What this chapter covers:
This overview chapter discusses some important issues associated with contractual arrangements in the utilization and management of public forests. It begins with a brief definition and a classification of the various types of contractual arrangements. This is followed by discussion of the scope of contractual arrangements, including the kinds of organizations eligible as contractors and the different number and type of rights assigned. The chapter then reviews the historic role contractual arrangements have played in forestry and forest management. Contractual arrangements are described as key instruments of government policy. The importance of building flexibility into contractual arrangements is stressed. This is followed by discussion of common problems in the use of contracts for the management and administration of public forest lands. The changing and increasingly important role of contractual arrangements in forest management and administration is discussed, along with the required changes in the design and functioning of contracts. The chapter concludes with a brief summary of the important points raised, and a list of references.
Contractual arrangements are written mutual agreements, enforceable by law, between two or more parties that something shall be done by one or both. There are two major classes of contract which governments use in the management and administration of public forest lands. The first types of contract are resource utilization contracts. In various countries they are called forest tenure arrangements, forest concessions, forest management agreements, etc. They involve governments granting harvesting or use rights to parties to utilize or exploit forest resources for timber, other forest products, gathering of non-timber forest products, or use of the forest for other purposes such as hunting, watershed use, recreation or ecotourism. Resource utilization contracts govern the rights of owners, users and others over forest land, timber and/or other assets by defining the way forests are held and utilized. They define the rights, duties and responsibilities of the two parties to the contract: the owners of the resource (the government in the case of public forest lands) and the user, the contractor. The rights, duties and responsibilities can vary widely under different forms of contract. For example, timber concessions can provide long-term rights to the current forest, rights to other forest land uses, and rights to the next harvest. A fuelwood contract may only provide rights to gather firewood for one year.
The second types of contract are procurement contracts, or goods and services contracts. In these contracts, governments enter into agreements with other parties to provide goods or services for the management and administration of public forests; for example, for forest inventories, forest management activities, forest certification, tree planting, fire protection, etc.
Often forest contractual arrangements can involve both types of contract, granting the party harvesting or use rights - but also requiring them to undertake forest management activities - reforestation, environmental protection, etc. The type of forest management agreements found in many countries are of this nature, granting harvesting rights but requiring forest management.
In many countries there can be several forms of contractual arrangements. The legal systems and the contract laws can allow for many types of contract. Each contractual form will have implications for the incentives for contract holders and thus affect the way the forests are managed.
Four dimensions of contract may be recognized:
On public forest lands, governments may allocate a wide variety of rights to the resources, “bundling” them in different contractual arrangements. Timber companies are often granted permits, leases, licences, concessions or other contracts to utilize industrial timber and sometimes to manage the forests. Grazing rights are issued to livestock farmers. Others are granted rights to water, wildlife, fish and other resources. Sometimes these rights are exclusive, sometimes they are held in common with others. The variety of attributes of forests to which rights are assigned, and the variety of legal instruments used to grant these rights, is almost endless. Chapter 6 discusses property rights issues and the different forms of contractual arrangements.
Governments also have broad scope regarding the types of organization with which they enter into agreements. Commonly, the agreements are with private sector, for-profit companies interested in exploiting forest resources for their market value under a licence or short-term timber harvesting contract, or permits with individuals for fuelwood or charcoal production, harvesting rattan, or other non-timber forest products.
Governments may also negotiate and sign contracts with communities or non-profit organizations for timber harvesting, management of community forests, or to provide services such as development and operation of recreational facilities in national forests. Another type of agreement is between governments and aboriginal communities in which rights and responsibilities to resources are defined based on traditional use.
A less common contractual arrangement is between two agencies within the government or different levels of government, for instance the federal government contracting with a municipality or state government for maintaining roads, or for policing a federally-owned forest within the local jurisdiction. Finally, governments may negotiate and sign contracts with international organizations. The Convention on International Trade in Endangered Species of Wild Flora and Fauna (CITES) agreement is an example.
