CURRENT STATE OF WOOD MARKET IN BULGARIA. Konstantin Kolev University of Forestry - Sofia. Abstract

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1 Silva Balcanica, 17(1)/2016 CURRENT STATE OF WOOD MARKET IN BULGARIA Konstantin Kolev University of Forestry - Sofia Abstract The goal of this article is to analyze in chronological order the amendments in legislation, governing wood market in Bulgaria during the period This purpose is motivated by the need to outline some mistakes as well as some positive changes in regulations, which permit better allocation of the revenues between main actors forest owners and forest users. Key words: legislation, regulations, ownership Abbreviations: DAG- State Forest Agency, DDvS-State Game Breeding Station, Forest Ranges, DL-State Forestry Service, DLS-State Hunting Enterprise, DLS-State Hunting Ranges, DP-State Forest Enterprises, IAG-Executive Forest Agency, NUG-National Forestry Board, PPZG-Regulation on the Forest Act Application, RDG-Regional Forest Directorate, RUG-Regional Forestry Board, ZG-Forest Act Wood resources provide nearly 94% from the revenues of state forest enterprises. Because of that they are at the bottom of the economic contradiction forest owner forest user. The last one is managed through amendments in forest regulations. During the last decade some of them were successful and some of them on the expense of the forest. Due to this on purpose to minimize the future errors the goal of this article is to analyze the main changes in legislation, regarding wood market, for the period The realization of article s goal demands accomplishment of two tasks: to presents the ownership structure of forests as well as the main actors on Bulgarian wood market; to present and discuss in chronological order the regulations governing actors on the wood market in Bulgaria during the period (in this article is considered the legislation as of 15 July 2015). OWNERSHIP STRUCTURE OF FORESTS The total forest area of Bulgaria as of 2012 is ha or nearly 37% from the territory of the country. Its distribution by type of land is presented in Table 1. With Forestland Ownership Restitution Act (1997) as of 2012 were restored ha or nearly 25.79% of the country s forest territories. The distribution of forest areas, according to the type of ownership is presented in Table 2. Concerning the state forest territories should be mentioned that ha (69.86%) from them are managed by six state forest enterprises (DP), ha (4.07%) are managed by Ministry of Environment and Water, and ha (0.27%) are managed by Educational 59

2 Experimental Forest Husbandries Yundola and Burzia (Ministry of Agriculture and Food, 2013). Because of the processes of restitution during the period the area and number of non-state forest estates was increasing (Table 4, 5). The estates of private individuals are small and in 2010 the percent of forest estates under 10 ha was 99% (Table 5). According to some authors as of 2013 the process of restitution was over (Domuschiev et al., 2013). As a whole the private forest estates are small and fragmented with low incomes and profitability, and bad road infrastructure, which contradict to the requirements for their sustainable management (Paligorov et al., 2014). REGULATIONS GOVERNING BULGARIAN WOOD MARKET In Bulgaria the use of resources from forest territories is in accordance with forest management plans and programs (Until 2011 forest management plans were called forestry surveying projects). They are guidance for achievement of the goals in front of the forest management for a period of 10 years. In them are defined the allowable volume of use of timber and non-timber resources. The main legal documents, which regulate the use of wood from the forest territory of Bulgaria during the last 10 years are: Forest Act (ZG); Regulation on Forest Act Application (PPZG); and Ordinance on the terms and order for assigning the implementation of activities in the forest territories state and municipal property, and the use of timber and non-timber forest products (Ordinance). The last document was Table 1. Distribution of forest area by type of land Type of Land Area (ha) % of Area Wooded area Unforested wood production area Non wood production area Total forest area Source: Agrarian report for 2013 of the Ministry of Agriculture and Food. Table 2. Forest Owners Type of Ownership Area (ha) % of Area State forests Municipal forests Private forests of individuals Forests of entities Religious communities Forests on former agricultural lands Total fores area Source: Agrarian report for 2013 of the Ministry of Agriculture and Food. 60

