Commercial Forestry in Pakistan

Commercial Forestry in Pakistan

Public Private Partnerships is the way to go!

M.H. Rehman

One of the major causes of climate change is deforestation. As human population and industrialization have grown, so have human settlements and use of timber for multiple purposes. This means much of the land that previously had forests and other vegetation on it has been, on the one hand, levelled, and constructed upon, and trees cut to obtain timber, on the other. Less forest cover affected earth’s ecosystem in more than one way, all contributing to the phenomenon of climate change. It is no surprise, therefore, that efforts for mitigating climate change have heavily relied on tree plantation, aimed at restoring balance in the earth’s ecosystem. Over time, it has also become clear that governments alone cannot succeed in mitigating climate change, or in restoring forest cover for that matter. It is the masses at large that need to be taken on board, involved and incentivized for ensuring that all such efforts remain fruitful. Such incentives range from providing low-cost energy and heat sources, and alternate building and furniture materials to rural people, to assigning commercial value to growing trees. Once the general public knows planting and growing trees is a profitable proposition, commercial forestation will, surely, set in and forest cover will increase without much intervention by the government.

Agreements like the Kyoto Protocol attempt to cap the amount of CO₂ that is being released by the signatory countries. To meet the Kyoto Protocol commitment, countries can use carbon sinks whereby they can continue to produce CO₂; for example, in power generation, but offset this emission using a carbon sink. A carbon sink is where CO₂ is removed from the atmosphere and stored for a period of time. Planting trees for forestry is currently the main carbon sink used in many parts of the world. Trees absorb carbon as about bout 50 percent of the dry weight of tree roots, branches, trunks and leaves is of carbon. The carbon trading system involves the issuing of carbon credits for afforestation and reforestation activities that meet a set of strict guidelines. Credits are issued to individuals or companies growing compliant forests and these can be sold to a carbon emitter such as a power company, using them to ‘offset’ a power station’s CO₂ emissions.

If we see some examples of leasing out public land for commercial afforestation, we find Paraguay, Brazil, China, South Africa and Vietnam achieving momentous success. For instance, leased commercial forestry is an economic force in the South African economy. Presently, South Africa is believed to export two million tonnes of timber and timber products. Commercial plantations account for roughly 4.4 percent of the gross domestic product (GDP), and employ, directly and indirectly, 200,000 people, mostly in rural areas. This is an economic support base for over a million people. Furthermore, carbon sequestration, soil, land-use management and biomass production are other important factors. Same approach has been seen in Vietnam to promote afforestation and the woodchip production business. Vietnam-Japan Chip Corporation Ltd (VIJACHIP) is an afforestation and woodchip production business company with more than 20-year record of business with stakeholders, creates 500,000 jobs annually.

According to a 2015 report of Food and Agriculture Organization (FAO) of the United Nations, total forest area of Pakistan was only 1.472 million hectares, or about 1.9 percent of the country’s total area – one of the lowest in the world. More alarming was the statistic that between 1990 and 2015, the country had an annual deforestation rate of 2.1 percent. Against this backdrop, Pakistan Tehreek-e-Insaf (PTI) became the first political party to highlight climate change and deforestation as a matter of national importance, and tree plantation as a national priority. In 2014, PTI’s government in Khyber Pakhtunkhwa launched a groundbreaking project of Billion Tree Tsunami as a response to the challenge of global warming. The project restored 350,000 hectares of forests and degraded land to surpass its Bonn Challenge commitment. The project was aimed at improving the ecosystems of classified forests, as well as privately-owned waste and farmlands, and therefore entailed working in close collaboration with concerned communities and stakeholders to ensure their meaningful participation through effectuating project promotion and extension services. The project was completed in August 2017, ahead of schedule. It was driven by the vision of green growth which ties in the needs for sustainable forestry development, generating green jobs, gender empowerment, preserving Pakistan’s natural capital while also addressing the global issue of climate change.

After assuming power in the Center after the 2018 general election, the PTI continued its quest for a green Pakistan by launching Plant for Pakistan (Plant4Pakistan) project, which aims to plant 10 billion trees across the country in the next five years. Prime Minister Imran Khan kicked off the drive on 2nd September 2018 with approximately 1.5 million trees planted on a single day.

Other provinces also took steps towards afforestation and, for one, the South Punjab Forest Company (SPFC) has been a good, successful model not only because it was a more institutional approach by virtue of establishment of a company rather than a project but also because it provided for a public-private partnership (PPP) framework. SPFC was incorporated as a not-for-profit Company on 28th September 2015 under Section 42 of the Companies Act, 2017, as provided under section 78 (A) of Punjab Forest (Amendment) Act, 2016. SPFC was mandated to seek Private Investment under Public-Private-Partnership (PPP) Act, 2014, for tree-plantation under PPP mode in South Punjab. For this purpose 42 blank forest areas assigned to SPFC by Forestry, Wildlife & Fisheries Department (FW&FD) in the six districts of South Punjab namely DG Khan, Rajanpur, Muzaffargarh, Bahawalpur, Bahawalnagar and Rahim Yar Khan. With the consent of Punjab Board of Revenue (BOR), the Forest Department assigned 134,995 acres of barren forest land to SPFC on 16 march 2016 for afforestation through private investment, in six districts of South Punjab. Out this assigned land, an area of 35,918 acres was excluded due to encroachments, legal and regulatory issues and river erosion so the total area available for investment was 99,077 acres.

