Timber royalty reform to improve the livelihoods of forest resource owners in Papua New Guinea

Abstract

Inequitable timber resource rents are a problem that has plagued tropical forest management in countries throughout the world, including Papua New Guinea (PNG), which exported 21% of the world's tropical hardwood logs during the last decade. Rural tropical forest resource owners (FROs) often have limited economic resources and resource rents from timber harvests can help them access goods and services that they otherwise cannot afford. This paper uses historical log export data and timber royalty rates to compare the timber resource rents received by FROs in PNG to log export duties and levies collected by the PNG government and the residual cash flows collected by logging companies from log exports. Between 2007 and 2017, PNG's FROs received an annual average of 6.1% of the market value of the logs harvested. By comparison, the PNG government received an annual average of 42.3% from duties and levies and the logging industry received 51.6% for its costs/profits. We also found that the real value of royalties for different timber species has declined by between 32% and 66% since 1991 due to the use of the fixed-rate system. We recommend that future royalty payments in PNG be calculated as a percentage of market value and that there be greater public participation in the determination of the appropriate income split to provide a more equitable distribution of timber harvest revenues between different actors.