noigeRcificaP 37473 D i s c u s s i o n P a p e r s dna aisA tsaE --tne mpoleveDlaicoS M O N G O L I A dna Wood Supply in Mongolia: The Legal and Illegal tne Economies mnorivnE August 2006 M O N G O L I A Wood Supply in Mongolia: The Legal and Illegal Economies August 2006 © 2006 The International Bank for Reconstruction and Development/THE WORLD BANK 1818 H Street, NW Washington, DC 20433 USA August 2006 All rights reserved. This study was prepared by the Environment and Social Development Unit (EASES) of the East Asia and Pacific Region, and was funded by The World Bank's Netherlands-Mongolia Trust Fund for Environmental Reform. Environment and social development issues are an integral part of the development challenge in the East Asia and Pacific (EAP) Region. The World Bank's Environment and Social Development Strategy for the region provides the conceptual framework for setting priorities, strengthening the policy and institutional frameworks for sustainable development, and addressing key environmental and social development challenges through projects, programs, policy dialogue, non-lend- ing services, and partnerships. The EASES Discussion Paper series provides a forum for discussion on good practices and policy issues within the development community and with client countries. This publication is available online at www.worldbank.org/eapenvironment. Suggested citation: Erdenechuluun, T. 2006. Wood Supply in Mongolia: The Legal and Illegal Economies. Mongolia Discussion Papers, East Asia and Pacific Environment and Social Development Department. Washington, D.C.: World Bank. Cover image: Alan Hesse Cover design by the Word Express. This volume is a product of the staff of the International Bank for Reconstruction and Development / The World Bank. The findings, interpretations, and conclusions expressed in this paper do not necessarily reflect the views of the Execu- tive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. The material in this publication is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. The International Bank for Reconstruction and Development / The World Bank encourages dissemination of its work and will normally grant permission to reproduce portions of the work promptly. For permission to photocopy or reprint any part of this work, please send a request with complete information to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, USA, telephone 978-750-8400, fax 978- 750-4470, www.copyright.com. All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA, fax 202-522-2422, e-mail pubrights@worldbank.org. Contents FOREWORD vii ACRONYMS xi ACKNOWLEDGMENTS xiii EXECUTIVE SUMMARY 1 CHAPTER 1. FORESTS AND FORESTRY IN MONGOLIA 5 Forest Resources 5 Socioeconomic Context of Illegal Logging 8 Institutional Roles and Responsibilities for the Management of Forest Resources 9 Procedures 11 CHAPTER 2. WOOD CONSUMPTION 15 National Timber Consumption 15 Industrial Timber 16 Private-Use Timber 18 Fuelwood 20 Ulaanbaatar Timber Consumption 21 Industrial Timber 23 Private-Use Timber 23 Fuelwood 25 CHAPTER 3. ILLEGAL TIMBER HARVEST AND TRADE 31 Organization of the Illegal Timber Trade 31 Investigating the Illegal Supply of Timber to Ulaanbaatar 39 Profits in the Illegal Timber Trade 40 Abuse of Procedures and Permits in the Illegal Industry 42 Forms and Rates of Bribes 43 Negative Impacts of Illegal Timber Harvests 43 Ecological Impacts 43 Economic Impacts 45 ­ iii ­ Mongolia Social Impacts 46 Likely Future Trends in Illegal Harvesting 46 CHAPTER 4. CAUSES AND CONTROL OF ILLEGAL LOGGING 47 Causes for Expansion of Illegal Logging 47 Poor Governance 48 Government Responses to Illegal Logging 52 Prevention 52 Detection 54 Suppression 55 CHAPTER 5. RECOMMENDATIONS 57 BIBLIOGRAPHY 63 APPENDIX A: FORESTRY SECTOR COMPANIES IN MONGOLIA BY AIMAG 65 APPENDIX B: SURVEY OF WOOD AND FORESTRY PRODUCTS COMPANIES IN MONGOLIA 67 APPENDIX C: WOOD REQUIREMENTS FOR PRIVATE CONSTRUCTION 69 APPENDIX D: LAWS, RESOLUTIONS AND ACTIONS OF THE GOVERNMENT OF MONGOLIA 71 FIGURES 1. Exports of Timber and Uncut Logs, 1992­1998 6 2. Illustration of Estimated Relative Sales Volume of Wood by Month 16 3. Annual Consumption of Wood in Ulaanbaatar 22 4. Sources of Fuelwood in Ulaanbaatar 26 5. Sources of Timber Entering Ulaanbaatar 32 TABLES 1. Harvest Volumes Approved by MNE in (2001­2006) 11 2. Estimated Annual Wood Consumption by Category 15 3. Number of Companies Operating in the Forestry Sector (June 2004) 18 4. Timber Demands of Forestry Product Manufacturers (June 2004) 19 5. Annual Nationwide Demand for Private-Use Timber (Excluding Ulaanbaatar) 20 6. National Fuelwood Demand 22 7. Annual Consumption by the Timber Processing Industries in Ulaanbaatar 23 8. Annual Private-Use Timber Consumption in Ulaanbaatar 24 9. Trends in the Number of Timber Mills and Wood Product Manufacturers, 2000­04 28 10. Contribution to GDP by the Construction Sector 28 11. Types of Misuse of the Certificate of Origin and Forest-Use Permit by Illegal Timber Suppliers 43 12. Details of Bribes 44 BOXES 1. Former Forestry Towns: Few Alternatives 10 2. An Estimate of Industrial Timber Consumption (Sawn-wood) 17 3. Methods of Illegal Timber Harvest 34 4. Potential Governance Responses to Illegal Logging 51 iv Foreword T he forests of Mongolia protect watersheds by this trust fund, as well as the Bank-Netherlands and water supply, and as a source of Partnership Program. timber, fuelwood, pine nuts, berries and game they are saviours and sustainers of This report represents a novel and unconventional livelihoods. As shown in this report, and in the World approach to the very serious subject of illegal wood Bank's Mongolia Forestry Sector Review (2004), the supply in Mongolia. Rather than just relying on forest sector is in crisis. Lack of planning and active official statistics, which have many drawbacks, the management, lack of inventory, loss of capacity, and team sought information from a range of