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. SBB’s 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.

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).

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.

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 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

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.

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.

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$.

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.

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.

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.

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.

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.

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.

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.