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A note on currencies

One particular issue, raised in discussions about this analysis with staff of LBB and SBB, concerned the appropriate currency to use in the calculation and collection of forest charges. It is recommended here that all production charges should be set in Suriname Guilders and export charges should be set in foreign currency (i.e. US$). The justification for this is given in Box 2. To summarise, the main reason why the charges should be set in these currencies is because the majority of production goes to the domestic market (and is, therefore, paid for in Suriname Guilders) while exports are paid for in foreign currency. Setting the charges in this way reduces the impact of exchange rate fluctuations on producers (and, consequently, their ability to pay the charges).

This may cause some difficulties with budgeting within SBB, because the operating budget of SBB has all been drawn-up in US$ (see Mitchell, 1998a) and some of the costs of running SBB will be paid in US$. In particular, the staff costs of SBB (a significant share of the total cost) are all currently paid in US$. Given that the majority of the income in the forestry sector in Suriname is earned in Suriname Guilders, the payment of SBB's staff costs in US$ gives the organisation tremendous exposure to the risk of future currency fluctuations and does not seem sustainable in the long-run.

It is commendable that staff in SBB are being paid considerably higher salaries than elsewhere in the government service. This should attract the most talented staff to the organisation and motivate them to work hard on the tremendous task ahead. However, paying the staff a good salary is one thing; paying them in foreign currency is another, which just adds a further complication into the whole operation of the forest revenue collection and control system. Therefore, serious consideration should be given to converting these salaries to local currency equivalents at an appropriate time.

Box 2 Costs, prices, economic rent and forest levies in the face of exchange rate fluctuation

The total cost of roundwood production in Suriname is a mixture of costs paid in local currency (labour, fuel and some consumable items) and costs paid in foreign currency (predominantly capital costs and the costs of spare parts). Consequently, when the exchange rate deteriorates1 (i.e. more Suriname Guilders can be exchanged for one US$), the total roundwood production cost in terms of the local currency increases but the total roundwood production cost in foreign currency terms decreases. The majority of production costs are paid in foreign currency, so the total roundwood production cost in local currency terms is more sensitive to changes in the exchange rate than the cost in foreign currency terms.

With respect to product prices, the export price paid for roundwood (and paid in foreign currency) will not vary in response to changes in the exchange rate. The domestic price paid for roundwood (and paid in local currency) may increase in response to a deterioration in the exchange rate, depending upon the extent to which roundwood producers can pass on their increased total costs (in local currency terms) to their customers. As a general rule however, it will be difficult for producers to pass on the full increase in their costs to their customers.

The result of this mixture of costs and prices paid in different currencies is that, when the exchange rate deteriorates, the economic rent from roundwood production for the domestic market decreases in foreign currency terms and may increase or decrease in local currency terms, depending on whether cost increases can be passed onto consumers. For roundwood produced for the export market, economic rent in foreign currency terms will increase slightly, but economic rent in local currency terms will increase dramatically.

As an example, the comparison between November 1998 (when the exchange rate was Sf 650 to US$ 1.00) and August 1999 (at an exchange rate of Sf 1,350 to US$ 1.00) is given in the table below.

			          	     Economic rent from roundwood produced for the domestic market
			           November 1998	    August 1999   	  	 Change
Selling price		Sf 25,000/m3	US$ 38.50/m3	Sf 43,000/m3	US$ 31.85/m3	  +72%	-7%
Production cost 	Sf 17,200/m3	US$ 26.50/m3	Sf 31,700/m3	US$ 23.50/m3	  +84%	-11%
Economic rent		Sf   7,800/m3	US$ 12.00/m3	Sf 11,300/m3	US$   8.40/m3	  +45%	-30%
			          	       Economic rent from roundwood produced for the export market
			           November 1998	    August 1999   		  Change
Selling price2		Sf 49,140/m3	US$ 75.60/m3	Sf 101,250/m3	US$ 75.00/m3	+106%	  -1%
Production cost3  	Sf 23,725/m3	US$ 36.50/m3 	Sf   45,225/m3	US$ 33.50/m3	  +90%	  -8%
Economic rent		Sf 25,415/m3	US$ 39.10/m3	Sf   46,025/m3	US$ 41.50/m3	  +81%	  +6%


Given that forest charges are not likely to be revised very frequently (or very rapidly in response to currency fluctuations), it is important to select the currency for the payment of charges that reduces the potential for currency fluctuations to upset the forest charging system and result in windfall gains for some producers and losses for others. The reason why production charges should be set in local currency and export charges should be set in foreign currency, is to reduce the impact of exchange rate fluctuations on producers ability to pay the charges that are set and this can be demonstrated using the above table as an example.

