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3 Papua New Guinea

3.1 Background

Efforts to establish hardwood plantations in PNG have occurred since 1955, with trials of various species in highland, coastal and lowland areas. More extensive plantation development took place during the late 1960s and 1970s, largely through the efforts of government, and with limited private involvement. Recent data on these is difficult to obtain with any certainty of accuracy, but some earlier data regarding the size of plantations is referred to in this report.

Following trials, two genera became favoured teak (Tectona grandis) and Eucalyptus species and were established on a wider scale in several locations. The genera and locations of hardwood plantation areas are presented below:


Tectona grandis

Eucalyptus species

Brown River





Stettin Bay Co.


Waghi Swamp


Gogol Co.


The Stettin Bay and Gogol companies are private interests, while the other forest estates were established using governmental resources. During the 1980s, the Brown River forests of Hohora and Edevu passed from government to land owners. This came about through a claim by the landowners which, for still little understood reasons, the government did not contest through the legal system. The third Brown River forest, Kuriva has remained on Government land.

This case study focuses on the Brown River resource. The project is now being developed by private investors, with the current resource being the basis for commercial activity and further plantation development.

A Resource Inventory Report on the Hohora and Edevu Teak Plantations was completed by the PNG Forestry Authority (PNGFA) in August 1994. The gross sawlog volume of teak in the project area and the location of the resource are shown below.


Area (ha)

Volume of teak (m3)

Hohora & Edevu



Kuriva (semi-mature)






Currently the estimated sawlog gross volume of teak is 75m3/ha. This relatively low volume per hectare is generally a consequence of poor forest management and repeated fires through the forest.

3.2 Technical matters

3.2.1 Land quality

The teak plantation is sited on soils of medium texture with B horizons. The soils become more skeletal in hilly areas. The teak plantation area is flat to undulating at best with steeper areas ranging up to 30 degree slopes. Such areas include rock outcrops making the site harsh for tree growth. Moderate slopes exist between the steep areas and those of undulating form. These moderate slopes provide the means for a roading network.

3.2.2 Climate

The climate in the area is that of a tropical savanna, suitable for the deciduous habit of teak. Most rainfall arrives by way of the north-west monsoon trade winds between December and April. The south-east trade winds prevail from May to November, bringing further rain, though droughts relating to “El Nino” occur more regularly during this period. The rainfall for the period has been as low as 230mm for the six months of May to November. The annual rainfall ranges from 1,750 to 2280mm per annum with an average of 2,077mm.

3.2.3 Experience and expertise

Plantation expertise has been sourced by the PNGFA from Australasian foresters. New Zealand in particular has several decades of commercially focussed plantation development. Management of the 11,000ha softwood plantation at Bulolo has had significant influence from New Zealand foresters in recent years.

Key to the success of commercially driven plantation development and management is the management attitude. Plantation foresters must treat the plantation as a series of renewable crops, similar to a forest farm, in contrast to the indigenous resource. Foresters with indigenous forest experience will perceive any forest as a resource rather than a crop. Though both resource and crop must be managed sustainably, contrasts between these two perspectives affects management decisions from establishment to marketing.

National foresters are trained at the Lae forestry school and have good technical competence. Much of their training is focussed on the management of natural forest which presently forms the mainstay of the nations industry. There tends to be a lack of training in the management of plantations.

The expertise of the national foresters does not extend to the land owners as was demonstrated when the Brown river plantation was taken back by the landowners. Following takeover, silvicultural management ended. Successful establishment was followed by little or no tending leading to highly stocked stands with minimal diameter increment.

Nursery staff trained and employed by the PNGFA is enthusiastic. There is hope that updated methodology using the Brazilian tube system will improve cost effectiveness in nursery techniques. There is however no local experience with this system therefore there is an important need to continue the education process down to the local level.

3.2.4 Fire and diseases

As with all forests there are important threats to their future. Fire and diseases are two of those threats which have had varying impacts on the Brown River plantation. While there appears to be few diseases of teak, other species have not fared so well leading to their discontinued use as a plantation species.



Fire is interpreted as having a sanitary influence on diseases and pests.

Fire is considered to be the single greatest technical risk to this project. Being hunter gatherers, residents in the area use fire to clear areas of undergrowth, assist in hunting access, and reduce snake populations. Fires are low in intensity and have little direct impact on teak plantations because teak is semi-deciduous and has thick fire resistant bark. Fire does reduce the fertility of the site as volatile nutrients are evaporated from the ecosystem.