sources, corruption have together led to significant degradation such as direct interviews with government officials of forest quality, and have created virtual anarchy in and others working in the sector; field observation the forestry industry. It is crucial that the Government of illegal activities, often in the dead of night; and of Mongolia acts now to bring control to the sector, indirect approaches using various data sources to test and ensure that this important resource can be used assumptions. sustainably for generations to come. We are very grateful to the whole team (and especially Wood Supply in Mongolia: The Legal and Illegal Econo- to Ms. Erdenechuluun) for their perseverance in the mies is the latest in a series of studies on environmental preparation of this report. We hope both governmental issues in Mongolia produced by the Environment and nongovernmental bodies find it useful, and that it and Social Development Department of the East helps the donor community in their attempts to bring Asia and Pacific Region of the World Bank. Other order to, and prosperity from, the important forest topics include the environmental and social impacts resources of Mongolia. of mining, and the illegal wildlife trade. The current report is closely linked with the World Bank's concern about the adverse impacts of weak governance on the management of natural resources, identified as a key Magda Lovei Arshad M. Sayed issue in the Environment Strategy for the East Asia Environment Sector Manager Country Manager and Pacific Region. The World Bank is supporting the East Asia and Pacific Region Mongolia Government of Mongolia in its efforts to address these The World Bank The World Bank problems--most recently through the Netherlands- Mongolia Trust Fund for Environmental Reform (NEMO), a wide-reaching initiative that has touched almost all aspects of environmental management in Mongolia in 2005­6. This publication was supported ­ v ­ Acronyms AAC Annual Allowable Cut Notes: FLEG Forest Law Enforcement and Governance All dollars are U.S. dollars; all tons are metric tons. FPCD Forest Policy Coordination Division The Mongolian unit of currency is the Tugrik (Tg). In 2006, (Ministry of Nature and Environment) $1 = Tg 1,175. FWRC Forest and Water Research Centre (Ministry of Nature and Environment) Aimag (= province) is the largest sub-national administrative GDP Gross Domestic Product unit; below the aimag is the soum (= district), which is divided into bags (= sub-districts). In the capital city districts are called GTZ Deutsche Gesellschaft für Technische duureg and sub-districts khoroo. Zusammenarbeit (German Agency for Technical Cooperation) Ger simply means home in Mongolian. Gers are traditional IDA International Development Association dwellings, well adapted to the nomadic life of Mongolia's ISP Improved Stoves Project herders, and consist of a wooden framework and a felt cover. The wooden framework includes the walls, long poles, a MIT Ministry of Industry and Trade round smoke escape and its supports. Inside the ger, felt is MSWL Ministry of Social Welfare and Labour laid either on a wooden floor or straight on the ground. The MNE Ministry of Nature and Environment number of walls and poles determines the size of the ger. Most herders' gers have five walls, which make a living area of MoF Ministry of Finance 16-18 m2. Each ger has a hearth, which is of great symbolic MOSTEC Ministry of Science, Technology, Education and functional importance. In the winter the hearth heats and Culture the ger and also serves as a stove for cooking. Gers weigh approximately 224 kg. It takes about half an hour to collapse NGO Nongovernmental organization an average ger and slightly longer to rebuild it (World Bank, NFP National Programme on Forestry 2004). NRM Natural Resource Management NSO National Statistical Office of Mongolia NTA National Taxation Authority NTFP Non-timber forest product SSIA State Specialized Inspection Agency UNDP United Nations Development Program USSR Union of Soviet Socialist Republics USIP Urban Services Improvement Project VAT Value-added Tax ­ vii ­ Acknowledgments T his report is based on the work of Policy Coordination Division, MNE), Ts. Banzragch Ms. Erdenechuluun Tsevegrash. Also (Director, Environment and Natural Resources, contributing were two assistants: B. MNE), P. Ongonsar (MNE), John Dick (Forestry Tsetsegdelger, Head of Green Gold Fund, Consultant, MNE), and D.Tsendsuren and L. Badam- a forest management NGO, and D. Sugir. A large khorloo (Ulaanbaatar Urban Services Improvement number of government personnel helped to provide Project). data and assistance in its interpretation: Mr. Sh. Gungaadorj (Advisor to the Minister of Nature and The final text benefited greatly from comments the Environment), D. Tegshjargal (Head Officer of provided by the World Bank peer reviewers; Jonathan the Forestry Policy and Coordination Department, Mills Lindsay (LEGEN), Bill Magrath (EASRD), and MNE), J. Altanzul (Deputy Director, Office for the Nalin Kishor (ARD). Coordination of Wood and Forestry Products, MNE), J. Bayasgalan (Forestry Sector Specialist, Industry Editorial assistance was provided by Bob Livernash, Policy and Coordination Department, MIT), and Ya. Jane Trussell, and Eric Thrift. Bryony Morgan handled Ariunzul (Head of the Department of Environment, the complex final revisions, incorporation of additional Geodesy and Cartography, SSIA). information, and the publication process. Desktop and design of the publication was by The Word Express. Other assistance was provided by Y. Adya (State The work was managed for the World Bank by Tony Secretary, MNE), L. Dorjtseden (Secretary, National Whitten and Giovanna Dore. Forestry Committee), H. Yhanbai (Head, Forest ­ ix ­ Executive Summary F orestry has been an important industry for forest in the last century, averaging 40,000 ha/year, Mongolia, and has great potential today as a although the deforestation rate