If, for example, forest charges on roundwood produced for the domestic market had been set at Sf 7,800/m3 in November 1998 (to capture 100% of the economic rent), producers could still afford to pay such levies in August 1999 (and they would still capture 70% of the rent). If however, they had been set at US$ 12.00/m3, this amount would now be well above the average level of economic rent (US$ 8.40/m3), production would have declined and the total revenue from forest charges might also have declined.4

Conversely, in the export market, a levy of US$ 39.10/m3 would have captured all of the economic rent from roundwood produced for export in November 1998 and would still capture a significant share (94%) of the economic rent in August 1999. If, however, the levy had been set at Sf 25,415/m3 in November 1998, this would now only capture 55% of the economic rent.

In conclusion, it is very important to set the forest charges in the right currency so that they can capture a significant proportion of the economic rent from roundwood production without being upset by exchange rate fluctuations. As the above example has shown, in a situation where domestic and export prices are so different, it makes most sense to do this by setting charges on products for the domestic market in the local currency and charges on export products in foreign currency.

Notes: 1. The discussion here concerns the situation when the exchange rate deteriorates, but the same arguments would apply if the exchange rate were to improve.

2. The selling price quoted here is net of the effect of the dual exchange rate policy.

3. The production cost here includes an allowance for the cost of port handling charges (approximately US$ 10/m3)

4. Indeed this may have actually occurred, because the production levies introduced in November were set in US$ and it is believed that roundwood production has declined somewhat since then (although other factors probably also account for some of this decline in production).

Recommended forest charges

Based on the levels of economic rent presented earlier (in Table 2 and Table 3) and the overall structure for a forest charging system proposed in Table 5 above, a series of detailed recommendations about forest charges have been prepared for each of the different types of forest and forest products produced in Suriname and exported from the country. In view of the fact that it is proposed that a significant proportion of revenues should be collected from an area-based charge, it is important to consider what the average level of commercial timber harvesting (per ha) is likely to be. It has been assumed here that the average commercial harvesting volume in an efficient forest operation should be around 18 m3/ha (but, possibly, up to 20 m3/ha), with a cutting cycle of 25 years. If forest concessionaires can produce a higher volume (per ha) than this or cut their forest concessions much more quickly than this, they will pay lower charges (in total) than intended under the proposed charging system.

In view of the above, it is particularly important to control the rate at which a forest concession is harvested. An area-based charging system will generate a strong incentive for forest concessionaires to ask for small forest concession areas so that they will only have to pay relatively small area-based charges. If they are allowed to harvest all of the timber from these areas very quickly (i.e. over less than the 25 years assumed above) then give up the concession and apply for another one, this would result in them paying much less than they should. This is particularly the case for extensively managed forest concessions, where there will be little control of forest operations in the field. The solution to this problem is to set a limit on annual production, based on the total area of the forest concession. This would prevent forest concessionaires from overharvesting in the short-term. Based on current information, the maximum annual allowable cut or AAC from a forest concession in Suriname should be set at between 0.7 m3/ha and 0.8 m3/ha (i.e. per hectare meaning the total area of the forest concession).

Included in each of the proposals are two charging elements:

a series of forest levies that will generate revenues for the Government of Suriname; and

a series of service fees to support the financing of SBB.

The service fees proposed are somewhat more complex than the current simple proposal of a flat-rate volume-based fee to support SBB. This has been done to reflect the fact that SBB will be carrying-out a number of functions apart from just monitoring and recording production volumes. In particular, they will be expected to play a major role in planning and improving forest management in the future. If they were just to control timber production, then it would be appropriate for them to simply collect a fee on each cubic metre produced. Because they will also be expected to monitor and approve plans however, it seems to make more sense for them to also raise a proportion of their revenues from this service. In other words, it links the generation of revenue by SBB to the provision of services by SBB (i.e. SBBís performance). This is a somewhat radical departure from what has been proposed before, which will warrant further discussion and consideration by the national authorities in Suriname.

The proposals for individual charges in each of the different types of forest in Suriname are explained in more detail below.

 

Recommended forest charges in extensively managed forest concessions

The forest charges proposed for roundwood and hewn squares produced in extensively managed forest concessions are shown in Table 6. To reduce monitoring costs, monitoring of production from this type of forest should be concentrated on monitoring the transport of roundwood and hewn squares. Detailed monitoring in the field should not be required, although it would be prudent for SBB to periodically check (say once or twice a year) that forest concessionaires working in these types of forest concession are keeping within their forest concession areas. Consequently, it is suggested that SBB should only collect a volume-based fee (the Production Control Fee) to support their monitoring operations for this type of forest concession.

