The following is the full text of the Executive Summary of a joint World Bank, UNDP

and FAO mission, representatives of whom visited Cambodia in late 1995.

CAMBODIA'S 11-million hectares of forests, which are among its few developmentally

significant natural resources, are increasingly at risk unless more appropriate policies

and better administration are put in place.

This report reviews the deforestation of over one million hectares and degradation

of over three million hectares that has occurred in Cambodia over the last thirty

years. Current policies risk deepening and accelerating this pattern by repeating

mistakes made in other forest-rich developing countries.

The market-oriented policy reforms advocated in this report could increase yield

government forest revenue in the order of over $100 million per year while better

sustaining these resources and the vital environmental and social services they provide.

Long-term strategic recommendations made in this report include deregulation of log

allocation and trade, significantly higher timber royalties, and improved technical

and policy oversight of the sector.

Of immediate concern is [the] government's promotion of a capital intensive wood

processing sector through a log export ban, grants of large concession areas and

royalties that represent only one-fifth of economic value.

This program, which appears to have allocated nearly all of the country's commercially

viable timberlands to a small number of concessionaires, rests on a level of timber

exploitation which is likely to be unsustainable and will, in any case, provide inadequate

fiscal returns.

Detailed review of operations proposed by selected concessionaires indicates that

attempting to direct development of value added processing in Cambodia through protection

and subsidies will be costly and inefficient. This report estimates that in terms

of log export revenues foregone, employment creation in wood processing will cost

$18,000 per job per year, far above wages and far above costs in other sectors.

Further, without subsidized raw material, the proposed processing investments are

not financially viable and would not be undertaken without subsidy that would principally

benefit a small number of primarily foreign concessionaires.

It also appears that concessionaires have conducted inadequate resource assessments

and have systematically overestimated timber availability by inappropriately applying

growth and yield coefficients drawn from experience in other countries.

As a result, a serious concern is that realization of concessionaires' large wood

processing investment commitments will create unsustainable demands on the resource

base.

To prevent damage from overcutting, [the] government must undertake special efforts,

starting with strict application of a precautionary approach to logging through its

evaluation process for concession management plans, and continuing through ongoing

monitoring of compliance with concession terms.

Specifically, {the} government should require that logging intensity be restricted

to the established Cambodian standard that implies harvests closer to ten cubic meters

per hectare as opposed to the 50 cubic meters pre hectare or more that has been proposed

by some concessionaires. If limited to sustainable harvest levels, even with subsidized

royalties, concessions are unlikely to be able to operate profitably as planned because

of low conversion rates, poor marketing strategies and high capital costs.

Along with requiring adherence to satisfactory forest management practices [the]

government should also require concessionaires to satisfy the full value of their

investment commitments or should declare concessions in default. In the event of

defaults, [the] government should initiate a new process of concession award based

on guidelines provided in this report, including allocations based on transparent

and competitive bidding subject to minimum appraisals, smaller area awards delinked

from processing investment requirements, deregulation of log exports and more detailed

prior inventories and management planning.

The forest and wood industry promoted under these policies would consist of a greater

number of smaller, more locally-owned firms, utilizing local labor.

It would initially be oriented toward export of unprocessed logs to high value foreign

markets which are now facing severe raw materials supply constraints and therefore

offer a strong market potential. Faced with international market discipline, local

log processors would need to improve efficiency, lower costs and improve quality

to remain competitive and to evolve in the long-term into a viable industrial sector

and source of export earnings.

The report provides estimates of government revenues with and without forest policy

reform and considers the need for technical assistance and institutional strengthening

and development.

Analysis of fiscal implications shows that, as opposed to current revenues of approximately

$20 million per year (which are partly based on logs confiscated from illegal felling

operations), reforms such as auction of concession rights, royalties based on world

prices and rigorous enforcement of environmental regulations, could yield $100 million

annually.

These estimates indicate that government could invest more than $200 million to introduce

these reforms while earning a rate of return in excess of ten percent over the next

thirty years.

Progress in the commercial concession sub-sector must also be linked to an integrated

sectoral development strategy that considers, among others, issues of land allocation,

conservation, the roles of local government and the private sector, indigenous peoples,

wood energy and farm forestry.

To advance this agenda, the report includes a detailed policy matrix which calls

attention to reforms needed to improve the efficiency of resource mobilization in

the sector, to rationalize incentives motivating stakeholders and to improve the

quality of sectoral governance.

Concrete near terms steps, which [the] government can take to compliment policy and

institutional reforms, include accelerated review of draft forestry legislation and

projects aimed at improving forest management planning and practices on a select

number of small existing concessions.

These would aim to test and elaborate on recommendations offered in this report on

establishing sustainable harvest levels, operations monitoring and rent capture.

Government commitment to a consolidated program of sectoral policy reform could be

linked with programmatic and investment support from the World Bank and other agencies.