Tuesday, July 13, 2010

Chapter 7 Conclusion



In Indonesia, Sarawak and Sabah, personal ties by political elites to the timber industry were high and the ability of governments to officially capture timber rent was low. The result of these states' inability to capture timber rent is an enormous loss in official revenue. Table 7.1 below shows the revenues lost in Indonesia, Sarawak and Sabah as a result of concessionaires being asked by the government to pay timber revenues at below-optimal levels. The same figures are also a measurement of the amount of timber rent earned by timber concessionaires and/or unofficially appropriated from them by heads of states and their proxies or clients. The total figure for timber revenues that could have been collected, but were not collected, by all three states over the period of 30 years is more than $40 billion.

Table 7.1 Timber revenues (in dollars) lost in Indonesia, Sarawak and Sabah from 1970-1999





Year
Indonesia
Sarawak
Sabah
1970
Incomplete data
No data
Incomplete data 
1971
Incomplete data
2,401,592
381,335,065
1972
Incomplete data
1,033,303
366,427,248
1973
Incomplete data
25,681,232
404,458,457
1974
-10,480,715
26,330,765
334,632,914
1975
-97,215,714
10,328,746
253,635,117
1976
-132,560,353
62,502,857
587,342,233
1977
62,966,781
63,667,843
576,518,136
1978
296,459,594
82,727,918
687,980,386
1979
171,940,408
310,682,736
100,408,2700
1980
1,062,454,516
289,029,845
749,863,277
1981
1,067,607,041
246,348,032
731,203,306
1982
380,903,703
379,826,481
445,179,563
1983
190,984,540
307,356,894
377,397,627
1984
173,277,600
368,643,107
             447,364,854
1985
143,683,300
344,832,692
316,233,468
1986
33,675,696
215,022,320
403,320,707
1987
107486676
1,031,753,016
533,185,778
1988
364,501,404
786,749,653
303,704,306
1989
550,354,473
939,383,352
224,719,003
1990
562,931,244
1,085,288,284
67,939,295
1991
710,044,569
1,476,200,318
77,587,208
1992
636,839,176
1,595,902,618
108,913,363
1993
717,041,231
1,473,218,702
12,328,814
1994
1,526,340,259
1,202,321,597
0
1995
1,136,963,700
1,152,647,052
0
1996
2,063,806,110
1,087,124,457
0
1997
1,398,731,712
808,219,598
28,052,812
1998
1,120,832,966
421,304,552
19,524,946
1999
545,357,528
455,542,561
69,351,583
Total
14,784,927,444
16,252,072,121
9,512,282,167

Notes:


With respect to timber revenues collected in Indonesia between 1974 and 1976, the negative values during these years suggest that higher-than-optimal revenues were captured, but only if no transfer pricing took place, which is unlikely.

With respect to Sabah, timber revenues collected between 1994 and 1996 have values of zero (0) because a log export ban was in place during the entire duration of those years. Actually, the log export ban actually went into effect in the beginning of 1993 and was phased out late in 1997. But because during these latter two years, a modest amount of logs were exported, and a small amount of timber revenue collected, it is still possible to derive estimates of revenue forgone per cubic meter.

Indonesia, Sarawak and Sabah failed to set timber revenues at optimal levels because their departments of forestry lacked autonomy, not so much from the rent-seeking demands of capital but more importantly from the rent-seeking demands of heads of state (the president of Indonesia, and the chief ministers of Sarawak and Sabah). This study has shown how forestry departments did not possess sufficient levels of autonomy from the predatory demands of heads of state, given that the departments awarded timber concessions to companies in which heads of state, their families or proxies serve as managers and shareholders.


Conclusion 

Cutting down rain forests is a double tragedy. Not only are tremendous ecological and social values destroyed forever, but when governments lack the autonomy to capture timber rent from these forests, this can negatively impact the ability of states to prosper. If there is a lesson to impart it is that as little timber rent as possible should be diverted toward patronage ends or enriching rulers. If the rain forest is to be saved, or at least not disappear without anything to show for it, developing nations must create and faithfully implement incentives for the timber industry that encourage greater efficiency and sustainability, including the optimal capture of timber rent (Brown 1999: 72-80). However, this will not occur unless nations restrain their own political elites. Such restraints will not be erected by rulers, or even bureaucrats, who generally lack the autonomy to make such reforms. Rather strong institutional restraints on elites are unlikely to arise unless civil society demands it.