3 Table 3. Forest estates by size Type of Ownership Number of Estates % Under 2 ha ha ha ha Over 50 ha Total Source: Executive Forest Agency. Table 4. Dynamics in the number and area of non-state forest estates (Bogdanov, 2012) Type of Ownership Year Area (ha) Number of Estates Municipal forests Private forests of individuals Other type of non-state forests Table 5. Number of forest estates of private individuals during the period (Bogdanov, 2012) Year Under 10 ha ha ha ha Over ha Total promulgated in State Gazette vol. 96/ , amended SG vol. 90/ By means of the Ordinance PPZG was canceled. At present all activities in forest territories are assigned on the basis of the Ordinance. PROCEDURES FOR USE OF WOOD BEFORE AND AFTER 2011 As of 2007 the rules related to the use of wood from state forest territories were described in ZG article 53 to article 62 and PPZG article 80 to 98. In article 53, par. 2 from ZG and article 80, par. 2 from PPZG six ways for use of wood were determined: In accordance to rates for the use of standing timber approved by the Council of Ministers; 61

4 Through assignment of wood harvesting and sale of the felled timber from temporary storage; Assignment of clearing through tenders, competitive candidate selection and negotiation; Assignment the implementation of activities envisaged in Forestry Surveying Projects for total territory or part of it, managed by DL, through tenders, competitive candidate selection and negotiation; Through concessions; By DL, that organized and fulfilled wood harvesting and transportation of the felled timber. Point 6 from above made provisions for DL which themselves could perform activities related to logging and timber transportation. At the same time point 2 made provisions for DL in the cases when they themselves were not able to perform these activities to allocate them in compliance with the conditions and procedures of the Public Procurement Act. These two points allowed DL to organize the sale of temporarily stored timber and the pre-sale of projected volume of timber by means of tenders or direct negotiations. The ways, procedures and conditions under which felled timber may be sold by DL were described in article 87p, 87r, 87t from PPZG. Sales were made by sort class as a packet or the whole quantity at tenders with open bidding or direct negotiations to rates using the technology approved by the Head of NUG. The remaining points (1, 3, 4 and 4) from article 80, paragraph 2 from PPZG were connected with sales of standing timber. Article 87v, 87g, 87d, 87е, 87zh, 87z from PPZG described in details the procedure for tenders with open and secret bidding for acquiring the rights to use standing timber, the conditions which the candidates must comply with, the way the procedure would take place, as well as assessment of the offers. The conditions and procedures for competitive candidate selections for obtaining the rights to use standing timber were presented in art. 87v, paragraph 4 and article 87i, while the procedure for negotiations with a potential harvesting company was described in article 87v, paragraph 5 and article 87l. In the procedures for selecting a harvesting company participated entrepreneurs (their company respectively) who are in contractual agreement with at least one individual/ legal entity which had a license for a private forestry practice. This rule is still valid. The use of wood from forest estates of municipalities, private individuals and private entities was determined in article 53, paragraph 4 and paragraph 5 from ZG and article 80, paragraph 8 and paragraph 9 from PPZG. According to them municipalities could use wood in compliance with the 6 ways described above after decision of the municipal council. The control of wood use in municipal forests and state forests was executed by RUG. Concerning the private forest estates should be mentioned that the use of wood must be in correspondence with ZG and PPZG. The control in private forests was executed by DL. The use of wood from private forests demanded submission of an application form by the forest owner or an authorized person in the local DL. The 62

5 permission for timber harvesting was given after approval of the application form by the manager of DL (art. 86, par. 9 from PPZG). The normative rules presented above determine two ways for timber sale as a standing timber and as a felled timber. In the sales as a standing timber are differentiated industrial logging and timber selected for local population needs (art. 80, par. 2, p. 1 from PPZG). The local population receives the right to use wood by the so called stumpage prices, which were approved by the Council of Ministers. These rates were the minimal value for buying wood. Through them the state wants to achieve some social purposes. At the same time it was expected that the low stumpage prices would generate in local population interests in forests protection. In the industrial logging the sales were performed: through frame contract (the so called big users/consumers, art. 87 в, par. 5, p. 4 from PPZG) and forest areas assigned to logging through tenders, competitive candidate selection and negotiations (art. 80, par. 2, p. 3 from PPZG). The realisation of felled timber was accomplished by means of sales in advance by sort class register or by means of sales on temporary storage (art. 80, par. 2, p. 2 from PPZG). In 2008 some amendments in ZG and PPZG were promulgated in State Gazette vol. 89. The most important regarding the use of wood stated that the subjections of clearing could be done only through tenders and competitive candidate selections. Due to this the ways for use of wood pointed in art. 80, par. 2, p. 3 and p. 4 from PPZG were: Assignment of clearing through tenders and competitive candidate selection; Assignment the implementation of activities envisaged in Forestry Surveying Projects for total territory or part from it, managed by DGS, through tenders and competitive candidate selection; The amendments in article 80, paragraph 2, p. 3 and p. 4 from PPZG lead to cancelation of article 87v, paragraph 5 and from here to cancelation of the frame contracts for the big users (consumers) according to article 87v, paragraph 5, p.4. Table 6. Structure of procedures for wood use from state forest territories during the period Type of procedures % Timber selected for local population needs (art. 80, par. 2, p. 1 from PPZG) ,65 4,49 Industrial logging Subjection of clearing Through assignment of wood harvesting and sale of the felled timber from temporary storage art. 80, par. 2, p. 2 from PPZG Total Source: National Strategy for Development of Forestry Sector in Bulgaria and own calculations. 63

