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