Appendix 1


Analysis of the total rent appropriated annually (in dollars) by a ten-percent shareholder in a timber concession

$20
$40
$60
$80
$100
20,000 hectares
100,000
200,000
300,000
400,000
500,000
40,000 hectares
200,000
400,000
600,000
800,000
1,000,000
60,000 hectares
300,000
600,000
900,000
1,200,000
1,500,000
80,000 hectares
400,000
800,000
1,200,000
1,600,000
2,000,000
100,000 hectares
500,000
1,000,000
1,500,000
2,000,000
2,500,000
120,000 hectares
600,000
1,200,000
1,800,000
2,400,000
3,000,000
140,000 hectares
700,000
1,400,000
2,100,000
2,800,000
3,500,000
Notes:
Top row - rent in dollars per cubic meter appropriated in a particular year
Left column - concession area in hectares
The above table assumes:
a ten percent share in a concession earns a ten percent share of the rent generated by that concession
1/20 of the timber concession is harvested each year
50 cubic meters of commercially valuable timber is removed from each hectare of the concession.


Following are instructions on how to use the table above. In the chapters on Indonesia, Sarawak and Sabah, the reader will come across the names and descriptions of individual shareholders in timber concessions of various sizes. To find out how much a given shareholder banked in a year, take the size of the timber concession in which she or he holds shares, round the size to the nearest multiple of 20,000 hectares, and match it to one of the sample concession sizes in the left column of Table 2.2. Then, using figures 3.6, 4.2, and 5.2, find out the average amount of timber rent not captured during a particular year (in dollars per cubic meter), round it to the nearest multiple of $20, and match it to one of the figures in the top row of the table. Draw two imaginary lines, one left to right from the figure for concession hectarage, and one down from the figure for uncaptured rent per cubic meter. Where the two lines meet will be the annual timber rent appropriated by that individual, during the year selected, assuming that she or he held a ten percent share. Usually, however, shareholdings are not exactly ten percent. If the individual's shareholding is only 2.5 percent, divide by four. If the individual's shareholding is 40 percent, multiply by four, and so on. Following are examples, one from each of the three cases in this dissertation, on how to use the table.

Taking an example from Sarawak, Table 4.4 tells us that Chief Minister Taib's bomoh (traditional healer and spiritual medium), a probable proxy, holds a 20 percent share in the 55,912 hectare Pelutan timber concession. Picking a year at random, let's take 1993, the same year we used in the Indonesia example, we turn now to Figure 4.2, which shows that in that year, the average timber rent per cubic meter not captured by the government of Sarawak was $160 a year. We now go to the table above and draw a line straight to the right from 60,000 hectares, which is the size of the Pelutan concession rounded to the nearest multiple of 20,000 hectares. There is no column for uncaptured rent of $160, so we follow the $100 column down until it meets the first line we drew. We will remember later to upwardly revise our final figure by a multiple of 1.6. The figure in the cell where the two lines meet is $1.5 million per year. Remembering to multiply this figure by 1.6, we get $2.4 million. This means that, assuming the Chief Minister's bomoh held a 10 percent share in the concession, he banked $2.4 million in timber rent in 1993. However, he held a 20 percent share in the concession. So we multiply by two, and arrive at the figure of $4.8 million in timber rent appropriated by him in that year.

Appendix 2 Interviews







Malaysia (General)
Organization Name
Informant's Name
Date(s) of Interview(s)
Aliran
Ariffin Omar
9 July 1994
 Aliran
P. Ramakrishnan
9 July 1994
 Asian Wall Street Journal
Leslie Lopez
15 August 1996; 21 March 1997; 16 July 1997
Asian Wall Street Journal
Raphael Pura
26 June 1996;
18 August 1997
Deutsche Morgan Grenfell, Senior Analyst
Long Shih Rome
3 April 1997
Dresdner Kleinwort Benson
Seow Choong Liang
25 July 1997
Dresdner Kleinwort Benson, Corporate Finance, Director
Piers Willis
26 November 1997; 
23 January 1998
Environmental Protection Society of Malaysia (EPSM)
Gurmit Singh
5 August 1994
Ethylene Malaysia (Etylnas), Operations Department
Aznan Zahid
18 June 1996
Far Eastern Economic Review
S. Jayasankaran
15 August 1996
Federation of Malaysian Manufacturers, Industry Groups Division, Analyst
Lawrence Koong
6 March 1997
Institute for Strategic and International Studies
Rozali  Mohamed Ali
14 July 1994
Jardine Fleming
Razani Radzi
8 August 1994
Malaysian Timber Industry Board (MTIB), Marketing Division
Mohd. Kheiruddin
20 August 1996
Ministry of Primary Industries
Abdul Rahim Bin Hassan
9 and 15 August 1996
Pernas
Ismail Halim
15 August 1996
Petronas, Corporate Affairs
Abdul Rahman Ishak
5 June 1996
 Petronas Carigali
Sashi Kumar
17 June 1996
Petronas Gas
Syed Mohd. Kamal Alhabshi
18 June 1996
Petronas Gas
Ahmad Pathil
18 June 1996
Petronas Gas
Ozair Saidin
18 June 1996
Petronas Penapisan 
Sazali Hamzah
18 June 1996
Princeton University, Woodrow Wilson School
Greg Felker
13 July 1994
Shook, Lin and Bok
Param Cumaraswamy
 15 July 1994
University of California, Berkeley, Department of Sociology
Brian Folk
 20 May 1996
Universiti Malaya, Institute of Advanced Studies
Jomo K.S.
19 July 1997
World Wide Fund for Nature Malaysia
Mikhail Kavanagh
5 August 1994
World Wide Fund for Nature Malaysia
Sanar (Saneth) Kumaran
4 March 1997
World Wide Fund for Nature Malaysia
Geoffrey Davison
10 March 1997