6 The relative share of procedures through which the sales of timber from state forest territories were realized during the period is presented in Table 6. From there is obvious that the share of sales of felled timber from storage was increasing, while the share of timber selected for local populations needs and sales on standing timber were decreasing. This fact was consequence of the higher price of timber sold on storage, which DGS and DLS could reach (Fig. 1). As it was mentioned above at the end of 2011 the Ordinance was accepted and due to this PPZG was cancelled. At present all activities in state and municipal forest territories are subjected for implementation through the Ordinance and not through the Public Procurement Act. The leading principles on which the Ordinance is based are publicity, transparency, fair competitiveness, equality and non-discrimination. The Ordinance should facilitate the work of DGS, DLS and municipal forest structures connected with aassignment of implementation of activities in forest territories state and municipal ownership. In the new Forest Act from 2011, article 112 is pointed out that the use of wood from state and municipal forest territories can be realized in two ways: through sales of standing timber and through harvesting and sales of felled timber. The procedures for sale of standing and felled timber are described in details in the Ordinance. In article 49 from the last one is written that the sales of standing timber must be realized through: tenders with secret and open bidding; competitive candidate selection; and price list (rates). Rights to buy timber by rates determined in price list without right to re-sale have private individuals, schools, social organizations, kindergartens, places of imprisonments, military units, cultural institutions and so on. The price list for the timber felled from state forest areas is approved by the managers of the state forest enterprises and by the municipality council for the timber felled from municipal forest territories. In article 66 from the Ordinance is written that the sale of felled timber from forest areas state and municipal ownership can be realized in the following ways: through Fig. 1. Average price of depersonalized cubic meter of wood from state forest territories realized during the period by procedures 64

7 Table 7. Structure of the ways through which timber from state forest territories was sold in 2012 and 2013 Ways of timber sales m 3 % BGN/m 3 m 3 % BGN/m 3 Sales of standing timber ,42 Sales from temporary storage of felled timber , ,95 Total Expenditures for timber harvesting Source: Agrarian report for 2013 and 2014 of the Ministry of Agriculture and Food and own calculations. tenders with open bidding; through tenders with secret bidding; price list (rates); through negotiation; e-commerce (electronic auction); and commodity exchange. The last two procedures are new and at present moment in practice they are unpopular. The relative share of the ways by means of which the timber from state forest territories was sold in 2012 and 2013 is presented in Table 7. In 2012 nearly 70% of the timber from state forest area was sold from a storage and in 2013 nearly 58%. In 2013 the assortments, which were mostly searched on the market were technological timber for processing and firewood. Nearly 74% from the sales of standing timber were on those two assortments and nearly 66% from the sales on temporary storage, which means that the volume of firewood and technological timber harvested from state forests was 3145 thousand cubic meters (Ministry of Agriculture and Food, 2014). In 2013 the price of depersonalized cubic meter realized as standing timber was with nearly 5.48 BGN higher than the price in 2012, while the price of the timber sold from storage in 2013 was with 1.90 BGN higher than this one in At the same time the expenditures for timber harvesting in 2013 were BGN/m 3 and in 2012 they were lower with 1.19 BGN (Ministry of Agriculture and Food, 2013, 2014). The differences in the prices were due to the differences in the type of timber category felled during 2012 and On purpose of more investments in modern wood-harvesting and woodprocessing equipment ZG of 2011 by means of article 116 gives opportunity of 6 DP and municipalities owners of forest estates to make up long-term contracts until 15 years with dealers for wood harvesting and sale of the felled timber. In this way the entrepreneurs in forest sector will have security that for a long period of time their job will be guaranteed and they will be able to pay the interest rate to credit institutions as well as to achieve satisfactory internal rate of return. In connection with the paragraph above should be underlined that according to article 115 from ZG of 2011 DGS, DLS and municipal forest structure can provide one third of the annual use of wood from state and municipal forest territories for local wood harvesting and processing companies. To some extent this article protects the local companies against competitors from other areas and procures their work for a short period of time. 65