Table 6 Recommended forest charges in extensively managed forest concessions

Type of charge

Forest levy

SBB fee

Total

Notes

Extensively managed forest concession area levy

Sf 5,000/ha

none

Sf 5,000/ha

This levy should be based on the total forest concession area of the extensively managed forest concession.

Roundwood production levy - Grade A species

Sf 3,500/m3

Sf 2,000/m3

Sf 5,500/m3

The production levy and SBB service fee should be levied on the volume of roundwood or hewn squares that is transported from the extensively managed forest concession.

Roundwood production levy - Grade B species

Sf 1,000/m3

Sf 2,000/m3

Sf 3,000/m3

Hewn square production levy

Sf 9,000/m3

Sf 2,000/m3

Sf 11,000/m3

An example of the typical total annual cost to a forest concessionaire operating in this type of forest concession is given in Table 7. This calculation assumes a forest concession area of 1,250 ha, producing between 800 m3 and 1,000 m3 per year, with production of Grade A species accounting for 85% of total production. For this forest concession, total annual charges (including levies paid to the Government and fees paid to SBB) would amount to Sf 10,350,000 - Sf 11,375,000 (equivalent to US$ 7,667 - US$ 8,426 at the current exchange rate). The average charge per cubic meter would equal Sf 12,940/m3 - Sf 11,375/m3 (US$ 9.58/m3 - US$ 8.43/m3).

Table 7 Example of total forest charges for an extensively managed forest concession cutting 50 ha per year (i.e. 1,250 ha total area) under this proposal

Type of charge

Level of production

16 m3/ha

18 m3/ha

20 m3/ha

in Sf

in US$

in Sf

in US$

in Sf

in US$

Total area-based charges

6,250,000

4,630

6,250,000

4,630

6,250,000

4,630

Total volume-based charges

4,100,000

3,037

4,612,500

3,417

5,125,000

3,796

Total of all charges

10,350,000

7,667

10,862,500

8,047

11,375,000

8,426

Average charge per m3

12,940

9.58

12,070

8.94

11,375

8.43

Note: all of these charges should be collected in Suriname Guilders. The figures in US$ are presented here only for information.

 

Recommended forest charges in intensively managed forest concessions

The forest charges proposed for roundwood and hewn squares produced in intensively managed forest concessions are shown in Table 8. The first charge is a one-off fee (the Outline Management Plan Approval Fee), which would be paid to SBB to cover their costs of visiting the forest and approving the Outline Management Plan for the intensively managed forest concession. This could be considered as a replacement to the existing prospecting fee that is levied on Exploration Licences.

A much lower area-based charge should be set for this type of forest concession (to reflect the additional costs of management and provide an incentive to convert to this type of forest concession) and it is suggested that this should be differentiated between coastal districts and the interior of the country. An additional area-based fee (the Annual Plan Approval Fee) should be levied to cover SBB's costs of approving the Annual Harvesting Plan and the additional cost of monitoring roundwood production in the field.

Table 8 Recommended forest levies in intensively managed forest concessions

Type of charge

Forest levy

SBB fee

Total

Notes

Outline Management Plan Approval Fee - areas of 50,000 ha and below

Outline Management Plan Approval Fee - areas above 50,000 ha

none

 

 

none

Sf 1,500,000

 

 

Sf 3,000,000

Sf 1,500,000

 

 

Sf 3,000,000

This fee should be collected when the Outline Management Plan is submitted to SBB for approval, or could be collected earlier (e.g. after an Exploration Licence has been awarded)

Intensively managed forest concession area levy - coastal districts

Intensively managed forest concession area levy - interior

Sf 2,000/ha

 

 

Sf 1,200/ha

Sf 2,000/ha

 

 

Sf 2,000/ha

Sf 4,000/ha

 

 

Sf 3,200/ha

These charges should be based on the total forest concession area of the intensively managed forest concession.

Roundwood production levy - Grade A species

Sf 3,500/m3

Sf 2,000/m3

Sf 5,500/m3

The production levy and SBB service fee should be levied on the volume of roundwood or hewn squares that is actually cut in the intensively managed forest concession.