Sarawak

Organization's Name
Informant's Name
Date(s) of Interview(s)
Borneo Pulp and Paper Advisor
James Ng
11 November 1996
Caspian Securities
Andrea Boult
31 March 1997
Consumer Association of Penang
Mary Assunta
23 August 1996
Democratic Action Party
Dominique Ng
29 and 31 May 1997
 Institut Pekerjaan Komuniti
Khoo Kay Jin
28 October 1997
 Jaya Tiasa Plywood Facility 2,  Assistant Manager
Hii Yii Chiok
29 October 1997
 Jaya Tiasa,  Head of Investor   Relations
William Wong
29 October 1997
 Kapit, Wakil Kota
Joseph Jinggut
7 June 1997
KTS Group, Chairman
Lau Hui Kang
30 October 1996
Long Anap village
Jimmy Kebing Apoi
22 July 1994
Long Anap village
John
28 July 1994
Malaysia National Parliament
Chiew Chin Sing
19 July 1997
 Middlesex University, UK
James Chin
12 August 1997
New Straits Times, Sarawak
James Ritchie
4 November 1996
Reliable and well-informed academic
Anonymous
25 October 1996,
23, 26 and 27 May 1997
Researcher
Anonymous
15 November 1996
 Rimbunan Hijau, head of 
Investor relations
 William Wong
29 October 1996
Sahabat Alam Malaysia
Farhan Ferrari
 10 July 1994
Sahabat Alam Malaysia
Thomas Jalong Apoi
 18, 27 and 28 July 1994
Sahabat Alam Malaysia
Muniandy Thayalan
22 August 1996
Samling Corporation, group headquarters, Miri
Anonymous
22 October 1996
Samling Corporation, Sarawak Plywood timber concession
Dominic
28 July 1994
Samling Corporation, Sarawak Plywood timber concession
Willy
22 July 1994
Sarawak  Forest Department, Director of Forests
Cheong Ek Choon
2 August 1994;
13 November 1996
Sarawak Forest Department, Consultant
Alfred Leslie
9 November 1996
Sarawak Forest Department, Operations Division
Wong Siong Kuan
28 May 1997
Sarawak Ministry of Environment, Minister of the Environment
James Wong
12 November 1996
 Sarawak Ministry of Finance, 
 Former Assistant Minister
Patau Ubis
11 June 1997
 Sarawak Ministry of Industry,
 Minister of Industry
Abang Johari
12 November 1996
Sarawak Ministry of Resource           Planning, Environment and  Development Section, Head
James Mamit
1 August 1994
Sarawak Shell, Bintulu 
Operations Coordination 
Centre 
Wilson Y.B. Wee
25 October 1996
Sarawak Shell MDS
Jong Lee Fah
24 October 1996
Sarawak Shell MDS
Francis Victor Klanang
24 October 1996
 Sarawak Timber Association
Barney Chan
2 August 1994, 
8 and 13 November 1996
Sarawak Timber Association
Annie Ting
13 November 1996
Sarawak Timber Industrial Development Corporation, Harwood, Planning Division
Abdul Hadi
27 May 1997
Sarawak Timber Industrial Development Corporation
Abang Naruddin
2 August 1994
 Sarawak journalist
Anonymous
28 May 1997
Sarawak State Assembly
Aidan Wing
4, 5, and 6 June 1997
Sarawak State Assembly
Billy Abit  Joo
1 November 1996
Sarawak State Assemblyman
Anonymous
4 June 1997
 Sarawak Timber Industry 
Development Corporation
Edmund Daging Mangku
14 November 1996
 University of California at 
 Berkeley, Department of 
 Political Science
Michael Goldman
8 and 16 November 1996
 Universiti Malaya, Faculty  of  Economics
John Phua
26 October 1996
 Well-placed and knowledgeable
  Source in Sarawak

Anonymous
5 and 8 October 1996;
5, 7, 8, 11 and 14 November 1996;  30 March 1997;
 26 and 27 May 1997






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