement Areas; state/customary/open areas; and private land);

• two different types of use (personal use and commercial use);

• many different types of product (8 wood products – logs, poles, fuelwood and charcoal,each of these from indigenous or planted trees; several minor forest products; andservices such as site fees); and

• two different activities (production and conveyance).

There are many different combinations of these factors, but there are currently only four differenttypes of licence that try to cope with every eventuality. It would be very useful to clarify exactlywhat type of licence is needed in each different circumstance and to formulate clear rules andguidelines as to how each situation should be dealt with.

3.4.2 How well do the legal requirements support sustainable forest management?

Generally, the rules and regulations incorporated into the current licence agreements are broadlysupportive of sustainable forest management. The requirements to produce plans and to organiseforest harvesting into felling compartments should provide a very basic level of control over areasbeing harvested. However, whether these requirements will result in sustainable forest managementwill depend upon a number of factors, including:

• the general level of information available about sustainable forest management inZambia (in particular, the growth and yield of commercial timber species and,consequently, the appropriate silvicultural system, annual allowable cut, harvestingintensity and cutting cycle that should be used);

• the quality of plans that are submitted and the knowledge of forest officers approvingor amending such plans; and

allowed, it then becomes debatable whether this could be extended to include the production of logs for sale. Clearerguidelines as to what licence holders may produce for sale would help in this matter.

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• the degree to which the requirements specified in the licence agreements are actuallyimplemented and enforced.

There are probably gaps in knowledge and capacity in all three of the above areas. For example, thecurrent licensing arrangements say nothing about the size of the area that should be cut in a yearcompared with the total area of the forest concession (i.e. implicitly, the cutting cycle that is beingaimed for in forest concessions).

Outside commercial sawmilling and pitsawing concessions, the current arrangements appear toprovide very little control or support to sustainable forest management. For example, in most cases,casual licences are very simply receipts to say that the holder has paid for some forest products.They do not usually place any conditions on where or how the licence holder should operate.

The charging policy also does not support sustainable forest management. In particular, theemphasis on only charging per tree encourages high grading and does not encourage themaximisation of production per hectare. These issues will be discussed in Sections 4.2 and 4.3.

3.4.3 How well do the legal arrangements comply with forestry policy?

Distinctions between different types of forest. The purpose of National Forests and Local Forestsare supposed to be slightly different. In particular, Local Forests are supposed to “meet the social,cultural and economic needs of the local community” (see Table 1). However, in terms of the needfor a licence to cut and remove forest products and the charges that will be paid, they are treated thesame (see Table 2).24

It would probably be quite complicated and difficult to try to introduce different licensing andcharging arrangements for National Forests and Local Forests. In addition, the 1999 Forests Actalso makes one important distinction between the two and this is that a Local Forest can beconverted into a Joint Forest Management Area, while a National Forest can not. Thus, LocalForests can be viewed as areas that might come under Joint Forest Management at some time in thefuture. This seems sufficient to meet the overall objective of the policy stated in the Act, which willbe fulfilled when these changes have taken place.

A second important factor that the licensing and the forest revenue system should take into account,is the difference between natural forest, forest plantations and planted trees. The National ForestryPolicy includes, as an objective, the promotion of forest plantation investment. Later, it says that“facilitating private sector participation in plantation forestry” will be a strategy to meet thisobjective. Currently, however, the Government claims ownership of all trees in Zambia (Section 3of the 1999 Forests Act). 25 The only explicit reference to plantations occurs in the SI on forest

24 Discussions with Forestry Department staff suggested that they do view these areas quite differently in terms of how they

should be used. However, the stated difference in the purpose of these two types of forest does not seem to be translatedinto differences in the licensing or revenue system.

25 Again, this analysis is based on a reading of the various legal documents. Discussions with Forestry Department staffrevealed that current practices are more supportive of the development of private forest management and ownership, butthis is not made clear in Acts, licences and SIs. A better explanation of how private-sector forest planting and managementis regulated might help to clarify this situation and stimulate private-sector involvement in forest development.

23

charges, which differentiates between indigenous trees and other trees with respect to charging forfuelwood and charcoal production.26

26 With respect to charges, discussions revealed that production from private-sector plantations is not charged by the

Government (although conveyance would be charged) and producers are free to set any price that they want to and selltimber any way they want to. It remains unclear however, whether charges would be levied for forest products made fromindigenous trees on private land or planted trees on any other type of land. Even if it was possible to make distinctions inthe law, these might be difficult to enforce in practice.

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Table 2 Differentiation under the law between licences and charges for different forest types,types of product and types of use(r)

Type of user andtype of product

National Forest Local Forest State Lands, CustomaryAreas and Open Areas

For personal use:Major forest products Industrial roundwood 1999 Act: says you need a

licence to enter a NationalForest.

Type of licence: there is nolicence for personal use. Anofficial letter might be used.Charges: there should not be acharge, but the charges listedin 1997 SI do not differentiatebetween commercial andpersonal use except for poles.

1999 Act: says you need alicence to take any forestproduct from a Local Forest.

Type of licence: there is nolicence for personal use. Anofficial letter might be used.Charges: there should not be acharge, but the charges listedin 1997 SI do not differentiatebetween commercial andpersonal use except for poles.

1999 Act: says you do notneed a licence to take majorforest products for personaluse in these areas.Type of licence: not needed.

Charges: there should not be acharge, but the charges listedin 1997 SI do not differentiatebetween commercial andpersonal use except for poles.

Fuelwood and charcoal 1999 Act: says you need alicence to enter a NationalForest.

Type of licence: a casuallicence is currently used.Charges: none – 1997 SI onlylists charges for fuelwood andcharcoal for sale.

1999 Act: says you need alicence to take any forestproduct from a Local Forest.

Type of licence: a casuallicence is currently used.Charges: none – 1997 SI onlylists charges for fuelwood andcharcoal for sale.

1999 Act: says you do notneed a licence to take majorforest products and/or makecharcoal for personal use inthese areas.Type of licence: not needed.

Charges: none – 1997 SI onlylists charges for fuelwood andcharcoal for sale.

Minor forest products 1999 Act: says you need alicence to enter a NationalForest.Type of licence: casuallicence can not be usedbecause there is no charge. Anofficial letter might be used.Charges: 1997 SI lists sixNWFPs, all of which are free.

1999 Act: says you need alicence to take any forestproduct from a Local Forest.Type of licence: casuallicence can not be usedbecause there is no charge. Anofficial letter might be used.Charges: 1997 SI lists sixNWFPs, all of which are free.

1999 Act: does not mentionthe collection of minor forestproducts from these areas.Type of licence: not needed.

Charges: 1997 SI lists sixNWFPs, all of which are free.

For commercial use:Major forest products Industrial roundwood 1999 Act: says you need a

licence to enter a NationalForest.

Type of licence: forestconcession plus sawmill orpitsawing licence.Charges: listed in 1997 SI.

1999 Act: says you need alicence to take any forestproduct from a Local Forest.

Type of licence: forestconcession plus sawmill orpitsawing licence.Charges: listed in 1997 SI.

1999 Act: says you need alicence to take major forestproducts (except for personaluse) in these areas.Type of licence: forestconcession plus sawmill orpitsawing licence.Charges: listed in 1997 SI.

Fuelwood and charcoal 1999 Act: says you need alicence to enter a NationalForest.

Type of licence: a casuallicence is currently used.Charges: listed in 1997 SI.

1999 Act: says you need alicence to take any forestproduct from a Local Forest.

Type of licence: a casuallicence is currently used.Charges: listed in 1997 SI.

1999 Act: says you need alicence to take major forestproducts (except for personaluse) in these areas.Type of licence: a casuallicence is currently used.Charges: listed in 1997 SI.

Minor forest products 1999 Act: says you need alicence to enter a NationalForest.Type of licence: casuallicence for bamboo, but thiscan’t be used for the others.Charges: 1997 SI lists thecharge for bamboo, the othersare free.

1999 Act: says you need alicence to take any forestproduct from a Local Forest.Type of licence: casuallicence for bamboo, but thiscan’t be used for the others.Charges: 1997 SI lists thecharge for bamboo, the othersare free.

1999 Act: does not mentionthe collection of minor forestproducts from these areas.Type of licence: not needed.

Charges: 1997 SI lists thecharge for bamboo, the othersare free.

Note: the sections that are underlined are areas where changes might need to be made to the licensing system to avoid inconsistencyor to comply with the 1999 Forest Act.

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Distinctions between different types of user. Currently, there is no clear statement on the policytowards the use of forest products for personal use (as opposed to commercial use). Harvesting offorest products for personal use is allowed without a licence outside National Forests and LocalForests but, even in these areas, the harvesting of timber logs for personal use might be charged (seefootnote 11 on page 14).

In National Forests and Local Forests, there is no distinction between personal use and commercialuse in the 1999 Forests Act, but the SI on charges refers to “poles and bamboo for sale” and“fuelwood from indigenous trees for sale”, so it appears that a distinction is introduced in the SI forthese products (but not for timber logs). With the exception of bamboo, harvesting of minor forestproducts is not charged, irrespectively of whether they are harvested for sale or for personal use. Alicence is needed to collect these products in National Forests and Local Forests and this licenceshould be free. However, it was pointed-out that a casual licence could not be issued because nomoney would be paid in this case. Current practice seems to be to issue an official letter if someoneasks permission to collect these products for personal use.

Guidance as to what might be considered “personal use” is not clearly spelled-out, leaving thisopen to interpretation by forest officers. Guidance on this and clarification of what sort of licencemight be required for personal use could be developed.

Commercial production of NWFPs does not currently appear to be charged (except in the case ofbamboo). From a socio-economic viewpoint, this is probably a good idea, although there may bethe potential to raise some revenues from such activities. However, revenue collection fromcommercial production of NWFPs is likely to be only very small. Therefore, if the ForestryDepartment does want to consider introducing charges for this, a very low cost method of chargingshould be found.

3.4.4 Other difficulties in interpreting the legislation

There are a number of other difficulties in interpreting the legislation that are presumably overcomeat the moment by forest officers using their discretion. These are as follows:

• Production and conveyance fees. From the point of view of collecting revenues, theuse of both production and conveyance fees is a complication that might lead to someproblems. It seems that, currently, all major forest products should pay a conveyancefee, but the production fee only has to be paid under certain circumstances. Thus, whena truck is stopped with unmarked timber, the current practice of charging for bothconveyance and production may be questionable. Legal producers tend to pay both ofthese charges at the same time, so this potential problem could be avoided if there wasonly one charge for production and conveyance.

• Logs, cants and sawnwood. Much of the legislation refers to “timber logs” or, moresimply, “timber”. The assumption underlying much of the legislation is that trees arefelled and processed into sawnwood in the forest. This is not always the case. Therefore,for the purposes of charging, a clearer statement of how charges will be calculated foreach of these products might be helpful, along with a definition of what is a log, what isa cant and what is sawnwood.

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For example, with respect to the export regulations, only the export of sawnwood issupposed to be allowed, but exporters may be exporting cants.27 This is probably not theoriginal intent of the regulations. Furthermore, the current forest concession licencesallow the concessionaire to transport timber logs to a sawmill. If the sawmill is not inthe forest, should the concessionaire pay a conveyance fee and, if so, how much? The1997 SI refers to “timber (sawn)”, which is not much help if the sawmiller istransporting logs to a sawmill outside the forest.28

• Licensing the production of poles, firewood and charcoal. The 1999 Forests Act saysthat casual licences can only be issued for minor forest products. According to thedefinitions at the front of the Act, this would exclude fuelwood, charcoal and poles(whether they are for personal use or commercial use). However, the other types offorest concession licences currently in use would not seem to cover these products(except, perhaps, as by products from the production of timber logs). Thus, there is aneed for greater clarity about how and where these products can be produced, howproduction will be licensed, controlled and monitored and how much the charges willbe. This is, perhaps, the greatest uncertainty with respect to licensing under the 1999Forests Act and it could be overcome by designing some sort of license for theproduction of these forest products.

These uncertainties are probably tolerated at the moment because the overall level of charges isvery low. If, however, forest charges are raised to more reasonable levels, the rules governing whatthe producer does and does not have to pay for will probably have to be made clearer.

In terms of gaps in the legislation, the following have been noted:

• The discontinuity between small and large-scale production. A Forest Licence(Pitsawing) allows the concessionaire to cut 20-60 trees per month, while a ForestLicence (Commercial Sawmilling) allows the concessionaire to cut 200-600 trees permonth. This seems to rule-out medium sized operators who might want to produce 60-200 trees per month.

• Small pitsawyers. Many holders of a Forest Licence (Pitsawing) seem to use this toproduce cants, which they then sell on to commercial sawmillers. However, some ofthem are genuine pitsawyers (i.e. they produce sawnwood using a pitsaw) and they havesaid that they can not convert this many trees into a finished sawnwood product in amonth. It may be desirable to think about developing a licensing arrangement for verysmall producers of sawnwood either using a pitsaw or chainsaw.

• Other forest products. As already noted above, there is currently no process forlicensing and charging commercial harvesting of NWFPs. It has been suggested that thecommercial production of mushrooms might be considered in the future, in which casesome sort of licensing arrangement would have to be developed. This might also

27 One sawmiller interviewed said that he exported cants to South Africa. Discussions with Forestry Department staff

suggested that they would consider this illegal, but it might be difficult to enforce this if it was put to the test.28 As already noted, some concessionaires do convey roundwood or cants and current practice is to charge them the rate for

timber (sawn).

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become important if bioprospecting and ecotourism are developed on a commercialscale.29

It is believed that licences for some of these situations are already being considered by the ForestryDepartment.

3.4.5 More general comments about the current legal arrangements for licensing andcharging

It is currently unclear how far, under Joint Forest Management, local communities will be involvedin the management and supervision of their forests. Three levels of involvement might be describedas follows:

• Minimum level. Communities are involved in the development of a management planfor their forests and participate in some activities (e.g. by informing ZAFCOM staff ifthere are problems with control or evasion of charges) but the conditions of licenses arestandardised and communities have very few real powers over what goes on in theirforests.

• Medium level. Communities develop the plan and are involved in developing localguidelines governing harvesting that could differ from those specified at the nationallevel, but they still do not have any real powers of enforcement.

• High level. Same as the medium level, but communities are given legal power tocontrol activities and to collect charges either for themselves or on behalf of theGovernment.

Anything above the minimum level described above would presumably require quite detailedguidelines to be developed for the implementation of Joint Forest Management Agreements. At avery high level of decentralisation of control, it may be necessary to develop a mechanism wherebymembers of the community can be given some legal power of control over their forests. Thedesignation of “Honorary Forest Officer” described in the 1999 Forests Act might be a usefulinstrument for such a purpose.

Perhaps one indication of the clarity of the current laws and regulations governing forestmanagement and harvesting is the success rate of the Forest Department in prosecuting offenders.The majority of individuals found committing Forest Offences are either fined or cautioned andreleased. However, 124 cases were sent to court in 1999 (Government of Zambia, 2000). Of thecases tried (77), two-thirds of the defendants (49) were acquitted. Such a low rate of success atprosecuting offenders might suggest that the laws governing forests are not very strong or, at least,are poorly understood.30

29 The current SI on forest charges does refer to the collection of materials for making huts, but it is unclear what type of

licence would be used to cover ecotourism activities. In addition, just simply collecting a fee for the collection of hutmaterials seems to be rather limited.

30 Discussions with Forestry Department staff also revealed that the police are sometimes reluctant to get involved in a caseof illegal production or conveyance, because they are uncertain of the law.

28

One final point to note is that some of the licensing requirements appear to be anti-competitive. Forexample, current licensing arrangements (and those presented in the 1999 Forests Act) appear to tiethe issuance of a forest concession licence to the ownership of a sawmill or pitsaw. This establishesa barrier to entry that will reduce competition by preventing smaller operators from entering thesector. The procedures for exporting timber also seem to be very restrictive and extremelybureaucratic. They may have helped to prevent the export of unprocessed products but, in theprocess, they have probably also reduced the chances for the development of a profitable forestproducts export industry.31 These issues will be discussed further in Section 4.

31 For example, according to the rules and regulations, every single wooden product exported from Zambia should pay the

export charge and should be accompanied by a certificate showing that the wood it contains has been produced within thequota allowed for each concessionaire. Thus, for a piece of furniture for example, an exporter would have to try to track thesource of the wood through the furniture manufacturer and the sawmill back to the concession holder. If anything, the rulesand regulations probably deter most manufacturers from exporting (with the exception, perhaps, of sawmillers, who standthe best chance of producing the correct documentation). Alternatively, of course, the exporter could just find a forestconcessionaire who is prepared to fill-in the form anyway (in which case the quota requirement is a waste of time).

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4 THE CURRENT STRUCTURE OF LICENSES AND THESTRUCTURE AND LEVEL OF FOREST CHARGES

This section describes the current structure and level of forest charges in Zambia and the totalamount of revenues collected from forest charges. It then assesses the structure of the currentlicensing arrangements (already described in Section 3.3.2) and the structure and level of forestcharges. The current arrangements are assessed in terms of the principles set-out in Section 2.

4.1 Structure and amount of charges

The structure and amount of official charges levied on forest product production in Zambia are set-out in SIs and licence agreements. These are periodically revised by the Forestry Department. Inaddition to these, there are also a number of other charges levied in the sector.

4.1.1 Official charges specified in Statutory Instruments and other legal documents

The first charge that a forest concessionaire has to pay is the Commitment Fee. Although the titlewould suggest that this is a fee for acquiring the concession or the licence, the licence says that theCommitment Fee has to be paid “within thirty (30) days of the new calendar year of operation”(Clause 6c) and it is later referred to as a Deposit Fee.32 The licence also says that the fee will bebased on “average annual production capacity” (Clause 6c) but it seems to be set at K 200,000(Clause 1h) irrespectively of the size of the concession or level of production.

