Private Sector Involvement and Investment in Nepal’s Forestry: Status, Prospects and Ways Forward

March 2014 Multi Stakeholder Forestry Programme Kathmandu Published by: Multi Stakeholder Forestry Programme (MSFP) Services Support Unit (SSU) Forestry Complex, Babarmahal, Nepal Tel: 977-1-4229669-70 Email: [email protected] www.msfp.org.np

© 2014 Multi Stakeholder Forestry Programme (MSFP) The MSFP aims to improve livelihoods and resilience of poor men and women and disadvantaged people in Nepal. It will also strengthen the contribution of Nepal’s forestry sector to inclusive economic growth, poverty reduction and tackling climate change.

Disclaimer This report is an outcome of an independent study commissioned by Multi Stakeholder Forestry Programme (MSFP) to Asia Network for Sustainable Agriculture and Bioresources (ANSAB). The views and opinion expressed herein are those of the consultant authors (ANSAB), and do not necessarily state or reflect those of MSFP. Further, MSFP does not assume any legal liability or responsibility for the accuracy, completeness of any information, data, methodologies, analysis and conclusions.

Authors: Bhishma P. Subedi, Puspa L. Ghimire, Ann Koontz, Sudarshan C. Khanal, Prakash Katwal, Kabir R. Sthapit, and Shruti Khadka Mishra

Contributors: Dilraj Khanal, Pradyuman Pokharel, Devendra Chapagain, Kalyan Gauli, Sushil Gyawali, Govinda Ghimire, Ritu Pantha, Lachana Shresthacharya, Tony Uhl, Nabin R. Joshi and Rijan Tamrakar

Suggested citation: Subedi, B.P., P.L. Ghimire, A. Koontz, S. C. Khanal, P. Katwal, K.R. Sthapit, and S. Khadka Mishra 2014. Private Sector Involvement and Investment in Nepal’s Forestry: Status, Prospects and Ways Forward. Study Report, Multi Stakeholder Forestry Programme - Services Support Unit, Babarmahal, Kathmandu, Nepal. Contents

Abbreviations and Acronyms viii Executive Summary xi 1 INTRODUCTION AND METHODOLOGY ...... 1 1.1 Background, Objectives, Scope, Methodology and Study Structure ...... 1 1.2 Significance of the Study ...... 6

2 ASSESSMENT OF FOREST-BASED INDUSTRIES ...... 8 2.1 Nepal’s Forests, Forestry, Products, Services, Investment, Growth and Employment ...... 8 2.1.1 Status of Nepal’s forests ...... 8 2.1.2 Nepal’s forest management regimes ...... 9 2.1.3 Significance of Nepal’s forests ...... 11 2.1.4 Major forest subsectors, products and services ...... 13 2.1.5 Private sector participation and investment in forest-based industries ...... 16 2.1.6 Range of international buyers and investors ...... 20 2.1.7 Present status of employment in forest-based industries ...... 23 2.1.8 Economic growth and employment generation potential from forest-based industries ...... 25 2.2 Current Status and Growth Potential of Timber-based Industries ...... 27 2.2.1 Assessment of current and future demand ...... 28 2.2.2 Assessment of supply situation and trend ...... 29 2.2.3 Supply potential ...... 33 2.3 Current Status and Growth Potential of NTFP-based Industries ...... 35 2.3.1 Assessment of current and future demand ...... 35 2.3.2 Assessment of supply situation and trend ...... 37 2.3.3 Supply potential ...... 41 2.4 Current Status and Growth Potential of Forest Ecosystem Services-based Industries ...... 42 2.4.1 Assessment of current and future demand of forest carbon ...... 42 2.4.2 Supply potential of forest carbon ...... 45 2.4.3 Assessment of current and future demand of ecotourism service ...... 46 2.4.4 Assessment of supply situation and trend of ecotourism service ...... 47 2.4.5 Supply potential of ecotourism service ...... 49 2.5 Current Status and Growth Potential of Forest Bioenergy-based Industries ...... 50 2.5.1 Assessment of current and future demand ...... 50 2.5.2 Assessment of supply situation and trend ...... 53 2.5.3 Supply potential ...... 54

3 VALUE CHAIN DYNAMICS AND ACTORS’ PERSPECTIVES ...... 55 3.1 Domestic Inter-firm Cooperation and Coordination ...... 55 3.2 Timber Actors and Their Perspectives ...... 61 3.2.1 Timber producers/managers’ perspectives ...... 62 3.2.2 Timber harvesters, processors and manufacturers’ perspectives ...... 66 3.2.3 International buyers and investors’ perspectives ...... 69 3.3 NTFP Actors and Their Perspectives ...... 70 3.3.1 Producers and cultivators’ perspectives ...... 71 3.3.2 NTFP collectors/harvesters, traders, processors, and manufacturers’ perspectives ...... 75 3.3.3 International buyers and investors’ perspectives ...... 79 3.4 Ecosystem Services Actors and Their Perspectives ...... 80 3.4.1 Forest carbon actors and their perspectives ...... 81 3.4.2 Forest-based ecotourism actors and their perspectives ...... 83 3.4.3 International buyers and investors’ perspectives on ecosystem services ...... 85 3.5 Forest Bioenergy Actors and Their Perspectives ...... 86

Private Sector Involvement and Investment in Nepal’s Forestry Sector 3.5.1 Forest producers/managers’ perspectives ...... 88 3.5.2 Harvesters, processors, manufacturers and traders’ perspectives ...... 89 3.5.3 International buyers and investors’ perspectives ...... 91 3.6 International Buyers and Investors’ Requirements ...... 94

4 ANALYSIS OF INVESTMENT CLIMATE ...... 100 4.1 Policy and Regulatory Environment Governing the Forest Sector ...... 101 4.1.1 Investment related and fiscal policies and legislations ...... 102 4.1.2 Industry, trade and labour related policies and legislations ...... 104 4.1.3 Forestry sector related policies and legislation ...... 107 4.1.4 Biodiversity and environment related policies and legislations ...... 118 4.1.5 International standards, laws, agreements and treaties ...... 119 4.2 Institutional Framework Governing the Forest Sector and Political Environment ...... 121 4.2.1 Government institutions in the forestry sector ...... 122 4.2.2 Government institutions beyond the forestry sector ...... 123 4.2.3 Non-state actors ...... 125 4.2.4 Key institutional issues ...... 125 4.2.5 Political environment ...... 126 4.3 Business Development Services including Infrastructure and Finance ...... 128 4.3.1 Research, capacity building and extension services ...... 128 4.3.2 Infrastructures ...... 130 4.3.3 Financial services ...... 132

5 INTERVENTION STRATEGIES ...... 139 5.1 Prepare Base for Private Sector Led Industrial Growth in Forestry ...... 139 5.1.1 Define and promote multiple forestry development models for Nepal ...... 139 5.1.2 Map and zone forests by bio-physical, land tenure, and product characteristics ...... 143 5.1.3 Address policy issues hindering forestry development ...... 147 5.1.4 Address institutional and law enforcement issues in forestry ...... 151 5.1.5 Promote to adopt standards for sustainable forest management and responsible business practices ...... 154 5.1.6 Expand business development services including infrastructure and finance ...... 157 5.2 Promote Industrial Competitiveness and Growth of Most Promising Forest Value Chains ...... 161 5.2.1 Timber ...... 161 5.2.2 NTFPs ...... 165 5.2.3 Ecosystem services - forest carbon ...... 167 5.2.4 Ecosystem services - ecotourism ...... 169 5.2.5 Forest bioenergy ...... 170

6 References ...... 172

Annexes ...... 180 Annex A: Study Methodology (Study Approach, Data Collection, Data Analysis and Presentation) ...... 180 Annex B: Data and Information on Forest Based Industries ...... 189 Annex C: Policy matrix –provisions, implementation practices and suggested reforms ...... 197 Annex D: Individuals and Institutions Consulted for the Study ...... 208

Private Sector Involvement and Investment in Nepal’s Forestry Sector List of Tables

Table 2.1: Forest Areas Managed Under Various Management Regimes ...... 9 Table 2.2: Annual Government Revenue from Major Forest Sub-sectors in Nepal (in NRs) ...... 12 Table 2.3: Yearly Income and Expenditure of CFUGs by Major Ecological Zones in Nepal as of June 2013 ...... 12 Table 2.4: Major Timber Species of Nepal According to Physiographic Zones ...... 13 Table 2.5: Major NTFP Species of Nepal According to Physiographic Zones ...... 14 Table 2.6: Major Species Used as Fuel wood in Nepal According to Physiographic Zones ...... 16 Table 2.7: Major Species Whose Residues Can be Utilized for Bio-briquette ...... 16 Table 2.8: Potential Economic Growth and Employment Generation from Forest-based Industries in Two Different Scenarios ...... 25 Table 2.9: Growing Stock of the Ten Most Common Timber Species ...... 29 Table 2.10: Potential Forest Area for Timber Production ...... 34 Table 2.11: Potential Timber Supply from Forests of Nepal Under Conservative Scenario ...... 34 Table 2.12: Supply Potential of Timber from Nepal’s Forests Under Optimistic Scenario ...... 35 Table 2.13: Major Commercially Valuable, Indigenous NTFPs of Nepal by Altitudinal Zones ...... 37 Table 2.14: Availability, Supply, Income and Potential Production of Top 20 Commercial NTFPs ...... 38 Table 2.15: Supply Potential of NTFPs Under Conservative and Optimistic Scenarios ...... 42 Table 2.16: Historical Transaction Volumes of All Voluntary Carbon Markets ...... 44 Table 2.17: Annual Forest Carbon Sequestration and Supply ...... 45 Table 2.18: Typesand Estimated Number of Tourists Involved in Ecotourism Activities ...... 50 Table 2.19: Sources of Household Energy Used in Nepal ...... 51 Table 2.20: Annual Removal of Fuel wood from Different Forest Management Regimes ...... 53 Table 2.21: Volume of Twigs and Branches Obtained During Timber Processing in Different Fiscal Years ...... 54 Table 2.22: Supply Potential of Charcoal and Wood Pellets ...... 54 Table 3.1: Prices, Costs and Gross Margins of Various Actors of Sal Timber Value Chain ...... 55 Table 3.2: Prices, Costs and Gross Margins of Various Actors Involved in Various NTFP Value Chains ...... 59 Table 3.3: Functions, Participants and Technologies Involved in Timber Value Chain ...... 63 Table 3.4: Functions, Participants and Technologies Involved in NTFP Value Chain ...... 72 Table 3.5: Functions, Participants and Technologies Involved in Forest Carbon Value Chain ...... 81 Table 3.6: Functions, Participants and Technologies Involved in Ecotourism Value Chain ...... 84 Table 3.7: Functions, Participants and Technologies Involved in Bio-briquette Value Chain ...... 87 Table 4.1: List of ILO Conventions and Relevant Nepalese Legislations ...... 107 Table 4.2: Government Decisions on Ban for Collection and/or Export of Forest Products in Raw Form ...... 111 Table 4.3: Provision of Forest Resource Rights Under Forestry Legislations and Local Self-Governance Act ...... 112 Table 4.4: Major Provisions and Strategies in Herbs and NTFP Development Policy ...... 114 Table 4.5: Forest Projects Requiring IEE and EIA ...... 119 Table 4.6: Major Institutions Governing Forestry Sector and Their Roles in Supporting FBEs ...... 122 Table 4.7: Structure of Financial System in Nepal ...... 133 Table 4.8: Financial Products Available Through BFIs ...... 135 Table 5.1: Summary Value Chain Interventions for Export of Select Wood Products ...... 161

Private Sector Involvement and Investment in Nepal’s Forestry Sector List of Figures

Figure 1.1: Study Framework ...... 3 Figure 1.2: Map Showing the Sample Districts in Nepal ...... 4 Figure 1.3: Study Structure ...... 5 Figure 2.1: Forest Area under Various Management Regimes ...... 10 Figure 2.2: Number of Enterprises by Type of Forest-Based Industries ...... 17 Figure 2.3: Private Entrepreneurs’ Investment in Major Forest-based Industries (in billion NRs) – Excluding Direct Foreign Investment in Ecotourism ...... 18 Figure 2.4: Trend Showing the Number of Registered Timber-based Enterprises ...... 18 Figure 2.5: Trend Showing the Number of Registered NTFP-based Enterprises ...... 19 Figure 2.6: Types of Buyers and Investors ...... 21 Figure 2.7: Buyers’ Expectation in Nepal ...... 23 Figure 2.8: Presenting Forestry Products to Buyers ...... 23 Figure 2.9: Formal Full Time Jobs Provided by Various Forest-based Industries, Excluding CBOs ...... 24 Figure 2.10: Timber Demand Projection through 2030 in Different Ecological Regions ...... 28 Figure 2.11: Timber Supply from Various Forest Regimes from 2004/05 to 2011/12 ...... 30 Figure 2.12: Yearwise volumes of the previous stock, harvest and sales of timber from government managed forest (Terai and inner Terai) ...... 31 Figure 2.13: Nepal’s Import and Export Value of Wood and Wood Products from 2009 to 2012 ...... 32 Figure 2.14: Currrent and Potential Demand and Supply of Timber in Nepal ...... 33 Figure 2.15: NTFP Export Value from Nepal and Its Contribution to the Total Export ...... 36 Figure 2.16: Historical Carbon Offset Demand by Transacted Volume ...... 43 Figure 2.17: Annual Emission Reduction by Project Types in 2007 and 2030 ...... 44 Figure 2.18: Tourist Arrival by Purpose of Visit in 2012 ...... 46 Figure 2.19: Total Tourist Arrival in Nepal and Tourists Visiting Protected Areas ...... 47 Figure 2.20: Total Energy Consumption by Fueltypes and Sectors ...... 51 Figure 2.21: Fuel Wood Demand Projection through 2030 in Different Ecological Regions ...... 52 Figure 3.1: Focus on Major Timber Actors’ Perspectives ...... 62 Figure 3.2: Focus on Major NTFP Actor’s Perspectives ...... 71 Figure 3.3: Focus on Major Forest Ecosystem Services Actors’ Perspectives ...... 81 Figure 3.4: Focus on Major Forest Bioenergy Actors’ Perspectives ...... 87 Figure 3.5: A Sustainable and Profitable Forest alueV Chain for Nepal ...... 98 Figure 4.1: Factors Influencing Investment Climate ...... 101 Figure 4.2: Trend of Foreign Investments and Number of Industries in All Sectors ...... 103 Figure 5.1: Mapping Nepal’s Forests on Three Dimensions ...... 143 Figure 5.2: Three Dimensitons of Plantation Forest ...... 146 Figure 5.3: Major Areas to Consider in Forest Value Chains Improvement ...... 162

Private Sector Involvement and Investment in Nepal’s Forestry Sector List of Boxes

Box 2.1: Carbon Markets at International Level ...... 43 Box 2.2: Ecotourism in Baghmara Bufferzone Community Forest: CFUG Close to Protected Area ...... 48 Box 2.3: Ecotourism in Kankali Community Forest: CFUG Outside Protected Area ...... 49 Box 3.1: Wood Handicraft Success – Angkor Artisans ...... 70 Box 3.2: HPPCL, Tamagadi, Bara – A Case of Enterprise Running Under Capacity ...... 73 Box 3.3: Commercial Farming of NTFPs by Individual Farmers: A Case from Ilam District ...... 73 Box 3.4: Cultivation of Lauth Salla Without Proper Market Research ...... 75 Box 3.5: Trade Show to Investor - Essential Oils Case Study Success Story ...... 79 Box 3.6: BioCarbon Fund Launches 280 million Initiative for Sustainable Forest Landscapes ...... 86 Box 3.7: The Lacey Act Amendment – Strong Enforcement to Curb Illegal Timber and Plant Trade a Growing Trend in International Markets for Forest Products ...... 95 Box 3.8: Exports of Nepali Medicinal Herbs to China a Growth Area but Supplies an Area of Caution ...... 97 Box 4.1: Relevant Provisions Under Investment Related Policies and Legislations ...... 102 Box 4.2: Industry Related Policy and Legislative Provisions ...... 105 Box 4.3: Trade Policy Provisions ...... 106 Box 4.4: Existing Legislative Instruments in the Forestry Sector ...... 108 Box 4.5: Major Legislative Provisions in Forestry Sector Relevant to Private Sector Investment ...... 109 Box 4.6: Forest Bioenergy Related Policy and Legislative Provisions ...... 117 Box 4.7: Financial Products and Services to herb growers: A Case of Rastriya Banijya Bank ...... 136 Box 5.1: Examples of Multi-stakeholders Participation in Policy Process in Nepal ...... 148

Private Sector Involvement and Investment in Nepal’s Forestry Sector Abbreviations and Acronyms

A/R Afforestation and Reforestation AAH Annual Allowable Harvest AEC Agro Enterprise Centre ACOFUN Association of Collaborative Forest Users of Nepal ANSAB Asia Network for Sustainable Agriculture and Bioresources BDS Business Development Service BFI Bank and Financial Institution BIPPA Bilateral Investment Promotion and Protection Agreement BOI Private Financing in Build and Operation of Infrastructures Act CBO Community-Based Organization CCBA Climate Community and Biodiversity Alliance CDM Clean Development Mechanism CF Community Forest CFM Collaborative Forest CFUG Community Forest User Group CIAA Commission for the Investigation of Abuse of Authority CSIDB Cottage and Small Industries Development Board CSO Civil Society Organization CTEVT Council for Technical Education and Vocational Training DADO District Agriculture Development Office DFID UK Department for International Development DFO District Forest Office DNPWC Department of National Parks of Wildlife Conservation DoCSI Department of Cottage and Small Industries DoF Department of Forests DPR Department of Plant Resources EIA Environment Impact Assessment ES Environmental Services FAO Food and Agriculture Organisation of the United Nations FBE Forest-Based Enterprises FDI Foreign Direct Investment FECOFUN Federation of Community Forestry Users, Nepal FenFIT Federation of Forest-based Industry and Trade, Nepal FITTA Foreign Investment and Technology Transfer Act FMU Forest Management Unit FNCCI Federation of Nepalese Chamber of Commerce and Industries FPDB Forest Products Development Board FSC Forest Stewardship Council GMP Good Manufacturing Practice GoN Government of Nepal HAN Hotel Association of Nepal HANDPASS Handmade Paper Association

Private Sector Involvement and Investment in Nepal’s Forestry Sector HBTL Himalyan BioTrade Private Limited HEAN Herbal Entrepreneur Association of Nepal HNCC Herbs and NTFP Coordination Committee HPPCL Herbs Production and Processing Company Ltd. ICIMOD International Centre for Integrated Mountain Development IEE Initial Environment Examination JABAN Jadibuti Association of Nepal LHF Leasehold Forest LRP Local Resource Person MAP Medicinal and Aromatic Plant MDF Medium Density Fibre MIS Market Information System MFSC Ministry of Forests and Soil Conservation MPFS Master Plan for the Forestry Sector MRV Monitoring, Reporting and Verification MSFP Multi Stakeholder Forestry Programme NATTA Nepal Association of Tour & Travel Agents NEHHPA Nepal Herbs and Herbal Products Association NORAD Norwegian Agency for Development Cooperation NPC National Planning Commission NTB Nepal Tourism Board NTFP Non-Timber Forest Product NTIS Nepal Trade Integration Strategy NVC National Vigilance Centre OWP One Window Policy PES Payment for Environmental/Ecosystem Services PPP Public Private Partnership REDD Reducing Emission from Deforestation and Forest Degradation REDD+ Reducing Emission from Conservation, Sustainable Management and Enhancement of Carbon Stocks REDD Cell REDD Forestry and Climate Change Cell RF Religious Forest SFM Sustainable Forest Management TAAN Trekking Agencies’ Association of Nepal TCN Timber Corporation of Nepal VC Value Chain VCS Voluntary Carbon Standard WECS Water and Energy Commission Secretariat

Private Sector Involvement and Investment in Nepal’s Forestry Sector Private Sector Involvement and Investment in Nepal’s Forestry Sector EXECUTIVE SUMMARY

This study, conducted by Asia detailed studies of 28 sampled districts Network for Sustainable Agriculture and (including seven MSFP initial-phase-districts) Bioresources (ANSAB) and its consortium representing all nine eco-regions of the partners on behalf of the Multi Stakeholder country. Twenty international forestry industry Forestry Programme (MSFP) of Nepal, and private sector representations, from North assesses and analyses the current America, Europe and Asia, were interviewed status and future potential of developing to provide the international perspective on economically viable and socially and Nepal as forest investment and supplier. The environmentally responsible forest-based districts, enterprises and financial institutions industries leading to sustainable, green were selected using multi-stage stratified and inclusive development model in Nepal. purposive sampling procedure.

Goal and Objectives: The overall goal This study prioritized forest enterprises of this study was to develop a thorough along four major subsectors, namely, timber, understanding of the current status and non-timber forest products, ecosystem future potential of the private sector services (especially ecotourism and carbon) involvement and investment in the and forest bioenergy. These subsectors were forestry sector of Nepal, and to develop chosen since they either are significant in appropriate intervention strategies - terms of volume or value of products, cover broadly for the forestry sector as a whole large geographical areas and population, and specifically for the MSFP. The specific have growth potential, and/or promote objectives of this study were to: responsible green businesses. i. Assess current status of the forest- based industries and private sector’s The study is based on the available engagement; data and information, secondary and ii. Analyse investment climate in primary sources. The main methods of Nepal governing private sector’s data collection included i) consultations and involvement and investment; interviews with key stakeholders and experts iii. Investigate investors’ perspectives at local, regional, national and international including their interests, requirements, level, ii) focus group discussions, iii) surveys opportunities, and constraints for of domestic enterprises and financial increasing private sector’s investment institutions, iv) case studies, and v) review of and generating employment; and literature and records. iv. Develop intervention strategies for MSFP and the forestry sector as a The study–from data collection whole for promoting private sector’s through analysis and recommendations— engagement and job creation in the was guided by the research questions forestry sector. and study framework. This consisted of three major components - forest- Scope and Methodology: This study based industries, value-chain dynamics provides an overall review of the forestry and actors perspective, and investment sector nationwide and is supported by climate. It followed a logic starting with

Private Sector Involvement and Investment in Nepal’s Forestry Sector xi Executive Summary

the current situation and opportunities provide direct inputs to Nepal’s Forestry and potential within the sector followed Sector Strategies, which is now in the by constraints that hinder to realise process of formulation. the potential, and finally appropriate intervention strategies to achieve Nepal’s Major Findings desired model for forestry. Five concept This study uncovers a number of papers have been developed to elaborate new and important findings. The major some of the recommended strategies. findings are summarized below; its key findings are highlighted in the box below. Significance: In Nepal, there is yet no comprehensive analysis of the current Forest and its Major Subsectors, status and prospects of the private sector Products and Services: In Nepal, forests involvement and investment in forestry, let and shrubs cover about 5.83 million ha, alone the assessment of potential impacts which is 39.6% of the total land area of and development of strategies to attract and retain responsible private investors. Therefore, this study was designed to Key findings of this study address this knowledge gap and make • There are some product and strategic recommendations for attracting service value chains in Nepal’s and retaining the responsible private sector, forestry sector that have who would make long-term investments in comparative advantage and forestry and earn a decent profit and social can be turned into competitive prestige while contributing to sustainable industries. Surprisingly, these are management of forest, enhanced local underexplored and unrecognized livelihoods, additional employment by the stakeholders including the generation and economic growth. government. • Community forestry in Nepal The outcomes of this study provide the has created a very good base much-needed roadmap and pathways for - with very strong and effective promoting private sector’s participation institutions and robust ecological in Nepal offering useful evidence-based resources - for enterprise- information, insights and strategies oriented sustainable forest to stakeholders in aligning the private management. sector’s objectives of ‘maximizing profits • The private sector is interested from investing/financing in forests’ with and serious, but finds itself at the the enablers’ objectives of ‘sustainable crossroads of whether to continue use of forest resources, wealth creation, and expand the operations into a and equitable distribution’. The research decent business or move out of outputs will be useful for the MSFP as well the forestry business, if supply as for national and local governments, constraints are not addressed Nepal’s development partners, private with improved governance of the sector actors and others interested to sector. develop plans and strategies for forest- • The main motivating factors for based enterprises (FBE) promotion private sector are high return ensuring that the conservation and on investment, low risk and poverty reduction goals are achieved. transaction costs, and stability of The results and recommendations also

xii Private Sector Involvement and Investment in Nepal’s Forestry Sector Executive Summary

and community forest-based) are promising business with good social image. options. The prioritised products for forest • In spite of the big and lucrative bioenergy include solid biofuel, especially markets for the forest products, bio-briquette wood pellets and firewood. For the producers are not getting international markets, Nepal has enough incentives for increasing a unique selling position (USP) production. This is mainly due for carbon, certified NTFPs and to policy challenges and high hand-carved woodcrafts. transaction costs. • Nepal’s forestry sector has a huge Private Sector Participation and untapped potential of generating Investment: The core value of private economic value of legally and sector is profit centric, and their sustainably produced forest participation and investment in the forest- products and services worth based industries is found mainly in NRs 373 billion, a many-fold processing, manufacturing and trade with increase from the present value, limited participation in production of forest creating 1.38 million full time job products and services. It is estimated that equivalents, and contributing about 41,062 forest-based enterprises, to government royalty and including forest producer groups, are national economy. formally operating in Nepal, of which 27,342 (over 66%) enterprise units are involved in primary production of goods and services. the country. These are among the most Among the rest 13,720, which are involved important natural resources of Nepal. in processing, manufacturing and trade, Along with their critical role in rural the majority 9,869 are in timber followed livelihoods and environmental protection, by 2,140 in NTFPs, 1,676 in ecosystem the diverse range of forest ecosystems services, and 35 in forest bioenergy. provide multiple products and services as a base for four main promising industrial The total estimated investment by subsectors, namely timber, Non Timber private entrepreneurs is about NRs 32 Forest Products (NTFP), ecosystem billion in 2013 (excluding direct foreign services and forest bioenergy. investment in eco-tourism), of which the highest investment came from the timber For domestic markets, the study finds processors and manufacturers with 59% of builder’s joinery, furniture, veneer, plywood the total investment. The investment made and construction timber as most promising in NTFP enterprises, ecosystem services options in timber. Large cardamom, (mainly ecotourism), and forest bioenergy medicinal herbs, essential oils, resin (rosin is estimated to be about NRs 5.48 billion, and turpentine), natural fibres, handmade NRs 6.56 billion and NRs 42.9 million paper and kattha are promising options respectively. There is a growing interest in in NTFP subsector. Regarding ecosystem purchasing voluntary carbon credits from services, carbon [especially Reducing Nepal from international organisations, as Emission from Deforestation and Forest Nepal provides a unique story of social and Degradation (REDD+) and afforestation environmental benefits, but the transaction and reforestation (A/R) under Clean of forest carbon is not well developed and Development Mechanism (CDM)] and limited to only a few voluntary transactions ecotourism (especially in protected area in fund-based markets.

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Economic Growth and Employment subsectors). This reveals a great potential for Generation Potential from Forest- creating significantly more number of additional based Industries: Our assessment of the sustainable jobs in Nepal’s forest sector that industrial growth potential based on the ranges from three to ten times higher than the current situation of demand and supply present level depending on the performance. and the projection for each subsector Transition of the informal workforce to formal reveals that forest-based industries have employment opportunities could be done very high growth potential, if the supply by involving it in enterprise-oriented forest constraints are addressed with improved management and production of goods governance. Under the conservative and services as well as in other functions scenario, the industries can generate of the value chains. economic value worth about NRs 88 billion whereas under the optimistic scenario, Supply Potential of Forest Products and it could go over NRs 370 billion (see Services: The gap between the present the table for details). The conservative formal annual supply, which is about 113,000 scenario assumes the products and m3 and the estimated domestic demand, services are utilized with modest changes which is 3.37 million m3, of timber is very high. to the sector, taking into account the The annual domestic demand is projected to recent positive trends in investment. The be 4.8 million m3 in 2030 and the international optimistic scenario assumes forests are demand especially in India is growing managed using science and at least some for Nepali timber products. Our analysis significant value chain improvements. shows that the supply can be increased to at least 1.66 million m3 just by applying Presently, the private sector provides nearly minimal rate of conservative harvesting in 99,000 formal full time jobs per annum, most accessible forest only. In an optimistic whereas Community Based Organisations scenario, in which available forests are (CBO) including Community Forestry Users’ scientifically managed and plantations are Groups (CFUG) provide about 31,000 jobs established in 200,000 ha, which is about making a total of 130,000 jobs. Our estimate two-third of the available non-forested land, under the conservative scenario is that the Nepal’s forests can supply as much as 9.18 forest-based industries can generate over million m3 of timber. 400,000 sustainable, full time jobs and in the optimistic scenario it can go up to 1.38 millions Similarly, for other subsectors, there (see the table below for the breakdown by the is a high scope to improve management,

Summary of Potential Economic Growth and Employment Generation from Forest- based Industries Under Conservative and Optimistic Scenarios Subsector Economic value (million NRs) No of sustainable, full time jobs Conservative Optimistic Conservative Optimistic Timber 55,127 270,697 206,725 812,090 NTFPs 11,635 58,173 87,259 290,865 Forest Carbon 4,235 13,572 37,054 118,755 Ecotourism 14,572 21,567 72,860 107,833 Forest Bioenergy 2,126 9,107 15,633 53,571 Total 87,694 373,115 419,531 1,383,114 Source: ANSAB study, 2013

xiv Private Sector Involvement and Investment in Nepal’s Forestry Sector Executive Summary

introduce new species, grow more respectively whereas in optimistic plants, and increase regular supply in a scenario, it would be 89,284 tons and sustainable way to meet the current and 375,000 tons respectively. future demand. Under the conservative scenario, where the products are Main Value Chain Actors: Major utilized remaining in a very conservative commercial producers in all four side without much effort in increasing subsectors are government agencies, production and productivity, the current forest producer groups, and private supply of NTFPs could be increased companies and individuals. Mainly twofold. Under optimistic scenario, in contractors and local collectors do the which science, efforts and investment will harvesting of timber, NTFPs and fuel be mobilized, increasing efficiency and wood. Likewise, the processing and effectiveness in every stage of the value manufacturing of timber products is carried chains, the supply could be increased by out by saw millers, veneer producers, more than five times. plywood producers, and furniture and handicraft makers that are mainly based For ecosystem services (especially in towns and cities. In case of NTFPs, forest carbon and ecotourism), biodiversity the main actors for these functions are rich Nepal has high potential for benefitting distillation enterprises, local enterprises from forest carbon sequestration and (e.g. wild fibre, handmade paper), resin expansion of ecotourism. While Nepal’s and kattha processing enterprises, community forests have significant and herbal products manufacturing potential to implement REDD+ projects enterprises, and handicrafts makers. In geared towards cashing carbon, bioenergy, char producers and briquette significant areas of barren lands or makers are involved. grasslands with scattered trees that cover about 1.6 million ha area are For the trade of all products except ideal for afforestation and reforestation ecosystem services, district level and activities. Our estimate shows that Nepal national level traders, wholesalers, would be able to sell about 8.25 million retailers, importers and exporters are tCO2e per annum under conservative the major actors. In case of forest scenario and 19.5 million tCO2e under carbon, these include packagers, product optimistic scenario. For ecotourism, there verifiers, distributors and buyers while is a good potential for expanding existing in eco-tourism various combinations of ecotourism products and developing new local businesses, such as travel and tour ones. The number of eco-tourists could operators, hotel and other accommodation be increased by at least 1.5 times under providers, and restaurants and food conservative scenario while 3 times in providers are involved. In case of forest optimistic scenario. carbon, there is a lack of actors to serve as an aggregator or a common regulator In case of forest bioenergy, solid to ensure that the conditions are met to biofuels, such as bio-briquette and implement a deal. wood pellets, have very good growth prospect. Under the conservative Inter-firm Cooperation and scenario, the supply potential of bio- Coordination: In all the studied value briquette and wood pellets are estimated chains, except forest carbon, the firms as 34,764 tons and 75,000 tons are well organized horizontally into

Private Sector Involvement and Investment in Nepal’s Forestry Sector xv Executive Summary

associations and networks, especially at lead firms are also found to provide processing, trading and manufacturing access to technology, skill trainings and levels. The main among these are infrastructure maintenance. Federation of Forest-based Industry and Trade, Nepal and commodity associations In case of ecotourism, the government for veneer, plywood, furniture, NTFPs being an important actor is promoting including herbs, herbal products and the industry through policy including handmade paper, bio-briquette, trekking, benefit-sharing mechanism. Similarly, travel, and hotel. While Federation of the government and civil society Community Forest Users, Nepal is quite organizations are supportive in improving strong and effective in safeguarding rights governance and institutional reforms of producers and in policy advocacy, the for the promotion of forest carbon - horizontal integration of forest producers particularly through decentralization, is generally lacking. strengthening of MFSC’s institutional capacity, improvement of law enforcement The vertical integration, except in and efforts to build confidence in ecotourism, bio-briquette and few specific government institutions. These are NTFPs, is weak, and the value chain is critical to the successful implementation dominated by a few big players based of forest carbon projects in Nepal. in major cities exhibiting an asymmetric power distribution. The limited access Value Chain Actors’ Perspectives: to information, technology, finance and Many of the opportunities presented in the market has created dependency of assessment of industrial growth potential are producers on buyers even when the known to private sectors. They see a good profit distribution is skewed and trust market potential and a huge scope to expand among them is low. For example, the their businesses by increasing supply, NTFP value chains that mainly involve although it is unexplored, by sustainable trade of crude herbs mimic the vertical harvesting of overstocked forests and using integration of the actors where the improved technologies available in the buyers determine the quantity, quality neighbouring countries, especially in timber, and price as well as investment in the NTFPs and forest bioenergy. Western Terai form of advance payment through and lower mountains have high potential for intermediaries to ensure the supply. increasing supply of timber. International Indian traders have been at the apex actors see that Nepal’s unique, indigenous, of crude herbs supply chain since long, and genetically superior NTFPs, especially whereas Tibetan traders have emerged to grown in high-mountains, and the high value have a control over the business of a few timber products, especially wood flooring herbs including Ophiocordyceps sinensis with distinctive grains, furniture veneers and and Paris polyphylla. hand-carved woodcrafts have comparative advantage in the world market.Nepal has an The best practices of vertical advantage for forest carbon and ecotourism integration, especially balanced power with its unique biodiversity and community relationship, transparency, fair benefit participation values. distribution and trust, are found in Forest Stewardship Council (FSC) certified hand However, in order to realize the made paper, bio-briquette and essential opportunities in forest-based industries, oils value chains. In these cases, the while there are differences in emphasis and

xvi Private Sector Involvement and Investment in Nepal’s Forestry Sector Executive Summary

specific contents, the actors in all subsectors In case of carbon, the main constraints at all levels perceive that the following are the clarity on property rights, lack of constraints have to be addressed: a) weak awareness on carbon as an ecosystem governance and lack of law enforcement, service and its markets, limited capacity bureaucratic hurdles and procedural delays, of producers, and highly disintegrated and insecurity; b) inadequate and uncertain forests under different management supply of raw materials, limited effort on regimes. While the ecotourism subsector scientific forest management, and has been struggling with the high upfront unpredictable policy decisions including costs and very limited business expertise bans and restrictions; c) difficulty and information, forest bioenergy to access the finance; d) lack of subsector is facing the lack of technologies infrastructure specifically electricity for the conversion of biomass to energy, and transportation; and e) inadequate inconsistency in quality of products, and business development services such product development. as inputs and technologies, extension services, and business information. Investment Climate: The government and international agencies, including The specific constraints faced donors have been investing to improve the by producers/forest managers in all investment climate through formulation subsectors except ecosystem services or reform of policy and legislative are: cumbersome legal procedure and frameworks, infrastructure development, unpredictable regulation on plantation organizational development, institutional and harvesting; insufficient extension reforms, grants and seed funding for services on plantation and scientific forest community organizations, and developing management; low level of technical and and demonstrating business models. managerial capacity of producers; limited In the past decade, the government supply of quality planting materials, of Nepal invested NRs 43 billion (US inputs and technologies; and difficulty $411.38 million) in addition to US $119.92 in resource inventory and community million from international donors through forest handover. For processors and various forestry projects. These enabling manufacturers, uncertainty of supply of investments have several positive raw materials, lack of knowledge on the outcomes, including development and utilization of by-products (especially in reform of various policies, strategies, veneer industry), distance from forest programs and production of experts in to processing enterprises, high cost of the forestry sector. production due to the lack of trained human resource and the use of less The factors influencing the risks, efficient technologies are the major returns and transaction costs at various constraints. The contractors and traders aspects of the business establishment of timber are facing high security threats and operation, such as access to and very poor social image, discouraging resources, establishment of enterprise, them from making further investment. employing workers, access to finance, Inconsistent quality of the raw materials complying with taxes, trading of forest and lack of infrastructure, especially products and services, and settling internationally accredited laboratories disputes and enforcing contracts, and warehouses are main constraints which in turn determine the profitability faced by the NTFPs exporters. and social image of a business are

Private Sector Involvement and Investment in Nepal’s Forestry Sector xvii Executive Summary

identified, and a detailed analysis of Strategy, 2010 (NTIS) has prioritized 19 the present situation has been made commodities for the export, including to identify issues and possible actions for herbs, essential oils, handmade for improvement. The main factors paper, and tourism. The engagement identified are: a) policy and regulatory of local communities in forestry have environment governing the forest developed successful community sector, b) institutional framework and forestry programme, which became political environment, and c) business an exemplary forest management development services including model reducing deforestation. infrastructure and finance. Similarly, the leasehold forest programme is successfully involving Policy and Regulatory Environment poor and excluded communities in Governing the Forest Sector: Nepal the management and utilization of has been trying to develop the policy and forest resources. legislative provisions and institutional arrangements to create the investment The Herbs and NTFP Development friendly climate. For example, the Policy, 2004 (HNDP) and the various provisions of bringing all necessary policies in renewable energy (including services in one place under One Window bioenergy) clearly highlight the role of Policy (OWP); investment, repatriation, private sector. The institutional reform and technological rights under in protected areas and buffer zone Foreign Investment and Technology management also recognizes the role Transfer Act (FITTA); security against of private sector, which can play an nationalization of private properties active role for strengthening Payment under Private Financing in Build and for Environmental/Ecosystem Services Operation of Infrastructures Act (BOI); (PES) system. Nepal has ratified more and signing Bilateral Trade Agreements than 25 Multilateral Environmental and Bilateral Investment Promotion Agreements and the private sector can and Protection Agreement (BIPPA) with get benefit from it, if Nepal takes steps several countries are positive steps to to fully comply in practice. attract investment. However, in practice the space for There are provisions for concessions the private sector is limited due to the on Value Added Tax (VAT), income tax and excise duties to some forest-based problems in proper implementation industries. The Industrial Policy has of the existing policy and legislative a provision of providing assistance in provisions mainly arising from the technology, market, skills and research contradictions, jurisdictional overlaps, for industries based on NTFPs including inappropriate assignment of roles, herbs. The Trade Policy emphasizes weak coordination, and institutional institutional and physical infrastructure inefficiencies as well as some development relating to foreign trade, gaps, especially implementation developing policy and institutional instruments, such as procedures and networks for the protection of intellectual guidelines. There are malpractices property rights, and providing additional that have created a bad social image incentives to export oriented industries. for the entrepreneurs, especially in Furthermore, the Nepal Trade Integration timber and some NTFP businesses.

xviii Private Sector Involvement and Investment in Nepal’s Forestry Sector Executive Summary

Some of the main issues that need unlike in the past, there were no reported to be addressed are a) complexity and cases of widespread illegal felling during confusion in business registration steps; the recent constituent assembly election. b) clarity on rights to harvest and process But, the political parties are found to put timber from private land, and contradictory unnecessary pressure in the transfer provisions that arise from multiple agencies of government officials (encouraging and procedures; c) complex procedures bad governance), demanding donations and high transaction costs in harvesting and backing labour unions and informal and utilization of forest products from groups making this sector unattractive private land; d) unclear basis for fixing and for investment. Presently, the private collecting royalties, prices and taxes on investors are sceptical due to the long forest products, including charging royalties political transition, uncertainty on federal on NTFPs and VAT on timber grown in structuring, confusion over who the private land; e) irrational environmental private sector should deal and negotiate regulations for community forest and NTFP with, and their implication on rights. The businesses; f) anomalies in fixing size law enforcement is weak and the overall and grading of timber, depository system governance in the forestry sector needs and stock holding time of timber; g) tariff to be improved if Nepal wants to attract and non-tariff barriers in trade, especially and retain responsible investors. hurdles in transportation, multiple taxation, and confusion created due to multiple Business Development Service (BDS), agencies issuing certificate of origin; h) including Infrastructure and Finance: The tenure issue on non-forested public land, required business development services privately occupied non-registered land and to improve the investment climate ecosystem services; and i) access of the include research and development, private sector to suitable leasehold forest capacity building, supply of quality inputs land for industrial and commercial purposes. and technologies, business advice and counselling, market information and Institutional Framework Governing the product promotions, and networking and Forest Sector and Political Environment: brokering. Apart from these, the study A multitude of institutions, both in forestry reveals four most important infrastructure and beyond, have been established to needs for attracting investments, which create enabling environment and contribute are transport, electricity, Information to increase returns and reduce the risks and Communication Technology (ICT), and transaction costs for the private and other supportive facilities, such sector. However, the issues including the as collection centres, warehouses, inefficiency and ineffectiveness in delivering market infrastructures (wholesale/ services, weak coordination, overlapping auction centres), and laboratory facilities. jurisdiction and authority, conflicting and contradictory provisions, and complex The proliferation of banks and financial bureaucratic processes are challenging the institutions (BFIs), currently 283 in number growth of the private sector in forestry. with 2492 branches, provide a base for access to finance. However, the lending in As reflected in their election manifestos, forestry sector is still negligible. The factors every major political party has considered affecting for low lending is attributed on the forest as an important sector that needs to one hand to capacity constraints of Forest be developed for national prosperity and based Enterprises (FBE), which include

Private Sector Involvement and Investment in Nepal’s Forestry Sector xix Executive Summary

their informal and unorganized nature of forest condition), management (including business, financial illiteracy, inability to land tenure and ownership status), produce enough collateral, reputation of and products/services (including value the sector in general, and on the other chain requirements), is suggested while hand to BFIs’ limitations, as they have very mapping and zoning the forests of Nepal. little knowledge and information about the The further steps needed on this are the sector and lack appropriate loan products. declaration of the suitable natural forest land as production forest areas and Intervention Strategies clusters of area suitable for plantation, Nepal should define a goal for forest- prioritization of products or services, and based industry development that is owned development of business models. by all of its key stakeholders. To achieve the potential that have been identified in this iii) Address policy issues hindering report, a two-pronged strategic approach forestry development is recommended. It consists of a) preparing Through clearly defined legislation base for private sector led value chain/ and effective enforcement mechanism, industrial growth in forestry and b) promoting which would improve transparency, industrial competitiveness and growth of accountability, and anti-corruption most promising forest value chains. measures and ultimately improve the forestry sector governance. The issues Preparing the foundation for can be addressed through informing private sector led industrial growth in policy with science and participation forestry would involve the following six from community and industry, eliminating strategies, which can be realized through policy contradictions between Forest Act collaborative efforts both from the forestry and other regulations, improving policy sector and beyond. provisions and practices on tenure and access arrangement, and facilitating i) Define and promote multiple forestry enterprise establishment and operations development models for Nepal to make it affordable. Given the diversity of Nepal’s forest, institutional landscape and participation iv) Address institutional and law of various stakeholders, multiple forestry enforcement issues in forestry development models for the development There is a need to align roles and of forest-based industries are needed. responsibilities of institutions to promote Defining production systems for commercial the forest-based industries, for which purpose in both the natural forests and establishment of some new intitutions, plantation forests and developing effective especially a private sector support unit business models for different scenarios and a separate entity within the Ministry should be the first step. Then models are of Forests and Soil Conservation (MFSC) needed for various categories and sub- or a division under Department of Forest categories of the forest production systems. (DOF) for managing production forests, and restructuring of DOF to streamline ii) Map and zone forests by biophysical, division of important roles and reallocate land tenure, and product characteristics human resources to match the workload Considering the complexities of Nepal’s are suggested. Furthermore, it is forests, three-dimensional model that suggested to improve law enforcement include geography (including biophysical to address supply constraints and

xx Private Sector Involvement and Investment in Nepal’s Forestry Sector Executive Summary

develop and monitor timely, regular and small support could be practical strategic transparent harvesting, auctioning and steps to take. Developing risk mitigation transportation procedures. measures in financing FBEs and helping bankers to understand the opportunities v) Promote to adopt standards for in Nepal’s forestry sector are needed. In sustainable forest management and this situation, bankers need support to responsible business practices develop financial products and a minimum More specifically, it is recommended to assurance of payback and incentives from expand strategic certification and provide the government for lending in this sector. government support for industries to gain certification, strategically expand and Value Chain Specific Strategies: Based advertise certification, continue to build on the dynamics of the value chains sustainable forestry and good business domestically and globally, specific practices models at the community interventions on the four subsectors forestry, private and government lands – timber, NTFPs, ecosystem services and develop a strategic plan for attracting (carbon and ecotourism), and forest and approaching responsible investors. bioenergy –are organized around the following three main categories: a) vi) Expand business development forest land management and production, services (BDS) including infrastructure b) harvesting and processing or and finance consolidation, and c) governance and To strengthen the supply of BDS, it is market promotion. suggested to support universities, training institutions and Civil Society Organisations For timber, the emphasis should be (CSO) to develop training packages and on science-based management and curricula for the development of human sustainable harvesting of natural forest, resources in forestry business, support to and plantations and land management improve government extension services re- that allow for private sector investment and orienting it in support of enterprise-oriented cultivation of key species. In natural forests, forest management, develop and mobilize there should be proper utilization plan local resource persons, facilitate to increase addressing the current hurdles due to poor access to inputs and technologies, and governance in harvesting, transportation strengthen Research and Development and trade. Plantation is possible both (R&D) in production, harvesting, processing, in non-forested public land and private product development, and marketing. On land, but needs inputs, technologies and the other hand, to stimulatethe demand extension services along with the policy of BDS, the recommended strategies are reform for hassle free environment for to raise awareness through training and plantation, harvesting and trade of timber. meeting, provide a directory of relevant service providers to the entrepreneurs, In case of NTFPs, the emphasis should and improve access to extension materials be on sustainable harvesting from natural and markets. forests and commercial cultivation in private lands and non-forested public land. Addressing the challenges related to Value addition through processing and infrastructure is beyond the scope of the product development and diversification forestry sector and the related programmes. of markets are the much-needed areas of However, coordination, networking and interventions in this subsector.

Private Sector Involvement and Investment in Nepal’s Forestry Sector xxi Executive Summary

In early stages of the carbon market, In the present global context and developing appropriate institutional national capacity in bioenergy subsector, mechanism, capturing the insights and Nepal should focus on proven solid expectations of the stakeholders and biofuel technologies; bio-briquette and building their capacity on carbon value wood pellets, to generate energy from chain functions are important. Significant forest biomass. Most importantly, with interventions are needed for setting up the the proper resource management, governance structure and market promotion. harvesting and utilization, there is an In case of ecotourism, development of ample scope to increase production ecotourism products and their advertisement and energy efficiency of fuel wood for the emerging markets, promotion of new used in cooking. touristic area and targeting of new market segments are needed.

xxii Private Sector Involvement and Investment in Nepal’s Forestry Sector INTRODUCTION AND 1 METHODOLOGY

1.1 Background, Objectives, Scope, Goal and Objectives: The overall goal Methodology and Study Structure of the study was to develop a thorough Nepal’s geography harbours unique understanding of the current status and and rich biodiversity providing a basis for future potential of the private sector producing a range of forest products and involvement and investment in the forestry services. The study is an opportunity to sector of Nepal, and develop appropriate assess, analyse and comprehensively intervention strategies - broadly for the understand the current status and future forestry sector as a whole and specifically potential of developing economically for the MSFP. viable and socially and environmentally responsible forest-based industry leading The specific objectives of this study to sustainable, green and inclusive were to: development in Nepal. i. Assess current status of the forest- based industries and private sector’s Building on the achievements of engagement; over 20 years of forestry work of the ii. Analyse investment climate in Nepal Government of Nepal (GoN) supported by governing private sector’s involvement the governments of Finland, Switzerland, and investment; and UK, the ten-year MSFP Programme iii. Investigate investors’ perspectives is designed through a multi-stakeholder including their interests, requirements, process to contribute to poverty reduction opportunities, and constraints for and tackling climate change in Nepal. The increasing private sector’s investment programme is an initiative of the GoN and generating employment; and funded by the Government of Finland iv. Develop intervention strategies for (GoF), Swiss Agency for Development and MSFP and the forestry sector as a Cooperation (SDC), and UK Department whole for promoting private sector’s for International Development (DFID). engagement and job creation in the The overall objective of the MSFP is to forestry sector. improve livelihood and resilience of poor and disadvantaged people dependent on The study was guided by the following forest resources. four research questions explicitly reflecting the overall research focus on increased MSFP commissioned this study on investment and jobs in the forestry sector via private sector involvement and investment private sector involvement, which eventually in forestry sector of Nepal by awarding is expected to increase the contribution of ANSAB a contract through a competitive the forestry sector to the nation’s total Gross bidding process. The other partners in Domestic Product (GDP): the study team include Nepal Herbs and Herbal Products Association (NEHHPA) i. What are Nepal’s best forest products and Enterprise Works – a Division of Relief and service options to attract private International (EW-RI), USA. sector involvement and investment?

Private Sector Involvement and Investment in Nepal’s Forestry Sector 1 ChapterChapter 1 1 INTRODUCTION AND METHODOLOGY

ii. Given Nepal’s goals to conserve Figure 1.1 and the full methodology is its unique forest biodiversity and presented in Annex A. sustainably utilize the forest to alleviate poverty, what types of private This national study is an important sector involvement and investment milestone for understanding private should Nepal work on to attract? Is sector’s involvement and investment in the investment climate favorable to the forestry sector. The issues identified attract the private sector? for analysis had local, regional, national, iii. What do the targeted private sector and international scales. The study actors look for in an investment? What provides an overall review of the sector are the models for their involvement nationwide and is supported by detailed and investment? studies of 28 sampled districts (including iv. Based on the above information, seven MSFP first-phase-districts) what are Nepal’s opportunities and representing all nine broad eco-regions constraints to attract private sector of the country (Figure 1.2). The districts, involvement and investment? enterprises and financial institutions were selected using multi-stage stratified Scope and Methodology Overview purposive sampling procedure. Twenty of the Study: A study framework was international forestry industry and developed to answer the research private sector representatives were questions and undertake a systematic interviewed to provide the international analysis of major elements organized perspective on Nepal. under the following three components: i) assessment of the forest-based industries Enterprises under four major forests in Nepal, ii) investigation of value chain subsectors, namely, timber, non timber dynamics and actors' perspectives, forest products, ecosystem services both national and international; and iii) (especially ecotourism and carbon), analysis of the investment climate. Each and forest bio-energy are prioritized. component for its subcomponents has its These categories of enterprises were areas of inquiry and major methods that chosen since they either are significant assess the current status and situation, in terms of volume or value of products, help identifying the potential opportunities cover large geographical areas and that are doable and within the reach of population, have growth potential, stakeholders and analyse the constraints and/or promote responsible green and barriers that have limited the private businesses. Enterprises that did not sector investment and involvement. meet such criteria remained out of the The study framework is shown in scope of this study.

2 Private Sector Involvement and Investment in Nepal’s Forestry Sector

INTRODUCTION AND METHODOLOGY Chapter 1

consultations

consultation

Mainly review & consultation & review Mainly FGDs, sample surveys – and and – surveys sample FGDs,

Mainly interview & & interview Mainly Mainly field study - observations, observations, - study field Mainly

Outputs

Forestry

Achieve Nepal’s Desired Model for for Model Desired Nepal’s Achieve Intervention Strategies – To To – Strategies Intervention Methods

inquiry Areas of potentials Constraints and situation and Current status status Current Opportunities and and Opportunities

potential Subcomponents extension services extension capacity building, and and building, capacity political environment political agreements and treaties and agreements perspectives regarding employment generation, coordination; and actors’ coordination; and actors’ Participation, investment, Inter-firm cooperation and demand, supply and growth opportunities and constraints Provisions, practices and issues issues and practices Provisions, road, ICT, trade facility, research, research, facility, trade ICT, road, trade, labour, forestry subsectors subsectors forestry labour, trade, and international standards, laws, laws, standards, international and specific, biodiversity, environment, environment, biodiversity, specific, issues related to finance, electricity, electricity, finance, to related issues Roles, key institutional issues, and and issues, institutional key Roles, related to investment, fiscal, industry, industry, fiscal, investment, to related Provisions, practices, challenges and and challenges practices, Provisions,

Timber NTFPs International Environment Institutions & Components Forest Bioenergy Buyers & Investors Trading Enterprises Trading Policy & Regulatory & other DS Services Political Environment Finance, Infrastructure Production Enterprises Processing Enterprises

ES (Carbon, Ecotourism) Manufacturing Enterprises

Industry Analysis Industry Analysis Perspective Actors’ Analysis Climate

Forest-Based and Dynamics Chain Value Investment Figure 1.1: Study Framework

Private Sector Involvement and Investment in Nepal’s Forestry Sector 3 Chapter 1 INTRODUCTION AND METHODOLOGY

Figure 1.2: Map Showing the Sample Districts in Nepal

Note: The map is developed based on the shape files provided by the Survey Department of the Government of Nepal, 2002.

This study is based on the available imperfect picture. The team exercised data and information, both formal and scientific methods of triangulation of informal, secondary and primary sources. data meticulously to minimize the noises The main methods of data collection in the data. It has been a challenge to included i) consultations and interviews capture the forest products traded largely with key stakeholders and experts at via informal market. The porous border local, regional, national and international with India and informal flow of NTFPs levels, ii) focus group discussions, iii) to China further reduce the reliability of surveys of domestic enterprises and forest products trade data. One of the financial institutions, iv) case studies, objectives of the research is thus to delve and v) review of literature and records. into these issues and get closer to reality The lists of people and organisations, and develop a better understanding both at domestic and international levels, of informal sector and recommend interviewed or consulted for the study and strategies towards their formalisation. the places visited are given in Annex D. Data and information were organised, Basic statistics related to forest processed and analysed with reference resources, industries, trades and to three major components of the study consumption are weak, and available - assessment of forest-based industries, statistics provide only a partial or investigation of value-chain dynamics

4 Private Sector Involvement and Investment in Nepal’s Forestry Sector INTRODUCTION AND METHODOLOGY Chapter 1

and actors’ perspectives, and analysis of covering the inter-firm cooperation and investment climate following a standard logic coordination and the actors involved starting with the current status and situation at various levels of chain in all four through opportunities and potentials major subsectors, both domestic and within the sector followed by constraints international, to draw and prioritize that hinder to realise the potentials, and opportunities and constraints from their finally appropriate intervention strategies perspectives. considering all of the above. Five concept papers have been developed to elaborate Chapter Four analyses the investment some of the recommended strategies. climate in Nepal covering the major factors both enabling and constraining, Report Structure: After this introductory determining the profitability and social chapter, the study findings are organized image of an industry (and thereby and presented in three chapters followed attractiveness) by influencing transaction by a chapter on strategic interventions costs, risks and returns from private (See Figure 1.3). investment at various levels of their operation starting from accessing raw After a general overview of forest and materials through trading of final goods forestry in Nepal, Chapter Two presents or services. the assessment of forest-based industries focussing on involvement and investment Chapter Five provides intervention of the private sector, employment strategies at two broad categories, which generation, products and service options, consist of a) preparing base for private demand, supply and growth potential. sector led industrial growth in forestry in general and b) promoting industrial Chapter Three investigates value-chain competitiveness and growth of the four dynamics and actors’ perspectives promising subsectors.

Figure 1.3: Study Structure

Strategies to Achieve Nepal's Desired Model for Forestry Investment

Private Sector Involvement and Investment in Nepal’s Forestry Sector 5 Chapter 1 INTRODUCTION AND METHODOLOGY

1.2 Significance of the Study Nepal Biodiversity Strategy and National In Nepal, there has been to date Conservation Strategy. neither any comprehensive analysis and understanding of the current status and This study offers useful information, prospects of private sector involvement insights and strategies to stakeholders and investment in forestry nor the in aligning the private sector’s objectives assessment of potential impacts and of ‘maximizing profits from investing/ development of strategies to attract and financing in forests’ with the enablers’ retain responsible private investors. objectives of ‘sustainable use of forest Therefore, this study was designed resources, wealth creation, and equitable to address this knowledge gap and distribution’. The sorts of private sector make strategic recommendations for involvement and investment that Nepal attracting and retaining the responsible should work to attract are identified private sector, who would make long- from the perspectives of the entire term investments in forestry and earn a “industry” which include private sector decent profit and social prestige while actors ranging from individual producers contributing to sustainable management or harvesters (including community of forest, enhanced local livelihoods, forestry user groups) to the large-scale additional employment generation and international companies, and other economic growth. actors influencing their involvement. Expansion of other opportunities such as The outcomes of the study in terms ecosystem services and bio-energy from of information, analysis and evidence- the forests offer the private sector the based recommendations provide the added role of addressing climate change much-needed roadmap and pathways for and biodiversity conservation. promoting private sector involvement and investment in Nepal. The research outputs High value was attached to feedback will be useful for the national and local from actual forest communities and governments, international and national international industry actors and their Non Governmental Organisations (NGO), experiences in working with each private sector actors and other forest other. This approach is likely to provide stakeholders to develop plans, projects, more realistic information about the programmes, and strategies for forest- nature of capacity building and quality based enterprises (FBE) and value-chain improvements needed to ensure promotion ensuring that the conservation increased private sector investment, and poverty reduction goals expected along with a reality check of what from forest resources are achieved. has been achieved in Nepal given its More specifically, the study results and constraints and opportunities. recommendations provide direct inputs to Nepal’s Forestry Sector Strategy, which is This study will be useful in now in the process of formulation. These understanding the drivers of forestry also serve as a knowledge base and sector development and factors for reference for other relevant strategies and mainstreaming the private sector in the plans being reviewed and/or formulated development of the forestry sector. The by the government, for example, Nepal’s study results have established linkages Reducing Emission from Deforestation between the resource base available and Forest Degradation (REDD) Strategy, for forest-based enterprise (FBE)

6 Private Sector Involvement and Investment in Nepal’s Forestry Sector INTRODUCTION AND METHODOLOGY Chapter 1

development, the investment climate various actors, including enablers, (policies and regulatory framework, politicians and government staff, bank political environment, institutional and financial institutions, and private framework, infrastructure, and access entrepreneurs will help in exploring ways to finance and market), investor’s to mitigate the identified constraints and perspectives (various typologies of to identify innovative ideas to finance the producers, processors, manufacturers, forestry sector. It is also expected that and traders, and the banks and financial the study results will be helpful in finding institutions) in order to increase solutions in formalizing the informal forest economic returns from FBEs for the sector at various levels. The synergy thus private sector, while promoting social created is expected to attract the private equity and sustainable use of the forest sector in the forestry sector of Nepal resources. The analysis provides a clear for additional investment, ultimately picture of opportunities and constraints generating additional decent jobs and and interventions required to promote increasing the contribution of the sector competitive forestry products and FBEs. to the country’s total GDP.

The awareness created by the study and facilitation of dialogues among/between

Private Sector Involvement and Investment in Nepal’s Forestry Sector 7 ASSESSMENT OF FOREST- 2 BASED INDUSTRIES

2.1 Nepal’s Forests, Forestry, Products, and big lianas like Bauhinia vahlii and Services, Investment, Growth and Butea parviflora. Silk cotton trees (Ceiba Employment pentandra) are also common. In eastern This section presents the status of Nepal’s Nepal, subtropical forests of true chestnuts forests, forest management regimes, the four and genus Schima, a member of the tea promising forest subsectors, participation family, predominate in the subtropical zone and overall investment of private sector, (1,000-2,000m) while in western Nepal this employment generation and growth potential. zone is represented by chir pine (Pinus Current status and growth potential of each of roxburghii). Evergreen oaks (genus Quercus) the four main forest subsectors is presented are common in the temperate zone (2,000- in next sections. 3,000m) in both east and west. Deciduous forests, such as of maples (Acer spp.) and 2.1.1 Status of Nepal’s forests horse chestnut (Aesculus indica), are found Forests and shrubs cover about 5.83 at lower elevations in this range, while million ha, which is 39.6% of the total blue pine (Pinus wallichiana) predominates land area of the country (DFRS 1999). On at higher elevations in the west. Also the basis of physiography and dominant found in this altitude range are over 30 species, Stainton (1972) classified Nepal’s species of Rhododendron. forest into 35 types. Dobremez (1976) elaborated the classification into 75 Up to the tree line in sub-alpine zone (3,000 vegetation types. Dobremez and his Nepali m to 3,600 m) firs (Abies spp.), hemlocks (Tsuga colleagues continued to refine the list of dumosa) and yews (genus Taxus) predominate forest and vegetation types to come up in the east, while Himalayan birch and silver with 198 types in 1985 (TISC 2002). The fir are found throughout this altitude. In wetter small country accommodates dense tropical areas, dwarf bamboo and rhododendrons are forests of Terai (wet plains) in the south and common; junipers are found in dry areas. The subtropical broadleaf and coniferous forests plant height gets reduced with the increase in at the middle to temperate, subalpine and altitudes; the vegetation becomes bushy and alpine vegetation in the north in 6 phyto- dwarf with the prevalence of mat or cushion geographical provinces and 11 bioclimatic forming plants. The alpine zone (above 3,600m) zones. The following summary of vegetation harbours hardy perennials and the annuals. is adapted from Subedi (2006), which is Rhododendron bushes are the dominant largely based on work carried out by a shrubs along with the numerous alpine herbs. number of expeditions from Japan and other Above the tree line in meadows numerous countries and a comprehensive account of species of medicinal and aromatic herbs are the forest of Nepal by Stainton (1972). found across extensive areas of alpine tundra. Especially in western Nepal, these plants are The tropical vegetation (up to 1,000m) is often characterized by aromatic rhizomes, and mostly dominated by sal (Shorea robusta) in include such commercially important species association with Terminalia spp., Phyllanthus as jatamansi (Nardostachys grandiflora) emblica, Lagerstroemia parviflora, Cassia and sugandhwal (Valeriana jatamansi), both fistula, Adina cordifolia, Syzygium spp., of the valerian family.

8 Private Sector Involvement and Investment in Nepal’s Forestry Sector ASSESSMENT OF FOREST-BASED INDUSTRIES Chapter 2

Between the period of 1978/79 to 1994, forests are all under the land ownership Nepal has lost forest cover at a rate of of the government of Nepal but divided nearly 1.7% per annum (DFRS 2014). into several management categories: Another analysis shows that the forest government managed forest, protection loss in Terai due to deforestation during forest, protected area system, and 1991-2001 was 2.7% per annum (CBS various types of community-managed 2008). This shows that the high value forest (community forest, collaborative Terai forests are declining despite ban on forest, leasehold forest, religious forest production, whilst mid-hills forest cover and buffer zone community forest). has probably increased in the last 30 years despite the predictions of complete Table 2.1 and Figure 2.1 present deforestation. A readiness preparation various forest management regimes and proposal (RPP) on REDD has pointed the forest area they occupy. In terms out nine major reasons for deforestation of area, government managed forest is and forest degradation, namely high still the largest (60% of the total forest dependency on forest and forest products land), followed by community forest (timber, fuel wood and other NTFPs), illegal (28%) and the forest within protected harvest of forest products, unsustainable areas (10%). The rest – collaborative, harvesting practices, forest fire, leasehold, private and religious forests encroachment, overgrazing, infrastructure cover less than 2%. development, resettlement, and expansion of invasive species. Government Managed Forests: The area of the government managed 2.1.2 Nepal’s forest management regimes national forests is about 3.43 million ha, Based on land tenure arrangement, and represents about 60% of Nepal’s forests of Nepal can be classified into forest. This includes 8 protected forests national forests and private forests. covering an area of 133,685 ha, which Forests planted, nurtured, or conserved have been designated to conserve the on any private land owned by individuals high conservation value forest outside are private forests, and all other forests the protected area system. In 2011, the beside them are considered as national government introduced the “National forests. As the registered private forests forest development and management cover less than 0.01% of the total programme” for proper management forest area, majority of the forests in of government managed forests (DoF Nepal are national forests. The national 2011b). This programme includes block

Table 2.1: Forest Areas Managed Under Various Management Regimes Management regimes Managed by Area (ha) Management units Government managed forest DoF 3,431,056 - Forest within protected area DNPWC 600,000 - Community forest CFUGs 1,700,048 18,133 Leasehold forest LHF user groups 38,997 6,712 Collaborative forest CFM groups 54,073 19 Religious forest Religious groups 543 - Private forest Private individuals 2,361 2,458 Source: Data from DoF (2011a, 2013) and DoF records (March 2014)

Private Sector Involvement and Investment in Nepal’s Forestry Sector 9 Chapter 2 ASSESSMENT OF FOREST-BASED INDUSTRIES

forest management, district forest plan across the country, representing about and collaborative forest management. 35% of the population, manage about There are some projects of the government 1.7 million hectares, which is about 29% that have allocated about 34,000 ha of of the total national forest (DoF record the government forests as the production March 2014). Mid-hills represent the forests for producing specific products largest area of forest handed over to the demanded by industries, organizations or communities, which is about 1.11 million citizens. Sagarnath Forest Development ha. In Terai and High-mountains about Project in Mahottari and Sarlahi districts 314,000 ha and 270,000 ha of community and Ratuwamai Plantation Project, Jhapa forests have been handed over, are the examples of production forest. respectively. In terms of future prospect, while there are no recent estimates, Forest within Protected Areas: the Master Plan for the Forestry Sector Presently about 3.4 million ha, or 23.23% (MPFS) 1989 has identified that 61% of the country’s geographic area, has been of the total 5.83 million hectares managed by the government under the of national forest has potential for protected area system (DNPWC 2012). Of community forestry, of which more than this, about 0.6 million ha is forest land and 55% is forested. represent about 10% of Nepal’s forest. The protected areas include 10 National Leasehold Forests: About 39,000 ha, or Parks, 3 wildlife reserves, 6 conservation about 0.7% of Nepal’s forests has been reserves, and a hunting reserve. While handed over as leasehold forests to 6,712 these areas are important for the protection leasehold user groups involving 40,000 of biodiversity, most of these also provide households in 22 districts of Nepal. The recreational and eco-tourism services. Leasehold Forestry Programme has been implemented as a livelihood strategy for Community Forests: Presently 18,133 rural poor, landless, and marginalized community forest user groups (CFUGs) households of the hilly region.