Roundwood production levy - Grade B species

Sf 1,000/m3

Sf 2,000/m3

Sf 3,000/m3

Hewn square production levy

Sf 9,000/m3

Sf 2,000/m3

Sf 11,000/m3

The volume-based charges should be collected on the basis of the volume of roundwood actually cut in the forest, including any roundwood that is not utilised and the roundwood wasted in high stumps and commercially utilisable log-ends. Such monitoring will require site visits as well as checking volumes transported along major routes. SBB should also collect a volume-based fee (the Production Control Fee) on roundwood produced from this type of forest concession, in order to support their monitoring operations along transport routes.

Two examples of the typical total annual charges that would be paid by forest concessionaires operating in this type of forest concession are given in Table 9 and Table 10. These calculations assume a total forest concession area of 15,000 ha, giving an annual cutting area of 600 ha (assuming a 25 year cutting cycle). These concessions would produce between 9,600 m3 and 12,000 m3 per year and it has been assumed again that production of Grade A species would account for around 85% of total production. The example shown in Table 9 is for a forest concession in a coastal district and the example shown in Table 10 is for a forest concession in the interior.

Table 9 Total forest charges for an intensively managed forest concession of 15,000 ha in a coastal district, cutting 600 ha per year (on a 25 year cycle) under this proposal

Type of charge

Level of production

16 m3/ha

18 m3/ha

20 m3/ha

in Sf

in US$

in Sf

in US$

in Sf

in US$

Total area-based charges (1st year)

61,500,000

45,555

61,500,000

45,555

61,500,000

45,555

Total area-based charges (subsequent years)

60,000,000

44,444

60,000,000

44,444

60,000,000

44,444

Total volume-based charges

49,200,000

36,444

55,350,000

41,000

61,500,000

45,556

Total from all charges (1st year)

110,700,000

82,000

116,850,000

86,556

123,000,000

91,111

Total from all charges (subsequent years)

109,200,000

80,889

115,350,000

85,444

121,500,000

90,000

Average charge per m3 (1st year)

11,531

8.54

10,819

8.01

10,250

7.59

Average charge per m3 (subsequent years)

11,375

8.43

10,681

7.91

10,125

7.50

Note: all of these charges should be collected in Suriname Guilders. The figures in US$ are presented here only for information

 

Table 10 Total forest charges for an intensively managed forest concession of 15,000 ha in the interior, cutting 600 ha per year (on a 25 year cycle) under this proposal

Type of charge

Level of production

16 m3/ha

18 m3/ha

20 m3/ha

in Sf

in US$

in Sf

in US$

in Sf

in US$

Total area-based charges (1st year)

49,500,000

36,667

49,500,000

36,667

49,500,000

36,667

Total area-based charges (subsequent years)

48,000,000

35,556

48,000,000

35,556

48,000,000

35,556

Total volume-based charges

49,200,000

36,444

55,350,000

41,000

61,500,000

45,556

Total from all charges (1st year)

98,700,000

73,111

104,850,000

77,667

111,000,000

82,222

Total from all charges (subsequent years)

97,200,000

72,000

103,350,000

76,556

109,500,000

81,111

Average charge per m3 (1st year)

10,281

7.62

9,708

7.19

9,250

6.85

Average charge per m3 (subsequent years)

10,125

7.50

9,569

7.09

9,125

6.76

Note: all of these charges should be collected in Suriname Guilders. The figures in US$ are presented here only for information

For an intensively managed forest concession in a coastal district, total annual charges (including Government levies and service fees paid to SBB) would amount to Sf 110,700,000 - Sf 123,000,000 (US$ 82,000 - US$ 91,111) in the first year. Charges in later years would be slightly less than this because the first year's total charge includes the fees paid for approving the Outline Management Plan. The average charge per cubic meter would equal Sf 11,531/m3 - Sf 10,250/m3 (US$ 8.54/m3 - US$ 7.59/m3) in the first year and fall very slightly in the second and subsequent years of operation.

The average charge per cubic meter for roundwood produced in an intensively managed forest concession in the interior would be about Sf 1,250/m3 - Sf 1,000/m3 (US$ 0.93/m3 - US$ 0.74/m3) lower than the charge for roundwood produced in an intensively managed forest concession in a coastal district. This difference goes some way towards compensating roundwood producers operating in the interior for the higher transport costs incurred during roundwood production.

Recommended forest charges for production outside forest concessions

The forest charges proposed for roundwood and hewn squares produced outside forest concessions are shown in Table 11. The proposed charges are much simpler, including only a volume-based charge differentiated by species and with a higher charge for the production of hewn squares.

To reduce monitoring costs, monitoring of production from other areas should be concentrated on monitoring the transport of roundwood and hewn squares. Detailed monitoring in the field should not be required. SBB should also collect a volume-based fee (the Production Control Fee) to support their operations to monitor production from these areas.