8 Regarding the private forests in article 112 from ZG of 2011 is stated that the ways of use of wood are determined by their owners. According to ZG of 2011 they (private forest owners) and municipalities, which are not able to managed their forest estates by means of own forest structure, have rights to provide the use of wood on a basis of a contract to state forest enterprises, private individuals and legal entities, registered in the public registers in compliance with articles 235 and 241 from ZG. The terms and order for use of wood are defined in the contract by the forest owner. These changes give grounds for the statement that ZG of 2011 is liberal and put all forest owners on equal terms, which is precondition for competition on the timber market. Towards the subjects directly or indirectly related with the use of wood from Bulgarian forests territories are nearly: 1.5 million owners of forest estates; 3000 registered legal entities, whose main activities are connected with woodharvesting, by the way during the period % to 50% of them were actively working; 2000 enterprises from wood processing industries; 518 enterprises from wood pulp, paper and cardboard industry; 2250 furniture enterprises. In other words the total number of the enterprises from forest industry is about Nearly 80% of them are micro enterprises (under 10 employees). The number of big enterprises (with more than 250 employees) during the period was from 0.2 to 3.3% from the total number. Except in the big cities concentration of enterprises from forest industry is observed around the towns of Stamboliiski, Svishtov, Troyan, area of Pazardzhik and railway station of Belovo. The situation with the size of the enterprises in wood harvesting is not different from this one in the forest industry. During the period nearly 50 largest wood-harvesting companies harvested m 3 from the state forest territories (Ministry of Agriculture and Foods, 2013; Paligorov et al., 2014). According to data of National Statistical Institute (NSI) in 2010 the average number of employees in wood-harvesting enterprise is nearly 10, which means that more of the enterprises are micro or small (Dichev, 2014). They are characterized with obsolete forest equipment, unqualified staff and low labour productivity. In connection with the last one should be mentioned that 80% to 90% from the transportation is realized by animal skidding (Ministry of Agriculture and Foods, 2013; Paligorov et al., 2014). The annual harvest from Bulgarian forest territories during the period is presented in Fig. 2. The average yield for the period was around 5765 thousand m 3. During the period % to 77% from the felled timber was harvested from state forest territories, from 9.3% to 10.6% from municipal forest territories and the rest, which is felled from other non-state forest areas, was between 13.6% and 21.1% (Ministry of Agriculture and Foods, 2013). The smallest quantity of timber was felled in 2009 as a result of the economic crisis and decrease in the production of forest industry. The structure of the felled timber during the period is presented in Table 8. From the last one is obvious that firewood is with significant share in the volume of the felled timber which varied from 53.39% to 63.69%. The average share of large size timber for the period is 20.91%. To some extent this is an obstacle for the development of wood processing industry where the technologies, which were bought 66