increased during the source of sustainable livelihoods for those in last decade of the century to approximately 60,000 forested aimags. Forested watersheds safe- ha/year (World Bank, 2003). Today, Mongolia's guard the quality and quantity of water, and timber "forest territory" is estimated as 17.9 million hectares, and fuelwood also are essential products for Mongo- of which around 1.8 million hectares are non-forested lians, who rely on forest resources for cooking and areas, 4.5 million are the southern saxaul scrub forests, construction, particularly in rural areas. However, as and the remainder are the 11.5 million hectares of illustrated in this report and also in the World Bank's northern coniferous forests (Crisp et al., 2004). The Mongolia Forestry Sector Review (researched 2002, lack of regular forest inventories makes it impossible to published 2004), the forest sector is in crisis. Lack of know the true extent or quality of forest resources. planning and active management, lack of inventory, loss of capacity, and corruption have together led to The sustainable annual harvest volume for Mongolia's a significant degradation of forest quality, and have forests has not yet been unequivocally determined, created virtual anarchy in the industry. Moreover, although the most recent calculations put the amount the forest sector suffers from poorly conceived and at between 0.9 and 1.4 million m3. The current rates uncoordinated government policy. This policy of consumption are difficult to calculate, due to the vacuum, combined with poor law enforcement and lack of reliable data and the differences of opinion the significant financial gains to be made from illegal concerning the annual household consumption of forest harvesting, is preventing the establishment of an fuelwood in areas outside the capital. The lower end of efficient and sustainable forest industry. the estimated consumption, 1.74 million m3 annually, is far above the sustainable harvest level, and the upper Mongolia's forest estate comprises predominantly end, 5.5 million m3, exceeds the sustainable harvest northern coniferous forests and shrub saxaul forests by a factor of five. Wood consumption also appears in the southern desert and desert steppe. It is the to be growing, due to factors such as the increasing northern forests that are increasingly under threat population, booming construction industry, high rates from commercial forestry, although the lack of a of migration to urban areas, rising incomes for some, management strategy for collection of fuelwood and and the privatization of land. timber for domestic construction means that wood resources are under pressure in areas throughout the The Mongolian government has followed a policy of country. Statistics on deforestation and forest deple- trying to reduce consumption by restricting supply, tion in Mongolia are confusing and often conflicting. and sets a low harvest limit each year--617,200 m3 Mongolia lost an estimated 4 million hectares of in 2006. Not only is this far below any estimates ­ 1 ­ Mongolia of actual annual consumption, creating a situation into the state budget ends up in private pockets. This where illegal logging and trade is bound to occur and is well known both in the industry, by government corruption is becoming endemic, but it is even lower officials, and by consumers; for example, information than the estimated sustainable harvest level, which has concerning the usual price of bribes was obtained the dual effect of denying the state its proper revenue without difficulty. Due to the domination of the from forest-use fees, and denying companies the op- forestry sector by the illegal economy, the available portunity to operate legally in the industry. The policy data on harvest, trade and consumption are generally has had no real benefit as far as the conservation of the unreliable and, in some cases, deliberately falsified to resource is concerned; illegal operators have stepped generate confusion--resulting in incorrect manage- in to supply the high demand for timber and have ment decisions. met no real resistance from the authorities charged with controlling the industry. Illegal timber, which is Immediate, effective, and realistic actions need to be readily available in Ulaanbaatar (85 to 90 percent of taken by the government to prevent long-term damage all wood consumed), artificially lowers prices, making to Mongolia's forest resources, to enable the sector to it difficult for legal operators to compete and ensur- contribute to the economy to the full extent possible, ing that demand remains high, as the materials are and to continue to provide necessary products for essentially subsidized. Mongolians. Although the Government of Mongolia has recently stepped up its measures to combat The forestry sector is thus dominated by the illegal illegal logging--for example, through high-profile trade, and in particular by networks of organized inspections--such actions have had little noticeable crime controlled by powerful individuals with contacts impact, and have failed to address the central and deep in the government, police, and judicial institu- underlying problems of the forestry sector in an tions charged with preventing the illegal trade. In adequate manner. Many of the necessary institutions, recent years, an increased emphasis by the government laws, and regulatory frameworks are already in place; on high profile inspections has resulted in forcing the Government of Mongolia now needs to recognize small-scale traders out of business, while leaving the the importance of this sector and increase the political large-volume, well-connected traders to continue will to reform it. The new Anti-Corruption Law and their business freely. At the same time, poverty and the work on governance in the environmental/natural unemployment forces people to work in the sector for resources sector supported by a major new World Bank