Table 11 Recommended forest charges for production outside forest concessions

Type of charge

Forest levy

SBB fee

Total

Notes

Roundwood production levy - Grade A species

Sf 11,000/m3

Sf 2,000/m3

Sf 13,000/m3

These charges should be based on the volume of roundwood or hewn squares that is transported.

Roundwood production levy - Grade B species

Sf 6,000/m3

Sf 2,000/m3

Sf 8,000/m3

Hewn square production levy

Sf 18,000/m3

Sf 2,000/m3

Sf 20,000/m3

 

Recommended forest charges for production of minor forest products

The forest charges proposed for production of minor forest products are shown in Table 12. The proposed charges include only a volume-based charge (based roughly in the volume of roundwood used to manufacture these products). The figures presented here are expressed in terms of a charge per cubic metre although, as stated earlier, it may be more cost effective to issue permits to produce these sorts of products.

As before, monitoring should be concentrated on monitoring the transport of these products rather than monitoring production in the field and SBB should collect a proportion of the total charge to support their monitoring operations in this area. Experience from neighbouring Guyana suggests that the production of chainsaw sawnwood will have to be monitored quite carefully, in case large numbers of operators attempt to enter this sector to take advantage of the fact that proper sawmillers will now have to pay more for their roundwood inputs.

Table 12 Recommended forest charges for production outside forest concessions

Type of charge

Forest levy

SBB fee

Total

Notes

Chainsaw sawnwood

Sf 50,000/m3

Sf 10,000/m3

Sf 60,000/m3

These charges should be based on the volume of the manufactured product that is transported.

Charcoal

Sf 50,000/m3

Sf 10,000/m3

Sf 60,000/m3

Shingles

Sf 50,000/m3

Sf 10,000/m3

Sf 60,000/m3

Others (e.g. fuelwood, fence posts, bean poles and scaffolding poles)

Sf 10,000/m3

Sf 10,000/m3

Sf 20,000/m3

Recommended export charges

The analysis of economic rent presented earlier suggested that export charges on roundwood and hewn squares could be increased somewhat. Proposed export charges are shown in Table 13. These charges would be calculated on the volume of roundwood or hewn squares being exported.

It is assumed that SBB will be required to monitor exports of all wood products, so they should receive a fee for this service (the Port Inspection Fee). This should be based on the volume of all wood product exports, including those products that do not incur a specific export charge. Because exports are sold for foreign currency, these charges can be collected in US$.

Table 13 Recommended export charges

Type of charge

Forest levy

SBB fee

Total

Notes

Roundwood export levy - Grade A species

US$ 28/m3

US$ 2/m3

US$ 30/m3

The export levy and inspection fee should be based on the volume of products that are exported.

Roundwood export levy - Grade B species

US$ 23/m3

US$ 2/m3

US$ 25/m3

Hewn square export levy

US$ 43/m3

US$ 2/m3

US$ 45/m3

Other wood products

none

US$ 2/m3

US$ 2/m3

 

Comparison of the charges between different forest types and at different levels of production

One of the objectives of the proposed forest charging structure is to give an incentive to roundwood producers to move towards properly planned and managed forest production (i.e. an intensively managed forest concession) and an incentive t o increase utilisation of the forest resource in order to increase efficiency and reduce waste. The incentives that have been built into the charging system, using a significant area-based charge and differentiation between charges for different types of forest used for production, are shown in Figure 11.


Figure 11 Comparison of the average total charge that would be paid (per m3) under the proposed forest charging system, in the four different types of production forest and at different levels of harvesting intensity

As the figure shows, the charges that would be paid (under the proposed system) in extensively managed forest concessions and intensively managed forest concessions would be lower than the charges paid on production from other areas (except at very low levels of harvesting intensity), by up to as much as Sf 3,125/m3 (US$ 2.30/m3). There would be a difference of roughly Sf 1,000/m3 (US$ 0.75/m3) between intensively managed forest concessions in coastal districts and extensively managed forest concessions, that should cover the increased costs of planning and stock surveys in intensively managed forest concessions and give a slight incentive to switch to this type of forest concession. A further reduction in charges of another Sf 1,000/m3 (US$ 0.75/m3) for intensively managed forest concessions in the interior, should go towards compensating for the increased costs of roundwood transport from this region. The incentive to increase harvesting intensity (by the use of the area-based charge) is reflected in the Sf 1,000/m3 (US$ 0.75/m3) difference in the average charge that would be paid between a harvesting intensity of 16m3/ha and 20 m3/ha.