With the exception of the export charge (already described in Section 3.3.3), all other officialcharges to the central government are set out in the charging schedules that are issued as SIs.

Table 3 Charges for cutting timber logs in Zambia (charges per tree)Charges in 1994 Charges set in 1997SpeciesIn K

(1994)In US$(1994)

In FeeUnits

In K(2001)

In US$(2001)

Baikiaea plurijuga (Mukusi, Mikeshi, Zambia Teak) 10,000 10.00 100 18,000 4.50Pterocarpus angolensis (Mukwa, Mulombwa, Mulombe, Mukula) 10,000 10.00 100 18,000 4.50Faurea Saligna (Saninga, Mushokoso) 8,800 8.80 88 15,840 3.96Entandrophragma spp (Mofu, Mofwe, Mupumena) 8,000 8.00 80 14,400 3.60Danniella alsteeniana (Mukulabushiku) 8,000 8.00 80 14,400 3.60Erythrophleum africanum (Kaimbi, Mukosa, Mubako) 5,800 5.80 68 12,240 3.06Afzelia quanzensis (Mupapa, Mwande) 6,000 6.00 60 10,800 2.70Guibourtia coleasperma (Muzauli, Mushibi) 6,000 6.00 60 10,800 2.70Khaya nyasica (Mululu, Mbewa) 6,000 6.00 60 10,800 2.70Mitragyna stipulosa (Mupa) 6,000 6.00 60 10,800 2.70Pericopsis angolensis (Mubanga) 8,000 8.00 60 10,800 2.70Albizia spp (Musase, Mutanga) 5,000 5.00 50 9,000 2.25Other species 4,000 4.00 40 7,200 1.80

Sources: Government of Zambia (1994 and 1997).

32 This wording is a little confusing and might mislead licensees into thinking it is payable every year, when they submit their

plan of operations. However, discussions with staff in the Copperbelt Provincial Office revealed that the Commitment Feeis only collected once at the start of a licence.

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Once a concessionaire has acquired a forest concession, they then have to pay every month a fee foreach tree that they plan to cut. These fees have to be paid in advance. The fees currently charged pertree are shown in Table 3 along with the fees set in 1994 (for comparison). As the table shows, thefees have increased by only 80% since 1994. This compares with an inflation rate of just under200% for the period as a whole. Thus, in real terms, stumpage charges have gone down by about55% after adjusting for inflation. In US$ terms, stumpage rates have also fallen by over 50% (andby even more, if inflation is taken into account).

According to discussions with Forestry Department staff and sawmillers, many concessionairesroutinely declare and pay for the minimum number of trees (i.e. 200 in a sawmilling concession or20 in a pitsawing concession). The concessionaire has to mark, measure and record all trees andtimber logs taken in the month and supply this information to the Forestry Department within 15days of the following month. They are then billed in the following month for any trees taken abovethe number originally declared. The upper limit on production is 600 trees per month and, if theconcessionaire fells more trees than this, the excess trees are charged at twice the normal rate.

Once the concessionaire is ready to move their product from the forest, they then have to pay theconveyance fees shown in Table 4. The assumption implicit in this list of charges is that theconcessionaire will convert the round logs into sawn timber in the forest and only convey a sawnproduct. However, this is becoming less common and the conveyance charge for “timber (sawn)” isnow widely interpreted to include conveyance of roundwood and cants.

Table 4 Conveyance charges in ZambiaCharges in 1994 Charges set in 1997Product Unit of measurementIn K

(1994)In US$(1994)

In FeeUnits

In K(2001)

In US$(2001)

Timber (sawn) cubic metre 1,500 1.50 15 2,700 0.68Firewood cubic metre 1,000 1.00 10 1,800 0.45Charcoal standard grain bag measure 200 0.20 2 360 0.09

Sources: Government of Zambia (1994 and 1997). Note: the SI does not specify whether firewood is to be measured in terms ofstacked volume or true volume.

For the production of other forest products, the fees shown in Table 5 should be paid. Theproduction of these products is currently covered by issuing casual licences and the exact processfor issuing such licences, monitoring production and collecting fees is not clearly set-out inlegislation.

Currently, it appears that some of these charges are levied in an ad-hoc manner depending uponwhether producers ask for licences and whether Forest Officers discover people producing theseproducts without a licence. Some provinces appear to take a more systematic approach tomonitoring production outside forest concessions and this may be reflected in greater success atawarding licences and collecting revenues.

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Table 5 Charges for other forest products in ZambiaCharges in 1994 Charges set in 1997Product Unit of measurementIn K

(1994)In US$(1994)

In FeeUnits

In K(2001)

In US$(2001)

Poles for sale <14 cm butt diameter per pole 100 0.10 1 180 0.05Poles for sale 15-19 cm butt diameter per pole 200 0.20 2 360 0.09Poles for sale 20-24 cm butt diameter per pole 300 0.30 3 540 0.14Poles for sale 25-30 cm butt diameter per pole 500 0.50 5 900 0.23Bamboo for sale per 20 canes 500 0.50 5 900 0.23Fuelwood from indigenous trees for sale stacked cubic metre 1,000 1.00 10 1,800 0.45Fuelwood from indigenous trees for sale cord 3,000 3.00 30 5,400 1.35Fuelwood from indigenous trees for sale headload 200 0.20 2 360 0.09Charcoal cord 3,000 3.00 30 5,400 1.35Hut materials for temporary hut per hut 1,000 1.00 10 1,800 0.45Hut materials for semi-permanent huts per hut 1,500 1.50 15 2,700 0.68Barkrope per bundle 100 0.10 1 180 0.05Topsoil per ton 1,000 1.00 10 1,800 0.45Caterpillars, Masuku, Diospyros,Parinari fruit, Pyprus, Palm leaves free free free free freeSites for sawmills in National Forestsand Local Forests per hectare per year 10,000 10.00 100 18,000 4.50Timber depots, logging camps and otherinstallations and depots per hectare per year 10,000 10.00 100 18,000 4.50

Sources: Government of Zambia (1994 and 1997). Note: presumably the measurement for charcoal in the charging schedule meansthe amount of wood used to make charcoal.

4.1.2 Charges collected by local authorities

In addition to the charges collected by central Government, some local (district) councils also raiserevenues through charges on exports of products from their areas. These charges are set by the localcouncils, but have to be approved by central Government. Currently, some districts in bothCopperbelt and Central provinces charge charcoal producers for taking charcoal from their districts.These charges can vary a lot between districts and figures quoted during interviews ranged fromK 300 to K 1,000 per bag. Charges are collected at roadblocks along major roads.

4.1.3 Informal charges

During discussions with Forestry Department staff and sawmillers, it was revealed that a number ofinformal charges are also currently being levied in the sector.

In some areas, local Chiefs are asking for payment from sawmillers for permission to harvest forestproducts. Some Chiefs ask for a monthly payment (one figure quoted was K 300,000 per monthplus various other free goods, such as cement and building materials). Others ask for a fee pertruckload (K 100 – K 500 per truckload, depending on the amount being conveyed). These fees arequestionable in terms of their legality, but it seems likely that such practices will continue unlessJoint Forest Management Agreements bring these sorts of payments out into the open.33 Certainly,

33 Also, such practices are quite common in other countries where traditional leaders have some sort of control over natural

resources under traditional laws. A reluctance to bring these sorts of arrangements out into the open will present a majorchallenge to the development of benefit sharing.

32

from the point of view of good governance, it would be desirable to have such arrangementsformalised gradually, but this may be difficult to achieve.

It was also noted that concessionaires sometimes have to pay allowances to cover the costs ofinspections by Forestry Department staff. These sorts of arrangements compromise the ability ofForestry Department staff to independently monitor and control forest concessionaires, but areinevitable where a lack of resources prevent staff from doing any sort of monitoring at all withoutsuch assistance. When the self-financing ZAFCOM has sufficient resources to perform its legallymandated control and monitoring activities, such arrangements should cease and staff foundaccepting additional payments should be disciplined.

Table 6 Forestry Department revenue from all sources in 1999Total amount of revenue collected in 1999Product

In K million In US$ ‘000 In %Commitment fees 5.4 1.4 0.3Trees 501.7 125.4 31.8Conveyance fees 25.8 6.5 1.6Poles 14.0 3.5 0.9Bamboo 3.8 1.0 0.2Fuelwood 4.1 1.0 0.3Cord wood 89.7 22.4 5.7Charcoal cords 4.4 1.1 0.3Charcoal bags (?) 225.3 56.3 14.3Hut materials 0.1 0.0 0.0Fibre bundles (barkrope?) 0.3 0.1 0.0Top soil 13.0 3.3 0.8Site fees 1.2 0.3 0.1Timber export 11.1 2.8 0.7Confiscated items 12.8 3.2 0.8Penalty fees 56.9 14.2 3.6Total – charges and penalties 969.6 242.4 61.4Baskets 13.8 3.5 0.9Cultivation fees 0.1 0.0 0.0Grazing fees 0.1 0.0 0.0House rentals 1.4 0.4 0.1Plantation poles 46.9 11.7 3.0Plantation logs 19.5 4.9 1.2Reed mats 3.2 0.8 0.2Sawing charges 8.5 2.1 0.5Sawn timber - indigenous 164.9 41.2 10.4Sawn timber - plantations 234.8 58.7 14.9Seedlings and seeds 22.2 5.6 1.4Landscaping 11.8 3.0 0.7Comb honey 1.0 0.3 0.1Thatching grass 0.8 0.2 0.1Willows + others 79.8 20.0 5.1Total – other activities 608.8 152.2 38.6Total – all sources 1,578.4 394.6 100.0

Source: Government of Zambia (2000).

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4.1.4 Total collection of charges

The total amount of revenue collected by Forestry Department in 1999 is shown in Table 6. As thetable shows, the charges described above (plus penalties) account for about 60% of total revenues.The remaining 40% of revenues come from sales from plantations and associated sawmills (localplantations, not the parastatal company ZAFFICO), plus a number of other miscellaneous chargesand sales of produce.

4.2 Appraisal of the existing licensing system

4.2.1 Forest licences and economic efficiency

The two licences that probably have the most impact on economic efficiency are the Forest Licence(Commercial Sawmilling) and the Forest Licence (Pitsawing). The way that these licences arecurrently structured reduces efficiency in the industrial forestry sector in two ways.

Firstly, as has already been noted, these licences are only awarded to companies or individuals thathave sawmilling or pitsawing capacity. This reduces competition in roundwood productionactivities and prevents the development of independent logging operations. Independent loggerscan, if properly monitored and controlled, increase competition in the sector and assist with thedevelopment of a domestic market for roundwood.

If a market for roundwood was developed, sawmillers who want to specialise in the production ofcertain species, types or grades of forest products could obtain them from a variety of sources ratherthan having to rely primarily on their forest concessions for roundwood. Increased liquidity in thedomestic log market would also help sawmillers to meet short-term demands by using the logmarket without having to alter production in their forest concessions.

Independent logging also offers opportunities for small and medium sized enterprises to enter theforestry sector without having to make the substantial investment in sawmilling equipment. Tosome extent this may already be happening in the pitsawing sector, but a more flexible licensingsystem would formalise this and make it easier for roundwood producers to develop.

The second way in which economic efficiency is reduced is that the current licensing systemreduces the options open to producers in terms of how much they want to produce and the productsthat they want to produce. Again, this inflexibility reduces competition and the development of aflexible domestic market for roundwood and forest products.

The structure of the current licensing arrangement effectively limits production to two scales: 200trees per month from a 10,000 ha concession or 20 trees per month from a 5,000 ha concession. Amore flexible licensing arrangement that allowed producers to obtain a forest concession of a sizeand production level which suited them would give producers more options and increasecompetition and efficiency.

A second concern is that the current licensing arrangements implicitly try to force producers toconvert logs into sawn products in the forest. It may be more efficient to transport logs to urbanareas and process them there, where they are closer to markets and production costs will be lower.

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Of course, this is not necessarily the case, but allowing sawmillers to produce their final productwherever they want to would at least give them the opportunity to do so if they wanted to.

4.2.2 The administrative efficiency of the forest licensing arrangements

The current arrangements for monitoring and controlling production in forest concessions are quiteexpensive to operate. Activities that should be performed under the current licensing system are asfollows:

• measuring all logs produced from the forest – the licence says that the forestconcessionaire should record all trees cut in a month and measure the log volumesproduced from these trees;

• monitoring and marking the number of trees cut – the Forestry Department shouldthen find and mark all stumps cut in order to check on the concessionaires reportednumber of trees cut;

• measuring the production of sawnwood removed from the forest – for the purposeof calculating the conveyance fee, the forest concessionaire should measure the volumeof sawnwood that they want to take from the forest and report this to the ForestryDepartment;

• checking the measurement of production – before awarding the conveyance licence,the Forestry Department should then check the measurement of sawnwood that will beremoved from the forest and stamp it with an official mark; and

• spot checks on the conveyance of forest products – in addition to monitoring in theforest, the Forestry Department mounts roadblocks to stop trucks and check that forestproducts are being conveyed with the proper documentation and they also monitorproduction at the point of sale.

Current practice is to place a Forestry Officer permanently on site in commercial sawmillingconcessions to perform the first four of the functions above. Thus, rather than getting the forestconcessionaire to do all of the measuring and leaving the Forestry Department to check this, theForestry Department does all of the measuring (at least in the commercial sawmilling concessions).

The first point to note is that, under the current arrangements, all of this measuring by the ForestryDepartment must consume a large amount of resources. The whole point of making the forestconcessionaire do the measuring and then getting the Forestry Department to check this, is that suchan arrangement can greatly reduce the Forestry Department’s costs without a significant reductionin the effectiveness of monitoring.

Secondly, the emphasis placed on checking the number of trees cut in the forest is a very costly andtime-consuming exercise. In most other countries, production would be checked at the roadside orlog landing, before the logs are taken to the sawmill (i.e. in the case of Zambia, when the ForestryDepartment issues the conveyance licence). This would normally be the only time that productionwould be assessed and this could probably be done in less than a day. Therefore, assuming that the

35

forest concessionaire keeps a certain amount of stocks of production in the forest, this might onlyneed to be done once every two to three weeks.

The concessionaire can be encouraged to maximise production and minimise waste through thestructure of the forest charges that they pay and the enforcement of felling regulations. It is notnecessary to check the exact number of trees that have been cut. Indeed, it is more important for theForestry Department to enter the forest to check that the forest concessionaire is keeping withintheir approved compartment boundaries and to check on the overall quality of harvesting. If theForest Officer does not have to worry about finding all of the tree stumps and measuring logs, theycan pay greater attention to other important factors such as: the height of tree stumps; the amount ofwaste logs left in the forest; the width and layout of skid trails; harvesting damage to remainingtrees; and soil erosion.

A similar argument would apply to the production of logs in pitsawing concessions and to theproduction of other forest products using the casual licence. There are ways of structuring forestcharges that do not require all of this costly measurement of production but are still effective atraising revenues. When foresters are released from the time-consuming and low-value tasks ofmeasuring production, they can concentrate on the much more important task of making sure that ahigh standard of harvesting and management is maintained.

4.2.3 The impact of the forest licensing arrangements on sustainable forest management

As has already been noted in Section 3.4.2, the existing licensing system used for forestconcessionaires in Zambia does support sustainable forest management at a very basic levelthrough the requirement to produce a plan of operations and to follow felling regulations. However,a major weakness is that the system currently in place does not seem to require forestconcessionaires to maximise production or yield from the areas in which they are licensed tooperate. Indeed, it encourages them to high grade. Nor does the licensing system seem to requirethem to harvest areas in an orderly fashion so that, when they have cut over the whole of theirforest concession, there will have been sufficient time for the first area that they cut to haveregenerated by the time that they go back to it.34 It does very little, therefore, to encourage theconcessionaire to maximise sustained yield, which is one of the main principles underlyingsustainable forest management.

34 Indeed, quite extensive discussions were held with Copperbelt Provincial Forestry Office staff about this. It appears that the

area awarded under a forest licence will, in many cases, be completely harvested before the first areas harvested have fullyregenerated. The concessionaire would then have to look for a new area to harvest. In many countries, such an arrangementwould be called a cutting licence rather than a concession licence, because the term “concession licence” is usually used todescribe a complete area that is managed as one unit on a sustained yield basis.

For the current arrangement in Zambia to be sustainable in a very strict sense, there would have to be some rationalorganisation of licence areas so that, once one is completely harvested, the concessionaire can move on to a new area whilethe first regenerates. It is not clear whether this level of organisation currently exists in Zambia. If it does not, there is therisk that the National Forests and Local Forests may one day all run out of large commercial trees!

Under a weaker interpretation of sustainability it is acceptable to harvest all commercial trees before the forest has had timeto regenerate, but then production has to stop to allow time for the first areas harvested to regenerate. This makes economicsense, but it is a high risk strategy. Leaving large areas of forest to regenerate gives the impression that the forest is nolonger utilised and makes protection extremely difficult.

36

The total area of forest in a forest concession,35 the area of forest that is cut during the licenceperiod and the amount of timber that is cut during the licence period should all be linked together.The main factor that determines how they are linked together is the sustainable yield of the forestwhich, in turn, should be used to determine the cutting cycle and harvesting intensity that should beused in the concession.