very little reward, or to gather fuelwood for subsistence IDA grant should contribute to this, and the best way needs illegally. A lack of training and alternative to indicate the political will to address illegal logging livelihood opportunities for those previously legally would be by appropriate budget increases. employed in the industry, such as in former Soviet socialist forestry towns, means that a large number A long-term forestry strategy should be developed that of people have little choice but to continue with their comprehensively addresses all the actors in this com- activities. plex business, including programs designed to tackle corruption in the civil service as part of a far-reaching The role of the government is crucial in bringing reform; to prosecute the criminals who profit from order to the forestry sector. There are many obstacles the trade; and to provide workers with opportunities to effective management, including lack of financial to work legally in the sector, or to provide training for resources and human capacity; lack of clarity over roles alternative livelihoods. Instead of focusing exclusively and responsibilities of management and enforcement on restricting the supply of timber, government policy agencies; lack of a long-term strategy; inability to must balance these actions with a strategy to reduce retain high-level staff in the forestry sector, and poor the demand for certain types of timber, for example by policies and unclear legal and regulatory frameworks. using tax disincentives to downsize the industry and The problems are exacerbated by poor attitudes and promote efficiency and use of alternatives. In parallel motivation, work procedures, and accountability with measures to tackle the commercial illegal timber mechanisms at every level of the government. Corrup- trade, a national strategy should also be developed to tion is rife within all institutions associated with the cover fuelwood collection and supply to urban areas, trade chain, and much of the money that should go an urgent issue that is currently being overlooked 2 Wood Supply in Mongolia: The Legal and Illegal Economies and has led to high pressure on easily accessible forest those with a long-term interest in the sustainable use stands and in areas with limited resources. With the of resources, as well as opportunities for the rural imminent revision of the Forestry Law, more oppor- poor to benefit from Mongolia's forest resources. The tunities are expected to be created for the involvement Government of Mongolia should continue to explore of local communities in forestry. This is a promising these options. approach that can provide both civil oversight by 3 1. Forests and Forestry in Mongolia M ongolia is a landlocked Central Asian taiga of Siberia. The forest estate is therefore varied, country with a harsh continental but can be broadly divided into two types: the climate and similarly severe landscape, predominantly coniferous forests of the north ranging from high mountains to desert (boreal, montane, and mixed forest-steppe), and the at the lower elevations. From the cool, forested regions saxaul shrub forests of the southern desert and desert in the north, to the arid Gobi desert in the south, steppe. Mongolia's extreme climate means that forests the country is host to a range of different ecosystems. are slow growing, and therefore very sensitive to Historically, Mongolia has supported an extremely overexploitation. low population density, and although population size has doubled during the last 50 years, still there are Figures published in 1997 (Forest Management Proj- only 2.3 million inhabitants. Following the collapse of ect Centre, in Crisp et al., 2004) estimated that there the USSR in 1990, Mongolia is still in the process of are more than 16 million ha of actual wooded areas undergoing a period of social and economic change, in Mongolia. Mongolia's northern forests-- excluding with the government choosing to pursue a swift saxaul and other shrubs and brush in the south--ex- transition from a centrally planned economy to a tend over 11.5 million ha, of which 10.4 million ha market-based one. Unemployment and poverty rose are considered to be fairly intact (> 30 percent crown dramatically after 1990, and many urban residents closure), and 1.1 million ha are considered depleted. returned to the traditional livelihood of livestock Until recently, most forestry data were compiled using herding. Opportunities are now on the increase, and representative sampling techniques, with detailed a wave of migration to urban areas is taking place. surveys of some areas produced as needed for specific The proportion of Mongolia's population officially enterprises. A comprehensive survey by political registered as living in the capital, Ulaanbaatar, is division (aimag, soum) has been ongoing since 1996, 38 percent (Dore and Nagpal 2006), but the actual but the results of this study have yet to be released. figure may be even higher. Although it is now more Although the Mongolian Law on Forests requires than 15 years since the Soviet period ended, the a complete survey of the nation's forest resources country still remains relatively unknown to the to be conducted every 10 years, current capacities western world. and spending levels would allow for such surveys to be completed on average only once every 23 years (MNE, 2002). Forest Resources The Mongolian Law on Forests divides Mongolian Mongolia's territory spans the major transition zone forest resources into three zones as the primary basis between the deserts of Central Asia and the boreal for management: ­ 5 ­ Mongolia 2 The Strict Zone includes forest areas classified estimates that 47 percent of the total area is within as "sub-alpine," and those that lie within special the Strict Zone, 46 percent in the Protected Zone, protected areas, national parks, nature reserves, and 7 percent in the Utilization Zone, reflecting the and cultural monuments. Very limited exploitation government's current emphasis on natural resource in some areas is allowed for local fuelwood needs, protection and conservation. Given the current lack and for designated non-timber forest products of proper management, this approach is probably (NTFPs) such as pine nuts and shed deer antlers. prudent. 