From: Glen Barry
Subject: BIOD & PNG: The Axe Falls on Logging in PNG
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PAPUA NEW GUINEA RAINFOREST CAMPAIGN NEWS
Logging in PNG: The axe falls
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Forest Networking a Project of Ecological Enterprises
http://forests.org/
3/18/98
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RELAYED TEXT STARTS HERE:
Title: Logging in PNG: The axe falls
Source: Pacific Island Monthly (Fiji)
http://www.pim.com.fj/mar_98/mar_98.htm
Status: Copyright 1998, contact source to reprint
Date: March 1998
Byline: Sam Vulum
PAPUA New Guinea's forest industry is struggling to survive under
depressed market conditions brought about by the collapse of Asian
economies.
The industry, which depends entirely on the Asian market for its log
exports, had taken a downward slump in 1997 and worse is expected in
1998 if market conditions do not improve.
The problem is compounded by high log export taxes imposed by the
World Bank and the Government's continuing "blind eye" attitude
towards the plight of the industry.
The Papua New Guinea Forest Industry Association, which represents 85
per cent of timber producers in the country, told Pacific Islands
Monthly that the slump, which began in July, 1997, had hit disaster
mark in January with more logging companies suspending operations and
about 1000 employees laid off in recent months. In total, about 4000
jobs have been lost since July.
The association's research officer Robert Tate said those still in
operation were concentrating all their efforts on shipping October and
November stockpiles, and there was very little fresh felling.
He said the value of the stockpiles, building up since July, was about
$US14 million. The average export price has fallen from $100 a cubic
metre in November to $90 a cubic metre, and the old stocks were
selling for as little as $65 a cubic metre.
The industry was especially concerned about the decline in the
Japanese and Korean markets, which Tate said accounted for 80 per
cent of PNG's log exports.
Korea in particular had stopped buying completely. PNG exported $US59
million worth of logs to Korea in 1996, but would be lucky in the
figure touched $10 million this year.
He said Korea's standards weren't high, compared to Japan.
"This is causing a lot of problems for producers in trying to sell
their lower grades and lesser known species," Tate said.
He said Rimbunan Hijau, which controlled 45 per cent of the total
timber industry in PNG with a normal production of about 1.2 million
cubic metres a year, was down to about five per cent of that figure.
He confirmed earlier media reports that Turama Forest Industries in
Gulf Province had closed, and that Vanimo Forest Products in West
Sepik and Madang Timbers in Madang were operating at reduced levels.
The other timber producers are located in New Ireland, New Britain,
Milne Bay, Morobe and Central Province.
The FIA has called for an immediate cut of 20 per cent in export tax
rates, to allow producers some alternative to closure.
The problems faced by the industry came to light in October in a news
report that at least 2000 workers had been laid off and 1000 more were
expected to lose their jobs as 10 major timber companies wind down or
rationalise their operations to cope with low world prices.
The National reported that the Turama Forest Industries, the largest
employer in the Gulf province, was the latest to shut its operations.
The paper said police were keeping a close watch on the properties of
the Vanimo Forest Products after the company began laying off workers.
The company was planning to lay off 500. Madang Timbers laid off
some of its workers and had frozen further recruitment.
Company manager Peter Hii told the National that Asian countries,
which are major buyers of PNG timber, were entangled in a major money
market crisis which in turn had drastically affected timber
exports.
Hii said The Philippines, one of the company's major markets, would
find it absolutely impossible to buy from them as its currency had
fallen well below the point where they could viably conduct business
with PNG exporters.
PNG exporters would have to reduce their prices by a massive 40 per
cent to sell to them, an option which Hii said was not possible. Hii
said he had 20,000 cubic metres of quality hard wood logs, worth US$3
million, awaiting an opening in the market.
He said demand for sawn timber from the company's two large sawmills
had also declined. Tate said that a total of 1500 workers had been
laid off from Turama logging companies.
"Timber market prices are still falling and we can't sell logs because
we will be making a loss from the produce and the timber companies are
doing that right now," he said. The association had earlier predicted
an average export price of US$100 per cubic metre as being possible by
the end the year.
"We have reached US$100/cubic metre now and the market price is still
falling. We may be looking at a further drop to US$90 by the end of
November. This would be a fall of US$28 or 25 per cent since July and
35 per cent since July 1996," Tate said.
"The market decline has not bottomed-out yet. Other international
timber producers in Canada, Sarawak and Sabah in Malaysia, are
aggressively cutting prices for processed timber and logs for the
Japanese market in order to protect their market share and avoid stock
build-ups.
"As the price cutting continued, we see no hope in prices for PNG
forest products until March-April 1998 after the Japanese winter shut-
down of building activity.
"The FIA is hopeful that the Government and the World Bank authorities
will recognise the plight of the industry and take immediate steps to
engage in meaningful dialogue with the industry with a view for
ensuring viability and sustainability."
Tate said the current and forecast state of the forest industry will
have serious implications for the Government's budget.
The PNG Government in the past had collected about K150 million a year
in export tax from log exports. Current market indications are that
shipping volumes in November and December will be down 50 per cent
compared to 1996. This will have a severe impact on government
revenue. Tate told PIM that they have made many representations to
the Government, seeking a reduction on the 20 per cent export tax, but
their efforts have been to no avail.
He said at current prices, operators cannot recover costs of
production and the imposition of the 20 per cent tax on FOB value only
increases the losses.
Tate said the cut on the tax rate would eliminate the tax at the low
end of the market and may allow producers some alternative to a
closure.
He said, initially, the Government responded with a proposal to reduce
rates by seven per cent in November and possibly a further review of
rates this month (March 1998) depending on market conditions.
The FIA is also concerned about certain timber producers, who are
receiving special treatment from the Government.
The association said in January it was most disturbing to see special
deals being exercised which give some producers unfair advantage over
others in these difficult times.
Executive officer Belford said: "When we reported our concerns last
year about special export tax reductions for certain operators, we
were told that it would be rectified and that all the sector would be
taken into account in any review of export tax.
"Clearly this has not happened and we understand that some log
exporters have the advantage of a 50 per cent reduction in export tax
payable on their exports. This puts them at an unfair advantage over
all other producers and we'll call on the Government for an even
playing field in matters over which it has total control.
"The FIA brought the shortcomings of the current export tax
impositions to Government attention two years ago and as markets
changed prices tumbled, our repeated requests for fair and flexible
treatment have been justified.
"However, the problem will not be fixed by favouring one operator over
all others. The FIA urges the Government to immediately terminate
special "one-off" deals on export tax and institute a general
reduction of up to 20 percentage points which will keep operations
ticking over. Without that, there is no hope for stability in the
sector."
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