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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).

 

Table 14. Cost and revenues for the Conventional Logging system (CL) and the Reduced-Impact Logging (RIL) system for the 1-year analysis period.

No.

Parameter

Harvesting system

CL

RIL

Scenario 1

Scenario 1

Scenario 2

Scenario 3

[RM/m]

1

Cost Centers

       

1.1

Harvesting

28

43

37

37

1.2

Royalties

37

37

37

37

 

Subtotal

65

80

74

74

2

Revenues

       

2.1

Timber

94

126

126

94

 

Subtotal

94

126

126

94

3

Total profit

29

45

52

20

Explanation:
  • For details refer to Table 7.
  • For details refer to Table 8.
    No. 2.1 Timber revenues after reduction of costs for road construction and maintenance, debarking, scaling grading, transport, inventory, overheads, and silvicultural treatment operations. For details refer to Section 4.3.1.
    Scenario 1: Harvesting costs under RIL include costs for training and damage assessment; revenues include a certification premium under RIL and it was assumed that the costs for road construction and maintenance, debarking, scaling grading, transport, inventory, overheads, silvicultural treatment operations etc. are the same under CL and RIL.
    Scenario 2: Harvesting costs under RIL do not include costs for training and damage assessment; revenues include a certification premium under RIL and it was assumed that the costs for road construction and maintenance, debarking, scaling grading, transport, inventory, overheads, silvicultural treatment operations etc. are the same under CL and RIL.
    Scenario 3: Harvesting costs under RIL do not include costs for training and damage assessment; revenues do not include the certification premium under RIL and it was assumed that the costs for road construction and maintenance, debarking, scaling grading, transport, inventory, overheads, silvicultural treatment operations etc. are the same under CL and RIL.
  •  

    The derived profit was RM 29 and RM 45 per m 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/m (Scenario 2). The profit is reduced to RM 20/m (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.

     

    Table 15. Indicators for the financial analysis of Conventional Logging and Reduced-Impact Logging with a discount rate of 10%, a calculation period 40 years, and a production area of 100 ha.

    Net Present Value

    Internal Rate of Return

    Benefit Cost Ratio

    CL

    RIL

    CL

    RIL

    CL

    RIL

    [RM]

    [%]

    118,700

    91,409

    -

    -

    1.45

    1.57

    Explanation:
    CL = Conventional Logging system
    RIL = Reduced-Impact Logging system
    Note IRR cannot be calculated because the aggregated flow of costs and revenues is never negative over the 40-year period.

     

    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.

    The BCR for the RIL system exceeds the BCR of the CL system by a factor of 1.1. This means that the RIL system is more robust with regard to cost increases.

     

    Figure 1. Financial cash flow under the Conventional Logging system (CL).

    Figure 2. Financial cash flow under the Reduced-Impact Logging system (RIL).

     

    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.

     

    Net Present Value

    Conventional Logging System

    Reduced-Impact Logging System

    [RM]

    910,014

    990,462

     

    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.

    (1) Discount rate

    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.

     

    (2) Costs of harvesting operation

    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.

    (3) Timber price

    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.

    (4) Carbon trading

    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.

     

    (5) Logging intensity of the first harvesting operation

    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 m/ha to at least 36 m/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.

     

    (6) Varying two factors simultaneously

    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.

     

    Table 17. Net present value (NPV) of Conventional Logging (CL) and Reduced-Impact Logging (RIL), assuming that several elements under RIL are modified, for a 40-year analysis period.

    No.

    Parameter

    Unit

    Harvesting system

    CL

    RIL

    Scenario 1

    Scenario 2

    1.

    Discount rate

    [%]

    -

    10 (10)

    10 (10)

    2.

    Harvesting costs

    [%]

    -

    -10

    -10

    3.

    Certification premium

    [%]

    -

    10 (10)

    10 (10)

    4.

    Carbon transfer payments

    [RM/ha/y]

    -

    0 (0)

    15 (0)

    5.

    Intensity of the first harvest

    [m/ha]

    -

    33.3 (27.8)

    33.3 (27.8)

     

    Net present value

    [RM]

    118,700

    119,378

    134,046

    Explanation:
    In brackets = Original values used for the CBA calculation (shown here for purposes of comparison).
    No. 2 = Minus 10% in relation to original harvesting costs used in the CBA calculation.

     

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