Fire is assumed to be the dominant reason why 20 other species failed to survive in the Brown River afforestation area.

3.3 Economic issues

3.3.1 Demand and supply

Tectona grandis, the only true teak, has for centuries been a valuable commodity which must be carefully utilised, nurtured and vigorously protected. Limited supplies from the natural forest resource, and export restrictions on unprocessed products from Indonesia and Thailand, mean that teak could be forced out of traditional high profile markets.

Teak should always have a market because of its timber qualities, and the tradition which surrounds it. Exceptional durability, stability, strength, and its attractive appearance make it one of the world’s premiere timbers, limited by supply constraints and price. Teak is used in high quality furniture, boat-building, and for decorative purposes.

Lack of silvicultural management within the Brown River resource limits the size of sawn material from the resource. For this reason, flooring grades will be the usual grades produced during the early period of this project.

Second rotation crop yields should include larger dimension material from larger trees. Furniture grades should improve the returns from the crop. Controls on fire are expected to improve the annual productivity from an estimated 2 to 9m3/ha. This is lower than other teak forests which produce up to 20m3/ha.



Teak has inherent timber qualities and a reputation which should permit marketing.

Second rotation crops will provide greater returns.

The Brown River resource has small piece sized material which limits the utilisation for higher quality markets.

3.3.2 Market prices

Teak has timber qualities and a reputation for excellence which identify it clearly in the market. Prices for plantation grown sawn material with dimensions suitable for furniture range from US$600 to $1,200/m3. Flooring grade prices are less than this, with prices ranging from US$550 to $800/m3.



Teak can achieve good prices in the market place, providing an economic base for commercial enterprise.

Decreasing international teak supply provides some confidence that a real price increase of 3%/year is possible.

Current economic difficulties within the Asian economies have caused price reductions and challenges to marketing the flooring products as a new supplier. This situation is likely to continue for two to five years.

3.2.3 Landowner negotiations

Landowners in PNG have a reputation for expedient behaviour, resulting in insecure tenure and perceived high risk for business ventures. The government has implemented systems which reduce the risks but the situation is still far from ideal from an investor’s viewpoint. Investors do not negotiate directly with landowners. The PNGFA undertakes a mediation role in defining the legitimate landowners, and then negotiating a fair arrangement between investor and landowner.

It is not possible to purchase freehold land in PNG even for such infrastructure as sawmills and the like. Instead an investor must ask the Government to purchase the land and then lease it to the investor. While this may provide some comfort to the investor, it is still seen as one more hurdle to overcome and one more cultural difference to operating in a more developed economy.



Landowner negotiations are undertaken and enforced by the PNGFA.

Landowners are expedient, and often seek short term solutions to long term investment issues.

3.3.4 Forest costs

Forest costs are based on known operations and costs for other tropical plantations, then adjusted to reflect labour costs and productivity in PNG.




PNG K/ha


























Release - 3 times




Waste thin










Where a project is based on a current resource, with income being generated shortly after the initial investment, then plantation forestry should attract interest. Even with income being directed towards reforestation such a project generates significant returns for investors.

Evaluation of establishing a hectare of teak, but including a real price increase of 3%/year, derives an Internal Rate of Return of 18%. This is higher than the 15% discount rate, or yields a positive Net Present Value using a 15% discount rate.

Economic analyses have been undertaken based on 1 hectare examples of Teak and Eucalyptus deglupta (Appendix x). These indicate that the Internal Rate of Return for both options is 14 to 15%. Because the IRR compares closely with the recommended discount rate, the discount rate affects the attractiveness of investing in plantation development. The Net Present Value of plantation forests is negligible where a discount rate of 15% is applied to new ventures.

Of all the incentives and disincentives presented in this report, securing a standing resource on which to base commercial plantation activity is key to this case study. Challenges posed by land owners, costs associated with taxes and duties, problems with working in a developing economy are all justifiable if there is an economic base from which to expand further investment and which can justify reinvestment.

3.4 Political situation

3.4.1 Government encouragement

The Investment Promotion Authority (IPA) contacts and locates suitable partners in PNG for prospective investors. This is seen as a means to assist investors understand some of the unique features which operate in PNG. The service is intended to be a more personalise done than simply dealing with ‘Government Departments’.

The PNGFA assists forest investors by providing resource inventories for prospective projects. In the case of plantations however they tend to continue using inventory techniques that are more appropriate to natural forest such as stripline techniques. While not a major issue it does indicate a lack of familiarity with plantation management and inventory.