Where demands on a resource are low or the availability (supply) is large, the value of the resource will be low, and resource users’ rights are likely to be simple. However, as demand rises or availability (supply) shrinks, the value of the resource rises, and thus the potential gain from better, more efficient tenure and allocation arrangements increases. More sophisticated systems of property rights and contractual arrangements may be expected to emerge.
With population growth and economic development, natural resources such as forests, grazing lands, water, wildlife and fish become scarce. As pressures on each develop, its value increases, and it becomes increasingly important to develop means of allocating these resources more efficiently among competing users and uses. Rights in the form of leases, licences, permits and other contractual arrangements may be expected to be developed and introduced to allocate these resources as they become scarce and valuable. As development progresses and natural resources become scarcer, new forms of tenure rights and contractual arrangements for public resources will need to be developed. Even in developed countries, new forms of rights are being developed for fisheries, pollution, forests and recreational resources. Thus, the system of tenure rights and contractual arrangements for public resources is evolving over time. Chapter 4 discusses the legal framework for the management and administration of public forest lands.
An important rule in designing a system of contractual arrangements for public forests is that they should be developed with careful reference to the government’s forestry policy objectives. Forestry policy objectives can vary among countries. Some countries have policies of converting forested land for agricultural development, others have policies of preserving forests for biodiversity or ecotourism. Other countries encourage forestry as an adjunct to agriculture through agroforestry. Some countries have policies of using their forests to encourage economic and industrial development, others have forest policies that emphasize environmental, recreational, or tourist benefits of forests.
Most countries pursue several forestry policy objectives. The following are some common ones:
This is just a sampling of possible forestry policy objectives. Each government will have its own set of objectives, and its own priorities among them. The important point is that in designing a system of contractual arrangements for a particular jurisdiction, it is essential to begin with a clear understanding of the government’s forestry policy objectives, so that forest contracts may be designed to advance those objectives, and complement other policy instruments.
Three important points on forestry policy objectives are warranted. First, forestry policy objectives can often conflict with each other. Concern for environmental protection may conflict with an objective of increasing government revenues, or maintaining industrial employment. When designing contractual arrangements it is, therefore, important to also appreciate the trade-offs among the policy objectives, and the importance or weight attached to each.
Second, forestry policy is not independent of other public policies. For example, a forestry policy that governs how logging is conducted is likely to affect the habitat of fish and hence also affects fisheries management and fisheries policy. Similarly, forestry policy will also affect, and be affected by, water policy, agricultural policy, transportation policy, environmental policy and so on. Land tenure policies that require the clearing of land to prove ownership will be in conflict with policies of sustainable forestry. This has been a major factor in deforestation within the Amazon basin, and elsewhere, as well as in the early settlement of the mid-western United States. If policies are not to counteract each other, their interdependence must be kept in mind in designing and selecting policy instruments, such as contractual arrangements.
Conflicting policies between federal, state or provincial, and municipal governments may further complicate policy design. Sometimes the policy initiatives of one government are in response to the policies of another level of government. These inter-jurisdictional conflicts are often extremely difficult to deal with and overcome.
Third, forestry policy objectives, as well as most other policy objectives, are rarely articulated clearly or precisely. Coherent statements of government forestry policy objectives and their relative priority are hard to find. Governments and politicians are often reluctant to be specific about their preferences. Often, policies and objectives have to be inferred from the legislation, regulations, speeches and statements of politicians and from past decisions. These difficulties are aggravated because policies are evolving over time.
In spite of the difficulties in identifying forestry policy objectives, they are a necessary and important starting point in the design of a system of contractual arrangements. Ultimately, the suite of selected options will be judged on its success in achieving policy objectives. Chapter 3 discusses forestry policy issues, objectives and policy instruments, such as various contractual arrangements.