2 The Protected Zone establishes broad-scale restrictive "green areas" within 5 km around the Statistics on deforestation and forest depletion are periphery of the headwaters of major lakes and confusing and often conflicting. Nevertheless, it has rivers, 3 km on each side of major rivers, 1 km on been estimated that Mongolia lost approximately each side of a railway or major road, and a radius 4 million ha of forest in the last century, averaging of 80 km around big cities and 30 km around 40,000 ha/year, although the deforestation rate smaller towns. In addition, commercial forest increased during the last decade of the century to harvesting is prohibited on slopes over 30°, on approximately 60,000 ha/year (World Bank, 2003). forests less than 100 ha in size, within 50 m of The major causes of forest loss have been unsustainable the edge of a harvesting block, and in all saxaul timber harvesting (both permitted and illegal) for forests. The regulated collection of domestic timber and fuelwood, extensive crown fires,1 mining, fuelwood and harvesting of NTFPs are the only insects and disease, uncontrolled grazing, and long- forms of exploitation permitted. term climate change. 2 The Utilization Zone is a default category cover- ing the remainder of the forest. These forests are The application of clear-cutting forestry techniques designated for commercial timber harvest under from the former Soviet Union was clearly unsuitable permit and with fees paid to government. 1 It should be noted that occasional ground fires in forests, despite Different sources quote different percentages of widespread conventional wisdom, can be beneficial to the forest Mongolian forests within each category. The Mongolia stands, as burning of the undergrowth can reduce fuel loading and hence the risk of intense crown fires, and can also help in Forestry Sector Review (Crisp et al., 2004) refers to controlling insect pests and increasing NTFPs. Figure 1. Exports of Timber and Uncut Logs, 1992-1998 (`000 m3) 250 232 200 3) m 150 ('000 121 oulmevt 100 87.3 96.4 Expor 74.6 50 46.3 44.8 25.5 12 0.8 1.8 2,8 1.3 0.3 0 1992 1993 1994 1995 1996 1997 1998 Year Lumber Logs 6 Wood Supply in Mongolia: The Legal and Illegal Economies in Mongolia and caused great damage to the country's the changes in forest zonation and a lack of clarity limited forests. This practice has now effectively halted over what may be permitted in the general "protection in legal fellings. Since the 1990s, however, a variety of zone," leading to different assumptions on how much other unsustainable practices have taken hold. Particu- of the forest estate could contribute to the annual larly in the past few years, with the dramatic increase allowable cut (AAC). The most recent published in illegal logging, non-professionals have begun estimate for the sustainable AAC has been calculated harvesting small trees without proper planning or as 0.9 to 1.4 million m3 (Crisp et al., 2004).2 Recent equipment and without making provision for regenera- estimates3 by senior specialists in the Mongolian tion or effective replanting of cut areas. Although forestry sector produced a figure of no more than 1 there is a lack of empirical data on illegal logging, million m3. These estimates are thought to be more it is evident that this situation has had a significant realistic than previous figures; research by the Russians negative impact on the structure and composition of in Soviet times found that Mongolia should have the Mongolia's forest resources, especially in the forested capacity to harvest 4 to 5 million m3 of timber an- areas surrounding Ulaanbaatar. The timber industry nually,4 and Finnish researchers obtained an estimate is increasingly dominated by non-professionals who in the mid-1990s of 3 million m3. However, the typically cut the best timber from the most convenient large-scale, often illegal, and generally uncoordinated locations, trimming away all but the pieces they need logging practices encountered in Mongolia today and discarding the wood they regard as scrap. Prior to have led to a depletion of available forest resources 1990, logs were sent to timber mills for processing and in certain areas, particularly those within easy reach scraps were used for fuel. With the lack of organization of urban centers. In the short- to medium-term, it and widespread illegal activity in the forestry sector is likely that the disarray that has existed within the today, incomplete use is being made of the forest forestry sector means there are large amounts of timber resources--much of the wood is left where it was that can be extracted through thinning activities, felled, with additional trees being cut for fuelwood. which are necessary to maintain fire-resistant forest structure, and this will provide employment and In the 1990s, large volumes of timber were exported biomass for construction and energy needs. In the long from Mongolia, predominantly to the growing market term, Mongolia's slow-growing forests are unlikely to in China. The statistics on formal timber exports for be able to sustain the current demand for timber, and this decade are unreliable, and in reality it is possible efforts will be needed to find alternatives. that far greater quantities of wood were exported than official figures suggest (Figure 1). Many people did not obtain export licenses, and even those traders that were in possession of a license would smuggle wood out of the country or under-declare their loads in order to evade license fees, customs duties, and income tax. Concern over the state of