Currently, many forest concessionaires in Zambia request and obtain the maximum concession areaallowed under the two types of Forest Licence and produce (or rather, declare production of) theminimum number of trees set in the licence agreement. The yields that would implicitly be requiredto continuously replace trees felled by concessionaires at the rates set in the two types of ForestLicence are shown in Table 7.36

Table 7 The yield required to sustain production under the currentlicensing arrangements

Type of forest concession licenceand allowable cut set in the licence

Requiredsustainable

yieldForest Licence (Commercial Sawmilling)Minimum - 200 trees per month from 10,000 ha 0.24 m3/ha/yearMaximum - 600 trees per month from 10,000 ha 0.72 m3/ha/yearForest Licence (Pitsawing)Minimum - 20 trees per month from 5,000 ha 0.05 m3/ha/yearMaximum - 60 trees per month from 5,000 ha 0.14 m3/ha/year

In contrast, discussions with Forestry Department staff suggested that, in the majority of cases,unlogged forest in Zambia might contain between 4 and 12 commercial trees per hectare and thatthe appropriate cutting cycle might be between 40 years to 80 years, depending on the species. Thesustainable yields implied from combinations of these commercial stocking levels and regenerationperiods37 are shown in Table 8.

For the purpose of the remainder of this analysis, a stocking level of 6 trees per hectare is assumedalong with a regeneration period or cutting cycle of 50 years and the sustainable yield implied bythis is also shown in the last row of Table 8. This combination of production and cutting cyclewould seem to set a safe minimum standard for forest management in the types of forest found inZambia, which can be used to guide the design of the licensing and forest revenue system.

35 Note – the area of a forest concession and the area of forest in a forest concession are not necessarily the same in Zambia.

For example, concessionaires may apply for a forest concession of 10,000 ha, which only actually contains 8,000 ha ofgazetted forest, The remaining land may or may not have a significant stocking level of commercial trees. This furthercomplicates matters and makes sustainable forest management very difficult. The following calculations all assume that aforest concession is completely stocked.

36 Yield is usually measured in cubic metres per hectare per year. However, in much of the forest legislation in Zambia,volumes are not mentioned and the basic unit of measurement used is the “tree” or “timber log”. After discussions withForestry Department staff, it has been assumed in this analysis that one average commercial “tree” is equal to about onecubic metre of industrial roundwood.

37 In the terminology of forest production management, the commercial stocking level is the amount that should be harvested(i.e. the harvesting intensity that should be aimed for) and the regeneration period determines the cutting cycle that shouldbe used in the forest.

37

Table 8 The sustainable yield implied after discussions with ForestryDepartment staff about stocking and regeneration

Commercial stocking level in unlogged forestand regeneration period (cutting cycle)

Impliedsustainable

yield4 trees per ha and 40 year cutting cycle 0.10 m3/ha/year12 trees per ha and 40 year cutting cycle 0.30 m3/ha/year4 trees per ha and 80 year cutting cycle 0.05 m3/ha/year12 trees per ha and 80 year cutting cycle 0.15 m3/ha/year6 trees per ha and 50 year cutting cycle 0.12 m3/ha/year

The first point to note about the current licensing arrangement is that, as shown in Table 7, the yieldthat would be required to replace trees in the two different types of forest concessions allowed inZambia is very different. This is because, comparing pitsawing concessions to sawmillingconcessions, pitsawyers are expected to produce only one-tenth of the production of a commercialsawmiller, but they are given up to half of the commercial sawmiller’s area in which to operate.

The likely result of this is that sawmilling concessions will be entirely logged long before the foresthas had time to regenerate, while pitsawing concessions can not possibly operate at a high enoughlevel of production to completely harvest all of the areas allocated to them before the first areaharvested is ready for logging a second time. An example of what this means is shown in Table 9.

Table 9 Implications for forest utilisation of the current licensing arrangementsForest Licence (Commercial Sawmilling) Forest Licence (Pitsawing)

200 trees per month @ 6 trees per ha = 400 ha/year 20 trees per month @ 6 trees per ha = 40 ha/yearTime to work through 10,000 ha = 25 years Area cut over 50 years = 2000 ha200 trees per month @ 4 trees per ha = 600 ha/year 20 trees per month @ 4 trees per ha = 60 ha/yearTime to work through 10,000 ha = 17 years Area cut over 50 years = 3000 ha

If a concessionaire holding a Forest Licence (Commercial Sawmilling) harvests, on average, sixtrees per hectare, at a minimum production level of 200 trees per month, they will harvest 400 haper year. Thus, they will work through all of their forest concession in 25 years, which is probablymuch shorter than the time required for the forest to regenerate. If they are even more selective andonly harvest four trees per hectare, they will work their way through the entire concession in justunder 17 years. The charging system encourages concessionaires to be selective and discussionswith sawmillers suggested that they only take some of the commercial trees in their concessionsrather than all of them. Thus, the latter scenario seems quite probable.

In contrast, the pitsawyer only has to cut 20 trees per month, which would mean that, at six trees perhectare, they would only cut 40 ha per year. Assuming regeneration period or cutting cycle of 50years, they would only work through 2,000 ha before the first area harvested was ready forharvesting a second time. Even assuming more selective harvesting of, say, four trees per hectare,they would still only work through 3,000 ha, which is far less than the 5,000 ha allotted to them.

38

Table 10 Harvesting intensity required under the current licensing arrangementsVariable Forest Licence

(CommercialSawmilling)

Forest Licence(Pitsawing)

Total area of the forest concession 10,000 ha 5,000 haAverage cutting cycle 50 years 50 yearsLicence duration 5 years 3 yearsAverage area cut during licence period 1000 ha/5 years 300 ha/3 yearsAverage area cut in one year 200 ha/year 100 ha/yearMinimum number of trees cut per month 200 trees/month 20 trees/monthMinimum number of trees cut per year 2,400 trees/year 240 trees/yearImplied minimum harvesting intensity 12 trees/ha (or m3/ha) 2.4 trees/ha (or m3/ha)

An alternative way of looking at this is to examine the harvesting intensity that a forestconcessionaire would have to achieve given the total area of concession awarded to them, theminimum level of production they are expected to achieve and assuming a 50 year cutting cycle orregeneration period. This is shown in Table 10. If the holder of a Forest Licence (CommercialSawmilling) was to harvest the forest on a 50 year cutting cycle they would have to limit harvestingto 200 ha per year. Thus, to meet the minimum monthly production target of 200 trees per month,they would have to cut at an intensity of 12 trees per hectare. In contrast, the pitsawyer only has tocut 2.4 trees per hectare. The first figure seems higher than the forests of Zambia can probablysustain (in most circumstances), while the latter seems far below it.

Even though the above analysis is based on a lot of assumptions (particularly with respect to what isthe appropriate harvesting intensity and cutting cycle),38 it shows that the expectations forproduction from the two types of forest concession are very different and seem to be based on thetype of producer rather than the growth of the forest. There is no reason to expect that the forest inpitsawing concessions is likely to be any more or less productive than the forest in sawmillingconcessions, so the current licensing arrangement appears to give pitsawyers too much forest, butgive the commercial sawmiller too little.

A second point worth considering is the duration of the licences awarded to forest concessionaires.In many countries, forest concessions are awarded for a relatively long period of time, particularlyif the forest concessionaire is expected to make major investments in infrastructure or silviculture.This is done under the assumption that a long concession period is required so that theconcessionaire will not be discouraged from making such investments.

Currently in Zambia, sawmilling concessions are awarded for five years and pitsawing concessionsare awarded for three years. Forest concessionaires are not required to make significant investmentsin infrastructure in the forest and silviculture, so the short length of forest concessions probablydoes not matter very much. However, when a forest concession of such a short duration is issued,the following should be made very clear: 38 Another question raised in discussions with Forestry Department staff concerns the suitability of the silvicultural system

currently in place in Zambia. The use of a minimum cutting diameter and cutting cycle, with no silvicultural inputs (e.g.replanting or assisted regeneration) is a shelterwood management system that is commonly used in moist tropical forests.However, discussions with Forestry Department staff raised the issue that many of the commercially valuable species inZambia do not appear to regenerate very well under these conditions. They are also apparently difficult to raise as seedlingsin the nursery. Under such circumstances, a much more complicated selection felling system or patch/strip clearfellingsystem may be more appropriate. These uncertainties cast real doubts about whether the current harvesting system used inZambia is sustainable at all.

39

• If the concession is to be sustainably managed as one unit, the concessionaire should belimited to only using a part of the total area of the concession during the licence period.For example, if a concession is awarded for five years and the cutting cycle is 50 years,then the concessionaire should clearly and explicitly be limited to only operating in onetenth of the total area of the concession. Once this area has been harvested, it should beclosed to allow the forest to regenerate and the concessionaire should move on to thenext cutting area.39

• If the concession is to be harvested over a period that is shorter than the regenerationperiod, it should be completely closed and left to regenerate once the last coupe hasbeen felled. It appears that this is currently the case in Zambia, although it is unclearwhether there is sufficient forest area or organisation of forest concessions to maintainproduction through a system of rotating the relatively small concession areas that arecurrently awarded (see also, footnote 34 on page 35).

Another point worth noting is that there is little reason why the sawmiller should be awarded aconcession for five years while the pitsawyer is only offered one for three years. As with thedifferences in cutting intensities, this means that the two types of forest concessionaire are treateddifferently for no justifiable reason. As will be discussed in Section 5.5, it will be proposed herethat the area of forest concessions that a concessionaire can apply for should be made more flexiblewhile, at the same time, the duration of a forest concession licence should be standardised. By doingthis, it should be possible to achieve more equitable treatment of the different types ofconcessionaire currently operating in the sector.

In terms of the casual licences awarded for the production of other forest products, it has alreadybeen noted that these mostly act as a receipt for payment rather than as a mechanism for controllingwhat goes on in the forest. Improved management and organisation of the production of charcoal isbeing developed however, and this very positive development should be continued.

4.2.4 A comment on the Timber Export Policy

The Timber Export Policy was introduced to stop the large-scale export of logs which, at the time itwas introduced, was perceived to threaten the sustainability of the forest resource. However, inaddition to banning the export of logs, the policy also placed restrictions (quotas) and imposedcharges on the export of all wood products. It also introduced a rather complicated licensingprocedure, requiring a lot of clearances and approvals before a shipment of wood products can beexported.

Overall, the policy seems to have been successful at stopping the export of logs. However, it has notstimulated the creation of a significant export industry in manufactured wood products. Rather, itseems to have reduced all wood product exports to a very low level. This is not an unusual result ofsuch a policy. Many other countries have tried to use export restrictions to force exporters ofunprocessed wood products to process them domestically and export the finished product. In nearlyall cases, such policies have resulted in a contraction in exports overall and/or manufacturers try to 39 The current Forest Licences hint that there should be some sort of control over the area cut in the forest concession, but do

not give strong guidance. It is not clear whether there is actually much control over the area being harvested within forestconcessions in Zambia at the moment.

40

minimise the impact of the restrictions by producing the product with the least amount ofprocessing that can legally be exported. In the case of Zambia, this seems to be cants and railwaysleepers.

Furthermore, the way that the restrictions and charges on exports are currently structured in Zambiadoes little to support the development of an export industry. Normally, when the aim of an exportpolicy is to protect resources and/or develop a domestic processing and export industry, there arefewer restrictions on the export of high value-added products (and lower export charges) than thereare on low value-added products. However, in Zambia this is not the case. Export of unprocessedproducts (including logs and charcoal, but not poles) is forbidden, but the percentage charge on theexport of all other wood products does not vary. The exporter therefore, has little incentive toproduce a more highly manufactured and more valuable product because they will just end-uppaying more tax. Indeed, with the requirement in the licence to track the source of the wood, theadministrative burden placed on the exporter of highly processed wood products is far higher thanthat placed on the exporter of simple wood products. Thus, the current licensing system mayactually be penalising the exporters of more highly processed products.40

In view of the above analysis, it would seem to be desirable to consider liberalising the licensing ofwood exports in Zambia. At the very least, the export regulations should be restricted to only alimited number of basic wood products (e.g. roundwood, charcoal, cants and sawnwood) and shouldnot include manufactured products (e.g. wood based panels, mouldings, joinery products, furnitureand furniture components). Consideration should also be given to varying the export charge (as apercentage) by product or, more simply, to introduce fixed charges by volume or weight of exportedproduct. This could capture some of the value of the roundwood used to make the exported product,without acting as a tax on manufacturing. The requirement to track wood back to its source shouldbe dropped, as this does not seem to be necessary or effective.

4.2.5 Institutional and governance aspects of the current licensing arrangements

From the institutional point of view, the current licensing process is not working very well at all.Staff of the Forestry Department at all levels do seem to understand what is required under thelicence agreements (although, as already noted, there seems to be some differences ininterpretation). However, due to a lack of resources, they do not have anywhere near the capacityrequired to perform all of the control and monitoring activities set-out in the licences.

There are two ways in which such a problem can be addressed: increasing the resources available tothe Forestry Department and/or making the monitoring and control procedures simpler toimplement. Increased revenue collection should help in the first case, but simplifying procedurescould also be very effective and should not be overlooked.

In terms of whether the current licensing arrangements meet the principles of good governance,there are probably two questions that should be answered:

• do all stakeholders know and understand the current licensing arrangements; and

• is the process for awarding and implementing licences transparent, clear and fair? 40 This is, of course, assuming that the rules are followed. As noted earlier, exporters can probably easily get around the

requirement to track wood back to its source. If this is the case, then this requirement would seem to be a waste of time.

41

Discussions with a very small number of licensees suggested that they do understand the licensingarrangements well and, as noted above, Forestry Department staff also seem to have no problemwith them. These are currently the two main stakeholders involved in the licensing process.However, there is a third group that should also be considered: companies and individuals thatmight like to acquire a forest concession but do not currently understand how to go about doing so.Current procedures for awarding licences are not clearly documented, so this group is at adisadvantage.41

In terms of the process for awarding forest concessions, Zambia is in a transitional phase. Untilrecently, the system for awarding forest concessions was the wrong way around. Potentialconcessionaires would identify an area of forest that they were interested in, examine it and assessstocking and other operational factors, then apply to the Forestry Department for a concession inthat area. The Forestry Department did not have an overall plan or strategy for identifying areas thatshould be harvested. Rather, it responded to requests for concessions as they came in on an ad-hocbasis.

Such an arrangement puts forest concessionaires in a very strong position. They initiate the processof obtaining a concession, which then effectively rules-out any competition for that piece of forest.

Recently however, the process of awarding concessions has been revised and the ForestryDepartment has started to take more control over the overall process. Taking into account thequality of forests available, they have started to identify when and where harvesting should takeplace and to invite potential concessionaires to submit proposals for these areas.

Awarding concessions in this way encourages competition and enables the Forestry Department tochoose the best concessionaire for each area on the strength of their proposals. It is unclear exactlyhow proposals are judged (and this should be made more transparent), but this new arrangement is avery positive development and should be continued.

Once a forest concession is awarded, the licence is comprehensive and clear about the proceduresfor suspension and cancellation of the licences and the procedures for arbitration.

4.3 Appraisal of the forest revenue system

4.3.1 The impact of the forest revenue system on economic efficiency

In terms of economic efficiency, the main concern with any forest revenue system is that the levelof charges is roughly equal to the prices that would be obtained if the products taken from the forestwere sold by competitive means. For the production of roundwood, this is called the stumpagevalue and this can be calculated from forest product prices and production costs (see below). Itseems likely that the current levels of charges in Zambia are, as in many other countries, too low. Italso seems likely that the range of charges for logs of different species should be much greater, totake into account the variation in the value of finished products made from each of the differentspecies.

41 The Forestry Department does have some simple written guidelines for awarding forest concessions, but it is not clear

whether these are widely publicised.

An example of how the stumpage value for the production of roundwood might be calculated isgiven in Box 1. The calculations presented here are based on the author’s knowledge of forestproducts markets in countries in a similar situation to Zambia, rather than detailed information fromthe Zambian forestry sector. They are however, probably reasonably representative of productprices and production costs in Zambia.

Box 1 The estimation of stumpage value from product prices

Sa

Timt

Tvpipr

Forest charges are usually based on stumpage value, or the prices that would be obtained if trees were sold standing.Where competitive standing sales price information is not available, stumpage value can be calculated by workingbackwards form product prices. First, sawmill production and sawnwood transport costs are subtracted from theproduct price to get the sawmillers ability to pay for their roundwood inputs (i.e. the maximum deliveredroundwood price that they could afford to pay). This, in turn, is converted to a price per cubic metre of roundwoodby dividing it by the product conversion rate (i.e. the amount of roundwood required to produce one cubic metre ofsawnwood). Harvesting, extraction and log transport costs are then subtracted from this to obtain an estimate ofstumpage value.

An example of how to calculate stumpage value from product pricesLow-grade sawnwoodfor domestic market

High-grade sawnwoodfor export

Sawnwood selling price US$ 150 US$ 350less: production cost US$ 45 US$ 110

transport cost US$ 15 US$ 80Ability to pay for roundwood (2 logs/m3 per m3 of sawnwood) US$ 90 US$ 160Ability to pay (delivered) per log/m3 of roundwood US$ 45 US$ 80

less: harvesting and extraction cost US$ 20 US$ 20transport cost US$ 15 US$ 15

Stumpage value US$ 10 US$ 45

The above example shows how to calculate stumpage value using a range of cost and price data, from theproduction of low-grade cheap sawnwood for the domestic market to the production of high-grade sawnwood forexport. The figures used here have been based on the authors experience of likely production costs, internationalmarket information and discussions with sawmillers. Although these are very rough estimates, they are probablyreasonably representative of the current situation in sawmills and forest concessions in Zambia. They suggest thatthe stumpage value of roundwood produced in forest concessions in Zambia might be in the order of US$ 10 toUS$ 45 per cubic metre.