Figure 2.1: Forest Area under Various Management Regimes

0.93% 0.04% 0.67% 0.01%

Government managed forests Forest within protected area 29.17% Community forest Leasehold forest 58.88% Collaborative forest 10.30% Religious forest Private forest

Source: Data from DoF (2011a, 2013)and DoF records (March 2014)

10 Private Sector Involvement and Investment in Nepal’s Forestry Sector ASSESSMENT OF FOREST-BASED INDUSTRIES Chapter 2

Collaborative Forests: Presently, 19 of flowering plants, many of which are collaborative forest management (CFM) important for both subsistence and groups in 9 Terai districts, have been commercial purposes. The major products managing 54,073 ha or about 0.9% of include fuel wood, timber, fodder, wild Nepal’s forests (DoF 2013). The forests food, medicines, fibres and a variety of have been handed over as collaborative other NTFPs. Similarly, forests provide forests in order to address Terai specific different ecosystem services, such as issues, such as inclusion of distant users. climate regulation, carbon sequestration, The major actors in collaborative forest nutrient cycling and water regulation. management are local forest users, district These forest products and services forest offices and local governments that significantly contribute the Nepalese work closely for sustainable management economy and poverty reduction, but the of the Terai and inner Terai forests. accurate picture is not known due to the lack of systematic accounting. Religious Forests: Only about 543 ha of forests are registered as religious Disaggregated data on contribution forest. These forests refer to the patch of of forest sector to national GDP is national forest allocated and managed by not available in national accounting institution or a religious group and uses system. Combined with agriculture are limited to the religious purposes. the contribution of the forest sector in the national GDP was 34.33% for Private Forests: There are about 2,458 the fiscal year 2012/13 (CBS 2013). registered private forests in Nepal Various authors have estimated the managing close to 2,400 ha or about contribution of the forest sector to 0.04% of Nepal’s forests. All planted, national GDP ranging from 3.5% to nurtured or conserved forests in any 27.55% (MFSC/FAO 2009; Acharya et private land that belongs to an individual al. 2009). Another estimate shows that as per the prevailing law are considered the sector contributes about 9.45% of private forests (HMGN 1993). In reality, Nepal’s GDP (DFRS 2008). The analysis majority of the trees grown in private of the budget allocation in the forestry lands have not been properly accounted sector over the past decades shows for. Not all private forests are necessarily that the sector receives, on average, registered as such, but private plantations about 1.5% of the total national budget occur in farming areas in the Terai (MoF records 2004-2013). and mid-hills in the uplands. Thus, the reported area under private forests may The sector has also been a good have been grossly underestimated. source of revenue for the government. The forestry sector, on average, generated 2.1.3 Significance of Nepal’s forests revenue of about NRs 550 million per year Nepal’s forests are known for their during 2004 to 2012 (see Table 2.2). The biological diversity and community sales of timber and fuel wood shared an practices, including community forestry. average of 63% of the revenue followed Nepal hosts a wide diversity of plant and by 26% through issuance of entry permits animal species as a result of climatic to protected areas and 11% from royalties and topographic variation maintaining from NTFPs. A decline in timber revenue rich biodiversity. For instance, Nepal by 84.3% in 2010/11 is attributed to ban has documented over 7,000 species on timber harvesting issued for the year.

Private Sector Involvement and Investment in Nepal’s Forestry Sector 11 Chapter 2 ASSESSMENT OF FOREST-BASED INDUSTRIES

CFUGs and private forest owners have generation, and made a net income of also been contributing to government NRs 412 million. As expected, the CFUGs revenue. For example, the royalty paid in the Terai and inner Terai make the most for timber and fuel wood sales by CFUGs while those in the high hills make the least. and private forest owners from 2007/08 The sector’s contribution to the livelihood to 2011/12 was, on average, NRs 59 of the people by providing sources of million and NRs 44 million per annum energy and other ecosystem services has respectively (DoF records). not yet been properly accounted for.

Table 2.2: Annual Government Revenue from Major Forest Subsectors in Nepal (in NRs) Timber and Year NTFP Protected areas Total fuel wood 2004/05 317,590,053 64,703,367 55,753,095 438,046,515 2005/06 258,864,432 51,640,926 64,581,876 375,087,234 2006/07 329,128,071 70,659,530 94,557,173 494,344,774 2007/08 397,580,425 77,510,788 117,898,991 592,990,204 2008/09 492,484,301 74,748,710 135,428,459 702,661,470 2009/10 526,191,501 49,842,330 140,383,399 716,417,230 2010/11 82,537,631 49,739,378 209,955,677 342,232,686 2011/12 456,568,650 21,061,511 258,525,499 736,155,660

Source: Data from DoF (2005-2012) and DNPWC 2012

In addition to the revenue to the In addition, many social benefits government, Nepal’s forests are a good have been realized in Nepal especially source of income at community level. As with community forestry practices. shown in Table 2.3, the community forestry Nepal’s community forestry over the database shows that the registered past three decades has achieved broad CFUGs have made annual gross income global acclaim as a successful model of NRs 1.58 billion as of June 2013. They for community-based natural resource have spent NRs 1.17 billion, most of which management that is innovative, people- goes for local economy and employment centred and effective. For example,

Table 2.3: Yearly Income and Expenditure of CFUGs by Major Ecological Zones in Nepal as of June 2013 Total net Average Total gross Total Average No. of income income / Zone income expenditure expenditure/ CFUGs (million CFUG (million NRs) (million NRs) CFUG (NRs) NRs) (NRs) High Hills 2,861 42 18 24 14,712 6,396 Mid Hills 12,883 458 281 177 35,530 21,774 Terai/Inner 2,065 1,080 869 211 522,886 420,785 Terai Total 17,809 1,580 1,168 412 88,719 65,585 Source: Data from DoF 2012b

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UNEP (2010) has noted that Nepal’s supply expansion potential. The main community forestry has contributed indicators used for the assessment of to the capacity building of community socio-economic impact are income and members in leadership development, employment generation potential. participation in planning and decision making process, devising mechanisms for Timber: Our analysis of timber benefit sharing, participatory governance subsector shows that builder’s joinery, and its assessment, and strengthening furniture, veneer, plywood, handicrafts of democratic exercise at the community and construction timber are promising level. As the community forestry guidelines options. With regard to the international mandate 50% women participation and markets, the certified wood products from inclusion of indigenous peoples, Dalits, poor and other marginalized groups in Community Forest Executive Committees, these groups have a clear stake in the leadership and decision making process. Nepal is widely seen as the exemplar and pioneer of community forestry. Community- based leasehold forest is also increasingly becoming an instrument for improving the livelihoods of the poor households.

2.1.4 Major forest subsectors, products and services The study team categorized the Nepal’s forest sector into four major subsectors- timber, NTFPs, ecosystem services (especially forest carbon and eco-tourism), and forest bioenergy. Important species and products have Nepal was found to have a unique selling been identified and shortlisted for each position (USP) that could be emphasized subsector based on socio-economic in promoting and selling the products. The impact and industrial growth potential. The major timber species identified according industrial growth potential is assessed to physiographic zones by this study are by examining the market demand and listed in Table 2.4.

Table 2.4: Major Timber Species of Nepal According to Physiographic Zones Physiographic zones Eastern Central Western Oak (Quercus Oak (Quercus spp.), spp.),deodar (Cedrus Oak(Quercus spp.), blue blue pine (Pinus deodara), blue Mountain pine (Pinus wallichiana), wallichiana), fir pine(Pinus wallichiana), deodar (Cedrus deodara) (Abies spp.) walnut (Juglans regia), pangar (Aesculus indica)

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Chirpine (Pinus roxburghii), Chir pine (Pinus Chir pine (Pinus alder(Alnus roxburghii), alder, roxburghii), alder Hills nepalensis), chilaune chilaune (Schima (Alnus nepalensis), oak (Schima wallichi), wallichi), oak (Quercus (Quercus spp.) katus (Castanopsis spp.) spp) Sal (Shorea robusta), Sal (Shorea robusta), sissoo(Dalbergia sisoo), Sal (Shorea robusta), sissoo (Dalbergia karma (Adina cardifolia), sissoo (Dalbergia sisoo), karma (Adina saj (Terminalia sisoo), karma (Adina cardifolia), saj (Terminalia tomentosa), jamun Terai cardifolia), jamun tomentosa), jamun (Syzygium cumini), (Syzygium cumini), (Syzygium cumini), bijaysal (Pterocarpus saj (Terminalia satisal (Dalbergia marsupium), satisal tomentosa) latifolia), botdhagero (Dalbergia latifolia), (Largestromea parviflora) tooni (Toona ciliata) Source: ANSAB field survey 2013

NTFPs: The most promising product markets, Nepal’s unique selling position options in NTFP subsector are large (USP) was noted for certified NTFPs cardamom, medicinal herbs, essential including medicinal and aromatic plant oils and resin (rosin and turpentine). products. Commercially valuable NTFPs Other promising NTFPs include identified by this study according to natural fibres, handmade paper and different altitudinal zones are presented kattha. With regard to the international in Table 2.5.

Table 2.5: Major NTFP Species of Nepal According to Physiographic Zones Physiographic Eastern Central Western zones

Yarsagumba Yarsagumba (Ophiocordyceps (Ophiocordyceps sinensis), sinensis), lauth Yarsagumba jatamansi(Nardostachys salla (Taxus (Ophiocordyceps grandiflora), baccata), satuwa sinensis), jatamansi morel (Morchella (Paris polyphylla), (Nardostachys esculenta),kutki (Picrorhiza Mountain allo(Girardinia grandiflora), chiraito scrophulariiflora), satuwa diversifolia), lokta (Swertia chirayita), lokta (Paris polyphylla), chiraito (Daphne bholua), (Daphne bholua), argeli (Swertia chirayita), lokta argeli (Edgeworthia (Edgeworthia gardenerii) (Daphne bholua), allo gardenerii), chiraito (Girardinia diversifolia), atis (Swertia chirayita) (Aconitum heterophyllum)

14 Private Sector Involvement and Investment in Nepal’s Forestry Sector ASSESSMENT OF FOREST-BASED INDUSTRIES Chapter 2

Chiraito(Swertia Chiraito(Swertia chirayita), chirayita), wintergreen Wintergreen(Gaultheira timur(Zanthoxylum (Gaultheira fragrantissima), armatum), ritha (Sapindus fragrantissima), tejpat(Cinamomum mukorossi), chiuri(Aesandra tejpat(Cinamomum tamala), chir pine(Pinus butyracea), chir pine Hills tamala), chir pine roxburghii), allo(Girardinia (Pinus roxburghii), tejpat (Pinus roxburghii), diversifolia), chiuri (Cinamomum tamala), bamboo, khayar (Aesandra butyracea), allo(Girardinia diversifolia), (Acacia catechu), large large cardamom(Amomum sugandhwal (Valeriana cardamom (Amomum subulatum) jatamansi), khayar (Acacia subulatum) catechu) Bamboo, khayar (Acacia catechu), chamomile (Matricaria Kurilo, bel (Aegle Khayar (Acacia catechu), recutita), lemongrass marmelos), bamboo, bamboo, Kurilo (Asparagus (Cymbopogon spp.), chamomile(Matricaria recemosus), rattan mentha (Mentha Terai recutita), mentha (Mentha (Calamus spp.), chamomile, arvensis),citronella arvensis), Cymbopogon mentha, Cymbopogon spp. (Cymbopogon spp.(lemongrass, (lemongrass, citronella, spp.), palmarosa citronella, palmarosa) palmarosa) (Cymbopogon spp.), kurilo (Asparagus recemosus) Source: ANSAB field survey 2013

Ecosystem Services: Ecosystem implemented effectively at international services include carbon, biodiversity, water, level, our analysis shows that REDD+ wildlife, tourism, and cultural and other is more promising in Nepal, while other services derived from healthy functioning attractive options include afforestation ecosystems. Forest carbon and ecotourism and reforestation (A/R) for producing are attractive ecosystem service options carbon credits under Clean Development for investment and enterprise development Mechanism (CDM). in the country. Forest carbon has also the unique selling position in international Regarding the forest-based markets that could be emphasized in ecotourism, our analysis shows that promoting and selling the services. There protected areas scattered across the is still a great deal of uncertainty and the country are more popular among foreign 2015 Paris Conference of Parties (COP) is tourists, thus it is promising for making expected to determine the fate of Reducing investment in ecotourism activities around Emissions from Deforestation and Forest these areas. The other attractive option Degradation in developing countries is community forest-based ecotourism (REDD) plus conservation, sustainable activities, as the community forests have management and enhancement of carbon been popular among the domestic tourists stocks (REDD+) for harnessing carbon in recent years for recreational activities. asset. If REDD process goes well and is Some potential ecotourism products may

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include forest safari, forest walk, wildlife fuel wood in different regions in Nepal and bird watching in protected areas, and are listed in Table 2.6. picnic spots, view towers and recreation parks in community forests. Briquettes and pellets could be made from weeds or unwanted forest Forest Bioenergy: The priority products biomass, agricultural crop residues, and for bioenergy include fuel wood, residues from medicinal and herbal plant beehive briquettes, pellets, charcoal processing and municipal solid waste.

Table 2.6: Major Species Used as Fuel wood in Nepal According to Physiographic Zones Terai Hills Mountains Sal (Shorea robusta), sissoo Chirpine (Pinus roxburghii), Laliguras (Rhododendron (Dalbergia sisoo), Masala alder (Alnus nepalensis), spp.), blue pine (Pinus (Eucalyptus spp.), karma (Adina chilaune (Schima wallichi), wallichiana), oak(Qurecus cardifolia), jamun (Syzygium katus (Castanopsis spp), siris spp.), bhojpatra (Betula cumini), saj (Terminalia tomentosa), (Albizia spp.) oak (Qurecus utilis), dhupi(Juniperus Siris (Albiziaspp.), mango spp.) indica) (Mangifera indica) Source: ANSAB field survey 2013

and improved burners. Other attractive This study has identified a number of options include biomass electricity, plant species that are currently used in sawdust briquette and pellets and biofuel different regions of Nepal. These are (jatropha). The major species used for listed in Table 2.7.

Table 2.7: Major Species Whose Residues Can be Utilized for Bio-briquette Terai Hills Mountains Banmara (Ageratina adenophora), Timur (Zanthoxylum armatum), Lauth salla (Taxus baccata), lahare banmara (Mikania sugandhakokila (Cinamomum sunpati (Rhododendron micrantha) titepati(Artemisia glaucescens), banmara anthopogan), dhupi capillaries), lantana (Lantana (Ageratina adenophora), (Juniperus indica) camera), eucalyptus, Cymbopogon titepati (Artemisia capillaries), spp. (lemongrass, citronella) wintergreen (Gaultheria fragrantissima), pine needles, mentha (Mentha arvensis), lantana (Lantana camera) Source: ANSAB field survey 2013

2.1.5 Private sector participation and on participation and investment of the investment in forest-based industries private entrepreneurs in forest-based The participation of private industries are available, the study team entrepreneurs in the forest-based made estimates based on the analysis industries is mainly found in processing, of existing databases available at manufacturing and trade and to some Department of Industry (DoI), Department extent production of forest products and of Cottage and Small Industry (DoCSI), services. Since no unified formal data Cottage and Small Industry Development

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Board (CSIDB), relevant commodity registered at DFOs or DoI (2,461), and associations, ANSAB, and data obtained NTFP cultivators (21), yet only enjoys 3% from this study’s field survey. of total private investment. This is the top area where Nepal should prioritize greater An estimated 41,062 forest based investment, since without increased enterprises are involved in the major supplies and better quality of supplies; all four forest subsectors i.e. timber, other investment in the forestry sector will NTFPs, ecosystem services (includes be constrained. ecotourism) and forest bioenergy. Figure 2.2 presents the involvement of the private It is observed that CFUGs invest entrepreneurs in primary production as 20.87% to 80.96 % of their income on well as processing, manufacturing and forests management (DoF 2012); however trade of the four major forest subsectors. most of the CFUGs are operating at subsistence level. Assuming that CFUGs The total estimated investment by make 30% of their total expenditure for private entrepreneurs is NRs 31.89 billion forest management, the investment made (excluding direct foreign investment by the CFUGs in the production of primary

Figure 2.2: Number of Enterprises by Type of Forest-Based Industries

30000 27,342

25000

20000

15000 9,869 10000

Number of enterprises 5000 2,140 1,676 0 35

Source: Data from DoI 2013, DoCSI 2013 and ANSAB field survey 2013 in eco-tourism), of which the highest forest goods and services comes to be investment came from the timber about NRs 350 million. Similarly, leasehold, processors and manufacturers with 59% collaborative and other forest user groups of the total investment (see Figure 2.3). have invested about NRs 86.5 million in forest management. The total investment Primary Production of Forest Goods and by the private forests and NTFP cultivators Services: The primary production function including those registered at DoI is calculated includes the products and services of the to be around NRs 388 million. Among those four major forest subsectors and involves registered at DoI, 12 enterprises received 27,342 enterprise units including the forest foreign direct investment (FDI) - one in producer groups (18,133), private forests teak (Tectona grandis) plantation (NRs 5.5

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Figure 2.3: Private Entrepreneurs’ Investment in Major Forest-based Industries (in billion NRs) – Excluding Direct Foreign Investment in Ecotourism

0.04,0% 0.83,3%

Production of primary forest goods and services

6.56,21% Timber processing, manufacturing & trade

NTFP processing, manufacturing & trade 5.48,17% 18.98,59% Ecosystem services

Forest bioenergy processing, manufacturing & trade

Source: ANSAB field survey 2013

million) and others in farming of NTFPs saw millers, 200 veneer producers, 64 including organic herbs (NRs 79 million). plywood producers and 8,217 furniture and woodcarvings makers, which make a Timber Processing, Manufacturing total of 9,869 enterprises in this category and Trade: The major investors in timber (DoCSI 2013). This indicates that despite processing, manufacturing and trade are all the issues holding back investments in sawmill, veneer, plywood, and furniture Nepal private sector sees enough promise and woodcarvings operators. The number in the timber industry to invest. Facilitating of registered enterprises is increasing access to sustainable supplies of higher (Figure 2.4),and at present there are 1389 quality wood will spur greater investment.

Figure 2.4: Trend Showing the Number of Registered Timber-based Enterprises

9000 8000 7000 6000 5000 4000

No. of firms 3000 2000 x 1000 x x x x x x x 0 Upto 2007 2008 2009 2010 2011 2012 2013 2006 x Primary wood products firms (sawmill, vaneer, plywood) Secondary wood products firms (sawmill, vaneer, plywood)

Source: Data from DoCSI 2013

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It is noted that over 80% of the enterprises manufacturers are mainly involved in are engaged in furniture and woodcarving processing of medicinal herbs, spice and indicating that these two industries are food, natural fibre, crafts, rosin and kattha. attractive and feasible for small and The traders mainly include district traders, medium entrepreneurs in Nepal. regional traders and exporters. The data from DoCSI and DoI in the past 8 years The total investment made by these shows that the number of registered NTFP- timber-based enterprises is estimated to based enterprises is increasing from 968 be NRs 18.9 billion. The investment by the in 2006 to 1,647 in 2013 (Figure 2.5). importer of the furniture is not included in this estimation. Of the total firms registered in DoI, The total investment by these enterprises only two have accessed FDI - one saw-miller is estimated to be NRs 5.48 billion, most and another plywood-maker. Woodcarving of which came from the processors and is often reported in handicraft sector and manufacturers. The 25 enterprises registered also assisted by a variety of NGO-supported with DoI alone accounts for NRs 1.47 billion programs that help Nepal access fair trade including the FDI equivalent to NRs 297 and green markets. The primary processors million. The industries receiving FDI are are involved in trading either directly or herbal body care, herbal food supplements, through contractors, who act as their agents. herbal pharmaceuticals, processing of taxus resin, taxus powder and essential oils. NTFP Processing, Manufacturing and Trade: In this category, a total of 2,140 Ecosystem Services Including enterprises are found to be involved, of Ecotourism: The total number of enterprises which 1,647 are herbs processors and working in ecosystem services is estimated manufacturers registered at DoCSI or to be 1,676, of which 1,674 are ecotourism DoI; and the rest 493 are traders including related and two are in forest carbon. About exporters, which are registered at DoC 78.65% of the estimated investment of NRs to do trading of a variety of commodities 6.56 billion in this sector is in ecotourism including NTFPs. The processors and enterprises while NRs 1.4 million is in forest

Figure 2.5: Trend Showing the Number of Registered NTFP-based Enterprises

1800 1600 1400 1200 1000 800 600 400 200 Numbers of Enterprise 0

Upto 2006 2007 2008 2009 2010 2011 2012 2013

Source: Data from DoCSI 2013 and DoI 2013

Private Sector Involvement and Investment in Nepal’s Forestry Sector 19 Chapter 2 ASSESSMENT OF FOREST-BASED INDUSTRIES

carbon related enterprises. The investment wood processing are not included as the in ecotourism is estimated considering majority of the formal participants are from mainly the participation of trekking agencies timber-based businesses in order to avoid and hotels and assuming that 50% of the double counting. The informal fuel wood trade total investment in travel and tourism is in the rural areas, mostly done by individuals related to ecotourism sector of Nepal. and sold in local markets, is unaccounted and not included in this estimate. The increasing The transaction of forest carbon is trend in investment in bio-briquettes is not well developed in Nepal. The recent observed due to greater awareness and development includes some voluntary market demand especially from urban areas. transactions by some private companies Similarly, the establishment of gasification and donor-funded projects (fund based units is just initiated, but shows good markets). Our calculation of the private prospects given the current energy crisis. investment in carbon subsector is based The investment in liquid biofuel enterprises on two forest carbon projects in which is shaky with the two established units not private sector is involved. The Bardiya functioning properly due to the high cost Green Project is a collaborative effort of of production, competition with subsidized Yeti Airlines, Tiger Tops Karnali Lodge fossil fuels, and insufficient supportive role of and Brindapuri Community Forest that the government. invested NRs 1.07 million since June 2010 for three years. In another initiative, Foreign Direct Investment (FDI) in the Ace Development Bank purchased 2,800 Forestry Sector: Overall, foreign investment tons from the Dhading-based community of NRs 75.14 billion (just under US $800 organization - Rural Mutual Development million) was committed for 2,335 ventures (RMD) for NRs 0.36 million in order to offset up to 2011-12 (DoI 2013). Of those, 114 their annual carbon emission of 250 tons ventures were in agriculture and forestry, 20 of greenhouse gases. However, there is in wood and wood products, 48 in paper and a growing interest in purchasing voluntary paper products, 191 in the tourism sector, carbon credits from Nepal from international and 629 hotels and resorts. Of late, Chinese organizations, as Nepal provides a unique private sector is increasing their investment story of social and environmental benefits. in ecotourism development in Nepal and Indian in NTFPs processing (MoF 2013). Forest Bioenergy Processing, Manufacturing and Trade: A total of 35 2.1.6 Range of international buyers enterprises are involved in this category. Of and investors this 29 are involved in bio-briquette production, For decades, buyers of forestry most of which are community based; two products, both timber and NTFPs had little each in community-based gasification and or no regard for sustainable harvesting liquid biofuel, and one each in marketing and either looked the other way when it of briquettes and production of char using came to illegal harvesting or were active improved charring retort. The total estimated supporters. As environmental and social investment of these enterprises is NRs 42.9 activist groups worked to expose the impacts million. In this calculation, the investment in of these illegal practices on the forest and trading of fuel wood and by-products from local people, laws such as the Lacey Act1

1The U.S. Lacey Act is one of the world’s primary legislative examples of wildlife preservation and forest conservation. Originally passed in 1900, the Act makes it a federal crime to poach game in one state with the purpose of selling the bounty in another. On May 22, 2008, the U.S. Congress approved a new amendment to the Lacey Act, making the policy capable of combating both wildlife crime and illegal logging.

20 Private Sector Involvement and Investment in Nepal’s Forestry Sector ASSESSMENT OF FOREST-BASED INDUSTRIES Chapter 2

forced companies to stop these practices. Boycotts against retail stores started Yet stopping these practices meant that to take root and consumers in Western companies had to know their supply chains countries became a movement to force and source of products. Twenty years ago companies to change their business for NTFPs almost all industry members practices. Progressive companies could not trace their ingredients back to embraced the trend and invested in the forests and communities from which knowing their supply chains better, they were harvested; timber products was all the way to the source forests and not much better. Business placed orders communities. These were the companies with distributors who could have long that were already championing the supply chains. For example for essential Corporate Social Responsibility (CSR) oils from Nepal, a trade study done by movement. Other companies resisted, Enterprise Works documented that the but still had to find ways to comply once raw herbs changed trader hands on laws were passed. average six times before being distilled and another four times before being blended This change has meant a blurring of into a final product. lines between buyers who used to be only profit motivated and willing to disregard Twenty years ago, issues such as laws and regulations and companies who child labour, animal cruelty, organic take corporate social responsibility very products, biodiversity conservation, and seriously. Both types of buyers/investors sustainable forestry were just starting have to find ways to adhere to stricter to get press attention. A few consumers forestry and social regulations and secure were starting to demand their products high quality stable, sustainable supply of meet social and environmental goals forest products at competitive pricing or being articulated by a range of NGOs. return on investment.

Figure 2.6: Types of Buyers and Investors

Individual Buyers and Investors  Drive the demand for sustainable and socially responsible products  Influence their investment funds to include socially responsible investments in their portfolios, forestry sector an important component in many of these funds

CSR Companies with Active Roles in their Supply Chains  Will often visit the forests and communities  Source directly or work with a few trusted suppliers who visit the forests; sometimes make direct investments  Want the highest quality, strong documentation, certification, and great story

Institutional Investors  Some have greater emphasis on CSR and willing to take small reduction on expected investment return if strong environmental and social benefits can be documented  Include big multi-national players such as JP Morgan, Acumen Fund, all of which look for local political stability

Private Sector Involvement and Investment in Nepal’s Forestry Sector 21 Chapter 2 ASSESSMENT OF FOREST-BASED INDUSTRIES

For Nepal as a supplier and potential could help to get significant plantations place to invest it must also meet these higher started on private and/or government standards to be competitive and attract lands that have been denuded and are reputable investors. In the Nepal context we not suitable for food crops. During the are looking at forestry schemes that factor investor interviews, the forestry sector in community forestry and standards and was identified as a growth area globally, certifications that support transparency and but Nepal was either not known or sustainable forest management. One of investors noted there would need to be the less discussed benefits of certification greater political stability before these type is the introduction of a global market- of investment funds would be possible. driven enforcement for improved forest management. Certification schemes also As Nepal attracts forestry investments, invest their own money to advertise and it will need to apply the most demanding promote the certification, which indirectly requirements to all investments at a becomes advertising for those that are given forest area. If Investor A demands certified. Buyers and investors from biodiversity conservation and use of individuals to corporations seek out and endemic species, then this has to be are more likely to trust a certified product, adhered to and not mixed in mono-culture enterprise, or investment over one that does of an exotic species for another investor. not have certification2. When it comes to buyers, the Based on the overall findings of the study, expectation is that they want it all – high it is recommended that Nepal target CSR quality, proof of adherence to sustainable companies for buying relationships and forestry, social well-being, regulations forestry investment. A mechanism that can (legal coverage), and a great story (see be considered is public private partnerships in Figure 2.7). Gone are the days where a which grant funds are available from bilateral great story could sell a product. Many of and multilateral institutions to help develop the buyers interviewed noted that Nepal and foster a private sector investment. has the advantage of a “great story”. While These types of investments typically include most consumers have not visited Nepal, it an NGO that assists with the community is one of the top exotic destinations that development and safeguards social issues many people wish they could visit. It has a (indigenous people, women, intellectual mystic with Mount Everest, snow-capped property, labour rights, etc.). Funding from the mountains, rich culture, and warm friendly European Union, United States, International people. These are marketing aspects Finance Corporation (IFC), and other funds that can help sell all the targeted forest are available for public-private partnership products, such as hand carved wood investments. products, certified wood veneers, flooring and NTFPs, noted in this study. Institutional investors have always Nepal could attract more buyers if it had a segment of their portfolios globally organized the information and success in the forestry sector. As Nepal stabilizes stories it already has in trading essential politically, this form of investment income oils, handmade paper, and wood

2 These conclusions come from participating in the Natural Products Industry Expo over an 18 years period and tracking the trends on certification and consumer-led social and environmental responsibility. Unpublished studies, completed for private industry clients and industry associations, done by consultant Ann Koontz, in 1995, 2002 and 2010 were used to generate this trend summary.

22 Private Sector Involvement and Investment in Nepal’s Forestry Sector ASSESSMENT OF FOREST-BASED INDUSTRIES Chapter 2

handicrafts. During this research it was Figure 2.7: Buyers’ found that Nepal’s forestry sector has within Expectation in Nepal it FSC certification, organic certification, cradle to cradle certification, wildlife friendly Buyers Want it All certification and has been featured by Body Shop, Aveda, major fashion magazines in Europe, US, and Japan. It has respected High Quality academics and researchers who have Product or independently verified improvements in service Nepal’s forests and biodiversity as well as documented significant social gains for poor communities and women living and working with the forest. These represent trusted third International party sources that add credibility to Nepal Great Story standards as a potential supplier of forest products with Multiple (Third Party preferred) and good investment opportunity. Figure 2.8 Dimensions gives suggestions and website with more on Legal Coverage how to organize and present Nepal’s forestry products and services.

2.1.7 Present status of employment in forest-based industries the total economically active population Disaggregated data on employment in of Nepal (ERI 2011). But 91.3% of this is Nepal’s forestry sector are not available in informal employment and mostly unpaid the national accounting system. A recent engagement in the collection of forest study estimates that the forest sector products for domestic use. Only 8.7% provides about 1.658 million full-time jobs is formal employment, of which about per annum, which represents 9.23% of 90% of the jobs are paid. Of the total formal employment (about 145,000), Figure 2.8: Presenting the private sector contributes to 68% Forestry Products to Buyers (about 98,500 full time equivalent person Types of Information and per annum) followed by community- based organizations (CBOs) (21.68%), How Buyers want Information government (7.75%), civil society (2.39%), n Clean, well and academic institutions (0.18%). communicated, professional data Since the employment in the (think spreadsheets, government, civil society and academic verification reports, institutions, although very important, great images) are not directly dependent on forest- n Trusted party they can reach and based industries, the employment follow-up with easily (a phone and email through the private sector and they can reach CBOs are of direct concern for the n May not know what they want, prepare future strategies to increase gainful for iterative process and potential employment. The employment through field visits private sector includes the estimates n www.enterpriseworks.org for timber and NTFPs industries derived

Private Sector Involvement and Investment in Nepal’s Forestry Sector 23 Chapter 2 ASSESSMENT OF FOREST-BASED INDUSTRIES

from the total production record of serving tourists of protected areas the Department of Forests and that and 20 forest related consulting firms generated through businesses directly (see Figure 2.9).

Figure 2.9: Formal Full Time Jobs Provided by Various Forest-based Industries, Excluding CBOs

50000

40,653 40000 33,581 30000 23,809 20000

10000

500 0

No. of full time equivalent person per annum Timber NTFP Ecotourism Bio-briquette

Source: ERI 2011 and ANSAB survey 2013

Community-based organisations generation. Including this figure to the (CBOs), particularly community forest user total employment shows that the private groups (CFUGs), leasehold forestry, buffer sector and community-based forest zone forest management committees and management groups formally provide collaborative forest management groups close to 130,000 full time jobs in forest involved in production functions provide related activities in Nepal. The difference about 31,000 full time equivalent jobs, between the 145,000 and 130,000 jobs is contributing to local employment to some the deduction of government, academia, extent (ERI 2011). and civil society attributed forestry jobs that are not tied to private investment. This study identified bio-energy and forest carbon as potential subsectors Disaggregated figures for employment to generate employment. We found in forestry through private sector in terms that the forest carbon as an industry is of occupational categories, gender and in the beginning phase and its present ethnic groups provide an interesting contribution to employment generation pattern. In terms of occupational is not accounted for. While, the bio- categories, 86% are elementary unskilled briquette industry using forest biomass forest workers and the rest 14% are skilled as raw material presently provides about and include technical and managerial 500 full time jobs and could be accounted staff. In terms of gender, only 25% are for the forest based employment women. The Janajati group represent the

24 Private Sector Involvement and Investment in Nepal’s Forestry Sector ASSESSMENT OF FOREST-BASED INDUSTRIES Chapter 2

largest category with 55% followed by dimension in this study includes the Brahmin/Chhetri with 33%, dalit with 7% existing forest areas and the areas that and religious minorities with 4%. can be brought under plantation in Nepal. The temporal dimension depends on the 2.1.8 Economic growth and performance. For example, the potential employment generation potential as outlined under conservative scenario from forest-based industries could be achieved within 3 to 5 years The study team has estimated the that under optimistic scenario could be potential economic growth and numbers achieved within 15 to 20, if the suggested of sustainable jobs that can be created interventions are properly implemented. from forest-based industries based on the market opportunities and supply Our estimates show that the forest based potential as determined by this study (see industries can generate more than NRs 87 Sections 2.2, 2.3, 2.4, 2.5). It is done in billion creating more than 400,000 sustainable two different scenarios – conservative full time equivalent jobs under the conservative and optimistic. The conservative scenario scenario. And it can go up to more than assumes the products and services NRs 370 billion creating about 1.4 million are utilized with modest changes to the jobs in optimistic scenario (see Table 2.8). sector, taking into account the recent We have assumed that an increase in income positive trends in investment. The by NRs 40,000 per annum is equivalent to optimistic scenario assumes forests are the creation of one sustainable full time job. managed using science and at least some The specific assumptions we have made for significant value chain improvements each subsector are described below while we are made (see the detailed assumptions present the economic value and employment under supply potential). The spatial opportunities for the subsectors.

Table 2.8: Potential Economic Growth and Employment Generation from Forest-based Industries in Two Different Scenarios

Conservative Optimistic Subsector Scenario Scenario Timber Economic value (NRs million) 55,127 270,697 Number of sustainable, full time equivalent jobs 206,725 812,090 NTFP Economic value (NRs million) 11,635 58,173 Number of sustainable, full time equivalent jobs 87,259 290,865 Forest Carbon Economic value (NRs million) 4,235 13,572 Number of sustainable, full time equivalent jobs 37,054 118,755 Ecotourism Economic value (NRs million) 14,572 21,567 Number of sustainable, full time equivalent jobs 72,860 107,833 Forest Bioenergy

Private Sector Involvement and Investment in Nepal’s Forestry Sector 25 Chapter 2 ASSESSMENT OF FOREST-BASED INDUSTRIES

Economic value (NRs million) 2,126 9,107 Number of sustainable, full time equivalent jobs 15,633 53,571 All Subsectors Combined Economic value (NRs million) 87,694 373,115 Number of sustainable, full time equivalent jobs 419,531 1,383,114

Assumptions • Forest products and services are utilized with modest changes to the sector under the conservative scenario • Forests are managed using science and at least some significant value chain improvements are made under the optimistic scenario • An increase in income by NRs 40,000 per annum is equivalent to the creation of one sustainable full time job equivalent • Specific assumptions for supply potential for each subsector are described in supply potential (see Sections 2.2, 2.3, 2.4, 2.5)

These potential numbers reveal a about NRs 58.2 billion providing over huge scope for generating significant 290,000 full time jobs. We assumed that economic growth and number of additional 90% of the total NTFP trade value is sustainable jobs in Nepal’s forest sector. attributed to export and the remaining is The informal workforce could be diverted consumed domestically. Under the most to formal employment opportunities by conservative harvesting, we assumed involving them in enterprise oriented that NTFP trade value would increase forest management and production of by two folds because of cultivation and goods and services as well in other local value addition of NTFPs. We also functions of the value chains. assumed that 25% of the total value throughout the chain goes to labour Timber: Under conservative scenario, it as wage. Under optimistic scenario, is estimated that a total volume of 1.66 we assumed that NTFP trade value million m3 (58.64 million cft) of timber would increase by 10 times because of per year can be sustainably harvested expanding cultivation and processing of and sold generating NRs 55 billion some marketable NTFPs and increasing and correspondingly over 200,000 emerging cultivated items. This is evident sustainable, full time equivalent jobs. from the differences that we observed in Under optimal scenario a total annual some commercialized cultivated NTFPs harvest volume of 9.2 million m3 can be with the application of science and produced, which can generate over NRs technology in production and processing 270 billion creating 812,090 sustainable and improved marketing, such as full time equivalent jobs. Our study shows shiitake mushroom, large cardamom, that under present timber value chain, the essential oils. We also assumed that share of expenditure for labour is about 20% of the total value throughout 15% of the market price. In optimistic the chain goes to labour as wage scenario the whole chain is expected because of efficiency in technology and to be efficient resulting the labour costs improvement in governance. going down to 12% because of improved technologies and governance practices. Forest Carbon: In conservative scenario, the total economic value of forest carbon NTFPs: Under conservative scenario, will be NRs 4.2 billion generating 37,000 NTFP based industries can generate full time jobs equivalent per annum, NRs 11.6 billion providing 87,000 full whereas in optimistic scenario, the time jobs equivalent per annum whereas total economic value of forest carbon under optimistic scenario, it can generate will be about NRs 13.6 billion per year

26 Private Sector Involvement and Investment in Nepal’s Forestry Sector ASSESSMENT OF FOREST-BASED INDUSTRIES Chapter 2

generating nearly 120,000 full time jobs. ecotourism activities. In optimistic scenario, We estimate these values by taking the it is expected to increase by 20%. For the yearly volume of the carbon sequestered employment generation, we assume that by Nepal’s forests under conservative and 20% of the economic value of ecotourism optimistic scenario. Under conservative under each scenario goes to creating scenario, we assume that about 15% employment at local level. of the total carbon sequestrated under normal ongoing activities is traded at Forest Bioenergy: This industry can the price of US $5.9/tCO2e, the average generate a total economic value of NRs market price of voluntary carbon in 2012 2.1 billion with about 16,000 full time jobs at international market. For the carbon equivalent under conservative scenario. sequestered in optimistic scenario, we Under optimistic scenario, we estimate NRs assume that about 30% of the total carbon 9.1 billion with about 54,000 sustainable is traded at US $8/tCO2e, because of the full time equivalent jobs through increased increased recognition of Nepal’s carbon use of biomass, enhancing the quality of as speciality product. For the employment forest health condition and shifting use of generation, we assume that about 35% of it in industrial sector. The estimate of the the total sales go for employment. forest bioenergy is done considering the trade value of solid biofuels, especially Ecotourism: Under conservative scenario, bio-briquette and wood pellets, which the economic value of ecotourism will be are emerged as promising products. The NRs 14.6 billion generating 73,000 full economic value and employment is not time equivalent jobs per annum. Whereas calculated for fuel wood because this in optimistic scenario the economic industry is largely operated informally value will be as high as NRs 21.6 million and has a very little growth prospect. It is generating 108,000 full time jobs. With assumed that in case of bio-briquette 40% the total number of tourists involved in of the total value throughout the chain goes ecotourism activities calculated under to labour as wage, whereas in case of wood conservative and optimistic scenario, we pellets, it is 25%. have also used the average expenditure of the tourists for estimating economic value 2.2 Current Status and Growth of and employment from ecotourism. The Potential of Timber-based Industries available tourism data show that about 0.8 Based on the detailed analysis of the million international tourists and 0.12 million current situation of demand and supply as domestic tourists visit different parts of well as projection of future demand and Nepal. Each international tourist spends 13 supply potential, this section assesses nights with about US $40, daily expenditure the timber subsector for industrial growth and domestic tourist spends 5 nights potential in the country. The current with about NRs 1,000 daily expenditure. demand and supply are analysed based Considering the above projected growth on the available relevant information and in all three factors (number of tourists, government records. An assessment length of stay and daily expenses), it is of the supply potential is made under assumed that the overall income from different scenario of timber harvesting. tourists involved in ecotourism activities It includes the supply potential under will increase by 10% under conservative conservative harvesting rate, scientific scenario because of new ecotourism management and plantations in about product development and additional two-third of available non-forested land,

Private Sector Involvement and Investment in Nepal’s Forestry Sector 27 Chapter 2 ASSESSMENT OF FOREST-BASED INDUSTRIES

and more optimistic rate with scientific Data on international demand for timber management and plantations in total based products from Nepal is unknown. available non-forested land. However, this study found that the demand for Nepal’s veneer sheets and plywood is 2.2.1 Assessment of current and increasing, especially in India. As Nepal future demand lies between two of the fastest growing The major end products that are in economies in the world, both with a great demand include furniture, veneer sheets, appetite for veneer, ply and processed plywood, construction timber and builders’ wood, there is a good prospect of joinery. Federation of Forest based international market. Industry and Trade, Nepal (FenFIT 2013) estimates the current domestic demand Timber demand will increase in all by wood based industries to be about 2.3 ecological regions but at different rates. million m3 in Nepal. A most recent study Two major factors, population growth estimates the domestic end consumer and urbanization, are responsible for the demand for household construction, increased demand. Looking at the trend, repair and furniture use in 2011 to be the continuous growth is estimated in about 3.37 million m3 (Kanel et al. 2012). Terai. One of the main reasons for this By comparing the number of households is the increasing population with high based on the successive population data, rate of population growth and increasing and the timber demand associated with immigration of people from hills. In case house construction, repair and furniture of hills, demand will moreover remain use, the study has projected the domestic constant till 2020 and increase after end consumer demand to reach 4.8 that. This might be due to increase in million m3 in 2030 (see Figure 2.10). population in hilly urban cities.

Figure 2.10: Timber Demand Projection through 2030 in Different Ecological Regions

2500

2000 ) 3 1500

1000 Demand(‘003m 500

0 Terai Hill Mountain 2011 2015 2020 2025 2030

Source: Data from Kanel et al. (2012)

28 Private Sector Involvement and Investment in Nepal’s Forestry Sector ASSESSMENT OF FOREST-BASED INDUSTRIES Chapter 2

Demands for furniture, construction Kathmandu is sold at NRs 211,886/m3 to timber and builders’ joinery have increased end consumers. The details on present with increase in construction works especially price structure for major species are given in the urban areas. With more people being in Annex B. It was observed that the price of conscious about creating an aesthetically sal timber went up when there was limited pleasing ambience in their home, the supply due to ban in harvesting of timber furniture industry has seen an upsurge in and increased government royalty in 2010. the demand for imported furniture which according to Nepal Furniture and Furnishing 2.2.2 Assessment of supply situation Association (NFFA) has taken more than 60% and trend of the country’s current furniture market The top ten timber species according share. Similarly, because of the increase in to the available resource growing stock furniture making work, use of particleboard assessed by Forest Resource Assessment and fibreboard, especially medium density (FRA) (2010) are ranked as follows: fibre (MDF) has been increasing, most Shorea robusta, Quercus spp., Terminalia of which is fulfilled through import. With alata, Pinus roxburghii, Abies spectabilis, increase in furniture making along with Rhododendron spp., Alnus nepalensis, construction work, demand for plywood and Schima wallichi, Tsuga dumosa, and Adina veneer sheets have also increased. The cordifolia. The total growing stock of forests veneer sheets and plywood are also being in the country was 647 million m3 in 2005 exported mainly to India and the export (FAO 2010), and it has reduced over the quantity is increasing. last two decades (see Table 2.9 for details). Of the total growing stock, Shorea robusta The price varies according to location, shares 28.2% with 182.4 million m3 in species and size. For example, the 2005 and is in a decreasing trend when producer’s price for best quality sal (Shorea compared to 2000 (195.6 million m3) and robusta) timber is NRs 49,440, which in 1990 (241 million m3).

Table 2.9:Growing Stock of the Ten Most Common Timber Species Growing stock (million m3) Species 1990 2000 2005 Shorea robusta 241 195.6 182.4 Quercus spp. 80 64.5 60.1 Terminalia alata 65 52.7 49.1 Pinus roxburghii 54 43.7 40.7 Abies spectabilis 38 30.5 28.4 Rhododendron spp. 37 29.8 27.8 Alnus nepalensis 25 20.1 18.7 Schima wallichi 17 13.9 13 Tsuga dumosa 16 13.2 12.3 Adina cardifolia 15 12.5 11.7 The remaining 268 217.5 202.8 Total 856 694 647

Source: FAO 2010 and FRA 2010

Private Sector Involvement and Investment in Nepal’s Forestry Sector 29 Chapter 2 ASSESSMENT OF FOREST-BASED INDUSTRIES

As shown in Figure 2.11,on average sales during the past five years. The about 160,000 m3 of timber per year percentages of the total supply from the was supplied to market from various government and the communities have forest regimes through formal channels remained as 17% and 35% respectively. during the past five years from 2007/08 Over the past five years (2007/08 to to 2011/12 fiscal year. But the yearly 2011/12), community forests, on average, fluctuation in supply is very high which supplied 57,220 m3 of timber per year, ranges from 83,000 m3 to 276,000 m3. which ranges from 4,250 m3 in 2010/11 to This quantity, however, does not cover 164,590 m3 in 2009/10. the internal consumption of community forest user groups and the quantity of the This field study shows that private species that are not levied royalty as per forest and tree growers supply most the forest regulation. Our analysis shows of the timber from trees outside forests that private forest and tree growers have (TOF) rather than forests and these are emerged as the leading suppliers, who mostly used by veneer industries. Timber accounted for about 48% of the total from government sales mostly comes

Figure 2.11: Timber Supply from Various Forest Regimes from 2004/05 to 2011/12

a. Supply by year

) 300 3 276 250

200 184

150 151 83 113 100 52 45 50 49 Sawn wood sales (‘000m - 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12

b. Cumulative supply over years 2,000 ) 3 1,800 1,600 1,400 1,200 1,000 800 600 400

Sawn wood sales (‘000m 200 - 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12

Total Private Community Government

Source: Data from Kanel et al. (2012)

30 Private Sector Involvement and Investment in Nepal’s Forestry Sector ASSESSMENT OF FOREST-BASED INDUSTRIES Chapter 2

from the government managed forests the timber was not sold in time, it has in Terai and inner Terai regions, and the resulted to the degradation in the quality supply situation in Eastern and Western and even decaying of the timber. Terai are different. The supply from the western Terai is much higher. The timber species used in top export timber products include: The fluctuation of sales was mainly Plywood/Veneer: Teak (Tectona observed in sales from community and grandis), simal (Bombax ceiba), uttis government managed forest whereas (Alnus nepalensis), Eucalyptus spp., the sales from private forests and tree mango (Mangifera indica), tooni (Toona growers were more stable and have been ciliata), jamun (Syzyzium cumini), satisal increasing steadily. There was a sudden (Dalbergia latifolia). increase in timber sales in 2007/08. One of the reasons for this is the development Woodcarving: Okhar (Juglans regia), of record keeping system of sales from satisal (Dalbergia latifolia), sissoo community and private forests, which was (Dalbergia sisoo), haldu (Adina not practiced before 2006/07 (DoF 2007). cardifolia), khamari (Gmelina arborea), There were sudden reductions in supply champ (Michaelia champaca), deodar during 2010/11 and 2011/12, which was (Cedrus deodara), saj/asna (Termialia mainly due to the imposition of ban on tomentosa), etc. wood removal from the government and community managed forests for the As Figure 2.13 shows the value of investigation of irregularities. This has the import of most of the wood products restricted the sale of even the harvested exceeds their export during 2009 to 2012 timber resulting to stock piling of huge with the total import on average being three quantity of unsold timber in the Terai and folds higher than the export. While both the inner Terai regions (see Figure 2.12). As import and export are growing, the import is

Figure 2.12: Yearwise volumes of the previous stock, harvest and sales of timber from government managed forest (Terai and inner Terai)

120 Old Stock Harvest Sales

) 100 3

80

60

Volume (in ‘000m Volume 40

20

0 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 Years

Source: DoF (2005-2012)

Private Sector Involvement and Investment in Nepal’s Forestry Sector 31 Chapter 2 ASSESSMENT OF FOREST-BASED INDUSTRIES

increasing at faster rate during the period. veneer sheet, particle board and fibre The average annual growth rate (AAGR) board, builders’ joinery,and other finished for import is 13% as compared to 6% for products is on rise and of plywood and the export. It has been observed that wood mouldings (wood continuously there was a sudden increase in the shaped along any edges) is going import in 2011, which coincides with ban down. Whereas the export has been on harvesting and sale of timber from increasing for veneer sheet, plywood government and community-managed and other finished products and forests. Veneer sheets, plywood, particle decreasing for particle board and builders board and fibre board, and builders’ joinery. For example, for plywood and joinery has remained the major products other similar panels, the import value for both import and export. Veneer sheets was decreased by nearly 40% between and plywood are the topmost imported 2009 and 2012, while the export value products having 38.9% and 23.9% shares of these products increased by five folds of total import value (US$ 9.24 million) during the same period. The export of respectively whereas plywood alone has wood logs, sawn wood and fibre board is captured 57% of the total export value (US not observed. $3.2 million) in 2012. The detailed data on this are presented in Annex B. While Nepal’s almost all (99%) trade of veneer sheets occurs with India, the The trend during the period is that particle board is mainly imported from the import of wood logs, sawn wood, China. For plywood and the builders’

Figure 2.13: Nepal’s Import and Export Value of Wood and Wood Products from 2009 to 2012

14000 Wood in the rough

Wood sawn/chipped 12000 lengthwise, sliced/peeled

Sheets for veneering, plywood 10000 or for similar laminated wood

Plywood, veneered panels 8800 and similar laminated wood

Particle board, fibreboard and 6000 similar board of wood

4000 Wood continiously shaped

Value (in ‘000 USD) Value along any edges

2000 Builders’ joinery & carpentry of wood 0 Packaging materials of wood Wooden frames, wood marquetry, tableware and Import Export Import Export Import Export Import Export kitchenware

2009 2010 2011 2012 Articles of wood Year Others

Source: Data from TEPC 2013

32 Private Sector Involvement and Investment in Nepal’s Forestry Sector ASSESSMENT OF FOREST-BASED INDUSTRIES Chapter 2

joinery, the major trade partners are India than the formal supply volume of 113,000 and China. For some finished products, m3 in the same year and the average Nepali market highly depends on import. for the past five years, which comes to For example, according to NFFA, be 160,000 m3. It is important to note imported furniture has taken more than that even with this lowest level of formal 60% of the country’s current furniture supply, Nepal is losing its forest both in market share, of which 75% is from China terms of area and standing stock. alone. The furniture traders often cite the high manufacturing cost leading to the There is no any comprehensive study high price of the domestic furniture as a on estimation of growth potential of reason for the increase in demand of the timber based industries in Nepal. Our imported furniture. estimate based on available literature and experience shows that approximately 2.2.3 Supply potential 4 million ha of forests could be utilized Figure 2.14 presents the timber for commercial timber production demand and supply situation and their (see Table 2.10). projection in two different scenarios in Nepal – conservative and optimistic. Our analysis shows that there is a great As it is very clear from the graph that potential for increasing supply of timber by there is a huge gap between the current applying sustainable harvesting practices domestic demand and supply. In fiscal and scientific management. The details year 2011/12, the total demand for timber on sustainable annual supply potential was 3.37 million m3, which is much higher from Nepal under the conservative and

Figure 2.14: Current and Potential Demand and Supply of Timber in Nepal

10 9.18 9

) 8 3 7 6 5 4.8 4 3.37 3 Volume (million m Volume 2 1.66 1 0.11 0

Current Projected(2030) Current Conservative Optimistic Scenario Scenario

Demand Supply

Source: Demand data from Kanel et. al 2012; current supply data from DoF 2012

Private Sector Involvement and Investment in Nepal’s Forestry Sector 33 Chapter 2 ASSESSMENT OF FOREST-BASED INDUSTRIES

Table 2.10: Potential Forest Area for Timber Production Area (‘000 ha) Forests/Land use Total Potential Government managed forests 3,480 1,900 Forest managed by Forest Product Development Board 16 16 Community forests 1,665 1,700 Collaborative forests 39 39 Leasehold forests* 39 39 Private forests 2.4 300 Total forest land 3,994

*Note: Although leasehold forest is currently not for timber production purpose, harvesting of low level of timber along with other products is a possible option.

optimistic scenarios are presented in not tapped even the minimum potential, Table 2.11 and Table 2.12 and briefly which the country needs very badly. discussed below. Under conservative scenario, the annual sustainable supply The conservative scenario assumes volume of timber can be increased to the products are utilized with modest 1.66 million m3, which is more than ten changes to the sector, taking into account times the average formal supply volume the recent positive trends in investment. at present. Under optimistic scenario, Under this scenario, the estimate the figure can go up to 9.18 million we have used is from previous work m3, which is over ninety folds increase (Pandey et al. 2010) assuming that the from the present supply. This shows minimal rate of conservative harvesting that Nepal can produce surplus timber is done in part of the accessible forest meeting the domestic demand if proper only (see Table 2.11). steps are taken. Interestingly, Nepal has

Table 2.11: Potential Timber Supply from Forests of Nepal Under Conservative Scenario Total stem Total annual Total annual Total annual Reachable forest area Region volume increment allowable cut harvest (million (‘000 ha) (million m3) (million m3) (million m3) m3) Hill 897.9 177.58 2.66 1.07 0.53 Terai 1,224.1 187.98 2.82 1.13 1.13 Total 5.48 2.20 1.66

Assumptions: • Average incremental growth rate is 1.5% (for slow growing species the least value recommended is 1% and for the fast growing species, it is about 3%) • Average allowable cut for all wood species is assumed to be 40% of the annual increment (the recommended least value for this is 40% for the poor site and 60% for the average site) • For hill region, 50% of the allowable cut is considered to be a realistic volume for harvest.

Source: Pandey et al. 2010

34 Private Sector Involvement and Investment in Nepal’s Forestry Sector ASSESSMENT OF FOREST-BASED INDUSTRIES Chapter 2

The optimistic scenario assumes the such natural products is very positive. available forests are managed using According to a study, annual world trade science and private plantations are of medicinal plants in late 1990s was US established in 200,000 ha, which is two- $10 billion (Freese 1998). As estimated by third of available 300,000 ha of non- FAO (2010), at least US $18.5 billion worth

Table 2.12: Supply Potential of Timber from Nepal’s Forests Under Optimistic Scenario Annual Mean annual Total annual allowable Region Forest types Area (ha) increment harvest cut (m3/ha/yr) (million m3/yr) (m3/ha/yr) Hill Community forests 1,095,555 3 1.2 1.31 Hill Leasehold forests 18,000 1 0.4 0.007 Hill Government managed forests 2,931,445 3 1.2 3.52 Terai Community forests 300,339 7 2.8 0.84 Terai Collaborative forests 39,457 7 2.8 0.11 Terai Government managed forests 637,204 7 2.8 1.78 All Private forests 200,000 10 8 1.6 Total 9.18

Assumptions: • Mean annual increment (m3/ha/yr) is estimated for the well managed forests based on available studies (Puri et al. 2012, LFP as cited in Kanel et al. 2012 pp 10, Yamazoe et al. 1989 and Khanal 1996 and ANSAB previous project reports). For detail, refer Annex B. • Annual allowable cut (m3/ha/yr) is taken as 40% of the mean annual increment. For private forest, annual allowable cut is considered to be 80%. forested land. The detail on the supply of NTFPs were traded globally in 2005. potential by type of forest and ecological Similarly, a recent study by International regions and additional assumptions are Trade Commission (ITC) (2013) estimates presented in Table 2.12. an increase in trade of major medicinal plants and extracts in global markets from The supply figure could go up by US $19.5 billion in 2008 to US $32.9 billion another 40% to 50% if all the available in 2013, with an annual growth rate of 11% forest land is scientifically managed and that is much higher than the GDP growth plantation is established in most of the rates of most of the developing countries. available non-forested land. China is the biggest exporting country in the world for medicinal herbs followed by 2.3 Current Status and Growth India and Germany with of US $560 million, Potential of NTFP-based Industries US $130 million and US $120 million respectively in 2010. 2.3.1 Assessment of current and future demand Nepal’s share in the world market The world market for both medicinal for medicinal herbs is around 0.2 per herbs and essential oils is growing and cent (MoCS 2010), and there has been the prospect3 in the world markets for corresponding increase in business

3 See for example ITC (2007a)

Private Sector Involvement and Investment in Nepal’s Forestry Sector 35 Chapter 2 ASSESSMENT OF FOREST-BASED INDUSTRIES

volume and value in the country. Although (Subedi 1997) and US $ 35.7 million in there are variations in estimate of quantity 2002 (Subedi 2006). and value of NTFP trade, the trend is very clear. The volume of trade for most The increasing trend of annual value of of the commercial NTFPs is increasing trade is also demonstrated by the NTFP and the value is increasing significantly. export value during the past two decades. The government records show that more The NTFP export from Nepal increased to than 13,000 tons of NTFPs were traded in US $59 million in 2012 from US $2.76 million 2010 (DoF 2011), which was 3,350 tons in 1992 (Figure 2.15).The contribution of in 1990 (DoF records).In 2012, the traded NTFPs to the total export from Nepal has also volume was about 11,680 tons, which also doubled in last decade with a contribution include large cardamom and essential of about 4% in 2003. The data indicates oils (DoF 2013). Several studies show a sign of growth in Nepal where numbers that the government records include only of NTFPs based traders and industries a portion of NTFPs traded, as informal are also increasing each year. India is transactions are common and the record the main market for NTFPs from Nepal. keeping system is poor. Furthermore, Some percentage of the products these studies confirm the increasing trend is currently exported to Europe, of business. For example, the annual North America and some other harvesting and trading of NTFPs was Asian countries. 10,000 to 15,000 tons with an export value of US $8.6 million in early 1990s The demand of Nepal’s NTFPs is (Edwards 1996) and 20,000 tons worth also expected to increase in future. of US $18-20 million in late 1990s (Kanel Nepal Trade Integration Strategy (NTIS) 1999). Some other estimates show 2010 has identified some new markets, that NTFP trade involved an annual especially from the Middle East and transaction of US $26 million in 1995 Gulf regions as well as the South Asian,

Figure 2.15: NTFP Export Value from Nepal and Its Contribution to the Total Export

a. NTFP export value from Nepal b. Contribution of NTFP to the total export

70 9.0 60 8.0 50 7.0 40 6.0 5.0 30 4.0 US $ (million) 20 3.0 10 Contribution % 2.0 0 1992 1996 2000 2004 2008 2012 1.0 Fiscal Year 0.0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Fiscal Year

Source: Data from MoF 2002 and MoF 2013

36 Private Sector Involvement and Investment in Nepal’s Forestry Sector ASSESSMENT OF FOREST-BASED INDUSTRIES Chapter 2

Southeast Asian and East Asian regions and rattan products (Subedi 2006). More for cardamom, medicinal herbs, essential than 1,000 species of plants in Nepal are oils and handmade paper. of known uses, out of which over 700 are medicinal, 440 wild food, 30 spices, 71 fibre 2.3.2 Assessment of supply situation yielding, and over 100 fodder indicating and trend that many of the plant species have more The taxonomy of NTFPs is rich in than one economic uses. Regarding Nepal, which include medicinal and the commercial use, while some earlier aromatic products, spices and flavour, wild studies reported that more than 100 types mushrooms, fruits, dyes and tans, fibres are collected for commercial purposes used in handicrafts, herbal teas, brooms, (Edwards 1996, Subedi 1997), a more leaf plates, rosin, turpentine, gums, edible recent study records 161 NTFP species in fats and oils, personal care products (e.g., commercial trade in Nepal (Subedi 2006). shampoos and creams), and bamboo Major commercially valuable, indigenous

Table 2.13: Major Commercially Valuable, Indigenous NTFPs of Nepal by Altitudinal Zones

Altitudinal zone NTFPs species Wild asparagus (Asparagus recemosus), tulsi(Ocimum tenuiflorum), khayar(Acacia catechu), bel(Aegle marmelos), harro(Terminalia chebula), barro(Terminalia bellirica), amala (Phyllanthus emblica), sikakai (Acacia rugata), tendu Tropical (upto 1000m) (Diospyros melanoxylon), sarpagandha (Rauwolfia serpentina), neem (Azadirachta indica), haldu (Haldina cardifolia), jackfruit (Artocarpus heterophyllus), babul (Acacia arabica), amaltus(Cassia fistula) Lokta(Daphne bholua), argeli (Edgeworthia gardenerii), chiraito (Swertia chirayita),wintergreen (Gaultheria fragrantissima),timur (Zanthoxylum armatum), pipla (Piper longum), tejpat (Cinamomum tamala), wild asparagus (Asparagus Subtropical (1000 -2000m) recemosus),rudraksha (Elaeocarpus sphaericus), ritha (Sapindus mukorossi), majitho(Rubia manjith), gurjo(Tinospora sinensis),bhyakur (Dioscorea deltoidea), bajradanti (Potentilla fulgens), sugandhwal (Valeriana jatamansi), sugadhkokila (Cinamomum glaucescens) Himalayan and trans-Himalayan Atis(Aconitum heterophyllum), chiraito (Swertia chirayita), Temperate (2000 -3000m) sugandhwal(Valeriana jatamansi), nirmasi(Aconitum gammiei) Chiraito (Swertia chirayita), morels(Morchella esculenta), padamchal(Rheum austral), satuwa (Paris polyphylla), sunpati Sub-alpine (3000 -4000m) (Rhododendron anthopogan), juniper (Juniperus indica), lichens (Parmelia spp.), laghupatra (Podophyllum hexandrum), lauth salla (Taxus baccata), panchaunle(Dactylorhiza hatagirea) Kutki (Picrorhiza scrophulariiflora), jatamansi (Nardostachys Alpine (above 4000m) grandiflora), yarshagumba (Ophiocordyceps sinensis)

Source: Adapted from Subedi 2006

Private Sector Involvement and Investment in Nepal’s Forestry Sector 37 Chapter 2 ASSESSMENT OF FOREST-BASED INDUSTRIES

NTFPs of Nepal by altitudinal zones are in Nepal (Subedi 2006). The Master Plan given in Table 2.13. of Forestry Sector has identified 61% of the total forests having potential for community There is no comprehensive inventory forestry, providing a high prospect for rural data for NTFPs at par with timber species, communities to be engaged in NTFP- except in some areas where some based enterprise activities in the country. development programs or projects have provided support. At national level, in terms Our detailed analysis of major 20 of land space, the forests (29%), shrub major commercial NTFP species, that lands (10.6%), meadows (grass lands) cover about 90% of the total traded and non-cultivated inclusions, covering volume and value, has shown that over 50% of the total geographical area Nepal has good prospects in terms of of the country constitute the biological NTFP production, supply and income resource base for the provision of NTFPs generation to a significant number of

Table 2.14: Availability, Supply, Income and Potential Production of Top 20 Commercial NTFPs Annual Availability Annual trade supply Trend (last 10 SN NTFP species (number of value in 2012 in 2012 years) district) (million NRs) (tons) Supply Price Crude herbs 1 Chiraito (Swertia chirayita) 50 (20) 85 ↑ ↑ 42 Kutki 2 32 (8) 22 ↓ ↑ 13 (Picrorhiza scrophulariiflora) 3 Ritha (Sapindus mukorossi) 15 (9) 284 ↑ → 7 4 Satuwa (Paris polyphylla) 10 48 ↑ ↑ 125 5 Timur (Zanthoxylum armatum) 30 (10) 17 ↑ ↑ 2 Yarsagumba 6 21 (9) 0.5 ↑ ↑ 922 (Ophiocordyceps sinensis) Essential oils 7 Chamomile (Matricaria recutita) 12 1 ↑ ↑ 22 Wintergreen 8 17 (5) 3 ↑ ↑ 9 (Gaultheria fragrantissima) Jatamansi 9 27 (14) 0.2 ↓ ↑ 7 (Nardostachys grandiflora) Lemongrass 10 9 15 ↑ ↑ 21 (Cymbopogon spp.) 11 Mentha (Mentha arvensis) 9 20 ↑ ↑ 32 Wild food and spices Large Cardamom 12 38 (8) 6,026 ↑ ↑ 3,013 (Amomum subulatum) Tejpat/Dalchini 13 13 305 ↑ ↑ 15 (Cinamomum tamala) Morel Mushroom 14 5 0.1 ↓ ↑ 2 (Morchella esculenta)

38 Private Sector Involvement and Investment in Nepal’s Forestry Sector ASSESSMENT OF FOREST-BASED INDUSTRIES Chapter 2

Plant fibbers 15 Allo (Girardinia diversifolia) 50 (20) 40 ↑ ↑ 16 Lokta (Daphne bholua)& Argeli 16 32 (18) 235 ↓ ↑ 587 (Edgeworthia gardenerii) Bamboo and rattan 17 Bamboo* 50 (14) 3.5* ↑ ↑ 245 Others 18 Khayar (Acacia catechu) 34 (15) 552 ↓ ↑ 36 Khotesallo 19 35 (32) 2,704 ↓ ↑ 162 (resin) (Pinus roxburghii) Rudrakshya 20 5 261 ↑ ↑ 10 (Elaeocarpus sphaericus) Grand Total 10,619 5,288

Note: • Figure in the parenthesis for the districts available denotes the number of districts where the NTFP species are available in commercial scale. • The annual supply or trade volume is taken from the annual record of DoF (2012), MoAC Year Book (2012) for cardamom and publications of ANSAB and MEDEP for allo and bamboo, chamomile, lemongrass and mentha. • The annual supply or trade volume of chamomile, lemongrass and mentha in 2012 are based on the estimate from HBTL, an essential oil exporter. • Price trends are derived from ANSAB database on Market Information Service (MIS). • Supply trends are derived from the records of DoF, MoAC, TEPC and consultation with oils exporters. • The trade value of each species is estimated by multiplying trade volume and market price for the same year (2012) and it is also assumed that out of the total trade value, the selected 20 species covers 90% share (both domestic consumption and export). • The annual trade value of jatamansi consists of both oil and marc. • Export value of handmade paper and its products, kattha and cutch and resin and turpentine are taken for the estimation of annual trade value of lokta and argeli, khayar and chir pine respectively.

Source: ANSAB (2005, 2006, 2009, 2011 and 2012), DoF records (2003-2013), DFRS 2010, MEDEP 2010, MoAC 2012 and the study team’s estimations.

people in the country. Table 2.14 provides 10 years show that the supply of large the summary of the analysis. cardamom, argeli, chiraito, chamomile, lemongrass, mentha, rudrakshya, ritha, Of the twenty species, chiraito followed and satuwa is in increasing trend, which by chir pine is the most widely spread also come from private land. Supply of species whereas rudrakshya (utrasum kutki, morel, lokta and argeli, jatamansi, bead), morel and wintergreen found in khayar and chir pine, almost all of which are limited regions of the eastern, western, from natural forests, is unpredictable and and eastern and central hill respectively. is in decreasing trend. The market price of Out of twenty species, chiraito, ritha, almost all of the NTFPs is increasing. satuwa, timur, chamomile, lemongrass, mentha, large cardamom, tejpat, argeli, In terms of volume, the top five traded bamboo, khayar and rudrakshya are species in 2012 are large cardamom, chir cultivated species. pine, khayar, ritha and tejpat/dalchini. Whereas large cardamom, yarsagumba, Analysis of annual supply and market lokta and argeli, bamboo and chir pine are price of the twenty species over past the top five species in terms of trade value.

