SITUATION OF THE FORESTRY SECTOR IN ROMANIA

Andrew Mitchell, Scott Poynton
loan Vasile Abrusan, Gheorghita Ionascu

ROMANIA'S FORESTS

Romania has an estimated 6.2 million hectares of forest land, covering approximately 27% of its total surface area, most of which (about 94%) is state-owned. Historically, forests have played an important role in Romania's economic and social development, providing a major source of rural employment and income through logging, wood processing and non-timber forest product industries.

Between World War I and World War II, and then from 1948 to 1989, forests were over-cut to support industrial development and generate export revenue. In the 1990s, forest managers have been able to reduce the annual timber harvest to levels significantly inferior to the long-term permitted harvest as a means of enabling forest recovery. However, past over-cutting has left a legacy of large areas of degraded forest land. This negative environmental impact has been compounded by the lack of a suitable forest road network. As a consequence, close and accessible areas have been over-harvested, while more remote, inaccessible areas have remained either unharvested or under-harvested.

Romania's forests are ecologically important on a European scale. The country's geographical position has favoured development of a rich and diverse flora and fauna. Its forests support a virtually ‘complete’ and pristine range of species. In addition to a number of rare and endangered flora and fauna species, Romania's Carpathian mountain forests support more than 60% of Europe's known population of brown bears and 40% of its wolves and lynxes.

FOREST SECTOR ADMINISTRATION

The provisions of the country's Forest Code (Law 26/24 of 1996) govern administration of the forest sector. However, the code is very broad and lacks supporting legislation and detailed regulations to guide implementation agencies, nor is there a formal, long-term national forest policy to guide sector administration. As a consequence, governments of the day are able to change the emphasis of forest sector administration without reference to forest sector stakeholders, past trends or long-term implications.

The key institutions responsible for implementing the Forest Code are the Forestry Department of the Ministry of Water, Forests and Environmental Protection and the National Forest Administration² (ROMSILVA). The Forestry Department is responsible for the development of forest policy and legislation governing operations on all forest land. It is also responsible for forest management control on privately-owned forest land. It currently employs only 27 persons (22 professionals), all of whom are based in Bucharest. The department is, however, unable to influence forest management activities in the field, and is effectively unable to fulfil its mandate.

² The National Forest Administration came into being in 1996. As a public company, it had first been created by Government Decision N^o 1335/21 of 1990 under the name of the Autonomous Forest Administration, ‘ROMSILVA’ RA. ROMSILVA was reorganized as the National Forest Administration by Government Decision N^o 1112/7 of 1996.

ROMSILVA is responsible for managing state forest land, under policy and legislative direction from the Forestry Department. It is financially autonomous, but can receive some public funds, mainly for forest road construction and reforestation activities. It employs around 40,000 staff, of whom around 2,750 are professionals. Timber sales are its main source of revenue, although approximately 30% of total revenues are generated from non-timber activities, including commercial hunting, fish farming, forest fruits, apiculture, osier basket ware, and harvesting of fungi and medicinal plants.

ROMSILVA's gross revenue provides a small profit on operations. It has developed an increasing focus on revenue generation in recent years, as the Government's contribution to its budget has been reduced. ROMSILVA has traditionally maintained its own sawmills, but recently has become a joint venture partner in improved kin drying and sawmill technology in a bid to increase profits. In addition, the Forest Code includes a provision for ROMSILVA to harvest 700,000 m³ of timber annually as a revenue-raising mechanism. This is currently being challenged by the private sector through the National Competition Council.

In addition to four functional departments and field forest districts, ROMSILVA is responsible for the Institutul de Cerccetari si Amenajari Silvice (ICAS), which is in charge of research and forest management planning. District forest plans cover 10 years and ICAS staff review and update them when they expire. ICAS employs some 840 professionals (mainly forest engineers and technicians).

LOGGING AND WOOD PROCESSING SECTORS

The distinction between the logging and wood processing sectors in Romania is blurred. Most primary processing companies — primarily sawmills — undertake their own logging, although, increasingly, small private logging companies are supplying logs to wood processing customers. The secondary processing sector — for example, furniture manufacturers — remains by and large distinct, although larger previously state-owned primary processors/logging companies do undertake a degree of secondary value-added processing.

In the 1990s, both sectors have seen varying degrees of privatization. In 1990, there were three large state-owned logging companies which, in 1994, were split into 17 companies with a majority state shareholding (around 70%). By 1996, these had been split further into 32 companies, with the state still the major shareholder, but with an increasing proportion of private shareholders. Since 1998, many of these have had a greater proportion of private shareholders than state shareholding, and all continue to seek new private investors.

Also in the 1990s, around 1,000 small private logging companies emerged. However, many have closed down as a result of bankruptcy, and at the beginning of 1998 around 600–700 remained.

There are approximately 165 commercial enterprises in the wood processing sector, again with mixed proportions of state/private shareholdings, and around 12,000 private small-scale processing enterprises.