42

ource: authors own estimates. Note that these calculations are approximate. More details about how to calculate stumpage valuere given in Annex 3.

he analysis suggests that the current stumpage value of roundwood produced in forest concessionsn Zambia might be from US$ 10 to US$ 45 per cubic metre, depending upon tree species andarket conditions. At current exchange rates, this would be equal to a stumpage value of K 40,000

o K 180,000.

he other point worth noting about the example is that it shows how wide the range of stumpagealues might be, depending on the end use of the wood. For example, although the higher productrice used in the calculation is only 130% higher than the lower product price, the stumpage values 350% higher. This is because production costs do not account for all of the difference in theroduct prices. To put this another way, part of the higher price for the more valuable producteflects the higher demand for the properties of the roundwood itself (e.g. its colour, grain, strength

43

properties etc.). This can be reflected in stumpage values that are relatively much higher than thedifferences in product prices would at first suggest.

Currently, the difference between the forest charges for low value species and high value species inZambia is relatively small. Low value species are charged at 40 Fee Units per tree, while high valuespecies are charged at 100 Fee Units per tree. This gives a difference of 150% between the low andhigh values. Based on the above calculations therefore, the range of charges for different speciesshould be extended. Alternatively, a smaller range could be maintained along with an export chargethat would capture some of the additional value of the most highly valued species.42

Given that the Fee Unit is currently valued at K 180, the above analysis suggests that the lowestvalue species in Zambia should be charged at a rate of 220 Fee Units per tree and the highest valuespecies could be charged at a rate of up to 1,000 Fee Units per tree.

Similar calculations to those above can be performed for the production of other forest products. Aswith the production of industrial roundwood, it seems likely that the current level of charges forpoles, fuelwood and charcoal in Zambia are also probably all lower than would be achieved in acompetitive market. (A more complete analysis of the economics of charcoal production andimplications for the forest charges is given in Annex 4).

Some of the effects of artificially low charges on economic efficiency were already listed in Section2.1.1. Very briefly, low charges tend to result in the following inefficiencies:

• artificially low forest product prices in the domestic market;

• consumption of wood products at an artificially high level;

• harvesting of forest areas at an artificially high level;

• distortion of investment and manpower into forest industries when they would be moreproductive in other sectors of the economy;

• a lack of any incentive to maximise product recovery in the forest processing industry;

• a lack of any incentive to invest in more intensive forest management, especially thedevelopment of forest plantations;

• high levels of waste in forest harvesting;

• a lack of any incentive to work on developing forest products markets;

• capital flight (if there is a significant forest products export sector); and

42 The question of whether to use an export charge is difficult to answer. Generally, export charges are not to be

recommended because they can hinder the development of forest product exports and can cause distortions that protectinefficient domestic industries. However, such charges are generally easy to collect and can be an easy source of revenuefor the Government. It may also be justifiable to use a small export charge on the grounds that only the very highest qualitywood is usually exported. Given this, the export charge can be seen as a way of extending the species differentiation in thecharging system to include higher charges for the very highest quality wood. (See Section 4.2.4, for a fuller discussion ofthe current wood export regulations in Zambia).

44

• artificially low forest land values, encouraging the conversion of forests to other land-uses.

To some extent, several of these results also work against the stated objectives of forestry policy.Therefore, the low level of charges has a negative impact in that dimension as well. It seems likelythat the currently low level of forest charges in Zambia is resulting in several of these undesirableeffects.

One final point worth noting is that it is only really necessary to resort to trying to calculate and setforest charges when it is not possible to use competitive means to sell forest products and establishtrue market prices. Due to the long-term nature of forest concessions and the complexity ofselective forest harvesting systems used in natural tropical forests, it is usually considered difficultto try to introduce competition into the revenue system in these cases. However, in the case ofharvesting roundwood from forest plantations and the production of other forest products (e.g.fuelwood, charcoal and NWFPs) there is less of a reason why competitive selling mechanisms, suchas auctions and tenders, should not be used. At least in the case of the Forestry Department’s forestplantations, it is suggested that competitive selling might be considered as an option.

4.3.2 The impact of the forest revenue system on sustainable forest management

It has already been mentioned that the current charging structure does not support sustainable forestmanagement. In particular, it encourages high-grading and discourages the maximisation ofsustained yield. The reasons for this can best be explained with reference to Figure 2.

Figure 2 shows (as the solid line) the average charge that a forest concessionaire would have to payper tree for harvesting in one month. Given the minimum production level set in the licence, theconcessionaire would probably not want to produce less than the minimum, because this wouldincrease the average charge paid per tree. For example, only cutting 100 trees per month woulddouble the average charge per tree. However, once the minimum has been reached, there is noincentive to produce more than the minimum. The charge for each additional tree is the same.Indeed, in the current charging structure, the forest concessionaire would actually be penalised ifthey produced (and declared) a very high number of trees, because the excess trees would becharged at twice the normal rate.

45

Figure 2 The effects of different charging structures on the average charge per tree

Note: the above figure assumes that all trees cut are in the species groups currently charged at 100 Fee Units per tree.

Now, given the current level of technology in use in the forestry sector in Zambia, it seems likelythat a typical forest concessionaire could harvest about 50 ha per month if they maximisedproduction per hectare. Assuming six commercial trees per hectare, this would be equal to about300 trees per month. However, because of the charging structure, it is more profitable for the forestconcessionaire to try to find the 200 most valuable trees that they can in the month,43 rather than totake all of the commercial trees from each hectare and to try to maximise total production. Ifmonitoring and control of the areas actually being harvested is weak, this search for the mostvaluable trees could be far reaching and result in a lot of repeated damage to the forest.

One alternative to the above situation, would be simply to charge the forest concessionaire 20,000Fee Units for the month (i.e. what they currently pay anyway) and restrict them to the 50 ha whichit is estimated they could fully harvest in one month. This would be equal to setting an area-basedcharge of 400 Fee Units per ha (as long as control over the area harvested is more strictly enforced).

The impact of such an arrangement on the average charge per tree is shown by the line of squares inthe figure. Under such an arrangement, production of less than 200 trees per month would stillresult in a very high charge per tree (i.e. the dotted line and the solid line overlap in the figure).However, production of more than 200 trees per month would start to look more attractive to theconcessionaire, as this would bring the average charge per tree down. Therefore, for example, ifproduction were at the estimated maximum of 300 trees in the month, the average charge per tree

43 This tendency to be very selective is further reinforced when there is not enough variation in the stumpage rates for

different species. If the more highly valued species were charged a much higher number of Fee Units, the forestconcessionaire would not get so much benefit from leaving perfectly good trees while searching for the very best.

0

50

100

150

200

250

300

0 100 200 300 400 500 600

Number of trees cut per month

Ave

rage

cha

rge

per

tree

(in

Fee

Uni

ts)

Current charge structure Equivalent area based charge 50% volume + 50% area charge

46

would be 25% lower than under the current system. The forestry administration would still receivethe same amount of revenue as before, but the forest concessionaire would be encouraged more totry to maximise the yield from the area being harvested rather than to try to find and harvest onlythe best trees.

Of course, in order to use only an area-based charge, it would be desirable to have very goodinformation about the amount, type and value of trees in the forest being harvested. A system ofarea charges that was fixed across all areas would also require a very homogenous forest. Becauseof these limitations therefore, most forest revenue systems try to combine both an area-based chargeand a volume-based charge. The area-based charge is used to encourage the maximisation ofproduction and is usually set at a quite low level. This is so that the charge is not too high in areaswith a low level of stocking. The volume-based charge is used to try to capture variations in valueby species and to capture some of the additional total stumpage value in more highly stocked areas.

An example of what one combination of area and volume-based charges might do to the averagecharge per tree is shown by the line of circles in the figure. The charging structure represented bythis line is an area-based charge of 10,000 Fee Units in total (i.e. 200 Fee Units per ha over a 50 hacutting area) plus a volume-based charge of 50 Fee Units per tree. At a production level of 200 treesin the month, revenue to government would be the same, but half of it would come from the area-based charge and half from the volume-based charge.

As the figure shows, it would still be very expensive for the concessionaire to produce less than 200trees per month (i.e. the average charge per tree would still be very high), so they would beencouraged to produce at this level or more. However, if they produced more than 200 trees, boththey and the Government would benefit. The government would receive slightly more revenue thanif 200 trees were cut (an additional 50 Fee Units for every tree cut over 200), while the forestconcessionaire would end-up paying a lower average charge per tree as production increased.

The above argument could also be applied to the structure of charges for other forest products,which are all similarly focused on the volume of production without paying much attention to thearea of forest being used for production. In particular, the production of charcoal should be muchmore strongly controlled in terms of the areas that are used. Charcoal production seems to be havinga major impact on forest resources in Zambia, so a diversion of efforts away from trying to measureand charge for volumes of production towards trying to control where such activities are actuallyallowed to take place would seem to be a good idea.

4.3.3 Revenue collection and revenue sharing under the current forest revenue system

A complete breakdown of all of the revenues collected by the Forestry Department in 1999 wasgiven in Table 6 on page 32. About sixty percent of current revenues come from charges andpenalties associated with the licensing of forest production and conveyance. The remainder comesfrom commercial activities and sales of other forest produce. One of the first actions that ZAFCOMshould take when it is created is to separate more clearly the operating account for commercialactivities from the revenues collected from charges on all forest production. This will make it easierto assess how well the forest revenue system is working and to evaluate the performance of theseother activities.

The total amount of revenue collected in 1999 (from both of these sources) amounted toK 1.6 billion. This compares with a budget of K 2.3 billion, of which the Forestry Department

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actually managed to spend K 1.0 billion. Some of this expenditure was, presumably, spent oncommercial activities (e.g. the “revolving fund” used to support plantation establishment in LocalForests), so it is not possible to tell whether the Forestry Department raised enough revenue fromcharges to cover the cost of non-commercial activities. It seems likely though, that revenues weresufficient to cover the existing level of non-commercial activities.

Although the Forestry Department is currently generating adequate finances to cover its costs, thecurrent level of activities and achievements of the Department are severely limited by a lack offunds. They are also well below what would be required to support the widespread implementationof sustainable forest management across the whole of Zambia’s forest estate. There is, however,significant potential to increase revenues from the collection of forest charges. Table 11 gives anapproximate estimate of potential revenue collection from forest charges, based on the existingcharge rates and stated and possible levels of current forest products production.

Table 11 A very approximate estimate of potential revenue collection at current charge ratesand estimated production of forest products

Potential revenue collection based onstated and possible current levels of production

Stated production Possible production

Product and measurement unit Currentrevenue

collection(K Mill) Amount Charges

(K mill)%

capturedAmount Charges

(K mill)%

capturedCommitment fees (no of licences) 5.4 17 3.4 159% 17 3.4 159%Trees (number of trees) 501.7 36,081 501.7 100% 500,000 6,952.5 7%Conveyance fees – sawnwood (m3) n.a. 17,193 46.4 n.a. 200,000 540.0 n.a.Conveyance fees – fuelwood (m3) n.a. n.a. n.a. n.a. 600,000 1,080.0 n.a.Conveyance fees – charcoal (bags) n.a. 41,089 14.8 n.a. 14,000,000 5,040.0 n.a.Conveyance fees – Total 25.8 .... 61.2 42% .... 6,660.0 0.4%Poles (number of poles) 14.0 43,058 14.0 100% 43,058 14.0 100.0%Bamboo (number of canes or bundles?) 3.8 58,489 2.6 144% 84,458 3.8 100.0%Fuelwood (headload) 4.1 2,321 0.8 n.a. 2,321 0.8 n.a.Cord wood (cord) 89.7 3,945 21.3 n.a. 200,000 1,080.0 n.a.Charcoal cords (cord) 4.4 31,180 168.4 n.a. 2,545,455 13,745.5 n.a.Charcoal bags (per bag?) 225.3 1,614,391 1,585.0 n.a. n.a.Fuelwood and charcoal - Total 323.5 .... 1,775.5 18% .... 14,826.3 2.2%Hut materials (number of huts) 0.1 33 0.1 112% 37 0.1 100.0%Fibre bundles/barkrope (bundles?) 0.3 1,036 0.2 161% 1,667 0.3 100.0%Top soil (per ton or per 5 ton truck?) 13.0 143 0.3 5051% 7,222 13.0 100.0%Site fees 1.2 n.a. 1.2 n.a. n.a. 1.2 n.a.Timber export (m3) 11.1 3,470 347.0 3% 3,470 347.0 3.2%Confiscated items 12.8 n.a. 12.8 n.a. n.a. 12.8 n.a.Penalty fees (number of penalties) 56.9 379 56.9 100% 379 56.9 100.0%Total – all charges and penalties 969.6 .... 2,776.9 35% .... 28,890.9 3.4%Source: Stated production from Government of Zambia (2000), possible production from author’s own estimates.

The table shows that current revenue collection, at K 1.0 billion, is probably only about 35% ofwhat could have been collected (based on the production figures stated in the Forestry Department’sAnnual Report for 1999).44

If the true level of production were known, the proportion captured would probably be much lowerthan this. For example, a very crude estimate of the actual level of production possibly achieved in1999 is also shown in Table 11. Based on the size of the population and forest processing industry,

44 Note: some of the figures in this table show current revenue collection (as reported in the Annual Report) to be higher than

what would be calculated by multiplying reported production by charge rates. It is unclear why this may be the case andsuggests that the statistical reporting systems currently in use may not be very reliable.

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it is estimated that the overall production and consumption of forest products might be several timeshigher than that reported and that, consequently, revenue collection might be less than 5% of thepotential. Out of all of the forest products, it would seem that collection is least effective in thecharcoal-producing sector.

Furthermore, these estimates have been calculated using existing charge levels. Given that these arealso very low in themselves, it may be possible to multiply revenues by a factor of 20 or more.

Of course, it would be very difficult to achieve such an increase in performance quickly but, evenassuming that some leakage in the system persists, this analysis suggests that it should be possibleto substantially increase revenue collection by the Forestry Department.

There is, of course, currently no official sharing of forest revenues. However, given that theForestry Department is currently unable to collect most of the forest revenues due to them, they areimplicitly sharing the majority of the benefits from forests with other stakeholders in the sector.

4.3.4 Institutional and governance aspects of the current forest revenue system

The revenue system currently in place in Zambia is easy to understand. Almost all charges relate tosome measure of production and these measures do not require any complicated calculation. Asnoted, there are some uncertainties (e.g. the definition of personal use) but these are few and couldeasily be overcome with the production of some simple guidelines.

In terms of whether the charges are applied fairly and equally, the current system is lesssatisfactory. The current lack of resources has led to widespread evasion of charges and, to a largeextent, the amount that any producer is likely to have to pay is determined by how likely they are toget caught. This probably gives the smaller producers an advantage over the larger producers.

There also appears to be some differences between regions in terms of how effective they are atcollecting revenues. Some of this could be due to differences in production, but it seems likely thatgreater attention should be given to the allocation of resources between regions for the purposes ofmonitoring activities.

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5 SUGGESTIONS FOR MODIFICATIONS TO THE LICENSING ANDFOREST REVENUE SYSTEM

This section discusses how the Forestry Department might modify the licensing and forest revenuesystem to encourage sustainable forest management, increase revenue collection and facilitaterevenue sharing. It then presents some ideas about how transparency and accountability might beincreased and some specific proposals for licences and charges.

5.1 Using the licensing and forest revenue system to encourage sustainable forestmanagement

In order to encourage sustainable forest management, the focus of the licensing and forest revenuesystem should move away from the current emphasis on volume of production towards placingmore emphasis on the area of forests used for production. Area control should start with a strategicapproach to identifying and awarding licences, followed by more detailed planning and control atthe level of the individual forest concession. The Forestry Department may already be moving inthis direction and such efforts should be encouraged and continued.

5.1.1 Development of an overall strategy for identifying and awarding licences

It is important that the Forestry Department should develop an overall strategy for identifying forestareas that will be used for wood production. Firstly, it would be useful to develop some overallguidelines describing what each type of forest45 can be used for and how they will be licensed andmanaged (for an example, see Annex 5). These can be used to help staff explain policy tostakeholders and to ensure that all provinces and districts are following the same procedures.

The next task is then to identify areas that actually contain forest (which will probably not overlapwith land use designations – see footnote) and to divide or combine these areas into rational forestmanagement units. These units should be fully stocked (i.e. they should not include large areaswithout tree cover) and they should not include any protected forest areas. These units would formthe areas that will be issued under licences and managed for sustainable production.

Each licence area may cover several different types of forest (e.g. one unit might include someNational Forest, some Local Forest and some open forest areas), but it is more important that theyactually contain forest rather than that they follow any artificial land use designations. It is alsoimportant that adequate areas of forest are identified and set aside for fuelwood and charcoalproduction as part of this process.

Because these units should be based on forest cover, they are likely to differ in size, so the forestlicensing system should be more flexible to allow for this. Big square 10,000 ha blocks rarely makeany sense from a forest management point of view. Different sized units will also mean differentlevels of production, so the allowable cut for each licence area should also vary.

45 By type of forest, it is meant here forest land use designation, e.g. National Forest, Local Forest, Forest Plantation, etc.

Forest licences become very difficult to manage when they are based on a land use designation and include areascontaining no trees (but have been included because they are classified as forest).

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Forest concession licences should be awarded by the Forestry Department offering pieces of forestfor production to the private-sector rather than by the private-sector coming to the Government toask for some forest. This is already starting to happen in Zambia. A transparent process for judgingor negotiating who should get a licence should be developed.

