The royalty pricing policy in Kenya has a long history dating back to the beginning of the 20th Century. Prior to the participation of the World Bank in the financing of forest plantation development in the 1970s, the aim of the pricing policy of the FD was essentially to manage the exploitation of indigenous forests. This meant that prices were generally set at a very low level to encourage the use of the resource.
When the Kenyan Government received external financing for industrial forest plantation development in the 1970s, the World Bank recommended the adoption of a pricing policy to maximise the recovery of all expenditure incurred in the production of industrial roundwood. The aim of this was to make industrial forest plantation development sustainable. However, the rate of royalty collection since the World Bank became a co-financier in industrial plantation development has not matched the expectations. Currently, the collection of royalties is now so low that forest plantation development is financially unsustainable.
The low rate of royalty collection has been blamed on the weak and inefficient forest administration and also the poor royalty assessment and collection system used in the past. To address these weaknesses, the FD adopted the standing volume assessment method for royalty determination in 1985 to replace the ground scaling system that was found to encourage wastage and was also open to abuse. Use of the weighbridge method has also been scaled down and is now only used in special cases.
Furthermore, the FD raised royalty rates to reflect the true value of wood in the international market. The schedule of revised royalty rates was prepared after a World Bank appraisal mission, which found out that the rates being charged by the FD were only 37 percent of the prevailing international market prices for the same types of wood. However, implementation of this schedule met stiff resistance from the established sawmillers (and, especially, Pan African Paper Mills), who successfully petitioned the Minister in charge of forests to reduce the royalty rates again.
The developments above together with the development and implementation of improved felling plans should substantially increase revenue collection. However, the felling plans that were in use prior to 1990 have been discontinued, with the result that the allocation of plantation materials for harvesting has been rather haphazard in recent years.
The specific details of revenue collected from each of the major forest products produced in Kenya are described below.
Kenya has only one pulp and paper mill, which is part of the Pan African Paper Mills (PPM) group. The mill is based at Webuye town in western Kenya and is a joint venture between the Government of Kenya (33.4 percent), the Orient Paper Company of India (24 percent) and the International Finance Corporation (29 percent). The mill has an average annual capacity of about 250,000 m3 of roundwood input, which is supplied completely by the forest plantations managed by the FD.
The pulp and paper mill uses its own machinery and workforce to harvest pulpwood from various forest stations, but the transportation of pulpwood to the mill is contracted to private companies. According to a World Bank report, the technology used in the mill is inefficient and obsolete and it is, therefore, unable to compete with other international paper producers.
The prices charged for pulpwood vary from year to year, so the total revenue generated from pulpwood sales over the last five years is indicated in Table 5 below. It should be noted that the royalty charged for pulpwood production is unrealistically low compared to the prices obtained by pulpwood producers in other countries. These rates have been set administratively outside the FD to cushion the pulp and paper mill from the impact of cheap paper imports (and they do not, therefore, match the figure calculated using the replacement cost method and shown in Table 1).
Year |
Volume harvested (in m3) |
Royalties paid (in Ksh/m3) |
Total revenue collection (in Ksh) |
1995-96 |
246,000 |
311 |
76,506,000 |
1996-97 |
260,000 |
311 |
80,860,000 |
1997-98 |
272,000 |
311 |
84,592,000 |
1998-99 |
207,000 |
311 |
63,135,000 |
1999-00 |
250,000 |
321 |
80,250,000 |
Revenue from pulpwood production is collected by the FD on behalf of the government and is subsequently deposited in the Treasury. The annual licence fee collected by the FD is credited to the Ministry’s AIA account.
There are currently about 376 sawmillers operating in Kenya. The total revenue collected from sawlog production in the past has amounted to over Ksh 100 million per year on average (see Table 6). In addition to this, revenue collected from the licence application fees and operating licence fees amount to about Ksh 8 million per annum in total. After collection, the production charges are surrendered to the Treasury to form part of the Consolidated Fund, while the licence fees are credited to the Ministry’s AIA.