Mongolia's 2 Restrictive zoning of Mongolia's forests has resulted in a fairly low forest resources led to a ban on the export of timber proportion of the estate legally available for exploitation. A rigorous in 1999, which appears to have been successful in analysis based on environmental and economic operability might be expected to release a further 25 percent of the current protected preventing timber from leaving the country. According zone for harvesting; therefore, the AAC is calculated based on all to a source from the Ministry of Industry and Trade utilization forests plus 25 percent of the protection forest estate. The (MIT), this initially led to a decrease in harvests, but calculation does not take into account accessibility of forest stands, and the fact that birch and aspen are not currently commercially in response to the rapidly growing domestic demand, harvested; these two factors may reduce the calculated AAC by a logging--and the sale of timber--has increased further 25 to 30 percent. dramatically in recent years, and may well be close to 3 This estimate assumes the exploitation of timber from the Khuvsgul that of the period before the ban. taiga region. It remains to be seen whether these forests can in fact be utilized in the near future, given the outdated technologies and lack of finance and infrastructure that confront the forestry There has not yet been a precise determination of how industry today. much timber can be harvested from Mongolia's forests 4 There was no zonation in place at this time, and this estimate is probably based on the total "operational" forest estate, equivalent on a sustainable basis. Existing data on this topic are to the current production zone plus about 55 percent of the general inconsistent. This is in part due to the confusion over "protection" zone. 7 Mongolia The Socioeconomic Context of management over where or how wood can be taken, Illegal Logging and no strategies in place for reducing demand in those parts of the country where timber resources are Illegal logging in Mongolia can be broadly divided under pressure. into three broad types, according to the socioeco- nomic context in which it occurs; (1) securing basic In urban areas, many people, particularly the unem- subsistence needs, (2) enhancing livelihoods, and (3) ployed poor--underprivileged families in ger districts, commercializing illegal logging. women, the elderly, and even children with spare time--cut timber illegally to meet their subsistence needs, both for heating and construction. As urban Securing Basic Subsistence Needs residents, these people are not eligible for fuelwood In rural areas, much of the fuelwood and timber and timber permits, but they cannot afford to buy used by families for construction is collected without wood from the markets and therefore do not consider permits, and is therefore technically against the law. that they are acting illegally. Many of the people who Although there is a permit system in place, it is not cut wood for their own needs also cut wood for sale at really designed to control collection to meet the certain times of year. subsistence needs of those who live in remote parts of the country, and therefore this cannot be truly Although the actual quantity of timber cut per person classified as illegal. Worryingly, there is no effective is not great, these activities can cause major damage In rural areas, many people harvest wood for their subsistence needs without an official permit. They do not consider their actions to be illegal. Image: Tset- segdelger, May 2006. 8 Wood Supply in Mongolia: The Legal and Illegal Economies to easily accessible areas; small trees that can be easily timber in trade, and the latter define the area of forest felled with handsaws are particularly vulnerable. from which a company can harvest timber. Some of Forest rangers are unable to control the harvest--they these businesses are the remnants of old timber mill are outnumbered, and their issuing of warnings or operations from the socialist era; others are newly confiscating sacks of wood has little effect. established groups that have managed to obtain permits through various contacts. Enhancing Livelihoods In addition to illegal activities by legally registered This category involves the greatest number of people companies, there are some very large groups engaged and is carried out both by individuals, particularly in illegal logging on a permanent basis that do not the unemployed poor, and more commonly by small have licenses or permits of any kind. These groups do groups of families, neighbors, and friends who sell not have the connections required to obtain a timber timber on a more organized basis. While illegal harvest allocation from the Ministry of Nature and logging is the primary form of income for some people Environment (MNE) or to obtain the proper permits, in this category, others cut timber only when they are but instead use their close ties with employees working in need of money. in the environment sector. These groups are highly organized, and run "professional" operations without Individual loggers mostly cut dry, dead timber for sale fear of being caught. Each group is usually controlled as fuelwood, but may also cut living trees. Logs are by one powerful individual, and has its own network sold by the side of the road for 4,000 to 5,000 Tg per of contacts at every stage of the operation, which bundle. These people prepare and sell timber principal- provides a means of escaping any obstacles. This may ly during the wintertime, typically cutting small trees well be the most difficult category of illegal loggers for and carrying them down into the city on their own, government bodies to tackle. or in some cases transporting logs on carts or sleighs. Larger trees are taken in winter, as they are easier to drag over the snow. Somewhat wealthier loggers, who Institutional Roles and Responsibilities for can deal