Once a forest concession is awarded it should be stressed that it should be used for maximumsustainable yield (and what this means should be explained to concessionaires). Currently, themaximum allowable size of a forest concession (10,000 ha) is probably too small for sustainableproduction at a commercial level. Yet, on the other hand, 10,000 ha is far more than can beharvested in five years given the current levels of technology used in Zambia. It is likely therefore,that licence areas would have to be renewed several times before they are completely utilised andthat several licence areas would have to be harvested in rotation under a sustained yield approach.The Forestry Department should consider this as they develop a long-term plan for awardinglicence areas.

5.1.2 Controlling production at the level of the individual licence area

Once licence areas have been identified, the licensing and revenue system should encouragemaximum sustained yield at the level of the forest compartment. Currently, forest concessionairesare allowed to be far too selective in their harvesting. They take a small number of trees from verylarge areas. Eventually, when all of the best trees are gone they will want to come back for the nextmost valuable large trees. Repeated re-entry into the forest is likely to cause more damage andgradual degradation over time than if the forest was harvested intensively once and left toregenerate for an adequate period of time. More intensive harvesting would also reduce the desire tore-enter the forest to cut logs and may assist with the protection of the forest in the medium-term.

Increasing the intensity of harvesting can be encouraged in two ways. Firstly, by the introduction ofan area-based charge and secondly by increasing the difference in charges between the most highlyvalued species and the lowest value species. It is suggested here that both of these modificationsshould be made to the forest revenue system.

Because of the variability in stocking levels, it is suggested that the area charge should be calculatedon the basis of the area cut and should be paid in advance each time a new forest compartment isopened (i.e. on a “pay as you go” basis). It is also suggested that it should be set at a level roughlyequal to half of the stumpage rate that would be charged on six commercial trees per hectare. Theconveyance fee should be increased to include the remaining proportion of the current per treecharge and would, in effect, become the only volume based production charge. As already noted,the production charge should introduce much more variation between low and high value species.

In the case of licences used for the production of poles, fuelwood and charcoal, these should alsospecify more clearly the area that should be used for production and should be organised so thatforest areas with the potential to produce logs are not wasted on the production of less valuableforest products.

All of these changes will require the Forestry Department to pay much more attention to the area offorest being used rather than the volume of production. However, this should result in significantcost savings because area is easier to measure and monitor than volume of production.

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5.1.3 Record keeping and other follow-up activities

During all of this process, it is very important that the Forestry Department should keep properrecords of where production is taking place and how much production has come from each areaharvested. Monitoring, reporting and record keeping such as this is essential not only to recordrevenue collection, but also for policy analysis, planning and the development of better forestmanagement practices.

This will require investment in facilities and training at the local level. In particular, the current lackof almost any maps at the local level should be rectified. It may be easier to implement a system ofrecord keeping on paper first, before trying to computerise production records and maps.

In addition to improving record keeping, it will also be important for the Forestry Department tocheck areas once production has finished. Measures should be taken to try to protect the harvestedarea from further incursion. If the licensee has left some commercial trees, the Forestry Departmentmay wish to consider selling them standing before finally closing the coupe. In the case of fuelwoodand charcoal production, the Forestry Department could replant such areas or encourage thelicensee to replant them by giving them some sort of incentive.

These sorts of ideas will need to be considered further by the Forestry Department. At the moment,it appears that there are almost no follow-up activities to try to guarantee that areas, once harvested,will be protected for sustainable production in the future.

5.1.4 Production in Joint Forest Management Areas

Awarding, monitoring and controlling licences in Joint Forest Management Areas should bearranged in consultation with local communities. In particular, they should be involved indetermining which areas of their forest should be used for different types of production. They mayalso wish to set specific conditions or restrictions on licences to reflect local circumstances andneeds. The Forestry Department should provide technical guidance to Joint Forest ManagementCommittees as part of this process.

5.2 Improving the efficiency of revenue collection and using production monitoringto improve forest management

In order to improve the efficiency of revenue collection and reduce the impact of harvesting on theforest resource, the Forestry Department should concentrate its efforts on activities with the highestratio of benefits to costs. Thus, the Forestry Department should focus its efforts in National Forestsand Local Forests.

In order to lower the costs of revenue collection and monitoring, it is suggested that forest chargesshould be structured as follows:

• For commercial timber production – an area based fee paid by the hectare in advanceand based on the area in the harvesting coupe plus a conveyance fee based on thevolume of logs taken out of the forest. A forest concession licence should be used for

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commercial timber production and could be awarded for five years and for any areabetween 2,000 ha and 20,000 ha (as noted above, the area awarded would be based onwhat is a rational forest management unit). Post harvesting inspections should be usedto assess any penalties for damage and for waste left in the forest (i.e. licensees shouldpay for what they cut or otherwise destroy and not only for what they take to theroadside).

• For commercial pole production – poles may be produced as by-products of logproduction, in which case a conveyance fee would be paid. Where an area is to be usedonly for the production of poles, an area-based fee should be paid in advance (based onthe area that will be cut) plus a conveyance fee based on the volume of poles taken outof the forest. A modified casual licence could be used for this purpose.

• For commercial charcoal production – a kiln levy (payable monthly, quarterly oryearly) plus a conveyance fee.

• For commercial fuelwood production – an area based fee based on the area that willbe cut by the licensee (and assuming a minimum level of stocking of fuelwood). Amodified casual licence could be used for this purpose.

• For commercial NWFP production – currently, there are no charges for commercialNWFP production except for bamboo – if production is charged in the future, the mostefficient way to do this would be using a permit to collect NWFPs from a specified area.

In order to increase efficiency it will also be necessary for the Forestry Department to spend lesstime and resources on measurement (this should actually be done by the forest concessionaire) andmore time on checking and monitoring. Some ideas about what might be more useful for theForestry Department to monitor in forest concessions are given below.

5.2.1 Monitoring production areas and assessing charges in forest concessions

In terms of monitoring the areas used for production, the Forestry Department should concentrateon the following specific activities:

• checking harvested areas before closing them, in order to assess any penalties thatshould be paid (e.g. for broken trees, high stumps, waste logs) and, if appropriate,arranging for the sale of any remaining commercial trees (e.g. by competitive standingsale);

• measuring and demarcating areas that will be harvested next (felling coupes) andcalculating the area based fee for these areas;

• checking on other closed coupes to make sure that they have not been re-entered;

• giving guidance about harvesting practices, the layout of extraction routes and planningfelling and extraction; and

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• checking a sample (e.g. 25%) of the measurements of roundwood production submittedby forest concessionaires to the Forestry Department each time that they apply for aconveyance licence.

The Forestry Department may already perform some of these activities at the moment. It issuggested here that greater attention should be given to these more general monitoring activities atthe expense of spending a lot of time measuring timber production.

5.2.2 Monitoring and assessing area charges in other areas

Outside forest concessions, the Forestry Department should mainly check that producers workingunder other types of licences (with an area-based charge) are staying within their agreed boundariesand following any rules or other conditions attached to their licences.

5.2.3 Monitoring production and calculating charges for logs and poles

In terms of monitoring production volumes (for the conveyance fee), a number of improvements tothe current system could be tried. These are as follows:

• For timber logs and poles, the conveyance fee should be based on the volume ofroundwood cut in the forest. This should be estimated by measuring the volume ofroundwood removed to the roadside. The difference between this and what was actuallycut should be captured by penalty fees, which would be assessed during site visits andwould include the volume of any damaged trees and waste left in the forest (e.g. wastelogs and high stumps) found during inspections.

• In order to reduce costs, the licensee should measure and number all logs and poles andtake them to agreed collection points. When there is sufficient stock at these points, theForestry Department can be invited to come and check the measurements, collect theconveyance fee, issue the conveyance licence and put their official mark on theproducts. This should only take 1-2 days every 1-2 weeks in a large forest concessionand would significantly reduce costs from the level that would be required to keep aforest guard permanently on-site (as is the case at the moment). When theconcessionaire moves the products from the roadside to the market or sawmill, theyshould also be required to take with them a copy of the itemised list of logs and/or poles(including measurements of each numbered log/pole and the official stamp of theinspecting Forestry Officer).

• By moving from a situation where the Forestry Department constantly monitorsproduction to one where it checks production, it will be necessary to enforce strict rules(with high penalties for transgression) about exactly where logs and poles can be takenbefore they become liable for the conveyance fee. It is suggested here that such pointsshould be at specific log landings or along extraction routes, agreed by the forestconcessionaire and Forestry Department in advance. Under no circumstances should asawmiller be allowed to take unmarked logs to their sawmill in the forest.

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5.2.4 Monitoring production and calculating charges for commercial charcoal production

For commercial charcoal production, a system of labelling would be more efficient to operate thanthe current system and, probably, more effective at controlling production and revenue collection. Alabel could be designed that includes: the Forest District name; a serial number; and explicitinstructions that the label has to be put on the bag of charcoal and remain there from as soon as itleaves the kiln site until it is finally sold in the market.

Illegal charcoal would be any charcoal found more than 10 metres away from a kiln that:

• has no label at all;

• has a label on it from another forest district; or

• has a label on it that is more than two weeks old46 (excluding labelled bags in themarket).

Replacing the current conveyance system for charcoal with a labelling system would have thefollowing advantages:

• labels are easy to see and the Forestry Department could easily and clearly identifyillegal products for confiscation or assessing penalty fees;

• “I don’t have my licence with me” would no longer be an excuse;

• labels would require a lot of effort to take-off and put back on other bags (much moreeffort than the current system, where a trader can keep using the licence for two weeksrelatively easily);

• labels would, anyhow, have to stay on bags until their contents are finally sold in themarket (i.e. traders should not be allowed to store large volumes of loose charcoal in themarket);

• labels could be sold at any point and would not require the Forestry Department toactually count the number of bags being conveyed;

• labels would be difficult and expensive to forge (i.e. it wouldn’t be worth the effort) – itshould also be an offence to be in possession of used labels not on bags; and

• the serial numbers would make it easier to monitor how many bags of charcoal arelegally being produced and reduce the possibility of fraud.

Overall, such a system would give the Forestry Department a much more practical way ofidentifying and monitoring legal and illegal production. By more clearly identifying illegal

46 This could be checked by every Forest District sending in to Headquarters the last serial number that they used in a week

and getting this same information from for other districts back from Headquarters. In two weeks time, any charcoal foundon the road with a label with a serial number lower than this would be illegal because the label would have expired.

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production, it would also give the Forestry Department a much stronger legal basis on which to takeaction against illegal producers.

5.2.5 Spot-checking

The Forestry Department already appears to perform random checks on production in the forest, onthe road and, in the case of charcoal, in the market. For example, the Copperbelt Provincial ForestryOffice appears to take a systematic approach to checking production at a number of places in theprovince every few months. Spot-checks are a very useful way of double-checking legal productionand finding and capturing illegal production and such checks should be continued.

However, the effectiveness of the current system is reduced by the very simple measures that theForestry Department takes to identify legal production. The effectiveness of spot-checking could beimproved if producers were required to keep a copy of the list of log/pole measurements (checkedand approved by the Forestry Department) with those products while they are transported. In thecase of charcoal production, a system of labels with serial numbers would, as already noted, alsohelp to identify legal production.

5.3 Increasing revenues and revenue sharing

5.3.1 Increasing revenues

Revenues can be increased in two main ways:

• increasing the proportion of total forest production that is captured within the revenuesystem; and

• increasing the overall level of charges.

The measures suggested in Section 5.2 above should help to achieve the first objective, along withthe proposals for greater involvement of local communities in the management of the forestresource. A general suggestion of what the new charge levels might be was given in Section 4.3.1and more specific proposals are presented in Section 5.5 below.

5.3.2 Revenue sharing

Any system of revenue sharing with local communities that is developed should be relatively easyto understand and implement. For the main types of forest products produced in Zambia (logs, polesand charcoal) it is suggested above that the conveyance fees (based on volume of output) should becombined with area-based fees (or a kiln levy in the case of charcoal production). Because of theirrelative simplicity, one easy way to share the revenues from production would be to allowcommunities to keep the area-based fees and kiln levies, while the Forestry Department would keepthe conveyance fees.

With the level and structure of charges outlined in this report, this would result in the ForestryDepartment taking about three-quarters of the total charges levied on charcoal production and at

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least half of the charges levied on pole and log production. (The exact proportion would dependupon the harvesting intensity in forest concessions – at a harvesting intensity of greater than sixtrees per hectare, the Forestry Department would get a greater share of the total charges collected).

A more radical proposal would be to allow communities to set their own level of area chargesand/or kiln levies. This would have the advantage of giving communities even greater control overthe benefits from the resource and encouraging them to protect it. However, there is the risk that,given their relative bargaining strength, they may not be able to negotiate reasonable levels ofcharges with producers. Thus, if such an approach were attempted, it would be sensible to insist thatany locally negotiated charges should be at least as high as the area-based fees and kiln levies usedin National Forests and Local Forests.

One problem that may arise with the current proposals for revenue sharing is that, in a number ofcommunities, it appears that many local people are also producers of forest products. For example,in many cases, villagers can only produce agricultural crops for part of the year and rely on charcoalproduction to generate income for the rest of the year. In such cases, it may be difficult toimplement revenue sharing because, in effect, the current proposals would be like askingcommunities to tax themselves. Thus, careful attention should be given to the implementation ofJoint Forest Management, to ensure that it is only attempted in situations where it makes sense. Itmay not be easy to implement Joint Forest Management (at least with the current emphasis onincreased revenue collection) in areas where a significant proportion of local income is generatedfrom the production of forest products.

5.4 Transparency and accountability

Currently, there seems to be some variability in the way that rules about charging are interpretedacross Zambia and uncertainty about a number of other aspects of the charging and licensingsystem. This is probably tolerated at the moment because charges are very low and the ForestryDepartment does not have sufficient resources to effectively monitor production. However, ifcharges and monitoring activities are increased, such uncertainty may lead to problems.Consequently, any attempt to increase revenue collection should be accompanied by measures toincrease transparency and accountability.

Materials that might be produced to increase transparency and accountability are as follows:

• Guidelines on what concessions are for and how they will be awarded andmanaged. See Annex 5 for one suggestion for forest concessions in National Forests –similar material could be developed for other types of licence and other types of forest.In particular, the rules for charges and licensing in forest plantations or for productsfrom other planted tress should be clarified.

• Guidelines on measurement and personal use. Materials could be developed toexplain clearly and exactly at what point in the production process a licence is required.Rules for the measurement of volume and the calculation of volume based chargesshould be developed. Guidance on what is considered personal use could also bespecified. (For example, the customs regulations for travellers entering Zambia are veryclear about what can be brought in duty-free. Similar clear guidelines could be

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developed and made publicly available to explain what is considered personal use bythe Forestry Department (e.g. one head-load of fuelwood; one bag of charcoal, etc.).

• Monitoring and collection of statistics on charge collection. The statistics that arecurrently produced on charge collection provide a very basic level of information. Itmight be helpful to put together the information on production and charges (at themoment they are in two separate tables and it is difficult to reconcile the two – seefootnote 44 on page 47). It may also be helpful to provide similar statistics at the locallevel for use in provinces and districts. In Joint Forest Management Areas, it willprobably be necessary to develop a simple reporting system so that communities can seeand understand the benefits that they are getting from the revenue sharing arrangements.

• Package of rules and regulations. Anyone who applies for a forest concession or anyother type of licence should be given a package of rules and regulations that they shouldfollow. Such a package should bring together all of the different rules, regulations,guidelines and working practices that are currently used to control the production offorest products.

Such materials should be developed further by the National Consultant working on the project, inconsultation with the Forestry Department.

5.5 An overall proposal for the structure of licences and forest charges in Zambia

Based on the intentions implied in the 1999 Forests Act, a system of licences and charges has beendevised that hopefully more accurately reflects all of the different objectives that the ForestryDepartment is trying to meet. The main features proposed are summarised here for furtherconsideration by the Forestry Department.

5.5.1 Main features of the suggested licensing and charging system

General features

• Licences and charges would be of essentially three types: a licence/charge forproduction; a licence/charge for conveyance; and a licence/charge to operate processingequipment.

• For log and pole production, the production charge would account for roughly half oftotal charges, for charcoal production it would account for one-quarter and forfuelwood, it would account for all charges. Conveyance charges would account for theremainder of the total charge.

• Production charges would only be levied on wood production from natural forests andfrom forest plantations in National Forests and Local Forests.

• Conveyance charges would only be levied on the conveyance of commercial quantitiesof logs and poles from natural forest species, plus commercial quantities of charcoal andbamboo.

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• Production of NWFPs in National Forests and Local Forests would require a permit, butthis would be issued for free.

• The main purpose of licences to operate processing equipment would be to monitor thenumber and location of facilities and charges would be nominal.

• The overall balance of charges should be shifted more towards the conveyance charge(which would incorporate the current charges levied per tree).

Production licences and charges

• Production of roundwood would be controlled by four types of licence: ForestConcession Licence; Standing Sales Licence; Fuelwood Production Licence; andCharcoal Production Licence.

• A Forest Concession Licence could be of a variable size and could cover any type ofnatural forest. The charges for production under such a licence would be based on thearea cut and would allow the licence holder to produce logs (plus poles and fuelwood asby-products) from this area.

• A Standing Sales Licence could be awarded in any type of forest and would be used forpole production and very small-scale log production in the natural forest and productionfrom forest plantations in National Forests and Local Forests. The charges under such alicence would be set competitively (with reserve prices based on the charges fixed underother types of licences). A Standing Sales Licence would also allow the licence holderto produce poles and fuelwood as by-products.

• A Fuelwood Production Licence could be awarded in any type of natural forest (exceptNational Forests) and in forest plantations in National Forests and Local Forests. Thelicence would specify the area where production could take place. A fixed charge wouldbe levied per month, quarter or year.