Year |
Total revenue collection (in Ksh) |
1994-95 |
117,357,387 |
1995-96 |
116,215,934 |
1996-97 |
94,456,158 |
1997-98 |
70,177,326 |
1998-99 |
16,686,056 |
1999-00 |
29,155,726 |
The decreased level of revenue collection since 1997-98 is a reflection of reduced harvesting activities brought about by the need to balance extraction of materials with the FD’s capacity for reforestation. There has also been a ban on harvesting sawlogs in forest plantations since 1999, except in areas earmarked for excision or salvage operations. This ban was imposed after realisation that a lot of plantation materials had been harvested without a corresponding programme for reforestation. The low revenue in the last few years has also been attributed to inappropriate harvesting practices in some forest areas, where the full amount of revenue from sales has not been collected due to under collection and under assessment of merchantable wood volumes.
Poles are produced from state forests to meet the demand for building poles and transmission poles (for telephone and power lines). The FD has established about 30,000 hectares of Eucalyptus plantations to meet the demand for poles and fuelwood. Poles can also be sourced from other softwood plantations and indigenous forests. Therefore, the FD has defined poles as all roundwood with a butt diameter of between 5 cm and 15 cm. All larger sizes of roundwood are sold at the full royalty rates shown in Table 1 and Table 2.
The revenue generated from pole production is mainly determined by the availability of Eucalyptus roundwood. Revenue collected from pole production over the last five years is indicated in Table 7 below. The revenue generated from the sale of poles is surrendered to the Treasury and forms part of the Consolidated Fund.
Year |
Total revenue collection (in Ksh) |
1993-94 |
3,184,276 |
1994-95 |
2,878,341 |
1995-96 |
3,271,476 |
1996-97 |
2,968,341 |
1997-98 |
2,218,972 |
1998-99 |
2,029,574 |
1999-00 |
945,257 |
Fuelwood is derived mainly from Eucalyptus plantations and the waste from major forest operations (especially the tops and branches left after harvesting in forest plantations). The revenue generated from the production of fuelwood is determined by the availability of these materials and the FD remains the single major source of fuelwood supply to both industrial and domestic consumers. The main consumers of fuelwood in Kenya are tea factories and the tannin extraction industry.
Year |
Total revenue collection (in Ksh) |
1994-95 |
5,734,762 |
1995-96 |
5,875,139 |
1996-97 |
5,327,652 |
1997-98 |
3,854,152 |
1998-99 |
5,007,885 |
1999-00 |
3,289,618 |
The revenue generated from fuelwood sales is collected by the FD and is put into the Consolidated Fund. Total revenue collection from fuelwood production over the last five years is shown in Table 8 above.
Charges derived from sale of minor forest products and recreational facilities are classified as miscellaneous charges and are credited to the AIA account. These are a particular class of revenue receipts that the Treasury authorises the FD’s Accounting Officer to spend in addition to the FD budget disbursed from the exchequer account. Therefore, they are not deposited into the Treasury’s Consolidated Fund.
The total revenue collected by the FD over the last seven years is shown in Table 9. Revenue from timber includes revenue from pulpwood and sawlog production. Miscellaneous receipts refer to the charges levied on minor forest products and services and the revenue collected from licence fees.
Table 9 Total revenue collected by the Forest Department from 1993-94 to 1999-00
Year |
Timber |
Fuelwood |
Poles |
Miscellaneous |
Total |
1993-94 |
188,805,934 |
6,442,945 |
3,184,276 |
21,186,746 |
216,435,625 |
1994-95 |
184,706,265 |
6,276,894 |
2,878,341 |
19,275,146 |
210,258,305 |
1995-96 |
178,484,629 |
5,875,139 |
3,271,476 |
18,972,837 |
203,332,605 |
1996-97 |
175,356,158 |
5,327,652 |
2,968,341 |
18,829,925 |
199,513,735 |
1997-98 |
154,769,326 |
3,854,152 |
2,218,972 |
17,947,804 |
176,571,282 |
1998-99 |
79,821,056 |
5,007,885 |
2,029,574 |
18,051,604 |
102,880,545 |
1999-00 |
109,405,726 |
3,289,618 |
945,257 |
15,344,911 |
128,040,255 |
Source: Forest Department annual reports. All figures are in Ksh.
In areas that are not managed by the FD, the FD does not collect any forest revenue. However, if forest products are harvested on trust land, local authorities do collect revenue from these activities for their own use and without reference to the central government. In addition, licensees are supposed to pay cess charges to local authorities and a range of other charges to local and central government (see Section 2.5). Information is not available about the total amount of revenue collected from these other charges and taxes levied on the forestry sector.