Under the afforestation projects, the land was to be awarded to private investors for commercial forestry for 15 years and all investment shall be made by private parties, and during this period they had to provide on average 35 percent of the planted area to SPFC as Government Share against the minimum 15 percent reserve price set by the PPP Steering Committee of P&D Department, Government of the Punjab, and rest of the area would have been harvested by them which had to provide raw material to the energy and wood-based industries, reduce logging pressure of natural forests, improving livelihood of the local community by creating almost 15,000 green jobs and would have contribute in the environment by carbon sequestration of about 35.00 million tons etc. SPFC in collaboration with Forest department had to ensure prudent monitoring of the private parties in-line with the terms and conditions agreed with them in the Concession Agreement.

Afforestation projects of SPFC due to their PPP framework had certain advantages over similar projects carried out in the public mode i.e. on financing by the government. Similar to a Build, Operate, Transfer (BOT) project model, PPP framework means private sector investment is attracted by providing basic project asset, barren land in the instant case, but the government does not have to bear any additional financial or administrative burden.

Project Development Cost of 99,077 acres including maintenance cost for first 3 years in public mode would require capital expenditure of Rs.11 billion while in PPP mode all investments would be made by private investors. An additional Rs.9 billion would be required in maintenance cost for remaining 12 years if projects were run by the government but in partnership with private sector the maintenance cost will again be on the investors. In case of escalation due to inflation and other factors, it was estimated to incur another Rs.7 billion. Hence there was a straight saving of Rs.27 billion for the government just by adopting the PPP mode.

Benefits of adopting PPP mode for these projects were not just limited to savings indicated above. Certain positive externalities were also in the equation. Presence of private sector means technological innovation and value addition was a given, compared to dragging on conventional methods of the public sector. Moreover, all risks of compliance and audit issues rest with the private investors in PPP mode while in the public mode numerous compliance and regulatory issues, such as audit and compliance objections from Auditor General, NAB, Anti-Corruption etc., would have to be faced due to huge public procurement involvement. As is the case with all government run projects, unwanted delays would be faced in public mode compared to swift action under the PPP mode. Project success risk is also solely on the part of the government if project is run publicly but the risk is covered through encashable performance guarantee and insurance in the PPP mode. If run in the public mode, afforestation projects of SPFC would either be managed from existing workforce or the hiring process for raise serious concerns on transparency on hiring process, continuation and regularization of project staff after certain time period and what not. In the PPP mode on the other hand, the projects would generate 15,000 new jobs without any transparency of regularization issues. For an investment starved country, the afforestation projects under PPP mode were expected to fetch a foreign investment of approximately US$ 90 million.

In the final analysis, it is clear that public private partnership in afforestation projects under SPFC would have proven a win-win situation for all stakeholders, contributed significantly in promotion of commercial forestry in the country and provided a big boost in the tree plantation campaign of the current government, thereby helping increase forest cover and mitigate climate change. Apart from their environmental value, the afforestation projects also promised noteworthy economic value, such as 72 Million new trees (contributing to “Plant for Pakistan” initiative) without incurring public money; creation of 15,000 green jobs (direct and indirect), carbon sequestration (approximately 35 million tons), plantation of indigenous species on upto 100 percent of SPFC’s share and contribution of Rs. 20 billion to public exchequer in revenue, circulation of Rs.240 billion in the economy by private investors, overseas Pakistanis expected to bring foreign Investment worth Rs.11 billion (US$ 90.00 million), export potential of Moringa products and other indigenous trees (India has an annual export of US$ 6 billion of the same), ensure land-use, conserving the local biodiversity, import substitution by provision of sustainably harvested wood to the wood-based industry, minimize the threat of encroachment on blank forest land by the land mafia, and rehabilitation & conservation of barren & encroached land.

In an unfortunate turn of events, however, SPFC is headed to being shelved for good putting at stake the appreciable work on afforestation through inclusion of private sector. A constitutional petition was filed against SPFC in the Supreme Court in April 2018. The SC directed new provincial government to look into the matter and after a series of meetings and interim decisions, the Provincial Cabinet in its 8th Meeting held on 19th April, 2019, decided to stop the Afforestation Projects of SPFC and to dissolve / wind-up the South Punjab Forest Company.

This development does not fare well for a country that is trying to take lead in the world on combating climate change through massive tree plantation. Shelving of SPFC and its projects will have numerous adverse impacts including, but not limited to, possible litigation for claiming damages by the investors; loss of performance guarantees worth Rs.677 million against 120 successful projects; confidence of the investors, especially by the overseas Pakistanis, will be shattered on government/PPP projects; if carried out in public mode the projects will cost a hefty Rs.27 billion to the government; loss of expected production of import substitutes worth billions of rupees in the form of timber; and loss of expected revenue to government worth more than Rs. 20 billion from the projects.

There is no point of scraping this project, while we are importing 75 percent of soft wood for consumption. The country has to import almost 50 percent of its usage from the US, Canada, Germany and eastern Russian states, while around 25 percent of wood is imported from Afghanistan.  Only 25 percent need of the country’s need is fulfilled from domestic production, as billions of rupees precious and high cost wood is being wasted just due to negligence and vested interest of the departments.

One expects that saner minds in the current regime would prevail and revive the promising afforestation projects of SPFC. Most internationally acclaimed best practices from around the world have shown that governments alone cannot do everything that is required for benefit of the society rather it is inclusion of the private sector and general masses that provide much needed stability, sustainability and continuity to initiatives aimed at turnaround of sorts. The road to a greener Pakistan is not an option but a necessity. And this road can be treaded only through an inclusive approach, exactly what public private partnership is all about.

The writer is a Fulbright alumnus, presently serving as

Deputy Secretary in the Federal Government.