• A Charcoal Production Licence could be awarded in any type of natural forest (exceptNational Forests) and in forest plantations in National Forests and Local Forests. Thelicence would specify the area where production could take place. A fixed charge wouldbe levied per month, quarter or year.

Conveyance licences and charges

• A conveyance licence would be needed to transport all logs and poles from natural treespecies and charcoal.

• The conveyance charge would be based on the volume of logs and poles conveyed orper standard grain bag of charcoal.

• The Forestry Department hammer mark and labels on bags (in the case of charcoal)would be the main means of control.

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• Where sawmills are located in the forest, conveyance fees must be paid beforeroundwood is taken to the processing area. Conveyance fees on processed productswould be abolished.

Revenue sharing

• Revenue from production charges from natural forests in Joint Forest ManagementAreas would accrue to Joint Forest Management Committees for sharing with the localcommunity.

• Revenue from all other charges would accrue to the Forestry Department.

• Forest plantations established in Joint Forest Management Areas would be treated asprivate forest plantations and charges in such areas would be determined by Joint ForestManagement Committees.

5.5.2 Production licences and charges

The requirements for production licences under the suggested system are summarised in Table 12.This table shows when a licence would be required by type of product and type of forest. It alsoshows which type of licence would be required.

The level of production charges suggested here is presented in Table 13. This shows the types oflicences that might be issued in each of the different types of forest in Zambia, the permission thatwould be granted under each of these licences, the charges that would be paid and the distributionof revenues from such charges.

Following sections briefly give some more specific details about each of the proposed licences.These should be discussed further and clarified by the National Consultant in consultation with theForestry Department and other stakeholders.

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Table 12 Requirement for a licence for production in different types of forestType of forestType of product

National Forest Local Forest Joint ForestManagement Area

Other Areas

From the natural forestLogs (> 30 cm buttdiameter)

Yes – a ForestConcession Licencewould be needed.

Yes – a ForestConcession Licencewould be needed or aStanding SalesLicence for a smallnumber of logs.

Yes – a ForestConcession Licencewould be needed or aStanding SalesLicence for a smallnumber of logs.

Yes – a ForestConcession Licencewould be needed or aStanding SalesLicence for a smallnumber of logs.

Poles (<30 cm buttdiameter)

Yes – as a by-productof log production orunder a StandingSales Licence.

Yes – as a by-productof log production orunder a StandingSales Licence.

Yes – as a by-productof log production orunder a StandingSales Licence.

Yes – as a by-productof log production orunder a StandingSales Licence.

Fuelwood No - except as a by-product fromproduction under aForest ConcessionLicence or StandingSales Licence.

Yes – as a by-productof log or poleproduction or under aFuelwood ProductionLicence.

Yes – as a by-productof log or poleproduction or under aFuelwood ProductionLicence.

Yes – as a by-productof log or poleproduction or under aFuelwood ProductionLicence.

Charcoal No - except as a by-product fromsawmilling.

Yes – as a by-productof sawmilling orunder a CharcoalProduction Licence.

Yes – as a by-productof sawmilling orunder a CharcoalProduction Licence.

Yes – as a by-productof sawmilling orunder a CharcoalProduction Licence.

NWFPs Yes – a NWFPPermit would beneeded.

Yes – a NWFPPermit would beneeded.

No. No.

From forest plantationsLogs (> 30 cm buttdiameter)

Yes – a StandingSales Licence wouldbe needed.

Yes – a StandingSales Licence wouldbe needed.

No – this would be amatter for the JFMCommittee todetermine.

No – this is a privatematter.

Poles (<30 cm buttdiameter)

Yes – a StandingSales Licence wouldbe needed.

Yes – a StandingSales Licence wouldbe needed.

No – this would be amatter for the JFMCommittee todetermine.

No – this is a privatematter.

Fuelwood Yes – as a by-productof log or poleproduction or under aFuelwood ProductionLicence.

Yes – as a by-productof log or poleproduction or under aFuelwood ProductionLicence.

No – this would be amatter for the JFMCommittee todetermine.

No – this is a privatematter.

Charcoal Yes – as a by-productof sawmilling orunder a CharcoalProduction Licence.

Yes – as a by-productof sawmilling orunder a CharcoalProduction Licence.

No – this would be amatter for the JFMCommittee todetermine.

No – this is a privatematter.

NWFPs Yes – a NWFPPermit would beneeded.

Yes – a NWFPPermit would beneeded.

No. No.

Table 13 An overall proposal for the structure of forest charges to be applied in national and local forests in ZambiaType of forest and type of licence Permission granted under the licence Level and structure of chargesNatural forest in a National ForestForest Concession Licence Permission to enter the forest, to cut logs (butt diameter > 30 cm)

from an agreed area (i.e. a compartment) and to take such logs toagreed log landings.Permission to produce poles (< 30-cm butt diameter) and fuelwoodfrom logging waste and areas cleared to make roads, skid trails andlandings.

1,500 Fee Units per hectare cut (i.e. the area of thecompartment), paid in advance. The revenue from thischarge would accrue to the Forestry Department.

Standing Sale Licence Permission to enter the forest, to clearfell all trees or to fell markedtrees (i.e. thinnings) from an agreed area and to take suchroundwood to agreed log landings.

A charge for the total standing sale area will bedetermined by competitive tender, auction or negotiation.The revenue from this charge would accrue to theForestry Department.

NWFP Permit Permission to enter the forest, to harvest NWFPs from an agreedarea and to take such products to market.

Free.

Natural forest in Local ForestsForest Concession Licence Permission to enter the forest, to cut logs (butt diameter > 30 cm)

from an agreed area (i.e. a compartment) and to take such logs toagreed log landings.Permission to produce poles (< 30-cm butt diameter) and fuelwoodfrom logging waste and areas cleared to make roads, skid trails andlandings.

1,500 Fee Units per hectare cut (i.e. the area of thecompartment), paid in advance. The revenue from thischarge would accrue to the Forestry Department.

Standing Sale Licence Permission to enter the forest, to clearfell all trees or to fell markedtrees (i.e. thinnings) from an agreed area and to take suchroundwood to agreed log landings.

A charge for the total standing sale area will bedetermined by competitive tender, auction or negotiation.The revenue from this charge would accrue to theForestry Department.

Charcoal Production Licence Permission to enter the forest, to clearfell all trees or to fell markedtrees (i.e. thinnings) from an agreed area and to take suchroundwood to an agreed kiln site.Permission to operate one charcoal kiln for an agreed period of timespecified in the licence and to store charcoal at the kiln site.

200 Fee Units per month;or 500 Fee Units per quarter;or 1,500 Fee Units per year.The revenue from this charge would accrue to theForestry Department.

Fuelwood Production Licence (for thecommercial production of fuelwood)

Permission to enter the forest, to clearfell all trees or to fell markedtrees (i.e. thinnings) from an agreed area and to take such fuelwoodto agreed collection points.

200 Fee Units per month;or 500 Fee Units per quarter;or 1,500 Fee Units per year.The revenue from this charge would accrue to theForestry Department.

NWFP Permit Permission to enter the forest, to harvest NWFPs from an agreedarea and to take such products to market.

Free.

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Table 13 An overall proposal for the structure of forest charges to be applied in national and local forests in Zambia

Type of forest and type of licence Permission granted under the licence Level and structure of chargesNatural forest in an open area and customary landForest Concession Licence Permission to enter the forest, to cut logs (butt diameter > 30 cm)

from an agreed area (i.e. a compartment) and to take such logs toagreed log landings.Permission to produce poles (< 30-cm butt diameter) and fuelwoodfrom logging waste and areas cleared to make roads, skid trails andlandings.

1,500 Fee Units per hectare cut (i.e. the area of thecompartment), paid in advance. The revenue from thischarge would accrue to the Forestry Department.

Standing Sale Licence Permission to enter the forest, to clearfell all trees or to fell markedtrees (i.e. thinnings) from an agreed area and to take suchroundwood to agreed log landings.

A charge for the total standing sale area will bedetermined by competitive tender, auction or negotiation.The revenue from this charge would accrue to theForestry Department.

Charcoal Production Licence Permission to enter the forest, to clearfell all trees or to fell markedtrees (i.e. thinnings) from an agreed area and to take suchroundwood to an agreed kiln site.Permission to operate one charcoal kiln for an agreed period of timespecified in the licence and to store charcoal at the kiln site.

200 Fee Units per month;or 500 Fee Units per quarter;or 1,500 Fee Units per year.The revenue from this charge would accrue to theForestry Department.

Fuelwood Production Licence (for thecommercial production of fuelwood)

Permission to enter the forest, to clearfell all trees or to fell markedtrees (i.e. thinnings) from an agreed area and to take such fuelwoodto agreed collection points.

200 Fee Units per month;or 500 Fee Units per quarter;or 1,500 Fee Units per year.The revenue from this charge would accrue to theForestry Department.

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Table 13 An overall proposal for the structure of forest charges to be applied in national and local forests in Zambia

Type of forest and type of licence Permission granted under the licence Level and structure of chargesNatural forest in a Joint Forest Management AreaForest Concession Licence Permission to enter the forest, to cut logs (butt diameter > 30 cm)

from an agreed area (i.e. a compartment) and to take such logs toagreed log landings.Permission to produce poles (< 30-cm butt diameter) and fuelwoodfrom logging waste and areas cleared to make roads, skid trails andlandings.

1,500 Fee Units per hectare cut (i.e. the area of thecompartment), paid in advance. The revenue from thischarge would accrue to the Joint Forest ManagementCommittee for sharing with the local community.

Standing Sale Licence Permission to enter the forest, to clearfell all trees or to fell markedtrees (i.e. thinnings) from an agreed area and to take suchroundwood to agreed log landings.

A charge for the total standing sale area will bedetermined by competitive tender, auction or negotiation.The revenue from this charge would accrue to the JointForest Management Committee for sharing with the localcommunity.

Charcoal Production Licence Permission to enter the forest, to clearfell all trees or to fell markedtrees (i.e. thinnings) from an agreed area and to take suchroundwood to an agreed kiln site.Permission to operate one charcoal kiln for an agreed period of timespecified in the licence and to store charcoal at the kiln site.

200 Fee Units per month;or 500 Fee Units per quarter;or 1,500 Fee Units per year.The revenue from this charge would accrue to the JointForest Management Committee for sharing with the localcommunity.

Fuelwood Production Licence (for thecommercial production of fuelwood)

Permission to enter the forest, to clearfell all trees or to fell markedtrees (i.e. thinnings) from an agreed area and to take such fuelwoodto agreed collection points.

200 Fee Units per month;or 500 Fee Units per quarter;or 1,500 Fee Units per year.The revenue from this charge would accrue to the JointForest Management Committee for sharing with the localcommunity.

Forest plantation in National Forests and Local ForestsStanding Sale Licence Permission to enter the forest, to clearfell all trees or to fell marked

trees (i.e. thinnings) from an agreed area and to take suchroundwood to agreed log landings.

A charge for the total standing sale area will bedetermined by competitive tender, auction or negotiation.The revenue from this charge would accrue to theForestry Department.

NWFP Permit Permission to enter the forest, to harvest NWFPs from an agreedarea and to take such products to market.

Free.

Forest plantations outside National Forests and Local Forests would be recognised as private property and, as such, the Forestry Departmentwould not set charges or require licences for production from such areas.

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5.5.3 Forest Concession Licence

Purpose: The Forest Concession Licence should be the main type of licence used for thecommercial production of logs from the natural forest.

Scope and duration: A Forest Concession Licence should be awarded for an area determined bythe Forestry Department. This area could include any type of natural forest (e.g. National Forest,Local Forest or natural forest on other types of land) and should be determined on the basis that itforms a rational management area. The area could be from 2,000 ha to 20,000 ha. The duration ofthe licence should be for 5 years, with the possibility of extension for further periods (until thelicence area is completely harvested).

Implementation: The Forest Concession Licence would give the licence holder permission to enterthe forest, to cut logs (butt diameter > 30 cm) from an agreed area (i.e. a compartment) and to takesuch logs to agreed log landings. It would also allow the licence holder to produce poles (< 30 cmbutt diameter) and fuelwood from logging waste and areas cleared to make roads, skid trails andlandings and to take such products to an agreed point in the forest. The licence would specify thearea of forest that will be used along with any other felling regulations or conditions that mightapply to the felling area. The main method of control would be to ensure that licence holders areonly cutting within the compartment boundaries agreed between them and the Forestry Departmentand that they are not moving products beyond the agreed collection points in the forest.

Charges: Charges would be paid in advance on an area basis as new compartments are cut. Thesuggested rate is 1,500 Fee Units per hectare cut (approximately half of the average stumpage valueassuming six commercial trees per hectare). The revenue from charges would accrue to the ForestryDepartment, except in Joint Forest Management Areas where they would accrue to the Joint ForestManagement Committee for sharing with the local community.

5.5.4 Standing Sales Licence

Purpose: The Standing Sales Licence should be the main type of licence used for the commercialproduction of poles (or, possibly, the very small scale production of logs) in the natural forest andthe commercial production of poles and logs in forest plantations (in National Forests and LocalForests). It would serve the purpose currently fulfilled by the casual licence.

Scope and duration: A Standing Sales Licence should be awarded for an area determined by theForestry Department. This area could include any type of natural forest (e.g. National Forest, LocalForest or natural forest on other types of land) or forest plantations in National Forests and LocalForests. The duration of the licence would be short (e.g. 3 months).

Implementation: The Standing Sales Licence would give the licence holder permission to enter theforest, to clear fell the area (forest plantations only) or to cut logs and poles marked by the ForestryDepartment and to take such products to agreed collection points. It would also allow the licenceholder to produce poles and fuelwood as by-products from these operations and to take suchproducts to an agreed point in the forest. The licence would specify the area of forest that will beused along with any other felling regulations or conditions that might apply to the felling area. Themain method of control would be to ensure that licence holders are only cutting marked trees (orclear felling) within the agreed boundaries and that they are not moving products beyond the agreedcollection points in the forest.

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Charges: Charges would be paid in advance and would be determined by competitive means (e.g.auction, tender or negotiation). Reserve prices would be based on estimated standing volume andset at a level comparable to what would be obtained under a Forest Concession Licence. Thus, forlogs and poles from natural species, this would be equal to volume multiplied by the conveyancecharges, for forest plantations it would be equal to volume multiplied by twice the conveyancecharges.47 The revenue from charges would accrue to the Forestry Department, except in JointForest Management Areas where they would accrue to the Joint Forest Management Committee forsharing with the local community.

5.5.5 Charcoal Production Licence

Purpose: The Charcoal Production Licence should be the main type of licence used for commercialcharcoal production.

Scope and duration: A Charcoal Production Licence should be awarded for an area determined bythe Forestry Department. This area could include any type of forest except National Forest. Theduration of the licence would be specified in the licence.

Implementation: The Charcoal Production Licence would give the licence holder permission toenter the forest, to clear fell the area or to cut logs and poles marked by the Forestry Departmentand to take such products to an agreed kiln site. It would also allow the licence holder to operateone standard sized charcoal kiln. The licence would specify the area of forest that will be usedalong with any other felling regulations or conditions that might apply to the felling area. The mainmethod of control would be to ensure that licence holders are only cutting marked trees (or clearfelling) within the agreed boundaries and that they are not moving charcoal away from the agreedkiln site.

Charges: Charges would be paid in advance and would be set at a level of 200 Fee Units permonth; or 500 Fee Units per quarter; or 1,500 Fee Units per year (this scale offers a discount toencourage producers to take a longer licence). The revenue from charges would accrue to theForestry Department, except in Joint Forest Management Areas where they would accrue to theJoint Forest Management Committee for sharing with the local community.

5.5.6 Fuelwood Production Licence

Purpose: The Fuelwood Production Licence should be the main type of licence used forcommercial fuelwood production.

Scope and duration: A Fuelwood Production Licence should be awarded for an area determinedby the Forestry Department. This area could include any type of forest except National Forest. Theduration of the licence would be specified in the licence.

Implementation: The Fuelwood Production Licence would give the licence holder permission toenter the forest, to clear fell the area or to cut logs and poles marked by the Forestry Department 47 Because conveyance charges would be set at equal to half of the stumpage value and would still be levied on logs and poles

of natural species but not on plantation species.

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and to remove fuelwood from the forest. The licence would specify the area of forest that will beused along with any other felling regulations or conditions that might apply to the felling area. Themain method of control would be to ensure that licence holders are only cutting marked trees (orclear felling) within the agreed boundaries.

Charges: Charges would be paid in advance and would be set at a level of 200 Fee Units permonth; or 500 Fee Units per quarter; or 1,500 Fee Units per year (this scale offers a discount toencourage producers to take a longer licence). The revenue from charges would accrue to theForestry Department, except in Joint Forest Management Areas where they would accrue to theJoint Forest Management Committee for sharing with the local community.

5.5.7 Non-Wood Forest Products Permit

Purpose: A Non-Wood Forest Products Permit should be used to allow people to enter nationalForests and Local Forests to collect NWFPs.

Scope and duration: A Non-Wood Forest Products Permit should be awarded for an areadetermined by the Forestry Department. A Non-Wood Forest Products Permit would only beneeded in National Forests and Local Forests. The duration of the licence would be short (e.g. 3months).

Implementation: The Non-Wood Forest Products Permit would give the licence holder permissionto enter the forest, to collect and remove NWFPs from the forest. The licence would specify thearea of forest that will be used along with any other regulations or conditions that might apply touse of the area. The main method of control would be to ensure that licence holders are notharvesting anything that is not included in the licence or damaging the forest in any way.