Almost without exception, companies in both sectors use dated technology and maintain inefficient production processes. Prior to the 1990s, state-owned logging and wood processing enterprises were supported by the centrally-planned economy. There was little incentive to respond to market forces that would have forced companies to upgrade equipment and improve efficiency. Log prices were kept artificially low and markets, mostly in countries of the Soviet bloc and the Middle East, were guaranteed. These markets did not demand high quality, with the result that the processing sector became specialized in producing high quantities of low quality output.

With the transition to a market economy, logging and other production costs have increased significantly. Traditional markets have disappeared or become more competitive, and all companies in the sector have struggled to maintain cash flows. Primary processing companies are now seeking export markets able to pay higher prices than domestic secondary processing companies, leading to this sector being starved of raw material.

FOREST SECTOR ECONOMICS

The forest sector as a whole is currently in a very poor economic state:

• the Forestry Department depends on the government for its budget allocation, but it is under-funded and cannot function effectively;
• the logging and wood processing sectors struggle to maintain cash flows in the face of increased production costs and restricted market options, and companies are unable to raise investment capital to upgrade capacity and efficiency; and
• ROMSILVA's costs have to be paid through its own revenue-generating operations, which are constrained by customers' cash flow problems.

Individual entrepreneurs are beginning to emerge, but they struggle to raise investment funds because Romanian and international financing institutions are reluctant to invest in the sector.

The sector therefore faces the predicament of finding it difficult to emerge from its current poor economic situation because it is in a poor economic condition.

FOREST SECTOR REFORM

The country is currently undergoing a period of political and economic transition. Political initiatives since 1989 to transform the previously centrally-planned economy into a market economy more in line with its Western European neighbours have increased pressure on forest resources.

In 1991, the Government embarked on a programme of privatization through land restitution. Prior to 1948, forest land had been distributed among private owners (23%), the state (28%) and local community, the church and other owners (49%). In 1948, all land, except for some inaccessible areas but including forests, was nationalized. In 1991, under Law 18/91, the Government restored approximately 350,000 hectares of forest land to around 500,000 pre-1948 private individual owners.

In 1992/93, the Government, with assistance from FAO and the World Bank, undertook a Forestry Sector Review (FAO/World Bank, 1993) that identified key areas for forestry sector reform. In 1995, the Government developed a Forestry Strategy that also identified key activities to guide forestry sector reform. In 1996, as part of the Forestry Strategy, the Government promulgated the Forest Code (Law 26/24 April 1996) that outlined general provisions for the protection and long-term management of a national ‘Forest Fund’³. In 1997, the government again sought World Bank assistance to update the 1992/93 Forestry Sector Review.

Despite these reform-oriented initiatives, few of the proposed changes or review recommendations have been implemented. Successive governments have been unable to push reforms through the political process.

³ The Forest Fund is defined in Article 1 of the Forest Code as: “Forests, tracts of land designated for afforestation, those serving the needs of timber culture and production, or forest administration, ponds, brook beds as well as unproductive plots of land included in forest planning shall constitute the national forest fund, regardless of the nature of the property right, under the terms established by law.”

The current government was elected in November 1996 on a rapid reform platform and has previous regimes. The government has recently proposed a new series of forestry sector reforms, including performed strongly, forcing the pace of reform against a backdrop of popular dissatisfaction with:

• a further land restitution programme that would see between one-third and half of the remaining state-owned forests transferred to private ownership;
• simultaneous reorganization of the institutional arrangements for forest management, including possible privatization of the state institutions that currently manage state forests; and
• removal of restrictions on timber exports.

At the same time, the government has requested further World Bank assistance to implement the reform programme, which was proposed in early 1997. Restrictions on timber and log exports were removed in December 1997. Two months earlier, Law 169 had been passed, setting out procedures for pre-1948 owners to apply for forest land under the restitution programme, although no laws have yet been passed setting out details of restitution arrangements. Debate continues on optimal institutional arrangements and possible privatization of state forest management bodies.

POLITICAL DYNAMICS

The current Government is a coalition bringing together two major and three smaller parties. As in any country, the dynamics of Romania's political system plays a pivotal role in legislation and policy-making. Similarly, decisions concerning land ownership and land management are politically highly sensitive and generate fierce debate across all sections of the community.

The forestry sector is important in Romania and the proposed forest land restitution programme — given that it deals with the sensitive issue of land ownership and management — has become one of the most politically contentious issues facing the Government. The two major coalition partners have most policy-making control across all sectors, but hold particularly strong and opposing views on arrangements for forest land restitution.

One of the parties believes that forest land should be restored to all pre-1948 owners, including private individuals, local authorities, and church and other community organizations. When the reform programmes were first proposed, the party suggested that each individual owner should receive a maximum of 50 hectares. This has since been reduced to a maximum of 30 hectares.

