Legal framework for forest management and timber trade of Papua New Guinea

Forest governance

The ‘Forestry Act 1991’ regulates the conservation, management and use of PNG’s forests. Several amendments have been approved since that legislation, the latest of which is from 2010. It places the conservation and management of forests under the Ministry of Forests through the Papua New Guinea Forest Authority (PNGFA). The PNGFA is responsible for monitoring and ensuring compliance with the rules and regulations within the country's forestry sector, and is as such, among others, responsible for the allocation of timber harvesting rights in accordance with the Forestry Regulations (1998).

The Act further assigns a role to the National Forest Board (NFB) that overlooks the activities of the PNGFA, and the Provincial Forest Management Committees (PFMCs). The role of the latter is to provide a stakeholder forum that assists with the preparation, implementation and monitoring of Provincial Forest Plans and forest development programs.

The ‘Conservation and Environment Protection (CEPA) Act 2014’ places the conservation and protection of the environment under the Minister for Environment and Conservation and Climate Change through the Conservation and Environment Protection Authority (CEPA). CEPA is responsible for administering and enforcing the environmental conservation laws including the ‘Environment Act 2000’ and ‘Fauna Protection and Control Act 1966’.

Legal rights to harvest

Papua New Guinea (PNG) has a very high level of customary land ownership, at about 97% of the total country area. The Land Groups Incorporation Act 1974 enabled landowners in PNG to form a corporate body to manage their own customary land i.e. a legal form for representing customary landowners. Incorporated Land Groups (ILGs) are intended to facilitate landowner representation and benefit sharing from natural resource development.  However, the ILG mechanism is said to have been widely misused due to a number of reasons, which resulted in a proliferation and fragmentation of ILGs. The Amended Land (Tenure Conversion) Act in 1987 allowed ILGs and other customary groups to properly register their land. The Amended ILG Act in 2007 further reformed the manner in which ILGs are registered and managed. It also established a new procedure by which ILGs can make their customary land available for development, including for industrial logging.

Forest resource allocation in PNG can take place under 4 different arrangements as per the ‘Forestry Act 1991’ and Amendments.

1. Timber Permit (TP)
2. Timber Authority (TA)
3. Licence (L)
4. Forest Clearing Authority (FCA).

Any forest company must hold a valid Certificate of Incorporation as a company and also register as a Forest Industry Participant (FIP).

• A Timber Permit (TP) is issued to a FIP by the Minister for Forests on the recommendation of the NFB. TPs apply to large scale, long-term timber harvesting operations. A permit is only granted after the timber harvest rights have been acquired from the landowners by the PNGFA through the 34-step Forest Management Agreement (FMA) process. The FMA contains a certificate from the PFMC, and outlines the landowner benefits (monetary and other), allowable cut, timber output (export logs and/or domestic processing) and agreement duration (with a review at 10 years plus every subsequent 5 years).
  
  Prior to the Forestry Act 1991, the PNGFA acquired timber harvest rights from landowners through the Timber Rights Purchase (TRP) Agreement process (for a TP) and the Local Forest Agreement (LFA) process for a Private Dealings with Logging & Marketing Agreement. The current Forest Act preserves old TRPs and LFAs but does not allow new ones.  The Supreme Court has since ruled (#87/2017) that TRPs can be renewed.
  
  The ‘Environment Act 2000’ also requires an Environmental Impact Statement (EIS) for timber harvesting operations where annual production exceeds 70,000m3.

• A Timber Authority (TA) is issued to a FIP by a Provincial Minister on the recommendation of the PFMC and with the consent of the NFB. TAs apply to small-scale (and usually short-term) forestry operations. The TA holder directly acquires the rights to harvest timber from the landowners. The TA application process is outlined in the PNGFA’s ‘Guidelines for Issuing Timber Authorities’; it includes submission of a Verification of Ownership with written consent of landowners (Note: this is an internal document for PNGFA; a company would not necessarily have a copy of it. The regulations also provide for a PFMC confirmation form that landowners have signed it). Several categories of TAs exist (TA-01 to 05): TA-01 allows timber harvesting for domestic processing only from small-scale operations up to 5,000 m3 (where the area is not covered by a current FMA); and timber can also be harvested for export logs and/or domestic processing from areas allocated for road-line clearance that are associated with an FMA and less than 12.5 km in length (TA-02), land-use conversion of areas less than 50 hectares (TA-03), other forest products (TA-04), or plantation harvest (TA-05).
• Holders of a Timber Permit (TP) or Timber Authority (TA) may obtain a Timber Licence (L) to conduct a forestry activity (e.g. balsa harvesting) that is outside the scope of their TP or TA. A Timber Licence has a maximum validity of 12 months and covers one Province only.
• A Forest Clearing Authority (FCA) is issued to a FIP by the Minister for Forests on the recommendation of the PFMC and with the consent of the NFB. FCAs apply to large-scale conversion of forest to agricultural or other land-use (i.e. larger than TA-02 and TA-03). The FCA application process is outlined in the ‘Forestry (Amendment) Acts 2000 and 2007’. This includes submission of a Verification of Ownership and the consent of each resource-owning clan agent (or ILG, if formed), together with a Sales and Purchase Agreement between the FIP and the landowners regarding the purchase, harvesting, processing or marketing of timber.
  