9 primarily, are for processing of large size timber whose quantity is not enough. Some enterprises solve the problem through import of timber from Romania and Ukraine. Nevertheless the national timber market is defined as relatively closed, which means that the demands are met by timber available on the domestic market. During the years the annual export and import of round timber varied between 5% and 10% from the national use of wood (Paligorov et al., 2014). The quantities of wood export during the period are presented in Table 9. In 2009 the quantity of export was the smallest for the period and in 2012 the biggest. The first one is explained with the economic crisis in Europe and the second with the export of fuelwood to Greece and Turkey due to the high price in these markets (Paligorov et al., 2014). Nearly 60% from the total export of round wood is for Turkey and about 30% for Greece. Insignificant quantities from the export of round wood are realized in FYRMacedonia and Serbia. As of 2012 the export of round wood was regulated with ZG of 2011 article 126 paragraph 1, 2 4, 5 and 6. According to them the export of round wood can be implemented after issuing of certificate by the Minister of Agriculture and Food or officials, authorised by him. The export can be permitted after submission of the following documents: contract with the owner of the forest for using of the timber and/or invoice for purchase of timber; foreign trade contract and/or invoice or proforma; document for paid fee for issuing the certificate; completed by the exporter model certificate for export. The most important measure is stated in paragraph (6) according to which the Minister of Agriculture and Food can prohibit temporarily the export of round wood from Bulgarian forest territories. Regarding the observance of European Forest Legislation in article 127 from ZG of 2011 is pointed out that the responsible competent authority for implementation of Council Regulation (EC) No 2173/2005 of 20 December 2005 on the establishment Fig. 2. Timber harvested from Bulgarian forest territories during the period

10 Table 8. Structure of the timber harvested from Bulgarian forest territories during the period Timber category % Large timber Average timber Small timber Firewood Total , Source: Executive Forest Agency and own calculations. Years Table 9. The export of wood from Bulgarian forest territories during the period Fuelwood including wood for charcoal Thousand cubic metres % Industrial round wood Thousand cubic metres Round wood total of a FLEGT licensing scheme for imports of timber in the European Community is the Customs Agency. In this task the Bulgarian Customs Administration must be supported by Executive Forest Agency. In State Gazette vol. 60/7 August 2012 some amendments in ZG of 2011 were promulgated. They are still valid. Concerning the international wood trade all paragraphs (1, 2, 4 and 5) to article 126, except paragraph (6) were canceled. Because of that at present the Minister of Agriculture and Food still has right to prohibit temporarily the export of round wood from Bulgarian forest territories. At the same time towards article 127 from ZG were added to new paragraphs (3 and 4). They are connected with implementation of Regulation (EU) No 995/2010 of the European Parliament and of the Council of 20 October 2010 laying down the obligation of operators who place timber and timber products on the market. According to paragraph 3 the Executive Forest Agency is the competent authority, which is responsible for implementationof the Regulation. In this task the Forest Agency must be supported by the Custom Agency. According to paragraph 4 from ZG the last one provides Executive Forest Agency with data about the import of round wood and wooden products on the territory of the country. % Thousand cubic metres Source: and own calculation. % 68

11 This year on the grounds of article 126 par. 6 the Minister of Agriculture and Food prohibited the export of round wood since 10 March 2015 till 9 June The ban of the export of round wood is still valid no matter that the three months have passed. The Ministry of Agriculture and Food announces that the prohibition will be canceled after acceptance of new amendments in ZG. REFERENCES Bogdanov, P Forest Productive Cooperation as Economic form for Management of Private Forests. Dichev, P Research of Economic Effectiveness in Wood-Harvesting In State Forest Territories. Thesis for conferment of educational and scientific degree PhD in scientific specialty Economy and management (in sectors). Domuschiev, N., D. Georgieva, T. Tsenov Classification of Non-State Forests in Bulgaria under their Area and Number. Management and Sustainable Development J., 43, Forest Act, State Gazette Vol. 125/ Forest Act, State Gazette Vol. 19/ Ministry of Agriculture and Food Agrarian report. Ministry of Agriculture and Food Agrarian report. Ministry Of Agriculture and Foods National Strategy for Development of Forestry Sector in Bulgaria, The Ordinance on the Terms and Order for Assigning the Implementation of Activities in the Forest Territories State and Municipal Property, and The Use of Timber and Non-Timber Forest Products. State Gazette Vol. 96/ ,. Amended State Gazette Vol. 90/ Paligorov, I., E. Galev, I. Ivanov, E. Dragozova, S. Kovacheva, M. Sotirov Analysis of Drivers and Barriers to Sustainable Land-Use Management in Teteven and Yundola. WP 3.1 Case Study Reports for Bulgaria. Regulation of the Forest Act Application, State Gazette Vol. 41/ Tsoklinova, M Economy of welfare and the allocation of resources, University Scientific Conference, Vassil Levski National Military University, Veliko Turnovo, 7, Tsoklinova, M Needs, distribution and social justice, University Scientific Conference, Vassil Levski National Military University, Veliko Turnovo, 7, konstantinklv@yahoo.com 69