The other party is opposed to land restitution but acknowledges public expectations that some form of reform programmes will be introduced. It argues that new owners are unlikely to continue sustainable management as currently practised by ROMSILVA. The party suggests that if the programme must proceed, then only pre-1948 private individual owners should have up to a maximum of 10 hectares of land restituted. The third largest party in the coalition is totally opposed to restitution.

The Government must therefore work through a politically complex and sensitive process to develop restitution arrangements that all parties can agree to. Final arrangements, when they do emerge, will represent a series of political compromises, as parties and party members decide what is best for themselves and what is best for Romania.

The coalition parties also differ on a number of other important issues. While the next election is not scheduled until the year 2000, it is possible that an early election will have to be called to resolve major policy differences that may include forest land restitution arrangements. One of the coalition parties opposed to restitution has stated that it is prepared to compromise on all issues except land restitution.

LAW AND POLICY-MAKING PROCESSES

Romania's political parties, lobby groups and self-interested individuals will all have an opportunity to influence debate over final restitution arrangements through the country's legislative and policy-making processes.

To become law, proposed legislation must pass through a step-by-step process of comment, feedback and final approval from related ministries, the Government and parliamentary committees. Bills can originate in either ROMSILVA or the Forestry Department (but most commonly in the Forestry Department). Interest groups such as the Romanian Forestry Association (ASFOR), which represents the forest industry, usually lobby one or both of these institutions in a bid to influence the content of any new proposals before they are presented to the Government. There is no formal forum to facilitate involvement by stakeholders. A particular group's success in influencing the debate will depend more on its high-level contacts than on genuine recognition that stakeholders should be involved in the policy-making process. This takes time and can become bogged down in political negotiation.

Forest policy is normally formed in a similar manner. New policies are developed within the Forestry Department and then passed on to the Government for comment and feedback. ROMSILVA may develop concept papers for submission to the Forestry Department. These can pass through a number of different steps over a long period and, again, the process tends to become bogged down.

ISSUES

Impact of the 1991 restitution programme

Evidence from the 1991 land restitution programme indicates that sound forest management practices, that were the norm under ROMSILVA, are largely ignored by new forest owners.

Romanian rural communities are generally very poor. Receiving title to one hectare of forest land stocked with high volume, high quality boles represents a very large potential windfall profit. An individual's rational short-term concerns (food, heating, health, education) and short-term fears (‘will the law change?’ and ‘will I be forced to give the land back to the Government?’) dominate equally rational, though for the impoverished individual far less relevant, long-term national goals such as watershed or biodiversity protection. When land titles were transferred from ROMSILVA to individuals as part of the 1991 restitution programme, trees were harvested extremely rapidly as individuals sought to cash in on a windfall potential.

Approximately 31% of the forest land privatized in 1991 has been clearfelled or now has a canopy closure⁴ of less than 0.4. Harvesting in the remaining privatized forests has exceeded annual permitted cuts by more than 100%. Expired forest management plans have not been updated.

⁴ Romania has a system for assigning scores to the degree of canopy closure for a forest stand, in which 0.1 indicates an ‘almost’ completely open site and 1.0 full canopy closure.

The current reform programme

The major aspect of the current reform programme causing concern within Romania and internationally is the land restitution programme. Few people argue strongly against restitution per se. However, the 1991 restitution programme indicates that widespread tree harvesting will take place again under any new restitution programme. There will be a similar negative impact' unless changes in policy, legal and institutional frameworks are in place before the land restitution programme starts.

Debate over land restitution is firmly divided along party political lines. There are extreme views within each party, but foresters - irrespective of political affiliation - are urging caution.

Concern over restitution is compounded by the budgets of ROMSILVA and the Forestry Department, as well as the fact that the existing mandates of both bodies have not been fully legislated. Protracted legislative and policy-making processes provide few prospects of short or even medium-term improvement in this context.

There is concern that neither body will be prepared, either legally or financially, for new arrangements involving a new mix of state/private land ownership and the different management roles this implies. If a new restitution programme proceeds under these conditions, there is a real and very serious concern that there will be a large-scale negative economic, environmental and social impact.

On the other hand, other aspects of the current reform programme are generally well supported. Removal of export restrictions has been viewed positively by logging and primary wood processing industries, although there have been some negative aspects. The secondary processing sector has suffered most from this change, because it has been unable to compete with export market prices. There appears to be general support (including support from ROMSILVA's senior staff) for privatization of ROMSILVA's commercial activities, provided that mechanisms are established to ensure that the income generated be used to finance forest management activities.

To date, the land restitution debate has focused on subjective analyses of what has happened in the past. The debate has become polarized and bogged down, and there is a risk that the Government will push the pace of reform out of frustration before the necessary policy, legislative and institutional reforms are agreed and implemented.

Table 1: Composition of Romania's forests

Table 2: Forest distribution by age classes

Table 3: Functional classification of forests

Table 4: Forest Fund structure by ownership (1994)

Table 5: Forest Fund structure by ownership and conifer species (1994)

Table 6: Forest Fund structure by ownership and broadleaved species (1994)