Charges: This permit would be issued free of charge. (A variation of this sort of permit could beused to allow other uses of the forest in return for a charge – e.g. top soil removal, sites for huts,forest clearance for specified reasons. In this way, it would also fulfil the role currently met by theuse of the casual licence where it is used for such products).

5.5.8 Conveyance Licence

Purpose: The Conveyance Licence would be used to allow people to transport logs and poles (fromthe natural forest) from the forest to the sawmill and charcoal from the forest to the market.

Scope and duration: A Conveyance Licence would be awarded to transport a specified volumewithin a period of two weeks. Volume would be measured in cubic metres (in the case of logs andpoles) or in terms of numbers of standard grain bags (in the case of charcoal). A conveyance licencewould not be needed for the following:

• small amounts of forest products harvested for personal use;• fuelwood;• NWFPs (excluding bamboo); and• roundwood of plantation species.

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Implementation: The Conveyance Licence would give the licence holder permission to removelogs and poles from an agreed landing or collection point, to remove charcoal from an agreed kilnsite or to transport bamboo. The licence would specify where the product has come from and thetotal volume that may be transported. For logs and poles, the logs must be numbered and markedwith the official hammer mark of the Forestry Department. The licence holder must also keep a listof log/pole measurements with the products when they are transported. Official labels will be usedto identify that conveyance charges have been paid for bags of charcoal. The main method ofcontrol will be spot-checks to ensure that all products being transported have been measuredcorrectly and have hammer marks or labels.

Charges: Charges would be paid in advance and would be set at the levels shown in Table 14. Therevenue from conveyance charges would accrue to the Forestry Department.

Table 14 Suggested levels of conveyance chargeSpecies Conveyance charge (in Fee

Units per cubic metreBaikiaea plurijuga (Mukusi, Mikeshi, Zambia Teak) 500Pterocarpus angolensis (Mukwa, Mulombwa, Mulombe, Mukula) 500Faurea Saligna (Saninga, Mushokoso) 456Entandrophragma spp (Mofu, Mofwe, Mupumena) 400Danniella alsteeniana (Mukulabushiku) 400Erythrophleum africanum (Kaimbi, Mukosa, Mubako) 350Afzelia quanzensis (Mupapa, Mwande) 250Guibourtia coleasperma (Muzauli, Mushibi) 250Khaya nyasica (Mululu, Mbewa) 250Mitragyna stipulosa (Mupa) 250Pericopsis angolensis (Mubanga) 250Albizia spp (Musase, Mutanga) 200Other species 100Bamboo 10 Fee Units per 20 canes

5.5.9 Sawmill and Pitsawing licences

Purpose: The purpose of a Sawmilling or Pitsawing Licence would be to collect statistics formonitoring the location of sawmills and the status of the forest industry in Zambia.

Scope and duration: A Sawmilling or Pitsawing Licence would be awarded for the location of asawmill or pitsaw in an area determined by the Forestry Department. The duration of the licencewould be one year.

Implementation: The Sawmilling or Pitsawing Licence would give the licence holder permissionto operate a sawmill or pitsaw in an agreed location. This location could change during the durationof the licence with the permission of the Forestry Department. The licence would also allow thelicence holder to sell sawmill residues or produce charcoal from sawmill residues. The licencewould specify any other regulations or conditions that might apply to the operation of the sawmillor pitsaw. The main method of control would be to ensure that licence holders are not usingunmarked logs or poles in their sawmill or pitsaw.

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Charges: This licence would be issued for a nominal charge. (If raising revenues is a priority, itmay also be desirable to consider extending such a licence to include chainsaws).

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REFERENCES

FAO, 1996, Zambia: identification of forestry investment projects – identification report, ReportNo: 96/073 ADB-ZAM, Food and Agriculture Organization of the United Nations, Rome.

Government of Zambia, 1994, Statutory Instrument No 133 of 1994, Forest Licence (Amendment)Regulations 1994, Government of Zambia, Lusaka.

Government of Zambia, 1996, Timber export policy: rules and regulations, Ministry ofEnvironment and Natural Resources, Lusaka.

Government of Zambia, 1997, Statutory Instrument No 48 of 1997, Forest Licence (Amendment)Regulations 1997, Government of Zambia, Lusaka.

Government of Zambia, 1998, National Forestry Policy, Ministry of Environment and NaturalResources, Lusaka.

Government of Zambia, 1999, The Forests Act 1999, Supplement to the Republic of ZambiaGovernment Gazette dated the 8th October, 1999, Government of Zambia, Lusaka.

Government of Zambia, 2000, Forestry Department 1999 Annual Report, Ministry of Environmentand Natural Resources, Lusaka.

Gray, J, 1983, Forest revenue systems in developing countries, Forestry Paper 43, Food andAgriculture Organization of the United Nations, Rome.

Repetto, R, and Gillis, M, 1988, Public policies and the misuse of forest resources, CambridgeUniversity Press, Cambridge.

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ANNEX 1: TERMS OF REFERENCE - FOREST REVENUE EXPERT

Under the overall responsibility of the Director of the Field Operations Division (TCO) and thedirect supervision of the Chief, Operations Branch, RAFR, to whom the consultant will be directlyresponsible, the guidance of the designated technical and operations officers and with frequentreferral to the national authorities directly concerned in the Government Executing Agency, inparticular the National Project Director, the International Forest Revenue Expert will be responsiblefor carrying out the following tasks:

Conducting a study into the existing forest revenue collection procedures, involving:

• an overall review of existing procedures and identification of specific problems;

• proposals for amendments to the system required to be consistent with the new ForestAct;

• proposals for creating revenue monitoring units at the two provincial offices covered bythe project;

• proposals for improvements to the system and upgrading of two district offices toimprove efficiency and raise revenue yields, including possible incentive mechanismsfor district level Forestry Department staff to collect forest revenues;

• proposals for improved monitoring and reporting mechanisms for forest revenuecollection; and

• presentation of the findings and recommendations in a technical report.

Duration: One (1) month.Duty station: Lusaka, with travel to Copperbelt and Central Provinces.Qualifications and experience: Graduate with relevant professional qualification, 10 years

professional experience; and, previous international levelexperience in Africa in revenue aspects of communitymanagement of forestry and/or wildlife resources.

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ANNEX 2: ECONOMIC RENT AND FOREST CHARGES

Economic efficiency is an underlying objective of government policy in most countries and shouldbe reflected in the way that forestry administrations organise their forest revenue systems.Economic theory shows that economies tend to function most efficiently when the levels of outputand prices of goods and services are established through competitive markets. Therefore, insituations where the government licences the production of a good or service, such as they do withforest concessions, a useful starting point for developing a charging policy is that the governmentshould aim to charge for the use of forest resources in a way that resembles what might be achievedin a competitive market.48

It is sometimes possible for the government to implement efficient forest charging policies bymanaging their forest resources in a way that replicates the competitive market. For example, thestate could divide production amongst a number of competing state enterprises or use a competitivemechanism (such as auctions or sealed tenders) to sell the rights to harvest forest products.However, where forest concessions are awarded for relatively long periods of time (as opposed toshort-term cutting licences), it is often technically difficult to introduce competition into the processof awarding and supervising the concessions.49 Therefore, governments usually have to set chargesfor the use of the forest in a way that reflects what the competitive market value of the outputs fromthe resource would probably be.

There is a further complication in the case of forests (and some other types of natural resources), inthat these resources are essentially produced for free (i.e. the resources occur naturally, although theproduction of outputs from these resources involves a production cost). Therefore, it is not possibleto look at the cost of creating the resource as a guide to what the charge for using it might be.Furthermore, unless there is a private forest owning sector, it is not even possible to get a referenceprice for the value of these outputs from the private-sector. Therefore, in the case of forests andother natural resources, the amount that the government charges for the use of the resource has to becalculated from theory and the “economic rent” from production is often chosen as an appropriatemeasure on which to base forest charges.

This annex describes what economic rent is and shows how it can be calculated and used as a guideto setting forest charges. It then describes some of the challenges to calculating economic rent.

What is economic rent?

Economic rent can be defined as the surplus value created during the production of a good orservice, due to the ownership of a factor of production that is in fixed or limited supply. In manyeconomic activities, it is not possible to create economic rents. Thus, for example, if a sawmillercould sell sawnwood for far more than the cost of production (and thus, earn an economic rent from 48 There are, of course, situations where the market does not produce outcomes that would be efficient in the wider sense of

the word; for example, in cases where there are significant non-market costs or benefits associated with production (i.e.social and environmental costs and benefits). Indeed, the presence of such non-market impacts - or externalities - is oftenthe justification for government intervention in markets. However, these extensions to the basic theory behind setting forestcharges will not be examined here.

49 For example, the level of output that will be obtained from such resources is often unknown and, particularly in the caseswhere forest concessionaires are also expected to manage the forest, a number of requirements to invest in the resource(e.g. build roads, protect the forest from fire and perform certain silvicultural activities) are often included in suchagreements.

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that activity), other producers would soon enter the market and drive product prices down, such thatthe surplus would disappear. However, if that activity was dependant upon a fixed factor ofproduction (e.g. a prime location in a city or an exclusive property right such as a patentedproduction process or copyright on a product design), then other producers could not enter thatparticular part of the market and drive prices down and the economic rent would persist.

The classic example of an economic rent is a land rent. Land supply is generally fixed and landcosts nothing to produce yet, with the addition of other inputs, land can be made to produce outputsthat are far higher in value than the total cost of the inputs. On very productive land or land infavourable locations, the economic rent is high; while in more remote or less productive areas,economic rent is much lower. In a competitive market, potential users of the land would beprepared to pay a rent to the owners of the land that is equal to the economic rent from its use.

It should be noted however, that other factors of production can also earn economic rents if thereare artificial barriers or other rigidities that restrict the supply of these factors to the market. Animportant point for governments to note is that they can have a major impact on the creation ofrents in an economy if the policies they pursue affect the flow of capital or place other constraintson the way that markets function.

Economic rent in the context of forest concessions

The economic rent from a forest concession is a type of land rent. In the case of the natural forest,the resource occurs without any investment (i.e. it occurs naturally and is not planted or created inany way) and the value of outputs from the forest will be higher than the costs of production upuntil the point at which low stocking, poor accessibility or distance from markets makes productionuneconomic.

The economic rent from roundwood production is generally referred to as the stumpage value ofroundwood, or the price that would be obtained if the timber were sold standing in a competitivemarket. In some countries, timber is sold standing by competitive means such as auctions or tendersbut, for a number of reasons, this is not common in tropical forests managed under selective cuttingsystems. Therefore, the government has to estimate what an appropriate level of forest chargesshould be and the estimated economic rent from roundwood production is often chosen as the basisfor setting forest charges.

How is economic rent estimated?

In the context of forests managed for timber production, economic rent is simply estimated bysubtracting the costs of roundwood production from the value of roundwood produced from theresource. However, this calculation is often more complicated than it seems. Firstly, it is oftennecessary to build-up the total cost of roundwood production from the cost of each individualforestry activity (e.g. forest management and planning, felling, extraction and transport to the pointof sale). Furthermore, the cost of each activity also usually has to be constructed from its individualcomponents (e.g. labour costs; the costs of consumable items used in the activity such as rawmaterials, fuel and minor tools and spare parts, and the cost of capital such as equipment, machineryand buildings). In addition to these cost components, the calculation of total production cost shouldalso include an allowance for normal profit (see Box 2).

Box 2 Normal profit in the calculation of total production cost

Tlcli

F

TbTturf

In any economic activity, it is necessary for producers to earn a certain amount of profit to justify their continuedinvestment in that activity. This level of profit is usually referred to as normal profit, which, in the context of forestconcessionaires, can be defined as:

"the level of profit that provides a return on the forest concessionaires investment in capital andinfrastructure, which is just sufficient to keep the forest concessionaire operating in the sector."

The level of normal profit is usually determined with reference to the returns which can be made from investing inother sectors of the economy or in financial instruments (such as stocks, bonds or savings accounts), with anadjustment to take into the account the relative risk associated with investing in the forest concession compared withthe risk from these other types of investments.

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he two cost components that are generally the most difficult to estimate are the capital cost and theevel of profit that a forest concessionaire should be allowed to retain (i.e. the normal profit). Theost of capital is usually based on the depreciation of capital used in the production process. Theevel of normal profit is usually expressed as a required rate of return on the total amount of capitalnvested in the production process.

igure 3 The relationship between production costs, profits, economic rent and forest charges

he pie chart shown in Figure 3 demonstrates how the total value of roundwood production mighte distributed between labour and raw material costs, capital cost, normal profit and economic rent.he value of roundwood is represented by the total size of the pie. The various components of the

otal roundwood production cost are represented by the dark shaded slices of the pie and thenshaded slice represents the economic rent. It is worthwhile noting that a large proportion of theoundwood production cost is usually accounted for by the cost of capital and normal profit in mostorest operations. Because this cost is largely fixed (i.e. it doesn’t vary with output levels), the

Labour and rawmaterial costs

ECONOMICRENT

Capital costs

Forest charges

Excess profit

Normal profit

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efficiency of capital utilisation can have a dramatic impact on the total roundwood production costand, consequently, the level of economic rent earned from roundwood production.

The relationship between economic rent and forest charges

As Figure 3 above shows, the economic rent from roundwood production is the surplus remainingfrom the sale of the roundwood after all the production costs have been covered. In other words, ifthe rights to cut a particular area of forest were auctioned in a competitive market, it could beexpected that the highest bid would be close to this level of economic rent. Therefore, if roundwoodis harvested from state-owned forest, the charge that the forestry administration sets for the use ofthe resource should usually be set at a level that captures a significant proportion of this economicrent.

Any economic rent, which is not captured by government levies, is earned by the forestconcessionaire, the concessionaire's customers (i.e. the sawmill owner, which may be the sameperson) or, occasionally, contractors or others involved in the production process.50 This proportionof the economic rent that does not accrue to the government (as the owner of the resource) isusually referred to as "excess profits" or "windfall profits".

There may be circumstances where the government deliberately decides to collect less than the totalamount of economic rent in order to give a subsidy to roundwood production or to the domesticforest processing industry. However, it is often the case that government charges fail to capture thetotal amount of economic rent from roundwood production, because the government is uncertainabout the level of economic rent being generated in the sector.

The main challenges when calculating economic rent

There are three main challenges when attempting to calculate economic rent: the collection ofaccurate and reliable cost and price information; the variability in economic rent across differentregions and types of forest; and the question of what is an appropriate level of normal profit in thesector.

Data quality

There are two main problems with the collection of cost and price data for economic rent analysis.The first is that such information is often not readily available and, even if it is, it may not be veryreliable. This is particularly the case with some of the components of the production cost (e.g. thecost of repairs and maintenance) where forest operators often do not keep accurate records. This canpartly be overcome by referring to machine operator’s handbooks and collecting information aboutthe cost of typical repair and maintenance activities in order to calculate an estimate of the cost.Another way in which the situation may be addressed is by asking forest managers about how oftenthey perform various activities such as maintenance in order to get a general idea of the cost of suchactivities.

50 This can also include government officials involved in the awarding and monitoring of forest concessions. In may

countries, low rent capture finances corruption in the forestry sector.

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The second problem that occurs, is that it is often in the interests of the respondents to any enquiryto understate prices and overstate costs in order to give the impression that profitability is low (andconsequently that forest charges should be low). Some take this a step further and deliberatelyrecord low prices in their records in order to alter their tax position (this is particularly a problemwhere the forest concessionaire supplies a sawmill owned by the same person or company wherethis practice, known as artificial transfer pricing, can be used to considerable advantage). Thisproblem can only be overcome by judging how reliable the data collected is by comparing theresponses given by individuals with each other and with any competitive market information thatmay be available (for example, by working back to a roundwood price from the sale price offinished wood products).

Variability

The second challenge is that, like any land rent, the level of economic rent from roundwoodproduction can vary greatly due to a number of factors such as the productivity of a site, the volumeof commercial species present, transport distances and other site conditions.

Where the total roundwood production cost varies due to factors over which the forestconcessionaire has little control, this variability should be taken into account in the design of theforest charging policy. In other words if, for example, the total roundwood production cost from aparticular concession is high because it is a long way from the market, this should beaccommodated in the forest charging system by setting a lower forest charge for outputs producedfrom this area. Examples of factors that should be accommodated in this way include: the level ofstocking of commercial species in the forest; terrain and other working conditions; and the distancefrom the forest concession to the market. The most important of these factors is likely to betransport distance.

There is also a second group of factors that can affect the economic rent from production, overwhich forest managers do have some control. These mostly concern the efficiency of operations andinclude variables such as: the length of skid-trails used to extract timber; harvesting machineavailability and utilisation rates; and the utilisation of appropriate technology. In these cases, thecharging policy and the way in which forest concessions are awarded and supervised should aim toencourage greater efficiency and the reduction of the total roundwood production cost, in order thatthe economic rent from production can be maximised. In other words, inefficiency and lowproductivity is not a reasonable excuse for setting low forest charges.

Normal profit

The last major challenge in the calculation of economic rent is determining what the normal level ofprofit should be. As noted above, the forest charging system should aim to set charges such that thegovernment captures any economic rent that is currently being captured by the private-sector in theform of excess profits. If, however, the government sets charges too high, they may reduce the levelof profits that the forest concessionaire can retain so much that there will be no new investment inthe sector and forest concessionaires will eventually leave the sector.