  FCAs can be issued for road-line clearance that is more than 12.5 km in length; road-line applications require approval from the Department of Works (DOW). FCAs can also be issued for land-use conversion of an area greater than 50 hectares for agriculture (or other land-use); these applications require either a State Lease Title (e.g. Special Agriculture Business Lease (SABL) from the Department of Lands and Physical Planning (DLPP)) or other land tenure documentation (e.g. Verification of Ownership), together with the appropriate approvals from the Department of Agriculture and Livestock (DAL) and CEPA.
  
  The SABL land acquisition process is outlined in the ‘Land Act 1996'. Through the SABL mechanism, customary landowners lease their land to the state, which then leases the land to a lessee for land-use development purposes. If forest clearance is planned under a SABL, the developer must register as a FIP and acquire an FCA from the PNGFA to sell or utilize the logs. SABLs (hence also FCAs issued for SABLs) are a source of controversy due to the problems often associated with their approval, especially for missing to properly consult or even inform all landowners and affected communities properly before granting an SABL on their land; or because the developer decided to just cut and burn the logs.
  
  The ‘Environment Act 2000’ also requires an Environmental Impact Statement (EIS) for land clearance operations where annual production exceeds 70,000m3.

Taxes and fees

The FIP is responsible for paying all required taxes, royalties, landowner premiums, fees, project development benefits and levies as defined under the specific forest resource allocation   arrangement. The PNGFA’s Provincial Forestry Offices are responsible for collecting revenues and issuing receipts. Logging Royalties are paid according to the ‘Procedures for the Identification Scaling and Reporting on Logs Harvested from Natural Forest Logging Operations’. The level of the royalties is determined by the Minister for Forests and its level is determined per species. The royalties are paid to the PNGFA that acts as trustee on behalf of landowner groups. In addition, there is a smaller Reforestation Levy. Other premiums that are paid in cash or kind to the landowner may also apply.

The FIP is also responsible for paying the correct export duties and levies as required by the PNG Customs Service and any other regulated agency fees. Export tax and levies do not apply to plantation logs or processed wood products. Under PNG’s ‘Procedures for Exporting Logs’, the SGS PNG Ltd company (SGS) is contracted by the PNG Government to operate a Log Export Monitoring System. This involves checking that log export volumes and species are correctly declared and that all export tax and levy calculations are correct. Processed wood products are exported and also need an Export Permit but no export tax or levy is charged and SGS is not required to inspect.

The Log Export Tax is the principle tax for export logging companies, which is paid to the Internal Revenue Commission (IRC). The re-introduced tax on log exports is progressive, with increasing shares for more valuable timber. In practice, it means that the minimum log export tax is 25%, gradually increasing to 59% according to the log value. The document used to calculate these taxes is the Export Entry for Customs, which is based on the Inspection Report realized by SGS after ship loading. Poles in the rough and squared logs also fall under this tax regime. Under the PNG Government’s 2020 budget, the Log Export Tax has been raised from 35% to 59% which has led to a recent decline in average monthly log volumes. The Log Export Development Levy (LEDL) exists for projects in the affected districts, defined at 8.00 Kina per cubic meter in the ‘Forest Bill 2006’, except for plantation logs. This levy is paid to Customs at the time of export. 

In January 2019, local newspapers further reported that the PNG Government was working on a proposed law that would put a tax on logging companies that repeatedly report losses, and for that reason are exempt from income taxes. No official confirmation of this has yet been found.

Timber harvesting activities

The specific requirements for timber harvesting activities depend on the forest resource allocation arrangement.

• Timber Permit (TP) holders are required to submit 5-year Forest Working Plans with 1% inventory, Annual Logging Plans with 1% inventory, and Set-up Plans with 10% inventory to the PNGFA for approval. These 3 levels of planning are outlined in the PNGFA’s ‘Planning, Monitoring and Control Procedures for Natural Forest Logging Operations under Timber Permit’.
• Timber Authorities (TA) issued for domestic processing (TA-01) require an Annual (or less) Project Plan with 10% inventory. TAs issued for road line clearance (TA-02), land-use conversion (TA-03), and other forest products (TA-04) require an Annual (or less) Project Plan with 1% inventory. TAs issued for plantation harvest (TA-5) require 5-year Forest Working Plans with 1% inventory, Annual Logging Plans 1% inventory, and Set-up Plans 10% inventory. These 3 levels of planning are outlined in the PNGFA’s ‘Guidelines for Issuing Timber Authorities’.
• Licence (L) holders (See above) are not required to submit plans for timber harvesting activities that are outside the scope of their TP or TA.
• Forest Clearing Authorities (FCAs) issued for land-use conversion require 5-year Forest Working Plans, Annual Logging Plans and Set-up Plans. FCAs issued for road-line clearance require a map (no scale specified) and a description of the road-line project giving details of land tenure and the route in numbered 5 km sections.

