At current product prices (US$450/m3 for exported plywood and US$600/m3 for exported moulding), it would appear that IHH could be raised by US$10-20/m3 in Irian Jaya (Wilayah II) and US$25-35/m3 elsewhere (Wilayah I). However, this analysis has used average cost and price data. The variation in costs and prices between firms is not known, but a cautions approach would suggest that levies should not be raised by this full amount. Assuming that costs do not vary by more than ±25% of the average, IHH could be raised by 75% of the amounts given above. The new levels of IHH this would result in are shown in Table 5.
Table 5 The maximum level of IHH which could be charged at current (1996) costs and prices, and leave a 15% real rate of return on capital in the forest sector in Indonesia
|
Species group |
Wilayah I |
Wilayah II |
||
|
|
Current |
New |
Current |
New |
|
Meranti |
23 500 |
80 000 |
19 000 |
50 000 |
|
Other commercial |
14 000 |
30 000 |
9 000 |
25 000 |
|
Luxury wood |
32 500 |
60 000 |
32 500 |
35 000 |
All figures are in Rp/m3 log at 1996 prices
These levels are far higher than previous levels of IHH and will be very difficult to implement in one revision. It is suggested therefore, that the Ministry of Forestry raise the IHH by a fixed amount above inflation for a period of years.
For example, raising the IHH for Meranti in Wilayah I by Rp10 000/m3 plus inflation every year, and raising all the other levels of IHH by Rp5 000/m3 plus inflation, IHH would reach the levels suggested above in 1-5 years. An example of the levels of IHH this formula would give over the next 3 years are given in Table 6.
Table 6 Current and future levels of IHH with a gradual increase above the rate of inflation each year
|
Region and species |
Current |
1996 |
1997 |
1998 |
|
Wilayah I |
|
|
|
|
|
Meranti |
23 500 |
36 000 |
50 000 |
65 000 |
|
Other commercial |
14 000 |
20 000 |
27 000 |
34 000 |
|
Luxury wood |
32 500 |
40 500 |
49 500 |
59 000 |
|
Wilayah II |
|
|
|
|
|
Meranti |
19 000 |
26 000 |
33 500 |
42 000 |
|
Other commercial |
9 000 |
15 000 |
21 500 |
28 500 |
|
Luxury wood |
32 500 |
35 000 |
38 500 |
42 500 |
All figures are in Rp/m3 log assuming 10% inflation each year
Resistance to any increase in IHH is likely to be strong. However this should be countered by the following arguments.
All levies should be raised at least by inflation every year. Because only the IHH is raised regularly, and it accounts for about half of total levies, the IHH should be raised by roughly twice the level of inflation (ie. 20% in 1996) to account for the fact that other levies are not raised regularly.
For the current revision (1996), plywood prices have increased from US$400/m3 to US$450/m3 (+121/2%) and the Rupiah has devalued by about 10%. These two factors also support a further rise in IHH by 25%.
These arguments can be used to support large increases in IHH in addition to the argument that IHH currently does not capture all the economic rent from log production.
A large increase in IHH will make illegal logging more attractive, so any increase in IHH must also be accompanied by stringent measures to control the use of illegal logs. This should be easiest to control at the point of log consumption, so it is recommended that any increase in IHH is accompanied by careful monitoring of the source of log supply at major wood processing plants.