In view of the fact that the charging policy should, in the long-run, allow forest concessionaires tomake new investments, it is appropriate that they should be allowed to retain a certain proportion of

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their profits. Normal profit can be estimated by discussing profit expectations with concessionairesor by deriving an estimate from the returns from other investments in the economy. For example,current nominal interest rates in Zambian Government Bonds are in the range of 30% to 40%. Thus,after adjusting these for inflation and risk, the rate of return or profit that might reasonably beallowed in the forestry sector may be in the range of 20% to 30%.

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ANNEX 3: THE ADVANTAGES AND DISADVANTAGES OFALTERNATIVE FOREST CHARGE STRUCTURES

There are three main types of forest charges commonly used in forest revenue systems, plus anumber of other miscellaneous charges that are used less frequently or for minor forest products.The main advantages and disadvantages of each of these are described below, along with anindication of their likely administrative costs.51

Area-based charges

Area-based charges are generally cheap to calculate and administer, require little policing andencourage the efficient use of the resource. Their main disadvantages are that it is difficult toincorporate differences in productivity between different forest areas (e.g. different levels ofcommercial stocking) in such charges without having very detailed forest resource information.They can also encourage overharvesting of the resource (which is why they are often combinedwith volume-based charges). They can, however, be easily used to introduce differences in forestcharges to take into account differences in accessibility, working conditions (e.g. difficult terrainand swampy areas) and distance to markets.

Table 15 The administrative cost, advantages and disadvantages of the most common types ofarea-based forest charges

Type of charge Administrativecost

Advantages Disadvantages

Charge on the totalarea of the forestconcession (annualcharge and/or lumpsum charge at thestart of the conce-ssion agreement)

+ Easy to police and very low costto implement. Encourages thecomplete utilisation of standingcommercial timber. Discouragesforest concessionaires fromapplying for unnecessarily largeareas to stop others gainingaccess to the forest resource (i.e.it encourages competition).

Difficult to adjust for differentlevels of commercial stocking andchanges in market conditions.Can encourage overharvestingwithout careful monitoring offorest operations.

Charge on the areacut (annual charge)

+ + Generally low cost andencourages the completeutilisation of standing comm-ercial timber. More flexible than acharge on the total concessionarea.

Difficult to adjust for differentlevels of commercial stocking.Can encourage overharvestingwithout careful monitoring offorest operations.

Volume-based charges

Volume-based charges take into account the variability in productivity between different areas andcan accommodate the differences in commercial value between different species. Whether theyencourage greater efficiency or not, depends upon the point at which the charges are applied. If thetotal amount of charges due is based on the total standing volume of commercial timber, thisencourages the maximum utilisation of the resource. If they are applied to the cut volume, the

51 This annex presents a selection of the most common types of forest charges used in various countries around the world. For

a more comprehensive review of all the possibilities, see Gray (1983).

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volume that is transported from the forest, the volume that is finally used in the mill, or the volumeof products that are eventually produced, they may do less to promote efficiency. On the other hand,as the basis for calculating charges moves away from the forest to the mill, the cost of monitoringcompliance, calculating the charges and policing the whole system becomes gradually less, becausethe monitoring agency can concentrate its activities at a few points rather than having to visit a largenumber of widely dispersed forest sites.

Table 16 The administrative cost, advantages and disadvantages of the most common types ofvolume-based forest charges

Type of charge Administrativecost

Advantages Disadvantages

Charge based on thestanding volume ofcommercial timber ina concession or thearea cut

+ + + + + Encourages the completeutilisation of standing comm-ercial timber and takes intoaccount variations in stocking.

Very high cost. Requires astocking survey and detailedmonitoring or checking of thestocking survey. Not responsiveto changes in market conditions.

Charge based on thestanding volume oftimber that is cut

+ + + + Discourages waste duringharvesting and is more responsiveto changes in market conditions.

High cost and requires monitoringof felled areas. Doesn’tdiscourage high grading (thedeliberate selection of only themost valuable trees).

Charge based on thevolume of timber thatis transported

+ + + Moderate cost becausemonitoring activities can beconcentrated at a small number ofpoints along transport routes.Such charges are also responsiveto changes in market conditions

Doesn’t discourage high gradingor waste during harvestingoperations.

Where the forest administration has to inspect, mark or measure forest products as part of itsmonitoring and charging activities, a volume-based charge is sometimes applied to cover the cost ofthis activity. Although calculated in basically the same way, this is a charge for the provision of theservice rather than as a charge for the use of the resource.

Value-based charges

Value-based charges can be cheap to calculate and administer, particularly where they are levied onexports of forest products. Their main disadvantage is that they require the producer or exporter toreport the true value of their sales of forest products. Alternatively, the forest administration canattempt to collect general market price information, which they will then use as a basis for settingstandardised product values. However, this is more complicated and costly and it will probably stillbe difficult to obtain true market prices except in the few cases where products are sold openly (e.g.at public auctions).

In most countries where value-based charges are applied, they are applied to the export of forestproducts. Typically, the charges are set as a percentage of the sale or export price, with a minimumprice set by the government. Where producers routinely report selling their product at the minimumprice (which they often do), this essentially becomes a variation of the volume-based charge.

If value-based charges are properly implemented and producers are honest (or can not under-reportselling prices), they have the advantage that they can very accurately reflect changes in the forest

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products market and the variation in value between different species and types of product. They donot however, support sustainable forest management very strongly and may encourage waste. Theymay also discourage the development of value-added industries and, where they are applied toexports, discourage the development of an export industry. Thus, their main purpose is usually as arelatively easy and lucrative way of raising revenues rather than as a tool of forest management.

Other types of forest charges

The last type of charges are flat-rate charges (e.g. monthly permits) either for the use of the resourcefor a particular activity or for the use of a particular piece of equipment. They have the advantage ofbeing generally very simple to administer and reasonably inexpensive to police. Their maindisadvantage is that it is difficult to reflect variability in the level of output in such charges althoughthey are, sometimes, varied according to size categories (e.g. sawmill registration fees set atdifferent levels for small, medium and large sawmills). They may also encourage overharvesting ofthe resource.

Flat-rate charges are an appropriate and cost-effective way of collecting charges for minor forestproducts, where a relatively large number of people produce small volumes of forest products fortheir own-use and sale.

Table 17 The administrative cost, advantages and disadvantages of the most common types offlat-rate charges

Type of charge Administrativecost

Advantages Disadvantages

Flat-rate charge forawarding a forestconcession or for apermit to producetimber or NWFPs

+ + Generally, low cost and relativelysimple to police.

Difficult to adjust for differentlevels of production. Doesn’tdiscourage high grading or wasteduring harvesting operations.

Flat-rate charge for apermit to own a pieceof equipment

+ + Generally, low cost and relativelysimple to police.

Difficult to adjust for differentlevels of production and doesn’tdistinguish between commercialproducers and producers for own-use. Doesn’t discourage highgrading or waste duringharvesting operations.

Charges in combination

It is common for several of these different types of charges to be used at the same time in anattempt to maximise the strengths of each approach and minimise their weaknesses. Manycountries, for example, combine an area-based or flat-fee charge at the start of a forest concessionagreement, with an annual area-based charge and a volume-based charge (calculated from variousdifferent measures of production).

The forest charging system in Zambia currently relies almost exclusively on volume-based charges.It is suggested that a combination of area-based, volume-based and flat-rate charges should be usedto increase the efficiency of collection and monitoring activities and to try to encourage better useof the resource.

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6 ANNEX 4:THE ECONOMICS OF CHARCOAL PRODUCTION ANDIMPLICATIONS FOR THE COLLECTION OF REVENUES FROMTHIS SECTOR

The following analysis of the economics of charcoal production and current and potential feecollection is based on data presented in FAO (1996). The figures presented there (on page 10 ofAnnex 1) have been updated for inflation and taking into account discussions with ForestryDepartment staff.

Basic operational data

Some basic statistics on the production of charcoal on a commercial scale and current levels ofcharge collection are presented in Table 18. The operational data and total estimatedconsumption/production figures have been taken from FAO (1996). Charge levels are thosecurrently in place in Zambia and the level of collection has been set so that the total chargescollected are equal to the figures reported by the Forestry Department (see Table 6).

Table 18 Basic operational data for commercial charcoal production, current estimatedconsumption/production and collection of charges

Operational data for a “standard sized” kiln used in commercial charcoal manufacturing1 kiln = 3m x 2m x 10m = 60 stacked cubic metres (or 20 cords)1 kiln makes 110 standard grain bags of charcoal1 kiln takes roughly 3 months to fill and operateCurrent charges and effectiveness of collectionCurrent fee units (production) per stacked cubic metre of wood used in production 10Current fee units (conveyance) per standard grain bag (50 kg of charcoal) 2Current Fee Unit value (in K) 180Average level of production charge collection 12.6%Average level of conveyance charge collection 0.3%Total fee collection (production and conveyance) (in K per standard grain bag) 125Current average production charge payment (in K per kiln) 13,660Total current estimated consumption/production and charge collectionEstimated annual charcoal consumption/production (tonnes) 700,000Estimated annual charcoal consumption/production (bags) 14,000,000Wood requirement for charcoal production (cubic metres stacked volume) 7,636,364Wood requirement for charcoal production (cubic metres true volume) 4,581,818Total current production fee collection (K million) 1,739Total current conveyance fee collection (K million) 15Total current fee collection (K million) 1,753

Currently, the total amount of charges collected per bag of charcoal is, on average, K 125.According to the charge rates set in the SI on charges, the proportion of the total charge that shouldbe paid by producers is 73% but, due to differences in the effectiveness of collection, the productioncharge actually accounts for 99% of all revenues collected from charcoal production. If theproduction charge was to be expressed in terms of the charge to make one batch of charcoal in a

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“standard sized” kiln, the current charge would be K 13,660 to fill and operate that kiln for 3months.

Economics of charcoal production

The economics of charcoal production are shown in Table 19. The current market price in Lusaka isabout K 15,000 per bag. Producers are believed to get about one-tenth of this for selling the productin the forest. The other production costs shown in this table have been taken from FAO (1996) andupdated for inflation.

Table 19 Charcoal production costs, prices and profit (in K per bag)Average production charge payment (60/110 x 12.6% x 10 x 180) 124Production costs 300Producers profit 1,076Price at source 1,500Cost of moving to roadside 1,200Transport 5,000Marketing 750Conveyance (2 x 180 x 0.3%) 1Traders profit 6,549Retail sale price 15,000

The total value-added from charcoal production is equal to the sale price minus the cost of allcapital and raw materials used in production. This comes to K 7,750 per bag, of which the producergets K 1,076 profit or income (14%), the Government gets K 125 (2%) and the trader gets K 6,549(84%). The current distribution of value-added is skewed very much in the favour of the trader, whogets a profit margin of about 44% of the sale price.

A proposal for change

It is suggested that two changes to the current charging system for charcoal production might beconsidered.

Firstly, the existing charge on producers might be changed from a charge per cubic metre of woodused to a charge to operate a kiln (in a specified area). Sixty (stacked) cubic metres of wood arerequired to operate a “standard sized” commercial kiln (3m x 2m x 10m). At the current chargelevel, the total charge for wood to fill such a kiln would be K 108,000. It is suggested therefore, thatlicences might be awarded to operate one “standard sized” commercial kiln according to thefollowing scale: 200 Fee Units per month; or 500 Fee Units per quarter; or 1,500 Fee Units per year(this scale offers a discount to encourage producers to take a longer licence).

Such an arrangement would be easier to monitor and would not require measurement of the woodinput (which is difficult to monitor). It is relatively unambiguous (i.e. someone found filling oroperating a kiln either has the licence or they do not) and there would not be any need to markwood being used. The Forestry Department could also establish a routine for collecting such acharge. It would not even be necessary to strictly enforce the kiln size, because a much larger kiln(than that assumed here) would take longer to fill and operate, so the Forestry Department would

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collect more monthly fees anyway. However, it would be necessary to define a size of kiln thatwould be permitted for charcoal production for personal use.

The second suggestion is that the conveyance fee should be revised to K 2,700 per bag (or 15 FeeUnits). This would reduce the traders’ profit margin by half and would give the Government agreater share of revenues. It would also place the main burden of the charges on the trader (77%)rather than the producer (23%), which seems appropriate considering that they make by far the mostmoney out of these operations. This would require improved enforcement of the conveyancecharges and a proposal for how to do this is presented in the main text of this report (see page X).

Assuming that production and consumption levels remain the same as they are at the moment, totalrevenue collection from such charges would be K 50 million (see Table 20) or about 30 timeshigher than at present (assuming that all charges were collected).

Table 20 Total revenue collection from charcoal production and conveyanceunder the suggested level of charges and assuming complete revenuecollection

Total revenue potential - production fee (K million) 11,455Total revenue potential - conveyance fee (K million) 37,800Total revenue potential (K million) 49,255

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ANNEX 5: AN EXAMPLE OF HOW THE PURPOSE OF DIFFERENTTYPES OF FOREST MIGHT BE EXPLAINED TO STAKEHOLDERS

The Forestry Department has a “Mission Statement”, which has been disseminated to staff at alllevels. This is admirable, but it might also be useful to provide supplementary information to helpstaff, particularly at lower levels, to understand and implement this mission on the ground. One areawhere this might be done is to explain exactly what each of the different types of forest in Zambiashould be used for and how the Forestry Department will manage such areas.

Currently, the 1999 Forest Act contains the only published statements about the purpose of each ofthe different types of forest in Zambia. However, these statements are very short (a few lines atmost) and do not give very clear guidance about exactly what sorts of licence would be required ineach type of forest and what would be the roles and responsibilities of all of the differentstakeholders in these areas. It might be helpful to develop such guidance and disseminate this tostaff and other stakeholders so that they can explain this to their constituents.

Such guidance does not need to be long (e.g. it should be less than one page per type of forest), butit should more clearly explain the Forestry Department’s policy in this area. If all staff are aware ofand can understand the policy, it should enable them to take the initiative and develop a betterworking relationship with other stakeholders in the sector. It should also allow them to take morecontrol over the process of managing harvesting through the licensing system, which would be animprovement on the current situation where the Forestry Department largely responds todevelopments on the ground.

As an example, a draft statement on National Forests has been prepared below, which could be usedas a starting point for the development of such materials. This could be improved and similarstatements could be developed for Local Forests, forest plantations, Joint Forest Management Areasand forests in open areas.

A draft statement on the purpose of National Forests

National Forests are permanent forest areas that will be reserved and managed by the state to securethe benefits of forest resources for current and future generations of Zambian citizens. NationalForests will be demarcated into two types of areas: protected areas and productive areas. Protectedareas within National Forests will be areas reserved for the conservation of ecosystems andbiological diversity or the protection of water catchments. Productive areas will be utilised for thesustainable production of forest products following the principles of maximum sustainable yield.

National Forests will be managed by the Zambia Forestry Commission (ZAFCOM) on behalf of theGovernment and citizens of Zambia. ZAFCOM will be responsible for maintaining the boundariesof National Forests and protecting them from encroachment, fire, pests, diseases and other types ofdamage. ZAFCOM will also be responsible for identifying and designating, in consultation withother stakeholders, which areas in National Forests will be protected areas and which will beproductive areas.

Information about the agreed boundaries of National Forests and the designation of protected areasand productive areas within National Forests will be stored on maps, copies of which will be held at

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District Forestry Offices, Provincial Forestry Offices and ZAFCOM Headquarters. Members of thepublic can view these maps at any time that is mutually convenient to themselves and the forestryoffice concerned.

Harvesting of major forest products will not be allowed in protected areas within National Forests,but harvesting of minor forest products may be allowed. Anyone wishing to harvest minor forestproducts in a protected area must first seek the permission of ZAFCOM and obtain a licence. Thelicence that will be used in such cases will be a casual licence (for the production of minor forestproducts for sale) or a letter of permission (for the production of minor forest products for personaluse). The licensee will be responsible for paying fees for such production as set out in StatutoryInstruments or any other written law. Harvesting of minor forest products will not be allowed wheresuch harvesting would have a negative impact on the resource or resources that are being protected.

Productive areas within National Forests will be used for the sustainable production of timber logs.Timber logs may be harvested by ZAFCOM themselves or, with ZAFCOM’s permission, by theprivate-sector. The production of poles, fuelwood and charcoal from productive areas withinNational Forests will not normally be allowed, except where such materials arise as by-productsfrom the production of timber logs.

Where timber logs are harvested by the private-sector, a licence will be required. A casual licencewill be used to permit the harvesting of small volumes of timber logs, where this would bebeneficial to the sustainable management of the forest. This licence will stipulate: the number andlocation of trees that may be harvested; the time within which they must be harvested; and any otherconditions that the licensee must follow. ZAFCOM staff may mark the individual trees that may beharvested or may give more general written guidance about where such harvesting may take place.The licensee will be responsible for paying fees for such production as set out in StatutoryInstruments or any other written law. ZAFCOM may alternatively sell the rights to harvest suchtrees by negotiation or competitive means (e.g. auction or tender), so long as the fees paid are abovethe levels set-out in Statutory Instruments or any other written law.

A forest concession licence will be used to grant permission to harvest significant volumes oftimber logs. This licence will stipulate: the total area of the forest concession; the minimum andmaximum allowable cut for that area; the duration of the forest concession licence; and any otherconditions that the licensee must follow. Forest concession licence areas must not include protectedareas, but may include other areas of forest outside of the National Forest that will be managed withit as one production unit. The licensee will be responsible for paying fees for such production as setout in Statutory Instruments or any other written law.

Information about production levels will be collected by licence holders and checked by ZAFCOMstaff. Copies of this information, along with information about fee payment, will be held at DistrictForestry Offices, Provincial Forestry Offices and ZAFCOM Headquarters. Members of the publicwill be granted reasonable access to this information at any time that is mutually convenient tothemselves and the forestry office concerned.