Private Sector Involvement and Investment in Nepal’s Forestry Sector 39 Chapter 2 ASSESSMENT OF FOREST-BASED INDUSTRIES

A brief assessment of the selected cardamom to India and other markets NTFPs by category is presented below. is very encouraging. About 90% of the Nepalese production is exported mostly Crude herbs: The Nepal’s export value to India (which is then often re-exported of medicinal herbs in fiscal year 2012/013 to Pakistan or UAE), and the remaining was about NRs 1.2 billion. The export goes to Pakistan, UAE, Singapore and trend over the past decades shows that Afghanistan. The exported value of large India is an established market for low cardamom was NRs 3.85 billion in 2012/13, value high volume products, whereas 10% higher than that in 2011/12. Other overseas countries buy the high value low major spices being traded within and from volume products. More than 90% of the Nepal include cinnamom leaf and bark. crude herbs are exported to India, with About 100 ton of cinnamom leaves and the remaining sent to other countries, 450 kg of oil is consumed yearly within such as the United States, Europe, the country. Marc of cinnamom leaf and Middle East and China. The supply trend, powder of cinnamom leaf and cinnamom during the past few years, shows that the bark are supplied to India. export of some high value crude herbs to China is increasing through both legal Plant fibres: Built on the traditional and illegal channels4. For example, the skills, Nepali handmade paper-making export of some NTFPs including chiraito, has been practiced due to an abundant ritha, satuwa, and rudrakshya to China supply of lokta resources. The argeli has been initiated recently. plant, a close family of lokta plant but which grows in lower altitudes than the Essential oils: Since the past few years latter, also offers a promising alternative. the production and export of essential Dolakha, Ramechhap, Parbat and Myagdi oils has been increasing. Nepal produces are the major handmade paper producing about 70 tons of 16 different essential districts. Nepalese handmade paper is oils annually, out of which 64.2 tons popular for its strength, durability and was exported in 2012/13, which was resistance to insects, and the demand 37.4 tons in 2011/12. The export value is growing. The export value of Nepali of essential oils in fiscal year 2012/013 handmade paper and paper products was was NRs 87.03 million, which is 13.3% nearly NRs 550 million (about US $5.5 higher than that in 2011/12. These million) in 2012/13, which is 2.9% less as essential oils are mainly exported to the compared to that in 2011/12 and 20.5% EU (71%), India (11%) and USA (10%). higher than that in 2010/11. It is the fifth Besides, Singapore and Australia are the largest export product in the handicraft most potential and attractive markets for category, contributing about 9 - 11% to essential oils. Available data shows that the total export for this category. The Nepal is in the 64th position for exporting products are exported to 60 countries, essential oils at global level (Sharma and with major importers being USA, UK, Shrestha 2011). France, Japan and Switzerland.

Wild food and spices: Nepal is the Likewise, Nepal supplies a good largest producer of large cardamom and volume of allo in national and international has a share of 50% in the world export. markets. The records of DoF show that The recent export trend of Nepalese large allo bark trade ranged from 15 to 65 tons

4From field survey (crude herbs includes yarsagumba, satuwa, chiraito and rudrakshya)

40 Private Sector Involvement and Investment in Nepal’s Forestry Sector ASSESSMENT OF FOREST-BASED INDUSTRIES Chapter 2

in the past ten years, which worth NRs resin-tapping companies to collect about 8-32.5 million annually (DoF). In recent 40,438 tons of resin annually (DoF 2007). years, some entrepreneurs have diversified the product from the traditional pure allo Nepal has around 30,000 ha of khayar- fabrics to blended fabrics (with silk, cotton, dominated forests in Nepal. However, and hemp) for making it more attractive to khayar collection from national forest customers. The main export destinations of is banned in Nepal. Therefore, khayar Nepali allo products are USA accounting is supplied solely from privately owned for nearly one third (31.9%) of the total forests. Khayar is an important species for export value of NRs 4.8 million, followed by the production of kattha and cutch, which Sweden (21.2%), Japan (17.9%), France are regularly exported to India. While (6.7%), Australia (6.5%), and Italy (5.9%)5. almost all kattha from Nepal is exported to India, Nepali betel industry is importing Bamboo: The major portions of the bamboo very low quality kattha at cheap price from culms are used for house construction India. The DoF records show that annual in Terai and as construction material khayar trade from Nepal ranged from 120 (such as scaffold, support post, ladder) to 7,753 tons worth NRs 145 million to for concrete house in cities, especially in 1.22 billion in the past 10 years in Nepal. Kathmandu. While Himalayan Bamboo Industries based in Hetauda has initiated Rudrakshya is another high value NTFP production of bamboo housing, panels and mostly grown in the eastern region of Nepal parquets, small-scale bamboo enterprises with an annual trade value of about NRs 10 produce handicrafts, mats, baskets, hand million in 2012. In 2013, the trade value of fans, rickshaw hood frames and incense rudrakshya has increased by more than sticks. Most of the collected bamboos threefold. It is extensively cultivated in harvested in different parts of the country Sankhuwasabha and Bhojpur districts. goes to major cities. For example, it was observed during this study that bamboos 2.3.3 Supply potential collected in eastern region are supplied to In terms of supply potential, under Kathmandu markets. There is no official conservative scenario, the annual cross border trade of bamboo and its sustainable supply volume of NTFPs, products, and only a few products such excluding bamboo, can be increased to as baskets are supplied to India in 24,285 tons, which is more than double insignificant amount. the traded volume in 2012. Under optimistic scenario, the figure can go up to Others (resin, kattha and rudrakshya): 62,295 tons, which is more than five times According to an estimate an annual volume the traded volume in 2012. This growth of about 60,000 tons of pine resin (khoto) is projected based on our assessment are available in 35 hill and mid-hill districts of the scope of increasing productivity of Nepal (DFRS 2004). The DoF records for and production in existing forests and past 12 years show that annual khoto trade expanding cultivation and processing of ranged from about 1,888 to 8,009 tons some marketable NTFPs in Nepal. worth NRs 57 to 360 million6 in the past ten years (DoF record 2014). Whereas, the Some prominent examples of permission has been given to 15 registered successful cultivation in various altitudinal

5 Nepal Overseas Trade Statistics 2007/08, Trade and Export Promotion Centre, Nepal. 6 The quantity of trade for pine resin was calculated assuming the price of NRs 30 per kg.

Private Sector Involvement and Investment in Nepal’s Forestry Sector 41 Chapter 2 ASSESSMENT OF FOREST-BASED INDUSTRIES

zones since last two decades include in 2.1.5, there are few initiatives from the atis, chiraito, satuwa, sugandhawal, large private sector in enhancing forest carbon cardamom, timur, ritha, rudraksha, tejpat, and buying carbon credits that, although chamomile, citronella, lemongrass and involved a low volume of transaction, mentha. There is also a good prospect for provide a good initiation for voluntary increasing production of some valuable purchase of carbon credit in Nepal.

Table 2.15:Supply Potential of NTFPs Under Conservative and Optimistic Scenarios Supply Potential (tons) Category of NTFP Species Conservative Scenario Optimistic Scenario Crude herbs Essential oils 80 137 Wild food and spices 9,772 20,896 Plant fibres 528 995 Bamboo and rattan 7* 22* Others 12,430 37,686 Grand Total 24,285 62,295 Note: *Bamboo’s production quantity is in million clumps.

NTFPs, such as large cardamom and At international level, although there fibre by improving production techniques. is a variation in volume of carbon traded In addition to expanding the area over the past few years, millions of and production of currently cultivated tons of carbon are traded. As shown items, there is also a possibility to in Figure 2.16, the transacted volume increase supply by promoting emerging has increased from 2006 with the crops, such as Shiitake mushroom maximum volume of 135 million tons of

(Lentinula edodes). carbon dioxide offsets (million tCO2e) transacted in 2008. The transacted

2.4 Current Status and Growth volume decreased to 97 million tCO2e Potential of Forest Ecosystem in 2011 that slightly increased by 4% in Services-based Industries 2012. The high offset demand in 2010 and before was due to the sizeable 2.4.1 Assessment of current and transaction of offsets generated future demand of forest carbon through the voluntary Chicago Climate Because of the infant nature of Exchange (CCX)7. The major buyer the carbon value chain, the product of the offset volumes were the private consumption is not well developed, sector that accounted about 90% of the and in practice it is limited to very few transacted volume with corporate social voluntary transactions by some private responsibility and industry leadership sectors and donor funded projects (fund being primary motivations for offset based markets) in Nepal. As presented purchases (Peters-Stanley et al. 2013).

7 Chicago Climate Exchange (CCX) was North America’s only voluntary, legally binding greenhouse gas (GHG) reduction and trading system for emission sources and offset projects in North America and Brazil. CCX started trading in October 2003 and ceased trading carbon credits at the end of 2010, although carbon exchanges are still facilitated.

42 Private Sector Involvement and Investment in Nepal’s Forestry Sector ASSESSMENT OF FOREST-BASED INDUSTRIES Chapter 2

In terms of market value, it was US $523 apparent in the high priced offsets range million in 2012, a decrease by 11% from (US $10+/tCO2e) where the volume of as offset prices fell slightly for most project offsets contracted at these prices fell by types (Table 2.16). The voluntary actors 46% (Peters-Stanley et al. 2013). paid a volume weighted average price of

US $5.9/tCO2e, slightly down from 2011 World Bank (2012) reports that the rate of US $6.2/tCO2e, but significantly potential demand of Kyoto assets (CDM higher than the United Nations’ regulatory and Joint implementation (JI)) from Clean Development Mechanism (CDM) industrialized countries is 1,644 million carbon offset price of less than a US tCO2e over 2008 - 2012, with approximately

$1/tCO2e. Declining prices were most 65% of demand coming from the private

Figure 2.16:Historical Carbon Offset Demand by Transacted Volume

160 140 120 e 2 100 80 60 million tCo 40 20 0 Pre 2006 2006 2007 2008 2009 2010 2011 2012 Year

Source: Peters-Stanley et al. 2013

Box 2.1: Carbon Markets at International Level

There is no global carbon market yet, but rather a dispersed set of regional markets at varying jurisdictional levels. The current carbon markets are comprised of four main systems: • Emissions trading or cap-and-trade systems for energy intensive business sectors and governments • Kyoto mechanisms such as the CDM, both on a public and private level • Domestic offset schemes • The voluntary carbon market sector and 35% from governments. The global market for carbon emission However, the supply was not enough and is expected to increase in the future, and

290 million tCO2e were not fulfilled and the demand of the forestry projects for the remained as residual demand. Thus, there emission reduction will be high. Based are opportunities for REDD projects to fulfil on the recent years’ average growth rate these gaps. In addition, REDD projects for voluntary offset demand (13% from could provide voluntary actors who are years 2008-2012), Peters-Stanley et al. channelling their financial resources into (2013) estimates 2020 carbon market carbon reduction projects. value at US$ 1.6 billion. Similarly, based

Private Sector Involvement and Investment in Nepal’s Forestry Sector 43 Chapter 2 ASSESSMENT OF FOREST-BASED INDUSTRIES

Table 2.16: Historical Transaction Volumes of All Voluntary Carbon Markets Volume Value Average Price Types of markets (million tCO2e) (US $million) (US $/tCO2e) 2011 2012 2011 2012 2011 2012 Voluntary offsets contracted over- the-counter 93 98.5 572 515.7 6.2 5.9 Voluntary offsets traded on an exchange 2 2.3 4.2 6.3 – – Historical transactions tracked and added in 2012 1.8 – 10.9 – – – Voluntary carbon markets total 97 101 586.5 523 6.2 5.9 Source: Peters-Stanley et al. 2013

on the voluntary carbon market’s historical and reforestation together account for

average price of US$ 5.9/tCO2e, they have 42% of the sources of carbon credits in reported that the market value at US$ 2.3 2030 with no projects in 2007 as shown billion in 2020. in Figure 2.17.

The Energy Modelling Forum of the The increasing demand of carbon emission Stanford University estimates that carbon reduction at international level shows that market will have a value of US $107 billion the demand of forest carbon from Nepal will per year with market potential of over 6,400 be high. Our consultation with forest carbon

million tCO2e per year in 2030. The Forum buyers at international markets indicates that also estimates that half of this volume they are interested in forest carbon of Nepal, will be purchased from the developing as the country provides a great story to tell countries. Regarding the demand for on community forestry, poverty alleviation, forestry projects, UNFCCC (2007) reforestation, food security, biodiversity, estimates that reduced deforestation women in forestry, etc. in favour of their CSR

Figure 2.17:Annual Emission Reduction by Project Types in 2007 and 2030

Biofuels Coal bed/mine methane HFC/PFC destruction N20 removal Reforestation Renewable energy Other(mainly landfill gas) Reduced deforestation CO2 capture and storage Energy efficiency and fuel..

0 200 400 600 800 1000 1200 1400 1600 1800 2000 2200 million tCO2e Maximum annual emission reduction potential in non-Annex I parties in 2030 Extimated annual emission reductions in 2007 CDM pipeline

Source: UNFCCC 2007

44 Private Sector Involvement and Investment in Nepal’s Forestry Sector ASSESSMENT OF FOREST-BASED INDUSTRIES Chapter 2

goal. It makes Nepal’s potential forest carbon under optimistic scenario (Table 2.17). The a strong competitor in the markets indicating details on the supply potential under its demand will increase in the coming years. each scenario are discussed in the following paragraphs. 2.4.2 Supply potential of forest carbon There are limited studies estimating Under conservative scenario, the forest carbon stock and supply in Nepal. In estimate we have used is from Subedi a detailed analysis using National Inventory and Singh (2008) assuming that Nepal’s

Data (DFRS 1999) for total stem volume forests sequester about 55 million tCO2e and stem densities to estimate the carbon (15 million tons of carbon) annually under stocking in tree stems, Subedi and Singh normal ongoing activities. This includes the (2008) estimated total forest carbon stored yearly carbon sequestration from all forests in tree stem biomass of Nepal’s forests to be including reviving community forests, and approximately 460 million tCO2e. Assuming the least disturbed forests in national parks, the similar volume of carbon stored in forest sanctuaries and other protected areas. We soil, the study found that that the total forest assume that Nepal will be able to trade carbon pool to be about 920 million tCO2e about 15 per cent of this volume or about in Nepal. The figure could be updated with 8 million tCO2e annually. the most recent FRA data. The optimistic scenario assumes that Nepal possesses potential for carbon sequestered in Nepal’s forest will

Table 2.17:Annual Forest Carbon Sequestration and Supply Conservative scenario Optimistic scenario

Forest carbon sequestration (million tCO2e/year) 55 65

Tradable supply (million tCO2e/year) 8.25 19.50

Assumptions:

• Under conservative scenario, Nepal’s forests sequester about 55 million tCO2e per year with 15% of this carbon going for carbon trade annually.

• Under optimistic scenario, Nepal’s forest could sequester about 65 million tCO2e per year with 30% of this going for carbon trade annually. increasing carbon stock and generating increase with improved forest management carbon credits, because of the existing and additional measures adopted by carbon stock and the potential of plantation. communities. Under this scenario, we have While Nepal’s forests including community used the data from the recent three year data forests and some national forests have based on REDD+ pilot project implemented significant potential to implement REDD+ by International Centre for Integrated projects geared towards cashing carbon, Mountain Development (ICIMOD), considerable area of barren lands or ANSAB and Federation of Community grasslands with scattered trees that cover Forestry Users, Nepal (FECOFUN) in 112 about 1.6 million ha area are ideal for community forests in three watershed of afforestation and reforestation activities. different geographic regions of Nepal. The carbon data for four years from Our estimates are that Nepal will be able to the project shows that forest carbon sell about 8.25 million tCO2e per annum under has increased at an annual rate of 9.2, conservative scenario and 19.5 million tCO2e 10.6 and 15.5 tCO2e/ha in Kayerkhola

Private Sector Involvement and Investment in Nepal’s Forestry Sector 45 Chapter 2 ASSESSMENT OF FOREST-BASED INDUSTRIES

watershed of Chitwan district, Charnawati past ten years. The tourism industry has of Dolakha district and Ludikhola of Gorkha remained one of the largest industries district respectively. This shows that Nepal’s in the country and has diversified into forest can sequester, on average, 11.77 many categories, such as adventure

tCO2e/ha annually. With this rate the existing tourism, rural tourism, religious forests of Nepal can sequester a total of 68.59 tourism, and nature tourism. From

million tCO2e annually. the fact that a foreign tourist normally spends thirteen days in the country The volume could be even more and practices activities associated with because of the availability of 1.6 million ha the different categories of tourism, it is of barren lands or grasslands with scattered clear that these activities tend to boost trees and considerable area of some other one another. Although there is no data existing land use modalities, such as pro- available on forest-based ecotourism poor leasehold forestry and agroforestry activities in the country, consultations in private lands, where afforestation and and available literature showed that a reforestation activities could be carried out. good percentage of tourism activities But considering the ongoing harvesting are related to some form of ecotourism, of forest products by communities, we such as bird and wildlife watching, assume that about 65 million tCO2e per home stay, forest walk, wildlife viewing year. Assuming about 30% of this carbon and hunting and nature guided walks can be traded annually,this comes to be (especially based on protected area),

about 19.5 million tCO2e per year. mainly offered by forests. Gurung and De Coursey (1994) estimated 2.4.3 Assessment of current and that as many as 80% of international future demand of ecotourism service tourists in Nepal were involved in some Nepal has benefited significantly form of ecotourism. from the fast growth of tourism in the

Figure 2.18:Tourist Arrival by Purpose of Visit in 2012 11% Holiday/Pleasure 6% Trekking and Mountaineering 2% Business Pilgrimage 4% 47% Official Convention/Conference Others 14% Not Specified

3% 13% Total Number of Tourist Arrival : 803,092

Source: MoCTCA 2012

46 Private Sector Involvement and Investment in Nepal’s Forestry Sector ASSESSMENT OF FOREST-BASED INDUSTRIES Chapter 2

The number of tourists visiting Nepal Major international television channels, over the past decade has grown steadily, including National Geographic and since the country returned to a situation Discovery, and travel newspapers have of peace and relative stability after the identified Nepal as one of the best places Maoist insurgency, with more than half to visit in the lifetime. Recently, China, of the tourists coming for recreation which is one of the largest tourist exporting

Figure 2.19: Total Tourist Arrival in Nepal and Tourists Visiting Protected Areas

900 800 700 600 500 400 300

Tourist arrival (‘000) Tourist 200 100 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 Year Total tourist arrival in Nepal Tourist visiting Protected Areas

Source: MoCTCA 2012 purpose (Figure 2.18). Over 800,000 countries in the world, has granted tourists visited Nepal in 2012, which Nepal the status as one of the outbound is the highest figure since Nepal has destinations for Chinese tourists. There welcomed the tourists in the country. is an opportunity to develop ecotourism Tourism data shows that the protected products focusing on Chinese and other areas involved more than 60% of the regional nationalities in India, South total foreign tourists in Nepal during past and Southeast Asian countries. This the five years (Figure 2.19). Similarly, shows a good prospect for eco-tourism buffer-zone forests in the protected industry in Nepal. areas scattered across the country involved more than 50% of the total 2.4.4 Assessment of supply situation foreign tourists in Nepal. and trend of ecotourism service The rich biodiversity associated with A study estimates about 1,318,000 forest ecosystem gives Nepal a comparative tourists will arrive in Nepal in 2023 (WTTC advantage in terms of quality ecotourism 2012). The study also shows that leisure resources. Nepal’s protected areas, which travel spending (inbound and domestic) include ten National Parks, three wildlife generated 79.6% of direct travel and reserves, six conservation areas, a hunting tourism GDP in 2012 (NRs 84.8 billion) reserve and twelve buffer zones around and is expected to rise by 4.4% per National Parks and wildlife reserves, cover a annum to NRs 139.1 billion in 2023. total of 34,185.62 km2, or over 23% of the total

Private Sector Involvement and Investment in Nepal’s Forestry Sector 47 Chapter 2 ASSESSMENT OF FOREST-BASED INDUSTRIES

geographical area of the country and are the base for ecotourism and some of them prime source of tourist (both domestic and have developed tourist infrastructure. international) attraction in the country. The community forests adjacent to the protected areas, for example, Baghmara The protected areas provide variety CFUG around Chitwan National Park, of ecotourism products, but the inflow have been providing ecotourism services of tourists to the protected areas is by building infrastructures like wildlife not same. While accessible sites,such viewing tower, and offering forest walk as Chitwan National Park, Shivapuri and wildlife safari (See Box 2.2). Some Nagarjun National Park and Annapurna community forests that are not close Conservation Area, receive about to the protected areas have different 85% of the total tourists arrival in the services, such as picnic spots, view country, other protected areas are less towers, recreation parks and children explored. There is no big tourist flow parks, as observed in some CFUGs in in Khaptad National Park and Bardiya Chitwan, Dharan, Rupandehi and other National Park. The sites with the high districts. For example, Shankar Nagar tourist flow have also offered popular CFUG in Rupandehi, and Yalamber ecotourism products. Chitwan National and Hariyali CFUGs in Dharan have Park, for example, offer nature tourism, established forest recreation parks, in village tourism, canoeing, cultural which they keep some wild animals as tourism, wildlife watching, jungle well. Hariyali CFUG has also set a zoo safari, elephant ride, etc. Similarly, with some animals, such as monkey, Annapurna base camp at the Annapurna tortoise, rabbit, hornbill, jackal, porcupine Conservation Area is a key trekking and eagle. People from the districts and site and draws more than 60% of the some other parts including students visit country’s total trekkers. the park for recreation and educational purposes. See Box 2.3 for another In addition to protected areas, example on ecotourism in community community forests have a good resource forest outside protected area.

Box 2.2: Ecotourism in Baghmara Bufferzone Community Forest: CFUG Close to Protected Area

The Baghmara Forest is a replanted and regenerated forest area forming a buffer zone adjacent to the Chitwan National Park. It was established in 1989 following gradual degradation of the park itself over the preceding two decades. It was managed by Bachhauli Village Development Committee and since 1993 is managed by the Baghmara Forest User Group. The forest provides habitat for rhinoceros, hare, jackal, deer, monkey, mongoose, otter, crocodile, turtle, various snakes and lizards and almost 200 bird species (Rijal 1997).

The Baghmara Forest was opened for tourism in 1995. Major eco-tourism activities in Baghmara include bird watching, elephant safari, nature walk, and canoeing. The forest user group has constructed wildlife viewing towers (machan), which also incorporate tourist accommodation, and local residents have built guesthouses and established guided tours, including canoe tours. The community forest revenue record shows that the tourist revenue to the local community was NRs 65.2 million (US $660 thousand) in 2013.

48 Private Sector Involvement and Investment in Nepal’s Forestry Sector ASSESSMENT OF FOREST-BASED INDUSTRIES Chapter 2

Box 2.3:Ecotourism in Kankali Community Forest: CFUG Outside Protected Area

The Kankali Community Forest is an example that has developed as an ecotourism destination in community forests outside protected area. It is located in the foothills of the Mahabharat Range in Chainpur Village Development Committee (VDC) of Chitwan District and was handed over to the communities in 1995 AD. It has rich landscape and biodiversity including 124 bird species, 294 medicinal plant species and 35 mammal species.

The community forest has been practicing ecotourism activities namely, nature walk; bird watching; mulberry, silkworm and fish farming; picnic spot; mini zoo and swimming pool; tower visit; overnight stay in the forest/camping; herbs farming; and fish farming. The community forest generated an income of NRs 5.2 million (equivalent to about US $59,400) in 2012 out of which NRs 4.8 million (US $54,800) was generated from the ecotourism.

2.4.5 Supply potential of ecotourism recreation sites identified by associations service and organizations working in the tourism The rich biodiversity associated with sector in various places besides the current forest ecosystem gives Nepal a comparative tourism triangle - Kathmandu, Chitwan and advantage in terms of quality ecotourism Pokhara. There are less explored protected resources. The tropical forests of the Terai areas with full of ecotourism potential. preserve some of the best wildlife habitats For example, Khaptad National Park and in the subcontinent, while the temperate adjoining areas are full of potential tourist forests in upper hills and mountain harbours activities, such as camping, village walks, some endemic wild animals. These cultural visits, rafting, bird watching, skiing, forests also harbour rich diversity of birds, horse riding, trekking, historical tours, and it butterflies and sites of cultural significance. could be developed as a tourist destination The protected area system and various with minimal interventions. As Trekking initiatives in forests including community Agencies’ Association of Nepal (TAAN) forests have provided essential pillars for Pokhara chapter has listed, Annapurna ecotourism development. Furthermore, South, Dhaulagiri North, Kirkire pass Nepal presents an excellent destination (Lamjung-Kaski) and Gurung Heritage where forest based ecotourism overlaps trail are potential sites for ecotourism. with cultural and adventure tourism Some other potential ecotourism sites (hiking, mountaineering and trekking) as include Antu Danda of Ilam, Basantapur of the culture and adventure tourists are Tehrathum, Rauta Tal of Udayapur, Rara attracted to landscape and biodiversity, Tal of Mugu and Khaptad area. and nature tourists are wandering through mountains and hills. With some infrastructure development in the areas and expanding these new sites There is a good potential for expanding could be helpful in expanding the duration existing ecotourism products and developing of international tourist stay in the country. new ones and increase tourist arrival, both Furthermore, certification of the current in number and value, in the country. There and potential ecotourism sites and service is a scope to expand ecotourism activities providers would attract more nature tourists in community forests, and the forest-based and often of high-end status.

Private Sector Involvement and Investment in Nepal’s Forestry Sector 49 Chapter 2 ASSESSMENT OF FOREST-BASED INDUSTRIES

Table 2.18: Types and Estimated Number of Tourists Involved in Ecotourism Activities Estimated Number of Tourists Involved in Ecotourism Activities Type of Tourists Number of Tourists in 2012 Conservative Optimistic Current Scenario Scenario International 800,000 480,000 720,000 960,000 Domestic 120,000 72,000 144,000 360,000 Total 920,000 552,000 864,000 1,320,000 Source: Peters-Stanley et al. 2013 Assumptions: • 60% of the total tourists go for forest-based ecotourism. • Under conservative scenario, number of international tourists involved in ecotourism activities increases by one and half folds and that of domestic tourists by two folds. • Under optimistic scenario, number of international tourists involved in ecotourism activities increases by two folds and that of domestic tourists by five fold.

Our analysis shows that about 60% of especially petroleum products, electricity the total tourists visiting Nepal go for forest and coal, and alternative sources based ecotourism. We have estimated including biogas, solar power, wind currently over 550,000 tourists, are power and hydropower (Figure 2.20a). involved in ecotourism activities of which Out of the total energy consumption of 85% are international (Table 2.18). Under about 400 million GJ, nearly 78% comes conservative scenario, the total number from fuel wood. On the consumption side, of tourists involved in ecotourism can be close to 90% is consumed for residential increased to more than 850,000 (720,000 purposes and only a small percentage international and 144,000 domestic). is used for industrial and commercial Under optimistic scenario, the figure can purposes (Figure 2.20b). go up to 1.3 million (960,000 international and 360,000 domestic), which is about 3 This study, however, focuses only times the current number of the tourists. on forest bioenergy. Forest based bioenergy can be obtained directly The conservative scenario assumes from timber logs and residue in forest that the number of international tourists (e.g. fuel wood, sawmill residues); from involved in ecotourism activities will processing of raw materials and weed increase by one and half fold and that growth in forest (e.g. bio-briquette); and of the domestic tourists by two fold. The from other sources of biomass through optimistic scenario assumes that the efficient conversion process. number of international tourists involved in ecotourism activities will increase by 2.5.1 Assessment of current and two fold and that of the domestic tourists future demand by five fold. Fuel wood: Fuel wood makes up around two-third of the household energy 2.5 Current Status and Growth demand in the country. Table 2.19 presents Potential of Forest Bioenergy- the share of various energy sources used based Industries in Nepal. Rural households mostly use Energy in Nepal is supplied mainly by fuel wood to fulfil their domestic energy traditional sources, such as fuel wood, needs especially in cooking and heating animal dung and agricultural residues purposes, and represent the major and followed by commercial sources, consumers of the harvested fuel wood.

50 Private Sector Involvement and Investment in Nepal’s Forestry Sector ASSESSMENT OF FOREST-BASED INDUSTRIES Chapter 2

Figure 2.20: Total Energy Consumption by Fuel types and Sectors

a) Energy Consumption by Fueltypes 2008/09 b) Energy Consumption by Sectors 2008/09 1.9% 5.2% 0.9% 0.2% 1.9% 0.7% 1.3%

8.2% Fuelwood 3.3% Residental 5.7% Agricultural residue Industries 3.7% Animal dung Commercial Petroleum Transport Coal Agriculture Electricity Other Renewable 89.1% 77.8% Total Energy Consumption : 401 Million GJ Source: WECS 2010

Mostly, the producers themselves are the - Hetauda highway consumes about 60- consumers as fuel wood is less expensive 70 kg of fuel wood in a day. In another source of energy, and often free of cost for study done by Clean Energy Nepal in those residing nearby the forest. brick industries in 2009 shows that about 100 brick kilns use about 21% of non-coal According to WECS (2010), about 18 energy, which shows that the demand for million tons of fuel wood is consumed fuel wood could increase with the increase annually in Nepal, almost all of which is in the coal price. collected free of cost by the collectors/ farmers from forests or their own cultivated Although fuel wood contributes land. At local level, the fuel wood is traded significantly to the total energy use in the to traditional industries, agro-processing country, their contribution for household enterprises, hotels and restaurants. Apart purpose is different in various regions of from residential use, restaurants around the country according to availability of other highways and brick kilns are the major end energy sources. For example, in high altitude users of fuel wood. A study by Centre for regions it makes over 90% of the total Renewable Technology (CRT/N) in 2010 energy use, whereas in Kathmandu valley shows that a restaurant in Narayanghat it is less than 3%. Over the past decade,

Table 2.19: Sources of Household Energy Used in Nepal Energy sources Number of households Percentage of households Fuel wood 3,470,224 64.0 LPG 1,140,662 21.0 Cow dung 563,126 10.4 Biogas 131,596 2.4 Kerosene 55,610 1.0 Electricity 4,523 0.1 Others 22,583 0.4 Not-stated 34,973 0.6 Source: WECS 2010

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the consumption of fuel wood in urban million tons and 10.39 million tons in 2020 area for household purpose has reduced and 2030 respectively. Figure 2.21 shows significantly, as more and more people are the fuel wood demand projection through switching over to fossil fuel based energy 2030 in different ecological regions of Nepal. sources, primarily LPG and kerosene for cooking and heating, and electricity for Bio-briquette and wood pellets: Bio- cooking and heating (FAO 2009a). It has briquette has experienced a significant been observed that the LPG has become demand growth during the past few years. the primary cooking fuel in urban centres. For example, field survey shows from an Over the last few years, the consumption average of 117,000 pieces of briquette sold of LPG has increased by about 23% per in 2009, the quantity reached to 1,000,000 annum followed by electricity (10%) in urban in 2013. It has emerged as an effective areas (WECS 2010). and alternative source of energy in Nepal because of the acute shortage of other The demand for fuel wood is expected to sources of energy, especially electricity, decrease with availability of energy substitutes kerosene and Liquefied Petroleum Gas and increasing household income. Assuming (LPG). It is used for cooking, room heating the percentage of the household using fuel and baby massage mainly in urban areas. wood to decrease by 1% within every 5 years It has also been used in home-barbequing due to wealth and income effect and 0.8 % of by replacing charcoal. Some of the the total household fuel wood consumption supermarkets in Kathmandu have also is added to account for the fuelwood used in provided separate stall for its sale because commerce and industries, and the population of the increasing popularity among the distribution in different regions, Kanel et al. urban users. As estimated by the sample 2012 estimates that the fuel wood demand retailers, the demand side of briquette in 2011 remained about 10.53 million tons, is about 10,000 families (about 50,000 which is expected to decrease to 10.52 people) who are using briquette.

Figure 2.21: Fuel Wood Demand Projection through 2030 in Different Ecological Regions

12

10

8 2011 2015 6 2020 4 2025 2030 2 Fuelwood demand (in ‘000,000 tons) 0 Terai Hill Mountain Grand Total

Source: Data from Kanel et al. 2012

52 Private Sector Involvement and Investment in Nepal’s Forestry Sector ASSESSMENT OF FOREST-BASED INDUSTRIES Chapter 2

Similarly, pellets made from sawdust and is also collected in the form of by-products of rice husks are found in the market. Pellets wood processing industries as the estimated are produced in Chitwan, Nawalparasi and residue recovery rate is about 40 to 50% for Kathmandu. Though in small quantity, the saw milling and plywood production. The pellets are also imported in Nepal. supply of fuel wood through formal channel has been decreasing in recent years. In Our analysis shows that current 2011/12, the supply was 5,709 chatta8, demand of briquette has been created about 85% originating from private through market promotion and consumer forest (Table 2.20). awareness campaign, and the market is still in the infant stage. Since briquette Bio-briquette: Community forest-based emits less carbon while burning, it briquette enterprises in Sindhupalchok, might fetch good demand among the Dolakha, Lalitpur, Dhading, Chitwan, consumers looking for clean energy. Lamjung, Parbat and Jhapa districts are Also because of the energy deficiency producing briquettes from the otherwise in the country that is also predicted unwanted forest biomass, such as invasive to last for some more years, briquette weeds and shrubs from their community remains one of the available sources of forests. Because of the infant stage of energy in the country. the industry, raw materials are mainly

Table 2.20: Annual Removal of Fuel wood from Different Forest Management Regimes Fuel wood sales (in Chatta) Forest Regime 2004/05 2005/06 2006/07 2007/08 2008/09 2010/11 2011/12 Government managed 21,650 1,464 1,871 1,713 1,939 409 437 forest Private forest 588 37,166 226 5,448 3,151 5,306 4,843 Community forest 48,229 342,826 - 3,094 1,833 244 429 Total 70,467 381,456 2,097 10,255 6,922 5,958 5,709

Source: Data from DoF (2005-2012)

2.5.2 Assessment of supply situation sourced from community forests, and and trend the sourcing has not practiced from other Fuel wood: The primary sources of fuel forest management regimes. There is wood are both forest and private agriculture only a major marketing company that has land. About 65% of households rely on forest been supplying the briquette produced for the collection of fuel wood. Community- from the community enterprises to major managed forest and private forest are major urban centres especially in Kathmandu source of fuel wood with 44% and 24% of since last five years. Other small marketing household relying on them respectively companies are also started marketing of (CBS 2011). The annual sustainable fuel community enterprise produced briquette wood supplied as estimated by Water and in Kathmandu valley in recent time. Energy Commission Secretariat (WECS) for 2008/09 was 12.5 million tons, of which 7.14 Forest residue materials that consist million tons can be sustainably harvested of substantial amount of biomass such as from community forest alone. The fuel wood invasive weeds, twigs and branches obtained

8 In Nepal, fuel wood is measured in chatta, its dimensions are 20X5X5 ft (equivalent to 14.15 m3) and weighs 10.47 ton on average

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during processing of timber could also be considered which are accessible to harvest used for briquette making, although these the biomass. Under conservative scenario, are not currently used. Table 2.21 presents in case of community forest, 25% area from the volume of biomass obtained during the Terai, 20% from hill and 2% from mountain processing of timber for the past six years. are assumed as effective collection area of biomass, while in case of private forest, 10% 2.5.3 Supply potential area is considered for harvesting of biomass Fuel wood: Though the demand of the to produce charcoal. In optimistic scenario, fuel wood is in decreasing trend, annual 40% of community managed forest area from sustainable fuel wood supply from forests Terai, 30% from hill and 5% from mountain

Table 2.21: Volume of Twigs and Branches Obtained During Timber Processing in Different Fiscal Years Year (B.S) Volume (m3) Year (B.S.) Volume (m3) 2004/05 613.07 2007/08 48.51 2005/06 41.46 2008/09 54.90 2006/07 52.97 2009/10 25.28 Source: Data from TCN and DoF 2010

is increasing. WECS (2010) reported the and 15% of the total private forest area are sustainable supply of fuel wood increased considered. Further, in conservative scenario, from 7 million tons in 1978/79 to 12.5 million it is assumed that 10 ha forest produces 1 ton tons in 2008/09. In a more recent estimate, charcoal while in case of optimistic scenario, 7 Kanel et al. (2012) estimated 16.1 million ha forest produces 1 ton charcoal with the use tons of fuel wood would be supplied in of efficient charring technology. 2030 from about 9 million tons of fuel wood supply in 2011. Similarly, wood pellets are calculated based on the data generated from a recent Bio-briquette and wood pellets: Raw study (WECS 2010). The report shows materials for briquette enterprises are the that the sustainable supply of fuel wood plants not used for other purposes and are in 2008/09 was 12.5 million tons. Under available in significant quantity in forests. conservative scenario, we assumed that The biomass obtained during regular forest 1% (125,000 tons) of fuel wood is used in operation can be utilized to make bio-briquette making wood pellets and under optimistic and pellets. The available forest biomass for scenario it can go up to 5% (625,000 tons). briquettes and pellets are calculated in two With the consideration of about 40% weight scenarios, which are given in Table 2.22. loss while converting from fuel wood to wood pellets, the weight of wood pellets comes to While calculating charcoal9, only biomass be 75,000 tons under conservative scenario from community and private forests are and 375,000 tons in optimistic scenario. Table 2.22: Supply Potential of Charcoal and Wood Pellets Products Conservative Scenario (ton) Optimistic Scenario (ton) Charcoal 34,764 89,284 Wood pellets 75,000 375,000 Total 109,764 464,284

9 Charcoal is the raw material for bio-briquettes. While making briquette, 70% charcoal is mixed with 30% clay.

54 Private Sector Involvement and Investment in Nepal’s Forestry Sector VALUE CHAIN DYNAMICS AND 3 ACTORS’ PERSPECTIVES

This chapter first presents a summary 3.1 Domestic Inter-firm Cooperation description of the inter-firm cooperation and Coordination and coordination for the four main Timber: The current timber value chain is subsectors timber, NTFPs, ecosystem dominated by few big players and exhibits services (carbon and ecotourism) and an asymmetric power distribution. Timber forest bioenergy. This is followed by in trade is controlled by urban timber buyers depth perspectives from the domestic and (usually big saw millers) based in the international value chain actors for each Kathmandu valley and other major cities of the four subsectors. While enabling that mobilize local agents and contractors and facilitating value chain functions are to obtain timber. Domination of a few done in a policy environment (covered in big players has created barriers to entry Chapter 4) and supported by research, for small holders in the timber business. extension and academe, the main Because of this, private producers must “commercial” functions are the focus of depend on the big players for securing this chapter. For Nepal to attract buyers permit for the sale of trees and leaves and investors, including international, them with low bargaining power. it must compete and operate taking into account global forestry industry As an example Table 3.1 presents the dynamics, and this chapter indicates prices, costs and distribution of gross what specific issues Nepal needs to margins along the value chain actors. address by subsector. This chapter The calculation is based on harvesting concludes with a summary of what of sal (Shorea robusta) timber in far- international private sector buyers and western Terai and selling at Kathmandu investors require taking into account how market. The table shows that the price Nepal should position itself in the global difference between production and final forestry market. consumption level is more than four

Table 3.1: Prices, Costs and Gross Margins of Various Actors of Sal Timber Value Chain Sawn Retailers Contractor Saw miller Saw miller Producer Timber of Builder’s (at local level) (at local level) (Kathmandu) Depot Joinery Buying price 1,400 2,200 2,200 4,300 4,750 Additional costs 658 (187) 1,133 1,486 (40) 129 900 Selling price 1,400 2,200 3,800 4,300 4,750 6,000 Gross margin 142 467 615 322 351

Note: All values are in NRs/cft, numbers in parenthesis are informal costs. The values except for the last two columns are of logs.

Source: ANSAB field survey 2013

Private Sector Involvement and Investment in Nepal’s Forestry 55 Chapter 3 VALUE CHAIN DYNAMICS AND ACTORS’ PERSPECTIVES

times with highest gross margins at Veneer producers claim that the veneer Kathmandu-based saw millers’ level. The price is not revised corresponding high price difference is caused by high to increase in prices of raw material. percentage of losses (35% from log to sawn The domestic furniture industry face a timber), profit margin (because of the high stiff competition against the cheap but risk) at different levels, cost of handling and attractively designed imported goods transportation and informal fees. The detail made from engineered woods, such as calculation is presented in Annex B. fibreboard and particleboard.

Input suppliers and service providers The horizontal linkage among for timber production are not well the community forest user groups is developed. To some extent, district forest strong due to the presence of their offices (DFO) produce seedlings to meet federation (FECOFUN). The FECOFUN their target of plantation and provide primarily focuses on policy lobbying seedlings to individuals and other and little attention is given for the producers. But the extension services to forest management and product the producers are very limited. DFO staff commercialization. Most of the private guide and approve operational plans tree growers are not organized into of community forests but very limited associations. The flow of information and guidance is provided on plantation. technical knowledge is not coordinated between the government, private sector The trust level between producers and and community producers. The timber buyers is very low. The private producers traders and primary processors are well and the buyers are not bound by formal linked among themselves through the contract and the buyers dictate the price. federation (FenFIT) and their commodity associations (Veneer Producers Association and Plywood Producer Association). The furniture manufacturers have associations at the district level and are in the process of establishing their own federation. These commodity associations and federations help their members in market promotion and trade as well as addressing their problems by raising a collective voice. However, the coordination among aforementioned commodity associations is seldom observed.

NTFPs: In case of NTFP, traders predominantly lead value chains and most NTFPs are still sold through spot transactions handled by them. The At the higher step in the value chain, majority of the lead traders dealing raw weak coordination between veneer and NTFPs are based in Nepalgunj while few plywood producer associations often are located in Kathmandu and other major results in conflicts over price setting. cities. The Nepalgunj based firms usually

56 Private Sector Involvement and Investment in Nepal’s Forestry Sector VALUE CHAIN DYNAMICS AND ACTORS’ PERSPECTIVES Chapter 3

do business with Indian buyers, whereas quality goods by the collectors. Unhealthy the firms in Kathmandu primarily deal with competition is common among district Chinese and overseas buyers. The district traders to procure NTFPs leading to level traders act as agents of regional overharvesting, untimely harvesting, and traders and consolidate the required gradual depletion of the resources. The NTFPs from the producers/collectors. case is evident in highly demanded natural herbs, such as satuwa (Paris polyphylla) Indian buyers largely dictate Nepal’s and chiraito (Swertia chirayita). NTFP trade as the largest share of NTFP production is exported to India. Lately, the Chinese importers are showing increasing interest, especially buying some medicinal products including yarsagumba (Ophiocordyceps sinensis), satuwa (Paris polyphylla), and chiraito (Swertia chirayita). Some NTFPs such as handmade paper and natural fibres are sold to both domestic and overseas buyers; the certified products (such as paper and essential oils) are exported to European and American markets. Through a system of advances, which comes from Indian or Chinese traders and distributed through regional and local agents, paid to harvesters and collectors in Nepal are often used to dictate quantity, quality and price of the products. Nonetheless, there are some models of fair and green value chains developed Lately, realizing the scope of business in the NTFP subsector with long-term in NTFP sector, big houses like Chaudhary committed lead firms having clearly stated and Dugar Groups have started making sustainable value chain vision. Some their investment in this sector whereas notable lead firms include Himalayan herbal giant - Dabur Nepal is performing BioTrade (HBTL) for essential oils and some of the activities since 1992. lokta (Daphne bholua) handmade paper sourced from sustainably managed The NTFP collectors are often poor and forests, Alternative Herbals for chiuri rely on district traders to meet their daily (Aesandra butyracea), natural juices, needs. This has created a more complex and Ashapuri Organic for organic dried personal relationship between these actors, herbs, herbal teas, mushrooms and making collectors vulnerable to unfair vegetables grown in agroforestry system. pricing for NTFPs and commodities they Each of them has a clearly stated get on credit (basic food, household goods, vision, goal and practices. For example, medicine). The trust level among the NTFP HBTL has been sourcing FSC certified collectors and traders is low often due to handmade paper from the rural mountain breaches of committed quantity and price communities with a buyback guarantee. of NTFPs while purchasing by the traders The paper and paper products are sold and untimely delivery of compromised to international buyers that value societal

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and green attributes. The handmade industry. This has provided good paper produced by community-based ground for governance and institutional enterprises in Dolakha and Bajhang has reforms, particularly decentralization, received FSC certification that is the first strengthening institutional capacity of its type in the world, and has been used of Ministry of Forests and Soil by an international cosmetics company Conservation (MFSC), improvement Aveda Corporation to wrap their holiday of law enforcement and efforts to build gift boxes since 2007. confidence in government institutions, which are critical for the successful Though still weak, NTFP subsector implementation of forest carbon projects has some development for organized in Nepal. The consultative initiative of the trade and export. A number of commodity REDD Cell, increased multi-stakeholder associations such as Nepal Herbs and decision making and active engagement Herbal Products Association (NEHHPA), of civil society organizations provide Jadibuti Association of Nepal (JABAN), grounds for optimism. Herbal Entrepreneur Association of Nepal (HEAN) and Handmade Paper There are some projects implemented Association (HANDPASS) are actively by civil society organizations with donor working for the support of their members. support that have identified stakeholders These associations have been organizing and are working on information sharing, producers and traders, addressing consultation and partnership building. commodity specific constraints and Furthermore, the Norwegian Agency for opportunities, and lobbying for policy Development Cooperation (NORAD) funded reform and good practices. However, REDD+ pilot project implemented in three there is no coordination among these watersheds of Nepal has built the capacity of commodity associations. There are only the local stakeholders including government a few NTFP cooperatives involved in and community members to measure and farming and trading functions, and there monitor carbon in their forests. This project is no formal network of the collectors/ has also established a pilot forest carbon producers of NTFPs so far. trust fund and developed a benefit sharing mechanism that not only considers quantity The profit margins for the NTFP of carbon but also the socio-economic producers are low. Actually the returns performance indicators, which could serve for many of the actors are low due to as a basis for developing benefit-sharing long trade chains and waste, product mechanism at the national level. adulteration, costly transportation and “informal fees” paid along the way. Some While these are positive developments examples of the cost of goods sold and for the development of forest carbon value margin distribution among various actors chain, some efforts have stalled since for some important NTFPs are presented there is no clear policy on how Nepal in Table 3.2. could develop forest carbon projects to enter in the global market. While the Ecosystem Services - Forest Carbon: REDD Cell has been working on REDD Forest Carbon as a value chain in Nepal preparedness activities in Nepal, other is in the initial stage that has emphasized activities in afforestation and reforestation increased roles of government and for CDM are not clear. The REDD Cell has civil society organizations in the been working with multiple stakeholders

58 Private Sector Involvement and Investment in Nepal’s Forestry Sector VALUE CHAIN DYNAMICS AND ACTORS’ PERSPECTIVES Chapter 3 Delhi Price in (NRs/kg) 1,680 - - 840 - - 24,000 720 1,600 - 1,200 - - - 37 45 3,120 77 256 - Price in (NRs/kg) Nepalgunj 1,150 650 100 780 22,000 3,000 20,000 390 1,200 - 950 1,600 1,600 - 24 30 3,500 60 210 1,700,000

Source:ANSAB field survey 2013 Duty Export (NRs/kg) - - - 1 - - 1 1 (marc) 5*** - 1 - - - 1 2 1 1 1 1,000 Royalty (NRs/kg) *** 5 10/piece 15 - 1 (leaf) 300 20* 20 6 15 - - 5 3** 8 15 2 8** 10,000 1,140 450 100 780 22,000 3,000 20,000 720 1,200^ SP (NRs/kg) 65 910 1,600 1,600 - 24 35 3,500 70 120 1,700,000 5 30 15 10 - - 2,900 12 - GM (NRs/kg) - 20 - - - 2 50 5 10 50,000 Regional trader/ Exporter 10 10 5 45 - - 100 20 - COGS (NRs/kg) - 20 - - - 3 20 5 18 - 1,125 410 80 725 22,000 2,800 18,000 390 100 SP (NRs/kg) 45 870 1,600 1,600 - 24 30 3,210 60 180 1,650,000 15 20 10 15 - - 1,600 20 10 GM (NRs/kg) 5 30 - - - 3 2 50 5 10 180,000 District trader 10 15 20 60 - - 400 100 40 COGS (NRs/kg) 31 90 - - - 9 13 100 10 20 20,000 Collector 1,100 375 50 650 20,000 2,200 16,000 270 40 SP (NRs/kg) 9 750 1,400 1,400 110 12 15 3,000 45 150 1,450,000 Table 3.2:Prices,Table CostsGrossand Margins ActorsVarious ofInvolved VariousChainsValueNTFPin Product *DDC levied NRs 15 as tax for Jatamansi in some districts, **= DDC 0.2 districts,***=DDC ranging from 2-5 per kg Large Cardamom, ^= price Large cardamom Allo (thread) Bamboo Chiraito Chamomile (oil) Wintergreen (oil) Morel Jatamansi Khayar Khote sallo (resin) Kutki Lemongrass (oil) Mentha (oil) Lokta Ritha Rudrakshya Satuwa (big) Tejpat Timur Yarsagumba of kattha and **** NRs 3 for Cutch & NRs 10 for liquid kattha, SP = Sales prices, COGS Cost of goods sold, GM Gross margin. of kattha and **** NRs 3 for Cutch & 10 liquid kattha, SP Note:

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for developing benefit sharing mechanism The local communities get income from for carbon from government and tourism activities and revenue sharing, community managed forests, which is and parks meet the goal of conservation. yet to be finalized. Some CFUGs near protected areas and major urban centres have incorporated The present carbon value chain in forest recreational services in their Nepal also lacks institutions to serve management plans. There are a number as the project proponent for developing of associations working in tourism sector, forest carbon project, and an aggregator such as Trekking Agencies Association or a common regulator, to ensure that of Nepal (TAAN), Hotel Association of conditions are met to implement a deal. This Nepal (HAN) and Nepal Association of role is a requirement for all internationally Tour & Travel Agents (NATTA) creating recognized formal carbon trading. The a common platform to share knowledge, role of carbon wholesalers, brokers and experience and policy lobby. Similarly, retailers are a new concept for Nepal. Nepal Tourism Board (NTB) has been providing facilitative environment by promoting the country at domestic and international markets and regulating tourism product development activities.

While there are some positive initiatives towards ecotourism in protected areas and community forests, ecotourism remains relatively fragmented. Ecotourism is undifferentiated from conventional tourism by the government. Specific programs related to forest-based ecotourism are often disregarded as a subset of ecotourism. The available business development services and existing tourism related associations also reflect this fact. There are no associations of the tourism entrepreneurs working in ecotourism sector, and the government has not identified ecotourism sites and developed Ecosystem Services – Ecotourism: an ecotourism policy. Moreover, ecotourism As forest-based ecotourism industry owners and operators themselves do not is expanding, there are some positive always have a complete understanding development from the government of how to market their services and often regarding policy updates and benefit overlook the obvious attractions that sharing mechanisms. For example, the make their green and cultural offerings protected area management has taken desirable and feasible. ecotourism as a means of improving relation between parks and people. There Forest bioenergy: The commercialization is a clear benefit sharing mechanism for the of fuel wood is not well developed. Fuel distribution of revenue, which is creating wood is mostly used for residential a win-win situation for both the parties. purposes. Most of the users collect fuel

60 Private Sector Involvement and Investment in Nepal’s Forestry Sector VALUE CHAIN DYNAMICS AND ACTORS’ PERSPECTIVES Chapter 3

wood either from their own lands or from management, skill trainings and the community forests. Large quantities of infrastructure maintenance provided fuel wood are also sourced illegally from by the consolidation enterprise to the government managed forest for domestic community enterprises. Mostly ultra-poor use. Local fuel wood sales are informal, with members of CFUGs are involved in the collectors selling directly to consumers, with bio-briquette production, which includes price determined by negotiation around the - raw material collection, charring and current market price. bio-briquette fabrication. The community members receive payment per briquette In case of formal commercial channels they produce. On average, char producers for fuel wood, the actors are similar to the and briquette-makers, especially women timber subsector. Fuel wood is collected by are making more than NRs 400 per the contractors and sold to the end industrial day. The involvement of women is high users, such as brick kilns and industries. with more than 52% of the current total In some cases fuel wood is sold through workforce involved in the subsector. depots. The price of the fuel wood from government and community are determined 3.2 Timber Actors and Their through auction with a base price fixed Perspectives by the government regulation. Most of Major “commercial” functions in this fuel wood is obtained as residue from the timber value chain include forest timber harvesting and processing. The fuel management for timber production, wood, produced from the wood processing timber harvesting/felling, log hauling, industries, is also sold to the depots or log trading, primary processing directly to the customer at market price. (sawn timber, veneer sheets and plywood), trading of primary products, The bio-briquette subsector, though manufacturing (furniture, builders’ in the infant stage of commercialization, wood work, handicrafts and others), has emerged as a successful model of and finally trading and retailing of these partnership between community and products. The major timber “commercial” private firms with a balanced value chain participants include forest producers governance system. The commercialization (government and semi government model is possible in Kathmandu valley with agencies, community and private forest community based briquette production and tree growers), contractors, saw enterprises in peri-urban areas, such millers, veneer producers, plywood as Sindhupalchok and Dolakha and a producers, furniture and handicrafts single consolidation enterprise based in makers, and secondary product traders Kathmandu. The consolidation enterprise, (wholesalers, retailers and importers). Himalayan Naturals, has a contractual The study conducted extensive interviews relationship that includes price guarantees, to obtain the perspective of these actors with the community production enterprises, and their responses are grouped by and has directly invested in these enterprises. the three primary commercial functions Himalayan Naturals is also responsible for – production, processing, and sales/ the marketing and sales of the bio-briquette investment as shown in Figure 3.1. produced by the enterprises. Major participants and their functions There is a flow of information and and the technologies they use in the services including technology, business timber value chain are presented in Table

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Figure 3.1: Focus on Major Timber Actors’ Perspectives

Timber Producers/ Timber Harvesters/Processors International Buyers and Managers’ Perspective and Manufactures’ Perspective Investors’ Perspective

3.3. A brief description of the major actors from clear felling of the trees under these involved in the three major functions of the projects is largely used for fuel purpose. timber value chain and their perspectives are presented below. Opportunities and constraints: Most of the DFOs interviewed expressed the 3.2.1 Timber producers/managers’ opportunity for increasing the supply perspectives through sustainable harvesting from This group of commercial actors the overstocked forest, and increased include government and semi- production and productivity by applying government agencies, forest producer scientific forest management practices. groups, and private forest and individual Western Terai and lower mountains tree growers. have high potential of increased supply because of the abundant natural Government and Semi-government resources in these areas. Large-scale Agencies plantation program initiated by the Department of Forests (DoF), with government has provided opportunity to the help of 5 Regional Directorates, 74 expand such programs to other places District Forest Offices (DFO) (except in as well. However, there are constraints Mustang), Ilaka Forest Offices and Range limiting the practice of scientific forest Posts, carries out the management management and harvesting and supply of government-managed forests. At potential. The major constraints include: district level, DFO and District Soil Conservation Office (DSCO) are involved Government regulation on harvesting in the production of seedlings and their of only dead, diseased and fallen distribution. Interviews with district forest trees: The ministerial level decision allow officers in some study districts reveal harvesting of only dead, diseased and that the average number of seedlings down (fallen) trees in the government produced by government nurseries managed forest. It has limited the scientific ranges from 300,000-500,000 per district management of forests and is one of the per year. major reasons for low production of the forests leading to low supply of timber. Forest Product Development Board However, tree felling is practiced in (FPDB), a semi-autonomous parastatal Kapilvastu and Rupandehi districts where body, has been working to increase sustainable forest management (SFM) forest productivity through planting fast has been initiated. growing exotic plant species in degraded forest areas. Currently there are two Limited focus and effort on scientific projects under FPDB, namely Ratuwamai forest management: Scientific forest Plantation Project and Sagarnath Forest management is affected by many reasons. Development Project managing about First, activities of DFOs towards this are 34,000 ha of forests. The wood received limited because they are required to play

62 Private Sector Involvement and Investment in Nepal’s Forestry Sector VALUE CHAIN DYNAMICS AND ACTORS’ PERSPECTIVES Chapter 3 Technologies/Skills

Trade skills, market contacts Carpentry skills, hand powered saw, finger joint technology, PVC lamination Seasoning plant, horizontal and vertical band saw, compression, peeler, Hand saws, chain saws, harvesting techniques, rope way/ tractor/trucks, logging skills Silviculture practices Nursery management, tissue culture Lab equipment, research skills Policy advocacy, formulation and implementation

Wholesalers and retailers and Wholesalers

particle board, furniture) board, particle

Importers (log, plywood, plywood, (log, Importers

makers

Furniture and handicrafts handicrafts and Furniture

producers

Veneer and plywood plywood and Veneer

Contractors and saw mills saw and Contractors

growers

Private forest and tree tree and forest Private

Private nurseries Private

(CFUGs, LHFUGs, CFMGs) LHFUGs, (CFUGs,

Participants group producer Forest

Board

Forest Product Development Development Product Forest

District Forest Offices Forest District

Research institutes Research

networks Associations and and Associations

Table 3.3: Functions, Participants and Technologies Involved in Timber Value Chain

Forest/MFSC Department of of Department Functions Manufacturing Primary processing Harvesting/log hauling Production Seedling supply Research Policy Trade

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multiple roles of technical, administrative Opportunities and constraints: The and judicial. Second, budget allocations forest producer groups perceive the for forest management activities are very participatory forest management model negligible or sometimes nil except for the as successful and take this as strength areas where SFM has been initiated. Third, for fulfilling the needs of forest products the staffs fear of being punished from the and also increasing production. They charging agencies, mainly Commission for believe the presence of local knowledge the Investigation of Abuse of Authority (CIAA) and availability of forest area and human while taking innovative/proactive initiatives, resources could be utilized for increasing such as enterprise registration, timber grading production and productivity of the forest. and measurement as they are not clearly They also appreciate the clear tenure defined in the policy. Some of the DFOs rights over forest products for promoting also mention that the lack of performance commercial production. The presence of based incentives and unpredictable strong user groups’ forest networks and transfers resulted into poor morale of a federation and a positive image are the staff. comparative advantage of the community

Security threat: The security threat by gangs, poachers and individuals often protected by political and local groups during harvesting, log hauling, piling, auctioning, and monitoring has been affecting the proper implementation and monitoring activities of the government officials. The threat has also caused difficulty in controlling illegal harvesting and transportation of timber.

Ineffective management of plantation projects: The plantation projects of the government face constraints for their effective management because of forestry in influencing for favourable inadequate allocation of human resources polices. Community forests (CFs) have and delay in release of budget. This has also received the priority of government affected various activities of the project and donor-supported programs. Amid including woodlot maintenance, plantations, these opportunities, the following monitoring, maintenance of tools and constraints were noted at the forest equipment often leading to increase in producer groups level. the area of empty plots, encroachment of forestland and theft of the equipment. Inadequate technical and managerial capacity of forest producer groups Forest Producer Groups and insufficient extension services: The forest producer groups consist Forest producer groups have low of community forest user groups technical and managerial capacity for (CFUGs), leasehold forests users groups forest management activities, especially (LHFUGs) and collaborative forests users preparation of operational plan, nursery groups (CFMGs). management, forest resource inventories,

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and scientific management of forest. land is seen as opportunity for increasing Government service in these regard plantations. The major challenges faced are limited with almost non-existence by these investors towards increasing of private service providers. As most of their investment and involvement include: the community forests utilize contractors for the timber harvesting, there are Cumbersome legal procedures, some concerns among the members additional tax burden and high about irregularities and unsustainable transaction costs for harvesting and harvesting in such cases. trade: The harvesting of trees from private land is a multistage procedure requiring Difficulties in handover of proposed CFs documents from and coordination with three and renewal of the expired operational different government agencies. Many of the plans: During the focus group discussions private tree growers perceive the process in most of the study districts, the members as a major constraint because it is highly of proposed CFs have shown concern time consuming and they often have to face about the delay in handover of the forest bureaucratic hurdles to obtain the required they have been conserving for decades. permits. The process is cumbersome to Many groups are struggling to renew their those who are not frequently involved in operational plans. This has limited their such process, and for the small holders ability to utilize forest products. who own only few trees. Because of this, the private tree-growers are forced to Private forests and individual tree handover the harvesting procedure to the growers contractors, which in turn has limited the Private forest owners and individual producers’ bargaining power. The growers tree growers are planting and growing in the mountains who own low value timber timber species, especially the fast were also seen reluctant to harvest and growing ones. They have been playing sell their trees as they foresee low return a major role in supplying timber since profit because of the high transaction cost. the supply from the government and The growers also expressed their concern community-managed forests are limited on VAT for the timber harvested from their and inconsistent due to frequent bans land as they have already paid land tax to and policy changes. the government.

Opportunities and constraints: Most of Limited availability of quality planting the private tree growers see the scope materials and extension services: for expanding plantations of fast growing Unavailability of sufficient quantity of species, both existing tree species, such quality planting materials and extension as teak (Tectona grandis), eucalyptus services is another major constraint (Eucalyptus spp.) and alder (Alnus for them. The quantity of the seedlings nepalensis), and new species, such as distributed by local forest offices is paulownia (Paulownia tomentosa) and not only inadequate but also there is Malaysian sal (Shorea borneensis), a concern on quality assurance. The because of increasing demand, growers like to use quality materials from profitability and perceived environmental private sources, but supply is limited benefits. The availability of barren land due to insufficient number of nurseries, especially in the areas with high out and they often have to pay high migration and other non-forested public price for the seedlings.

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The private sector also lacks extension Corporation of Nepal (TCN), these larger service from the government offices, as firms are the major players in Nepalese there is no expertise in timber plantation timber industry. The sawmills use management. In some focus group horizontal band saw with a very simple discussions in the Terai region, private carriage and a vertical band saw for re- tree growers raised their concern on sawing wood. investing in tree plantation for financial return, because they had the sad Contractor is usually a local agent experience of loosing their investment of saw millers or a registered firm of with the disease outbreak in the sissoo an independent person or a group (Dalbergia sissoo) plantations. undertaking harvesting, transportation and sale of logs. They are directly Limited or no access to financial involved in the auctioning process and services: Plantations involve high upfront transportation of timber from the log cost, which is difficult for most tree growers, yards. Since there is no concessionaire and long-term investment because of the for large scale harvesting of timber in long harvest rotation period of timber Nepal, CFs and the government hire trees. Most of the financial institutions these contractors for harvesting. do not accept the land that is not close to major cities including that of hills as Opportunities and constraints: The collateral. The government does not have high domestic demand for timber is the any programs for providing incentives major opportunity perceived by saw and financing. Some of the investors also millers and contractors. There is a scope perceive that there is a lack of government of increasing supply through sustainable valuation of tree (with minimum price forest management and new plantations setting) and insurance policies to support in private lands. Some of these investors access to financing. identified that forest development could be done through the utilization of the Forest 3.2.2 Timber harvesters, processors Development Fund. They believe that the and manufacturers’ perspectives presence of the FenFIT has allowed them This group of commercial actors to present concerns and issues to relevant includes saw millers and contractors, agencies and advocate for favourable veneer and plywood producers, and policies. The major constraints from the saw furniture, builders’ joinery and handicraft millers and contractors’ perspectives are: makers and retailers. Uncertainty of supply of timber: The issue Saw millers and contractors of uncertainty of supply was pronounced Sawmills are involved in contract in most of the interactions, meetings and harvesting, transportation, sale of logs, focus group discussions. The frequent, and production of sawn wood. Some are and sometimes unpredictable changes in involved in builders’ joinery and furniture policy decisions including ban on harvest, making as well. Approximately 20% of the circulars, orders and interventions from total sawmills are large in size and have CIAA have resulted to uncertainty over average processing capacity of 2,265 timber supply. According to the saw millers cubic meters per year. Most of the large and contractors, a large number of investors sawmills are concentrated in urban areas. have left their businesses because of the Besides the five sawmills of the Timber lack of raw materials.

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High risk and transaction cost of timber to be paid to the forest officials, political business: The timber trade involves high groups, local gangs and clubs and other risk as there is no guarantee of supply; officials of various line agencies cover the low security during placing tender, log major part of the transaction costs. Other collection and transportation; several major factors that increase the transaction bureaucratic hurdles, including the costs include costs to ensure security delay in getting required permits and during transportation and high interest on unnecessary checking and frequent loans taken from informal sector.

Poor social image of timber business: In spite of the significant contribution of timber to income to CFUGs and revenue to the government, timber issues have not received much importance in general public, media and the government, often limiting the growth of wood based enterprises in Nepal, mainly due to misperception about the timber business. Because of the high value of timber and weak governance, there are some cases of forest encroachment, illegal logging, misuse of authority and corruption, often depicting low credibility of the forest subsectors among the general public. But the implication of this is that the general public has the perception that every tree felled down is illegal and motivated by corruption, and the forestry sector has not been able to portray the message to the general public that the timber is a renewable resource and it can, and should, be harvested with a planned stoppage by various government line management assuring sustainability. agencies; risk of deterioration of timber quality due to delay in auction and Inefficient processing technology: The collection; unhealthy competition due to lack of large scale seasoning plants and lack of standards for the types of firms to reliance on small seasoning plants has led to be involved in timber trade; loss incurred low economy of scale, and hence increased because of difference in measurement production cost of sawn timber. The high in real product as compared to that cost of setting up of such large scale plant mentioned in official documents; and the has made the potential investment out of lack of standards for grading of timber. reach for single private firm.

The extra cost incurred while obtaining Veneer and plywood producers permits, transportation and trade of timber Veneer producers are distributed has resulted to the increase in transaction throughout the country, but a significant cost. Unofficial costs and donations required number of them are concentrated in the

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Eastern region. About 60% of the total Impractical requirement of distance veneer produced in Nepal is consumed from forest area to establish an domestically by plywood industries;and enterprise: The current policy provision the rest is exported to India. While most of of only allowing the establishment of the plywood producers rely on the veneer forest-based enterprise beyond 3km in producers for the supply of veneer sheets hill and mountain, and 5km in Terai from they need, some produce by themselves. forest is regarded to be impractical from the entrepreneurs. Opportunities and constraints: Most of the opportunities perceived by veneer Furniture, builders’ joinery and and plywood producers are similar to handicrafts makers and retailers those perceived by other timber actors. Nepal’s furniture industry includes Moreover, the major opportunity for them modern factories, hundreds of small is the increasing demand at domestic and workshops and thousands of individual international, especially Indian markets. carpenters. There are few furniture The expansion of road to rural hill areas factories with huge investment in modern has also provided the producers greater technologies, such as finger joint and access to raw materials as they mostly Polyvinyl Chloride (PVC) lamination. use the soft wood species found in hilly Most of the furniture factories based in regions. From their perspectives, the main urban areas are big in size with their own constraints they have been facing include: showroom(s) and readymade furniture. It is estimated that more than 800 furniture Increased export tax in veneer sheets: manufacturers are in Kathmandu alone. The export tax has been increased from In the semi-urban areas and rural areas NRs 3.50 to NRs 7.00 from the start of furniture makers are usually small and fiscal year 2013/14, which they believe mostly make the products on demand has reduced their competitiveness. basis. In addition, there are individual carpenters, who go to the customer’s Supply of raw material is being place and make furniture at the site. threatened due to registration of new industries without proper assessment of Builders’ joinery makers produce resource base: This problem is prominent door and window frames for construction in eastern Nepal. For example, there are purposes, mainly with their carpentry already about 40 veneer firms established skills. They usually get the sawn wood in Mechi zone, especially in Jhapa district, from sawmills, whereas some are also and the most of which are already in short involved as depot of sawn timber. Some supply and forced to run under capacity. furniture makers and saw millers also produce builders’ joinery mostly on order Wasting of the by-products from veneer basis from customers. factories: Most of the veneer producers are not utilizing the by-products. Some Beside the very few registered factories, of them have started removing such wooden handicrafts are manufactured wood residue from their factories, which all over the country mostly by small is costing them extra. This actually cottage industries operating informally at shows a potential to explore appropriate a household level. While there are some technology to convert such by-products dedicated retailers to deal with plywood, into energy. MDF panels and parquets, most of the

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furniture and handicraft makers retail their the use of old, inefficient technologies: products by themselves. The importers As most of the domestic labourers, who are based in major cities, especially in have acquired required skills by working Kathmandu and import furniture, plywood, for furniture companies for some years, parquets and other wood products, mostly have out-migrated to gulf countries and from China, and distribute through the Malaysia, most of the furniture makers trading companies. are compelled to hire relatively expensive Indian labourers. The prolonged load Opportunities and constraints: shedding causing to use expensive diesel Demands for furniture, builder’s for power generation has increased the joinery and other wood products are cost of production. The latest available increasing with urban growth and the technologies that increase efficiency changing lifestyle. New assembly and quality of finished products, such technologies, especially from China, are as seasoning and finger joints, are not available for manufacturing competitive accessible to Nepalese furniture makers customised products as demanded in mainly due to their small size of business the market. From their perspectives, and some policy hurdles or disincentives, there are three major constraints as especially to make use of fuel wood for described below. furniture making.