Other possible charging mechanisms

The system of forest charges proposed above recommends the use of area-based and volume-based charges, set by the government, to charge for the use of the forest resource. This system is not radically different to the structure of forest charges currently in place in Suriname, although the overall levels of charges and the weighting towards the use of an area-based charge is somewhat different to current practices. Part of the reason for choosing this structure is that it is familiar to the government and roundwood producers and should, therefore, be relatively easy to implement. However, this type of charging system will not capture all of the economic rent from production, because there will always be situations where, either due to location or competitive advantage, producers would be able to pay more for the wood than the amounts set in the charging system. In the long-run therefore, the government may wish to introduce more competitive mechanisms for charging for the rights to harvest or export roundwood.

Mitchell (1998b) has already suggested that the government (i.e. SBB or LBB) might establish a small Forest Enterprise to sell timber standing by auction or competitive tender. Such a competitive system should result in the government collecting the maximum amount of revenue possible from parcels of timber sold in this way. However, given the limited technical, financial and human resources available to the government forestry administration, this may be difficult to implement. There are however, two areas where competition could be introduced into the forest charging system without incurring any expense to the government and these are:

in the awarding of short-term cutting licences such as permits to clear land before conversion to agriculture, urban development or mining; and

in the setting of export charges for roundwood and hewn squares.

In the case of short-term cutting licences, the charges on roundwood produced from such areas are all collected in the form of volume-based charges. They are not currently subject to any area-based charge and the proposed charges set-out above continue with this structure. If the government identifies an area of forest that needs to be cleared for conversion to another land-use, it would not be difficult for the forestry administration to ask for competitive bids to gain the rights to carry-out such operations, to raise revenues in addition to the volume-based charges that must be paid on production from these areas. This would, in effect, be similar to the proposal to sell timber standing suggested by Mitchell (1998b), but without any requirement on the part of the government to prepare these areas for sale.

In the case of export charges, it is strongly believed that, even with the new higher export charges recommended above, some exporters will continue to reap considerable rewards from exporting roundwood and hewn squares, which can be hidden from the authorities through the use of offshore intermediaries and "shell companies". One way in which export charges could be increased further, would be to introduce greater competition for the rights to export roundwood and hewn squares from the country.

For example, nearly 30,000 m3 of sawlogs were exported from Suriname in 1997 and, after the brief decline in markets experienced during 1998 and early 1999, it is believed that exports may recover to around this level. It should be possible to auction the rights to export sawlogs and hewn squares (with reserve prices in such auctions equal to the levies proposed above) by asking for sealed tenders specifying the volume desired and the export levy that the exporter would be prepared to pay. Such auctions could take place, say, every three months for rights to export roundwood within the following six months, with an overall limit on the volumes that would be accepted equal to, say, 7,000 m3 of roundwood and 600 m3 of hewn squares. These quotas could be increased as export markets develop (and it should be relatively easy to judge this by examining the volume of bids coming in at each auction). Once a bid has been accepted, the exporter should deposit with SBB an amount equal to at least the minimum charge (i.e. the export levy and inspection fee set by SBB) for the volume that they have specified. They could then pay the additional amount specified in their bid when the wood is exported.

This mechanism has little downside risk to the forestry administration, but has the potential to increase the revenues from export charges by a significant amount. Even though there are only a small number of companies exporting roundwood and hewn squares from Suriname at the moment, the perceived risk of not getting a quota to export (due to increased competition) should have the desired effect of encouraging exporters to pay more for the wood that they export.

Summary of the recommended forest charges

A summary of all the proposed forest levies and service fees is given in Table 14.

Table 14 Summary of the forest charges recommended for all different types of forest in Suriname

