The Senior Management Advisory Team (SMAT) of the Indonesia-UK Tropical Forest Management Programme (ITFMP) were asked to comment on the current level of forest levies in Indonesia in June 1996 (letter number 832/IV/PPHH - 4/96 from H Walter Nadapdap to Alastair Fraser). This report is the SMAT response to that request.

The report starts by describing and presenting data collected by SMAT about log and product prices. This data has been collected from a variety of sources. The calculation of economic rent also requires production and capital cost data, and this is discussed in this section. The report then goes on to explain very briefly how economic rent is calculated.

The results of this analysis are presented in the last three sections of the report. Section 4 shows the current level of economic rent and shows how this is distributed between the government and industry with the current level of forest levies and log transfer prices. Section 5 shows the maximum amount that plymills and sawmills could pay for their logs (ie. the true market value of the logs), and the amount of IHH that HPHs could pay at these log prices.

The report finishes by suggesting a level of IHH which would collect the maximum amount of economic rent from HPHs, at current cost and price levels. This amount is much higher than the current level of IHH, so it also suggests a way in which this increase could be gradually introduced.