5. Results

5.1 Comparison of costs and revenues for conventional logging and reduced-impact logging (one-year period)

The costs of harvesting operations and royalties per cubic metre are approximately 23% higher under the RIL system as compared to the CL system (Table 14, Scenario 1). This figure includes the costs for training and damage assessment. If these introductory costs are excluded the difference amounts to 14% (Table 14, Scenario 2).

The derived profit was RM 29 and RM 45 per m³ under the CL system and the RIL system respectively (Table 14, Scenario 1). Scenario 1 includes a certification premium under RIL and assumes that the forest operation costs which have not been incorporated in the actual CBA are equal for both harvesting systems (refer to Section 4.3.1). If the introductory costs for training and damage assessment are excluded, the estimated profit under RIL increases to RM 52/m³ (Scenario 2). The profit is reduced to RM 20/m³ (excluding introductory costs, Scenario 3) if the concessionaire does not realise a certification premium.

However, considering the overall extracted volume, the profit is higher under the CL system. The total estimated profit per 100 ha NPA amounts to RM 117,566 under CL and to RM 88,318 under the RIL system (Scenario 1).

5.2 Financial analysis – 40-year period

The results of the financial analysis for the 40-year calculation period are summarised in Table 15.

The NPV and BCR indicate that both management options are financially profitable. It is probably not the absolute figures but the relative ratios that are interesting. The CL is slightly more profitable and exceeds the NPV of the RIL system by a factor of 1.3.

Figures 1 and 2 illustrate the financial cash flows for the two harvesting systems. It can be concluded from studying the figures that the initial harvesting operation is more profitable under CL than under RIL whereas the financial benefit of the second cut is higher under the RIL system. However, the effect of discounting reduces the revenues of the second harvest to a minimal amount.

5.3 Economic analysis – 40-year period

Table 16 presents the NPV for the two harvesting systems. The economic analysis demonstrates that from the society's point of view the RIL system is preferable to the CL system because the RIL system provides a higher level of overall benefits and welfare to the society as a whole.

Table 16. Net Present Value for the economic analysis of Conventional Logging and Reduced-Impact Logging at a discount rate of 10%, a calculation period of 40 years, and a production area of 100 ha.

Figures 3 and 4 illustrate the economic flow of costs and benefits under the two harvesting systems, showing again that the economic benefits of RIL are more pronounced at the time of the second harvest than during the first harvest.

Figure 3. Economic flow of costs and benefits under the Conventional Logging system (CL).

Figure 4. Economic flow of costs and benefits under the Reduced-Impact Logging system (RIL).

5.4 Sensitivity analysis

A sensitivity analysis was carried out for the following components: (1) discount rate, (2) harvesting costs, (3) timber price development, (4) carbon trading, and (5) intensity of the initial harvest. In order to identify the impact of a selected factor on NPV, only one factor was varied at a time. Figures 5 to 9 illustrate the results for the individual components. In addition, results for a realistic combination of these factors are described under point (6) below.

The results of the sensitivity analysis demonstrate that the RIL is only more profitable than the CL system if a discount rate of less than 3% is applied. However both harvesting systems exhibit positive financial benefits for the entire range of discount rates applied in the analysis (Figure 5).

Figure 5. Sensitivity analysis for the discount rate.

The effect of changes in RIL harvesting costs is illustrated in Figure 6. Leaving other factors unchanged, a reduction of more than 30% in harvesting costs is required to make the RIL system more profitable than the CL system.

Figure 6. Sensitivity analysis for costs of harvesting operation.

As shown in Figure 7, an increase of approximately 15% in timber prices would be needed to make the RIL system financially more profitable than the CL system. Such an increase could originate from a certification premium, from an increase in resource scarcity, or from gaining access to higher-priced markets.

Figure 7. Sensitivity analysis for timber price development.

The sensitivity analysis relating to international carbon trading agreements indicates that at least RM 30/ha of annual carbon trading payments would be required to make the RIL system more profitable than the CL system (Figure 8).

Figure 8. Sensitivity analysis for carbon trading.

Figure 9 demonstrates the effect of varying the harvesting intensity associated with the first RIL harvest. If harvesting intensity under RIL were increased from the present level of about 28 m³/ha to at least 36 m³/ha NOA, the RIL system would become more profitable than the CL system.

Figure 9. Sensitivity analysis for the harvesting intensity of the first harvesting operation.

In order to work out the effects of modifying multiple factors simultaneously, two realistic scenarios were tested and are summarized in Table 17.

The results suggest that the RIL system would be more profitable if harvesting costs could be reduced by 10% at the same time that the logging intensity during the first cut was increased by 20%. Assuming that the concessionaire received revenues of RM 15/ha/y through carbon payments, the NPV under RIL would increase to RM 134,046, representing a 13% increase over the CL system. Without the carbon payments RIL would only be marginally more profitable than CL.