Limited availability of raw material: Furniture and builders’ joinery makers, especially small and those located outside the Kathmandu valley, are not getting enough timber as per their requirement. The main reason for this is that the timber auctions are of big quantity and are exported to major cities outside the production districts.

Price distortion due to informally operated firms: As the informal firms can have the possibility of using illegally sourced timber and do not pay taxes, their prices are usually low as compared to the normal price.

3.2.3 International buyers and investors’ perspectives The international buyers and investors interviewed and research done on global trends emphasized many of the observations of the domestic actors. High cost of production of furniture But, it is important for the Nepal forestry making due to the shortage of skilled sector to understand how international labour locally, electricity supply, and buyers perceive Nepal’s timber products

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in comparison to other choices they have flooring and furniture veneers are therefore around the world. This section summarizes recommended to match this market and the perspectives of international buyers create value-added opportunities for and investors for Nepal’s timber subsector. employment creation in Nepal. Nepal is a timber importer country; however in the past few years there has Given the employment generation been an increase in export of specific goals, inclusion of community forestry, timber species. There is potential and Nepal’s rich tradition of hand- for increasing trade of some timber carved woodcrafts, wood handicrafts, products especially the high value low especially with eco-label have also volume products, such as wood flooring, been prioritized (see Box 3.1). All thin veneer sheets for furniture and three of these products lines (flooring, woodcrafts from certified forests. While veneers, and wood handicrafts) have

Box 3.1: Wood Handicraft Success – Angkor Artisans

Angkok Artisans in Cambodia started as public – private partnership to train local artisans, building from a rich tradition of handicrafts. Professional presentation of products, high-end showrooms and artisan demonstrations, business skill, quality control, and marketing were supported during an initial project that included private sector investment. Now over 1,300 artisans supply products from around the country and there is a thriving tourist and export market.

Nepal has been steadily increasing its handicraft exports and has all the elements to develop a similar wood handicrafts craft village and showroom as Cambodia has. Elements of this already exist at Bungamati village and with other groups. With targeted private sector investment, these could become an even greater tourist destination and focal point to support clusters of wood artisans carving FSC wood into quality handicrafts. http://www.artisansdangkor.com

this is possible given Nepal’s forest projected market growth, but also areas if managed well, all industry strong competition. In summary, buyers members contacted still expressed are interested in the exotic woods concern over supply. Nepal could offer for unique flooring, veneers, and wood carved crafts while Timber provides Nepal with the investors are looking for opportunities to opportunity to harvest, process, and develop much sought after supplies of manufacture dozens of products needed plantation species. domestically and demanded by international markets. For international trade and 3.3 NTFP Actors and Their investment the forecast is more complicated Perspectives and varies by individual wood product. Since The market and trade channels of Nepal primarily has wild harvested wood, most NTFPs follow a general pattern with minimal supply of plantation wood, of forest or meadow to village to specialty markets for prized hardwoods road-head or trade centre, then on to and woods with distinctive grains are larger trade centres. The major NTFP a promising market for Nepal. Wood “commercial” participants include forest

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producers and cultivators (government, DFO, Herbs Production and Processing semi government agencies, and forest Company Limited (HPPCL), FPDB, forest producer groups and private collectors), producer groups (including CFUG, CFMG, NTFP collectors/harvesters, village and LHFUG), and private cultivators. traders, local agents, district and regional traders, primary processors, Government and semi government and manufacturers. The perspective of agencies these NTFP actors and their responses Department of Forests (DoF) and are grouped by the three primary district and local level offices are commercial functions – production, responsible for managing forests. Apart

Figure 3.2: Focus on Major NTFP Actor’s Perspectives

NTFP Harvesters/Processors, NTFP Producers/Cultivators International Buyers and Traders and Manufactures’ Managers’ Perspective Investors’ Perspective Perspective trade/processing, and sales/investment from forest management, District Forest as shown in Figure 3.2. Offices and District Plant Resources Offices are the responsible for providing technical support on cultivation and harvesting. HPPCL is involved in production and processing of certain NTFPs. It also provides extension service with buy back guarantee farmers involved in the cultivation of the specified NTFPs, especially essential oil bearing plants.

Opportunities and Constraints: Production of NTFPs available in the government managed forests can be increased through scientific management and sustainable harvesting to generate additional revenue and improve local livelihoods. The main constraints they Major participants and their functions face are due to inadequate resource and the technologies they use in the NTFP mobilization, especially for resource value chain are presented in Table 3.4, inventory of commercially important and a brief description of these actors and NTFPs, and insufficient human resources their perspectives is presented below. and budget allocation for monitoring activities (See Box 3.2). 3.3.1 Producers and cultivators’ perspectives Forest producer groups and private Major producers involved in NTFP cultivators production include government and Wild species of NTFPs are managed semi government agencies, namely and harvested by many of the forest

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Standard packaging, shipment vehicles, special market contact Machineries (such as for pharmaceutical formulation, paper making, fibre cloth weaving) Distillation, extraction, dryer, Trade skills Harvesting tools and skills Resource management, cultivation techniques Nursery management, tissue culture Lab equipment, research skills Policy advocacy, formulation & implementation

Manufacturers

Processors Primary

traders/exporters Regional

traders district and Village

Harvesters/collectors

Private cultivators Private

Private nurseries Private

CFMGs) LHFUGs, (CFUGs,

Participants Forest producer groups groups producer Forest

Offices Forest District

Research institutes institutes Research Associations and Networks and Associations

Table 3.4: Functions, Participants and Technologies Involved in NTFP Value Chain

HNCC DPR, DoF, incl. MFSC Functions Export Manufacturing Primary processing Local and regional trading Harvesting Production Input supply Research Policy

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Box 3.2: HPPCL, Tamagadi, Bara – A Case of Enterprise Running Under Capacity

Herbs Production and Processing Company Limited (HPPCL), Tamagadi, Bara a government owned enterprise was established in 1981 (2038-9-17) as a public company. They possess 300 hectares of land for the cultivation of commercial species, including mentha (Mentha arvensis), Cymbopogon spp. (lemongrass, citronella) and chamomile (Matricaria recutita). In addition to their own harvest from cultivation, they also buy raw materials and produce 10 different types of essential oils. The company produces 13 tons of oils annually, and employ about 200 people, including seasonal workers. Most of the oils produced are sold in Indian markets, but small quantities are also exported to Europe. The company is also mandated to provide technical support to local processors (from whom they can buy the oils) and extension service and buy back guarantees to farmers interested in cultivating selected tropical species. Even though they have enough infrastructure including distillation plants, building, ware house-shades, tractors, lands, etc., the company is not running in full capacity. The reason for this, according to them, is the lack of financial and technical resources. producer groups (CFUGs and LHFUGs) Opportunities and Constraints: Along located in hills and mountains, whereas the with the harvesting from natural forests, cultivation of NTFPs, especially essential NTFPs can also be cultivated in open oil bearing plants in the allocated pieces land that will provide good source of of forestland is getting popular among the income to the community. This also groups in the Terai. Increasing numbers provides an opportunity to establish of private cultivators, mostly individuals forest based enterprises at local level. and few cooperatives are involved in the Another opportunity is to cultivate

Box 3.3: Commercial Farming of NTFPs by Individual Farmers: A Case from Ilam District

Like many other NTFP farmers, Mr. Deu Kumar Rai of Maipokhari VDC of Ilam district started NTFP cultivation in 15 hectares (300 Ropani) of land in 2010. He invested about NRs 8 million in his farming business that includes the cost of the land purchased. So far, he has cultivated 4,000 plants of satuwa, 60,000 chiraito, 500 kiwi fruits (Actinidia deliciosa), 200 lauth salla, among others in his farm. A total 8 regular staffs are employed and 10 other seasonal labourers are hired for about 6 months in a year. At the moment, his business is informal (unregistered) but he has a plan to register it as a private company and gradually upscale the cultivation area as well as NTFP species in the future. According to the DFO of Ilam district, a large number of individual farmers are involved in commercial cultivation of several NTFPs in their lands. For instance, over 40 tons (90%) of the total chiraito production in the district comes from the cultivation. cultivation of domesticated as well as essential oil bearing plants, such as exotic NTFPs. Box 3.3 presents a case mentha, in wildlife prone areas near the of commercial cultivation of NTFPs by national parks to reduce human-wildlife individual farmers in Ilam district. conflict. This is already in practice in

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buffer zones of Bardiya National Park, For example, the cultivators interviewed where communities have reported that revealed that they are not able to get they were able to reduce the damage proper information on disease and from wild elephants in their crop fields. pest management of cultivated NTFPs, In recent years, there has been growing especially chiraito (Swertia chirayita), interest of private entrepreneurs in NTFPs satuwa (Paris polyphylla), atis(Aconitum cultivation because of the increased heterophyllum), sugandhawal (Valeriana market demand and availability of barren jatamansii), kurilo (Asparagus lands for the cultivation. There are also recemosus), aloe vera (A. barbadensis), some instances of purchase assurance stevia, chamomile (Matricaria to the cultivators by manufacturers. recutita), mentha (Mentha arvensis) and Cymbopogon spp. (lemongrass, Additional burden of environmental citronella, and palmarosa). Some assessment to CFs: About 350 user growers also mentioned that there is no groups managing about 330,000 ha (each regulation on quality planting materials in having more than 500 ha of CFs) (DoF order to address the production failures record March 2014) mostly from high due to low quality inputs. mountains are not able to renew their forests because of the compulsory provision High transaction cost for trading of Environment Impact Assessment (EIA)/ cultivated species: The cumbersome Initial Environment Examination (IEE) for legal procedure, irrational royalty renewal, as these are technical and the collection practices and informal fees services are unavailable at local level. while obtaining collection permits and Cost of EIA is usually high and often out of transportation of cultivated species, the reach of CFUG members. As the CFs such as ritha (Sapindus mukorossi), is not renewed, the members will not able timur (Zanthoxylum armatum), lapsi to harvest and sell the available NTFPs. (Choerospondias axillaris), chiuri Although there has been change on the (Aesandra butyracea), chiraito (Swertia threshold of area for the forests for IEE chirayita), satuwa (Paris polyphylla) and EIA process recently, environmental have resulted to high transaction costs assessment procedure can be harmonized for the private cultivators. with the CF guideline as the guideline already covers most of the provisions for Involvement in cultivation without environmentally sustainable harvesting. proper knowledge on costs, returns, and markets: During the study, it was Limited availability of extension observed that some individual farmers services and quality planting have cultivated some new NTFPs, such materials for cultivation: Most of as lauth salla (Taxus baccata), stevia these actors have limited knowledge and Aloe vera (A. barbadensis), without on proper cultivation, harvesting, post- proper knowledge on cost of production, harvesting methods and tools. The buyers and market price (See Box 3.4). private cultivators have not been able Some were instigated by marketing to receive the government extension agents,mostly unsustainable and illegal, services because of the lack of clear involved in networking business, which authority between District Agriculture were taking advantage by selling planting Development Office (DADO) and DFO for materials, but never bought the produce providing services on cultivated NTFPs. from the farmers as they promised.

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Box 3.4: Cultivation of Lauth Salla Without Proper Market Research

A farmer of Sulbung VDC-2 of Ilam district transplanted over 7,000 seedlings of lauth salla (Taxus bacata) in 3.5 hectares of his private land in 1985. The leaves and twigs can be harvested after 4 years of transplantation. The average annual collection of leaves and twigs is 20 kg (dried) from a 12-year-old tree. With the production, the farmer tried to sell his produce several times and spent a lot of money to explore buyers in India and Nepal but with no success. Since the transplantation, he has sold just 7,500 kg of dried leaves at the rate of NRs 50 per kg to Machhapuchre Herbal and Natural Herbal. For this, he had already paid about NRs 15-20 per kg to labour for cutting leaves. The estimated annual production is about 125-150 tons, but the buyers and market are unknown or those who assured are unreliable.

3.3.2 NTFP collectors/harvesters, return of their harvesting effort, the major traders, processors, and ones are given below. manufacturers’ perspectives Lack of proper knowledge and tools NTFP collectors/harvesters on harvesting, post harvesting, CFUG members and individuals and storage: Over harvesting and usually from poor households are improper harvesting of the commercially involved in the collection of wild NTFPs important NTFPs are major concerns. from government forests as well as As most of the NTFPs are collected from community forests. A small number of government managed forests, these individual farmers cultivating NTFPs are regarded as public good. It has in their farmland do the harvesting by observed that satuwa (Paris polyphylla) themselves and sell to local traders. is heavily harvested without any plan in The collectors and harvesters are response to rising demand from China. usually also engaged in drying, cleaning Similarly, improper harvesting practices and simple packaging of NTFPs are common in resin tapping and wherever applicable. khayar (Acacia catechu) harvesting. The harvesters lack proper tools and Opportunities and constraints: The knowledge on sustainable harvesting. harvesters, who are mostly from poor rural Similarly, the post harvest handling, communities, use collection of NTFPs including storage, is not done properly as an alternative source of income. often leading to the deterioration of the For some of the harvesters, especially quality of the products. those residing in the mountains, this is a major source of income. Proximity to the Low and unfair prices paid to resource base in general is considered smallholder collectors: Traders and as an opportunity, and as the collection local agents often treat harvesters with of NTFPs does not require special skills low prices, sometimes by using various or any capital investment, any members malpractices, such as high percentage of of the community can do the collection. weight reduction for inner materials and However, there are some constraints moisture and cheating in weighing. This at the harvester level that is limiting the happens when harvesters are illiterate, sustainable harvesting practices and elder and children.

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Village traders, local agents, district motive of gaining more income in the short and regional traders run, the practice of mixing of low quality of Village traders represent well off products with the good one and adulteration members within the community often with similar looking products are found. including political leaders and teachers. Similarly, soil contamination, high moisture They obtain NTFPs from collectors/ content, and low quality packaging have farmers and sell it to the district level resulted into the deterioration of the traders and regional traders. Some of quality. It is found that most of the district them also work as an agent of regional level traders were found not to have proper traders. They are engaged in preliminary storage facility, often leading to decline in packaging and providing technical skill quality with fungal infestation. and techniques (harvesting, drying and storing) to CFUG members and individual Uncertainty of price and unhealthy collectors. District traders usually sell competition: NTFP business is not NTFPs in regional markets. In some consistent because of its uncertainty cases, these traders are involved in in terms of quantity, demand and price. both trading and simple value addition Although most of the traders receive activities, such as cleaning, sorting, certain amount of cash in advance from grading and packaging. the buyers, final price is determined only after the goods are delivered. The buyers are inconsistent while they purchase the products; they accept any sort of quality when the demand of the product is high, and offer low price raising quality issue when the demand is low. Some unhealthy competition among the counterpart collectors is also in practice, often harvesting premature NTFPs.

High transaction costs: Informal fees associated with receiving permits along with donations and other unofficial cost demanded by political groups and check posts during the transportation are the major factors for increasing transaction Opportunity and Constraints: As most cost. Furthermore, poor road infrastructure of these traders are also involved in often leading to high transportation cost, other businesses, they view that NTFP processing delay, and multiple taxes also trade has been providing extra business contribute to high transaction cost. opportunity for them. They value the network with collectors and buyers take Limited access to finance:Due to limited this as a their strength. The constraints presence of BFIs in remote areas and they are facing are given below. problem of producing valuable collateral, as they do not accept rural land, traders Inconsistent products and improper face difficulty in accessing finance. They storage facility: Because of the ignorance usually end up borrowing from informal of the collectors, and sometimes with a sources with high interest rates.

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Regional traders and exporters arisen due to the current non-inclusion Regional traders are the lead firms of of NTFPs in Annex 7 of India’s Plant the NTFP trade, mainly operating from Quarantine Directive, which often creates Mahendranagar, Nepalgunj, Butwal, administrative hurdles at Indian quarantine Kathmandu, Biratnagar and Birtamod. Most check posts. Similarly, the police and custom of these traders also work as exporters. officials have problems in identification of NTFPs during transportation and export. Opportunities and Constraints: The Furthermore, due to heavy reliance with comparative advantage of high-mountain India for NTFP trade, market promotion and NTFPs offers good potential for the branding of Nepal’s NTFP is quite limited regional traders and exporters for trading. for international markets. Some NTFPs are unique, indigenous, and genetically superior. Besides, the demand Unpredicted government bans in of these NTFPs is increasing from China. Nepal and importing countries. The major constraints from the perspectives The government’s decision of ban on of these traders and exporters are: collection and trade of some NTFPs without prior notice has caused significant Lack of warehouse and auction losses to the traders, who have already centres: There is no provision of proper stockpiled the items. Besides, the traders warehouses for NTFPs even in the perceive the ban on the commercially major regional market centres, such as valuable NTFPs, which can be collected Nepalgunj, Birtamod, and Surkhet. This sustainably without destroying the plants has caused improper storage of the product and the habitats, inappropriate. Similarly, often degrading the quality. Nepalgunj ban by importing countries (for example, traders have suggested thatthe lack of ban on import of jatamansi oil from Nepal auction centres in Nepal is hindering the to EU) is hampering the business. growth the NTFP trade business. Primary processors Lack of proper infrastructure, Depending on the nature of raw standards, coordination and market material and their availability, processors promotion for the export: Major are based in villages, towns and cities. constraints include lack of internationally They do primary processing using simple accredited laboratory facility in the country, and locally available technologies to add insufficient number of custom offices value on the NTFPs purchased from in mountain areas despite the growing collectors/farmers and village, district trade to China and no Nepal standard and regional traders as available. These guide book for Pest Risk Analysis and technologies, although not in big scale, assessment of exportable items. Traders have been adopted, and in some cases are also facing difficulty in exporting adapted, after the traders and collectors NTFP because of the lack of proper HS have realized the importance of value code classification and sub classification. addition. Distillation of aromatic plants, For example, essential oils and herbs are handmade papermaking, fibre knitting, classified under the same code and sub and bamboo crafting are examples of classification is not yet developed. processing technologies used in Nepal.

In spite of the huge volume of trade with Opportunities and Constraints: Primary India, there is no resolution of the issue processors have good opportunity in

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NTFP business as demand of processed Nepal, often as souvenirs. Depending on NTFPs, such as essential oils, handmade their requirements they purchase either papers, allo thread, kattha, rosin and raw material directly from the traders or the turpentine is increasing. As cultivation processed goods from primary processors. of NTFPs is also increasing, they have a Chyabanparas (health tonic), Hajmola, good prospect from supply side as well. washing bags made from ritha, handmade Furthermore, the investment required is papers products, handicrafts made from relatively small and there are increasing allo and bamboos, kattha, and rosin and development support available for turpentine some examples of final products establishing this type of enterprises. exported from Nepal. Although a very However, the main constraints the traditional practice, the manufacturing of primary processors face at present are: ayurvedic medicine in Nepal is still not well developed. Recently, there is an increasing Inadequate knowledge and availability interest and investment in herbal soap of processing/value addition manufacturing in Nepal. technology: The processors especially at local level have inadequate knowledge Opportunities and Constraints: The on product development. For example, increased interests and preferences taking the case of essential oils distillation, towards natural products both many technical requirements, such as domestically and internationally have temperature regulation, oil-water content, given opportunity for the manufacturers storage bottle types and quality assurance/ to develop products from NTFPs. The control are not in their reach. government of Nepal is also promoting the use of this medicine through ayurvedic Inadequate business management hospitals in 20 districts; presently the capacity: The processors, especially at medicines required in the districts are local level lack business management mostly imported from India. The major knowledge and skills. For the community- constraints as observed by them are: based enterprises that are registered as cooperative, obtaining the certificate Low investment on R&D: Government has of origin and limited cooperation from low priority on research and development the local chamber of commerce are of NTFPs and there is no any organized the major concerns. initiative in the product development and market research. The investment form the High transaction cost for kattha private sector on product development is processors: The kattha entrepreneurs negligible. As a result, most of the NTFPs mentioned that there is lack of legal are exported in crude forms. provision to ensure a direct supply of raw material to them. This has High cost of production due to low resulted unnecessary involvement of economies of scale, the shortage intermediaries resulting into a high of electricity supply, the use of old, transaction cost for the business. inefficient technologies, and GMP certification: The prolonged load Manufacturers shedding causing to use expensive diesel The manufacturers produce end for power generation has increased the products targeting domestic consumers or cost of production of manufactured goods. international markets and tourists visiting Manufacturers of the similar products from

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India have increasing competition with harmonized system codes do not break Nepali products because such products down NTFPs by individual species, wild are produced in large scale and have better harvested or cultivated. market promotion. For example, ayurvedic medicines produced in Nepal are more While selling products to mainstream expensive than those produced in Indian. markets is probably beyond current Moreover, Nepalese manufacturers are not “organized” supply levels in Nepal, Nepal able to adopt good manufacturing practices offers a variety of “green” (community (GMP) and get certification, which would forestry, biodiversity) and “fair trade” niche enable them to access the market that markets. Nepal has increased quality and rewards with premium price. secured certifications for NTFPs, which have led to several long-term buying 3.3.3 International buyers and arrangements with US and European investors’ perspectives buyers and most recently resulted in a direct NTFPs represent the widest variety investment (see Box 3.5). One also has to of products and hence end products and consider that a mainstream company may industry groupings. Perspectives in this have specialty needs. For example with section reflect interviews with Natural Aveda, Nepal has not yet had the supply at Products Expo industry representatives competitive prices for some of the oils it uses (this Expo has tracked trends over the 20 in its personal care products (a mainstream years), individual buyers and investors, product), but did develop the opportunity and secondary research. Each individual to use Nepal’s lokta paper for its holiday NTFP has its own niche market potential and gift boxes (specialty). Nepal’s supply and there is a wide range of pricing within was organized among several community NTFPs. Markets are growing overall forest groups and level was successfully for NTFPs, but getting exact volumes matched with a mainstream company is again difficult since the international for a specialty need.

Box 3.5: Trade Show to Investor - Essential Oils Case Study Success Story

One of the best ways to meet potential new investors is through trade show contacts. When buyers and sellers spend the money to attend and/or exhibit at a trade show they are looking to buy and sell products and expand their business.

Himalayan Biotrade (HBTL) attended Biofach several years ago and met a French company who showed an interest in Nepal’s essential oils. The French company made an order and also made a visit to HBTL so get to know the company better and review their operations. HBTL also visited the company in Europe. A comfort level developed as each learned each other’s business needs and the orders became more regular. This past year, discussions progressed so that the French Company and HBTL decided there was a mutual interest to expand essential oils production within Nepal and the European company decided to become an investor. The relationship therefore developed from an initial meeting at a trade show, a buying relationship and visits over several years and now a direct investment into the essential oils business in Nepal.

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In the US, Lacey act applies to all leaked and one shipment had had a plant products, including NTFPs, Nepal chicken feather in the oil. has some companies that have chain of custody paperwork in place that would Nepal has shown over the last decade guide for putting more in systems to meet that it can supply quality NTFPs. Nepal’s this increasingly common requirement NTFPs have always been in demand, but worldwide. There is also increasing “cross- for decades were traded at low prices over” markets for NTFPs from Nepal. For often illegally across the border to India example, an herb may have traditionally and sometime China. With certifications been sold for tea blends, but now may be and deals with European and US an ingredient in a personal care product. buyers, Nepal has shown it can produce Essential oils could be considered for quality products, trade them legally with aromas in candles. There are some notable internationally recognized certifications, concerns regarding inadequate quality and include community forest user packaging of NTFP products from Nepal, groups and local interests in the deals. which is the first impression customer has of product, and can also cause a shipment Several of these deals started to be rejected by customs. From initial through public-private collaborations. export errors with buyers, poor packaging These allowed for donors to work with and contamination with foreign materials a local NGO and the private sector to was a major complaint. For example, balance the social, environmental, and essential oils containers that frequently business goals. Areas that needed subsidy, like community organizing, legal advising, technical training, and capacity development and business were supported with donor funds. The private sector provided product advising, marketing support, and product purchases and/or direct investment.

The Aveda – HBTL partnership in collaboration with the NTFP Network is an example of a public-private alliance success story. Nepal is the signature holiday program for Aveda in its 1800 stores worldwide, featuring moss green lokta bark paper with red paper Rhododendron flowers (the national flower of Nepal).

3.4 Ecosystem Services Actors and Photos: Nepal and its lokta bark Their Perspectives Major “commercial” participants in products has been a holiday feature ecosystem services value chain include for the last five years worldwide in forest managers, ecosystem packagers and Aveda stores service providers (e.g. packagers of carbon deal or tourism operators) and international

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buyers and investors. The study conducted 3.4.1 Forest carbon actors and their extensive interviews to obtain the perspective perspectives of these ecosystem services actors and their Although not well developed in Nepal, responses are grouped by the three primary major functions in the forest carbon value categories shown in Figure 3.3. Two specific chain involve forest management, forest products within ecosystem services are carbon packaging, product verification/ highlighted – carbon and ecotourism, but it is registration, product distribution and important to note that these can, and should, consumption in terms of carbon credits. Major

Figure 3.3: Focus on Major Forest Ecosystem Services Actors’ Perspectives

Ecosystem Services Ecosystem Services International Buyers and Forest Managers’ Packagers/Service Providers’ Investors’ Perspective Perspective Perspective be combined with other forest products and “commercial” participants include forest ecosystem services (water, biodiversity, soil, producers, forest carbon verifiers, distributors wildlife, etc.). Forest carbon and ecotourism and carbon credit buyers. Major participants are discussed from the perspectives of and their functions and the technologies/skills domestic actors and the international buyers they use in the forest carbon value chain are and investors. presented in Table 3.5.

Table 3.5:Functions, Participants and Technologies Involved in Forest Carbon Value Chain

Participants

Functions Technologies/Skills REDD Cell / MFSC Associations and networks Research institutions District Forest Offices Forest producer groups (CFUGs, LHFUGs, CFMGs) Forest carbon verifiers* distributors* carbon Forest

Product consolidation, Negotiation Product distribution and business skills Product verification/ MRV, Carbon registry registration Production Resource management Research Research skills Policy advocacy, formulation and Policy implementation

*These participants are not developed in current carbon value chain in Nepal

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Forest managers’ perspectives Lack of awareness on carbon as an Different forest management regimes ecosystem service and its markets: sequester carbon and could be termed Significant portion of the producers at as managers (producers or project community level (CFUGs) and investors at developers) for entering the carbon corporate level are unaware on carbon as market. The main regimes include the the ecosystem services and the benefits government managed forests, various provided by them. Consultations with the types of community managed forests,and investors, who are well aware of the forest private forests. There are some pilot carbon issues and opportunities, reflect initiatives on REDD+ activities in some that the investors are not motivated to community forests and leasehold forests invest in forest carbon unless there is a by some development organizations. compliance market.

Opportunities and constraints: As Limited capacity of producers in there is growing awareness among quantifying and increasing forest the producers on the importance of carbon: Producers at community level have forest carbon, they have considered it limited or no technical capacity to measure as an additional income stream from and quantify forest carbon. Similarly, forest management. Improved forest challenges perceived by governmental management, governance and benefit sector are basically related to their capacity sharing are other opportunities the to control illegal harvesting and knowledge producers at community level have and skill for quantifying forest carbon. realized out of REDD+ as their forest management has to comply with Highly disintegrated forests and international standards, such as reducing different management regimes: The emissions from deforestation and forest forest area in Nepal is highly disintegrated degradation strategic environmental and often characterized by different and social assessment (REDD) SESA management regimes within a landscape. to secure carbon credit buyers. The Because of this it is unclear on developing producers are also aware of the the institutional framework for REDD+ and growing carbon market. With respect to other carbon projects in Nepal at landscape reforestation, afforestation and reduced level. This has also caused difficulty and deforestation, emission reductions costly effort to set up a monitoring system in through carbon sequestration in (forest) the emerging market, at least until the forest ecosystems can at least be competitive markets reach more mature status. in the voluntary market. However, the producers have realized a number of Forest carbon packagers, product constraints in getting benefits from forest verifiers, distributors and buyers’ carbon training. Major constraints include: perspectives As there is no clarity on the market Unclear tenure rights: The most mechanism yet, the role of the government fundamental legal issue with which project and community is not clearly defined. developers have to face is who owns the Actors for the registration and monitoring, forest carbon in forest management regimes. reporting and verification (MRV) of the Property right is well defined for the private carbon projects are missing in the chain. forestry, however it is unclear for ecosystem Banks and financial institutions have not services derived from the community forests. developed products for forest carbon

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projects. Idea of wholesalers, brokers, Lack of awareness on carbon as an and retailers for product distribution is ecosystem service and its markets: itself a new concept in Nepal. Because of Some investors at corporate level are the infant nature of the value chain, the unaware on carbon as an ecosystem service product consumption is not well developed and the benefits provided by them, which as well. The actual transaction is limited has led the decrease of motivation among to a couple of voluntary transactions them to invest in forestry projects. by some private companies and donor- funded projects. 3.4.2 Forest-based ecotourism actors and their perspectives Opportunities and Constraints: Major actors of forest-based Investing in ecosystem services and ecotourism are forest managers, tourism emitting less carbon in their supply service and product providers and visitors. chain, companies may have good Major participants and their functions and public relation opportunity and provide the technologies/skills they use in forest- indirect business benefits. Similarly, based ecotourism in Nepal are presented investing in ecosystem services may in Table 3.6. improve relationships with regulators and communities. Furthermore, as carbon Forest managers’ perspectives market is an emerging field, the investors Protected areas (national parks, wildlife will have better recognition as the pioneer reserves, hunting reserves, conservation institution in the country. The forest areas and buffer zones), community carbon buyers/companies, particularly forests and botanical gardens are the at international markets are interested major resource base and are managed on forest carbon of Nepal, as they want by the government mainly Department of a story in addition to carbon to achieve National Parks and Wildlife Conservation CSR goals. Details of the opportunities (DNPWC) and Department of Plant perceived by the international buyers are Resources (DPR), community forest user presented later in international buyers groups and some private sectors. and investors’ perspective. Amongst these opportunities, there are constraints Opportunities and constraints: As for the buyers to access forest carbon in there is growing trend of picnic and Nepal. Major constraints include: hiking activities, community-based forest management units, particularly Lack of aggregator or common close to urban areas have considered regulator: In some cases when a forest based ecotourism as one of the potential private buyer is interested in additional income generation sources. purchasing forest carbon in volume, it Increased income form increasing number is necessary to organize many forests. of international tourist in protected areas There is, however, lack of institution to provides opportunity for the protected area serve as an aggregator or a common management to increase the participation regulator, to ensure that conditions are of local communities in conservation by met to implement a deal. While pilot sharing revenue with them. initiative in Nepal shows that community forests could be aggregated, they lack Major challenges perceived by forest capacity in this aspect and one need the producer groups are lack of infrastructure, regulator. such as good roads, foot trails and

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Table 3.6: Functions, Participants and Technologies Involved in Ecotourism Value Chain

Participants

Functions Technologies/Skills

NTB / MoCTCA Associations and networks Research institutions DNPWC / DPR Forest producer groups (CFUG) operatorTour and Travel agents Air and land transport operators Eco-lodges, resorts, hotels, homestays Local guides

Excursion Excursion management, local knowledge Hotel Accommodation management, and catering hospitality Vehicles, safety, Transportation hospitality, local knowledge Service and Business skills, product market skills development Resource Production management Research Research skills Policy advocacy, Policy formulation and implementation

accommodation facility: Likewise, restaurants and other food providers fall forest fire, poaching and unsustainable under this category. harvesting of forest products are the challenges perceived by protected area Opportunities and constraints: They management for sustainable ecotourism. see the growth prospect, as there is an increasing interest from the international Ecotourism service providers’ tourists visiting Nepal on natural areas, perspectives wildlife and local culture. There is a recent Businesses, including various trend of visiting natural and protected areas combinations of local businesses, in- by domestic tourists. Nepal is featured bound operators, outbound operators, in international media as one of the best hotel and other accommodation providers, places to visit in the lifetime. Several

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new sites are identified, including those 3.4.3 International buyers and managed by CFUGs, that are suitable investors’ perspectives on for ecotourism. Many of the challenges ecosystem services faced by the investors in the ecotourism Interviews conducted with the ecosystem sector are similar to those faced by other services (PES) developers, brokers and investors in Nepal, including difficulty in buyers each with detailed experience in the accessing finance, lack of business carbon, biodiversity and other PES markets expertise, and high upfront shows that Nepal has a great story to tell transaction costs. on community forestry, poverty alleviation, reforestation, food security, biodiversity, Uncertain and unclear property rights: women in forestry, etc. that make Nepal’s Eco-lodges and related services often potential forest carbon a strong competitor operate in ecologically sensitive or natural in the markets. Three firms during the resource rich areas, but in these areas owner interviews, on the spot offered to help sell and user rights are frequently contested. For Nepal carbon credits. example, in 2012, the government decided not to continue the operation of seven hotels Yet there still remains a lot of leased inside the Chitwan National Park, on misconceptions about PES and carbon the recommendation of the parliamentary and REDD plus in particular. Nepal has Natural Resources Committee, in order to actually had substantial support from the protect wildlife and trees. Norwegians, other Europeans, and World Bank for REDD readiness and there are Lack of appropriate financing options: several deals involving community forests A major problem with the small-scale that could be brought to the market soon, entrepreneurs in Nepal is that it is small, but it is unclear what the Nepal government disorganized and limited in its capacity to want to do regarding carbon trading. This raise resources and invest in the form of is not unusual and dozens of countries equity. Limited access to loans from financial around the world continue to study and institutions means high upfront costs, which debate the best way to move forward, not they have to struggle to meet. approving even pilot deals. It is strongly suggested that Nepal allow some pilot Political instability: Another factor that limits deals to proceed while it weighs its final the tourist arrivals and returns on investment policy. More and more forestry and cook is the frequent internal disturbance, such as stove carbon deals enter the market each strikes. For example, eight 4-star hotels were month and Nepal could be losing out on an shut down during the decade long conflict. important source of funds for much needed Because of the political instability, some reforestation and forest management and countries with significant number of tourist rural development. Nepal has opportunities arrival, such as the USA, direct unfavourable in the PES markets, but government travel advisories to their citizens. policy that is not yet ready to allow even pilot projects to proceed, means Nepal is High cost of air transportation for losing out on potential investment funds international tourists: As Nepal does not for sustainable forest enterprises. have direct air route from some major tourist exporting countries, the airfare of travelling Nepal has done extensive work to allow to the country is high making Nepal’s for sufficient safeguards so communities are ecotourism packages more expensive. protected. There has been significant work

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done on community organizing, free and 2013 is the BioCarbon Fund (see Box 3.6). prior informed consent, transparent benefits sharing, robust carbon accounting and Conserving and expanding Nepal’s monitoring methods. Yet, deals are not being forests also protects other essential allowed to go to the market. The optimistic ecosystem services including biodiversity, rationale for the delay is that policy makers water, flood and landslide mitigation, want to maximize poverty alleviation and soil health, wildlife and tourism. Wildlife conservation outcomes in these PES deals. Friendly and Ecotourism are growing While this is a desirable goal, PES deals are areas. Opportunities for joint venture not designed to solve all the social, economic, investments from Asia and European and environmental ills of Nepal. Too often private sector partners for expanded promising deals are not allowed to proceed, tourism is a promising area for Nepal.

Box 3.6: BioCarbon Fund Launches 280 million Initiative for Sustainable Forest Landscapes

The fate of the climate, forests, and agriculture are bound together. If agriculture and land-use change continue to produce up to 30% of global greenhouse gases, it will mean further disaster and disruption from climate change,” said Rachel Kyte, the World Bank’s Vice President of Sustainable Development. “That’s why the new BioCarbon Fund Initiative for Sustainable Forest Landscapes is so important. Its grants and results-based financing aim to reduce greenhouse gas emissions from the land sector, through REDD+, climate-smart agriculture practices and land-use planning.”

In a new public-private partnership, Unilever is looking to how it can support the fund. We need to find new forms of public-private partnership to address global challenges such as deforestation,” said Paul Polman, Unilever’s Chief Executive Officer. “Multilaterals like the World Bank play a critical role in catalyzing these new business models and Unilever is interested to learn how we can participate and partner with the BioCarbon Fund.” From Wildlife Works November Newsletter

since policy makers and some NGOs would 3.5 Forest Bioenergy Actors and like a PES deal to tackle too many issues. Their Perspectives PES deals should meet guidelines instituted Major “commercial” participants in by some of the better respected PES forest bioenergy value chain include mechanisms [e.g. Plan Vivo, Gold Standard, producers/forest managers, harvesters, Climate Community and Biodiversity Alliance processors and manufacturers, and (CCBA), Voluntary Carbon Standard (VCS)], buyers and investors. Two major areas of but not be loaded up with items not required. forest bioenergy are covered – fuel wood and charcoal (especially briquettes). It PES deals and biological carbon deals should be noted that international buyers (includes forestry and agriculture-based strongly recommended that Nepal not try carbon deals) continue to have donor and to export forest bioenergy products, but private sector funds interested in investing. investor opportunities from donor and The most recent fund announced late in semi-private donor supported programs

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Figure 3.4: Focus on Major Forest Bioenergy Actors’ Perspectives

Forest Bioenergy Forest Bioenergy International Buyers and Producers/Forest Harvesters/Processors and Investors’ Perspective Managers’ Perspective Manufactures’ Perspective were recommended. The actors’ chain presented in Table 3.3. Moreover, perspectives are grouped by the three saw millers, veneer producers and primary categories shown in Figure 3.4. furniture-makers function as the wood by-product producer and supplier for Fuel wood is obtained directly from secondary fuel wood. forests or other woodlands (woody materials including shrubs), and as a For bio-briquette value chain, major residue of primary and secondary wood functions, participants and technologies based industries. Major participants of involved are presented in Table 3.7. fuel wood value chain include forest The bio-briquette value chain is in its producers, contractors, depot and sellers, initial stage. The major actors involved in which are same from the timber value bio-briquette production and trade

Table 3.7: Functions, Participants and Technologies Involved in Bio-briquette Value Chain

Participants

Functions Technologies/Skills

DOF/MFSC;AEPC Associations and Networks Research institutions (CFUG) groups producer Forest growers tree and forest Private Wood based industries Char producer Bio-briquette manufacturer Consolidation enterprises Wholesalers and retailers

Trade Consolidation, Consolidation and packaging packaging skills Bio-briquette Grinder, mixer, dye, production bio-briquette making skills Harvesting tools, Char production pit/charring drum, char production skills Inputs supply Resource management Research skills, testing Research equipment Policy advocacy, formulation & Policy implementation

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are micro-level production units (char making charcoal and briquette. The major producers), bio-briquette production constraints as perceived by government enterprises, consolidation enterprises, and and semi government agencies are: dealers and retailers. Perspectives of the actors of fuel wood and bio-briquette are High incidence of forest fires: The high presented below with short description of incidence of forest fires, especially in the actors in these value chains. government-managed forest, has caused significant loss of forest biomass. The main 3.5.1 Forest producers/managers’ causes of forest fires include the lack of perspectives proper management of forest litter, lack of timely clearance of fire lines, and intentional Government and semi government fire by local people for clearing the forest agencies with the expectations of getting good grass These actors are similar to those as sprouting for grazing, and occasionally for described in timber and NTFP sections. NTFP harvesting. Their perspectives in relation to fuel wood is presented below. Uncontrolled and free grazing: Uncontrolled and free grazing has led to Opportunities and constraints: There is resource degradation and low regenerating a good opportunity to increase the supply capacity of forests in some areas. of forest-based biomass through proper management of the government forest Forest Producer Groups to address Majority of the forest user groups energy crisis to produce fuel wood mainly for their own certain extent. consumption, and only some CFUGs The initiation produce this for sale. of large-scale p l a n t a t i o n Opportunities and constraints: There p r o g r a m m e has been increase in biomass stocks adopted by due to the successful implementation of g o v e r n m e n t community forestry. The expansion of has provided road and the establishment of fuel wood p o s i t i v e based industries, such as small brick indication of kilns in rural areas, and growing demand i n c r e a s i n g from tourism industry has increased the supply of fuel sale of forest-based biomass. There is wood. Besides, a scope of fast growing multipurpose the clearance energy plantations, as done in Mustang, of invasive to meet the demand of fuel wood and weeds and fodder. The invasive weeds, biomass u n w a n t e d from thinning and pruning activities shrubs serve also offer an interesting potential win- dual purpose win situation in using the material of proper for bioenergy in combination with maintenance forest restoration interventions. The of forest and as constraints as expressed by the forest raw material for producer groups are:

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Lack of commercial orientation and flow of information, technologies and the high transaction costs: Many of the incentives provided to local political units groups involved in fuel wood production are and communities. In spite of the provision of subsistence oriented. It is a by-product of District Environment and Energy Unit (DEEU) timber and forest management operations, in every District Development Committee especially thinning and pruning. The cost of (DDC) with a mandate of promoting energy fuel wood is comparatively high due to the at DDC level, the service is yet to be reached lack of efficient harvesting knowledge and in many of the remote areas. technology, and expenses incurred in getting approval, harvesting and transportation. Inadequate supply of services on fuel- efficient technologies: In spite of the Lack of knowledge and technology growing level of awareness on advantages for conversion of forest biomass into of biogas, mud and metallic Improved value added products: Despite of surplus Cooking Stove (ICS), and bio-briquette, fuel wood in some CFs, there is no any many of the rural households are unable commercial utilization plan primarily due to to benefit due the unavailability of the the lack of knowledge and technology for service providers for the installation of conversion of forest residue and obnoxious fuel-efficient technologies. weeds into energy products 3.5.2 Harvesters, processors, Private forest owners and tree manufacturers and traders’ growers perspectives Many of the rural households in Nepal usually practice agro-forestry or grow few Fuel wood contractors, local traders trees in private lands to produce fuel wood and depots for their consumption. There are very few The contractors involved in timber trade, forest owners or tree growers who are usually participate in bulk purchase of fuel involved in commercial production and wood, especially from government and sale of fuel wood. community-managed forests. The local traders usually contract the standing private Opportunities and constraints: There forests in the villages and harvest fuel have been increased stocks of biomass wood. Both the actors are involved in fuel in many of the farmlands with change wood processing (cutting and chopping) in lifestyle, especially the use LPG for and transportation upto sales depots or cooking. For example, about 20% of the customers, mainly brick kilns. Fuel wood fuel wood supply in western part of the depots, mostly located in market centres country comes from private forest. The stock the fuel wood and sell to the end increased concept of agro-forestry practice users. The Timber Corporation of Nepal has also provided multiple products (TCN) also sells fuel wood from its depots. including fuel wood. The constraints as noted by the private forest owners are: Opportunities and constraints: In the present context of insufficient and Lack of planning, implementation and uncertain supply of fossil fuels, fuel wood monitoring for the energy situation presents a good opportunity. Besides, the and promotion: There is very weak growing tourism industry in rural areas has coordination and cooperation among energy also increased the demand of fuel wood. related organizations often limiting the The constraints faced by them are:

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Unorganized trade: Except the knowledge of harvesting biomass, digging government auctions, the trade of fuel pits and making char are their strengths. wood is largely informal and at times illegal. The conversion into char in the collection The industrial use of fuel wood is very little spot reduces the burden of carrying heavy and there is almost no demand from rural loads providing instant cash upon selling users, as they produce by themselves. to briquette production enterprises.

Lack of reliable supply: Due to frequent Amongst these opportunities, the change in policy decisions, such as producers are facing the challenges due to bans, and cumbersome process of the lack of proper tools and technologies purchasing fuel wood from community and for char production, uncertainty on access government managed forests, the traders to biomass collection, and lack of proper face the problem of finding a reliable and storage facility for char. The collection consistent supply of fuel wood. of biomass and char production is done with the use of traditional tools and Wood by-product producers technologies available locally. These are Saw millers, veneer producers and less efficient and sometimes inconsistent furniture makers produce wood by- in producing quality char. products, which is used as fuel wood. Bio-briquette manufacturers Opportunities and constraints: Most of the briquette production Significant amount of by-products is enterprises are community-based and produced from wood product producers established with the support from various and manufacturers that can be utilized development organizations. They for the production of different energy produce briquettes of various sizes by products, such as pellets and briquettes. mixing charcoal with clay and putting The main constraint for the entrepreneurs manual pressure, and dry in the sun. is the awareness and access to efficient and cost effective technology for the Opportunities and constraints: The conversion of wood by-products into community-based briquette enterprises energy products. In the absence of have advantage of easy access to raw knowledge, the veneer industries often materials and char producers. Similarly, need extra costs for the disposal of their the involvement of local communities in by-products instead of converting these to these enterprises makes them eligible to energy products. get support from development organisation and the government agencies. The Char producers availability of in-country expertise in The char producers, usually the machine fabrications at small scale, members of a CFUG, residing near the which are being improved periodically, bio-briquette production enterprises, has helped in upgrading product quality produce char using the traditional pit and efficiency. As the commercialisation method of production. of briquette has been initiated, it has presented the scope to source advance Opportunities and constraints: As the machineries from neighbouring countries. char producers are member of community However, there are some constraints for forests, they have easy access to forest the efficient operation of these enterprises, biomass. Furthermore, the traditional which are given below.

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Inconsistency in the product quality: Opportunities and constraints: Quality of briquette depends upon the The consolidation enterprises foresee a quality of char and the process of grinding, great opportunity of expanding the scale mixing and compaction. Since these are of business as they see the increasing usually done manually or by use of simple customer base. Their expertise in business machine, quality of the produced briquette management and marketing has created is not consistent. Besides, lack of proper a scope for further commercialisation with production and storage facilities have improved brand development, effective caused difficulty in quality maintenance marketing and sales. At supply side, they of the product. have a good relationship with community based enterprises due to transparency Insufficient management capacity: at practical level at whole value chain. The complexity of group ownership and Increasing interest of donors and leadership of the community-based financial institutions on renewable energy enterprises have affected the regular can also be taken as an opportunity in operation and confidentiality in the this sector. However, there are some business. There is no established practice constraints as follows: of standard operating procedure in these enterprises. Usually social leaders are High cost of operation: Due to the trusted to look after these enterprises and seasonal nature of business a major in most of the cases, they lack business part of investment is required for the and enterprise management skills. maintenance of stock and working capital Similarly, there is a lack of local technical as the sales are mostly in credit. The high expertise, even for the maintenance legal requirement for business operation of simple machines/technology, which (incl. transit permit) has also increased has reduced the efficiency of these the cost of operation. enterprises. Low reliability of getting large- scale supply: Due to labour intensive Difficulty in accessing finance:Because production, there is low reliability of of community group as the owner, it has getting large-scale supply of briquettes been difficult to get collateral for large from the production enterprises. sized loan. It is also hard to bring enough investment from individual members in a Lack of focus of rural energy policy group entity. for urban market: Rural energy policy 2006 is rural focused. This has limited Briquette consolidation and marketing the urban companies to be benefitted enterprises from the policy in spite of the great The consolidation and marketing potential market of renewable energy in enterprises collect the briquette produced urban areas. from various production enterprises, keep stock and conduct sales and marketing. 3.5.3 International buyers and The consolidation enterprises also investors’ perspectives develop the marketing network consisting Forest bioenergy should be part of of dealers, supermarkets, department Nepal’s energy strategy, but not at the stores, grocery shops and other retailers expense of food production. Nepal has to sell the briquette to consumers. to consider land use in developing its

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bioenergy. Bioenergy is an important • Biofuels have been a real struggle component of a renewable energy mix, for those interviewed with few private helping to ensure a stable energy supply. sector investments being made in But forest biomass and productive biofuels in past year. land are limited resources, and part • Several investors interviewed had of Nepal’s ‘natural capital’. So it is experiences trying to trade liquid essential that Nepal considers how to biofuels and “it was a disaster” and use existing resources efficiently before they lost a lot of money. Experiences imposing additional demands on land for like this had meant that were a energy production. year ago there might be 20 or more investments in biofuels being made at Generally, three generations of biofuels investor circle conferences/meetings, come under discussion. First generation this year there were two (both for third transport biofuels, for example biodiesel generation biofuels). based on oil from rapeseed or ethanol • Might be opportunity to build pockets from wheat, are shown to be far less of small production that services a efficient than second generation solid small area surrounding the production biofuel which combine heat and power facility, this is something Nepal should applications and are made from waste and consider. by-products (leaf litter, sawdust, rice hull • One buyer indicated he gets 3-5 pellets and briquettes for example). Third phone calls per week from European generation include fuels from seaweed countries (namely Italy, UK and and other non-traditional materials and Germany) asking to buy wood pellets are still largely experimental. but he is unable to sell at a cost that they are willing to pay. All those interviewed only recommended • Their interest stems from a desire to be second-generation solid biofuel ‘green’ but the firm interviewed believes development for Nepal, indicating almost all you lose the green aspect when you investors had lost interest in liquid biofuels have to transport the fuel long distances. especially Jatropha (Jatropha curcas), which at one point in Nepal was seen as Funding Opportunities very promising. Those interviewed did feel While the market for clean energy in that solid biofuels for both commercial the private sector might not be the most and household use were promising, but robust, as is often the case with new did not recommend Nepal to try to export, technologies, donor agencies are on the describing the market as “cut throat” and vanguard of technology development. high volume, low priced. The industry Listed below are several donor agencies interviews shared the following insights: that either currently have open calls for • Would not advise anyone to invest in proposals or pride themselves on a strong this sector, as traditional sources of focus in the clean energy sector in Asia. fuel are still too cheap. • Industry is not standing on own two Asian Development Bank (ADB): feet yet. ADB has a Clean Energy Financing • Overall, biofuels are extremely Partnership Facility (CEFPF). Through fragmented but could be opportunities the CEFPF, the ADB aims to improve for local sales of a waste/residue from energy security in developing member an industry plant. countries and decrease the rate of

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climate change. It does this by financing studies that cover market trends and the deployment of new, more efficient policy recommendations in the energy and less polluting supply and end-use markets. A quick review of their website technologies, through either grant or demonstrates that there are eight active non-grant resources. Supporting the projects and two projects in the pipeline development and scaling of various within Nepal. While most active projects sorts of distributed energy production appear to be large infrastructure initiatives opportunities are key programmatic being implemented by the Government of components of the CEFPF. Nepal, there might be opportunities for partnerships with government agencies Climate Technology Initiative – and/or public-private partnerships. Private Financing Advisory Network (CTI-PFAN): The CTI-PFAN identifies International Finance Corporation (IFC) promising clean energy projects at an - Clean Tech Venture Capital: The Clean early stage and provides mentoring Technologies Investment Team is IFC’s for development of a business plan, venture investment arm, focusing on investment pitch, and growth strategy, companies with the potential to lead in significantly enhancing the possibility technology and business model innovation of financial closure. Beyond providing and produce high development impact in funding and technical support, CTI- emerging markets. They invest directly PFAN organises summits and seminars in emerging markets or in technology around the world dedicated to clean transfer that benefits developing nations, energy. They currently have one open offer long-term investment horizons, call for proposals and while it does not provide for the ability to leverage the specifically apply to Nepal, it provides an resources of the entire World Bank Group, overview of what types of opportunities and are dedicated to maximize the value they fund: of client companies through sustained assistance. Several companies in India • Project Development Initiative in and China are already a part of the Clean India– They are implementing an Tech Investment Team’s portfolio. initiative to present promising clean energy projects from India to interested International Energy Agency (IEA): investors. This initiative actively seeks The IEA is an autonomous organization innovative projects that are financially that works to ensure reliable, affordable viable, socially responsible and and clean energy for its 28 member environmentally beneficial. countries and beyond. They focus on • Furthermore, CTI-PFAN is currently promoting energy security, economic funding one project in Nepal. The development, environmental awareness, implementing organizations, HPR and engagement worldwide. While Nepal Nepal Private Ltd and AASTHA is not a member country of the IEA, Network Private Ltd, are introducing due to IEA’s focus on energy security and scaling up small-scale biomass and economic development, contexts gasifiers for the drying and processing similar to Nepal is a key component of of high value cash crops. IEA’s work. IEA doesn’t appear to be a grant making entity but they serve as a World Bank: The World Bank provides collection point for energy related data numerous resources, reports and plus they author many unique reports and

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policy recommendations. For example, factored in, competitive with other the yearly report, World Energy Outlook countries that sell similar products? is an excellent free resource to provide a landscape-level view of trends in the Each of these four items is described energy markets and recommendations. below in relationship to the most recent Specifically, the World Energy Report international forestry sector developments from 2011, Energy Access for All- and international forest industry surveys Financing Access for the Poor, and the and trends. report Advantage Energy- Emerging Economies, Developing Countries and 1) Regulatory Compliance the Private-Public Sector Interface, are Reputable buyers in the United States, both relevant to the Nepal context. Europe, and other developed nations, where international standard for sustainable 3.6 International Buyers and forest management are valued, may also Investors’ Requirements require third party certification and/or This portion of the study focuses other documentation that proves forest on secondary and primary research of products have been sourced legally. In the international private sector investment case of the United States, the Lacey Act and buyers for Nepal’s forest products. Amendment (see Box 3.7) requires by law In particular, this study emphasized four that importer of any timber (wood) or non- subsectors prioritized in the study: Timber timber forest product source only legally (specialty wood products flooring, furniture harvested forest products. veneers, and wood handicrafts); NTFPs (Essential Oils, Medicinal Herbs, Spices, The US is not alone in this Natural Fibres, Cosmetics and Detergents); enforcement. Increasingly, governments Ecosystem Services (especially carbon are strengthening the legal frameworks and ecotourism); and Forest Bioenergy. that regulate the trade of timber and International private sector investors and non-timber forest products. In the buyers are concerned with four major areas, United States, for example, the Lacey in the order presented, when considering Act Amendment calls for increased investment in Nepal’s Forestry Sector: transparency and requires importers to 1) Regulatory Compliance: Will the declare the species, country of origin, products from Nepal be sourced and other related information of these legally and adhere to all Nepali and products. US firms have been raided, international forestry and trade laws? shut down and hit with heavy fines. 2) Reliability and Ease of Business Relationship: Will my Nepali The European Union’s (EU’s) Action Plan business suppliers/investee deliver on Forest Law Enforcement, Governance on time, and operate a professional and Trade (FLEGT) encourages businesses business that I can rely upon? to adopt purchasing policies that exclude 3) Product Supply and Quality illegal timber from their supply chains and Consistency: Will there be consistent, promotes the implementation of sound quality supply of forest products public procurement policies by its member in Nepal? states. Thus far, the FLEGT plan has 4) Price and Value for Money: Are operated through Voluntary Partnership Nepali forest products with taxes, Agreements (VPAs) between individual EU export tariffs, and transportation costs states and selected producing countries.

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However, a proposal has been made to the and many interviewees shared horror European Commission that would establish stories of importing forest products that regulations to govern the import and trade did not meet regulations with huge costs of wood and wood products within the EU10. to industry members. This is a growing trend worldwide with even China and Within Nepal, the government has lists India increasing their regulations and of specific banned species for export. While enforcement (two countries that used to exporting from Nepal, the documents namely be considered lax on both). Countries i) payment of all relevant taxes including in Latin America, that just 10 years ago local tax, ii) plant quarantine certificate, iii) had a reputation for clearing the rain certificate of origin and iv) certification from forest, now have become preferred forest management and/or scientific authority (in products trading partners and gained

Box 3.7: The Lacey Act Amendment – Strong Enforcement to Curb Illegal Timber and Plant Trade a Growing Trend in International Markets for Forest Products

The Lacey Act is a United States (U.S.) law that originally related to illegal trade in wildlife. In 2008, amendments to the U.S. Lacey Act were passed. Effective 22 May 2008, the law makes it illegal to import, export, transport, sell, receive, acquire, or purchase in interstate or foreign commerce any plant, with some limited exceptions, taken or traded in violation of the laws of the U.S., a U.S. State, or relevant foreign law. This law affects manufacturers and exporters who ship a variety of products made from wood to the U.S., including paper, furniture, lumber, flooring, plywood and other products made out of wood as well as non timber forest products – including medicinal plants, lokta bark paper, and other plant and wildlife based products. the case of Convention on International reputations for sustainable management Trade in Endangered Species of Wild Fauna and legal sourcing of products. Asia and and Flora (CITES) and banned) are required. by extension Nepal have to catch up on regulatory reputation. One industry For processed products and services association commented that if Nepal could that include other ingredients or attributes, distinguish itself as a source of products for example, glue and finishes in wood that meet all regulations, it could out- flooring, carbon credits that also claim compete other supplies even if their prices biodiversity conservation, an essential oil were a bit higher. Regulatory compliance or detergent that will be used in personal has become that important for international care or cleaning product – additional buyers and investors. regulations in the importing country to meet phyto-sanitary, human health, 2) Reliability and Ease of Business environmental codes, and international Relationship treaty obligations may also apply. Across the interviews for all products, buyers and investors stressed that they The increased attention to regulatory are putting more emphasis on working controls is the number one concern with existing suppliers/partners rather mentioned by industry representatives than jumping around to get the best

10 http://www.rainforest-alliance.org/forestry/verification/timber-regulations (Accessed December 1, 2013)

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turned it around to be forestry export and investor leaders. The most recent examples are Brazil and Indonesia. Specific things Nepal has opportunities to build its reputation include the success stories in successful community forestry enterprises. Nepal could collect and consolidate the good buyer and investor relationships that have succeeded and start publishing articles and features to get the word out. Nepal has also opportunities of expanding certification for many products in order to meet the quality requirement of buyers and investors (See Box 3.8). For the forestry sector, Nepal does have some certified companies that have organic, FSC, and International Organisation for Standardisation (ISO) with others under development including CCBA and Plan Vivo, yet they are not showcased in a unified manner.

3) Product Supply and Quality Consistency International investors are aware on Nepal’s domestic demand for timber exceeding its current supply. The situation for NTFPs is similar, with some species put on CITES II list (for example, jatamansi) due to threatened price. Relationship building therefore has supply levels. When one looks at Nepal’s become more important for the forestry domestic wood and NTFP processing sector in the past three to five years. This capacity, there is excess capacity yet is a change and an opportunity for Nepal at the same time inefficient processing if they prioritize sustainable forestry and and quality control, which gives potential good business practices at the firm level, investors pause. Under-used capacity expand certification, and create a policy can be for several reasons: environment that supports government • Lack of raw materials to process: coordination, transparent business This is a constraint for Nepal and practices incorporating the unique means that foreign investors will characteristics of the forestry sector. be hesitant to come in since there is already excess processing To build a reputation of reliability and capacity. This also means there is ease of business, Nepal needs to lead with little capital or incentive to upgrade confidence, rather than present excuses current facilities that would provide about all that is wrong in its forestry sector. for greater efficiencies and higher Globally, dozens of countries have long lists quality. Working on old equipment of issues in their forestry sector and far worse and inefficient processing facilities reputations to overcome than Nepal, but have

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also means Nepali labourers are waste water to meet environmental not trained on the most current compliance, and poor road conditions technologies. All contribute to Nepal or in some cases, inaccessible roads in not keeping pace with international certain seasons, means raw materials standards and market demand for transport to processing facilities quality products at competitive prices. is constrained. • Lack of markets, so do not produce at capacity: There does seem to be International buyers and investors good demand for wood and NTFP consider all these factors. In the case products both in Nepal, cross border of timber, even though the forests have in India, China and within Asia. Under- larger supply potential, timber demand used capacity does not appear to be far exceeds the domestic supply. Under market driven for Nepal (See Box 3.8). business as usual scenario, it is difficult to • Other infrastructure constraints ensure reliable and consistent supply of (power outages, transport difficulties, most of the timber species. As presented in wastewater environmental compliance Timber supply potential section, Nepal has etc.): This is likely a consideration in good potential for increasing timber supply Nepal and impacts domestic industries with improved productivity, production and and international investors. Frequent management of all forest area. power outages mean equipment has to run on more costly generator use, pulp Reliable forecasting of supplies will be wood factories need support in processing essential for Nepal to attract international

Box 3.8: Exports of Nepali Medicinal Herbs to China a Growth Area but Supplies an Area of Caution

“KATHMANDU, Jan. 21 (Xinhua) -- Nepal’s exports to neighbouring China increased by 254% in the first five months of the current fiscal year 2012/13, officials said Monday. According to Trade and Export Promotion Centre, rise in the demand for carpets and medicinal herbs were the main reasons for the exports’ upward movement. There was a surge of 479% in carpets’ export, while it was an increase of 478% in medicinal herbs exports.

In the review period, Nepal’s exports to China reached NRs 1.21 billion (around 15 million U.S. dollars from NRs 342.4 million (around 4 million U.S. dollars) -- a growth of 254%. “Demands for Nepali goods are increasing in China’s Tibet as well as coastal region,” Suyash Khanal, Director of the Centre, was quoted as saying by the Republica. “China’s liberal trade policy and positive impact of trade fairs between the two countries helped Nepal boost up its exports,” said Ngaindra Upadhyay, Joint Secretary at the Ministry of Commerce. “We can increase exports by even higher rates, provided that we succeed enhancing our supply capacity in line with the demands,” Khanal added.”

From People’s Daily Online January 21, 2013 China is very interested in Nepali NTFPs especially medicinal herbs and there are good buyer and joint venture investor opportunities (one medicinal plant China-Nepal joint venture has already started), but supplies needed to be mapped and business partners chosen that respect long-term sustainable forest management and inclusion of community forestry and quality local employment.

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investment and buyers. For example, 4) Price and Value for Money interviews with essential oil buyers For most Nepali forest products if one expressed concerns over long-term product sums up all the official taxes (export duties supplies and ability to scale up if a product averaged 200% on wood products), tariffs, that incorporated a specific essential oil royalties (varied widely by NTFP), along took off in sales. The industry interviews with the transport costs, International Labour also consistently revealed stories of how Organisation (ILO) labour standards and product samples and shipments did not rates, and factors in the product recovery rates match - the sample being of high quality given the level of technology used for forest and the shipment of low or inconsistent products processing, Nepal is not competitive quality. Supply forecasting and consistent with other countries exporting similar quality supply can allow Nepal to develop strong trade partners for its forest products. products. Firms have competed in the past One trend noted during the study was that by illegally exporting Nepali forest products, buyers invest in bringing up the skills of avoiding full payment of taxes and tariffs, and their existing trusted suppliers. It used to paying low prices to community harvesters. be buyers frequently switched suppliers As discussed in the regulation section, it each year in the quest for lowest prices will be harder for Nepal to continue this around the world. The increased emphasis practice in the future. on regulatory enforcement and higher quality products is changing this. Buyers Taxes and tariffs, and royalties have and investors are looking for longer-term an income generation goal for Nepal, supplier relationships and a supplier but without enforcement, effective rates partner that can grow with their business. of collection are not realized; legitimate

Figure 3.5: A Sustainable and Profitable Forest Value Chain for Nepal

1 Managed Resource Regeneration Aromatic Plants  Determine sustainable management practices 7 Profits are  Encourage efficient and sustainable harvesting reinvested  Strengthen indigineous conservation system

6 Final Processing 2 Natural Products & Marketing Collection Plant Materials  Organize collection societies Perfume and or community groups cosmetics  Assist collectors with land and  Foster links resource management control between collector groups and finished products and processors  Promote purchase and use of sustainably The Value Chain harvested NTFPs Aromatic Plants for Essential Oils among finished product manufacturers 3 First Stage Processing Dried Plant Roots, Leaves and Berries 5 Trade  Provide training on Essential Oils & Marc proper drying, cleaning  Facilitae access to and sorting working capital, trans-  Establish collection and port and storage pre-processing centers  Organize indiviual collectors into trading groups 4 Second Stage Processing and Marketing Essential Oils  Establish local distillation processing  Disseminate marketing strategies

Source: ANSAB and EWW 2000

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businesses following the laws are put For this reason, all those interviewed at a disadvantage or simply do not recommended that Nepal focus on higher invest, which leaves the illegal actors value niche and specialty markets for dominating the forest trade. High tariffs their forest products and ones that are on raw materials also have the goal compatible with wild harvested products in of encouraging domestic processing, the short term since plantations are limited which can be a good thing if coupled in Nepal. Wild harvested versus cultivated with incentive programs to attract and forest products categories is an important promote the processing expertise, distinction for Nepal’s forest products. Most technology, and capital needed, but gross level export and trade figures combine again Nepal has not realized this goal these categories since the international either. Establishing competitive tariff harmonized system codes for trade do rates, effective collection, and attraction not distinguish by wild and cultivated. So of processing investments may seem for example, international trade trends for daunting on a national level for all forest wood flooring will give a misleading picture products but is manageable if Nepal does for Nepal, since most of the flooring is from pilots on select products using a cluster plantations (not wild harvest) and industry system. A cluster system groups select cost structures and pricing are therefore enterprise and community forests willing driven by the plantation cost model. The to advance a value chain model for forest same is true for wood picture frames, products that reinvests back in managed handicrafts, and essential oils. regeneration for Nepal. See Figure 3.5. To gain specific pricing and cost When it comes to price and value for structures for these specialty products, money, adjustment of the taxes and tariffs trade shows and outreach to specialty can help, but alone will not make Nepal industry groups is the best mechanism. competitive in many forest products Personal interviews conducted at both markets. For example given Nepal is revealed a great willingness to share a land-locked country with inefficient pricing structures for individual products. transports systems, in the short term the What was clear is that the prices range transportation cost is difficult to change. greatly among specialty products; with In the past, some buyers and investors average multipliers of four to five times argued that a lower wage rate could over the buying price in source country. make up for this, but Nepal should not It is important for Nepali enterprises continue to rely on this and instead be to do their costing homework before looking for ways to grow the daily wage they go to trade shows and meet with rate while expanding jobs. industry representatives.