Name of charge

Amount

Unit of calculation

Comments

Levies to the government

Area-based levies

Sf 5,000

per hectare

In extensively managed forest concessions

Sf 2,000

per hectare

In intensively managed forest concessions in coastal districts

Sf 1,200

per hectare

In intensively managed forest concessions in the interior of the country

Roundwood production

Sf 3,500

per cubic metre

For Grade A species from forest concessions

levies

Sf 1,000

per cubic metre

For Grade B species from forest concessions

Sf 11,000

per cubic metre

For Grade A species from other areas

Sf 6,000

per cubic metre

For Grade B species from other areas

Hewn square production

Sf 9,000

per cubic metre

For hewn squares from forest concessions

levy

Sf 18,000

per cubic metre

For hewn squares from other areas

Minor forest products

Sf 50,000

per cubic metre

Chainsaw sawnwood, charcoal, shingles

levies

Sf 10,000

per cubic metre

Other minor forest products

Roundwood export levy

US$ 28

per cubic metre

For Grade A species

US$ 23

per cubic metre

For Grade B species

Hewn square export levy

US$ 43

per cubic metre

SBB service fees

Outline Management Plan Approval fee

Sf 1,500,000

flat-rate fee

For intensively managed forest concessions of 50,000 ha and below

Sf 3,000,000

flat-rate fee

For intensively managed forest concessions of over 50,000 ha

Annual Plan Approval fee

Sf 2,000

per hectare

In intensively managed forest concessions

Production Control fee

Sf 2,000

per cubic metre

On all production of roundwood and hewn squares

Sf 10,000

per cubic metre

On all production of minor forest products

Port inspection fee

US$ 2

per cubic metre

On all exports of wood products

Total government revenues from forest levies and service fees and the current exchange rate policy

Due to the previously very low levels of forest charges set in Suriname, the total amount of government revenues that have been collected from the forestry sector has historically been very low. For example, Mitchell (1998a) reported that the total estimated amount of forest charges collected in 1997 was only Sf 3.6 million (US$ 0.2 million at the foreign exchange rate prevalent at the time) and that this amount was considerably lower than the cost of running the forestry administration (LBB). However, in addition to forest charges, the government also benefits from the operation of the dual exchange rate policy which, as discussed earlier, effectively acts as a tax of 40% on the value of all wood products exported from the country. This may have historically provided the government with a much greater amount in annual revenues in recent years (about US$ 2.6 million) than forest charges.

The total level of government revenues that will be raised with the charges proposed here, will depend upon the total level of production and exports in the sector, the rate at which SBB is successful in monitoring and controlling roundwood production and collecting the charges and the way in which the sector develops. Developments in terms of production growth and in changes in forest management both have the potential to affect future revenue streams.

Based on recent historical production and export data, two forecasts of future government revenues for the forestry sector have been developed for the period 2000 - 2005. They have been based on the following assumptions:

A no growth scenario, with constant levels of annual production over the period of 200,000 m3 of roundwood (30,000 m3 for export), 5,000 m3 of hewn squares (with 2,000 m3 for export) and 500 m3 of minor forest products. Other processed wood exports are assumed to continue at around 10,000 m3 per year. This scenario assumes that commercial timber production in HKVs, ICLs and other areas outside of forest concessions is almost completely stopped over the period and that around 45,000 ha of intensively managed forest concessions are established each year (at the expense of production from extensively managed forest concessions).

A 5% growth scenario is the alternative, starting with the same levels of production and exports as above, but including a 5% increase each year in roundwood and hewn square production and exports and 5% growth in processed wood exports. This scenario also assumes that commercial timber production in HKVs, ICLs and other areas outside of forest concessions is almost completely stopped over the period. However, in conjunction with the assumed growth in production, it also assumes that SBB can pursue a stronger policy towards improving forest management and establish 57,000 ha of intensively managed forest concessions each year (at the expense of production from extensively managed forest concessions).

A complete description of the government revenues that would be collected under each of these scenarios is given in Appendix 1 and a summary of the projections is given below.

Projected government revenue from forest charges and the operation of the dual foreign exchange rate policy

The total expected government revenue from the forest charges described above and the continued operation of the dual foreign exchange rate policy is shown in Table 15 and Table 16. Under Scenario 1 (no growth) total revenues would be expected to decline slightly from about Sf 6.7 billion (US$ 5.0 million) to about Sf 5.9 billion (US$ 4.4 million). This decline would be due to lower revenues from forest charges as roundwood production moved into intensively managed forest concessions (where charges are slightly lower to reflect the increased costs of properly managing the forest resource). In other words, the forestry administration would be a "victim of its own success" in terms of revenue collection, if it managed to persuade large numbers of forest concessionaires to change their operations into intensively managed forest concessions. Revenues collected from forestry charges would still, however, be considerably higher than the amounts collected previously (Sf 2.5 billion as opposed to the figure of Sf 3.6 million quoted above).

Table 15 Summarised total government revenue projections under Scenario 1: no growth in production and a gradual implementation of the policy to move a significant proportion of roundwood production into intensively managed forest concessions.