in larger quantities, transport logs on horse the Management of Forest Resources carts. Many of the groups of people who regularly harvest timber for sale are residents of former forestry MNE is responsible for the development of policy towns (Box 1), where the legal industry collapsed and regulations concerning forest management. following the 1990 transition. These people may sell Development of forest policy is handled by the the timber locally, or they may sell it on to organized, Forestry Policy Coordination Division (FPCD) of commercial networks for sale in Ulaanbaatar. MNE, and implementation is by the Forest and Water Research Center (FWRC), one of MNE's two Commercializing Illegal Logging technical agencies. The FWRC was previously under the Water, Forest and Natural Resources Agency, Most illegally harvested timber is channeled through which was split to form this agency, and the separate this group, made up of businesses with forestry licenses "Water Authority," which handles all issues relating or by large, organized groups that conduct illegal trade to water (the title of the FWRC is in fact misleading, without the screen provided by a legal counterpart. as it is responsible only for forestry issues). FWRC is responsible for providing technical advice on forest The majority are companies licensed to operate in the resources, conducting inventories, developing aimag- forestry sector, having obtained permission to cut a and soum-level forest management plans, studying and certain amount of timber. Such companies can possess combating insect pests and diseases, and managing either an industrial or a fuelwood logging permit or seed collection and the operation of tree nurseries. both. The quantity of timber indicated in the license is A National Forest Policy was prepared in 1998, and unimportant as long as the company has an allocation later revised in 2001 as the National Programme on of some kind. These companies also frequently misuse Forestry (NFP). Coordination and implementation both certificates of origin and forest-use permits; the of this program is guided by the National Forestry former are required to establish the legal origin of Committee, an inter-ministerial group headed by the 9 Mongolia Box 1. Former forestry Towns: Few Alternatives Most of the groups of people who actually harvest timber on a regular basis are from socialist-era forestry towns, such as Tunkhel, Bugant, and Tosontsengel. With the collapse of the centrally planned economic structure and the failure of privatizations in the early 1990s, many factories shut down and left their employees out of work. Some of these unemployed forestry-sector workers come from a long tradition of timbermen and know no other profession. Others were sent in their youth from various corners of the country to establish the new forestry towns, where they were trained in the timber industry. Such people have spent most of their adult lives in the forestry towns, but have no close relatives there; some may wish to return to their native areas and their relatives, but have been away for too long. The lack of alternative employment and revenue-generating opportunities in these towns has left people with few livelihood options. A quote from the manager of one of the few old timber mills remaining in operation is illustrative: "Iknowallaboutthesepeople'slivesandtheirbackgrounds.NowIamresponsibleforthemandIcannotdo anythingtostopthem.Insomecases,Icoordinatetheillegalloggingactivitiesmyself,inordertoputbreadon theirtables." As these people do not have the money for transportation, fuel, or the skills or contacts required to pass through check points and inspections, they mostly sell the timber on-site in bulk. The profit is minimal, only enough to meet their basic needs; a much greater profit is made by the people who buy from them. The government has not taken action to retrain the populations of these "artificial" towns, or provide other income-generating opportunities; nor has it made any plans for definite action in the future. Thus this professional, trained workforce will probably continue to depend on the timber industry in the future. People in this group do not have logging permits, but are not ashamed of cutting timber without authorization. If challenged, they blame the policy and actions of the government, and demand that the government legalize their activities and provide support. They ask outsiders to voice their concerns to the relevant government institutions. Minister of Nature and Environment. The Ministry of and enforcing the implementation of environmental Industry and Trade (MIT) is responsible for regulating management plans produced as part of the environ- import and export of timber, and also consolidates and mental impact assessment (EIA) process. MNE has tracks applications for the harvest of industrial timber had a somewhat uneasy relationship with the SSIA, from processing and logging companies. and in 2005 an Office for the Coordination of Wood and Wood Materials Inspection was established under Responsibility for enforcement of forestry regulations MNE in an attempt to bring some of the inspection currently lies with the Government of Mongolia's responsibilities back under MNE's jurisdiction. This regulatory agency, the State Specialized Inspection was in fact found to be in violation of Mongolian Agency (SSIA), which until recently reported to the law, which states that inspections units should be prime minister's office, but now is headed by a separate kept separate from the ministry that established the minister. The agency has an Environment, Geodesy regulations. In February 2006, the office was abolished and Cartography Inspection Department, which following a decision by the Ministry of Justice and has a range of responsibilities, including monitoring Internal Affairs. Building a criminal case for the 10 Wood Supply in Mongolia: The Legal and Illegal Economies prosecution