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Private investors defined in this study international agencies, and other donor are entrepreneurs namely producers agencies have been investing in forestry (such as forest producer groups sector in the formulation or reform of policy and private growers), processors, and legislative frameworks, infrastructure manufacturers, and traders in four development, organisational development, subsectors - timber, NTFPs, ecosystem institutional reforms, grants and seed services, forest bioenergy, and the funding for community organisations, banks and financial institutions availing and developing and demonstrating financial products to these industries. business models. During the past decade, By nature, private investors in general international donors have invested invest with profit motive as equity US $119.92 million through various investment or loan, which are also forestry projects, while government called asset investments as opposed to of Nepal invested NRs 43 billion (US enabling investment. $411.38 million) during the same period (MoF 2013). The successful strategies for attracting and retaining responsible private These enabling investments have investors address the prime needs and several positive outcomes including concerns of investors in ensuring security the development and reform of various of the investment, long-term profitability policies, strategies, programs and of the business, and untainted image production of experts in the forestry of the industry and social prestige. A sector. However, as the World Bank’s rational investor analyses whether the doing business report (2013) shows, risks are measurable, risk mitigation Nepal is ranked as 105th best country measures are available, and the net rate for investment out of 189 economies of return is satisfactory before making an compared. This indicates that Nepal investment decision. Return is weighed needs to make further investment to against risks, and a high return is create enabling environment for both expected when the risks are high. The domestic and foreign investors. analysis of investment climate provides a picture of the level of risks involved in The factors influencing investment investment, the confidence of return, and climate are given in Figure 4.1. The the transaction costs that determine the investment climate of a country profitability of investment. determines the profitability and social image of an industry (and thereby In many situations, enabling attractiveness) by influencing the investments are necessary to create factors that determine risks, returns and environment where the asset investments transaction costs at various aspects are profitable. These are usually made of the business establishment and by governments, donors, NGOs, and operation, such as access to resources, philanthropists. In Nepal, the government, establishment of enterprise, employing

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workers, access to finance, complying 4.1 Policy and Regulatory Environment with taxes, trading of forests products, Governing the Forest Sector and settling disputes and enforcing Clear policies and legislations, contracts. The factors this study has appropriate institutional framework, efficient identified include a) policy and regulatory implementation of regulations, transparent environment governing the forest sector, systems, and well-defined procedures b) political environment, c) institutional provide investors assurance of returns and framework governing the forest sector, reduce risks and transaction costs. Various d) policy and institutional environment policies, regulations, strategies, plans and governing finance, e) infrastructure, practices both in the forestry sector and those and f) research, capacity building and outside the sector, such as investment, fiscal, extension services. More specifically, industry, trade and labour, interact to regulate

Figure 4.1: Factors Influencing Investment Climate

Policy and Regulatory Environment Access to Resources

Institutions Establishment of Governing Forestry Enterprise Risks Employing Workers Political Environment Transactions

Access to Finance Research, Returns Capacity Enhancement, Attractiveness Extension Complying with Tax

Social Image Trading of Infrastructure Forest Products

Dispute Settlement and Financial Services Contract Enforcement

the analysis highlights the implications and set the context in which forest products of present state of these factors in terms and services are produced, harvested, of opportunities and constraints due to processed and sold. A detailed analysis of the existing provisions, actual practices, most relevant policy and legislative provisions, gaps, contradictions, overlaps, implementation practices and suggested inappropriateness, and inefficiencies. reforms (including international treaties and

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agreements) for improving the participation legislations: The relevant provisions and investment of the private sector in under the main investment related policies forestry in Nepal are presented in a matrix and legislations currently in force in Nepal, form and included in Annex C. This section which include Foreign Investment and summarizes the analysis with the descriptions One Window Policy (OWP 1992), Foreign of policy and legislative provisions and their Investment and Technology Transfer Act implications for private investors. (FITTA 1992) and its amendments (1996 & 2000), Private Financing in Build and 4.1.1 Investment related and fiscal Operation of Infrastructures Act (BOI policies and legislations 2006), and Investment Board Act (2010) Investment related policies and are summarized in Box 4.1.

Box 4.1:Relevant Provisions Under Investment Related Policies and Legislations

OWP • DoI has been designated as the One Window servicing agency with the Industrial Promotion Board as a focal point as spelt out in the Industrial Enterprises Act 1992. • The power and authority concerning facilities and services of the agencies, such as Ministry of Finance and its Departments, Department of Commerce, Nepal Rastra Bank (NRB), Department of Immigration have been delegated to the One Window Committee. • The One Window Committee shall decide on infrastructure facilities, such as land, electricity, and water as well as registration facilities on taxation. • The DoI will inform the applicant of the decision of the Board on foreign investment project within 30 days from the receipt of the application. • Application for the registration of an industry should be submitted to the DoI within 35 days from the date of receipt of approval for foreign investment. The industry will be registered within 21 days from the date of receipt of the application. FITTA • A foreign investor can make investment as i) investment in share (equity), ii) reinvestment of the earnings derived from equity, and iii) investment made in the form of loan or loan facilities. • Foreign investor can use any technological right, specialization, formula, process, patent or technical know-how of foreign origin, use of any trademark of foreign ownership, and acquire any foreign technical consultancy, management and marketing service. • National priority industries for FDI are agro and forest based industries, traditional medicinal and the industries producing disabled supports while no foreign investment is allowed in cottage industries except technology transfer. • 100% repatriation is permitted for proceeds from sale of shares, dividend, loan and interest (repayment of foreign loan), technology transfer fees, and 75% repatriation is permitted for salaries and allowances of expatriates. BOI • The private investor can submit proposal in the government for building and operation of infrastructures and they may use the facilities and concessions as described in the licence. • Any private property will not be nationalized during the period of licences. • Private sector investor requires using local resources in the project. Investment Board Act • The act has provision for establishment of export promotion and export processing.

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The provisions in OWP can help to bring partners to attract foreign investment. all necessary services in one place for the According to double taxation avoidance investors thus reducing the transaction agreement, if foreign investors earn costs while the provisions on investment, profit from immovable property including repatriation, and technological rights forestry in a country, they are required to under FITTA are encouraging for foreign pay income tax only in the country where investment in Nepal. The provisions in they invested and generated income. BOI 2006 on building and operation of However, the agreement has not come to infrastructures using the facilities and the implementation stage due to pending concessions from government and the approval from parliament. security against nationalization of private properties during the licence period are It is still quite low, but some signs positive points to attract investment. of increasing foreign investment is observed after 2006, which coincide The government has signed Bilateral with the implementation of BOI Act 2006 Investment Promotion and Protection that prioritize providing various facilities Agreements (BIPPA) with seven and infrastructure for foreign investors countries including Finland, France, (Figure 4.2). This together with effective Germany, Mauritius, India, Qatar and implementation of FITTA 1992 that United Kingdom; and Bilateral Trade simplified repatriation of earnings, visa Agreements with seventeen countries11. procedures, and tax rebates might be Nepal has signed double taxation playing roles, but due to other factors avoidance agreement with major trade analysed below it is still not quite attractive.

Figure 4.2: Trend of Foreign Investments and Number of Industries in All Sectors

250 Number of Inustries 200 Foreign investment (Billion NRs.) 150

100

50

0 1989/90 1990/91 1991/92 1992/93 1993/94 1994/95 1995/96 1996/97 1997/98 1998/99 1999/00 2000/1 2001/2 2002/3 2003/4 2004/5 2005/6 2006/7 2007/8 2008/9 2009/10 2010/11 2011/12

Source: Based on DoI data (2012)

11 Countries that signed bilateral trade agreements with Nepal are: Bangladesh, Bulgaria, China, Czech Republic, Egypt, India, Democratic People’s Republic of Korea, Republic of Korea, Mongolia, Pakistan, Poland, Romania, Sri Lanka, United Kingdom, United States, Russia and Yugoslavia

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However, in practice investors herbs and NTFPs is not rational and the often report that due to ineffective present rates given in these annexes do implementation of the policy, it takes not reflect the market, environmental and several months to more than a year for social values of the products. the foreign investors to start a business in Nepal. There are some other cases 4.1.2 Industry, trade and labour that the investors are not able to acquire related policies and legislations required technical experts on time because of the complex visa procedures Industry related policies and for these workers. Some investors also legislations: Government of Nepal complained about the government’s formulated Industrial Policy 1962 (and inability to assure protection and security its amendments 1987, 1992 and 2010); of trademark for secondary and tertiary Industrial Enterprises Act 1992; Private products, which is also affecting the Firm Registration Act 1956; and Company investment in the country. Act 2006 for facilitating industrial development. The industrial policy Fiscal policies and legislations. The emphasizes strengthening industrial fiscal policies and regulations that affect security, encouraging non-resident forest-based industries are Value Added Nepali to invest in Nepal, establishing Tax Act 1995; Income Tax Act 2001; and an Investment Promotion Fund, and Excise Act 2001. launching capacity enhancement activities. Following its motto “One Value Added Tax Act 1995 has a provision Village, One Product”, the industrial policy of exemption of value added tax (VAT) on puts special emphasis for the promotion NTFPs and its extraction; firewood, charcoal of micro, cottage and small enterprises and equipment related to bioenergy; and including forest-based enterprises. The local production of cottage industries. relevant provisions of the industrial policy Similarly, Income Tax Act, 2001 has a are listed in Box 4.2. provision of tax exemption in the production and marketing of forest products, which The Industrial Policy lists agriculture are produced by forest-based cooperatives and forestry as highly prioritized industries and the Financial Act 2013/14 has provided and emphasizes providing assistance in tax exemption in land registration for NTFP technology, market, skills and research farming and processing. for industries based on NTFPs including herbs. The provisions for assistance in However, value added tax is still technology, market, skills and research for levied in harvesting and trade of timber, some of the FBEs can attract investors in khayar and the other forest products, this sector. Access to resources is provided which are included in the Annex-6 of to the FBEs as they may be entitled to Forest Regulation 1995. The Excise access any forest on a leasehold basis. In Act 2001 imposes excise duty in the order to incentivise micro enterprises, all products of kattha, wine produced from type of taxes, (customs tariff, excise and wild fruits, and the wine mixed with the value added tax) are exempted, which extraction of NTFPs/MAPs. Similarly, the also includes FBEs. provision specified in Annex 2, Annex 3 and Annex 6 under Forest Regulation In spite of these favourable provisions, 1995 for fixing price and royalty of timber, there are some constraints in practice.

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Box 4.2: Industry Related Policy and Legislative Provisions • National priority for agro and forestry-based industries; lease of forestland for the industries based on forest products. • Providing special tax holidays for industries in rural area; and holidays in income tax and excise duties for the industries in extremely underdeveloped, underdeveloped and developing areas for 12 years, 7 years and 5 years respectively. • Providing 25% income tax concessions to small, medium and large industries that employ more than 100, 300 and 600 native workers respectively. • Exempting excise duty and VAT on raw and packaging materials for the industries established in Special Economic Zones (SEZs); and 5% income tax deduction in research, development and market promotion. • Developing industrial infrastructure, such as roads, electricity and telecommunications in the potential area of manufacturing and processing. • Special package programmes to develop Karnali industrial corridor & new industrial villages. • Enhancing capacity of entrepreneurs and strengthening industrial security. • System of avoidance of inconsistency with industrial development. • Encouraging non-resident Nepali for investment and establishing Investment Promotion Fund.

For example the procedural complexities Trademark Act 1965; Copyrights Act that are out of reach of the cottage and 2002; Import Export (Control) Act 1956 micro enterprises to secure benefits and its amendment 2006; and Nepal of the tax exemption provisions. The Trade Integration Strategy 2010 (NTIS). local governments often impose various levies and taxes during transportation The Trade Policy 2009 is formulated to of forest products, which negates the address new challenges in global competitive policy provided tax incentives. This has market after Nepal became WTO member. caused hassles in transporting forest The relevant provisions under Trade Policy products and raised transaction costs. 2009 are listed in Box 4.2. Access to resources by leasing forests has not come into practice well, because The provisions of trade policy are the leasehold forests are either located supportive to facilitate the trading of forest in remote areas, or in conflicts with local products and services by emphasizing people. Furthermore, FBEs of timber, export promotion; developing policy, bio-energy, and cutch are not included as institutional and physical infrastructures concessionaires under the policy. relating to foreign trade; developing policy and institutional networks for the Trade policies and legislations: Trade protection of intellectual property rights; liberalization of Nepal has created providing additional incentives to export opportunities for international trade and oriented industries; establishing Special making investment in trading enterprises. Economic Zones for export promotion; The main trade related policies and developing employment oriented skills legislations presently operational include and entrepreneurship in trade sector; Trade Policy 2009; Customs Act 2007; and increasing income and employment Competition Promotion and Market opportunities through promotion of trade in Protection Act 2007; Patent, Design and services. The provisions for establishing a

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Box 4.2: Trade Policy Provisions

• Enhancing the role and professional capacity of government and private sector entities. • Reducing transaction costs through procedural simplification and institutional strengthening. • Developing policy, institutional and physical infrastructures relating to foreign trade. • Developing policy and institutional networks for the protection of IPR and promotion of export of services; providing additional incentives to export oriented industries. • Expanding market through utilization of opportunities available under bilateral, regional and multilateral trade promotions. • Establishing Special Economic Zones (SEZ) for export promotion. • Developing employment oriented skills and entrepreneurship in trade sector. • Increasing income and employment opportunities through promotion of trade in services. • Promoting identification, selection, production and trading of new exportable goods of comparative advantage. • Encouraging exports of goods or services produced for domestic consumption by expanding their production. • Establishing a separate unit for ‘forests affairs’ at custom office. • Provision of Thrust Area Development Program, Commodity Development Program, Trade Promotion Program.

separate unit for ‘forests affairs’ at custom centres that could provide a platform for office and the designation of some places buyers and sellers are seriously lacking. as trade centres for specific products, such as Nepalgunj for NTFPs and herbs, Labour related policies and are also noteworthy. Furthermore, NTIS legislations: Nepal has enacted Labour has prioritized 19 commodities with export Act 1992, Foreign Employment Act 1985, potential, among which herbs and essential and Trade Union Act 1992 to regulate oils, handmade paper and tourism are labour rights and obligations. Nepal has relevant to the forestry sector. also ratified eleven ILO conventions relevant to bonded and child labour, union However, the implementation status of activities, prevention of discrimination most of these provisions is only partial to in workplace, and rights of indigenous non-existent. Traders face cumbersome people over the land, territories and procedures in obtaining export license, resources. The fundamental eight ILO certificate of origin, and producing sanitary conventions ratified and the relevant and phyto-sanitary certificates. According Nepalese legislations are presented to a recent study, in general it takes 39 in Table 4.1. There is a central labour days to export products across the border advisory board under the Ministry of (World Bank 2013). The infrastructures are Labour and Employment that fix the also not developed for helping the smooth minimum wage rate. operation of enterprises and trade of the forest products. For example, storage There are some implementation issues, facilities at customs ports are either often limiting the smooth operation of the inadequate or non-existent, SEZs are yet forest based industries. The Labour Act to materialise, and the trade and collection contradicts with the Industrial Policy 2010, as

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Table 4.1:List of ILO Conventions and Relevant Nepalese Legislations

ILO Conventions Nepalese legislations Interim Constitution of Nepal 2007 put no Freedom of Association and Protection of the Right limitation in the number of association (trade to Organise Convention, 1948 (No. 87) union) in the industries. Right to Organise and Collective Bargaining Provisions included in Labour Act 1992 Convention, 1949 (No. 98) Forced Labour Convention, 1930 (No. 29) Bonded Labour Prohibition Act 2002 Abolition of Forced Labour Convention, 1957 (No. Bonded Labour Prohibition Act 2002 and Labour 105) Act 1992 Minimum Age Convention, 1973 (No. 138) Labour Act 1992 Worst Forms of Child Labour Convention, 1999 Child Labour (prohibition and regulation) Act (No. 182) 2000 Interim Constitution of Nepal 2007 has Equal Remuneration Convention, 1951 (No. 100) guaranteed this rights Discrimination (Employment and Occupation) Foreign Employment Act 2007 Convention, 1958 (No. 111) the former has the provision for entitlement is further worsened recently due to to full facilities if a worker worked for a total increasing outmigration trend. The trend of 240 days in a year, while the industrial has compelled to hire skilled labourers policy has a provision of the ‘no pay for no from India especially in processing work’. Similarly, the labour administration and manufacturing of forest-based has limited human and financial resources products. The general perception among to address labour issues. entrepreneurs is that the labour unions are often politically influenced and many There are some misunderstanding times conflicts between the unions and among the forest entrepreneurs and the owners are politically influenced as labour unions that represent workers of well. Such conflicts result into losses the industries. The working environment for both the employers and employees and facilities does not generally meet because of time-consuming conflict the safety and health standards and the resolution process in Nepal. government’s labour inspection system is poor. The assigned factory inspectors 4.1.3 Forestry sector related policies are the mechanical engineers skilled and legislation in inspection of machineries and do not Forest sector policies, legislation and have understanding of labour issues. guidelines regulate forest management, Most of the labour force are engaged including the land tenure and use, informally and many on daily wage basis harvesting and auctioning, environmental to minimize the costs of production. management, royalties and pricing, and tariffs, which further affect investors’ The entrepreneurs on the other hand profitability by facilitating or constraining have separate set of labour issues. access to resources, establishment and There is a scarcity of skilled labour operation of enterprises and trading of force required for FBEs and the problem forest products. Some of the policies and

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legislations are acclaimed as the best based industries in the upcoming forestry policies to create enabling environment sector strategy. In line with this, Ministry for the engagement of public and private of Forests and Soil Conservation(MFSC) stakeholders in the forest sector to has also formed a committee for drafting maximize the social, economic, and of policy for providing forest products to environmental benefits from forests. The the private sector, which is an opportunity government’s policy to engage community for private sector to introduce their agenda in forest resource management, for and issues in the policy provision. example, have developed successful community forestry programmes that Forestry legislations: The Forest Act have resulted into exemplary forestry 1993 and Forest Regulations 1995 management reducing deforestation. are the major legislative instruments Similarly, leasehold forest programs have for regulating forest management in been successful in involving poor and Nepal. One important objective of these excluded distant communities in resource legislations is to contribute to economic management and utilization. development of the country and local communities. Under the Forest Act Forestry policies: Space for involvement and Regulation, various directives and of the private sector is limited in forestry, guidelines have been formulated. Box 4.4 although it has been a priority in the lists the existing legislative instruments policy statement since the Master Plan on forestry sector and Box 4.5 lists the for the Forestry Sector (MPFS) 1989 was major provisions relevant to the private developed. Revised forest policy 2000 was sector investment. then implemented without much result and currently the government is formulating the Forest management plan and its forestry sector strategy. It is expected to preparation process have remained have clear provisions for creating conducive important element to make effective environment for effective involvement and involvement and investment of private investment of private sector in forest- sector in forestry, because the approved

Box 4.4: Existing Legislative Instruments in the Forestry Sector

• Forest Act 1993 (amendment 1999) • Forest Regulations 1995 (and its amendments 1999, 2002 & 2005)1 • Community Forestry Directive 1995 (and its amendment 1999) • Forest Product Collection and Sales Directives 2000 • Leasehold Forest Policy 2002 • Forest Product Auction Procedure Directives 2003 • Guideline for Inventory of Community Forests 2004 • Guidelines for CF Development Program 2008 (revised) • Collaborative Forest Management Directives 2011 • Formation and Operational Directives on District Forest Sector Coordination Committee (DFSCC) 2011 • Procedure of Handing over Leasehold Forest for Commercial Purpose & Poor Families 2011 • Presidential Chure Conservation Program Directives 2011 • Approved forest management plans & government circulars

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management plan is a main techno-legal preparation as well as implementation of instrument for production and harvesting forest management plans. of timber and NTFPs, collection of biomass for the purpose of bioenergy and obtaining There are some provisions that other ecosystem services from forest. The limit the private sectors’ access to raw private sector is a key stakeholder of forest materials and participation in forestry management planning process as it plays business. Procedural complexities exist commercial role. Although forest legislation in registration of private forests and has not explicitly incorporated any trees grown in private land, harvesting provisions to make effective involvement and utilization of forest products from of private sector in forest management private land, fixing size and grading of plan preparation and implementation timber, depository system, stock holding, process, some FUGs and DFOs have transportation, technology transfer, started to involve private sectors during the certificate of origin, forests leasing for preparation of forest management plans. industrial and commercial purposes, Recently established forestry sector multi- establishment and operation of FBEs that stakeholder mechanisms12 at district level have resulted very low number of private are creating some opportunities for the forest registration and involvement of private sector to raise their concerns in the private sector in forestry.

Box 4.5:Major Legislative Provisions in Forestry Sector Relevant to Private Sector Investment

• Forest Regulation 1995 has a provision to involve private sector in trading of forest products, namely timber through licensing and auction system at domestic market and permission system for export of value added or processed forest products (rule 7, 10, 11 of Forest Rule 1995). • Some procedures for licensing or auction are included in the Forest Product (timber and fuel wood) Collection and Sales Directives, 2000 and Forest Product Auction Procedure Directives, 2003 to involve private sector in trading of forest products. • According to forest rules (21), saw mills or furniture companies can transport the logs as products with registered marking. • Government-managed forests allow felling of the ‘dead, dying and diseased trees’ and not the green trees, however the CFUGs are allowed to cut green trees as approved by the DFO to fulfil the needs of the members. Collaborative and Buffer Zone Forest Groups are authorized to cut green trees. • Collaborative Forest Management Directive (CFMD) 2011 authorizes DFO to sell 50% of timber from collaborative forests. • According to BZMR, 1992, timber cannot be taken out of buffer zone without processing. • Forest Regulation 1995 has given legal rights to CFUGs for the establishment of FBEs in forest area considering the availability of forested products of community forestry. CFUGs can establish such enterprises solely or collectively and such enterprise can also establish and operate in a public-private-community or cooperative partnership modality

12 The private sector is a member of DFSCC at district level and various commodity-based associations and FNCCI have been involved at national level multi-stakeholders mechanism of the forestry sector such as Multi-stakeholders Forestry Program and Herbs and NTFP Coordination Committee (HNCC).

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considering the legal framework as defined by Company Act 2006. • Forest Act 1993, Forest Regulation 1995, Leasehold Forest Policy 2002 and Procedure for Handing-over Leasehold for Commercial Purpose and Poor Families 2011 have mentioned procedures for handing-over leasehold forest to the private sector including any corporate body or industry. The private sector can demand forestland on lease with the government for the production of raw materials for industrial purpose where the government can provide an appropriate part of national forest to the private sector considering the management plan. • Private land owners have legal rights to sale their timber to the private sector by following the legal procedure defined in forest legislation. • The government has a provision of e-biding system, which is practiced in various departments. • The forest check-posts along the highway have authority to check relevant documents during transportation. • Import and Export Act 2007 bans the export of some species (jatamansi, sugandha kokila, lauth salla, talispatra, sarpagandha, jhyau, and silajit) without processing and the definitions of processing given in various gazette notifications are not clear and even contradict with each other. • Industrial Policy prioritizes bioenergy and the Environment Protection Fund under the EPR has a provision of fund to promote bioenergy in rural areas. • EPR has a provision of 1 km distance to establish FBEs; the contradictory decisions made from CIAA (3-5 km) and MFSC (2-3 km), and the provision in Industrial Promotion Board (2-3 km) has created confusion. • Local Self Governance Act (LSGA) has given authority to DDC on resource rights over forest products while the local bodies have obligations to support and promote energy sector including bioenergy. • VAT Act 1995 has made a provision of VAT exemption in bioenergy including charcoal. • Forest legislations do not have explicit provisions to make effective involvement of the private sector in forest management plan preparation and implementation process.

The frequent change in government Similarly, timber products, wood log and decisions regarding the ban and restriction sawn timber of seven species champ, on collection and export of forest products khayar, sal, simal, satisal, bijaya sal, and (see Table 4.2) has created uncertainty for walnut from national forests are banned the business. Presently, the government for harvest and transport for commercial has banned some NTFPs such as, Panch purpose and export. But this ban is not aunle (Dactylorhiza hatagirea) and applicable for harvesting of fallen trees as walnut (Juglans regia) bark completely per the management plan and the trees for collection, use, transport and export. to be harvested as per the approved Other NTFPs are banned for export work plan or by priority projects. Some in crude form, such as jatamansi, timber products allowed for export are sugandha kokila, lauth salla, talispatra, log and sawn timber of cultivated sissoo, sarpagandha, jhyau, and silajit so as to teak, and eucalyptus produced in private promote processing industries at home. land under the recommendation of DFO. Unfortunately, such bans have resulted Illegal export of the banned species in into illegal export of these products. crude form however, is still going on.

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Table 4.2: Government Decisions on Ban for Collection and/or Export of Forest Products in Raw Form

Date (BS) Date (AD) Gazette notification under Forest Act 1993 and amendments • Banned on collection, use, transport and export of Ophiocordyceps sinensis 1995 and Dactylorhiza hatagirea. 20/12/2051 April 3 • Banned on export of Nardostachys grandiflora, Rauwolfia serpentina, Lichen spp., Rock exudate, Abies spectabilis, Taxus spp. without processing. Banned on export of Nardostachys grandiflora, Rauwolfia serpentina, Lichen 1997 08/10/2053 spp., Rock Exudate, Abies spectabilis, Taxus spp. without taking permission Jan. 21 from Department of Forests (DoF) and without processing. 2001 Banned on collection, use, transport and export of Dactylorhiza hatagirea, 01/11/2057 Feb.12 Juglans regia and Picrorhiza scrophulariiflora. • Banned on export of Rock Exudate and Ophiocordyceps sinensis without processing. • Banned on harvest and transport for commercial purpose and export 2001 16/09/2058 of champ, khayar, sal, simal, satisal, bijaya sal, and okhar from national Dec. 31 forests. But this ban is not applicable for harvesting of fallen trees as per the management plan and the trees to be harvested as per the approved work plan or by priority projects. 2003 Picrorhiza scrophulariiflora can be exported on the basis of permission provide 01/08/2060 Nov. 17 by DoF considering the availability of this species and identification by DPR. 2004 18/06/2061 Ophiocordyceps sinensis can be exported without processing. Oct.4 2007 19/07/2064 Lifted the ban on harvest, transport and export for champ, khayar and simal. Nov. 5 2008 09/05/2065 Mark of banned species can be exported by taking permission of DoF. Aug. 25 2009 All banned species will be regulated under the Import and Export (control) Act 16/07/2066 Nov. 2 2013. Note: this notice was published by the Ministry of Commerce and Supply.

In spite of the strict laws on the felling Lack of strong mechanism for tracing of green trees, illegal trade is rampant, the source of forest products has given particularly in the Terai, because of the sufficient room for questioning their legality. weak law enforcement practices. The weak Likewise, weak governance has fuelled regulatory mechanisms in the country the intension of getting undue benefits combined with the inadequate information among the value chain actors resulting among the authorities provided incentives into illegal harvesting, harvesting excess for collectors to over extract the select quantity than prescribed, tax manipulation high value species for maximum resource etc. As a result, forestry sector is losing rent. The weak regulatory mechanism its image, and mistrust is developing has also resulted into illegal export of the among the stakeholders. Introduction species banned for collection, use, of private sectors in the given condition transport, and export. may promote over exploitation of the

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resources as they can capitalize the weak Development Plan (2013-2015) has governance. Still the perception of the mentioned the forest conservation and society in general is that the entrepreneurs promotion of protected areas (PAs) working in forest value chain especially in management regimes as a priority for trading activities are illegal. Nepal, which may create procedural hurdles to operate FBEs at local level. There are some provisions in forestry However, the approach paper has legislation that are conflicting with other accepted that without developing FBEs, policies, often limiting private sectors access it is difficult to generate employment to resources. For example, tenure rights and income at local level. One of the and user rights under forestry legislations strategies of this paper is to promote is contradictory with those in LSGA 1999. public-community-private-cooperative Forest Act and Forest Regulations have partnership for the promotion of private clearly stated tenure rights and user rights of sector investment to develop FBEs in forest products. The state owns all the forests Nepal, which is an opportunity for the except private forests while communities private sector. under various forest management regimes In general, the policy provisions focus

Table 4.3:Provision of Forest Resource Rights Under Forestry Legislations and Local Self-Governance Act Forest Act 1993 and Forest Local Self- Forest products Regulations 1995 Governance Act 1999 Fuel wood, dry timber twigs, User groups or managers VDCs branches, bush Medicinal plants, herbs User groups DDCs and VDCs Resin User groups and government DDC Stray timber User groups and government DDC Straw User groups VDC Water User groups DDC/VDC

(community, collaborative, and leasehold) on basic need fulfilment rather than have use rights. The Forest Act gives all economic development. For example, use and management rights of the forest the timber marketing legislations are and other natural resources to DFO, who based on the principle of surplus timber can handover certain responsibilities to marketing, and the process for allocating communities, but the LSGA grants use surplus timber for commercialization rights of stone, sand, and driftwood and through private sector is not yet timber to DDCs and Village Development legally defined. Committees (Table 4.3). In some situations, private companies or organizations are According to Nepalese forest laws, given exclusive collection rights for quarrying government cannot provide the forest or mining in community forests. This creates areas to the private sector for timber confusion on use rights between the CFUG harvesting. DFO has authority to provide and the private licensee, and results in patches of forest only to TCN or District an environment that is not conducive to Forest Products Supply Committee improved production and conservation. (DFPSC) for timber harvesting after The approach paper of 13th Periodic marking of trees and calculation of

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logging and operation cost. Only these bio-energy. A brief assessment of the two agencies can contract with licence additional subsector specific provisions holders private firms to mobilize them for and practices is given below. harvesting, collection and transportation of timber to the stocks (depots) if they NTFPs: Forest legislation and gazette have no capacity to do these activities. notifications are the major regulating The private sector has no direct access instruments for this subsector along with a in the forest areas for timber harvesting number of policy documents and national and such types of legal provision have and international standards involving strengths and weakness for the forest many institutions and enforcement conservation and timber marketing and agencies. These policies, legislations need to be revisited. and guidance have provided some space for the private sector involvement and The government (and semi-government) investment in this subsector, however agencies - DFPSC, TCN and DFO – are there is inconsistency and inadequacy in directly involved in the trade, limiting the legislative instrument. private sector’s equal access to supply the products in market. The timber supply to the The most recent development is the private sector for marketing is depending formulation of the Herbs and NTFPs on the discretionary power of government Development Policy (HNDP) 2004. agencies, which is contradictory with the It has recommended developing a liberal market economy adopted by the comprehensive legal provisions and constitution of Nepal. addressing legal and policy constraints on NTFPs. It has also stated that the royalty The contradictions among various system requires to be linked to the price policy and legislative provisions encourage received by primary producers and final the authority to use discretionary power, market price of the commodities produced increase the cost to fulfil unexpected by the private sector. According to HNDP, conditionality and increase the overall improvement in custom regulations is also transaction costs. In practice, there is an area for legal reform. The provisions in a tenure conflict in leasehold forests; HNDP 2004 have also given emphasis to demotivation to grow forest products in promote private sectors’ involvement and private land; and very limited access of investment in the NTFPs subsector. The private sector in buffer zones. Similarly, the major provisions of this policy are given malpractices in forest product harvesting in Table 4.4. and trade have caused huge gap between the stumpage value and market price of The HNDP has recommended forest products. Ultimately, the responsible formulating laws and guidelines for private sectors are deprived from securing effective implementation of this policy. forest products for the industrial processing. Accordingly, the Department of Forests Furthermore, they are looked down by has formulated NTFP Inventory Guideline society with a tainted social image and bear 2012 to maintain sustainable supply of high risk and transaction costs. NTFPs from all types of natural forests. However, laws and policies on licensing, There are some additional regulations permission, transportation, tax, custom for specific subsectors, especially and export are still inconsistent with NTFPs, ecosystem services and forest the policy provisions in HNDP. For

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Table 4.4: Major Provisions and Strategies in Herbs and NTFP Development Policy Policies Strategies 1. Conservation and utilization on the • Encourage the establishment and development of basis of sustainable development: cooperative and strengthen them in all over the country in order to optimize the common benefit through the • To create the beneficial environment production and development of Herbs and NTFP. for local people and enterprise for the collection of Herbs and NTFP. • Make legal mechanism to provide loan easily to forest based local enterprise through the Agriculture 2. Encourage people participation: Development Bank or similar institutions.

• To establish the network of Herbs • Give emphasis to the local level enterprise for storing, and NTFP producers, collectors or processing, packaging and extraction of Herbs and traders for the market management NTFP in the scientific way. and give emphasis to the concept of cooperative to establish enterprise or • Provide technical knowledge, skill, training and marketing. financial support to FUGs for the incorporation of provisions relating to Herbs and NTFP management in • To encourage private sector for value community forest. addition of Herbs and NTFP in local level on the basis of potentiality. • Make appropriate provision for the Herbs and NTFP cultivation in the government managed forest by 3. Simplify the tax system and cooperatives. certification • Make appropriate legal provisions for the protection of 4. Delivery of the profit of development the community rights over their indigenous knowledge, and appropriate technology to local skill, innovation, technology and practices associated people: with Herbs and NTFP.

• To handover the appropriate • Determine the roles and responsibilities of district level technology to local community which government agencies relating to local enterprise. is gained from the research and may be useful for the commercialization of • Review the legal provisions relating to environment Herbs and NTFP. protection for the creation of easiness to enterprise.

5. Creation of awareness and provision • Make appropriate arrangement of agriculture loan of privileges: for the poor and marginalized people of the local community through the Local Development Fund and • To provide privileges and create Poverty Alleviation Fund to harvesting and marketing awareness for those community or of Herbs and NTFP. private sector which are interested to product, process and marketing of • Support for the advancement of local technologies and Herbs and NTFP. incorporate the modern technologies in this process for the production, collection, procession and marketing of Herbs and NTFP.

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example, HNDP prioritizes establishing internalized the concept of PES. There enterprises at local level, but the are many contradictions between NPWC Environmental Protection Regulation Act and other sector specific acts, such bans establishing enterprises within 1 as LSGA 1999, Water Resource Act 1992, km distance of forest areas. Likewise, Electricity Act 1992, and Environmental the conservation laws have created Protection Act 1996. procedural hurdles to establish the forest-based cottage industries at local More recently, the policy documents,such level including conservation areas and as National Biodiversity Strategy 2002, buffer zone. Another example is that Water Resource Strategy 2002 and National HNDP has recommended simplifying Wetland Policy 2012, stepped towards procedures to obtain permits or release landscape approach of planning and order for the transportation of NTFPs, ecosystem management. These policies but the provisions traders are required laid the foundation for enhancement of to follow provide discretionary power to bundling of ecosystem services, such as the government staffs, which often create conservation of biodiversity along with hassle to traders. Without review and maintaining scenic beauty and watershed amendment in these laws and policies service. Similarly, the Buffer Zone the provisions of HNDP are not likely to Management Regulation 1996, Tourism be effectively and fully implemented to Policy 2009, Hydropower Development generate the desired outcomes. Policy 2001, LSGA 1999 have provided policy and legal basis of providing financial Ecosystem Services: From late 1980s resources through public PES to local the paradigm has shifted towards communities for the ecosystem services management of the ecosystem with they generate. The private sector who are landscape approaches and participation involved in eco-tourism and hydropower of local communities and private sector. generation are also interested to develop Such shift has provided the ground for PES schemes at local level, however establishment of various conservation due to the lack of clear legal mechanism areas and buffer zones surrounding the of private PES, it is being complicated to PAs throughout the country. The National develop such schemes at local level. Park and Wildlife Conservation Act 1973, Nepal Biodiversity Strategy 2002 (revised Policy and legal provisions have in 2014) and the National Conservation provided small window for innovative Strategy 1988 are the pioneer legal and practices and initiatives to provide policy documents to provide basis of financial rewards to buffer zone for systematic conservation efforts in Nepal. the ecosystem services provided. However, these documents had a narrow Concessionaire hotels inside the PAs focus on the conservation of the flagship pay conservation fees and royalty to the animals like tiger, rhino, elephant and government. The government redirects snow leopard and their habitats. In doing 30% to 50% of the income of PAs to so, the basic approach was enforcement buffer zones, which can be considered of the rules using armed forces (Nepal as the proxy for the compensation paid Army) and pushing people away from the to the ecosystem service producers PAs. In spite of the potential for payment because the money received by the for ecosystem services (PES) in the PAs buffer zones is used for enhancement in Nepal, these instruments have not of the ecosystem in PAs including buffer

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zones. Additionally, private companies to incorporate PES related provisions. established in PAs have also agreed to Similarly, government can amend the pay a certain proportion of their income existing National Park Conservation for the ecosystem conservation of PAs. and Wildlife Conservation Act 1973 and Forest Act 1993 to include some National Wetland Policy 2012 has PES relevant provisions. The institutional provisioned to collect ecosystem service reform is necessary in the sector of PAs charge, which is an opportunity to and sectors relevant to PAs recognizing strengthen PES at local level, however the role of local government, local councils, the legal entity authorized to collect the community networks, Civil Society ecosystem charge is not clear. Several Organisations (CSO) and private sector for urban drinking water users groups at local strengthening PES system. level have been paying for clean drinking water, the ecosystem services generated Forest Bioenergy: The Interim by the CFUGs. These policies and Constitution of Nepal 2007 has practices are creating space for the private guaranteed the right to clean environment sector involvement and investment in PES. as a fundamental right of people13. Indoor pollution is an important cause of Apart from aforementioned small women’s health problems in rural areas windows in the existing legal framework, and the women are deprived of their there is a lack of policy and legal framework rights to clean environment and pollution with explicit provision for PES in and outside free life. The government of Nepal has the PAs. Such gap has constrained the formulated Indoor Air Pollution Control institutionalization of the PES mechanisms. Policy, which has provisions for subsidies For example, PA authorities or buffer zone in alternative energy in order to control councils are not being able to officially be indoor air pollution and protect women’s engaged in negotiation for PES with the users health. Apart from general policies and of the services even if they are willing to pay. regulations, the policies related to rural Similarly, since the existing legal framework and renewable energy has emphasized restricts the local communities residing private sector’s investment for the within the PAs to participate in the process promotion of bioenergy. The major policy because their rights are not well defined provisions are listed in Box 4.6. and they are also not recognized as a legal entity to receive the payment of ecosystem Renewable Energy Policy 2006 gives services from public or private buyers. priority to research and development mainly on raw material identification There are lots of space for improving and cost reduction of bioenergy existing policy and legal documents to technologies (like briquette, biofuel, include the provision of PES so as to biomass gasification, biogas plants, fuel initiate the schemes within and outside wood efficient improved cook stove). the PAs. For example, the Buffer The policy also focuses on activities Zone Management Regulation 1996 related to awareness creation in the use gives rights to local communities and of these technologies utilizing local skills recognizes their roles in conservation. and resources. According to the policy, So there remains a space of improving technologies for production of briquette, the Buffer Zone Management Regulation bio-fuel, and biomass gasification based

13 Article 16 of Interim Constitution of Nepal 2007

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Box 4.6:Forest Bioenergy Related Policy and Legislative Provisions

Rural Energy Policy 2006 Overall goal: Reduce dependency on traditional energy & conserve environment by increasing access to rural energy technologies (RETs); increase employment and productivity through RETs and increase living standard of rural population by integrating RETs with social and economic activities. Main policy provisions: Emphasis to environment friendly, affordable and sustainable RETs; enhancing capacity of local bodies and facilitation; integration of RETs with economic and other developmental activities; special promotional activities focusing poverty reduction & positive impacts on women and children; and involvement of private sector, community, CBOs and NGOs.

Subsidy Policy for Renewable (Rural) Energy 2013 Additional incentives to poor, women and marginalized groups and communities; reduce supply/consumption gap between rural and urban; support RET market by attracting private sector; support long-term target of the government replacing subsidy by credit.

Biofuel Policy Production of liquid biofuels for transport from Jatropha (Jatropha curcas)-based biodiesel; high priority for the private sector involvement and investment.

Climate Change Policy 2011 Promotion of clean energy, such as renewable energy, alternative energy and green technology to reduce green house gas emission; financial resource generation from public- private partnership.

National Adaptation Program of Action (NAPA) 2010 Promotion of bio-energy with the technical support of private sector; formation of a multi-stakeholder Climate Change Initiatives Coordination Committee (MCCICC). on the availability of paddy husk, saw dust for alternative energy. The government and other agricultural residues will be of Nepal has adopted public-private stressed and emphasis will be given on partnership approach for renewable research, development and dissemination energy including bioenergy programmes of household and institutional stoves, in Nepal, and thus providing the emphasis biogas appropriate for varying on private sector investment in bioenergy geographical and cultural needs. based rural energy technologies.

Improved Cooking Stove (ICS), bio- The bioenergy sector is relatively briquette and biogas are some important new but encouraging for private sector tools and technologies to reduce indoor investment, Subsidy Policy for Renewable air pollution. The private sector highly Energy 2013 does not clearly recognize the contributed to achieve the government’s forest bioenergy, such as charcoal and bio- goal to reduce indoor pollution through briquettes. Similarly, due to the lack of clear investing in technology development legal provision for the utilization of biodiesel,

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the producer companies are hesitant to over the Management of Protected Areas give continuity of such production. Multi- to NGOs and other Organizations 2003, stakeholder Climate Change Initiatives and Procedure for Handing over the Coordination Committee (MCCICC) does Land of Protected Areas for Infrastructure not have explicit provisions to involve Development 2008 to increase the role private sector while private sectors along of private sector in the conservation with civil society are participating in and development. These procedural activities, such as organizing programs arrangements have created opportunities for and activities to raise public awareness private sector to increase their investment and promote adaptation and use of in biodiversity conservation and utilization. renewable energy. As discussed in 13th Furthermore, a number of investment periodic development plan, private sector and employment opportunities related to can be involved in bioenergy sector and tourism have been created in adjacent generate employments. areas to provide services to the visitors to conservation area. National Wetland Policy, 4.1.4 Biodiversity and environment 2012 has also incorporated some provisions related policies and legislations to promote the involvement of private sector Government has formulated and in wetland conservation and utilization of its implemented National Biodiversity Strategy resources (GoN 2012). (NBS) 2002 and its implementation plan (2006-2010) for the conservation and The Environmental Protection Act, 1997 utilization of biodiversity in Nepal. The NBS and Environmental Protection Regulation, was formulated recognizing the unsustainable 1997 require any individual, community, harvesting of medicinal herbs and other company, industry (governmental or semi- NTFPs from the wild, including protected governmental, non-governmental agency areas by the commercial enterprises. or institution) interested to establish any National Park & Wild Life Reserve Act 197314 forest-based enterprise to carry out Initial is the umbrella legislation for the conservation Environmental Examination (IEE) or of biodiversity in Nepal, according to which Environmental Impact Assessment (EIA). the government can provide license to Table 4.5 provides the list of the forest private sector for operating various services, projects requiring IEE and EIA. such as hotel, resort and eco-tourism in PAs. Lately, in some of the national parks, Environmental Assessment (EIA due to encroachments and human wildlife and IEE) is supposed to ensure optimal conflicts in buffer zones, the infrastructures utilization of forest resources for industrial are not permitted anymore. According to this or enterprise development without Act, government may also permit interested threatening the resources. However, the individuals for hunting of non-protected wild private sector often faces difficulties to lives in wildlife hunting reserves. go through the complex process and centralized mechanisms and fulfil the The government has formulated requirement for the approval of EIA. wildlife farming, breeding, and research This often delays the operation of the procedure 2003, Procedures for Handing proposed enterprises. At community level,

14 Under this act 10 regulations are enacted which are National Park and Wildlife Conservation Regulation 1974, Chitwan National Park Regulation 1974, Wildlife Reserve Regulation 1977, Himalayan National Park Regulation 1979, Khaptad National Park Regulation 1987, Bardiya National Park Regulation 1996, Buffer Zone Management Regulation 1995, Conservation Area Management Regulation 1996, Conservation Area Government Management Regulation 2000, Kanchanjangha Conservation area Management Regulation 2007.

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Table 4.5: Forest Projects Requiring IEE and EIA Proposals Requiring IEE (Schedule - 1) Proposals Requiring EIA (Schedule -2) • Plantation of native or imported species in • Plantation of native or imported species (more large areas than 500 ha in Terai and 100 ha in hill) • Handing over leasehold forest (50-200 ha in • Handing over leasehold forest (more than 200 ha Terai and 10-50 ha in hill) in Terai and more than 50 ha in hill) • Handing over community forests • Handing over community forests (500 to 750 ha) (more than 750 ha) • Collection of roots (annually 5-50 tons) • Establishment of rosin and turpentine, rubber, • Collection of barks (annually 10-100 tons) plywood and veneer, Kattha, wood-based paper • Collection of NTFPs (annually 5-50 tons) for and NTFP processing industries within 1 km processing to export its extraction distance form forest areas. • Collection of non-banned species (annually • Collection of roots (annually more than 50 tons) 5-100 tons) and collection of barks (annually more than 100 • Collection of resin (annually more tons) than 5 tons) • Collection of NTFPs (annually more than 50 tons) • Farming of imported wild species for processing to export its extraction • Establishment of NTFPs processing centre in • Collection of non-banned species (annually more public land than 100 tons) • Establishment of paper industry (per day • Establishment of paper industry (per day production capacity 100 tons) production capacity more than 100 tons) • Establishment of saw mill (per year timber • Establishment of saw mill (per year timber consumption capacity 5-50 thousand m3) consumption capacity more than 50,000 m3)

Management Regulation 1995, Conservation Area Management Regulation 1996, Conservation Area Government Management Regulation 2000, Kanchanjangha Conservation area Management Regulation 2007 the requirement is also creating additional Trade Organization (WTO) agreements unaffordable burdens to the communities, namely Trade Related Intellectual Property and as a result many community forests Rights (TRIPs) and Agreement on especially in the mid-hill and high-hill Application of Sanitary and Phyto-sanitary regions have not been renewed. Measures while trading forest products. The private sector interested in the industry 4.1.5 International standards, laws, and trade of forest products should also agreements and treaties be aware about the legal opportunities International legal agreements create an and constraints generated due to these environment for domestic and international international legal arrangements. Major investors in facilitating investment and treaties and agreements signed/ratified trade. Nepal has ratified more than 25 by Nepal relevant to the forestry sector Multilateral Environmental Agreements and the provisions creating enabling (MEAs) and among them CITES, ITTA, environment for forest-based enterprises RAMSAR, CBD and associated protocols, are summarized below. ILO 169, UNFCCC and Kyoto protocol, plant protection conventions, pollution and Convention on International Trade in hazards control conventions are directly Endangered Species of Wild Fauna and related to trade of forest products. Likewise, Flora (CITES), 1973: Nepal acceded to Nepal is also required to implement World CITES 1973 in 1975. The National Parks

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and Wildlife Conservation Act 1973 and and enacted National Foundation for Forest Act 1993 are major legal instruments Upliftment of Indigenous and Tribal to implement the convention. To ensure the People’s Act 2001. Nepal has also prevention of illegal trade of CITES species incorporated safeguard measures in the Nepal has designated the implementing Interim Constitution of Nepal 2007 and and supporting agencies. The DPR and National Action Plan of ILO 169. This the DNPWC are responsible for the successfully incorporates indigenous implementation as the scientific authority and people’s voice in resource management. as the management authority respectively, There are many strong points of ILO 169 whereas the DoF, customs offices, security for the protection of rights of indigenous agencies, postal offices, cargo agencies and peoples over the forest resources, judiciary bodies play supporting roles. The however due to weak monitoring of ILO private sector interested in the trade and 169 implementation at the local level, export of CITES listed species is required some groups are misinterpreting the to obtain permission from scientific and objectives of ILO 169 and misusing this management authority. In practice, due to the convention for fraudulent collection of lack of legal awareness on CITES, private money from the private sector in the investors including NTFP/MAP collectors are name of “ILO tax”, which is increasing facing administrative complexity and some of the transaction costs and discouraging them are sued against the violation of CITES. the private sectors’ involvement. A draft bill on CITES developed in 2011 is still waiting the approval from the parliament, United Nations Convention on Biological and the bill is expected to be instrumental for Diversity (CBD 1992): Nepal ratified CBD effective implementation of CITES in Nepal. in 1993 and developed National Biodiversity Strategy in 2002. National Parks and International Tropical Timber Agreement Wildlife Conservation Act 1973, Forest (ITTA 1994): The objective of ITTA 1994 Act 1993, and Environment Protection is institutionalizing sustainable source Act 1997 are the major legal instruments of timber in a growing market. Nepal for the implementation of CBD in Nepal. became member of this agreement on 23 Government of Nepal developed a bill on May 1997. According to this agreement, access and benefit sharing in 2006, however Nepal as a consuming country cannot due to the lack of consensus among ban timber import from producing government, indigenous people and private country, however can impose ban on sector, the proposed bill is still pending. The timber export. Gazette notification of majority of the provisions of CBD are related Ministry of Commerce and Supply dated to bio-prospecting and sharing of benefits on 24 October 2009 announced the that have created enabling environment ban on export of five species of timber. providing opportunity for the private sector However, most of the banned species are to work with indigenous people to share allowed for export after processing and benefits from forests. However,a supportive thus provides opportunity for the private legal framework at domestic level is sector for exporting timber based final required for the private sector to benefit products such as furniture. from this convention.

ILO 169 (Indigenous and Tribal Peoples United Nations Framework on Climate Convention 1989): Nepal has acceded/ Change (UNFCCC 1992) and Kyoto ratified ILO 169 convention in 2007 Protocol 1997: With regard to UNFCCC

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and Kyoto Protocol, Nepal has developed However, the private sector does not have Climate Change Policy 2011, National capacity to maintain and comply with Adaptation Plan of Action (NAPA 2010) sanitary and phyto-sanitary measures and and Subsidy Policy for Renewable thus face procedural hurdles in obtaining Energy 2013. The initiatives have opened plant quarantine certificates required for various windows of opportunity availing the export. resources toward building the ecological and social resilience of communities 4.2 Institutional Framework based on natural resources including Governing the Forest Sector and forests. These provisions also provide Political Environment opportunities for the involvement of the Strong, transparent and accountable private sector in developing renewable institutions create enabling environment energy options, carbon credit products, and contribute to increase returns and and adaptation strategies. reduce the risks and transaction costs for the private sector. The Ministry of Trade Related Intellectual Property Forests and Soil Conservation is the Rights (TRIPs): Protection of intellectual key institution governing the forestry property is a pre-requisite to empowering sector whereas other state institutions, private sector investment in trade and such as Ministry of Science, Technology industry. As a member of WTO, Nepal and Environment (MSTE), Ministry of has accessed TRIPs and formulated Industry (MoI), Ministry of Commerce and Copyrights Act 2002 and Patent, Design Supplies (MoCS), Ministry of Finance and Trademark Act 1965 (amended). (MoF), Ministry of Federal Affairs and These legal instruments have guaranteed Local Development (MFALD), Ministry of the protection of intellectual property Agriculture Development (MoAD),Ministry rights of private investors. However, legal of Labour and Employment (MoLE), provisions have yet to be developed for Ministry of Home Affairs (MoHA), and the protection of traditional knowledge their respective departments and offices related to biodiversity in order to prevent are playing important role in developing traditional knowledge holders from private sector in forestry. Other non-state exploitation by the private sector. actors, such as civil society organizations, associations and federations are also Agreement on Application of Sanitary and contributing towards the development of Phyto-sanitary Measures: The members private institutions in forestry sector. of WTO have the right to take sanitary and phyto-sanitary measures necessary for A checklist of the major state the protection of human, animal or plant institutions and their roles in life or health. Nepal is also a member of supporting FBEs is presented in International Plant Protection Convention Table 4.6, and a brief assessment (IPPC), 1952. Its objective is to ensure institutions in terms of their roles in plant protection from disease and effective regulating, enabling, and facilitating along implementation of plant quarantine for with the challenges they face at present which Nepal has enacted various acts15. is described in the following sections.

15 Aquatic Animal Protection Act 2017 (1960), Feed Act 2033 (1976), Seed Act 1988, Drugs Act 2035 (1978), Food Act 2052 (1996), Plant Protection Act 2064 (2007), Pesticides Act 2048 (1991), Animal Health and Livestock Services Act 2055 (1999), National Dairy Development Board Act 2048 (1992), Dairy Development Policy 2064 (2007), Organic Chemical Fertilizer Guideline 2068 National Tea Policy 2057 (2000), National Coffee Policy 2060, Agro-business Policy 2006.

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4.2.1 Government institutions in the are responsible for the approval of forest forestry sector management plans for the collection of forest products, issuing the licenses or Ministry of Forests and Soil Conservation permit for the collection of forest products and its Departments: The major roles based on the approved management of MFSC are to formulate forestry plan, checking orest products collected sector policies and legislations for forest from forest areas, collection of royalties management and supply of forest products of the forest products, issuing the to the private industries and enterprises. The release order or transit permit for ministry is also responsible for enforcing its the transportation of forest products, policies through its institutions. However, checking and endorsement of transported because of the frequently changing forest forest products, and recommendation product supply policy by MFSC, the private for the export. They also play a role of sector has been facing uncertainty of judiciary and are authorized for penalizing raw materials supply for their industries. offenders. The roles of DFOs as forest Lately, MFSC has accepted the multi- managers, law enforcers, and judiciaries stakeholder policy process, which provides are conflicting with each other. the private sectors opportunity to put their concerns in policy reform. However, the DFOs and their field offices are severely constrained by The Department of Forests (DoF) prolonged absence of staff, frequent is responsible for enforcing forestry transfers, little sense of local accountability, policies and regulating the operations in and inadequate resources. For instance, government-managed forests,community most DFOs have large areas of national managed forests (CF) and Leasehold forests to monitor, control, and manage. Forest (LHF) and privately owned forests. The manifold responsibilities of DFOs The DoF executes its policies though constrain them from providing services district forest offices (DFO)and local-level effectively and efficiently. As a result, offices. The DoF is also a management the extension services, an essential authority of flora to the CITES. The DFOs element for the commercialization of the

Table 4.6: Major Institutions Governing Forestry Sector and Their Roles in Supporting FBEs Ministry of Forest and Departments Other Relevant Ministries Areas of concern MFSC Do DFRS DNP DP MSTE MoI Mo Mo Mo MF Mo Mo for FBEs F WC R CS AD F ALD LE HA Access to resource * * * * * * Establishment and operation of * * * * * * * * * enterprises Employing workers * * Access to finance * Complying with tax * * * * * * * Trading of forest * * * * * * * * * * resource Dispute settlement and contract * * * * enforcement

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sector, are weak. Within this context, the acute deficiency of human and financial with the number of human resources and resources constrains the department to workload, the effective management of perform the role. As a result, the analysis production forests is not possible. and preparation of certificates for exporting forest products is delayed taking toll on the The Department of Forest Research private sector business. and Survey (DFRS) is responsible for conducting periodic inventory of forest 4.2.2 Government institutions resources and conducting research on beyond the forestry sector scientific forest management. It can support private sectors by providing data Ministry of Science, Technology and on forest stocks for business planning Environment: The ministry is responsible and recommending appropriate species for protecting environment and regulating to cultivate in particular biophysical the private sector to comply with the condition. However, the department is environmental regulations. According to financially constrained to conduct periodic Environmental Protection Act 1997 and inventory and research on scientific forest Environmental Protection Regulation management. As a result, there is a lack 1997, if any private sector is interested of information on forest stock availability to establish any forest-based enterprise, to decide on types, scale and location of they are required to carry out IEE and enterprise constraining the private sector EIA. The IEE/EIA provisions, endorsed by investment in the sector. the ministry, also determine the access to resources by regulating management The Department of National Park and handover of forestlands to communities Wildlife Conservation (DNPWC) facilitates and private sectors, and establishment community forests and promotion of forest and operation of enterprises. However, based enterprises in buffer zones. The as presented in Section 4.1.4 of this DNPWC through its parks and protected study, the private sector is facing area offices regulate the private sector difficulties to fulfil the requirements of while accessing resources from buffer EIA process, due to complex process and zones and PAs. As the priority of DNPWC centralized mechanisms of EIA approval. and its institutions is forest resources Particularly, the distance-based threshold conservation, development of private is a complicated provision for a private sector falls below in their priority list. investor, who is interested to establish and operate a FBE. The Department of Plant Resources (DPR) has mandates to carry out research Ministry of Industry: This ministry is on utilization, improvement and propagation responsible to develop industrial policies, of plants and provide research results. The legislations and guidelines for facilitating DPR is also a scientific authority of flora to the industrial development including FBEs. CITES. The department is also responsible The industrial polices and legislations for issuing natural product certification have emphasized for providing enabling and export permission for selected natural environment for establishing small- products. The department could guide scale forest-based enterprises. Many private sector in their business on medicinal, institutions under MoI, such as Office aromatic and other valuable plants;however, of the Company Registrar, Department

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of Industry, and Department of Cottage Ministry of Finance: The ministry is and Small Industry are responsible for responsible for regulating financial recommendation and registration of services. This is also responsible to all kinds of enterprises, companies, make incentive oriented policies and industries and cooperatives, registration laws to attract private sector. Some of intellectual property (e.g., trademarks provisions are incorporated in tax laws and patent) and provide technical support for tax exemption to the private investor for the capacity building of the private investing in forestry sector. However, the sector. However, due to the provision of private sector raises issues of irrational multiple agencies without much clarity on royalty rates, high custom duties in export, which agency is responsible for what, the and dual taxation-local and national. registration and operation of an enterprise is costing high for an entrepreneur. Issue Ministry of Federal Affairs and Local of distance between FBE and forest has Development: The ministry is responsible to be resolved by the MoI. to develop private sector friendly local taxation system and decentralized policy Ministry of Commerce and Supplies: for the private sector promotion. It is also The ministry is responsible for the responsible for the collection of local implementation of trade policies and taxes and preparing district plans for the legislations and also plays an active role to development of local level enterprises. promote the private sector’s involvement Local bodies are also interested to in trade. However, the complex custom support private sectors to establish requirements often create challenges for forest-based enterprise at local level. exporting forest products. However, local taxes on forest products imposed by many of the local bodies are Ministry of Agriculture Development: unrealistic, and as a result, it has created This ministry is responsible to make extra burden for the private investor. appropriate legal measures for the enforcement of plant quarantine. There are Ministry of Home Affairs: The ministry is five Regional Plant Protection Laboratories responsible for ensuring peace and security in respective development regions. The for smooth operation of enterprises. National Plant Quarantine Program has Moreover, the government on September fifteen plant quarantine check-posts, sub- 2012 has decided to establish Industry and check posts and Regional Plant Quarantine Revenue Security Force (IRSF) to provide Offices. The Plant Quarantine Offices issue industrial security and check tax evasion sanitary and phyto-sanitary certificate for at border points. However, the decision is the purpose of export. However, the plant yet to be materialized. Moreover, the IRSF quarantine offices are unable to provide was designed to give services particularly services to the entrepreneurs effectively for industries located in Industrial Estate; due to inadequate testing facilities and the industries operating outside of equipment. The problem is further worsened Industrial Estate may not be benefited due to weak coordination between Nepal from this provision. and importing countries including India to resolve procedural complexity in obtaining Ministry of Labour and Employment: sanitary and phyto-sanitary certificate from The ministry is responsible to develop importing countries while exporting forest policies for employing labour in products from Nepal. industries. The Labour Rules 1993 has

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provisions for security of profession and in Nepal. These associations have limited service; remuneration and welfare; and capacity to provide required services to health, cleanliness and safety. According the entrepreneurs. to the rule, the government can form a committee to review and fix minimum 4.2.4 Key institutional issues wage of labour in industries. According to The inefficiency and ineffectiveness Labour Act 1992 and Labour Rules 1993, in delivering services, weak coordination an employer can recruit non-Nepalese between the forestry institutions, citizen after taking prior approval from overlapping jurisdiction and authorities, Labour Office for a maximum period of conflicting and contradictory provisions, five years only if a Nepalese citizen could and complex bureaucratic process are not be available for the specified job. some of the issues challenging the growth In the due course of time the employer of the private sector in forestry. has to train Nepalese citizen and replace non-Nepalese citizen. However, the Inadequate capacity to provide extension provision has not been implemented services: The MFSC is responsible for effectively because of weak providing extensive services through its monitoring mechanism in the ministry. departments and regional and district level There is no concrete statistics on how agencies. Extension services, particularly many foreigners are working and being on scientific forest management, employed against the provisions of the establishing forest based enterprises Labour Law of Nepal. and facilitating trade are important for promoting production forestry. However, 4.2.3 Non-state actors the overwhelming responsibility of staff Apart from governmental institutions, within the DoF and DFOs to perform various other institutions, such as I/ technical, administrative and judicial NGOs, bilateral/multilateral agencies, roles is reducing their efficiency and association and federations are involved effectiveness to provide extension in forestry sector particularly providing services. Similarly, as the extension extension services on sustainable forest personnel under forest department are management, disseminating market not trained on enterprise oriented forest information system (MIS), facilitating and management, the entrepreneurs are not promoting establishment and operation of able to get required extension services. enterprises and trade, etc. However, the interventions from I/NGOs and bilateral/ Overlapping authority and weak multilateral agencies are project-based coordination: The existing monitoring and confined in certain geographic area mechanisms in the forest sector and for a specific time period. The continuation industrial sector are led by different and expansion of such interventions for agencies of the government, Regional effectiveness at large scale has always Forest Offices and Department of Industry been an issue. The business membership and there is no any functional relationship organizations (BMOs), such as FenFIT between these agencies. This provision in timber sector; NEHHPA, JABAN, creates the jurisdictional overlap for the HANDPASS and HEAN in NTFP sector; monitoring of forest-based enterprises, HAN, TAAN, and NATTA in ecotourism and sometimes conflicts, which ultimately sector; Nepal Briquette Producers impacts the private investors. Similarly, Association in bioenergy sector are active the weak coordination between custom

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offices and other government agencies confusions about the federal structures often create challenge for the export of and their policies, and power sharing on forest products. natural resources including forest.

One Window Policy designates The private sectors investing in forest- Department of Industry as the ‘one window based enterprises have been bearing risk servicing agency’ with the industrial and uncertainty on policy provisions, which promotion board as the focal point. might be changed after the establishment of It is practically not operational due to federal states based on the new constitution. jurisdictional overlaps across the concerned Besides, due to unstable government and agencies, policy contradictions and weak prolonged transition period, the problems coordination between service providers. such as general strikes, extortion, intimidation, and hurdles in the movements Complex bureaucratic processes: of goods have been occurring frequently, Registering forest-based enterprise creating hesitation among private investors is a cumbersome, costly and de- for further investment. As stated in a recent motivating process. An entrepreneur publication of Nepal Rastra Bank, the has to pass bureaucratic processes average direct cost of general strikes stood of various government institutions, at NRs 1.8 billion per strike per day and such as DFO, Company Registrar NRs 27 billion per year at the current prices Office and Department of Cottage and during 2008 and 2013 (Shrestha and Small Industry. The complex process Chaudhary 2013). The total accumulated of registration is demotivating factor output loss due to the general strikes for private sector to enter into forestry during the five-year period is estimated at business. Moreover, the time consuming NRs 117 billion. The report of high-level process for getting certificate of origin judicial commission states that the political from FNCCI and documents required for instability and lawlessness are considered exporting, is another challenge that the to be the major cause of corruption during private sector is facing. the past one and half decades in Nepal (MFSC 2011). 4.2.5 Political environment The transaction costs of a business are The forest sector has also been suffering reduced in politically stable environment. due to lack of political commitment. In spite Nepal underwent numerous and of the fact that every major political party significant political changes since 1990. It has considered forest as an attractive has resolved a decade-long insurgency, sector in their election manifestos and the nation was declared as a federal identified a need for its development for democratic republic in 2008, and is still in national prosperity, the practical application a post-conflict political transition phase. has been low. Instead, the forest based There have been frequent changes in the trade and industry has been negatively government. In this situation, the overall affected by the political influence. Reports economy including the forest sector prepared by the Parliamentary Committee has been impacted, forcing the nation on Natural Resource Management and the towards a slow growing or stagnated High-level Commission for Investigation on economy. In the present context of long Community Forestry, Forest Encroachment transition period with the constitution of and Deforestation have indicated the country still to be drafted, there are insufficient accountability, elite capture in

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forestry resources, political protection for The private sector in the leadership timber smugglers to be some of the major of FNCCI has also developed a Code of causes of corruption in the forestry sector. Conduct focusing on business transparency including a ceiling of the value of any gift There had been reports of massive timber or present to anyone not to exceed NRs harvesting and encroachment of forest 5,000 and submitted their approaches to during the period of political events including the political parties. However, the private periodic national elections. According to sector reports that forced donations is Department of Forests, the problem of still heavily practiced by political parties felling of trees and encroachment is more though they observed some soft tone in in Terai, particularly in the districts of Kailali, the recent Constituent Assembly (CA) Banke, Bardiya, Kapilvastu, Nawalparasi election in 2013. and others than in the mid hill region. Good news is that during the recent election of Constitution Assembly, no such evidences have been found. This is a positive sign for the country.

The obstacle by political groups and forceful donations including money seeking by some local level groups (misinterpreting and misusing ILO 169 to collect illegal money from private sector, which is in some cases informally labelled as ‘ILO tax’), local political cadres and local hooligans during transportation and trade of the timber products have increased the transaction costs as well as created entry barriers for potential investors. Due to the negative political interference, there have been some obstacles in law The issues relating to security of private enforcement and crime control. The latest land and property remain unresolved that annual report of CIAA has exposed that is still a stigma for investors. There is the decisions of courts and orders of CIAA still the fear of losing harvestable trees to government agencies to punish those and even land due to political parties’ officials, forestry smugglers and persons, confiscation, which were practiced during who have involved in forest related offences, the insurgency period. The uncertainty of timber smuggling, illicit trade and corruption land reform due to frequent changes in are not being complied by the government the policy with change in political regime agencies including the Ministry of Forests has cautioned private land holders thus and Soil Conservation (CIAA 2012a). demotivating private plantation as well as renting out for its utilization. On the other The forest stakeholders and forest hand, the government has been unable communities including the private sector, to return or provide compensation for the who are struggling for forest protection properties lost due to confiscation and as and enterprise development, are seriously forced donations. raising their concerns about the lack of law

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and order and degree of impunity within supply of quality inputs and technologies the forestry sector. in a regular basis, capacity building, business advice and counselling, market The political influence in hiring and information and product promotions, and transferring personnel in government networking and brokering. The availability agencies has also been affecting the of quality services either reduces risks or forestry sector. Similarly, at the enterprise the costs of production and marketing level, conflicts between the entrepreneurs making a sector profitable and attractive and labour unions often backed by political for the investment. Various service parties and their sister organizations providers from government, civil society results into losses in workdays. and in a very limited areas some private Such threats prevents entrepreneurs institutions are providing, research, from implementing provision of ‘no capacity building and extension services work, no pay’. to forest producers and entrepreneurs.

In summary, the nation has incurred Research: The DFRS is responsible to negative side effects on the national develop and demonstrate appropriate economy through 1) inefficiency in technologies related to forest management implementation of existing policies and activities such as determination of forest difficulty in law enforcement; 2) increased growth to maximize forest productivity, lawlessness, widespread corruption, and identification of suitable tree species growing insecurity and crime; 3) reduced for various biophysical settings, and transparency and inefficient legal systems; development of nurseries and silvicultural 4) increased political risks; and 5) more technologies for the productive species frequent civil unrest and strikes. According and varieties. Some research efforts have to the political instability index developed by been made in the field of agroforestry economic intelligence unit (EIU 2009-10), and fodder production, tree improvement, Nepal is ranked as 19th highest politically socio-economic studies, utilization of forest unstable country along with some African products such as bamboo and rattan, and nations out of the 165 nations compared. estimation of volume and biomass for However, the actual situation at present is various forest products. The Department of not bad and it is improving rapidly. In fact, Plant Resources is also involved in various in comparison to other conflict-affected research activities on plants, especially countries Nepal’s forestry sector has been NTFPs. relatively less impacted, in international comparison Nepal’s forests are found to be However, the research and maintained and well protected. development activities in the country are very limited due to low policy priority, the 4.3 Business Development Services lack of development vision on the part including Infrastructure and Finance of planners and managers, shortage of fund, decreasing appointments of 4.3.1 Research, capacity building and professional researchers, and increasing extension services frustration among existing researchers The business development services (Acharya 2006). No research has been required for enabling business conducted in the identification of the environment other than described above commercially viable and biodiversity include research and development, friendly timber and NTFPs species.