The PNG government has actively encouraged all forms of foreign investment that can demonstrate long term benefits to the country, particularly when these will provide employment and generate foreign exchange. A number of government incentives (e.g. a 10 year tax holiday) are available for enterprises setting up in rural areas, and for industries that will be involved in exporting (e.g. a seven year export sales incentive).

3.4.2 Laws protecting local processing

The Government adopted stringent laws to encourage the onshore processing of both indigenous logs and of high quality exotic species such as teak. Their target is to eliminate log exports by 2000. Log and flitch exports incur a duty of 45% making log exports of teak an uneconomic option.

Local processing is encouraged with the PNGFA being willing to negotiate variations to the laws especially for small sized logs in order to encourage more efficient industry. There exists a practical attitude to trying to make things work.

As Dolman records though, in reference to indigenous concessions, the pragmatism can go a little too far on occasions:

“In this game the winner takes all (timber) by disguising logging within a bogus oil palm or infrastructure project. No one seems to mind oil palm, even though it requires wholesale forest destruction. Recent Cabinet approval of new “Guidelines for Agro Development” has made acquisition of large forest areas a cinch, having specified that ‘agriculture projects will comply with the existing laws (Forestry, Investment, Environment Acts) except where provisions affect the pace of development’.”.

3.4.3 Land issues

The long term relationship between the company and the landowner groups is important to the ultimate success of the PNG Teak Project. Unimpeded access for the company is vital to the successful establishment of a forest plantation. The project is complicated by the amalgamation of various landowner groups as well as the PNGFA.

It is proposed to employ liaison people within the company to encourage communication between the company and landowner groups. Communication is a two way process. The company must listen to the concerns and aspirations of the landowner groups, while there is opportunity for the company to portray the need for fire prevention, work quality and share analysis.

It is important that the principle of partnership between landowner groups and the company be expressed clearly until the landowner groups understand and own the concept.

3.4.4 Customary land

The utilisation of customary land means that the landowners and local people have a vested interest in project success. Land issues assume a dominant role in determining the success of long term projects including forest development. Customary land, by definition, is difficult to define, increasing risks to relationships between landowner and developer

3.5 Legal issues

3.5.1 Land tenure

In recognition of the issues pertaining to protecting the rights of landowners, investors, and the PNG government, laws are in place that provide the means to clarify rights and responsibilities of all parties. The PNGFA is responsible for identifying Indigenous Landowner Groups (ILG) who have customary rights to the land.

The PNGFA has recognised the difficulties posed by land issues. The National Forestry Development Guidelines have addressed this in several clauses that promote participation by commercially minded plantation managers and developers. The project includes several teak plantations in one consolidated project area under one Project Agreement with the PNGFA.

Experience has shown that the PNGFA takes its responsibility to enable the developer to manage the project seriously, calling on PNG police to enforce project agreements.

Legally binding agreements are alien to PNG culture, so agreements are always negotiable. Indigenous people also struggle to comprehend value changes over time. “Worthless” land that was sold for low prices in the past may increase in value as a result of forest development. Landowners will then feel cheated because of this increase in value, leading to tension and the desire to renegotiate the land sale. Purchase of significant land for afforestation is difficult to achieve in PNG.

This support for project agreements is consistent with the general intent of the National Forestry Development Guidelines. Particular reference is made to the following excerpts from the guidelines:

“... to provide landowners with a steady source of income, and to provide the continuous timber supply on which long term industrial investments can be made with confidence...''

“... (the)... minimum size of a sustainable unit will be an area large enough to provide a viable operation on a sustained yield basis’

“... plantation forests on State land will... be offered... on commercial terms to the private sector.”

These guidelines are achieved by a project agreement being enacted between the PNGFA and the company. Landowner rights and responsibilities are authorised through an agreement between the ILG and the PNGFA. During disputes between landowners and the company, the PNGFA acts to protect the rights of each party.

3.5.2 Unsufruct

The PNG culture exhibits facets which relate to the principle of profit-making. Expediency among PNG people is evident in land issues and in negotiations about the utility of resources. However, foreign investors ignore the PNG assumption that all agreements are renegotiable at their peril.



PNG culture is generally expedient. Landowners trade resources, and accept the reality of circumstances beyond their control.

PNG culture assumes that deals are negotiable.

Historically, PNG people have trouble with the concepts of inflation and development of resources. This influences their perception of change of value over time, often leading to resettlement of a deal.

Developers need to ensure that deals are struck with correct landowners.

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