The ‘Environment Act 2000’ specifies the environmental approvals required for timber harvesting and processing operations. Environmental Permits are required for minor forest activities (i.e. TAs), forestry and production of timber products (i.e. TP or TL) and forest harvesting and land clearance (i.e. FCA). Logging operations must also comply with the ‘Papua New Guinea Logging Code of Practice 1996’.

The PNGFA’s ‘Procedures for the Identification, Scaling and Reporting (including royalty self-assessment) on logs harvested from Natural Forest Logging Operations’ specify the post-harvest requirements for log marking, scaling and record keeping. This includes Log Scaler Licences (logs must be measured by a PNGFA registered log scaler), Log Scaling Sheets (log measurements must be recorded in the official PNGFA sheets), Certificate of Satisfactory Completion of Work (Set-up), and Monthly Log Returns (must be submitted to PNGFA). Every log pond and base camp requires a signed Landowner Log Pond/Logging Base Camp Location Consent Form.

PNG’s ‘Procedures for Exporting Logs’ requires log exporters to receive inspection and certification by a third party prior to export, to confirm the place of origin, species, volume and price of the logs. The inspection is carried out by SGS using barcoded tags that are attached to all logs at the set-up landing. Each tag has two tear-off sheets that are removed at the time of shipment (one for the SGS Inspector and the other for the Exporter).

Third parties’ rights

It is estimated that between 97 and 99% of PNG’s forests are held under customary ownership by indigenous landowners. Customary landownership is enshrined in the PNG Constitution and protected by legislation including the ‘Land Act 1996’ and the ‘Forestry Act 1991’.

The specific requirements for ensuring the rights of customary landowners are recognized and respected depend on the forest resource allocation arrangement:

• Under a Timber Permit (TP), the PNG Government acquires the rights to harvest timber from the customary landowners through the FMA (or TRP) process (see Legal rights to harvest). All Set-up Plan applications must include a signed ‘Landowner Cultural Site Identification Form’.
• Under a Timber Authority (TA), the FIP directly acquires the timber rights from the customary landowners (see Legal rights to harvest). Applications for TA-01 to 04 must include a signed Verification of Ownership and Consent of Land Owners form. Applications for TA-05 must include proof of consent from the legal owners of the plantation and the plantation materials.
• Under a Licence (L), there are no additional requirements for activities that are outside the scope of the TP or TA.

Under a Forest Clearing Authority (FCA) for land-use conversion, the PNG Government acquires the rights to harvest timber from the customary landowners through the State Lease Title process (see Legal rights to harvest). Under an FCA for road-line clearance, the FIP directly acquires the timber rights from the customary landowners. Applications for road-line clearance must include signed Verification of Ownership and Consent of Land Owners forms.

Trade and transport

Log export and/or domestic processing are allowed under the TP, TA, L and FCA arrangements (except TA-01 which allows domestic processing only). For export, both an Export Permit issued by the Minister of Forests, and an Export Licence issued by the Department of Trade, Commerce and Industry (DTCI) are required.

Negotiated prices for sales of logs need to be endorsed by the Marketing Branch of the PNGFA before finalization of the sales contract. After endorsement, the sales contract must be submitted to the PNGFA together with an application for an Export Licence. This is a formal requirement under the DTCI’s ‘Exports (Control and Validation) Ordinance 1973’. Subsequently, PNGFA will issue the Export Permit. At the same time - under PNG’s Procedures for Exporting Logs (April 1996) - SGS must be notified of all impending log shipments using an official information sheet. The exporter is required to ensure that royalty payments have been made on all logs included in the ‘Statement of Logs to be Exported’. SGS checks the details of the permitted shipment as shown on the ‘Log Export Permit’ with the summary of the ‘Statement of Logs to be Exported’, and does a physical check on the logs for correct scaling and species identification. Once ship loading has been completed SGS produces a ‘Log Inspection Report’ presenting the official verification of which type of timber species and which volume is being shipped/exported. This report is used by both the PNGFA and Customs Boarding Officers to clear shipments at time of export. The exporter is then required to send copies of all commercial documents (Bill of Lading, Invoice, and Export Entry) to the SGS Head Office to facilitate entry into a log export database and subsequent reporting.