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Similarly, the identification and proper labour for the enterprises. treatment practices of diseases in the Extension services: Among the five forest related species is yet to be done. departments of the MFSC, the DoF is the Research is also lacking in proper main institution, directly linked with forest cultivation and maintenance practices producers and entrepreneurs in relation of the commercial species that could to extension services. As the DoF and have generated a greater private sector its field offices are playing multiple roles, interest for investment in plantation. the focus and scale of extension service is insufficient. The Department of Soil Capacity building: Under MFSC, there Conservation and Watershed Management is Human Resource Development and (DSCWM) and its district offices have Training Section, which oversees the been implementing soil conservation and training component at the central and watershed management programs based regional training centres. Limited trainings on the principles of integrated watershed are conducted, which are mostly focused management. This department also on enhancing the forestry staff capacity. provides some plantation supports in soil The capacity building activities of the erosion prone areas. The DPR provides producers and other actors related to the only limited extension services, especially forestry sector are limited. occasional NTFP management training and some supports in Quality Assuracne Tribhuvan University (Institute of (QA) and Quality Control (QC) for trade Forestry and Kathmandu Forestry College) through its laboratory facility. The DNPWC and Agriculture and Forestry University is active only in protected areas. are producing mid and high-level forestry technicians. The coordination between During this study, the entrepreneurs universities and MFSC is weak and expressed the need for information on soil there is almost no coordination with and climate specific species of economically forest-based industries. There are some profitable timber and NTFPs for private civil society organizations which have plantations. Quality inputs and technology been conducting capacity building, supply has also been identified as a major research and development activities issue by the entrepreneurs; the inputs and and transferring knowledge, skills and technology suppliers are inadequate. Only technologies to local communities for few nurseries managed by DFOs and private enterprise development at small scale. entrepreneurs supply plantation materials, which are unable to supply sufficient The study found that the private quantity of quality seedlings to growers. sector is ready to extend partnership Due to the use of improper harvesting with the government or any training technologies and practices, the loss in the institution to develop skilled human total output of the timber and NTFPs is resources especially in processing and significant. In spite of the great technological manufacturing forest products. Developing innovation in the engineered wood, appropriate curricula and organizing Nepal still lags far behind in adopting practice-oriented training in partnership such technologies. with enterprises and training institutions, such as Coucil for Technical Education Most importantly, there is a severe and Vocational Training (CTEVT) can shortage of technical assistance and address the issue of shortage of skilled extension services in resource inventory

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and operational plan revision of CFUGs. and providing other market related Without the renewal of the community information through its website. Although forest with revised operational plan, the in NTFP subsector, associations such as CFUGs are not able to harvest and sale NEHHPA and JABAN are organizing forest products. some trade fairs, the activities towards market promotion in the forestry sector In the forestry sector, business are very limited. counselling service providers do not exist both in private and public sector. 4.3.2 Infrastructures However, DFOs regulates the trade of The availability of adequate quality forest products issuing the release order infrastructures either reduces risks or or transit permit for the transportation the costs of production and marketing of forest products, checking and making a sector profitable and attractive endorsement of transported forest for the investment. This study reveals products, export recommendation to the that four most important infrastructure concerned custom offices. The offices needs for attracting investments in Nepal under custom department regulate are transport, electricity, information and international trade through collecting communication technology (ICT), and custom fees, taxes and tariffs. other supportive facilities.

Electricity: Electricity being the first and foremost input required for running enterprises, especially processing and manufacturing, its availability and regular supply really matters for the overall performance of an enterprise. The unavailable or intermittent supply of electricity is one of the major constraints for processing and manufacturing enterprises. The coverage is very low providing access to electricity only for 48% of the population in Nepal. Even the population with access to electricity have been facing problem of intermittent supply of electricity due to the load-shedding almost throughout the year, which goes up to 18 hours a day during the winter and dry seasons.

In spite of the high priority of the The demand and supply status of government to develop electricity since forest products is not available which has late 1990s, the total present supply of made the investment in this sector risky electricity is 564 Mega Watt (MW) (NEA and unpredictable. There is no proper 2013; Majgainya 2009). The domestic platform to seek market information consumer category continued to be for forest products except for NTFPs. the largest consumer category with a ANSAB has been publishing price share of 95.12% of the total number bulletin of 32 NTFP species regularly of consumers. The industrial and

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other remaining consumer categories road development. While the Terai has combined accounted for 1.44% and relatively high road density (22 km/100 3.44% respectively (NEA 2012/13). The km2), difficult terrains and lower road consultations during this study revealed density in hills (8 km/100 km2) and that electricity produced from generators mountains (2 km/100 km2) constrain is at least three times more expensive transportation of forest products in the than that received from electric grids and mid hills and mountains, sometimes adds approximately 26% of the sales needing expensive air transportation. price making Nepalese forest products For example, transportation cost from less competent in the market. The Gamgadi, Mugu to Nepalgunj by air is entrepreneurs who get electric connection NRs 70/kg while even by earthen road complain about the losses they bear due it would cost NRs 40/kg, which would to intermittent supply of electricity due to even be less if a better road is made. To frequent load shedding. increase the competitiveness of products, the transportation facilities should be The time required for getting electricity reliable and available at a reasonable connection is 70 days, which is less as cost, and in case of export goods boarder compared to other South Asian Association roads should be functioning and transit for Regional Cooperation (SAARC) nations, facilities should be available. however the number of procedures required for getting the connection is high. The The Government of Nepal have developed government has provided the construction 20 years road master plan, implemented licenses to 85 projects with a total capacity road transport policy 2001, and emphasized of 4,392 MW and provided the survey the role of road in interim three year plan licences to 57 projects with 5,311.79 MW (2007-2010) to improve transportation capacities. Seventy-six projects have infrastructure and increase road access. been issued generation licences over the The Department of Road has been past decade, which have a combined total implementing 10-year sector wise plan, and capacity of 2,128 MW. Out of seventeen priority investment plan (2007-2016). The on-going projects, seven are in completion priority investment plan envisions bringing phase. NEA has also been working to entire hill population within a four-hour walk address electricity supply shortage through and the Terai population within two hours import from India. In 2012/13, 223 MW of walk to all season roads. electricity was imported from India. With the completion of the hydro-projects currently 60% of resources for transportation under construction, the energy situation of sector enter as foreign investment. Nepal could be improved in five years. This Various agencies including the World Bank challenge and the need to address this are and Asian Development Bank have been also reflected in the election manifesto of providing grants and loans for developing the major political parties. transportation infrastructure in rural area and linking Nepal to other countries to Transportation: Road infrastructure is facilitate the country’s import and export. increasing, however, most of the rural The World Bank supported programs, area in Nepal still remains disconnected such as ‘Rural Sector Development from district headquarters or all season Project’ that improved access of rural roads due to lack of integrated policy villages in remote hills and ‘Rural Access and implementation strategy for rural Improvement and Decentralization

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Project’ that have improved rural using Internet services. Almost 70% of transportation infrastructure in 20 the Internet users use GPRS/Mobile data districts reducing travel time by 60%. service, of which 80% of the bandwidth is Similarly, the ADB supported projects used for the official or for business purpose. have constructed 613 km of rural road and 96 km of road connecting villages Given the progress Nepal has made with district headquarters. In addition, the over the past two decades in ICT with ADB supported projects also constructed accelerated communication facilities 41 km of roads connecting boarder including Internet facilities and mobile markets in Birgunj, Bhairahawa, and phones, the communication costs are Kakarvitta to reduce transportation costs reduced and are quite reasonable for a associated with import and export. business. This is a good opportunity for private sector for doing any business. The weak institutional capacity of local This also facilitated to improve other agencies and the lack of accountability BDS, for example, commercial banks and monitoring have resulted into poor have developed and providing innovative road network with high vehicle operating banking services such as mobile banking. costs. Inadequate road networks, poor quality of roads, syndicate system and Other supportive facilities: The lack of competition in transport sector, study revealed that collection centres, and obsolete technologies and old warehouses, market infrastructures vehicles in transport system are creating (wholesale/auction), laboratories for challenges for forest-based industries for quality assurance (QA) and quality transportation. To make the matter worse, control (QC) are the critical facilities frequent strikes and the lack of alternate required for increased investment in routes have increased risks during NTFP sector of Nepal. Similarly, access transportation hiking up the transportation and affordability of modern and efficient time and costs. Unreliable transport harvesting, processing and manufacturing system delays supply of forest products, technologies are very crucial to increase which has been costly for FBEs in the the efficiency and upgrade the timber short as well as long run. All these factors value chain. In case of forest bioenergy, are contributing to increase of the risks the technology on wood biofuel, such as and transaction costs for FBEs reducing torrefaction combined with densification their competitive capacity both in domestic leads to a very energy-dense fuel carrier. and international markets. Most of the technologies required Information and Communication by the forest-based entrepreneurs are Technology (ICT): ICT can transform already in use in China and India and are the development of any sector. With a relatively cheaper in price. As Nepal has fair competition among Internet service good trade relation with China and India, providers in Nepal (there are about the entrepreneurs can easily access the 50 registered companies), the price of required technologies. Internet is at average on broadband network but relatively expensive on mobile 4.3.3 Financial services networks among South Asian countries. The banking system in Nepal has About 80% of the population of Nepal evolved since its introduction in 1937 with is using telecommunication and 72% is the establishment of Nepal Bank Limited

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creating a better investment climate NRs 955 billion. To ensure the fund flow, including that for forestry sector through the NRB has mandated class A, B, and availing various financial products from C banks to disburse 20%, 15% and 10% various types of banking and financial respectively of the loan volume to the institutions. Nepal Rastra Bank (NRB), priority sectors by the end of FY 2014/15. the central bank established in 1956 Overall credit disbursed to agriculture governs the cash flow towards various and forestry sector17 by banks under the components of economy through various supervision of NRB was NRs 17.24 billion types of banks and financial institutions. in 2012/13, which is 2.18% of the total loan volume in the country (NRB 2013). Financial system: There are four kinds of major institutional players, which Recently some BFIs have started dominate financial intermediation in to provide innovative banking facilities Nepal. These are BFIs, government to entrepreneurs in few rural areas in owned institutions, capital market, and collaboration with I/NGOs. Another type insurance companies. Table 4.7 shows of BFI-I/NGOs collaboration has resulted the structure of financial system in Nepal into the development of enterprise service providing lists of regulating institutions providers to support enterprises to and financial intermediaries. develop acceptable business proposals. Lately, other innovative banking services With the proliferation of banks and other suitable for rural area are available, financial institutions (BFIs)16 in the country, such as “banking on wheel” and “mobile a positive outcome is indeed observable banking” that FBEs can benefit from. in the form of lending by these financial intermediaries in the economic sectors Stability of financial system: As including forestry. The financial services experienced by other countries around the from formal source is encouraging and world, Nepalese financial sector is also becoming better. There are 283 BFIs in experiencing the trend of deregulation, Nepal providing services through 2,492 globalization and financial innovation. The branches, with the total loan volume of proliferation of BFIs in terms of products

Table 4.7: Structure of Financial System in Nepal

Regulating institutions Financial intermediary institutions Nepal Rastra Bank Commercial Banks (Class ‘A’), Development Banks (Class ‘B’), Finance Companies (Class ‘C’), Micro finance Development Banks (Class ‘D’), Financial Cooperatives, Non-Governmental Organizations Ministry of Finance Specialized Financial Institution(s) like Employees Postal Service Departments Provident Fund, and Citizen Investment Trust Postal Saving Banks Securities Exchange Board Nepal Stock Exchange Limited Insurance Board Insurance Companies Source: NRB 2013

16 As per the Bank and Financial Institution Act – 2006, BFIs are categorized into four types; Class "A" i.e., commercial banks, Class "B" i.e., development banks, Class "C" i.e., finance companies and Class "D" i.e., micro finance development banks. 17 There is lack of desegregated data on agriculture and forestry sector.

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and services as a result of advancement institutions since 2000 reveals that in ICT has created more opportunities commercial banks in the beginning of as well as challenges in the stability of the last decade were not much involved the financial system. Furthermore, with in extending credits to small business the growing integration of Nepal with firms and individuals with small financing the world economy especially in the requirements, which were used to be area of trade and services as well as favourable lending sectors for the Class dependency on foreign employment, it is B and C institutions. The credit facilities increasingly being exposed to the global to individuals under deprived sector (then forces, shocks and vulnerabilities. loan ceiling of NRs 30,000) used to be extended by micro finance institutions, As a regulator and supervisor of the which later categorized as Class D micro financial system, maintaining financial finance development banks. This pattern stability has become a major policy has however changed later owing to concern for the central banks worldwide increasing number of BFIs which made and so does for Nepal. Even in the case of the market very competitive, thus forcing low integration with global financial market, the BFIs to look for viable sectors to book Nepal is exposed to domestic and external quality credit assets. shocks. Volatility in remittance flows, increase in international oil price, high With evolving market scenario and level of imports relative to exports, pegged increasing competition to create quality exchange rate regime, frequent volatile loan portfolio in the book, commercial liquidity, real estate sluggishness and other banks currently not only extend bigger supply shocks have impacted the stability size loans (above fifty million in Nepali of the financial sector. NRB, being the rupees) but have of late also started central bank of Nepal has to play a vital role constituting departments for small and in achieving the goal of financial stability medium enterprises and micro finance in the country. Accordingly, the NRB Act, businesses. The financial products 2002, which replaced the previous NRB presently available through BFIs are Act, 1956, explicitly expressed financial summarized in Table 4.8. A case of stability as one of its objectives. financial products and services to herb growers is presented in Box 4.7. To sum up on the stability of financial system in Nepal, the nature and intensity Supply of these financial products of the impact of the global crisis on Nepal is governed by 1) BFI’s internal rules, is considered to be different from those in such as principles of credit of the some of the developed economies. The BFI, types of credit facilities available financial sector has remained resilient with BFI, loan categorization, and functioning, despite slight volatility borrowing cost and prerequisites of liquidity and interest rate of BFIs for credit decision and 2) investee’s because of low growth of remittance characteristics. inflow and excessive investment in the real estate sector. Nature and tenure of credit products: The BFIs offer loans to the forest- Supply of financing products and based enterprises for the short as well channelization methods: An observation as long term. The short-term loans of credit exposures by different financial are basically for catering the working

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Table 4.8: Financial Products Available Through BFIs Financial Products Product Characteristics A. Fund-based loans 1) Working capital loan 1. Overdraft Borrower is allowed to overdraw its account up to certain approved limit. This is revolving in nature annually. The interest payment frequency is monthly or quarterly. Depending upon the business and interest payment record over the year, bank may continue overdraft for one. 2. Demand loan Demand loan is revolving in nature with maximum of one year tenure and is disbursed upon the demand from the borrower. The interest payment frequency is monthly or quarterly. 3. Short-term loan This loan is provided for 4 to 5 months period with a requirement of full repayment at maturity. Short-term loan is suitable for meeting seasonal requirement of entrepreneurs. 4. Pledge loan Short-term (4 to 5 months) financial product, jointly locked possession of BFI and borrower. Borrowers use pledge loan to enrich their inventory of goods until they can sell them at the best price possible. 5. Packing credit loan Exporters use this product (4 to 5 months maturity period) for procuring or producing goods to export to other parties in Nepal or abroad. 6. Trust receipt Importers oriented short-term (4 months) products used by borrowers to pay exporters and for custom clearance. The borrowers settle the loan through the sales proceeds. 2) Fixed-term loan Long-term product- more than one year. Repayment mode is equal monthly instalments that include monthly amortization of principle and the interest amount for full settlement of the loan within the specified tenure. Used for long term investment needs such as procuring land, building, machineries etc. B. Non fund-based loan Entails no fund outflow from BFI but a BFI offers their guarantee for supporting the financing need of the borrower. 1. Letter of credit A letter of credit is issued by bank on behalf of importer assuring payment to the exporter upon fulfilling the conditions by exporter specified in the letter while exporting the goods to the importer. Importer gets time to make payment to the exporter. 2. Bank guarantee Banks render guarantee to borrowers to procure business supply of organization or for advanced payment.

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capital requirement whereas the long- through informal channels, Nepal Rastra term loans are for meeting the fixed cost Bank has taken a number of measures, requirements,such as buying plant and such as regulations for branch opening machinery and building construction and directed lending.

Box 4.7:Financial Products and Services to herb growers: A Case of Rastriya Banijya Bank

Rastriya Banijya Bank (RBB) Ltd. provides credit service to the herbs grower or farmers for a whole year, with one time processing, according to cropping pattern. The bank also provides credit service to the processors, wholesalers and retailers and seed producers. The other areas for which the RBB provides the credit support include farm machineries, construction of cold storage,developing irrigation facility, production and marketing of orchids and ornamental plants. The interest rate for deprived sector loan is 10% for individual and 9% for institutional per annum. The bank also provides a loan to individual and company for exporting and importing of goods at 9% interest rate per annum.

necessary for the business operations. Regulatory scope for financing FBEs: Such term loans are repayable by As per the Unified Directive dated mid July the borrowing enterprises with the 2013 of NRB, every BFI must formulate equal monthly instalment (EMI) for a plan to achieve its loans exposure to a period ranging from 5 to 15 years productive sector equalling 20% of its total depending upon the cash flow of the loan volume within mid July 2015. This FBE projects, which borrow through means the mandatory finance to productive such long-term loans. sector will reach to NRs 191 billion by mid July 2015, even if the total loan volume of Informal sources of finance: Apart from BFIs remains the same as in 2013, which the formal borrowing from the BFIs, the was NRs 955 billion. The productive sector FBEs or individuals doing business also as defined by NRB includes prioritized borrow from the informal sector. In the sectors like agriculture, energy, tourism, informal sector, the creditors are cash and cottage and small industry. There is rich people like goldsmith, landlords, also a separate directive, which specifies individual lenders, etc. The borrowing that every BFI must have 10% of its loan from these creditors is generally exposure in agriculture and energy by the against the loan deed or transfer of land end of fiscal year 2013/14. There is no any ownership to the creditors and the interest specific regulation from NRB for BFIs to charged under such informal lending is comply as regards to financing the FBEs but generally quite high. The situation for forest heading does get incorporated as sub such informal borrowing is attributed head in the agriculture sector as specified by to a number of reasons including lower NRB in its aforementioned unified directive. financial literacy of the people, lack of financial institution in the area and quick Perspectives of BFIs and FBEs decision-making ability of the creditors on access to finance including to provide loans to the borrowers without constraints: According to the field survey much hassle. To check and control of 72 BFIs in Kathmandu and sample the practice of borrowing and lending districts done for this study, 7% of class A

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banks disbursed loan to FBEs, while 41% firms surveyed have not taken loan. Among of class B banks, 33% of class C FIs, 50% those who have taken loan, 50% have of class D FIs and 47% of others (financial taken loan from informal sector. Among cooperatives, NGOs) provided loans to the informal sources, relatives and friends FBEs. Interestingly more than 70% of the were found to be the major contributors. disbursed funds were in the form of working capital loan. Risk of loan default is one of The following are the major factors the prime reasons for not sanctioning loan leading to not so much advancement of products. When asked whether the BFIs FBEs for their access to finance from BFIs. provide loan to newly established FBEs, i. Informal and unorganized nature of 64% savings and credit groups, and 59% FBEs: Most of the FBEs are informal development banks responded “yes”, in nature; a survey during this study which implies that either they are willing to found that over 40% of enterprises take risks or have risk mitigation measures do business informally. The informal which may be true in case of development nature of their business by default, banks and the perceived risk is low in case exclude them from the set of of saving and credit groups. financeable organizations and have little access to finance. The interest rates of BFIs are in a range ii. Financial illiteracy and difficulty in of 10% to 20% with the commercial banks ensuring credit worthiness: Even having the lowest rate followed by the the formally registered businesses development banks, finance companies lack financial literacy and many of and micro financial institutions. During them suffer to prove their credit the survey, most of the entrepreneurs worthiness. The lack of sound account taking loan from informal sources stated keeping, and inability to produce that one of the reasons for avoiding BFIs required documents often deprive for loans is the uncertainty in the interest these businesses from access rates as the BFIs unilaterally decide the to finance. higher rate without informing and taking iii. Long moratorium period: Some of the consent from the borrowers. FBEs such as plantation need to wait for sizeable number of years before In supply side, most of the BFIs have production; this long moratorium provisions and are interested to extend period coupled with other risk factors their credit facilities to FBEs. The findings as disease and pest infestation make of the survey of BFIs during this study such businesses less attractive to revealed that the major motivating factors BFIs. for investing in FBEs are return in the form iv. Inability to produce enough collateral: of interest income and other fee related FBEs in semi-urban or rural areas incomes along with the requirement of own low value lands, which do not fulfilling the regulatory provision. Similarly suffice for collateral. In addition,the from demand side, the entrepreneurs are banks also consider unavailability of continuously seeking finance to expand readily saleable additional security as their business. The survey data shows a negative score while they assess that 68% of FBEs faced obstacles while FBEs for credit disbursement. accessing finance, among them 53% v. Lack of appropriate insurance consider the obstacles they face are very coverage: Insurance market for FBEs severe. It is also found that 54% of the is not developed in Nepal. The lack

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of insurance coverage is another vii. Reputation of forestry sector in factor that makes BFIs hesitant to general: The general lack of trust disburse loans. attributed to degraded reputation of vi. Information management system: forestry sector business turns BFIs The availability of formal data and away from making investments. information on forest industries and FBEs in Nepal is very limited and even Given the state and nature of the the interested BFIs cannot triangulate FBEs, they require support in a number the information produced by borrower of areas to be able to access credit before lending the loan. Creation without difficulty. These include a) and maintenance of data on FBEs development and execution of business would definitely help in enhancing plans, b) building managers’ capacity, awareness for both the existing and c) linking with lenders, d) assistance in potential investors to consider the financial negotiations, and e) financial investment/financing in the forest account keeping. based businesses positively.

138 Private Sector Involvement and Investment in Nepal’s Forestry Sector INTERVENTION 5 STRATEGIES Nepal should define a goal for forest- need to develop a foundation from which based industry development that is the existing entrepreneurs can expand owned by all of its key stakeholders. their business and new one would Considering the potentials that have been be able to know the prospect and be identified in this report, Nepal can seta interested to start a new venture. Preparing goal of increasing the value of legally and the foundation would involve the following sustainably produced and supplied forest six strategies: products and services by 15 folds and creating sustainable employment through 1) Define and promote multiple forestry improved productivity, increased production development models for Nepal; and supply, value added processing, 2) Map and zone forests by bio- marketing and governance. To achieve physical, land tenure, and product this, a two-pronged strategic approach is characteristics; recommended, which would consist of a) 3) Address policy issues hindering preparing base for private sector led value forestry development; chain/industrial growth in forestry and 4) Address institutional and law b) promoting industrial competitiveness enforcement issues in forestry; and growth of most promising forest 5) Promote to adopt standards for value-chains. Of course not all can be sustainable forest management and implemented, but the study has included responsible business practices; and all the suggestions so that readers see a 6) Expand business development range of expertise to inform their decisions. services including infrastructure and finance. While strategies for preparing and strengthening the foundation that creates 5.1.1 Define and promote multiple space and provides long-term assurance forestry development models for Nepal and profitability for asset investors are In order to attract and approach necessary to retain, expand and attract new potential investors, it is important to investment, strategies for supporting firm- create space and determine the scope level upgrading in promising value chains for private sector involvement in forest- are important for improving and sustaining based industries. The national strategies their competitiveness and growth with would clearly define the management social and ecological sustainability. objectives of the existing and potential These value chains can also serve as a forestland and define the basis to allocate model industry providing evidence and the available forest and other land for confidence for policy reforms and making commercial production of forest products right type of enabling investments. and services. Given the diversity of Nepal’s forest, institutional landscape 5.1 Prepare Base for Private Sector and participation of various stakeholders, Led Industrial Growth in Forestry multiple forestry development models To attract involvement and investment for the development of forest-based of private sector in forestry, there is a industries are needed.

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There is no systematic effort to define land according to the focused products and develop effective forest industry and/or services and management regimes model(s) applicable to a situation like is needed. Since the dynamics of industry in Nepal. The forest industry model, based on use of products and services effective for production and marketing produced from natural forests vary vastly in land rich countries, is simply not with that of plantations, the objectives of suitable in Nepal due to ecological management, products and services and and socio-economic complexities and strategic interventions that are required business environment that prevails in to promote the corresponding value- Nepal. Further, this model does not chains also vary. While further studies necessarily take care of environmental and data from the FRA would be useful and social concerns, which are very for refining the strategies for this, it is important from the considerations of suggested to define two broad categories biodiversity and poverty. The government of commercial forest production and development partners led model of system as follows. community groups and cooperatives is working to some extent to perform Category 1: Natural forests for limited functions, but unable to develop commercial production: This would aim a sustainable business at scale, let for sustainable management of natural alone to address the challenges of forests incorporating community forestry, developing an effective value chain. In biodiversity conservation, and generation our context, recognizing and dealing of multiple products and services, both with two important functions in forest for subsistence and commercial purpose. industry, namely primary production The major actors for the production function and processing and marketing would be forest producer groups, such as function, would be more practical to deal community forest user groups, leasehold with the above-mentioned complexities. forest user groups and collaborative Accordingly, defining production system forest management groups, and the for commercial purpose, and defining government agencies, such as DFOs and and developing effective business model the proposed entity for production forest for different scenarios are suggested as management. intervention strategies for creating scope for industrial growth. Category 2: Plantations for commercial production: This would Define production systems for aim for plantation of most remunerative commercial purpose plants where appropriate, including Nepal needs to prioritize greater rehabilitation of denuded lands, near investment in primary production of easy transport, not in conflict with food forest goods and services, since without productions or community land rights. In increased supplies and better quality this, the major actors for the production of supplies; all other investment in the would be a private business entity either forestry sector will be constrained. as an individual or a corporation. Designating available land for commercial production of forest goods and services Define and develop effective business should be a first step for Nepal. models for different scenarios Similarly, clearly defining categories One of the challenges Nepal’s forestry and sub-categories of the available stakeholders are facing is not having a

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business model that delivers social and elements of a successful model. The environmental benefits in a sustainable study findings presented in the previous way. The worries are over-exploitation sections provide some useful inputs for of forest resources and resultant this. The insight gained from the study degradation of forests and loss of natural also indicates that the exploration would stock for the flow of ecosystem services consider the following four main elements including biodiversity on the one hand, of an industry. and exploitation of local people and • What is the industrial vision of all inequality in benefit sharing along the actors and stakeholders of the value value chain on the other. chain? • Who would manage the production of In the present state of complexity in primary forest products and goods and the forest sector, a blanket approach how? of involving private sector for the • How various actors are organized development of forest-based industries to perform business functions in the is not only inappropriate, but can create value-chain? a confusion and even conflict among • How individual firms, at all level of various stakeholders. For example, value chain, are structured in terms of the topic of who is more appropriate in ownership, shareholding and benefit developing and running the forest-based sharing? industries became a prominent issue of discussions in multi-stakeholder forums b) Design forest industry models recently. There are two extreme opinions, appropriate for various categories and one advocating that community groups sub-categories of forest production should take the entire business functions, system: In the initial stage, a design and the other advocating that only private framework for a business model would sector should be involved in business be developed including business vision, functions. Although in a minority, there business functions, actors, partnerships, is a third opinion, which advocates that ownership structure, governance, the state should own and operate the roles, investments, benefit distribution, forest-based industries. Therefore, it is legal matters, and business principles important to take a multi-model approach; on fairness, equity, gender and social and develop and promote effective inclusion. The participatory process would business models that deliver the desired continue to refine the details that are economic, social and environmental goals required to make an effective business under the given context. The following model. While the exploration and the strategic steps are suggested to define answers to the above questions would and develop appropriate and effective support to design an appropriate industry business models for different scenario. model for a value chain, we suggest the following strategic supports for designing a) Explore options for forest industry appropriate models. models appropriate for various categories and sub-categories of Support to define vision and values to forest production system: Examining be considered in business models: It is existing forest industry models and best important to have a common national practices, both at global and national vision and guidelines acceptable to level, would provide insights on various all stakeholders of the value chain.

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The vision and values of the business operate business with the involvement models would be defined by considering of local people as labourers, is not specific national context, strengths suitable. Instead a model where local and weaknesses of value chain actors communities and producer groups and other stakeholders, and the goal with clear tenure arrangements for of sustainable economic growth and use and management manage forest employment. Deeper understanding of resources and seek partnership supply potential, interest and capacity of and capital, is more appropriate for investors, and end market characteristics sustainable development. This is for Nepali forest products and services practical for Nepal for various reasons would help to refine the vision. Technical including the strong community-based and financial support would be provided forest management system, human to develop some exemplary cases of resources engaged in community forest-based value chains with clear forestry, and possibility of creating national vision for promoting inclusive, many small and medium sized forest fair and green growth by involving enterprises (SMFEs), rather than a big existing and potential value-chain actors, company,which generate employment enablers, and facilitators. Simultaneously, opportunity and income to many. incorporating the learning, a guide would The model would consolidate the be developed for potential value-chain production, processing and marketing actors on how to be organized and define of natural products by combining value and vision of the business model. strengths of communities and business The guide can also provide guidance leaders, who will complement each on selecting the primary products and other in terms of land, labour, capital as services, production and harvesting well as knowledge, skills and network practices, inputs and technologies, and required to make a viable industry. end markets. • Similarly, in a value chain based on Develop examples on how various actors products from government managed can be organised to perform primary natural forest, government agencies production and business functions in a (district forest offices or an entity value-chain: Depending on the context, responsible for production forests) would interest, capacity, scenario of production play primary role in managing forest land system, and stakeholder participation, by producing a portfolio of products and the division of roles and business services to improve overall economic functions among various actors should value. They would then seek the private be structured in such a way that the sector partnership for processing, overall competitiveness and growth of a manufacturing and marketing of their value chain is maintained. For example, products and services. in Nepal’s context the following options could be considered. • In a value-chain based on the products from plantations (or cultivation in case • In a value chain based on forest of NTFPs), a private company would producer groups led production play a role of lead firm providing system managing natural forest, the planting materials and technology with traditional model, where investors with buyback guarantee, and local people, capital seek natural resources and either individually or organized in a

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group, would grow trees and plants. In forests under the protected area system any case, in Nepal’s situation, it would and other critically important areas for be worthwhile to create more space conservation, the area under productive for SMFEs and provide support to forests would be demarcated and dominate business functions as much declared as production forests for as is possible as these together are commercial purpose. found to contribute to the creation of jobs, local economy and eventually Support is necessary for using to national GDP more than big firm science-based management to increase dominated value chains. productivity and matching with market information to prioritize products. 5.1.2 Map and zone forests by bio- Similarly, development support is physical, land tenure, and product needed for clustering producers along characteristics with the mapping of the distribution of Forestlands in Nepal have not been most potential products. Considering the systematically zoned on the basis of complexities of Nepal’s forests, three- their economic potential or conservation dimensional model as illustrated below is value. As the space for private sector suggested while mapping and zoning the participation in the present situation is forests of Nepal. very limited, it is necessary to create more space and scope for private sector Using the upcoming FRA data, further participation. One of the important steps zoning of the production forests could be for this is to categorize existing natural done defining sub-categories based on the forestland based on the main functions management regimes, prioritized products and clearly designate production and services and ecological regions. This forests in all nine ecological regions. will help further clarify the scope and This may require identifying additional objectives of forest management and critical areas that need to be protected develop and apply appropriate scientific for special purpose, such as scientific management for not only increasing studies, biodiversity conservation or physical productivity but also economic ecological function. Excluding the productivity in a sustainable way.

Figure 5.1: Mapping Nepal’s Forests on Three Dimensions

Map Physical/Biological Forest Condition

Map Map products management and services model/land and value chain tenure and requirements ownwership status

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Map and zone natural forests and blue pine (Pinus wallichiana), fir (Abies declare production forests spp.), raj sallo (Cupressus torulosa) As a starting point, three broad and spruce (Picea spp.) produced in management regimes based on whether all 3 mountain regions; deodar (Cedrus it will be managed by a government deodara) and pangar (Aesculus indica) agency, a forest producer group, or a produced in western mountain region. private business entity could be defined. • Handicrafts and wood carving for From the management point of view, domestic and international market options such as i) scientific management using asna (Terminalia tomentosa), of forest for timber production in Terai sissoo (Dalbergia sissoo), satisal and mid hills, ii) sustainable management (Dalbergia latifolia), karma (Adina and harvesting of NTFPs in mountains cardifolia) and jamun (Syzygium and hills could be considered. cumini) produced in all 3 regions of the Terai; bijayasal (Pterocarpus With regards to the products and marsupium) from western Terai region; services, in the beginning, the following okhar (Juglans regia), fir (Abies spp.), list of recommended products and raj sallo (Cupressus torulosa) in all services could be considered along with 3 mountain regions; deodar (Cedrus the continuous process and mechanism deodara) and pangar (Aesculus indica) of identifying, assessing and prioritizing, from western mountain region. which would be based on the emerging markets and technology of production NTFPs and value addition. • Medicinal herbs – yarshagumba (Ophiocordyceps sinensis), chiraito Preliminary list of commercially (Swertia chirayita) and satuwa potential products and services from (Paris polyphylla) in all mountain natural forests: regions of Nepal; kutki (Picrorhiza scrophulariiflora) and atis (Aconitum Timber heterophyllum) in the western • Hard-wood for builders’ wood work mountain region. and furniture especially for frames for • Essential oils – jatamansi domestic market using sal (Shorea (Nardostachys grandiflora) and robusta), asna (saj)-Terminalia sugandhawal (Valeriana jatamansii) in tomentosa, sissoo (Dalbergia sissoo), western mountain region; wintergreen karma (Adina cardifolia), and jamun from eastern and central hill regions. (Syzygium cumini) produced in • Natural fibres - argeli (Edgeworthia all 3 regions of the Terai; satisal gardnerii) in eastern and central (Dalbergia latifolia) in central and mountain regions, lokta (Daphne western Terai; tooni (Toona ciliata) and bholua) in all hill and lower mountain bijayasal (Pterocarpus marsupium) in regions; allo (Girardinia diversifolia) in western Terai. eastern and western hill and mountain • Soft-wood for builders’ wood work, region. furniture, parquet, packaging materials • Wild food - morel mushroom in western for domestic market using, chir pine mountain region. and alder in all 3 hill regions; chilaune • Spices - large cardamom (Amomum (Schima wallichii), katus (Castenopsis subulatum) and cinnamon in all 3 spp.) in central and eastern hill regions; hill regions and timur (Zanthoxylum

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armatum) in western hill region of • Fuel-wood from soft-wood species Nepal. except oak and rhododendron with • Bamboo and rattan - bamboo in all high caloric value for meeting demand 3 Terai and hill regions; rattans in in rural households especially for western Terai region. cooking, room heating, preparing • Others - chir-pine (Pinus roxburghii) livestock feed and liquor production - for rosin and turpentine and khayar using blue pine (Pinus wallichiana), fir (Acacia catechu) for kattha in all 3 hill (Abies spp.), spruce (Picea smithiana), regions of Nepal. rhododendron (Rhododendron spp.) and oak (Quercus sps.) in all 3 mountain Forest Carbon regions. • REDD+ in community managed forests • Briquettes and pellets - forest weeds especially in all mid-hills region and (e.g., eupatorium and lantana) and other government managed forests in all forest-based biomass waste - herbs, regions of the Terai. litter, shrubs, woody climbers available mostly in community-managed forests Ecotourism in all 3 hill regions. • Trekking - for foreigners and domestic • Biomass-based electricity - forest based tourists in all mountain regions and in biomass combined with agriculture eastern and central hill regions. residue in all 3 regions of the Terai. • Forest walk, licensed wildlife hunting, picnic and homestay - targeting mostly Support to map clusters of area suitable the domestic tourists and foreigner in for plantation eastern and central hill regions. Raw material supply is the main • Bird watching, jungle safari and constraint faced by the private sector homestay - targeting mostly the at present. There is a vast scope to international tourists and domestic promote plantation of commercially most tourists in all 3 Terai regions. important forest species, such as fast growing timber species in non-forested Forest Bioenergy public and private lands, especially in • Fuel-wood from hard-wood species with Terai and mid hills. Figure 5.2 shows an high calorific value for meeting fuel wood example of scope of plantation forests. In demand mostly in rural households this example,denuded forest and hence especially for cooking, room heating low biodiversity, yet close to road and during winter, preparing livestock feed processing facility make it a good fit for (e.g. kudo), liquor production and for plantation of wood species to produce sale in the local market – sal (Shorea wood for flooring by the private land robusta), sissoo (Dalbergia sissoo), owners interested in cash tree crop karma (Adina cardifolia), jamun production. The areas identified should (Syzygium cumini), saj (Terminalia then be mapped into clusters suitable for tomentosa), sirish (Albizia spp.) and plantation of commercially most important botdhangero (Largestromea parviflora) forest plant species. in all 3 regions of the Terai; chilaune (Schima wallichii), katus (Castenopsis More specific support in mapping and indica) and alder (Alnus nepalensis) clustering for prioritized commercially from all 3 hill regions. important species and products would

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Figure 5.2:Three Dimensitons of Plantation Forest

Denuded forest close to road and processing enterprise

Private land Wood owner with spieces for interest in cash Wood Flooring crop production

provide a clear scope for private sector • Handicrafts and wood carving for involvement in this lucrative business domestic and international markets creating more employment and revenue using sissoo (Dalbergia sissoo), for the country. The following list of most teak (Tectona grandis), and jamun promising products and plant species (Syzygium cumini) produced in all 3 from the plantations could be considered regions of the Terai. along with the continuous process and • Packing case for domestic and mechanism of identifying, assessing and international market using Eucalyptus, prioritizing, which would be based on mango (Mangifera indica) and kapok the emerging markets and technology of (Ceiba pentandra) produced in all 3 production and value addition. regions of Terai.

Preliminary list of commercially NTFPs potential products from plantations: • Medicinal herbs – chiraito (Swertia chirayita) and satuwa (Paris polyphylla) Timber in all mountain regions; atis (Aconitum • Soft-wood for builders’ wood work and heterophyllum) from the western furniture especially for plywood and mountain regions. veneer for domestic and international • Essential oils – chamomile (Matricaria market using teak (Tectona grandis), recutita), menthe (Mentha arvensis), eucalyptus, mango (Mangifera indica), lemongrass (Cymbopogon spp.), sissoo (Dalbergia sissoo), paulownia citronella (Cymbopogon spp.), (Paulownia tomentosa), kapok (Ceiba palmarosa (Cymbopogon spp.) in all 3 pentandra) and tooni (Toona ciliata) regions of the Terai through cultivation. produced in all 3 regions of the Terai. • Natural fibres - argeli (Edgeworthia • Soft-wood for builders’ wood work and gardenerii) in eastern and central furniture especially for plywood/veneer mountain region, lokta (Daphne for domestic and international market bholua) in all 3 hill and lower mountain using blue pine (Pinus wallichiana), chir- regions of Nepal. pine (Pinus roxburghii), alder (Alnus • Spices - large cardamom (Amomum nepalensis) produced in all 3 hill regions. subulatum) in eastern and central

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hills and cinnamon in all hill regions attractive for investment. Development of and timur (Zanthoxylum armatum) in clearly defined legislation and an effective western hill region of Nepal. enforcement mechanism, which would • Bamboo and broom grass - in eastern improve transparency, accountability, and hill region. anti-corruption measures, would be useful • Others – chir pine (Pinus roxburghii)for to improve governance of the forestry rosin and turpentine in all 3-hill regions sector in Nepal. The major recommended and lauthsalla (Taxus baccata) for taxol strategies are given below. in eastern mountain region. Inform policy with science and participation Ecosystem services from community and industry • CDM – Mostly in the barren lands with The present process of formulating scattered trees, improved management policy and regulatory provisions in general of lands in the Terai region through large- does not reflect a balance among and scale afforestation and reforestation between the diverse perspectives of various as well as in some other existing stakeholders. Most of the policy decisions land-use modalities, such as pro-poor are not supported by scientific knowledge leasehold forestry and agro-forestry from evidence-based research and the in private lands. participation of concerned stakeholders and cross-sector coordination, the Forest Bioenergy decisions are supported either by • Primarily solid fuel (briquette, pellet) personal preferences, often motivated with some fuel-wood production from by political or economic interests. Gaps, plantation with high calorific value inconsistencies and contradictions within fuel wood species – sissoo (Dalbergia and between forestry and other regulations sissoo), babool (Acacia arabica), governing forest resources are a reflection poplar (Populus spp.), eucalyptus, of the lack of coordination in the policy bakaino (Azadirach indica), and mango formation process. (Mangifera indica) in all regions of the Terai; alder (Alnus nepalensis) and a) Define policy formulation process: sirish (Albizia spp.), chilaune (Schima It is important, at least in forestry sector, wallichii), katus (Castenopsis spp.) to define a policy formulation mechanism in all hill regions; Salix sps., poplar, with clear basis (scientific evidence temperate fruits (including apple, based knowledge derived from research, apricot) in all mountain regions. practice, and monitoring and evaluation of policy implementation), process and multi 5.1.3 Address policy issues stakeholders’ participation; and reform hindering forestry development current policies that are unscientific and Nepal’s forest governance is a major are subject to discretionary decisions concern for private sector investors that helps to provide confidence on involved in the forestry sector for the investors in making investment two important reasons. First, poor in forestry sector. governance has tainted the image of Nepal’s forestry sector business. Second, b) Give private sector a sense of increased uncertainty and risk due to stability in forestry policy while the poor governance has increased the enforcing accountability: Frequently transaction costs making the sector less changing policies driven by ad hoc

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Box 5.1: Examples of Multi-stakeholders Participation in Policy Process in Nepal

Although not institutionalized, good examples of the participatory process in developing policy and programs in forestry include the Herbs and NTFP Development Policy, Community Forestry Guidelines, and REDD Readiness Preparation Proposal. The evidence from research and grassroots perspectives, for which ANSAB was entrusted, is well integrated in NTFP policy. In these processes the MFSC took a leadership role with multi- stakeholders involvement. In an effort to seek different ideas and find common grounds, a series of workshops and consultations involved communities, researchers, private sectors, federations, NGO, bilateral projects, donors and government institutions. This process has achieved a sense of ownership among stakeholders. These examples can provide useful lessons and pathways to improve the policy-making process.

incidences, ranging from complete ban recognized for its lifetime value attributed on tree felling to change in rules related to its strength and longevity and to compliance to taxes and royalties, the royalty is fixed at a maximum of have reduced the confidence of the NRs 800 while the market value is investors. As Nepal updates its forestry NRs 4,800 to NRs 6,000. and investment policies, it could consider “grandfather clauses” for deals already Eliminate policy contradictions between underway when appropriate, make forest act and other regulations sure access to land and permits are for Contradiction of provisions under periods that match the business cycles forest act and regulations should be of forestry enterprises (e.g. 30 years resolved with other sectors’ regulatory for plantations with renewal clauses); frameworks and practices, such as ensure that foreign currency can hydropower development, expansion of be repatriated; and provide for due road networks, resettlement of landless, process in the courts. declaration of protected areas, local development, environment protection, c) Develop a system of fixing royalties and directives from other agencies. Some and prices: Develop criteria to set royalty of the intervention strategies to overcome rates for forest products. Implement the contradictions are suggested below. provisions with criteria for royalty rates in HNDP 2004 in case of NTFPs. Current a) Develop an effective mechanism to royalty rates for NTFPs under the Annex ensure inter-ministerial coordination: 3 of Forest Regulation, 1995 does not This is necessary to resolve conflicts and reflect the scarcity or market value of contradictions in policies and regulations the products. There is a need to waive including jurisdictional overlaps and royalties for the cultivated NTFPs. Lists conflicts across various ministries and for waived cultivated NTFP species other agencies. A high level body should would be revised at least in every 5 be developed to resolve these issues. years. Current royalty rates under the Annex 2 of the Forest Regulation do b) Address contradiction over rights not reflect the value of timber. Sal, one to use forest products: Conflicts are of the finest woods of Nepal, is not generated among the users because

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of the overlapping rights over the a) Strengthen and expand rights of resources provided under various forest producer groups legislations. Currently, Forest Act and • Expedite handover process, including Forest Regulations authorize DFO and that with a large area wherever available communities managing forests to harvest and appropriate, for the commercial and supply forest products while Local production of products and services. Self-Governance Act empowers DDCs • Support to develop a directive and with right to sale or impose local taxes on guidelines to include provision of NTFP forest products. The department of forests management into community forest has authority to provide permission to operational plans. large private sector enterprises, which • Remove practical difficulties of sometimes overlaps with community community forest user groups in forestry. To resolve these contradictions a trade of forest products. This would study for clearly outlining the issues and involve supporting CFUG to prepare making recommendations and forming a and update management plans constituency for policy lobbying would be incorporating provisions for sustainable helpful. harvesting and trade and building their capacity to improve forest management c) Harmonize community forestry to increase productivity and production system with environmental legality of surplus forest products to supply standards: As the CF guidelines already outside the community. have much of the elements of IEE/EIA harmonizing it by reviewing and adding b) Resolve the issue regarding the missing elements of the IEE/EIA make rights to use and sell the forest the whole process less bureaucratic, products grown in private land by more efficient and effective and finally simplifying procedures for harvesting meet the larger goal of sustainable and trade: There are some specific issues forest management. These components for the trees or other NTFP species grown of IEE/EIA can be incorporated in CF in private land that should be resolved by guidelines and obligation of IEE/EIA revising policy provision. Rationalization in community forestry system can be in the following three provisions and removed by amending Annex 1 and 2 of practices would improve the situation. the Environmental Protection Regulations • First, the timber species, which are to this effect. This would significantly almost only grown in private land, e.g. increase production and supply of forest eucalyptus, poplar and teak should be products for commerce. exempted from additional formalities in harvesting and trade. Improve policy provisions and • Second, for the NTFPs such as chiuri, practices on tenure rights and access ritha, timur and lapsi, which are grown arrangement almost 100% in private land, should enjoy The important issues that need to be the exemption of government royalty as addressed include rights of forest producer other agricultural commodities. Several groups, issues related to use and sale exercises have been made since 1990s of forest products grown in private land, on this and recently the MFSC has access of private investors to land and forwarded the proposal to the MoF. forest resources, and rights on forest Concerned stakeholders can plan an ecosystem services, including carbon. important role for this reform.

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• Third, the provision of VAT on harvest policy, and address labour issues and in case of privately grown timber is existing trade barriers. irrational and should be removed. a) Simplify procedures on registration c) Support to improve access of private of an enterprise including private investors to land and forest resources forests and trees grown in private land: • Revise current provision on leasing Main issues constraining registration of forestland to forest based industries so domestic enterprises are requirement of that the private sector have access to recommendation from local government lands that are not under conflict and are and various other agencies, compliance accessible to be used profitable by FBEs. with environmental regulations, Currently the leasehold forests available registration at multiple agencies resulting to the private sector are not appropriate relatively high charges for registration. because the land is either located in too There is a complex procedure and remote location or informally used by high transaction costs in harvesting other entities, which sometimes create and utilization of forest products tenure conflict in the area. from private land. • Clarify tenure issue on non-forested public land and privately occupied non- b) Operationalize a one-window policy registered land. Due to the ownership for foreign investment: This will facilitate conflicts of multiple agencies including processes such as, permission, repatriation, district administration office, district facilities and concessions, visa arrangement, development committee, and district and arbitration under one window system, forest office, the plantation on public which will contribute to attract FDI flow into land became uncertain. Similarly, the Nepal. Registration for foreign invested privately occupied non-registered enterprises, it takes 1 to 4 years to complete land has a good scope of plantation registration while as per the FITTA 1992 of forest products while there is no provision, it is expected to be completed provision of harvesting and sales from within 35 days. A goal of 90 days would such types of land. be more realistic.

d) Clarify and resolve issues related to c) Address labour issues. Due to rights on forest ecosystem services, social and economic insecurity of including carbon the workers, the labour outputs are • Provide technical support to the compromised: The wages are low for government to resolve and clarify carbon unskilled labourer that led to outmigration rights issue in community forests. and scarcity of labour. For skill work, • Support to build and strengthen labour from India is largely used to run partnership between forest producer FBEs in Nepal. To change this dynamic groups and private investors. the following actions are recommended. • Adapt industry standards to manage Facilitate enterprise establishment trade unions and labour related and operations to make it affordable conflicts focusing on forest industries. To attract responsible investors in • Revise and enforce the minimum the forestry sector, Nepal needs to wages. Coordinate with Ministry of simplify the procedures for enterprise Labour and Employment to revise registration, operationalize a one-window- minimum wages, which is lower than

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the SAARC countries average minimum changes in local tax, which are often wages (NRs 250 per day for agriculture based on past year’s transaction. sector), and fix the minimum wages for • Ease tax payment by providing forestry sector employment. Develop multiple options. Not all districts have local level monitoring mechanism to Inland Revenue offices to collect tax enforce the minimum wages. requiring a long-distance travel for • Develop standards for safe working the payment. It is recommended to conditions for workers in forestry coordinate with of Ministry of Finance, sector and mechanism to enforce the Inland Revenue Department regarding standards. tax collection system in the districts, • Resolve conflicts created by labour where Inland Revenue office and industrial policies by facilitating does not exist. dialogue with the ministry to discuss • Coordinate with relevant line ministries on i) enforcing ILO requirements as suggesting reforms, such as abolition of incorporated in Nepal’s legislative different non-tariff barriers, application frameworks such as, addressing of HS codes for Customs Tariff, unlawful practices such as child labour, use of the WTO Customs Valuation discrimination against dalits, wages Agreement, and suggest simplifying discrimination among men and women, process to obtain certificate of origin, ii) effective monitoring mechanism to producing sanitary and phyto-sanitary address labour issues in addition to the certificates, and payment of customs issues of machineries ensuring fair and duties and charges. safe environment for workers. Current monitoring practice involves inspection e) Encourage investment in processing of machineries by engineers assigned and trade: It is one of the most effective for monitoring. way to support primary producers. In other cases, the most helpful intervention d) Simplify tax compliance and address may be improvements to transport other trade barriers and streamlined export infrastructure. • Inform and update tax laws including The success of Himalyan Biotrade tax incentives. FBEs that are cottage confirms that investments in processing and small industries are eligible for and trade have led to increased sales several concessions such as all and exports for NTFPs, especially for tax exemptions, and export tariff essential oils and paper. Illegal trade exemptions under the Income Tax continues in unprocessed products due Act, Industrial Enterprise Act, and to lack of investment in processing. Tax Custom Act. Similarly, export tariff for breaks to attract investment in this area several NTFPs are fixed at a lower could help to create more jobs within rate to promote export. However, the Nepal and in the long run increase process of receiving tax exemptions is overall government revenues from cumbersome and costly. Another issue the increased employment. is frequent changes in tax that inserts uncertainty among entrepreneurs. 5.1.4 Address institutional and law • Remove multiple taxes at local level enforcement issues in forestry and “informal fees” along the trade Without appropriate institutional set route and other points of transaction. up with clear roles and responsibilities Investors’ decisions are influenced by and proper law enforcement it is

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impossible to promote the sector. Nepal it is not practical to improve forest can attract more responsible private management with increased forest investors by addressing the institutional productivity. A separate entity to manage gaps, overlaps and inefficiencies; production forest with clearly defined improving law enforcement; and mandate of managing production forest developing and monitoring standard applying science to increase productivity business operating procedures. would be created. This entity can have its units in different geographical regions Align roles and responsibilities of for local unified management, which institutions to promote forest industry mimic private ownership incentives. It is A network of strong institutions is suggested to allocate human resources required to implement policy, enforce for production forest management based laws and conduct programs. Identifying on the total areas and intensity of forest gaps, redundancies, confusions, and management operation. conflicts by reviewing the roles of existing institutions and clearly defining A separate unit should be established and assigning roles that are required to undertake forest products sales. This to promote and govern the sector are would improve the existing governance important. system of timber sales and distribution by practicing transparent and competitive a) Establish private sector support unit to procedures. This would resolve the role promote and support forest industries: conflicts by relieving forest department A support unit should be established to from timber sales and allowing them provide information, advisory services, to focus on core regulatory and both legal and technical, to entrepreneurs extension functions. This would support and private investors, such as information to improve forestry governance and on investment opportunities, requirements reduce illegal logging. for business establishment and operations, advice and technical support c) Restructure DoF to streamline on business registration, enterprise division of important roles and management to end product marketing. reallocate human resources to match The unit should compile all relevant acts, the workload: The DFO is responsible policies, directives and circulars, and make for both enforcing the forestry laws (role of available for potential entrepreneurs. The police) and interpreting them and giving a unit can be established as a division under judicial decision (role of courts), while at the MFSC or Department of Forests. This same time issuing licenses and permits, unit can utilize the Forest Development collecting royalties, registering CFUGs, Fund generated from the mandatory and authorizing them to manage and contributions by enterprises for the forest sell forest products, as well as providing products trade. training, resolving forest boundary conflicts, and managing the national b) Establish a separate entity within forests. Therefore, it is recommended to the MFSC or a division under DOF revisit DFO’s role to address the need of for managing production forests: extension services and effective forest Given the administrative and institutional management removing roles such as capabilities of the DFOs and their judicial and business, that conflict with overwhelming and conflicting roles, law enforcement, extension and technical

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roles. There should be two divisions – one b) Develop a mechanism of publicly for the regulatory functions and the other sharing database of forest stock, for the facilitation and extension services. annual harvest plan with quantity and schedule and have provision Further, the distribution of available to annually monitor these from staff in various districts is also independent bodies such as relevant unscientific; human resource allocation academic institutions, professional in district with large forest area and organizations or Nepal Foresters’ district with small forest area is not much Association. different. Therefore, to make the current extension service effective, there is a c) Establish provisions for rewarding need to capacitate the existing forestry socially and environmentally responsible professionals on forestry business entrepreneurs and punishing those and reallocate the available human involved in illegal logging, such as resources among various districts based blacklisting and suspending licence on the workload. of entrepreneurs and ban them from timber auction for a number of seasons Improve law enforcement to address depending upon the nature and size of supply constraints illegal transaction. Limited technical and administrative capacities of the staffs, limited number of d) Find space and ways to formally armed forest guards, inadequate budget, and legally involve informal actors lack of logistic support for patrolling, lack currently involved in forestry business of accountability, and lack of coordination legally or illegally. To reduce the among line agencies combined with lack costs of transaction due to security of transparency in personnel transfer, low facilitation would be needed to bring salaries, pressure from senior officers, the informal groups to the table and unethical behaviour has led to weak law discuss about the implication of their enforcement with illegal forest products activities in the whole chain and trade, corruption and insecurity. Some provide them employment or develop actors even explore loopholes in policies partnership in business. Building and legislations and tend to undermine entrepreneurship and helping them and disobey the rules. While improving the understand the transparency of effectiveness of high-level bodies including the business, the value chain, and National Vigilance Centre and CIAA for importance of technology, capital effective monitoring and law enforcement and and market for upgrading through the implementation of civil service regulation training and coaching. This would with a transparent personnel transfer also help prevent unintended social mechanism are very important, the forest consequences, such as disturbance sector can take the following steps to improve of peace, conflicts and extortion. the law enforcement. Develop and monitor timely, regular a) Develop mechanism for local level and transparent harvesting, auctioning monitoring of resources by involving and transportation procedures multi-stakeholders including The procedures for harvesting communities as an effective tool for and trading forest products are very reducing illegal activities. cumbersome. Sometimes the costs

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and risks are so high, producers or and support community forests in traders simply give up the operation. adopting e-bidding provision. It needs to be simplified and enforced uniformly in a transparent way. Basic e) Develop a method to fix the amount weaknesses in forest inventory, harvest of deposit required for auction by prescriptions and scheduling, especially consultation with relevant stakeholders. in the government-managed forests, prevent the application of effective f) Implement the seal-mark system controls on timber sales, transport and effectively and remove unnecessary revenue management. Under the current hassles along the transportation route. provision,harvesting is done by the DFOs and is monitored by the Regional Forest 5.1.5 Promote to adopt standards Directorate. The untimely harvesting and for sustainable forest management prolonged auction process increases and responsible business practices the uncertainty over the availability of Nepal should take aggressive action raw materials. Due to the lack of budget to meet all regulations and use them as release by the government, private a market-driven requirement to enforce contractors are informally involved in much needed laws and changes outlined harvesting. It is suggested to support to in this study to improve overall forest develop and monitor standard operating production and sharing of benefits among procedure to implement timely, regular the many stakeholders. Specifically and transparent harvesting, auctioning provide supports to attain strategic and transportation procedures, for certification that will make Nepal’s which the following specific strategies forestry products competitive. This will will be useful. address the issue related to compliance with international forestry and trade a) Develop a legal provision of requiring regulations, which is the number one up-to-date scientific forest inventory, concern of responsible businesses when harvest prescriptions and scheduling. purchasing from Nepal and in considering investments in forestry. Ultimately, this b) Simplify procedures for harvesting will support to improve social image of and trade of NTFPs, especially the the forestry business and investors and practice of issuing collection and change public perception of forestry transportation permits to contractors, business as a clean business to attract scheduling and time period for this, more equity investment. and anomalies in enforcement. Nepal’s forests provide environmental c) Institute an independent monitoring services, such as biodiversity authority for timber harvest and auction conservation, watershed protection, that consists of representatives recreational use, soil formation, from local government as well pollination, colonization and carbon as associations of forest-based sequestration. These services are enterprises and forest producer positive externalities from the forests, groups, e.g., FenFIT, NEHHPA and and the managers of the forests are not FECOFUN. paid for the services. Certification and payment mechanisms demonstrating d) Widen the use of e-bidding system and capturing the full range of ecosystem

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services and their economic values over forestry certification for wood products the long term would increase incentives for to help ensure adherence to increasing local community groups, community based international social and environmental forest enterprises, and governments for standards; International Organisation forest conservation. Application of such for Standards - ISO for product safety, standards not only improves the forest quality and reliability, and PES specific management practices but also maintains certification, e.g. Gold Standard Climate the transparency in the value chain and Community and Biodiversity Alliance promotes equitable benefit sharing. (CCBA) and Plan Vivo. For the forestry Details of role of forest certification, and sector, Nepal does have some certified how it can contribute to promote green companies that have organic, FSC, and and fair value chains and methods to ISO with others under development adopt are discussed in the concept including CCBA and Plan Vivo, yet they paper, and the suggested strategies for are not showcased in a unified manner. achieving this are summarized below. A tangible and simple first step Nepal Expand strategic certification and could take is to feature “sustainable forest provide government support for products” on the Government of Nepal industries to gain certification Ministry of Commerce and Supplies, While there are many certification Trade and Export Promotion Centre standards, for Nepal, sustainable website. Currently, NTFPs including forestry certification, particularly Forest essential oils and paper products are Stewardship Council (FSC), for wood, buried under the “other category”. Trade some NTFPs, and ecosystem services; shows are listed, but focus primarily on organic certification for natural products gift and handicraft sector. Nepal used used in personal care and food products to attend trade shows that featured would be appropriate. Chain of custody sustainable and green products from certification, a part of forest certification, the forestry sector, including the Natural tracks the forest products throughout the Products Expo, but this was cut back in value chain so that retailers, consumers recent years. No prominent mention is and verifying body know that the products made of any certifications that various sold and bought are sourced from a companies hold. Certifications should be responsibly managed forest and are legally featured on the trade website. harvested. This helps to gain trust among the value chain actors and support from India is providing incentives for multiple stakeholders including political certification for their handicraft artisans commitment. (Manoharan 2013) and with a modest investment Nepal could make the similar Strategically expand and advertise efforts for its wood artisans. Nepal could certification also feature a wood workers’ studio and For many forest products, specific market centre that could be developed as certification while still technically a tourist attraction and sales showroom voluntary, is becoming a requirement for international buyers. Indonesia and of buyers and investors. For example Cambodia have done innovative public- the study noted: organic certification private partnerships that have developed for essential oils used in personal workshops/schools/showrooms for their care and food products; sustainable wood artisans with great success in sales,

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job growth and support of traditional business including the partnership. arts and customs. The following recommendations are suggested to include in the plan. Continue to build sustainable forestry and good business practices models a) Track and provide reliable at the community forestry, private and information on supply and demand: government lands Private investors need assurance of raw a) Introduce and promote enterprise- materials to stay in business and consider oriented sustainable forest management further investment. The irregular supply at all levels from policy and plan through of raw materials is the main problem implementation in all ecological regions for processors and manufacturers of in all three management regimes - forest-based industries including timber government, community and private. and NTFPs. To address this, activities Coordinating at all levels – policy, to develop database on potential industry, NGOs, donors, and community production, current supply, demand and the enterprise-oriented sustainable forest consumption as well as to make the management would be promoted by information easily accessible to existing including this in government programme and potential entrepreneurs and BFIs and budget allocation. should be supported.

b) Start with showcasing the success Presently, the main source of raw material stories Nepal has in successful community supply is government-managed forest, but it forestry enterprises. Collect and is highly uncertain in terms of quantity as well consolidate the good buyer and investor timing. To improve this, a system of preparing relationships that have succeeded and business plan for the government-managed start publishing articles and features to forest units with long term vision of sustainable get the word out. Right now when one commercialization of the forests would be does an Internet search on Nepal forestry useful. Based on available supply, the private products it overwhelmingly brings up investors can plan their involvement and older articles (1996 – 2009) that focus decide on the size of investment and level on corruption or discussions of what of technology to be applied. This information is needed to be pro-poor. More articles along with a provision of harmonization are needed that stress good business during the registration and licencing would practices, reliable suppliers, and growing help to develop more realistic business. By sales and relationships. Examples of providing and checking the supply situation good business models include the Aveda before the registration and license issue, the and Body Shop buying relationships for government can support the entrepreneurs NTFPs and need to be featured better. to develop realistic business plan with clear plan of raw materials supply. This would Develop a strategic plan for attracting immediately improve the situation, especially and approaching responsible investors in case of sawmills, veneer producers, kattha Having a strategy in place helps to processors, and resin processors. attract and approach the right kind of investors. The plan should have the b) Target CSR companies for buying priority list of most promising investment relationships and forestry investment: opportunities and practical tools and A mechanism that can be considered methods for establishing and doing is public private partnerships in which

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grant funds are available from bilateral make Nepal’s forestry enterprise into and multilateral institutions to help successful business models. Higher develop and foster a private sector business professionalism and quality will investment. These types of investments attract more private sector participation. typically include an NGO that assists The following strategic interventions are with the community development and suggested to improve the both demand safeguards social issues (indigenous and supply sides of BDS including people, women, intellectual property, infrastructure and finance. labour rights, etc.). Nepal has already had successful examples of these Strengthen supply of Business public-private partnerships that include Development Services (BDS) civil society organization, local Nepali Starting with the most urgent and forestry companies, community forest demanded business services along user groups, and multi-nationals based with the stimulation of the demand, in Europe and the United States. Funding the potential service providers from from the European Union, United States, government, civil society or private IFC, and other funds are available for institutions, who are likely to be effective public-private partnership investments. in providing the needed services for a long period, would be identified to strengthen Nepal should also become more their capacities. educated on the opportunities with individual and institution investors. A new form of a) Support universities to develop funding is crowd sourcing where a project/ courses and train students on investment is presented via the Internet and forestry business: There is a need to Individual “donate” funds to fund the project develop courses on forestry business for or investment. This could be an important undergraduate and postgraduate students source of capital for community level forest to address the serious lack in business enterprises. For example a Community orientation among forestry graduates Forest User Group (CFUG) could post their from Nepal. This can be started with plan to expand their essential oil distillation Tribhuvan University (IoF and KAFCOL) enterprise with an appeal to help fund a and Agriculture and Forestry University new distillation unit. The CFUG would need and can be expanded to Kathmandu to present the returns that would be earned University for MBA students. and the social and environmental benefits. b) Support training institutions, CSOs c) Develop a model investment and private companies to develop contract that covers intellectual training packages, curricula and property, labour laws, technical barriers Training of Trainers (TOT) for the delivery to entry, indigenous rights, etc. that of most important business services: references the international standards, The service providers are needed for but does not go overboard and hence building capacity and providing technical discourage investors. services in resource inventory; enterprise- oriented forest management planning; 5.1.6 Expand business development forest management incl. plantation; services including infrastructure entrepreneurship development, business and finance planning and operation; product Affordable and effective business development, testing and promotion; and development services are needed to internal trade facilitation and exports.

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The service providers can be developed of enterprise-oriented forest management in partnership with training institutions, at various eco-regions for each of the CSOs and private companies for which management regimes would be helpful. the programme such as MSFP can support to develop curricula, training d) Develop and mobilize local training packages and at the beginning provide resource persons: Given the number tuition fees for the participants. To avail of community-based forest management the required skilled labourers to the forest units (FMU) in the country, the existing industries, there is a scope to collaborate capacity of DFO, in terms of number of staff with training institutions, such as CTEVT as well as subject matter is inadequate, and processors and manufacturers, who especially to promote enterprise-oriented are interested to develop such training forest management. The number of programme to produce skilled human FMUs with expired operational plans is resources needed by forest industries. high and increasing every year. In spite of the investment capacity of many FMUs c) Improve government extension to revise their operational plans, they are services re-orienting it in support unable to do so mainly because of lack of enterprise-oriented forest of technically sound personnel to carry management: In the Department of out the work. As a result, their forest Forests and its district offices, there is operations are considered as illegal and inadequate technical manpower with becoming a barrier to sell their forest knowledge on enterprise development products in markets. To overcome the and commerce. Further, the distribution of situation, development and mobilization available staffs in various districts is also of local resource persons (LRP) to provide unscientific; human resource allocation services in forest management works, in district with large forest area and such as developing forest management district with small forest area is not much plans, delivering training on sustainable different. Therefore, to make the current forest management including harvesting extension service effective, there is a and post harvest handling, and providing need to capacitate the existing forestry market information will support FMUs to professionals on forestry business grow commercially. and reallocate the available human resources among various districts based e) Facilitate to increase access to on the workload. Most importantly, there inputs and technologies: Forestry is a need to reorient the department of investors need inputs, such as quality forest to plan and execute the programs planting materials, fertilizers and focussing on enterprise-oriented forestry. pesticides, tools and equipment. So, There is need to support to develop there is a need to develop service service providers and technical human providers in forestry sector so that the resources needed for enterprise-oriented entrepreneurs can easily access the planning, management and monitoring required services. Capacitating and of forests. While developing service expanding the business of existing providers, special attention should service providers in agriculture, such be given to meet the requirements of as agro-vets, agri-inputs and machinery community forest user groups to transform suppliers, would be the most practical them into enterprise-oriented forest way to do this along with tapping into producers. Furthermore, demonstration international forestry trade and industry

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associations and networks that offer a increase, an Internet based platform wide variety of training supports. will be effective to improve access and quality of services. Initially, this can be f) Strengthen R&D in production, supported by the proposed private sector harvesting, processing, product support unit and eventually developing development, and marketing: an independent private entity. Strengthen capacity and provide fund for much needed research and development. c) Improve access to extension The important areas that need support materials: Support in producing quality, include research and development needful extension materials on priority on tree improvement, introduction of basis would stimulate enterprise-oriented new crops, domestication of NTFPs, forestry. Highly demanded items identified improving regeneration, production of from this study include domestication of quality planting materials, silvicultural NTFPs, timber plantation, disease and practices, disease and pest management, pest management, resource inventory soil nutrient management, harvesting and good agriculture and collection and processing technologies, product practices for major NTFPs. development and marketing. d) Improve access to market. No Stimulate demand for BDS timely, reliable market information is To stimulate the demand for BDS, one of the most important barriers for raising awareness, creating platform, almost all types of forestry value chain and improving access to information and actors: There is a clear need to have a markets for entrepreneurs, who can benefit mechanism for market information in from the use of BDS, are suggested. place. This can be built on the existing platforms, such as ANSAB - http://www. a) Raise awareness through training ansab.org/market-information/ and AEC/ and meeting: The entrepreneurs FNCCI or developed new platform within especially located at grassroots levels the Department of Forests. The platform hardly realize the need of business can also organize regular meeting development service in their business. between buyers and sellers that helps So the awareness raising program, such to reduce the mistrust and promote as training with showing the financial fair trade practices. Similarly, support benefits to use service providers, and in market infrastructure development, the meetings between service providers trade fair and exhibition participation and and the entrepreneurs would be helpful to certification can also help to increase realize the importance of BDS. the access to market for Nepali forest products and services. b) Facilitate to create a platform for promoting business development Improve basic infrastructure to support services: This can be started with the forest-based industries development of a directory of relevant Addressing the challenges related to service providers to the entrepreneurs. infrastructure is beyond the scope of the The directory would include detail forestry sector and the related programmes. address, areas of expertise and fee However, coordination, networking and structure of the service providers. small support could be practical strategic As numbers of providers and users steps to take.