Type of production/levies

Units

Year

   

2000

2001

2002

2003

2004

2005

Area-based charges

Sf million

495

501

506

512

517

487

Volume-based charges (on production)

Sf million

1,515

1,356

1,197

1,038

879

756

Export levies (volume-based)

US$ '000

904

904

904

904

904

904

Revenues from the exchange rate policy

US$ '000

2,580

2,580

2,580

2,580

2,580

2,580

TOTAL

Sf million

6,713

6,560

6,406

6,253

6,099

5,946

TOTAL

US$ '000

4,973

4,859

4,745

4,632

4,518

4,404

Table 16 Summarised total government revenue projections under Scenario 2: 5% growth in production and a gradual implementation of the policy to move a significant proportion of roundwood production into intensively managed forest concessions.

Type of production/levies

Units

Year

   

2000

2001

2002

2003

2004

2005

Area-based charges

Sf million

455

491

532

576

624

640

Volume-based charges (on production)

Sf million

1,515

1,391

1,268

1,148

1,029

948

Export levies (volume-based)

US$ '000

904

949

996

1,046

1,098

1,153

Revenues from the exchange rate policy

US$ '000

2,580

2,709

2,844

2,987

3,136

3,293

TOTAL

Sf million

6,672

6,820

6,985

7,167

7,369

7,591

TOTAL

US$ '000

4,942

5,052

5,174

5,309

5,459

5,623

Under Scenario 2 (5% production and export growth) total revenues would be expected to rise slightly from about Sf 6.7 billion (US$ 4.9 million) to about Sf 7.6 billion (US$ 5.6 million). In other words, the increase in production and exports would more than offset the impact (on forest charges) of roundwood production moving into intensively managed forest concessions (where charges are lower).

Under both scenarios, more than half of total government revenues would come from the implementation of the dual foreign exchange rate policy and around 80% of total government revenues would be collected in foreign currency (though the withholding of foreign exchange and the collection of the export levy in US$).

Fees to support SBB and the administrative efficiency of the charging system

A summary of the total fees that would be collected by SBB is given in Table 17 and Table 18. Under Scenario 1 (no growth), the total amount of fees collected by SBB would gradually increase from about Sf 0.6 billion (US$ 0.5 million) to about Sf 1.1 billion (US$ 0.8 million). Under Scenario 2 (5% growth), the total amount of fees collected would increase by more, from about Sf 0.6 billion (US$ 0.5 million) to about Sf 1.4 billion (US$ 1.0 million).

Table 17 Summary of fees collected to support SBB under Scenario 1: no growth in production and a gradual implementation of the policy to move a significant proportion of roundwood production into intensively managed forest concessions.

Type of fee

Units

Year

   

2000

2001

2002

2003

2004

2005

Plan approval fees

Sf million

95

185

275

365

455

545

Production control fees

Sf million

422

424

425

427

429

430

Port inspection fees

US$ '000

84

84

84

84

84

84

TOTAL

Sf million

630

722

813

905

997

1,088

TOTAL

US$ '000

467

534

602

670

738

806

Table 18 Summary of fees collected to support SBB under Scenario 2: 5% growth in production and a gradual implementation of the policy to move a significant proportion of roundwood production into intensively managed forest concessions.

Type of fee

Units

Year

   

2000

2001

2002

2003

2004

2005

Plan approval fees

Sf million

119

233

347

461

575

689

Production control fees

Sf million

422

445

469

494

520

548

Port inspection fees

US$ '000

84

88

93

97

102

107

TOTAL

Sf million

654

796

940

1,086

1,233

1,381

TOTAL

US$ '000

484

590

697

804

913

1,023

A few very important points should be made here about the future financing of SBB. The first is that the financing of the operation will be very much dependent upon its performance. If SBB works well and promotes some growth within the forestry sector, it will be able to collect more fees. Also, within the proposed charging structure, it will be necessary for SBB to get forest concessionaires to move into intensively managed forest concessions, so that they can collect the plan approval fees. If they fail to do this, the collection of the production control fees alone will not be enough to support the organisation at its current strength. It is also worth noting that, even under Scenario 2, the total amount of fees that will be collected will only just be sufficient to finance the estimated running cost of the organisation of US$ 1 million per year (see Mitchell, 1998a, for detailed provisional budgets for SBB).

A final point to make concerns the administrative efficiency of the whole system. The administrative efficiency of any tax system can be measured as the total cost of implementing the system divided by the amount of money that is collected. Typical figures for efficiency measured in this way can range from a fraction of a percent (for taxes that are easily collected) to over 100%.

The efficiency of the system proposed above is around 45% (or only 20%, if the revenues collected from the implementation of the dual foreign exchange rate policy are taken into account). This seems a little on the high side and SBB should strive to control costs and try to achieve a better level of efficiency than this, so that a greater proportion of the overall share of revenues collected from the sector can be remitted to the Government.

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