Countries have experienced many common problems in using both resource utilization contracts and goods and services procurement contracts in the administration and management of public forest lands. One key deficiency in resource utilization contracts has been the failure of governments to capture or collect an appropriate or “fair share” of the value of the forest resource (the economic rent). These failures have resulted from a number of factors: inaccurate appraisal of resource values prior to contract signing, low forest fees, poorly designed forest revenue systems, haphazard collection of resource levies due to negligence, or bribery and corruption of government officials. Resource appraisal, forest revenue systems and the collection of levies are discussed in Chapter 8.
A second common problem with resource utilization contracts results from conflicts over unresolved forest ownership rights. Throughout the world, the rights of aboriginal or first nation peoples and their traditional use of forest resources and forest lands have not been adequately recognized in forest utilization contracts. Failure of governments to identify prior claims and overlapping claims to resource rights, and to resolve these conflicts prior to the granting of resource utilization contracts, has led to conflicts and to difficulties in the administration of the contracts. Recognition and resolution of land claims and resource use rights is a key first step in planning resource development.
A third common problem experienced with resource utilization contracts and goods and services procurement contracts is non-compliance with contract terms, often the result of inadequate monitoring and weak or non-existent enforcement. Governments frequently fail to allocate sufficient financial and human resources to monitoring, control and enforcement activities. As a result contract holders can operate unchecked. In addition, contract holders often lack the expertise required for planning and executing the forest management practices specified in the contract terms because of insufficient staffing or trained personnel. Contract violations can lead to severe degradation of the residual forest, irreversible environmental impacts (e.g. from poorly planned logging operations and poor road construction), loss of biodiversity, and loss of forest revenues. Contract administration and enforcement are discussed in Chapter 10.
Most problems with forest utilization and goods and services contracts can be prevented or minimized by careful design of the contracts, proper planning, and effective monitoring and enforcement. However, this requires a commitment on the part of governments at all levels, allocation of adequate financial resources, and well-trained and dedicated personnel.
The trend worldwide is towards more effective and cost efficient governments. There is increasing interest in the use of contracts with the private sector as an instrument for provision of public sector goods and services and public sector management for a full range of public sector activities. This “privatization” trend began in the early 1980s (Moe, 1996; Morell and Paveri, 1994). The trend spread to the agriculture and forestry sectors in many developing countries during the mid 1980s (Morell and Paveri, 1994). In many countries, privatization has been driven by the structural adjustment programmes of international lending institutions, such as the World Bank and the International Monetary Fund (IMF).
In some countries, other factors provided additional impetus for more widespread use of contracts. In some cases it was the result of government budget crises. In other countries, the shortage of qualified staff prevented government organizations charged with resource management, development, or supervisor responsibilities from functioning.
How does the shift towards greater reliance on the private sector and the use of contractual arrangements change the role of government in the management and administration of public forest lands through contractual arrangements? It is possible to identify four institutional roles for the production and delivery of specific goods or services: funder, producer, consumer, and regulator. For countries which have recently changed to mixed economies, as well as for those with continuing mixed economies, government involvement has shifted from formerly playing three out of these four roles (as funder, producer and regulator) towards playing only two roles (as funder and regulator), or only the role of regulator.
With the change in government roles, the government’s requirements for financing, staffing levels and qualifications of staff have also changed. In some countries, a major task of government employees has become the negotiation and supervision of contracts.
Finally, it is important to note that the design of forest contractual arrangements rarely starts from scratch. Tenure rights to timber and other forest resources already exist, and their allocation and administration is already established. Government organizations and administrative procedures are in place, individuals and private companies have adapted to them, and existing rights and undertakings must be respected. Usually, new contracts will be built on what is already in place, modifying the existing contractual arrangements to enable the introduction of new ones in line with the emerging policy objectives.
Thus, the development of contracts for public forests and public lands, as well as the institutional arrangements for forest administration, is an evolving process. Existing arrangements are modified and new contractual arrangements added to reflect the changing circumstances and policy objectives. However, as many of the historic problems with forest contracts persist, there is an urgency to seriously revise the way in which contracts are designed and administered and to introduce updated contractual arrangements that satisfy current forestry policy and social needs.
2.8 Chapter summary
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