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a) Participate and remain informed facilities in the forest sector: Most of the about the on-going programmes and BFIs have provision and interest to extend projects related to improving basic their credit facilities to FBEs, but do not infrastructure, especially energy, road have knowledge and appropriate products and communication, which support all that suits the FBEs. More specifically, it is functions of value-chain. suggested to provide the following supports.

b) Develop value-chain specific • Support BFIs for developing forest- infrastructure and technologies, such specific loan products. Support in market as collection centres, cold stores, research, and developing appropriate warehouses and laboratory facilities for loan products to meet the requirement NTFPs; wood seasoning plant, efficient of FBEs at various level including the sawing and manufacturing technologies terms and conditions addressing issues for various value-chains as provided in including long moratorium period for section for subsector specific strategies. plantation and need of big amount for short-term for traders. c) Support entrepreneurs to explore other sources of electricity, especially • Provide up-to-date knowledge and biomass-based electricity generation. financing opportunities in sustainable forestry. Generation of information d) Collaborate with local political bodies about forest-based industries, training for development and maintenance and awareness raising programs, and of small but important infrastructure facilitation of interactions between BFIs for enterprise development such and FBEs would be helpful. as link roads, gravity ropeways, and micro-hydro to facilitate forest • Minimize risks of BFIs. Investment in enterprises. many FBEs is associated with risks from fire, pests, and mortality of saplings Expand financing options for the private during transplantation. Without risk sector mitigation measures it is difficult for There needs to be an organized effort BFIs to disburse loan. Since this is a to improve access to finance. Developing new area for finance, most BFIs need a risk mitigation measures in financing FBEs minimum assurance of payback of their and helping bankers to understand the investment, which would be helpful opportunities in Nepal’s forestry sector to develop their confidence. Silent are essential. In this situation, bankers guarantee for the brand new products need support to develop financial products and insurance for others would boost and a minimum assurance of payback the confidence of BFIs. and incentives from the government for lending in this sector. So, Bank b) Support FBEs in accessing finance: and Financial Institutions (BFIs) need Nepal’s FBEs are facing constraints support to develop loan products with in accessing finance due to their some payback assurance. The following capability and internal characteristics intervention strategies are suggested including informal and unorganized to expand financing options for the nature of business; financial illiteracy forestry sector. and difficulty in ensuring credit a) Support BFIs to extend their credit worthiness; long moratorium period;

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inability to produce enough collateral; agriculture, forestry, energy) by the end lack of appropriate insurance coverage; of FY 2014/15. information management system; and the reputation of forestry sector in general. 5.2 Promote Industrial These FBEs can be supported through Competitiveness and Growth of the development of business service Most Promising Forest Value Chains providers and raising awareness about The broad forest intervention strategies the opportunities available for FBEs. presented above are needed to create base for the private sector investment and • Establish partnership of FBEs with promote all the forest subsectors. While it banks and financial institutions and will be necessary to identify the promising private investors for developing forest specific subsector such as wood flooring enterprise based loan products and and end market characteristics to design making equity investment. product specific value chain interventions • Mobilize service providers to support (see Table 5.1 for an example), this section FBEs with accessing finance. The main provides specific interventions for each areas on which FBEs need assistance of the four subsectors – timber, NTFPs, to be eligible for financing are a) ecosystem services (especially carbon developing and executing business and ecotourism), and forest bioenergy plans, b) building managers’ capacity, based on the dynamics of the value chains c) linking with lenders and assistance domestically and globally. The interventions in financial negotiations, and d) books are organized around three main categories and accounts keeping. as illustrated in Figure 5.3. • Provide information about the NRB directives that favour flow of finance in 5.2.1 Timber forestry sector. In order to increase loan For timber, the emphasis should be on volume for the productive sector that plantations and land management models include forestry sector, NRB has issued that allow for private sector investment directive for mandatory disbursement and cultivation of key species rather than of 20%, 15%, and 10% of total loan overall biodiversity. With science-based volume of respectively class A, B, and C management and sustainable harvesting banks to the productive sector (including of natural forest, there is ample scope

Table 5.1: Summary Value Chain Interventions for Export of Select Wood Products Major Cultivation/Wild Processing Manufacturing Trade Products Harvest Wood Investor Drying, and Efficient wood flooring Nepal is not known in Flooring opportunity first stage wood manufacturers in US, trade circle and with for plantation processing Canada, Europe, modest investment should species; need need to be and Asia will make join trade associations, policies that prioritized; it hard for Nepal to attend the major trade allow for long- efficient saw immediately compete shows; build reputation term land and milling for as manufacturer, ISO for on time, high quality sales rights (30 first cuts to needed, consider deliveries year rotations) maximize wood regional markets first recovery

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Veneers Buyer Inspection Upgrading of Nepal not known among opportunity for of each log technology to produce buyers, start to contact exotic species to maximize smooth and consistent specialty exotic wood with distinctive unique grains sheets furniture shops; start by patterns, wild and patterns joining wood manufacturer harvested associations Certified Opportunity for Select woods Check stains Number one market Wood Handi- use of select for grains and and finishes for for Nepal is the US crafts trees from dry properly environmental followed by Germany, sustainable so carving do compliance in these contacts should management not crack when importing countries, be used to expand wood certified exported to stress fair trade and handicrafts as many are community dryer climates sustainable managed positioned as fair trade; forests forest sourced wood register for FSC small- holder marketing support

Figure 5.3:Major Areas to Consider in Forest Value Chains Improvement

Production -Managed Regeneration, Improve Productivity, Plantation and Protection of Nepal’s Natural Forests

Harvesting and Processing Governance and Making this Compatible Market Promotion with Nepal’s Social and Economic Objectives for Forest Strategy

to expand the timber industry of Nepal • Develop a specialized function for as well as develop plantations in timber production within Forest Office appropriate denuded areas. But, there that takes into account Nepal’s forestry needs to be support to producers and characteristic and the requirements of forest managers for enterprise-oriented wood products industry. The functions forest management planning. Upgraded include facilitation of forest management harvesting and processing along with plan with proper resource inventory, policy changes and improved marketing annual allowable harvest, regeneration, will increase the quality of Nepal’s grazing, and fire management for each timber products and lead to expanded timber management regime that will employment and income. enable enterprises to forecast supplies. • Select and introduce appropriate tree Forestland management and production species for various ecological regions,

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land types, and farming systems. Use the amount of deposit required for the list given in Section 5.1.2 to start with, participating in auction and reducing which can be refined more effectively in various informal fees presently in collaboration with DoF, DFRS, DPR and practice at various stages of doing universities. business, such as getting release • Ensure a reliable supply of quality order will also boost efficiency. planting materials. While producing • Develop a detail plan to utilize sal forest. planting materials, the private sector While planning commercialization of (especially private nursery and tissue sal forest, recognize its strength and culture laboratory owners) should be longevity,target markets that value encouraged to be involved. In this the most for its products, and manage intervention, the government can play harvesting for those markets. a role of facilitator, especially to provide • Upgrade timber and wood product technical backstopping and regulator, especially quality control of planting enterprises professionalism though materials. increased access to business • Produce extension materials for development services. As timber commercial plantations and build skills entrepreneurs are lacking proper access of the tree growers. Product specific to BDS, and are doing business with extension materials and skill are needed sub-standard professionalism and with on nursery management and propagation low efficiency, which can be improved techniques, plantation and woodlot through the development BDS market. maintenance, and harvesting techniques. • Introduce latest technologies for harvest, • Support plantation establishment. There sawing, seasoning, composite wood is a good scope for plantations in non- making and furniture making so that the forested public and private lands. The losses is minimized and the quality of entrepreneurs should be supported with a products improved. package of best practices for plantations • Support to meet quality requirements including appropriate tenure instruments, access to quality planting materials, while exporting specialized wood proper silviculture practices and products. The quality is determined by harvesting and post-harvest handling. moisture content, consistency, finishes, glues etc. Nepal should attend a wood Harvesting and processing products trade show and check their • Improve identification of trees to harvest, quality against competing products. grading of logs and measurement • Develop skilled manpower in collaboration system to obtain higher quality wood with technical training institutes and and reduce stock holding time of the private sector esp. processors and harvested timber. manufacturers. • Reduce the costs of gathering timber. • Develop safety provisions in enterprise This can be made possible by ensuring operations and provide safety training to sufficient security in log yards and workers. during loading and transportation of auctioned timber; and expedition of • Organize private producer groups the auction process and reducing and networks that can increase stock holding time so that the loss of economies of scale in production and timber can be minimized. Reducing sale of timber.

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Governance and market promotion • Expand forest certification programs. • Clarify tenure issues of non-forested For example, FSC certification, public land and allocate the land to which considers social, economic responsible firms for plantation. In and environmental aspects, can plantation, species should be of high be expanded in timber product yielding and fast growing tree species certification. As an initial step, the and varieties, such as paulownia government agencies can decide (Paulownia tomentosa), so that and use only certified forest products investors are easily attracted. in their offices. It will also help to • Provide incentives for private improve the image, traceability and tree growers. This can be in the promote legal business. form of seedlings, technology • Support certified wood handicrafts support and finance. expansion and model showrooms • Simplify policies for harvesting and through providing support to the trade of timber grown in private land. handicraft producers for certification The timber species, which are grown of their products. on private lands, such as Eucalyptus • Build skills to access European spp., poplar (Populus spp.), markets. European markets and in paulownia (Paulownia tomentosa), particular Scandinavian countries and teak (Tectona grandis), should prize sustainable wood, but Nepal have the legal provision similar to will need to meet stringent industry agriculture crops. standards and global best practices • Improve transparency in timber that include regulation and third trading. This can be done by enforcing party certifications to attract buyers e-bidding process from government- and investors. Nepal should invest managed forest and developing a in meeting European standards, as mechanism of e-bidding to CFUGs. this is a promising future market, Further, forming a multi-stakeholder but in the near term could look to timber trade monitoring committee regional investors that could help with consisting of government, private more efficient harvesting, grading, sector and civil society organisations and wood processing to increase in each district would be helpful to recovery rates. improve transparency in timber trade. • Promote timber products through • Develop a reliable market information participation and organized platform with information on resource representation in trade fairs and and trade from different forest exhibitions and engaging more with management regimes that will help to industry associations. Nepal is not reduce the mistrust among the value known by industry for flooring or chain actors and eventually enhance wood veneers; while there are many the industry efficiency. associations and potential buyer, • Improve value chain governance by Nepal should prioritize buyers that identifying and supporting responsible emphasize sustainable management lead firms. The areas that need support of forests. The International Wood include capacity to apply principles Products Association specializes in of responsible business practices, sustainably managed forests and it access to resources, technology, is recommended that Nepal explore product development, and marketing. membership.

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5.2.2 NTFPs cultivation potential areas, and iii) For NTFPs, emphasis should be on facilitating private laboratories to sustainable harvesting from natural produce planting materials through forests and commercial cultivation in tissue culture of important NTFPs, private lands and non-forested public land. such as satuwa (Paris polyphylla), Value addition through processing and large cardamom and chiraito (Swertia product development and diversification chirayita). of markets are the much-needed areas of • Promote cultivation with proper interventions in this subsector. extension services. Currently neither DFO nor District Agriculture Forestland management and production Development Office (DADO) is • Concentrate on managed regeneration technically equipped to serve NTFP of NTFPs, supplement with cultivation producers. Therefore, there is an when possible, and secure organic urgent need to designate an agency certification along with FSC or CCB for to provide extension services in NTFP NTFPs harvested from the wild. cultivation; the most urgent service is • Develop inventory guidelines needed for the cultivation of essential oil and conduct national level bearing plants (especially chamomile resource inventory of each of the (Matricaria recutita), menthe commercially important NTFPs (Mentha arvensis), Cymbopogon available in natural forests. The spp. (lemongrass, citronella, and most important are yarsagumba palmarosa) and medicinal herbs, (Ophiocordyceps sinensis), kutki such as satuwa (Paris polyphylla) and (Picrorhiza scrophulariiflora), chiraito chiraito (Swertia chirayita). (Swertia chirayita), atis (Aconitum • Capacitate DFO staff on identification, heterophyllum), satuwa (Paris resource inventory, collection methods Polyphylla), timur (Zanthoxylum and commercialization of NTFPs armatum), ritha (Sapindus mukorossi), and mobilize them for technical morel (Morchella esculenta), tejpat backstopping of harvesters. (Cinamomum tamala), jatamansi • Develop service providers at local level (Nardostachys grandiflora), lokta for resource inventory, CF operational (Daphne bholua), argeli (Edgeworthia plan development, cultivation gardenerii), allo (Girardinia diversifolia), techniques, business planning, etc. khote sallo (Pinus roxburghii) and • Build capacity of producers and khayar (Acacia catechu). technicians (private and government) • Develop extension materials on on variety and seed selection, sustainable harvesting, cultivation and cultivation, post harvest handling, and commercialization for most promising enterprise operation and management. NTFPs. • Develop a mechanism to ensure Harvesting and processing regular supply of quality planting • Provide support to research institutions materials to the producers through i) a including universities for R & D regulation on quality planting materials especially in cultivation, harvesting, along with specific guidelines of each processing, product development and of the cultivated NTFPs, ii) supporting marketing. Think ahead since, NTFP private entrepreneurs to establish product development takes 5-10 years. NTFP resource nurseries in major In direct conflict with the often-faddish

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nature of NTFP markets is the fact applies to all plant products including that the development of a new product NTFPs, Nepal has some companies requires at least 5-10 years and a that have chain of custody paperwork significant investment of resources. in place and more need to put in • Prepare and disseminate harvesting systems to meet this increasingly guidelines for major NTFPs with common requirement worldwide. proper training to harvesters in • Streamline collection and export major production zones. There is an approvals. Collection and export immediate need to develop appropriate bans that can be “overcome” through harvesting tools, especially for timur a government approval process (Zanthoxylum armatum) and ritha raise concerns for reputable buyers (Sapindus mukorossi). and investors. They worry approvals • Support to explore and identify value could take too long and they miss addition and quality maintenance their delivery dates with buyers and/ technologies from small-scale or will be asked for extra payments processing to a large scale processing to clear paperwork. Nepal needs to and manufacturing. streamline these approvals to attract • Build capacity of manufacturers on reputable investors to the NTFP good manufacturing practice (GMP), processing sector. quality assurance (QA) and quality • Support to construct collection centres control (QC) and support to upgrade and warehouses. Initially, an auction their processing facilities. centre in Nepalgunj and collection • Develop clusters of supplies and centres in Surkhet, Birtamod and processing. Wild harvested products in Banepa are suggested. particular can be very unreliable in the • Form and strengthen producer groups quantities, qualities and even locations and their networks and BMOs and of production due to the biology of the support in developing code of conduct organism and vagaries of the weather. to control unhealthy competition. Developing clusters of community • Support to develop practical forest users groups and village level and sustainable mechanism for processing allows for Nepal to meet compilation and dissemination of international market needs by pooling market information of NTFPs (price, supplies from a variety of locations. quality, buyers etc.); the existing MIS platforms can be strengthened. Governance and market promotion • Carry out the study on “trade analysis • Support the government to redefine of MAPs from Nepal to China/Tibet the criteria (adding raw material and India. availability) of enterprise registration. • Support entrepreneurs to participate The enterprises should be registered in trade fair and exhibitions, such as based on the availability of raw biofach, natural product expo, and material supply. Currently, Resin explore buyers for Nepali products. and Kattha processing enterprises • Consider “cross-over markets for are running either under capacity or NTFPs. For example an herb may have already shut down. traditionally been sold for tea blends, but • Capacitate entrepreneurs on CoC not may be an ingredient in a personal paperwork. Chain of custody (CoC) care product. Essential oils could be paperwork essential in US Lacey act considered for aromas in candles.

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• Focus on niche markets. Selling wild harvest products trade and Nepal products to mainstream markets is could become a leader in this if made probably beyond current “organized” a priority. supply levels in Nepal therefore a • Invest in quality packaging - poor variety of “green” (community forestry, packaging can cause a shipment to biodiversity) and “fair trade” niche be rejected by customs and is the first markets will be the most useful starting impression customer has of product. point. Nepal has increased quality From initial export errors with buyers, and secured certifications for NTFPs, poor packaging and contamination which have led to several long-term with foreign materials was a major buying arrangements with US and complaint. For example, essential European buyers and most recently oils containers that frequently leaked resulted in a direct investment. and one shipment had had a chicken • Facilitate in export promotion through feather in the oil. i) supporting to establish accredited laboratories for quality certification 5.2.3 Ecosystem services - forest (equipping the DPR laboratory with carbon modern analytical instruments in In early stages of the carbon market, PPP model) and improvement of developing appropriate institutional biotechnology lab to develop protocol mechanism, capturing the insights and progeny testing of important and anticipations of the stakeholders endemic and exotic plants, ii) and building their capacity on carbon supporting to identify the chemical value chain functions are important. constituents, biomarker and quality Significant interventions are needed for standard analysis of major MAPs, iii) setting up the governance structure and facilitating government to designate market promotion. HS code, iv) developing quality system and profiling Nepal standard Forestland management and production for export potential products, such as • Identify key actors and stakeholders crude herbs, essential oils, handmade willing to invest in or pay for emission paper, and allo fabrics. reduction including forest managers, • Consider two growing trends - government, civil society, private sectors Access and Benefits Sharing (ABS) and other stakeholder. and Convention on Biodiversity • Build the capacity of the stakeholders, factoring into sales of NTFP from such as government, communities, wild. “The implementation of clear civil society organizations, and private national biodiversity legislation may sectors for understanding about the be critical in establishing favourable potential projects they could develop, conditions to attract companies and their roles in forest carbon project seeking countries in which to buy management. natural products. Costa Rica’s early start in dealing with these issues, Consolidation for example, has led to a steady • Build technical capacity of the project growth in bio-prospecting agreements proponents (private or government) for (Eberlee 2000)”. With Europe signing developing forest carbon PDD, establishing on to the Biodiversity Convention, it the reference levels and reference emission will soon be a requirement in NTFP levels and conducting MRV.

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• Determine organizations serving as a project opportunities could also be project aggregator. Since the project brought to the attention of large aggregator or project proponent is companies with a corporate social missing in the current carbon value responsibility orientation. chain, organizations serving these • Define product positioning and roles should be determined. For this, target appropriate market. Nepal’s existing or new institution need to be forest carbon cannot be considered developed as project aggregator for as only carbon as it is associated managing relatively large number of with other co-benefits, such as small forest parcels that would be the biodiversity, livelihood contribution, part of the project. watershed protection and disaster risk reduction. These co-benefits Governance and market promotion should be bundled with carbon while • Make clarity on the current tenure trading. Furthermore, preparing right. There is a need to make clarity Nepal for compliance REDD+ market on the current tenure right on forest would take long time; therefore the ecosystem services. Private investors government should focus on sub- and project developers will not invest in national projects targeting voluntary REDD+ activities unless clear land and markets. carbon ownership systems are in place. • Explore and expand the existing This requires clear understanding markets. To motivate private sector and consultation process with the investment and involvement in communities regarding how this type carbon projects at scale, it is also of investment would impact their necessary to explore and expand the access to forest resources, and the existing markets. In addition to the development of clear benefit sharing voluntary markets, where the demand mechanisms clarifying who has rights and price levels are not sufficient to to benefits that flow from carbon and drive private sector investment at to what extent. scale, compliance-driven demand • Support development of an for carbon credits could be explored appropriate institutional mechanism for to incentivize large-scale private incorporating different management investment. regimes for developing carbon • Support government to make projects. Given the disintegrated appropriate decisions with regard nature of forests often characterized to sub-national pilot PES deals that by different management regimes include carbon - while carbon markets within a landscape, an appropriate are soft and prices have declined, institutional mechanism should be there are still strong voluntary developed to incorporate these markets where trades are happening; regimes and develop carbon projects. Nepal would be attractive to voluntary • Make banks and financial institutions and CSR markets. aware of opportunities. Banks and • Help certification of forest carbon. financial institutions should be made A study conducted by Centre for aware of opportunities to provide long- International Forestry Research term financing for carbon projects or (CIFOR) shows that acceptance offset their emissions and those of level and willingness to buy certified their clients. REDD+ and other carbon forest carbon is high compared to

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non-certified carbon in international focusing on tourists from neighbouring market (Meijaard et al. 2013). As countries including China, India and certification helps to build trust other South East Asian countries, between forest managers (producers) which are promoting their visit in Nepal. and forest carbon buyers, the certified Recently, the neighbouring country carbon can take better market share – China, which has recently been with better price.• among the largest tourist exporting • Use a respected and established countries in the world, has listed Nepal third party standard/certification for as one of the outbound destinations for the carbon deal you choose. Plan Chinese tourists. Vivo and Verified Carbon Standard • Facilitate community forest user (VCS) with Climate Community and groups for ecotourism product Biodiversity Alliance (CCBA), and development and promotion. This can Clean Development Mechanism be done through providing tourism (CDM) with Gold Standard are all well and business skills training to local respected mechanisms. Plan Vivo will businesses and community members. be the lowest cost for Nepal to enter the markets with and two groups Governance and market promotion have already started the process • Support to certify ecotourism sites. The with Plan Vivo that can be restarted if certification could lead to the increase government policy is determined. VCS of the high-end nature tourists to the and CCBA have also been studied country. The tourism board, hotels, and methodology development for trekking agencies, and protected area VCS is still needed, which can run management committees can promote from $200,000 to $500,000 as can the certified sites using certification the CDM process. as a marketing tool. The potential sites for certification are national 5.2.4 Ecosystem services – ecotourism parks, protected areas and some of Nepal’s tourism activities are confined the community forests. For this, some to certain areas and the current ecotourism examples of ecotourism certification practice is not well differentiated from from the governments of Australia and conventional or mass tourism around Costa Rica could be used as examples protected areas. Development of ecotourism for developing certification system. products and their advertisement for the • Support in advertising Nepal’s emerging markets, promotion of new destination market and receptive people. touristic area and targeting of new market As compared to competing international segment are needed. destinations, such as Bhutan, the tourism products are offered at a much Forestland management and production cheaper price in Nepal. In addition, • Discover and develop new products Nepalese are known as service-oriented and sites that would be helpful in and courteous people among the expanding the duration of international international tourists. Nepal’s tourism tourist stay, where majority of the can also be advertised embedding with tourist activities are currently limited the products. As an example, Aveda at Kathmandu, Chitwan and Pokhara is promoting its products since 2007 triangle. embedding the story from nature and • Develop ecotourism products and sites people of Nepal.

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• Establish a dedicated desk at Nepal • Support entrepreneurs to develop Tourism Board for the promotion of appropriate combustion technologies ecotourism. and user friendly and efficient stoves. • Support to test and demonstrate 5.2.5 Forest bioenergy gasification technology in some of the In the present capacity, Nepal biomass rich community forests. should focus on proven solid biofuel • Support to explore and install technologies - such as briquette and technologies for the utilization of by- wood pellets - to generate energy from products of wood-based enterprises forest biomass. Most importantly, with into energy. the proper harvesting and combustion of fuel wood, there is a scope to increase Governance and market promotion energy efficiency of fuel wood. • Provide research and development support for the development of Forestland management and production briquette and wood pellets production • Support producers and forest technology at large scale, resolving of managers on resource management. issues related to efficiency, handling There is a scope to increase production of products and ignition. of forest biomass with improved forest • Capacitate community based enterprises management practices, such as timely in leadership development, enterprise thinning and pruning and utilization of management, entrepreneurship invasive weeds. development and marketing. • Develop and maintain fire lines and • Recognize forest biomass as an pre-season controlled burning in fire important source of alternative prone areas. energy. The potential fuels from forest • Support farmers to grow fodder tree biomass are bio-briquettes, pellets, in private and community lands that and electricity from gasification. In would supply fodder requirement and this process, the government can help to reduce animal grazing in the expedite the progress through a forests. systematic plan of activities with a • Focus on energy substitution and defined target for short-term and biofuel strategies that maximize land long-term. productivity and do not compete with • Support for policy formulation. food production. Provisions of financial incentives, investment subsidies and credits Harvesting and processing required for the private companies • Introduce appropriate harvesting tools for their establishment and so that the losses of biomass would be sustainable operation in the policy minimized. can attract the investment of private • Support machine fabricator to develop sector in bioenergy. Appreciating efficient torrefaction and densification that bioenergy is linked to heavily technologies. subsidized and politics of oil industry, • Introduce and apply, wherever global subsidies for traditional oil- possible, improved technologies on based fuels will continue to make torrefaction and densification, which it difficult for biofuels; tapping into would help to convert biomass into an various bioenergy grant programs is energy-dense fuel carrier. necessary to “level the playing field”

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and Nepal should look to grant and parts of the country with support soft-loan programs of development in scaling up of the production and institutions and various global energy market. funds. • Strengthen producer groups and • Facilitate to establish community- association. Capacitate briquette private partnership. With improved producer association and facilitate to management, the total stock of forest increase the membership base. biomass is increasing; this is more • Develop domestically first rather obvious in community forests. In than export. There is a good scope regular forest management, there is especially for solid biofuels – pellets, significant waste biomass from each briquettes for commercial and of the community forests. To utilize the households. Himalayan Naturals has biomass derived from regular forest developed a very successful bio- operation, the present experience of briquette product that uses leaf litter community-private partnership in bio- and forest waste and should be further briquette value chain is noteworthy. promoted and expanded in Nepal. This model can be expanded in other

Private Sector Involvement and Investment in Nepal’s Forestry Sector 171 6 References

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Annex A: Study Methodology A-1 Study Approach subject matter experts would investigate The study was guided by the following this in detail. Each subcomponent has its four research questions explicitly areas of inquiry and major methods that reflecting the research focus on additional assess the current status and situation, employment creation in the forestry sector help identifying the potential opportunities through an expanded private sector that are doable and within the reach of involvement and investment: i) What stakeholders and analyse the constraints are Nepal’s best forest products and and barriers that have limited the private service options to attract private sector sector investment and involvement. involvement and investment? ii) Given Nepal’s goals to conserve its unique forest Based on the study findings, biodiversity and sustainably utilize the analysis and understanding of the forest to alleviate poverty, what types of context, intervention strategies are private sector involvement and investment recommended for increasing private should Nepal work on to attract? Is the sector engagement in the forestry sector investment climate favorable to attract of Nepal, broadly for the country’s forest the private sector? iii) What do the sector as a whole and specifically for targetted private sector actors look for in MSFP. Both the short term and long term an investment? What are the models for intervention strategies are suggested. their involvement and investment? and Furthermore, five concept papers have iv) Based on the above information, what been developed to elaborate some of the are Nepal’s opportunities and constraints recommended strategies. Finally, some to attract private sector involvement and suggestions have been made to develop investment? an information dissemination plan for making an effective use of the study A study framework (see Figure 1) was results and recommendations. developed to answer the aforementioned research questions that includes a A brief description of each component systematic analysis of the private sector’s and its subcomponents is given below: engagement in the forestry sector under the following three components: i) Analysis Analysis of forest-based industries of the forest-based industries in Nepal in Nepal: This analysis helps to identify to determine a range of products and Nepal’s best forest product and service services and their demand, ii) Analysis of options that are attractive to private sector the investment climate; and iii) Analysis for their involvement and investment. of investors’ perspectives, both national The tools like value chain and subsector and international, to learn their level of analysis are used for the analysis of forest involvement and investment models. industry of Nepal. During the analysis, Each component is further divided into forest industries were divided into four sub-components so that the specific major categories, namely, a) timber, b)

180 Private Sector Involvement and Investment in Nepal’s Forestry Sector ANNEXES

NTFPs, c) ecosystem services, and d) bio- and helps to determine the potentiality of energy. For every subsector, a detailed these types of investment. It also suggests analysis of resource base, market trends the type of private sector involvement and and competitiveness, workforce, chain investment that Nepal should look for. The governance, and income and employment investment climate was mainly analysed were done. Similarly, mapping of actors, through the study of: a) policy and regulatory functions and enablers of each subsector environment governing the forest sector, was carried out. Consultations, interviews, b) political environment, c) institutional and field surveys are the major methods framework governing the forest sector, carried out to investigate each subsector. d) policy and institutional environment governing finance, e) infrastructure, and f) Analysis of investors’ perspectives: research, capacity building and extension This component analyses the perspectives services. More specifically, the analysis of existing and potential investors in the highlights the implications of present state forestry sector and answers what these of these factors in terms of opportunities investors look for in an investment. This and constraints due to existing provisions, analysis helps to identify their interests actual practices, gaps, contradictions, and requirements and the value systems overlaps, inappropriateness, and for them to willingly invest in the sector. inefficiencies. Review, consultations Also, this helps to identify and develop and interviews were the major methods suitable models for their involvement used to collect the information regarding and investment in sustainable business investment climate. in a responsible ways. The perspectives of investors were analysed for their A-2 Data Collection engagement basically in: a) production Both primary and secondary sources enterprises, b) processing enterprises, c) were used for the collection of data. The manufacturing enterprises, and d) trading study area, sampling, the major methods enterprises. The investors’ perspectives used for the collection of data and analysis were analysed for domestic investors are presented below. and international investors, both from the private sector and public sector investors Study Area: The issues identified for including donor agencies and international analysis had local, regional, national, financial institutions. Information was and international dimensions. The study gathered mainly from consultations covers the whole of Nepal. National with the existing and potential investors level data and information collection was and through a questionnaire survey of required for providing a broader scenario existing enterprises. The international of national forestry sector and subsectors perspective was obtained from interviews in various social and ecological regions, with leading sustainable forest product/ status of forestry sector in the national service industry representatives, such as economy, and the national investment brokers, NTFP-based companies, and climate. To some extent, the study also large forest product based companies. covers international dimensions as these relate to the forestry sector. In order Analysis of investment climate: This to obtain international private sector’s provides information on whether the perspectives on investing in the forestry investment climate is favourable for sector of Nepal, current and prospective investment by the private sector in forestry international companies were consulted

Private Sector Involvement and Investment in Nepal’s Forestry Sector 181

ANNEXES

surveys – and consultations and – surveys

consultation

Mainly review & consultation & review Mainly observations, FGDs, sample sample FGDs, observations,

Mainly interview & & interview Mainly Mainly field study - - study field Mainly

Outputs

for Forestry for

Achieve Nepal’s Desired Model Model Desired Nepal’s Achieve Intervention Strategies – To To – Strategies Intervention Methods

inquiry Areas of potentials Constraints and situation and Current status status Current Opportunities and and Opportunities treaties potential Subcomponents extension services extension political environment political perspectives regarding employment generation, coordination; and actors’ coordination; and actors’ Participation, investment, Inter-firm cooperation and related to investment, fiscal, fiscal, investment, to related demand, supply and growth and issues related to finance, finance, to related issues and environment, and international international and environment, industry, trade, labour, forestry forestry labour, trade, industry, opportunities and constraints research, capacity building, and and building, capacity research, Provisions, practices and issues issues and practices Provisions, subsectors specific, biodiversity, biodiversity, specific, subsectors standards, laws, agreements and and agreements laws, standards, Provisions, practices, challenges challenges practices, Provisions, electricity, road, ICT, trade facility, facility, trade ICT, road, electricity, Roles, key institutional issues, and and issues, institutional key Roles,

NTFPs Timber International Environment Institutions & Components Forest Bioenergy Buyers & Investors Trading Enterprises Trading Policy & Regulatory & other DS Services Political Environment Finance, Infrastructure Production Enterprises Processing Enterprises

ES (Carbon, Ecotourism)

Manufacturing Enterprises

Industry Analysis Industry Analysis Perspective Actors’ Analysis Climate

Forest-Based and Dynamics Chain Value Investment Figure 1.1: Study Framework

182 Private Sector Involvement and Investment in Nepal’s Forestry Sector ANNEXES

and interviewed. In addition, this study stratification criteria for enterprises included: was supported by a detailed district and a) subsector types; b) function within local level study of the private sector subsectors; and c) size of enterprises in actors of both the enterprises and financial order to make sure that each type, function, institutions in the 28 sample districts, and and size of enterprises are represented in the regional market centres (Figure 2). the study. The major subsectors included timber, NTFPs, bio-energy, and ecosystem Sampling: Multi-stage stratified purposive services. The major functions in timber, sampling was used to select the various NTFPs and bio-energy are production, levels of study units. The first stage primary processing, manufacturing, stratification criteria for the selection and trading whereas for ecosystem of sample districts were: a) altitudinal services function comprises production, gradient along the north-south axis, and consolidation and trading. Similarly, namely, mountain, hill and terai; b) regional enterprises were selected based on their variation along the east-west gradient, size: a) small: those enterprises categorized namely, eastern region (Mechi, Koshi, as cottage and small enterprises in the

Table 1: Selected Districts by Ecological Regions Ecological Eastern Central Western regions Mountain Sankhuwasabha Sindhupalchok Jumla Dhankuta, Ilam, Gorkha, Baglung, Palpa, Dailekh, Doti, Dadeldhura, Hill Ramechhap, Udaypur Kaski, Kathmandu Surkhet Sunsari, Sirha,Jhapa, Nawalparasi, Chitwan, Dang, Banke,Kailali, Terai Morang Rupandehi, Bara Kanchanpur

Sagarmatha, Janakpur), central region Industrial Enterprises Act, 1992 and b) (Bagmati, Narayani, Gandaki, Lumbini, large: medium and large enterprises as Dhaulagiri) and western region (Rapti, categorized in the Act. At least one small Bheri, Karnali, Seti, Mahakali); and c) and one large enterprise were sampled MSFP and non-MSFP districts. This gave a purposively in each district depending upon frame of three by three grids or nine strata accessibility of road, operational status and representing major ecological regions of income and employment generation. Nepal. A total of 28 districts, including 8 MSFP program implemented districts, In case of FIs, at least two financial were purposively selected ensuring the institutions were selected purposively representation of at least one district from from local financial institutions, such each stratum (see Table 1). The districts as microfinance institutions (MFIs) and with resource availability, trade volume, cooperatives at the district level. Similarly, access to road, communication and at the national level, financial institutions, energy, which are needed for forest-based such as development banks, commercial enterprises to exist, were selected. banks, and finance companies were sampled for consultations and survey In the second stage, enterprises and interviews. The sampling framework is financial institutions were selected. The presented in Figure 2.

Private Sector Involvement and Investment in Nepal’s Forestry Sector 183 ANNEXES random) Enterprises Comm. Bank (at least 2, random) Dev. Bank (at least 2, Financial institutions random) Enterprises Cooperatives MFIs (at least 2, (at least 2, random)

random) Carbon, random) eco- tourism) services (Forest Other Ecosystem Consolidation and trading (at least 2, Production (at least 2, Proportionate selection of districts (25%, purposive) energy Trading random) random) random) Harvesting Secondary Processing and 2 large, and 2 large, and 2 large, large,random) Cultivation and (at least 2 small (at least 2 small (at least 2 small Primary Processing Fuel-wood and Bio- (at least 2 small and 2 Districts with road network from 3 strata (Terai, Hills and Mountain) Enterprises NTFPs Trading random) random) random) Secondary Harvesting Processing and 2 large, and 2 large, and 2 large, Cultivation and (at least 2 small (at least 2 small (at least 2 small 2 large, random) Primary Processing (at least 2 small and Timber Trading random) random) random) Secondary Harvesting Processing and 2 large, and 2 large, and 2 large, Cultivation and (at least 2 small (at least 2 small (at least 2 small 2 large, random) Primary Processing (at least 2 small and Figure 2: Sampling Framework

184 Private Sector Involvement and Investment in Nepal’s Forestry Sector ANNEXES

Primary Data Collection Methods done at four levels: i) local level, ii) The primary data collection was done regional level, iii) national level, and iv) by field visits to the sample districts as well international level. For the consultations as regional and national market centres. and interviews, four sets of checklists Three teams were formed for field data were prepared, one each for producers, collection, one for each region, namely traders and processors, enablers and eastern, central and western, in order to facilitators, and financial institutions. have organized and timely data collection. Specific questions for each of the The field teams collected information and subsectors (timber, NTFPs, bioenergy data by conducting i) consultations and and ecosystem services) were also interviews with stakeholders and experts included in all sets of checklists. ii) focus group discussions, and iii) surveys of enterprises and financial institutions At the local level, consultations were in each of the sampled districts. The carried out with district level government

Table 2 Summary of the Field Data Collection Activities Eastern Central Western Activities Total Region Region Region Consultation with district level 44 43 40 127 stakeholders (BMO, Govt., Projects) Focus group discussion 12 16 16 44 Interaction with entrepreneurs 16 23 9 48 Survey of entrepreneurs 164 191 177 532 Survey of financial institutions 18 29 16 63 Visit to regional market centres 4 6 4 14 Interaction at customs & quarantine 4 6 2 12 offices Total 262 314 264 840 major activities undertaken for field data and non-government stakeholders such collection are listed along with the number as District Forest Offices (DFOs), District of events desegregated by regions in Chambers of Commerce and Industries Table 2. The detail on the methods used is (DCCIs), District Cottage and Small described below. Industries Offices (DCSIOs), District Development Officers (DDCs), district a) Stakeholder consultations/ chapters of the Federation of Community interviews: Stakeholders from various Forest Users, Nepal (FECOFUN), agencies, backgrounds, and locations local NGOs and other relevant were consulted and interviewed in order supporting and facilitating organizations. to identify the potential opportunities Similarly, local level forest entrepreneurs and constraints in the forestry sector and local financial institutions were and discussions were made on also consulted. possible collaboration with different institutions in future. Consultations were At the regional level, consultations

Private Sector Involvement and Investment in Nepal’s Forestry Sector 185 ANNEXES

were carried out with regional level some of the progressive NTFP companies government and non-government to learn what they would want to be stakeholders. Major regional market able to invest. centres, such as Birtamod, Biratnagar, Janakpur, Birgunj, Narayanghat, Butwal, b) Expert discussions: Discussions Pokhara, Nepalgunj, Birendranagar, were carried out at the national level Dhangadhi, Mahendranagar, Tatopani, with professionals from the government, and Kathmandu were visited to private sector and non-government consult with traders, processors and communities with expertise on forest manufacturers. Similarly, consultation policy, forest industry, private sector was done with customs and quarantine development, export and import, officials of Kakarbhitta, Biratnagar, and finance, among others (Listed in Birgunj, Bhairahawa, Nepalgunj, Annex C-1). International experts were Mahendranagar and Tatopani. consulted to understand the drivers of international private sector engagement At the national level, consultations in forestry. Study methodology and were carried out with related government preliminary findings were shared with departments and ministries associated various international experts including with forestry, commerce and trade, Mr John Hudson (Chair of the Board of customs and quarantine, national Directors of the Rights and Resources planning, and investment. Similarly, Initiative), Mr Antti Rytkonen (Senior consultations were also made with Advisor, Ministry of Foreign Affairs of BMOs, such as Federation of Nepal Finland) and Mr Gavin Jordan (Director, Chambers of Commerce and Industries Interface NRM Ltd. UK). (FNCCI), Federation of Forest Based Industry and Trade, Nepal (Fen Fit), c) Surveys: Sample surveys were carried Nepal Herbs & Herbal Products out at local (district level), regional Association (NEHHPA), Handmade and national level for 1) forest-based Paper Association (HANDPASS), Jadibuti enterprises, and 2) financial institutions. Association of Nepal (JABAN), and Herbal Three survey groups were mobilized in Entrepreneurs Association of Nepal three different regions (as categorized in (HEAN). Further, related INGOs, NGOs sampling), namely, Eastern, Central and and donor agencies were also consulted. Western Nepal for data collection. Representatives of financial institutions, and national level entrepreneurs including Survey of forest-based enterprises: public companies were also consulted. Forest-based enterprises involved in timber, NTFPs, bioenergy, and ecosystem services At the international level, interviews in the sampled districts were surveyed. A and consultations were done with 20 general questionnaire designed with the leading sustainable forest product/ objective of understanding the perspectives services industry representatives. This of various categories of firms at various included Aveda – a leading cosmetics locations for each subsector about the company using forest based products, investment and employment conditions, brokers of forest based goods and their interest and requirements for growth, services including carbon credits, some and the opportunities and constraints faced of the leading large forestry companies by the entrepreneurs. The questionnaire including FSC certified companies, and was customized for all types of producer

186 Private Sector Involvement and Investment in Nepal’s Forestry Sector ANNEXES

enterprises, processors/manufacturers to invest in the forestry sector, the and traders for each subsector except constraints faced by FIs, potentials for for the other ecosystem services. For increasing financing in the forestry sector, other ES, two sets of questionnaire, one and environment required for the same. A each for producers/consolidator and total of 63 FIs were interviewed using the traders, were designed. questionnaire. A list of FIs interviewed is attached in Annex D. The questionnaires were used to collect information about the typology of the firms, d) Focus group discussions (FGDs): financial support available to the firms, the A set of checklists was prepared to level of skills and technology used by the conduct FGDs systematically for the firms, trade volumes and value of forest groups of producers, processors/ products, interests and motivation of the manufacturers, and traders of selected entrepreneurs, availability and access to subsectors in the sample districts and resources (raw materials), infrastructure, market centres in all the three study utilities, business development services regions. The checklists focused on the (BDS), and markets. Questions on the current status of production, processing, interests and requirements of the private marketing of various forest products, sector for increased engagement in the investment in forest-based enterprises forestry sector and the key constraints that and its trend, and employment has limited private sector investment and generated by the forestry sector as well engagement in the forestry sector were as the opportunities and constraints for included along with open-ended questions each type of value chain actors in each on their suggestions for increasing their subsector. The FGDs were guided by investments and involvement. A total of the checklists to allow the participants 532 entrepreneurs were interviewed using to express their opinions on the range the questionnaire. A list of respondents is of topics for specific groups. List of FGD attached in Annex D. participants is provided in Annex D.

Survey of financial institutions: A survey Secondary Data Collection Methods of financial institutions (FIs), namely, The study team members reviewed microfinance institutions, cooperatives, relevant literature and collected data development banks and commercial from the secondary sources following banks was done. A set of questionnaire the orientation programme. The literature with some common and some specific review included: i) review of forest questions for each type of FIs were and forest relevant policy documents, developed. Financial institutions (FIs) documents on various domestic and including savings and credit cooperatives international regulatory frameworks and microfinance institutions (MFIs) at including the acts, regulations, and the local level and development banks, directives; and ii) review of important finance companies and commercial published and unpublished journal banks at the national level were surveyed articles, reports and documents. using a questionnaire. The questionnaire was designed to understand the financial Publications and official records from products available and administered for the national, regional and district level financing the forestry sector, interest government forest offices and other rates, FI’s interests and conditions relevant agencies were referred to for

Private Sector Involvement and Investment in Nepal’s Forestry Sector 187 ANNEXES

collection of existing information on unpublished journal articles, reports, and general forestry resources of the nation, documents were reviewed as needed. regional variation of the resources, The data and information collected were forest use administration, and economic triangulated using information from aspects of forestry at the national various sources and expert consultations level. A major part of the subsector and interviews and focus group analysis that led to identification of discussions, to be discussed shortly. representative categories of enterprises in each subsector was supported by data A-3 Data Analysis and Presentation collected from aforementioned agencies. The analysis was guided by the This included data for estimating demand objectives and research questions. Data and supply, both current and potential, and information collected from the primary such as the current and potential and secondary sources were organized, production volume and value in various processed and analysed with reference regions of the country, trend in production to three major components of the study and productivity, knowledge and - forest industry, investment climate, technology on (sustainable) harvesting, and investors’ perspective following the processing industries and products. The standard logic starting with the current level of investment by various types of status and situation through opportunities enterprises as well as the employment and potentials within the sector and and income or revenue generated was constraints and barriers that hinder to also collected. realise the potentials. Based on these analyses, intervention strategies and A review of policies and regulatory policy recommendations are suggested. frameworks including the acts, regulations, and directives on forestry Computer software - SPSS and MS and other relevant policy documents Excel - were used for processing and helped in analysing the provisions that analysing the data generated from the constraint or support services affecting questionnaire survey. The information the private sector engagement in collected from meetings, interactions, the forestry sector and in identifying observations and FGDs were favourable and adverse impacts created systematically analysed and findings by the policy provisions and changes synthesised. During the analysis, required to address the challenges. different sources, literature, and expert Publications and reports on the drivers of opinions were used for triangulation of investment climate, such as infrastructure information and data. including transportation, communication, and energy facilities; access to finance; A draft report was prepared presenting political environment including national the data and findings from the analysis security, and political stability were in a logical flow envisioned during the reviewed to understand the status of study design. ANSAB’s roster of experts investment climate for forest specific including board members and advisory ventures in Nepal. Findings on engaging board members reviewed the draft report. the private sector for development of the After incorporating the inputs from the forestry sector elsewhere in the world experts, a final draft was shared with MSFP were also reviewed. team for their review and feedbacks. Other relevant published and

188 Private Sector Involvement and Investment in Nepal’s Forestry Sector ANNEXES

Annex B: Data and Information on Forest Based Industries

TableB-1: The floor price of timber logs of major species sold by DFO Name of Forest products and grades Selling price (NRs/cft) Sal grades A 800.00 B 500.00 C 300.00 Sissoo grades A 1000.00 B 800.00 C 500.00 Tooni log A 300.00 B 200.00 Khote salla grades A 200.00 B 150.00 Champ 500.00 Simal 125.00 Jamun and Karma 300.00 Mango 100.00

Table B-2: TCN Prices for round wood timber

Species Grade Length (ft.) Girth class (ft.) Average Price (NRs)

5-7 >7 A 5-8 1382 1403 8-11 1391 1406 1397.80 >11 1395 1410 4-6 >6 Sal B 4-8 1050 1072 8-11 1055 1076 1067.00 >11 1065 1088 2.5-4 705 760 C >4 795 800 765.00

Private Sector Involvement and Investment in Nepal’s Forestry Sector 189 ANNEXES

5-7 >7 A 5-8 1555 1618 1595.00 >8 1571 1636 5-6 >6 Wild sissoo B 5-7 1105 1135 1126.00 >7 1125 1140 2.5-4 >4 C 2.5-5 665 750 717.00 >5 680 775 5-7 >7

Asna, Jamun, A 5-8 592/- 600/- 598.00 Karma, Tooni, >8 597/- 605/- Sirish 2.5-4 >4 B 2.5-5 465/- 501/- 493.00 >5 498/- 510/- 5-8 >8 A 5-8 412/- 424/- 420.50 >8 416/- 430/- Pine 2.5-5 >5 B 2.5-5 357/- 370/- 365.50 >5 361/- 374/- >4 Plantation A >4 612/- 612.00 sissoo 2.5-4 B >2.5 377/- 377.00

190 Private Sector Involvement and Investment in Nepal’s Forestry Sector ANNEXES

Table B-3: TCN prices for round wood timber (without specific grades) Average Species Length Price (NRs) Price (NRs) Girth 2.5-4 ft. Girth >4 ft. Deodar 2.5-5 378.00 395.00 391.00 >5 388.00 405.00 Pterocarpus marsupium 2.5-5 615.00 625.00 624.50 >5 624.00 634.00 Michelica champaca 2.5-5 831.00 845.00 844.00 >5 842.00 858.00 Anogeissus latifolia 2.5-5 210.00 22.00 222.00 >5 215.00 238.00 Eucalyptus, poplar, Alnus nepalensis, 2.5-5 236.00 245.00 Magnifera indica 242.75 >5 238.00 252.00 Termina chebula, Terminalia belerica, 2.5-5 320.00 350.00 Schima wallichi 347.50 >5 335.00 385.00 2.5-5 255.00 275.00 268.75 Bombax ceiba >5 265.00 280.00 2.5-5 2033.00 2204.00 2140.00 Dalbergia latifolia >5 2076.00 2247.00

Table B-4: TCN Price of sawn wood for Kathmandu and Pokhara Length (ft.) Thickness and width (Inches) 0.5-2.5 2.5-5.5 2.5-5.5 >5.5 0.5-4.5 2.5-5.5 >5.5 >5.5 2.5-4 1600.00 2120.00 2045.00 1955.00 4-9 1845.00 2690.00 2670.00 2275.00 9-15 1880.00 2720.00 2690.00 2365.00 Average rate: NRs 2237

Table B-5: TCN Price of timber for Terai and inner Terai districts Thickness (0.5-2.5) 2.5-5.5 2.5-5.5 >5.5 Length Width (0.5-4.5) 2.5-5.5 >5.5 >5.5 2.5-4 1530.00 2050.00 1975.00 1885.00 4-9 1775.00 2620.00 2600.00 2205.00 9-15 1810.00 2650.00 2620.00 2295.00 Average rate: NRs 2167

Private Sector Involvement and Investment in Nepal’s Forestry Sector 191 ANNEXES

Table B-6: Import value of wood and articles of wood in USD (2009-2013*) HS Import value in USD Description Code 2009 2010 2011 2012 2013* 4403 Wood in the rough 1,158 3,426 159,440 151,374 286,494 Hoopwood; split poles; piles, pickets, stakes (pointed not sawn lengthwise); 4404 sticks roughly trimmed not bent or 39 661 1151 1410 2,748 worked, suitable for walking-sticks, handles etc. etc 4405 Wood wool; wood flour 127,653 148,792 101,039 82,997 16,369 Railway or tramway sleepers (cross- 4406 52 303 83 0 0 ties) of wood Wood sawn/chipped lengthwise, 4407 14,354 24,480 340,755 110,859 150,217 sliced/peeled Veneer sheets & sheets for plywood 4408 2,097,624 2,234,457 4,046,477 3,596,550 2,387,485 &other wood sawn lengthwise Wood continuously shaped along any 4409 73,971 75,117 72,783 53,411 25,553 edges Particle board and similar board of 4410 102,816 156,907 506,496 488,498 250,895 wood or other ligneous materials Fibre board of wood or other ligneous 4411 647,741 977,076 678,695 777,016 672,335 material Plywood, veneered panels and similar 4412 3,714,368 2,032,296 3,562,125 2,206,718 1,126,586 laminated wood Densified wood, in blocks, plates, 4413 32,992 7,063 56,704 9,309 8,133 strips or profile shapes Wooden frames for paintings, 4414 7,002 96,787 36,978 61,621 34,888 photographs, mirrors or similar object 4415 Packaging materials of wood 49,729 50,239 21,758 62,356 31,967 4416 Casks, barrels, vats, tubs etc. of wood 38 10,478 2,041 3,455 399 Tools, tool & broom bodies & handles, 4417 12,786 15,178 24,410 17,540 169,098 shoe lasts of wood 4418 Builders’ joinery & carpentry of wood 328,167 813,185 1,594,719 1,252,133 1,033,274 4419 Tableware and kitchenware of wood 14,004 28,440 30,928 41,815 34,130 Wood marquetry & inlaid wood; 4420 77,681 92,310 95,388 131,620 39,508 caskets & cases or cutlery of woo 4421 Articles of wood, nes 164,633 164,138 175,996 191,299 140,981

* 2013 data represents only the value for 6 months

192 Private Sector Involvement and Investment in Nepal’s Forestry Sector ANNEXES

TableB-7: Export value of wood and articles of wood in USD (2009-2013*) Export value in USD HS Code Description 2009 2010 2011 2012 2013* 4403 Wood in the rough 0 0 0 0 0 Hoopwood; split poles; piles, pickets, stakes (pointed not sawn lengthwise); 4404 sticks roughly trimmed not bent or 0 0 0 0 0 worked, suitable for walking-sticks, handles etc. etc 4405 Wood wool; wood flour 0 27 28 0 0 Railway or tramway sleepers (cross- 4406 0 0 0 0 0 ties) of wood Wood sawn/chipped lengthwise, 4407 0 0 0 0 0 sliced/peeled Veneer sheets & sheets for plywood 4408 68,946 113,622 388,794 395,895 360,165 &other wood sawn lengthwise Wood continuously shaped along any 4409 0 105,081 129,060 34,985 0 edges Particle board and similar board of 4410 1,791,386 1,164,915 682,361 373,545 180,002 wood or other ligneous materials Fibre board of wood or other ligneous 4411 749 0 0 material Plywood, veneered panels and similar 4412 293,365 462,252 954,436 1,828,183 2,112,154 laminated wood Densified wood, in blocks, plates, 4413 2,743 0 0 0 0 strips or profile shapes Wooden frames for paintings, 4414 329 154,133 727 351 55 photographs, mirrors or similar object 4415 Packaging materials of wood 21,613 71,982 57,605 54,638 20,259 4416 Casks, barrels, vats, tubs etc. of wood 0 146 0 592 0 Tools, tool & broom bodies & handles, 4417 0 373 139 2,125 0 shoe lasts of wood 4418 Builders’ joinery & carpentry of wood 642,383 507,295 55,863 320,327 23,986 4419 Tableware and kitchenware of wood 0 0 0 11,325 2,775 Wood marquetry & inlaid wood; 4420 0 0 0 86,523 71,507 caskets & cases or cutlery of woo 4421 Articles of wood, nes 0 0 55,716 97,313 33,511

* 2013 data represents only the value for 6 months

Private Sector Involvement and Investment in Nepal’s Forestry Sector 193 ANNEXES

Table B-8: Gross margin calculation of sal timber in Far Western Terai

Far Western Major Actors SN Activity Terai (NRs.) Producer A0 Average auction price for stumpage stage 1,400 A1 Marking, yarding and piling 70 A2 Loading and Unloading 30 A3 Transportation from field to road head 60 A4 VAT on sawlog 203 Contractor Informal fees (incl. local gangs, political parties and government A5 187 (within the officials) production site) A6 Commission for local agent 10 A7 Cost due to log loss during felling, handling and storage (7%) 98 Sub-total A: Additional costs of sawlog production 658 Sawlog selling price in Terai 2,200 Gross margin for contractor 142 B1 Loading and unloading at saw mill 20 B2 Sawmilling cost 70 B3 Yarding, piling 25 Saw miller (of the B4 Cost of loss during sawing timber (with 65% recovery rate) 810 district) B5 VAT on sawn timber production 208 Sub-total B: Additional cost of sawn wood production 1,133 Market price of sawn timber in Terai 3,800 Gross margin for saw miller at district 467 C1 Transportation cost (loading and unloading) 225 C2 Sawmilling cost 80 C3 Yarding, piling and other cost (rent, communication, interest) 120 C4 VAT 65 Saw miller C5 Cost during transportation (political donations, gangs etc.) 40 (Kathmandu) C6 Cost of loss (with 65% recovery rate) 956 Sub-total C: additional cost in urban market 1,486 Selling price of sawn timber for wholeseller or depot in Kathmandu 4,300 Gross margin for saw miller in Kathmandu 615 D1 Transportation including load unload, yarding and piling 70

Wholesaler or D2 VAT 59 dipot (sawn Sub-total D: additional cost in urban market 129 timber) Selling price of sawn timber for furniture in Kathmandu 4,750 Gross margin for wholesaler in Kathmandu 322

194 Private Sector Involvement and Investment in Nepal’s Forestry Sector ANNEXES

E1 Additional costs (labour and joining materials) 737 E2 VAT 163 Furniture Sub-total E: additional cost in urban market 900 (builder’s joinery) Selling price of builder’s joinery for final consumer in Kathmandu 6,000 Gross margin for Furniture in Kathmandu 351

TableB-9: Mean annual growth rate for forests Forests Growth rate (m3/ha/yr) Data Source Terai forest 7.6 Puri et al. (2012) Hill forests 3.7 Puri et al. (2012) Terai forests 10 ANSAB REDD project Hill forests 8 ANSAB REDD project Pine forests 3 LFP (as cited by Kanel et al. 2012) Chilaune Katus forests 2.3 LFP (as cited by Kanel et al. 2012) Paulownia 10.0-30.0 Yamazoe et al. (1989) Eucalyptus 3.1-12.5 Khanal (1996)

Table B-10: List of NTFPs with their Nepali, English and Scientific Names SN Nepali Name English Scientific Name 1 Alaichi Large cardamom Amomum subulatum 2 Allo Himalayan nettle Girardinia diversifolia 3 Amala Emblic myrobalan Phyllantus emblica 4 Atis Aconite Aconitum heterophyllum 5 Bans Bamboo Bambusa bambos 6 Bojho Sweetflag Acorus calmus root 7 Chiraito Chiretta Swertia chirayita 8 Chiuri Nepal butter fruit Bassia butyracea 9 Chamomile Chamomile Matricariachamomilla 10 Dhasingare Wintergreen Gaultheria fragrantissima 11 Guchhichyau Morel mushroom Morchella conica 12 Jatamansi* Spikenard Nardostachys grandiflora 13 Jhyau** Lichen Parmelia nepalensis 14 Khayar Black Catechu Acacia catechu 15 Khoto Chir pine (resin) Pinus roxburghii 16 Kutki* Gentian Picrorhiza scrophulariiflora 17 Lemongrass Lemongrass Cymbopogon citratus

Private Sector Involvement and Investment in Nepal’s Forestry Sector 195 ANNEXES

18 Lothsalla Himalayan yew Taxus baccata 19 Majitho (red) Madder Rubia manjith 20 Mentha Mentha Mentha arvensis 21 Argeli Edgeworthia gardnerii 22 Lokta Daphne Daphne bholua 23 Pakhanbed Rock foil Bergenia ciliata 24 Ritha Soap nut Sapindus mukorossi 25 Rudrakshya Utrasum bead tree Elaeocarpus sphaericus 26 Satawari (Kurilo) Wild asparagus Asparagus racemosus 27 Satuwa (big) Love apple Paris polyphylla 28 Sugandhawal* Indian valerian Valeriana jatamansii 29 Tejpat Cinnamon Cinnamomum tamala 30 Timur Prickly ash Zanthoxylum armatum 31 Yarsagumba Yarsagumba Cordyceps sinensis

196 Private Sector Involvement and Investment in Nepal’s Forestry Sector ANNEXES

Annex C: Most relevant policy and legislative provisions, implementation practices and suggested reforms (including international treaties and agreements) for improving the participation and investment of the private sector in forestry in Nepal Recommendations contradictions in the policies and regulations and jurisdictional overlaps across the concerned agencies. provide all relevant information on visa obtaining process in Gov website. and DOI to provide service for establishing business within timeframe as prescribed in the FITTA. for technology transfer and benefit sharing between investors and small industries after technology transfer. agencies (Department of Cottage and Small Industries) for the amend and process TT of facilitation the law on IPR protection. Make OWP operational by resolving Make OWP Simplify the visa process and Develop capacity of the Board Develop a system and mechanism Develop capacity of concern

• • • • • services in one place for domestic and foreign investors, which would reduce their transactions costs. Since it is not operational, practically it still takes several months to more than a year for foreign investors to start a business in Nepal. investors are not able to acquire required technical experts in time and this adversely affects timely project completion, increases the transaction costs of the business. attractive to establish business where the registration and renewal process is complex and time consuming. nationalization of private property provides security and reduces risks for investors. OWP brings all necessary OWP Due to complex visa procedures, Foreign investors find it less Guaranteed security against transaction costs and image

• • • • Implications for private sector in terms of returns, risks,

and Practices Existing Provisions servicing agency’ with the Industrial Industrial the with agency’ servicing point. focal the as Board Promotion to due practice in operational not is It concern the across overlaps jurisdictional weak and contradictions policy agencies, agencies. the among coordination of period the for visa residential and enterprises; in investment maintaining complex a through go to need they technical for visa obtain to process experts. foreign for permission granting date the from days 30 within investment to due practice in But application. of procedures, time-consuming and complex the complete to years 3 to 1 takes it enterprise. an of registration for process from exempted are properties period. license the during nationalization OWP designates DOI as the ‘one window window ‘one the as DOI designates OWP non-tourist obtain can investors Foreign requires Board Promotion Industrial private associated and Industries

Investment Related Operation and Build in Financing Private 2000; 1996, amendments, (Foreign its and (FITTA) 1992 Act, Transfer Investment Technology and One Window Act, 2006 (BOI) of Infrastructures Policy, 1992 (OWP); Foreign Investment and BOI and FITTA OWP • • • •

Private Sector Involvement and Investment in Nepal’s Forestry Sector 197 ANNEXES provide foreign investors during permission and operation stages to maintain investment. for the settlement of foreign investment related disputes other the in it mainstreaming to product one and governance local as such policies, relevant regulations. environmental forest- oriented export and bioenergy timber-based, list. the in industries based between contradiction remove and leasehold local forestry, industries, of provisions legislative environment. and government and farming in investment private of promotion forestry. providing of provision legal a make to Act agency. one from service registration Clearly define the facilities that are possible to Develop human resource and arbitration capacity village- one of practices existing the Review include to policy industrial of list priority the Revise on provisions legal and policy the Harmonize the for ministry the under section special Establish Enterprise Industrial and Act Company the Amend

• • • • • • • to cottage industries. The huge potential for cottage industries. developing cottage industry in the forestry sector remains untapped. are forced to operate with outdated and inefficient technologies and are less competitive and less attractive. by erratic supply and long hours of affected power cut, and inadequate poor quality of infrastructure facilities, such as roads. expensive process and high risks. village one product and many are unable to do business due to lack of BDS providers at local level. have to bear additional transaction costs barriers) in (tax, customs and non-tariff comparison to the listed subsectors. suitable leasehold forest as per their requirement. in forest-based industries and the potential remain untapped. charges and more time for registration. There is no incentive for investors for TT There is no incentive for investors Majority of cottage and small industries Investors do not have access to land and Investors are not attracted due to long and The transaction cost is very high for the one and bio-energy industries Timber-based The private sectors are not able to access No promotion of investment opportunities Investors have to bear relatively high

• • • • • • • • •

transfer (TT) to cottage industries, but foreign investment in cottage industry is not allowed. to cottage industries and TT for the facilitation on the legal mechanism is weak for protection of intellectual property rights (IPR) over transferred technology. allowed to make investment in foreign currency. But there is no provision for allocating land and infrastructure. of disputes based on mutual consultations and arbitration; limited expertise at DOI for the facilitation of disputes related to foreign investment; the dispute settlement mechanism is cumbersome. enterprises, cottage and small such as one village-one product; but due to lack of investment and BDS, it is not operating effectively. that are based on agriculture and forest; but timber-based and bio-energy industries are not included i n the list. an important program of the policy; forests allocated for leasehold from the government are not suitable for industrial purpose due to remoteness and tenure conflicts. FITTA and BOI emphasize only on technology FITTA There is a lack of clarity on the role agencies Facilities and Concessions: Investors are Settlement of Disputes: provisions for settlement One objective of the policy is to promote micro The policy gives first priority for the industries Leasehold forest for forest-based industries is

• • • • • • • Industry and Trade Related (Industrial Policy, 2010; Industrial Enterprises Act, 1992; Trade Policy, 2009; Private Firm Registration Act, 1956; Company 1956; Act, Registration Firm Private 2009; Policy, Trade 1992; Act, Enterprises Industrial 2010; Policy, (Industrial Related Trade and Industry Act, 2006; Act, Customs 2007; Competition Promotion and Market Act, Protection 2007; Patent, Act, Design 1965; and Act, Copyrights Trademark Act, 1956 and its amendment 2006) 2002; Import Export (Control)

198 Private Sector Involvement and Investment in Nepal’s Forestry Sector ANNEXES one product to mainstreaming it in the other relevant policies, such as local governance and environmental regulations. include timber-based, bioenergy and export oriented forest-based industries in the list. leasehold and remove contradiction between local legislative provisions of industries, forestry, government and environment. the promotion of private investment in farming and forestry. Act to make a legal provision of Enterprise providing registration service from one agency. information system between custom and concern agencies to regulate, exchange and facilitate the documentation procedures for export promotion. prioritized products for export, such as wood handicrafts. India and other countries. establish and operate SEZ. Review the existing practices of one village- Revise the priority list of industrial policy to Harmonize the policy and legal provisions on Establish special section under the ministry for Act and Industrial Amend the Company Develop a transparent and web-based Rationalize export duties by reducing it for Include this agenda in the trade negotiations with Enact special legislation and procedures to

• • • • • • • • • village one product and many are unable to do business due to lack of BDS providers at local level. have to bear additional transaction costs barriers) in (tax, customs and non-tariff comparison to the listed subsectors. suitable leasehold forest as per their requirement. in forest-based industries and the potential remain untapped. charges and more time for registration. resources to generate documents for completing export formalities for Nepalese forest-based products. Nepalese products and reduced the demand at international level. the production of these goods, but many are losing their investment due to export barriers. or operate established businesses efficiently meeting the international business standards. The transaction cost is very high for the one and bio-energy industries Timber-based The private sectors are not able to access No promotion of investment opportunities Investors have to bear relatively high Exporters have to invest lots of time and The high export duty increased the cost of Entrepreneurs are encouraged to invest in Investors are not able to establish business

• • • • • • • • • Board is established for the mega project and there is no institution to promote private investment in forestry sector. agencies if it does multiple functions, such as production and trade. licensing for export and simplifying tax, customs duty and charges as well certificate of origin, which are still complex procedures for export due to additional requirements for forest products and weak coordination among agencies. given emphasis on export promotion of handicraft goods, but the export duty is high (200%), which at par with other timber products. special emphasis for the export promotion of herbs and essential oils, handmade paper The herbs products and wooden craft products. export procedure is complex due to tax, quarantine and transportation rules of importing countries including India. and export promotion is a major program of Due to legal contradiction over the trade policy. ownership of SEZ and the lack investment, it is yet be operationalized. Institutions for BDS support: Investment Promotion An enterprise needs to get registered at multiple The major supporting areas of the policies are Under commodity development program it has Area Development program has given Thrust Establishment of Special Economic Zones (SEZ)

Trade Policy, 2009; Customs Act, 2007 Act, Customs 2009; Policy, Trade • • • • • •

Private Sector Involvement and Investment in Nepal’s Forestry Sector 199 ANNEXES information system between custom and concern agencies to regulate, exchange and facilitate the documentation procedures for export promotion. prioritized products for export, such aswood handicrafts. India and other countries. establish and operate SEZ. and Small Industry for the registration of a company in the district. industries or amend in the act accordingly. collective brand of Nepalese NTFPs/MAPs. the forest products, which are not relevant to Annex-2. from this list and include in impose VAT, cooperatives to empower them through training. the Kattha and reduce excise in wild fruits/MAPs based wine products. Develop a transparent and web-based Rationalize export duties by reducing it for Include this agenda in the trade negotiations with Enact special legislation and procedures to Provide authority to the District Office of Cottage Develop fair competition policy for forest based Amend the existing laws on IPR to recognize Annex-6 of Forest Regulation to remove Review Provide continuity and inform to all forest-based Inform and empower through extension program. Make periodic review to rationalize excise duty on

• • • • • • • • • • • lack this facility, bear the additional burden lack this facility, for registration and renewal. fair competition between private investors to collect forest products as a raw material. trademark. this sector to reduce their transaction costs. But some of the potential NTFPs are not commercialized due to these costs, as Annex-6. are included in cooperative. relatively high excise duty. Potential entrepreneurs in the districts, which It has created practical difficulties to maintain Small entrepreneurs are not able to develop These provisions support private investors in It is an important opportunity for investor in It is also an opportunity for private investor. Kattha production is less attractive due to

• • • • • • • Act 2006 has internalized a simplified online procedure for the registration and operation The decentralized procedure to of companies. register company is yet to be operationalized in all districts. products. forest including materials raw of trade the There is no provision to establish a IPR in Nepal. collective trademark, which would be more suitable for Nepalese NTFPs/MAPs. and firewood, equipments related to bio-energy, is still local production of cottage industries; VAT levied in harvesting and trade of timber Khair/ Kattha and the other forest products, which are Annex-6 of Forest Regulation 1995. included in the marketing of forest products which are produced by forest-based cooperatives. farming and in land registration for NTFP processing. products of Kattha, the wine produced from wild fruits, and the wine mixed with extraction of NTFPs/MAPs. Private Firm Registration Act 1956 and Company Private Firm Registration Provisions of competition law are not applicable for Private sector can register their innovation as an on NTFPs and its extraction, Act exempts VAT VAT Income tax exempted in the production and Act 2013/014 has provided tax exemption Financial Act 2001 impose excise duty in the Excise

Competition Promotion and Market Protection Act, Act, Protection and Market Promotion Competition 2007 2001 Act, Tax Income 2001 Act, Excise Company Act, 2006 Act, Company • • • Fiscal (ValueAdded Act, Tax 1995; IncomeAct, Tax 2001; and ExciseAct, 2001) 1995 Act, Tax Added Value • • • •

200 Private Sector Involvement and Investment in Nepal’s Forestry Sector ANNEXES Enhance the role of Environmental Protection Council Council Protection Environmental of role the Enhance system forestry community harmonize to Support and prices in a regular basis based on scientific royalty criteria; can follow the example of NTFP revision in 2009. policy with labour law and address issues. EPA/ of provisions the between consistency maintain to agencies. various of decisions contradictory and EPR this remove and standards legality environmental with EPR. revising by them for requirement commercial policies to facilitate licensing system for timber trade. business cycles of forestry enterprises. of timber from all types forest for commercial purpose to sale in the market for consumers. for sustainable production of forest resources with the strong governance and safeguards mechanism. Support to improve the system of fixing royalties Harmonize the no pay for work principle of Harmonize forestry policies and industrial/ Develop stable timber policy that matches the Make provision to allocate certain percentage Make provisions to provide leasehold forests

• • • • • • • •

these products by private sectors, which sometimes is negatively impacting ecological sustainability and social benefits. required to take approval/permission from various ministries and departments during process due to weak inter- the IEE/EIA ministerial coordination. additional costs for proving the compliance, most of which they already meet. increases and corruption, for room creates costs. transaction investors. transaction increases and constitution of policy costs. their per as forest leasehold suitable the with mismatch to due requirement tenure leasehold; for land forest allocated investor. the for risks increased has conflicts There is over or under utilization of It contradicts with labour law of Nepal. Unnecessary time and resources are Forest producer groups have to bear agencies, the to power discretionary provides It for risks increases and uncertainty creates It economic liberal the with contradicts This access to able not are sectors private The

• • • • • • • •

timber, herbs and NTFPs is not rational the timber, present rates given in these annexes do not reflect the market, environmental and social values of forest products. pay for no-work principle. to implement the proposals listed in EPR The practices of IEE/ require carrying out IEE/EIA. are more centralized and time resource EIA The diverse perception, interpretation consuming. and understanding over the procedures in Nepal is creating practices of IEE/EIA particularly complexities to the private sector, during the establishment of enterprise and collection and processing of forest products. for timber trade and needs to involve in auction process to get timber from all type of forest, but the licensing system is not well defined in any law and there is a lack of linkage between forest policies and commercial laws to manage licensing system. incidences and ban on timber harvest. The current system of fixing price and royalty The Industrial Policy 2010 has recognized the no Any private sector or agencies that are interested The private sector requires obtaining license Frequently changing policies driven by ad hoc

Annex 2, 3 and 6 of Forest Regulation 1995 1995 Regulation Forest of 6 and 3 2, Annex • • Environment and Biodiversity Related (Environmental ProtectionAct, 1997 (EPA); Environmental Protection• Regulation, 1997 (EPR); …) 2000; Directives, Sales and Collection (Timber/firewood) Product Forest 1995; Regulation, Forest 1993; Act, (Forest Specific Timber 1992) Regulation, Management Zone Buffer 2011; Directives, Management Forest Collaborative 2003; Directives, Procedure Auction Product Forest 1995 Regulation, Forest and 1993 Act, Forest • • Labour Related (Labour Act, 1992; Foreign Employment Act, 1985; and Trade Union Act, 1992) Union Act, 1985; and Trade Act, 1992; Foreign Employment Labour Related (Labour

Private Sector Involvement and Investment in Nepal’s Forestry Sector 201 ANNEXES developing separate guidelines to utilize the forest products of private land and remove on harvesting and trade the provision of VAT of timber form private forest. forest products based on science, market and consumer rights. private sector as the recipient of forest products in equal footing with other priority TCN. recipients, such as support to CFUGs in adopting e-bidding system. mark system to facilitate forest products to remove unnecessary hassles along the transportation route. Forest Stewardship Council (FSC), for wood, some NTFPs, and ecosystem services. Remove all impracticable procedures by Develop criteria to set price and royalty for Develop policy provisions that designate Widen the use of e-bidding system and implement the seal- Develop and effectively Adopt international forestry standards e.g.

• • • • • • return, bear high transaction costs; as a result it has also increased the uncertainty on supply of timber from private forests impacting the timber value chain. and market price of timber created a negative image and increased risks for timber traders. uncertainty in volume of supply for private sector. and the fair traders are depriving to obtain timber products for the industrial processing. demoralized the reputation of private investors. and brand for Nepali timber products. Private growers are uncertain for the The huge gap between stumpage value It has increased the transaction costs and It is creating threats to the private sector It has increased the transaction costs and Lost opportunity of creating good image

• • • • • • sale their surplus timber to the private sector for commercial purpose through auction system after fulfilling the demand of member CFUGs, neighbouring local bodies and district where CF is located. in lease for commercial production of forest products and industry development; most of the allocated forestlands for leasehold are either not feasible for commercial production (due to remote location) or located in tenure conflict land. their timber to the private sector by following legal procedure defined in forest legislation; the procedures imposed to the private forest owner and other agencies contradict with form CIAA the rights to property and legal provisions of forest legislation. annex-2 of Forest Regulation 1995, which does not reflect the science-based policy-making process. discriminations between private sector, TCN and semi-governmental agencies to provide timber for commercial propose from government managed forest; but in practice the agencies are providing around 50% timber TCN without competition with private to the sector. in various sectors, but the forestry sector agencies and CFUGs are still applying the traditional type of biding Community-based forest users groups can The private sector can access forest areas Private land owners have legal rights to sale The minimum price of log timber is fixed in Legally there is no provisions for The government has adopted e-biding system

• • • • • •

202 Private Sector Involvement and Investment in Nepal’s Forestry Sector ANNEXES window system to provide to system window inter-ministerial agencies, private sector and CFUGs to maintain regularity for the supply of raw material. subsector. provision on it in the forest legislation or special legislation on NTFPs/MAPs. such documents easily to export NTFPs and associated products. provision on IEE/EIA. require cancelling all contradictory decisions of CIAA, MFSC, and Develop a coordinating mechanism between Develop special legislation on NTFPs/MAPs and make Define the term ‘processing’ one Operationalize Revise the annexes of EPR to make realistic and Follow the provision of EPR for IEE/EIA

• • • • • • for forest-based enterprises and looses the trust and credibility in supply of products to the market. transaction costs. agencies, which may interpret it as per their interest creating uncertainty to obtain the document to export such products. exporters are compelled to follow a complex and lengthy process to obtain these documents. of NTFPs/MAPs are low which not practical and it has It creates the scarcity of raw materials It has created confusion and increased It increases the discretionary power of NTFPs and NTFP-based products The thresholds of quantity collection

• • • • • check post has authority to checkdocuments relevant particularly release thisorder, power but is misusing to take benefitsunnecessary from the private sector. standards for sustainable forest management and business operations for promoting green and fair value chains. NTFPs to the private sector; but there are lots of conflicts between them due to lack institutional mechanism for the collaboration among agencies, communities and private sector. comprehensive laws on NTFPs to address the issues such as royalty system and custom requirements; but due to lack of special legislation on NTFPs/MAPs, more than 10 legislative instruments that contradict between each other regulate this subsector. processing; there is a lack of During the transportation of timber the There is no any explicit policy for adopting The government and CFUGs can sell has recommended enacting HNDP Few species are banned to export without giving room for illegal groups with the political protection to influence.

HNDP; Forest Regulation, 1995 Act, 1957 Import and Export (Control) • • • • • system for the sale of forest products, which is NTFPs/MAPs Specifics (Herbs and NTFPs Development Policy, 2004 (HNDP); Import and Export (Control) Act, 1957; PlantNational Protection Act, 2007; Park and Wildlife Conservation Act, 1995; 1973 Environment Protection Act, 1997 and (EPA); Environment Protection associated Regulation, 1997 (EPR); regulations; Local Self-Governance Act, Cooperative 1999 (LSGA); Local Act, Self Governance 1992; Regulation, 2000 Forest (LSGR); Act, Resin Collection 1993; (Procedure) Directives, Forest 2007; notifications Regulation, NTFP Inventory Guideline, 2012 and various gazette

Private Sector Involvement and Investment in Nepal’s Forestry Sector 203 ANNEXES contradictions and confusion in this regard. by amending LSGA related regulations. by amending LSGA energy policy, which is being developedunder the leadership of Ministry of Energy. incentive for both the private userssector of and bio-energy. Eliminate double taxation and impractical tax Internalize this concept in the draft bio- Develop infrastructures and provide

Industrial Promotion Boards to remove • • • discretion, creates uncertainty and risks, and increases transaction costs. in many instances and increases the transaction costs. The confusion provides room for Imposition of double taxation is irrational to lack of infrastructure; and the potential potential the and infrastructure; of lack to untapped. remained The potential is not explored and untapped. untapped. and explored not is potential due The sector private the to attractive not is It untapped. remained opportunity lost The untapped. remained potential The

motivated illegal collection. • • • • • • are necessary during the export of NTFPs/ MAPs and associated products; but due to procedural complexity and jurisdictional contradiction between FNCCI and Chamber of Commerce making the practice complex and lengthy. NTFPs/MAPs is require as per the provision of EPR. within 1 KM distance of forest areas; and (3-5 the contradictory decisions of CIAA KM), MFSC (2-3 Industrial Promotion Board (2-3 KM) and EPR (1 are creating confusion. r to establish forest-based enterprise. rights over forest products, which includes the collection of tax from NTFPs/MAPs trading. guaranteed the right to clean environmentas a fundamental right of people.to beIt operationalizedhas yet through policylegislations. and emphasis on research, development and contradictory definitions in various gazette notifications. Quarantine certificate and letter of origin report to collect Preparation of IEE/EIA EPR has banned to establish enterprise has given authority to DDC on resource LSGA Interim Constitution of Nepal 2007 has Rural Energy Policy 2006 has given

EPA and EPR EPA LSGA/LSGR clear definition of processing with some Act, 2007 Plant Protection • • • • • • Forest Bioenergy Specifics (Rural Energy Policy, 2006; Subsidy Policy for Renewable Energy, 2013; Climate Change Policy, 2011; National Adaptation National 2011; Policy, Change Climate 2013; Energy, Renewable for Policy Subsidy 2006; Policy, Energy (Rural Specifics Bioenergy Forest Action 2010 (NAPA)) Program of

204 Private Sector Involvement and Investment in Nepal’s Forestry Sector ANNEXES on bio-energy and make clarity privatethe role sector of involvement in this sector. for bio-energy promotion at districtnational and level. and intuitional mechanism to promoteecosystem services. and harmonize the provisions toprivate attract sector investment in ES business. on forest ecosystem services, includingcarbon. Develop special legislation and procedures Establish a coordinating mechanism Develop a specific policy, legislation Revise the policy/legal provision on ES Clarify and resolve issues related to rights

• • • • • remained less attractive to thesector. private invest in PES due to uncertainty. There is no promotion and this The private sector is not interested to It has created risk and uncertainty.

• • • 2013 has made provision for subsidybio-energy for in rural areas and hasgiven also emphasized the involvementprivate of sector as service provider;to lack but of due special legislation iton isbio-energy, not mainstreamed in all relevantsectors. Act VAT have also made some provisionsto promote bio-energy through variousprovisions; but due to lack of amongharmony the laws and weak coordination,the responsible agencies are notaccountable fully to promote bio-energy. for the involvement of private sector in eco-tourism promotion; but there is a lack of specific policy and institutional mechanism. emphasis on collection of service charges form ecosystem service users; but there are conflicting provisions on the ownership over the benefit arising from PES in wetland. Subsidy Policy for Renewable Energy, EPR, LSGA, Indusial EnterpriseAct and policy has made special provision Tourism Policy 2012 has given National Wetland There is no clarity on forest carbon rights. is a lack of infrastructure in rural areas for this purpose.

biotechnology through private sector; but there • • • • • Ecosystem Services Specific (Tourism Policy, 2009; National Wetland Policy 2012)

Private Sector Involvement and Investment in Nepal’s Forestry Sector 205 ANNEXES provisions. Inform and support to enforce the policy on CITES at local level for collectors and entrepreneurs; enact CITES act at domestic harvesting. level to make clarity on NTFP regulation. stakeholders Raise awareness and provide training Formulate timber-based product export Raise awareness at all level and within Enact access and benefit sharing act.

• • • • •

change in forestry policies, bankshesitant are to invest in forestrybusinesses. sector collectors are facing administrative complexity and some of them are sued against violation of CITES predominantly due to lack of legal awareness on CITES. their business. increased risk and transaction costs. private sector. Due to risk associated with frequent Private investors including NTFP/MAP The private sector is not able to expand It has created resource conflict and It has created risks and uncertainty for the

• • • • •

and the development of prioritized sectors,industrial such as agriculture and forestry. export of CITES listed species are required to obtain permission from Department of Plant Resources as the scientific authority and Department of Forest as a management authority. allowed to ban timber import. It can however impose ban on timber export. In practice, Nepal has banned export of certain timber species ( Shorea robusta, Dalbergia latifollia, Pterocarpus marsupium, Juglans regia Wild sisoun). successfully incorporates indigenous people’s voice in resource management; but there is a lack of consistency in understanding between IPs, government agencies and private sector about the provision. There are provisions to mobilize loan for Entrepreneurs interested in trading and Nepal is not As a consuming country, Action Plan (NAP-169) of ILO 169 National

International Tropical Timber Agreement Agreement Timber Tropical International Indigenous and Tribal Peoples (ILO 169) Convention • CITES: Convention on International Trade in Endangered Species of Wild Fauna and Flora, 1973 • • • Banking Related (Monitory Policy, 2012 and Bank and Financial InstitutionAct, International Treaties andAgreements

206 Private Sector Involvement and Investment in Nepal’s Forestry Sector ANNEXES between forestry sector and industrial with the involvement of relevant agencies and and stakeholders including FenFit, NEHHPA FECOFUN. address supply constraints. Develop a joint monitoring mechanism Support to improve law enforcement

• • for the monitoring and also raises conflicts, which ultimately impacts the private investment. It creates the jurisdictional overlaps

•

resources and benefit sharing highly recognizes the role of private sector for this implemented purpose; but it is not effectively due to the lack of legislation. sector and industrial are led by different agencies of the government (Regional Office in the forestry sector and Department of Industry in the private sector) and there is no any functional relation between these agencies. CBD has given emphasis on access to genetic The existing monitoring mechanism of forestry

United United Nations (CBD) 1992 Convention Diversity on • Biological • Monitoring and laws enforcement mechanisms

Private Sector Involvement and Investment in Nepal’s Forestry Sector 207 ANNEXES

Annex D: Individuals and Institutions Consulted for the Study

D-1:List of international leading sustainable forest product/services industry representatives

Subsector SN Institutions/Industry Forest Stewardship Council (FSC) 1 http://www.fsc.org International Wood Products Association (IWPA) 2 Timber http://www.iwpawood.org/

3 Woods and Style, a custom woodwork company, Gaithersburg, Maryland 4 International Forests Products LLC 5 Wood Product Manufacturers Association (WPMA) http://www.wpma.org/ 6 Aveda 7 Howard Packaging NTFPs 8 Julien Chupin (Natural Products and Essential Oils Expert, Birdio) 9 Natural Products Expo East (multiple firms interviewed at Expo) 10 Commercialisation of Non-timber Forest Products – A Reality Check 11 DASCO 12 Climate Care 13 South Pole PES 14 BioClimate and Plan Vivo 15 WildlifeWorks Carbon 16 Asia REDD Working Group (ARWG) IFC Private Sector Development and Financial Access Advisor – Jeff 17 Dickenson Forest 18 Renewable Energy World www.renewableenergyworld.com Bioenergy 19 Biofuels Digest http://www.biofuelsdigest.com/bdigest/?s=ceres 20 International Forest Products LLC.

208 Private Sector Involvement and Investment in Nepal’s Forestry Sector ANNEXES

D-2:List of experts consulted 47. Durga B. Karki, DFO, Gorkha 1. Bikash Paudel, Baglung CCI, Baglung 48. Narayan R Panta, CSIDB, Gorkha 2. Nagendra Nepal, CSIDB, Baglung 49. Bhagat Babu Joshi, CCI, Gorkha 3. Ram Sharan B.K., MEDEP, Baglung 50. Shyam Babu Kattel, FECOFUN, Gorkha 4. Nir B. B.K., LiBird, Baglung 51. Ramhari Subedi, Gorkha Ayurved, Gorkha 5. Mani Bhadra Sharma, BYC, Baglung 52. Rajendra Kafle, DFO, Illam 6. Dinesh Panta, FECOFUN, Baglung 53. Sunil Acharya , CSIDB, Illam 7. Tirtha Raj Joshi, DFO, Banke 54. Narendra K. Khadka, NGTPA, Jhapa 8. Sunil K. Sharma, Banke CCI, Banke 55. Indra C. Bindal, Alainchi B. Sangh, Jhapa 9. Bikram B. Nepali, CSIDB, Banke 56. Nirmal Bhndari, Alainchi B. Sangh, Jhapa 10. Durpada Sharma, FECOFUN, Banke 57. Ganesh P. Subedi, Alainchi B. Sangh, Jhapa 11. Rabindra N. Shukla, JABAN, Banke 58. Om Krishna Bimali, Alainchi B. Sangh, Jhapa 12. Pradip Shah, FenFIT, Banke 59. Hari P. Mitra, Alainchi B. Sangh, Jhapa 13. Raju Ghimire, Banke National Park, Banke 60. Bhakti P. Gautam, Ratuwamai FPB, Jhapa 14. Maan B. Khadka, DFO, Bara 61. Devendra Upreti, DFO, Jhapa 15. Rajendra Koirala, CSIDB, Bara 62. Bhisma Raj Kharel, Plywood Company, Jhapa 16. Binod Saha, Bara CCI, Bara 63. Eak Raj Karki, Veneer Association, Jhapa 17. Shurbir Pokhrel, FECOFUN, Chitwan 64. Tilak Prashad Giri, FenFIT, Jhapa 18. Baburam B.K., Seed Tree, Chitwan 65. Rajendra MS Bhandari, DFO, Kailali 19. Indra Sapkota, DFO, Chitwan 66. Karna Kuwar, CCI, Kailali 20. Shiva Datta Bhattarai, CSIDB, Chitwan 67. Tulasi Devkota, FECOFUN, Kailali 21. Kamal Jung Kunwar, Chitwan National Park 68. Lal Narayan Singh, DFO, Kanchanpur 22. Till C. Bhattarai, CCI, Chitwan 69. Ganesh Dutta Joshi, Kanchanpur CCI 23. Binod Devkota, DFO, Dadeldhura 70. Binay K. Jha, Shuklaphanta Wildlife Reserve 24. Madhav P. Subedi, CSIDB, Dadeldhura 71. Gayatri Acharya, FECOFUN, Kanchanpur 25. Prakash B. Saud, Dadeldhura CCI, Dadeldhura 72. Bhupendra Giri, Furniture Association, Kaski 26. C. D. Bohora, FECOFUN, Dadeldhura 73. Dibhakar Pathak, DFO, Kaski 27. Dadhi Lal Kandel, DFO, Dailekh 74. Rajan Pokhrel, Regional Director, Kaski 28. Shanti P. Sharma, Dailekh CCI, Dailekh 75. Hari Sharma Gaire, HAN, Kaski 29. Rameshwor Kafle, CSIDB, Dailekh 76. Ramji Bhandari, TAN, Kaski 30. Prem K. Buda, FECOFUN, Dailekh 77. Kedarnath Sharma, NTTA, Kaski 31. Arun Sharma Poudel, DFO, Dang 78. Ramit Devkota, Pokhara Tourism Council 32. Madhu Sudan Vaidya, Dang CCI, Dang 79. Ashok Subedi, ACAP, Kaski 33. Hari Dutta Pandey, CSIDB, Dang 80. Top B. Thapa, Pokhara CCI, Kaski 34. Shovakar Sapkota, FECOFUN, Dang 81. Netra P. Bhattarai, CSIDB, Kaski 35. Thakur P. Magrati, DSCO, Dang 82. Sushila Nepali, BCN, Kathmandu 36. Harish C. Rai, MSCFP, Dhankuta 83. Gopal Sharma, Briquette Producers Association, 37. Lal C. Gongba, Dhankuta CCI, Dhankuta Kathmandu 38. Anand Bhandari, DFO, Dhankuta 84. Katim P. Adhikari, FenFIT, Kathmandu 39. Nitesh K. Yadav, CSIDB, Dhankuta 85. Suraj Vaidya, FNCCI, Kathmandu 40. Gopal P. Sharma, CSIDB, Dhankuta 86. Manoj Upreti, FPB, Kathmandu 41. Shiva Angla, FECOFUN, Dhankuta 87. Saraswati Rai, HBTL, Kathmandu 42. Anata Ghimire, RRN, Dhankuta 88. Hem Ratna Shakya, HAN, Kathmandu 43. Jay Mangal P. Gupta, DFO, Doti 89. Hima Chapagain, HPPCL, Kathmandu 44. Gopal Pokhrel, CSIDB, Doti 90. Krishna P. Acharya, Melamchi Drinking Water 45. Nrendra B. Khadka, Doti CCI, Doti Project, Kathmandu 46. Krishna Malashi, FECOFUN, Doti 91. Govinda Ghimire, NEHHPA, Kathmandu

Private Sector Involvement and Investment in Nepal’s Forestry Sector 209 ANNEXES

92. Suman Shakya, One-Planet Solutions, KTM 122. Krishna K. Shrestha, CCI, Rupendehi 93. Arbinda Shrestha, Sanima Hydropower, KTM 123. Ramesh Bhattrai, CCI, Sankhuwasabha 94. Mahendra S. Thapa, TAAN, Kathmandu 124. Pursotam Kafle , CSIDB, Sankhuwasabha 95. Krishna C. Poudel, WECS, Kathmandu 125. Sudheer K. Koirala, DFO, Sankhuwasabha 96. Shiva Raj Bhatta, WWF, Kathmandu 126. Rishi Ranabhat, MBNP, Sankhuwasabha 97. Govinda Raj Pokhrel, AEPC, Lalitpur 127. Ramprit Maurya, DFO, Sarlahi 98. Balaram Shrestha, BSP-Nepal, Lalitpur 128. Madhu K. Saha, CSIDB, Sarlahi 99. Ganesh Ram Shrestha, CRT, Nepal, Lalitpur 129. Prakash K. Upadhaya, CCI, Sarlahi 100. Binod Chaudhary, Chaudhary Grps, Lalitpur 130. Hem Aryal, Sagarnath Forest Dev. Project 101. Sushil Gyawali, Himalayan Naturals, Lalitpur 131. Indra B. Parchhaie, DFO, Sindhupalchowk 102. Yam Malla, IUCN, Lalitpur 132. Shankar Raj Jha, CSIDB, Sindhupalchowk 103. Loknath Ghimire, Biogas Promotion 133. Rajendra Shrestha, CCI Sindhupalchowk Association, Lalitpur 134. Lub Kumar K.C., FENFIT, Siraha 104. Surendra Joshi, SNV, Lalitpur 135. Sanjaya K. Mahaseth, Siraha CCI, Siraha 105. Shree P. Baral, DFO, Morang 136. Satya N. Mahato, Siraha CCI, Siraha 106. Mohan Koirala, ERFD, Morang 137. Mahi Narayan Shah, CSIDB, Siraha 107. Mukti Nath Das, FenFIT, Morang 138. Hiralal P. Kushwaha, DFO, Siraha 108. Sitaram Agrawal, FenFIT, Morang 139. Rajesh Shretha, CCI, Dharan, Sunsari 109. Deepak Thapa, TCN, Morang 140. Raj Bahadur Rawat, DFO, Sunsari 110. Dhananjay Paudel, DFO, Nawalparasi 141. Ramesh Basnet, FECOFUN, Sunsari 111. Shridhar Panthi, CSIDB, Nawalparasi 142. Ram P. Lama, FenFIT, Sunsari 112. Baidhnath Jaishwal, CCI, Nawalparasi 143. B Bohora, HPPCL Tarahara Farm, Sunsari 113. Krishna P. Gyawali, DFO, Palpa 144. Shabhu P. Chaurashiya, DFO, Surkhet 114. Singha B. Thapa, FECOFUN, Palpa 145. Padam B. Shahi, Surkhet CCI, Surkhet 115. C. P. Devkota, CSIDB, Palpa 146. Shaligram Ghimire, CSIDB, Surkhet 116. Dhan Maya Ojha, MEDEP, Parbat 147. C. P. Thani, FECOFUN, Surkhet 117. Bindu Mishra, DFO, Parsa 148. RN Chaudhary, FenFIT, Udayapur 118. Bimal P. Baral, CSIDB, Parsa 149. Brahamadev Mandal, CSIDB, Udayapur 119. Ghanashyam Mahat, FECOFUN, Parsa 150. Kishore C. Gautam, DFO, Udayapur 120. Deepak Gyawali, DFO, Rupendehi 151. Narayan Burja Magar, FECOFUN, Udayapur 121. Laxmi P. Adhikari, CSIDB, Rupendehi

D-3:List of entrepreneurs interacted for the study 15. Hemanta Kunwar, Kailali 1. Arjun Aryal, Gorkha 16. Hom Hutung, Nawalparasi 2. Bal B.Gurung, Dadheldhura 17. Jabahalal Chaudhary, Parsa 3. Brij Bhushwan Singh, Surkhet 18. Jabish Gohlyan, Kathmandu 4. Chhabi Lal Adhikari, Rupendehi 19. Jagadishwor Shrestha, Sindhupalchowk 5. Damar B. Gurung, Narayangadh 20. Jash Maya Pun, Parbat 6. Deu K. Rai, Ilam 21. Jit B. Chhetri, Palpa 7. Dev Shrestha, Sindhupalchowk 22. K.B. Gurung, Tanahun 8. Durpada Sharma, Banke 23. K.P Sapkota, Palpa 9. Ek Raj Karki, Jhapa 24. Kamal Jang Kunwar, Narayangadh 10. Ganesh Datta Joshi, Kanchanpur 25. Kamal P, Gorkha 11. Gopal Pokhrel, Banke 26. Lal B. Khadka, Doti 12. Gopal Tulsyan, Jhapa 27. Laxmi Datta Panta, Parsa 13. Hareram Mandal, Bara 28. Lok Nath Pathak, Kathmandu 14. Hari Thapa, Surkhet 29. Madan Nath, Dadeldhura

210 Private Sector Involvement and Investment in Nepal’s Forestry Sector ANNEXES

30. Madhav Ghimire, Palpa 40. Rajan K. Salju, Baglung 31. Madhav Pathak, Sunsari 41. Rajesh Karki, Udayapur 32. Moti Raj Gyawali, Rupendehi 42. Ram P. Panta, Rupendehi 33. Nanda P. Sharma, Dailekh 43. Rolak Thapa, Gorkha 34. Narayan Timilsina, Palpa 44. Shyam Jaishwal, Rupendehi 35. Narayndra B. Khadka, Doti 45. Sudip Pariyar, Gorkha 36. Padam Raj Pandey, Kanchanpur 46. Sushil Gyawali, Kathmandu 37. Pramod K. Jalan, Banke 47. Usha Shrestha, Palpa 38. Rabin Kadariya, Bardiya 48. Yam B. Bhujel, Baglung 39. Raghu Jalan, Dang

D-4:List of surveyed individuals Baglung Kesh kumari bhandari Manoj Gupta Arjun Chokhal Krishna B. Thapa Mohan singh Sharki Chandra B. Chhetri Lal B. Rana Naresh B. Mahara Dil B. BK Laxmi Chhaudhari Nirajan Karki Dil B. Chhetri Mahesh shaha Padam Bhatta Himal Sharma Nar B. khadka Prakash Bohara Homnath Sapkota Phatey B. B.k Raj Paneru Jhapan Shirish Rohit man Shrestha Raju Bhatta Jivan Acharya Shikandar haluwai Ram B. dhami Kamal Jaishi ChitwanArjun B.K. Shailendra Mahara Kamal Khadka Bharat Pd. Dhungana Surendra khadka Karna B. BK Chitra B. Thapa Tula Ram Bohara Karna B. Bohora Dammar B.Gurung Yandra Dev Bohara Khagendra chhetri Deepak K. Shrestha Kul B. Bk Jay B. Gongwa Dailekh Lalita Thapa Krishna Shrestha Amrit k. Neupane Laxman Poudel Lal Pratap Thapa Ari B. Rana Man B. Karki Lekh Bd. Thapa Bali Ram Thapa Min B. Kc Liladhar Sharma Bharat Khadka Prem B. GC Prachin Lal Shrestha Bikash Nepali Ravi P. Upadhya Ram K. Shrestha Bishnu Gauttam Rishiram Sharma Ruben Kharel Deepak Nepali Sher B. GC Sudan Shrestha Dev parsad kashai Sunil Lamichhane Sukmaya Bhujel Dinesh Shrestha Thamman B. karki Surya B. Shrestha Ganga B. Budha Uma Bk DadeldhuraBal B. Grung Hari B. Thapa Yam B. GC Binod Bohara Janaki Khatrri Yam B. Bhujel Chhatra Saud Krishna hirijak Debendra Dhami Krishna Thapa Banke Jay B. deuba Lal B. Damai Abhimannau P. Gupta Laxman Badi Man Bahadur Khadka Bal Chharan Chhaudhary Lok Raj Sharma Nanda B. K.C Bashu Basnet Lokendra kunwar Nim B. Thapa Damodar Gauttam Mahadev Tamata Prabha B.K Karna B. Khadka Man B. Karki Prem B. Baral

Private Sector Involvement and Investment in Nepal’s Forestry Sector 211 ANNEXES

Ram B. K Binod Khadka Nabin Parajuli Rupak kumar shahi Dhan B. Ayer Narayan Gurung Tej B. Budha Dhirendra singh Pasang Sherpa Topendra dhoj hamal Ganesh B. Singh Pradeep Bista Ganesh Bom Purna Maya Adhikari Dang Ghanshyam Thami Rajendra Chauhan Arjun K.C. Harka Bista Raju Parajuli Bashudev Chaudhary Jogi Shing Kunwar Ram P Dahal Belmati B.K Karay Mahara Santa Pradhan Birkha B. Nepali Khadga Mahara Tanka B. Rai Chhabilal Bhushal Khem Raj Bhandari Tika Khatiwada Dilshara gharti Laxman Kami Gyan B. Gharti Mahadev Awasti Jhapa Hiralal Bista Man B. Dhami Arjun Karki Kaman Chhaudhary Naba raj shrestha Bangalal rajbanshi Lekh B K.C.Nim B. Thapa Nanda Singh Ayer Bharat Basnet Parbat Subedi Ram B. Bogati Bhismaraj Kharel Rajeev Sharma Sankar Nepali Bir Bahadur Rai Ram payri Chhaudhary Sharbajeet Baral Deepak Timilsina Rama kali Nepali Shushil Thapa Dipendra Kharel Ramu Chaudhary Ekraj Karki Rim B. Karki Gorkha Gopal Kumar Tulshayan Rima Kunwar Amal B. Gurung Khagendra Prasad Lohani Sadhana GurungShanta Gyawali Arjun Aryal Parsuram Giri Shree Ram Chaudhary Babu Kaji samel Ratan Niraula Sushila sharma Bhagirath Khatri Tilak Prasad Giri Tankaman Poudel Bhimsen Basnet Dammar B. Karki Jumla Dhankutta Dil B. Thapa Battuli Bohara Bhim B. Rai Jang B. Gurung Bhakta Bista Bhoj Bahadur B.k Khil B. Kunwar Brisha Nepali Chandra P RaiHim B.Magar Krishn Pd Dhakal Dal Bahadur Khadka Indra Saru magar Narayan Kunwor Damar singh Rawat Jal kumari Rai Pasanh Ningma Sherpa Dhanapati kami Janardhan Ghimire Ram Kaji Simal Dipendra prasad Uppadhaya Khagendra Kumar Bista Ramesh Raman Khanal Gorikala Sornakar Kumar DahalMahendra Shrestha Ramji Kulu Gorinandan Acharya Mimilan Kumar Khadgi Saroj Babu Kunwor Govinda Acharya Nil Rai Sharan Pandey Hari Datta Neupane Richa Rai Shiva Pd. Bhantana Jamkali kokaya Rohit Neupane Yam Bahadur Khatri Janga Budha Sajal Bit Board Udhyog Lauray Rawat Shreedhar Pokhrel Illam Mailna Sagi Tej Prasad Rai Bhakti Pd. Chapagain Mani Shankar Devkota Tek B LamaTika P. Ghimere Chandra B. Khatri Min Bahadur Dangi Dilip Rai Naray Kami Doti Dinesh Subedi Nawa raj Rawal Amir Gahatraj Garjaman Rai Nilo sharki Bharat Bohara Ghan B. Magar Purna shekhar Devkota

212 Private Sector Involvement and Investment in Nepal’s Forestry Sector ANNEXES

Purna singh Bohara Lal B. Pariyar Madan Pd.Badae Ram krishna Budthapa Nanda B. Tamang Ram Krishna Chhaulagai Raju Bhandari Nawalparashi Shihay Kunwar Rudra pd. Koirala Pradeep Kumar Shah Tapta raj Giri KathmanduAmar Kanta Lal Das Ramesh Acharya Bijayraj Ghimire Rishi Mohan regmi Kailali Bikal Thapa Shyam Rai Amar B. bam Bishnu pd. Neupanae Sita Baral Bimal Bam Dinesh Hamal Surendra P. Regmi Deepak poudel Gokul K. Gautam Surya Pokhrel Deepak raj bhatta Jana B. Rai Tej Raj Koirala Gokarna bhatta Jash Maya Pun Umalal Shah Hem prakesh malla Kedar Basnet Umesh Dhakal Jhaku parsad Bishowkarma Krishna Kandel Umesh Yadav Karna B. B.K Madan Lal Joshi PalpaDipnarayan Shrestha Kaushalya B.K Manjeev Shyakya Jit B. KC Lila dhar bista Narayan Khatiwada Khem B. Sharu Prakesh Bhatta Padam B. shrestha Krishna P. Shrestha Rahish Miya Rajan Subedi Nanda Kishwor Amatya Shetu Kumari Devi Chhaudhary Rajan Upreti Tek Bahadur Bohara Rajaram Paudel Parsa Ujjwol Datta Paneru Raju KC Aachhe Lal Mahato Ukkat Bikram Shahi Rakesh Agrawal Brij Nanda Singh Ram Baral Dishambar Raj Bhandari Kanchanpur Ramhari Subedi Krishna Dev Sharma Bir Bahadur Dhami Sameer Dhungel Megh Raj Hajara Bir B. Chand Shivahari Dhungana Om Prakash Sahun Dev jung thapa Shovit Pd. Upreti Permeshowr Thakur Dipendra shah Singha B. Barahi Ram Chandra Pd. Kurmi Gyan mani Shrestha Sudarshan Sigdel Ramananda Rawol Kurmi Hem raj Saw mill Sushil Gynawali Ramesh N. Manandhar Janak B. Bista Umesh Raj Siwakoti Janak Shahi Upendra Gopal Shrestha Ramechhap Kiran Rumal Vimal Thapa Ashali Maya Tamang Nar B.Bista Baburam Aryal Padam raj Pandey Morang Bhim B. Gautam Pratap singh Dhammi Achyut Ghimire Bishnu Bhattarai Ram bahadur chand Ashok Atal Chhabi Shyam raj Bhatta Bhagwati Dhakal Dawa Chirong Sherpa Tek bahadur rumal Bhim B. Bhujel Dependra KC Binod Saha Jagan Nath Gautam Kaski Bishnu Paudel Jit B. Pokharel Dharmendra adhikari Chanar Dev Sahani Keshav Raj Acharya Dil B. Ranamagar Chhetra Bd.Gurung Maharudra Giri Jit B. Karki Dinesh Subedi Man B. Thokar Khem B. Gurung Durga B.K. Pujan Shrestha Khil B. Rana Magar Hari Shankar Upadhya Purna B. Bista Kranti Raman Pokhrel Kapil Pd. Regmi Rajendra B. Chaudhary

Private Sector Involvement and Investment in Nepal’s Forestry Sector 213 ANNEXES

Ram B. Malla Jhalak Rokka Hum B. niraula Ram Chandra Panthi Kashinath Dahal Keshav shrestha Ramesh Nepal Ladar Bhote NilKanda Luital RupendehiSailung Lal B. Shrestha Nir B. Rai Agroforestry Maan B. Rokka Prakash timilsina Sarba B. Thapa Man B. Limbu Puja Katuwal Shiva Sarki Narma Shakya Purna B. Rai Tej Narayan Paudel Neetra parsad Adhikari Rakesh Goyal Sarlahi Prem B. Shakya Ram Kumari Rai Asharfi mahato Rajeev Shrestha Ram Prasad Lama Bikash Goyel Sashi K. Shakya Rama Mandal Dinesh thapa SindhupalchowkTek Salam Khan Laxmi prasad Gauttam B. Shrestha Setuman Tamanag Nageshwor ram yadev Tilak B. Shakya Pramod kumar Chaudhary Uddav Thapa Udayapur Prem B. Bhandari Yog Raj Dhakal Bharat B. Thapa Ram babu Mainali Chatra B. magar Ram Kebal Chaudhary Siraha Deepak Buda Chettri Ram Krishna Gajurel Babita Chaudhary Devimaya katuwal Sabita Jaishwal Baburam Majhi Durga B. Parajuli Saroj Kumar Jaishwal Dhuran Sharma Geeta Chaudhary Ujjur B. Basnet Dinesh Shah Krishna Sharma Gopi Bahadur Rawat Narayan karki Shankhuwashabha Harisharan Thakur Prem B. Rashkoti Bam B. Shrestha Jagadish Mahato Rabindra Rajakoti Bikash Shrestha Kedar Mainali Raj Kumar Shah Daak B. Shakya Ramdev Thakur Ramlal Tamanag Dammar B. Shrestha Samundra Yadav Shyam Lama Dev B. Shrestha Shah B. Kephchaki Magar Tej Narayan Sherpa Dil B. Shrestha Umakanta Shah Tek Bahadur Balampaki Fatte Lal Shrestha Yam B. Rai Govinda B. Thapa Sunsari Yog Raj Kark Haraj Lama Anil Dhakal Harka thapa magar Bhadbhanu Gurung Jagdeshwor Shrestha Ganga B. Rai

D-5:List of financial institutions surveyed for the study 1. Abhiyan Savings and Cooperatives Limited 11. Citizen International Bank Limited 2. Adarsha Sanchaye Cooperative Limited 12. City Development Bank 3. Arun Finance Limited 13. Clean Energy Development Bank Limited 4. Attarpur Savings and Cooperatives Limited 14. Community Savings and Cooperatives Limited 5. Bagmati Development Bank Limited 15. Cosmos Development Bank Limited 6. Bhairab Investment Company Private Limited 16. Dhaulagiri Community Resource Development 7. Birat Laxmi Bikas Bank Limited Centre 8. Capital Savings and Cooperatives Limited 17. Dhurbatara Savings and Cooperatives Limited 9. Century Commercial Bank Limited 18. Diprox Microfinance Development Bank Limited 10. Chandannath Multi Purpose Cooperatives Limited 19. Durga Savings and Cooperatives Limited

214 Private Sector Involvement and Investment in Nepal’s Forestry Sector ANNEXES

20. Everest Bank Limited 46. NIC Bank Limited 21. Gathebada Agriculture Cooperative Limited 47. Paschimanchal Grameen Bikas Bank Limited 22. Gaurisankar Development Bank Limited 48. Pioneer Savings and Cooperatives Limited 23. Hami Sabaiko Savings and Cooperatives Limited 49. Public Development Bank Limited 24. Hemja Savings and Cooperatives Limited 50. Rastriya Sahakari Bank 25. Himsikhar Ban Upabhokta Samiti Sahakari Limited 51. Sagarmatha Savings and Cooperatives Limited 26. International Development Bank Limited 52. Saptakoshi Development Bank Limited 27. Kabeli Bikas Bank Limited 53. Saral Savings and Cooperatives Limited 28. Kamana Savings and Cooperatives Limited 54. Shangrila Development Bank 29. Kanchan Development Bank Limited 55. Shri New Laliguras Savings and Cooperative Limited 30. Khusi Savings and Cooperatives Limited 56. Shri Sathi Savings and Cooperatives Limited 31. Kumari Bank Limited 57. Siddhartha Bank Limited 32. Mahakali Bikas Bank Limited 58. Sivam Savings and Cooperatives Limited 33. Mahila Laghu Bitta Bikas Kendra 59. Standard Chartered Bank Nepal Limited 34. Manaslu Bikas Bank Limited 60. Sulav Savings and Cooperatives Limited 35. Miteri Development Bank Limited 61. Sungava Savings and Cooperatives Limited 36. Nabil Bank Limited 62. Synergy Finance Limited 37. Namaste Savings and Cooperatives Limited 63. Tansen Savings and Cooperatives Limited 38. Namuna Multipurpose Savings Limited 64. Timrbrokot Cooperative Organization 39. Navayug Multi Purpose Cooperatives Limited 65. Tridev Savings and Cooperatives Limited 40. NCC Bank Limited 66. Triveni Bikas Bank 41. NDEP Development Bank 67. Vagarbh Bikas Bank Limited 42. Nepal Agriculture and Forest Cooperatives Limited 68. Yatayat Byabasahi Tatha Majdur Bahuudeshya 43. Nepal Bank Limited Sahakari Sanstha 44. Nepal Investment Bank Limited 69. Yeti Development Bank Limited 45. Nepal Rastra Bank

D-6:List of FGDs participants (Total 44 FGDs- 326 participants)

Baglung 17. Lal B. Rana, Trifala Churna Udhyog 1. Mani Bhadra Sharma, BYC 18. Karna B. Khadka, Bageshal NTFP Processing 10. Ganga Thapa, FECOFUN 19. Bashu Basnet, Veneer Udhyog 11. Rishi Ram Gautam, Lekhani Herbal Product 20. Mahesh Shah, S.S. Timber Suppliers 2. Arjun Chakhal, HMC 21. Krishna B. Thapa, Chandika Sawmill 3. Dil K. Thapa, DMEGA 22. Shikandar Haluwai, Ganesh Laxmi Veneer Plywood 4. Nir B. BK, LI-BIRD 5. Bikash Paudel, CCI Bara 6. Ram Sharan BK, MEDEP 23. Amit Thapa, Subash Kebal Network 7. Yam B. Bhujel, DMEGA 24. Lal B. Saha, Mahadev Furniture Udhyog 8. Jivan Acharya, Sambriddi Ag-Co-operative 25. Ramagya P, Lalita Sawmill 9. Prem Lamichhane, FECOFUN 26. Imran Iraki, Napal Steel & Furniture Udhyog 27. Manoj Saha, Mitthu Furniture Udhyog Banke 28. Shiva P. Yadav, Muna Furniture Udhyog 12. Bal Charan Chaudhary, Hariyali Yuwa Club 29. Ram B. Sharma, New Sharma Furniture Udhyog 13. Raju Ghimire, Banke National Park 30. Umesh Thakur, Bishwokarma Workshop 14. Keshav K. Bhandari, Ramjanaki CFUG 31. Prahalad , Puja Furniture Udhyog 15. Damodar Gautam, Private Forest 32. Aaftab Mahamad, Federation of CSIDB 16. Abhimanyu P. Gupta, Rosin & Terpentine Udhyog 33. Birendra Thakur, Mukti Furniture Udhyog

Private Sector Involvement and Investment in Nepal’s Forestry Sector 215 ANNEXES

34. Sabitri Sharma, Om Shanti Sawmill 76. Lok B. BK, 35. Binod K. Baire, CCI 77. Kabi Raj Khattri, Jyolagadhi Mashala Udhyog 36. Binod Saha, CCI 78. Bishal BC, CCI 37. Surendra Pahel, Bhagya Laxmi Furniture Udhyog 79. Bir B. Pun, 38. Ambika P., Ganga Sawmill 80. Teeka Ram Buddha, 39. Aalam Khan 81. Topendra Thapa, 40. Madan Chaudhary, Laxmi Sawmill 82. Ram B. Shingh, Bishal Khaddey Kendra Pashal 41. Baidhnath Saha, Nirman Bebasaye Sangh 83. Dharma Kumari Khadka, CCI 42. Gagan Agrawal, Nirman Bebasaye Sangh Dang Chitwan 84. Gaurav Khadka, Gaurav Kastha Udhyog 43. Dr. Til C. Bhattrai, CCI 85. Chhabi Bhusal, Sushri Kastha Suppliers 44. Khem Kanta Regmi, CCI 86. Kaman Chaudhary, Shanti Furniture Udhyog 45. Rabindra Baral, FBAC 87. Bashudev Chaudhary, Karnali Adarsha Yuwa Club 46. Ganga B. Gurung, FBAC 88. Rajiv Sharma, Rapti Biogas 47. Purushwotam Kandel, FBAC 89. Raghu Upadhya, Environment Conservation 48. Deepak Raj Bista, CCI Centre 49. Ira Shrestha, CCI 90. Rohit Neupane, Sidhakali Biogas Company 50. Bhagawan Joshi, FenFIT 51. Resham Shrestha, FenFIT Doti 52. Bishnu Bhatta, Chitwan Sawmill Udhyog 91. Amir Gahatraj, Archana Furniture 92. K.B Saud, K.B Steel and Furniture Udhyog Dadeldhura 93. Madan Bhandari, Manakamana Furniture Udhyog 53. Lok Raj Bhatta, Bikash Furniture 94. Nabin Bam, CCI 54. Chhandra Dev Bohara, P.C.M Furniture 95. Dharma Singh Dhami, Shatanaya Food Products 55. Neetra P. Awasti, Ashigram Shamaigi Furniture 96. Sunil Shahi, CCI 56. Tirtha B. Ayer, Shikhar Trade and Supply 97. Narendra B. Khadka, CCI 57. Jay B. Ayer, Trade and Supply 98. Lal B. Khadka, Bhairab Ayu Medical Store 58. Madan Nath, New Bhagayshwori Furniture 99. Ganesh B. Singh, Gharyalu Udhyog Maha Sangh 59. Min B. Bogati, Santosh and Sandip Suppliers 100. Mohan Alayha, CCI, 60. Tula Ram Bohara, Prabik Kasta taha Furniture 61. Govinda Ram Bhatta, Kailash Trade and Suppliers Gorkha 62. Bak B. Gurung, Nirman Baybashaye Sangh 101. Dhurba Timilsina, Timilsina & Kastha Udhyog 63. Chhapesh Malla, FECOFUN 102. Krishna Dhakal, FenFIT 64. Dharma Singh Dharmi, FECOFUN 103. Dev Maskey, GCCI-WEDA 104. Rajendra Bishwokarma, CCI Dailekh 105. Bhagat Babu Joshi, CCI 65. Prem Khadka, Ridam Furniture 106. Raju Babu Shrestha, CCI 66. Bir B. Thapa, New Jyola Furniture Udhyog 107. Jeevan Shrestha, CCI 67. Ram B. B.K, Maduban Furniture Udhyog 108. Bhai C. Shrestha, Hardware 68. Amrita Magar, Nomrile Furniture 69. Prem B.K, Chhadebal Furniture Udhyog Illam 70. Rupak Shahi, Malika Furniture Udhyog 109. Dev Kumar Rai, NTFP Farmer 71. Prabha Kumari BK, NTFP Association 110. Vijay Khaki, Releince Trade Centre 72. Din B. Thapa, CCI 111. Ratna Basnet, Radha Ratna Furniture Udhyog 73. Deep B. Shrestha, CCI 112. Rajendra Paudel, Kristina Furniture Center 74. Krishna Parasad Koirala, CCI 75. Narendra B. Bhandari, Prakesh Hotel and Lodge

216 Private Sector Involvement and Investment in Nepal’s Forestry Sector ANNEXES

Jhapa Kaski 113. Tilak P Giri, FenFIT 153. Khem Gurung, Kushal Kastha Udhyog 114. C. B. Gurung, FenFIT 154. Niranjan Ranjit, Sanjiv Sawmill 115. Shyam P. Neupane, FenFIT 155. Surya N. Lamichhane, Suraj Kastha Udhyog 116. Gokul Paudel, FenFIT 156. Badri Pokhrel, Naba Nagmani Kastha Udhyog 117. Kasi Sapkot, FenFIT 157. Shiva P, Samichha Furniture Udhyog 118. Gopal Khadka, FenFIT 158. Tika B. Karki, Pokhara Kastha Udhyog 119. Ganesh Raj Bhandari, FenFIT 120. Hari Basnet, FenFIT Kathmandu 121. Milan Kafle, FenFIT 159. Govinda Ghimire, AHP Pvt. Ltd. 122. Ek Raj Karki, Nepal Veneer Utpathak Sangh 160. Parbat Gurung, Himalayan Bio-Trade 123. Durga P. Bhandari, Nepal Veneer Utpathak Sangh 161. Ramhari Subedi, Gorkha Ayurved Company 124. Radheshyam Goyal, Nepal Veneer Utpathak 162. Prem Raj Tiwari, Aayu Herbal & Organic Food Sangh 163. Binod Adhikari, Classical Herbal Products 125. Tanka Gautam, Janaki Veener Udhyog 164. Saraswoti Rai, Dev Dhunga Multipurpose Coop. 126. Bishal Aggrawal, Balaji Veneer Udhyog 165. Bishwonath Sharma, Patanjali Herbs Agro & 127. Suresh Aggrawal, Pasupati Venner Udhyog Processing 128. Gopal Tulsyan, Vashnavi Woods Product 166. Pramod Paudel, Kathmandu Gyalary Pvt.Ltd. 167. Laiku Lama, Himalayans Herbs Trades Kailali 168. Bharat K. Basnet, Gajurmukhi Herbal 129. Ujjwol datta Paneru, Shakti Jadibuti Udhyog 169. Devendra P. Dhakal, Dhakal Herbs Traders 130. Hem B. Bista, NTFPs and MAPs Farmer 170. Sushil Gynawali, Himalayan Naturals 131. Takur Bikram Shahi, Sajedari Ban Beabasthapan 171. Parichhit Khemka, Natural Resource Industries Samiti 172. Suman Pandey, Sun Herbal Company 132. Lila Dhar Bista, SIC Dhangadhi NTFP 173. Lok Nath Pathak, Chaudhary Biosis (Nepal) 133. Deepak B. Kandel, NTFP/MAPs and SIC 174. Surendra sarda, Nepal Furniture Association 134. Gokarna Bhatta, FenFIT, Nepal 175. K.L.Pradhan, Nepal Furniture Association 135. Prakesh Bhatta, FenFIT, Nepal 176. Y.B. Niraula, Rastriya Furniture B Sangh 136. Hemanta Kunwar, FenFIT, Nepal 177. Kavindra Joshi, NFFA 137. Bimal Bam, FenFIT, Nepal 178. Suzil Shrestha, NFFA 138. Om Prakash Pandey, Dinesh Furniture Udhyog, Morang Kanchanpur 179. Mukti Nath Das, FenFIT 139. Ganesh Chand, Suraj Sawmill 180. Sitaram Agrawal, FenFIT 140. Paban Bikram Singh, Kasta Suppliers 181. Chudaraj Neupane, FenFIT 141. Deepak Raj Chhatwat, Bhubaneshwori Sawmill 182. Baburam Ghimire, FenFIT 142. Trilok B. Chand, Chand kasta Furniture Udhyog 183. Damodar P. Ghimire, FenFIT 143. Dhan B. Chand, Uddamdev Kasta Furniture 184. Bimal Rijal, FenFIT 144. Dev Jung Thapa, Jung Kasta Suppliers 185. Narayan K. Shrestha, FenFIT 145. Hari Khanal, Chand Sawmill 186. Bijay K. Karki, FenFIT 146. Nar B. Bista, Mibhakti Jadibuti Prashodhan 187. Hiranya P. Regmi, FenFIT 147. Shyam Raj Bhatta, NTFP Business 188. Maan B. Bhujel, FenFIT 148. Padam Raj Pandey, TCN 189. Pradip K. Saha, FenFIT 149. Amar Singh Thapa, TCN 190. Sardananda Jha, FenFIT 150. Narayan Dhamala, National Parket 191. Kusum Raj Regmi, FenFIT 151. Ganesh Datta Joshi, 192. Radha Krishna Shrestha, FenFIT 152. Ram B. Chand, Everest Agro Industries 193. Kailash Bhattarai, FenFIT 194. Bhanu Subedi, Subedi Private Forest

Private Sector Involvement and Investment in Nepal’s Forestry Sector 217 ANNEXES

195. C. K. Shrestha, Plantation Forest 236. Laljev Bhar, Jay Maa Durga Sawmill 196. Tulashi Jang Karki, Sukuna CFUG 237. Shrikanta Madnasiya, OmSivSakti furniture 238. Ravi Bhusan Tiwari, Tiwari Kastha Udhyog Nawalparasi 239. Babu Lal Kayap, Shree Shankar Rice & Sawmill 197. Budhiram Bishwakarma, 240. Bharat Saha, Shanti Sawmill 198. Danda Pani Sapkota, Parijat CFUG 241. Ram C. Kurmi, Jayshwal Kastha Udhyog 199. Ham B. Chaudhary, Daunne Devi CFUG 242. Lakhan Lal Saha Kano, Terai Private Forest 200. Kabiraj Acharya, Sansarkot CFUG 201. Baburam Rijal, Sansarkot CFUG Rupandehi 202. Narayan Pandey, Basanta Hariyali CFUG 243. Krishna K. Shrstha, CCI 203. Dilip Chapangai, FECOFUN 244. Anil P. Shrestha, CCI 204. Hom B. Gurung, Chisapani CFUG 245. Sanjay Gynawali, CCI 205. Tichen Gurung, FECOFUN 246. Bishnu P Chalise, CCI 206. Dhanisara Rijal, FECOFUN 247. Dipak Paudel, CCI 207. Shiva Pandey, Chisapani CFUG 248. Dhananjay Jaishwal, MSFP- Butwal 208. C. B. Buda, Chisapani CFUG 249. Prakash Subedi, RIMS-MSFP- Butwal 209. Yam B. Thapa Magar, Chisapani CFUG 250. Laxmi Thapa, FECOFUN 210. Ram C. Pokhrel, Parijat CFUG 251. Durga B. Thapa, Butwal Industries 211. Kamal Pariyar, FECOFUN 252. Hari P. Upadhaya, Indra Nanglo Pasal 212. Mundrika P. Chaudhary, Badera CFUG 253. Chunu Bahadur, Aloevera Cultivation 213. Mohima Kha, Furniture Udhyog 254. Gagan Nath Gautam, Aloevera Cultivation 255. Nil Khantha Khanal, Gaayo Herbal Palpa 256. Deepak Kumar, Trader 214. Sushant Shrestha, CCI 257. Udhav Gautam, Mountain Herbal Suppliers 215. Singha B. Thapa, FECOFUN 258. Baburam Khanal, Nepal Herbal 216. Dal B. Sunari, Satyabati CFUG 259. Rudra Prakash Upadhaya, Sapana Furniture 217. Moti Lal Rai, Hasta Kala Udhyog 218. Dan B. Paudel, Somadi CFUG Sankhuwasabha 219. Krishna P. Gyawali, District Forest Office 260. Suman Shrestha, Suman Traders 220. Tika Ram Neupane, District Forest Office 261. Nana Rai, Mahila Udhyog Sahakari 221. Bhimsen Karki, CCI 262. Dili Kulung, Himalayan Allo Kapada Udhyog 263. Bahadur Sherpa, NTFP collector Parsa 264. Sandesh Shera, NTFP collector 222. Vidya Sagar Sharma, Ambris Furniture 223. Bashudip Sharma, Dip Raj Furniture Sarlahi 224. Indrajit Sharma, Sharma Furniture Udhyog 265. Bikash Gauchan, Jai Bajrang Plywood Industries 225. Madan P. Badai, Shrada Sawmill/Furniture 266. Rajesh Sarrafu, Venus Plywood Udhyog 226. Bishnu P. Neupane, Baba Gangaram Plastic 267. Prakash K. Upadhaya, CCI Industries 268. Rang Lal Agrawal, CCI 227. Laxman Saraegi, Jai Bajrang Sawmill 269. Mahendra K Sharma, FenFIT 228. Shova Kanta Jha, Om Krishna Wood & Sawmill 270. Yam P.Dahal, Tapae Hamro Krishi Sahakari 229. Rajesh K. Gahat, CCI 271. Prem Nath Paudel, Sustainable NTFP Cultivators 230. Baidhnath Jaishwal, CCI 272. Ujur B. Basnet, Kurilo Cultivators 231. Ramshankar Kurmii, CCI 273. Ram Babu Mainali, Shree Ram Private Nursery 232. Ram C. Dhital, CG Foods 274. Niranjan Mainali, Association of Private Forests 233. Surendra Adhikari, Chaudhary Group 275. Laxmi P. Gautam, Shree Kalika Private Nursery 234. Tara Chandan, Star Furniture Udhyog 276. Kashinath Paudel, Sustainable NTFP Cultivation 235. Vishal Shrestha, CFUG 277. Ramnath Paudel, Sustainable NTFP

218 Private Sector Involvement and Investment in Nepal’s Forestry Sector ANNEXES

Cultivation,Sindhupalchowk 302. Jhamak B. Jolmmi Magar, Shahakari Sansthan 278. Ishwory P. Chalise, CCI 303. Atish Singh Rawal, Visitor 279. Gopal Shrestha, NTFP Trader 304. Sharbajeet Gada, Trader 280. Manoj Shrestha, NTFP Trader 305. Brij Bhushwan Singh, Veneer Udhyog 281. Jagadishwor Shrestha, Plywood Factory 306. Prem Kumar Acharya, Bheri CF 282. Amit Shrestha, Veneer & Furniture Udhyog 307. C. P. Dhami, FECOFUN 283. Purna B. Shrestha, NTFP Trader 308. Hari C. Chhalaunni, NTFP 284. Laxmi Shrestha, Timber Trader 309. Nmadan B. Khadka, FECOFUN 285. Tilak B. Shrestha, Timber Trader 310. Krishna Parasad Devkota, Kastha Baybashi 286. Ishwor Shrestha, Timber Trader Sangh 287. Rajendra Karki, Timber Trader 311. Hari Thapa, FenFIT 288. Udhav Karki, Timber Trader 312. Udiva Dangi, CCI 289. Kumar Shrestha, NTFP Trader Siraha 313. Padam B. Shahi, CCI, Udaypur 290. Chandeshwor Singh, Manish Saw Mill 314. Mani Ram Ghimire, CFUG 291. Dipendra Shah, Shree Rajdevi Saw Mill 315. Maiya Rai, FECOFUN 292. Krishna H Gaurel, Sri Krsna Kastha Udhyog 316. Amrita Suyal, CFUG 293. Hom B. Niraula, Harshposh CFUG 317. Parbati Rai, FECOFUN 294. Karna Raut, Harshposh CFUG 318. Narayan Burja Magar, FECOFUN 295. Uma Raut, Harshposh CFUG 319. Shiva K. Adhikari, FECOFUN 296. Man Hira Rai, Harshposh CFUG 320. Yograj Karki, Udaypur Kastha Udhyog 297. Rudra B. Basnet, Harshposh CFUG 321. Dilip Niraula, Malati Furniture Udhyog 322. Khadag B. Raut, Miteri Furniture Udhyog Surkhet 323. Kamala Rai, Bhagabati Furniture Udhyog 298. Ram B. Chhapai, Bageshwori Sawmill 324. Ashok K. Chaudhary, FenFIT 299. Parshu Ram Kandel, Deuti Harbal Udhyog 325. Sabin Katuwal, FECOFUN 300. Shiva Ram Rokae, Karnali Jadibuti Pashal 326. Anoj Karki, FECOFUN 301. Karna B. Pun, Pun Kasta Sawmill

Private Sector Involvement and Investment in Nepal’s Forestry Sector 219 ANNEXES

D-7:Participants of the sharing and validation workshop organized by SSU

SN Name Organization SN Name Organization 1 Akhileshwar L Karna MSFP PCO 19 Prakash Katwal ANSAB 2 Ann Koontz Enterprise Works 20 Puspa ghimire ANSAB 3 Bhishma Subedi ANSAB 21 Rajesh Koirala World Bank 4 Binod Bhatta FSS Team 22 Ram P Lamsal MSFP PCO 5 Bishwa Nath Oli DoF 23 Ramu Subedi MSFP SSU 6 Chandra Majhi NEFEJ 24 Rijan Tamrakar ANSAB 7 Chudamani Joshi Embassy of Finland 25 Sabin Sharma Rajdhani Daily 8 Dhruba Acharya Forest Strategy Team 26 Shruti K Mishra ANSAB 9 Gokul D Tamang NEFEJ 27 Shyam Dhakal FenFit, Nepal 10 Govinda Ghimire NEHHPA 28 Sudhasuman Dhakal Radio Prakriti 11 Jean Francois Cuenod SDC 29 Sujan Subedi MoSTE 12 Kabir Ratna Sthapit ANSAB 30 Suraj Kashyap CG - Biotech 13 Kapil Adhikhari FenFit, Nepal 31 Ujjwal Raj Pokharel SNV 14 Keshav Kanel Consultant 32 Vijay Pd. Kesari UNDP 15 Nerisa Vaidya FTG Nepal Department of Plant 33 Yam Bahadur Thapa 16 Netra Sharma Sapkota USAID Resources 17 Pem Kanel DG, DSCWM 34 Yam Malla IUCN Nepal 18 Prakash Giri FNCCI 35 Yamuna Ghale SDC

D-8: Participants of sharing and feedback workshop organized by MSFP SSU

SN Name Organizatoin SN Name Organizatoin 1. Ananta Bhandari WWF Nepal 15. Dipesh Pyakurel BARDAN 2. Ashish Sharma Siddhartha Bank 16. Ganesh Karki FECOFUN 3. Babu Ram Dhakal HIPAT monthly 17. Ghan Shyam Awasthi ECARDS 4. Bal Ram Paudel Employment Fund 18. Gokul Tamang NEFEJ 5. Ashok FNCCI 19. Govinda Ghimire NEHHPA 6. Basanta Lamsal VLBS 20. Govinda Poudel Forest Action 7. Basanta Rokka Mount Rosin 21. Harihar Thapa FNCCI 8. Bhoj Raj Bashyal NUBL 22. Jagadish c. WWF/HBP 9. Bhola Khatiwada COFSUN 23. Kabir R Sthapit ANSAB 10. Bhupendra FINFIT 24. Keshav Raj Acharya GIZ-INCLUDE 11. Bishal Kafle Biruwa Venture 25. Naina Shakya ICIMOD 12. Bhishma Subedi ANSAB 26. Nishanta Sharma IDS Nepal Planning and Monitoring 13. Bishwas Rana 27. Prabha Pokharel IDS Nepal Manager 28. Pradhyman Pokharel Mega Bank 14. Chandra Majhi NEFEJ

220 Private Sector Involvement and Investment in Nepal’s Forestry Sector ANNEXES

29. Prakash Katwal ANSAB 41. Sharmila Karki NGO Federation 30. Prof. A.K Das NFA 42. Shekar Bastakoti Century Bank 31. Puspa Ghimire ANSAB 43. Shristee Singh COLARP 32. Rajendra Dabur Nepal 44. Shyam FenFIT 33. Ram P. Acharya PSPL 45. Smriti Dahal SAWTEE 34. Ramu Subedi MSFP-SSU 46. Stuty Maskey PSP Officer 35. Rita Bhandary FWEAN 47. Subin Mulmi Biruwa Venture Green Foundation 36. Rita Parajuli 48. Sudharshan Khanal ANSAB Nepal 49. Suman Awale WWF Nepal 37. Ritu Pantha 50. Sushil Gyawali Himalayan Naturals 38. Sandesh S Hamal Hariyo Ban Program 51. Sushil Mainali NEFEJ 39. Sarba Raj Khadka RRN 52. Uddhav Karki RRN 40. Shanker Poudel Rupantaran Nepal

D-9: Customs & quarantine offices visited for the study (Total: 12) 1. Narayan K Shrestha, Plant Quarantine Office, Kakarbhita, Jhapa 2. Hari P Pandey, Mechi Customs Office, Kakarbhita, Jhapa 3. Ram Bilash Thakur, Plant Quarantine Office, Biratnagar, Morang 4. Shayam P Dahal, Biratnagar Customs Office, Rani, Morang 5. Avdesh K Singh, Plant Quarantine Office, Birgunj, Parsa 6. Binod Dahal, Plant Quarantine Office, Bhairahawa 7. Shyam Sundar Singh, Plant Quarantine Office, Nepalgunj 8. Divya Dev Bhatta, Plant Quarantine Office, Mahendra Nagar 9. Nirmal Hari Adhikari, Tatopani Customs Office, Sindhupalchowk 10. Tilak MS Bhandari, Birgunj Customs Office, Inarwa, Parsa 11. Binod Upadhaya, Bhairawa Customs Office, Belhiya, Rupandehi 12. Krishna Paudel, Nepalgunj Customs Office, Nepalgunj, Banke

D-10:Market centres visited for the study

Ecological Eastern Central Western regions Mountain Tatopani Khalanga (Jumla) Hill Dhankuta, Gaighat Pokhara, Kathmandu Birendranagar, Dadeldhura Birtamod, Biratnagar, Butwal, Narayanghat, Terai Kanchanpur, Nepalgunj, Dang Dharan, Lahan Birgunj

Private Sector Involvement and Investment in Nepal’s Forestry Sector 221 For more information: Multi Stakeholder Forestry Programme

Programme Coordinator’s Office (PCO) Services Support Unit (SSU) Forestry Complex, Babarmahal, Nepal Forestry Complex, Babarmahal, Nepal Tel: 977-1-4239531 Tel: 977-1-4229669-70

P.O. Box 12095, Kathmandu, Nepal Email: [email protected] www.msfp.org.np