of illegal loggers and traders is as the previous distinction was in fact not particularly the responsibility of the police force, which does meaningful. These maximum quantities are further not yet have any staff specialized in environmental subdivided among aimags, and the industrial quotas investigation. are allocated to organizations. In recent years, the ministry has followed a policy of keeping these limits Increasingly, the central government is delegating at a fixed level; approximately 40,000 m3 for timber responsibility for natural resources and environmental production and 600,000 m3 for fuelwood. administration to the aimag and soum level. Imple- mentation of forest policy and regulations at the The procedures for setting and allocating the AAC are aimag level is through their environmental protection as follows: agencies. At the soum level, forest and water issues are the responsibility of the forest rangers. Rangers are 2 Each soum with timber resources submits to the responsible for patrolling forests designated for utiliza- appropriate aimag administration a proposal tion and also protected areas, and for issuing permits indicating the volume of timber it wishes to be for fuelwood and private-use timber harvesting. harvested from its territory the following year. Responsibility for inspection is also largely handled The aimags consolidate these requests and forward at the local level; in 2005, there were three or four them to MNE. Applications for industrial timber environmental inspectors for each of the 21 aimags, production are also submitted to MIT. and Ulaanbaatar had 18 aimag-level inspectors and 16 2 Meanwhile, each timber processing or logging inspectors reporting directly to the Ulaanbaatar city company also submits to the relevant aimag government. There were about 340 inspectors at the administration an application for permission to soum level. harvest a specific volume of timber in the follow- ing year.6 MIT consolidates the industrial timber production applications received from all aimags Procedures and submits an aggregate proposal to MNE. 2 MNE reviews all proposals and applications, then sets a maximum limit for timber harvesting in Setting Maximum Harvesting Volumes and Issuing the upcoming year. This AAC is divided among Logging Licenses those forested aimags that have applied to harvest The national maximum timber harvest levels are timber, and again subdivided by the aimag determined by MNE at the beginning of each year. governors among the soums. The administration Previously, the AAC had been assigned to four of each soum allocates its annual timber harvest categories--industrial timber, private-use5 timber, according to the territory monitored by each fuelwood, and wood collected from forest thinning and cleaning activities (Table 1). In 2006, the timber from forest thinning was included within the limit for 5 Private-use timber is understood here as timber not processed by a private use timber--considered to be an improvement, commercial industry at any point, although it may be traded. Table 1. Harvest Volumes ('000 m3) Approved by MNE (2001­2006) Private-use Wood from thinning/ Year Industrial use timber Fuelwood clearing Total volume 2001 72.6 n/a 603.5 n/a 676.1 2002 39.0 n/a 580.0 n/a 619.0 2003 39.5 10.0 571.0 2.0 620.5 2004 44.3 18.5 585.0 5.0 647.8 2005 39.9 -- 570.0 -- 609.9 2006 32.5 14.0 570.7 n/a 617.2 11 Mongolia forest ranger. Areas suitable for industrial timber the location of origin of the wood in question. Such production are identified by the FWRC. permits are issued by MNE to the companies that have 2 Following decentralization of decision making been allocated a harvest quota under the industrial in 2005, responsibility for the allocation of the timber allocation that year. Although the certificate industrial timber harvest is being transferred from of origin no longer serves its original function, having MNE to aimag governors, who allocate their now become essentially a permit to transport timber, quotas among the applicant companies. In 2006, for forestry companies it is the most difficult docu- aimag governors had control over 50 percent of ment to obtain--yet most essential to avoid expensive the total quota, with the remainder under the bribes. Despite the importance of the certificate of control of the MNE. origin, there is evidence that these documents, and 2 Once industrial timber quotas are allocated, the also forest-use permits, are regularly being misused deputy-governor of the soum administration (Chapter 3). transmits the "Certificate of Origin for Timber and Raw Wood Materials" (hereafter referred to Certificates of origin are not issued for off-cuts or as the certificate of origin) prepared by MNE to wood chips, but in recent years some transporters of the appropriate licensees within his or her jurisdic- scrap wood have had their loads seized on the grounds tion. In addition to this certificate, the logging that no certificate of origin could be produced. As company must also possess a forest-use permit. businesses can only use the certificate of origin to Fees are collected by a soum-authorized official sell finished timber, large quantities of off-cuts are (typically the environmental inspector). discarded as unusable waste, despite the utility of this 2 The Citizens' Representative Council of each biomass for fuel supplies. aimag allocates private-use timber and fuelwood production limits among its respective soums. The soum forest ranger is responsible for setting the Permits for Private Use Timber and Fuelwood locations from which these types of timber can In rural forested areas, permits can be issued allow- be cut, and issues logging permits in exchange for ing the holder to cut about 30 m3 of timber for the the payment of a forest-use fee. This permit serves construction of a private house, or a varying amount both as a receipt for payment and as a license for of fuelwood--issued in quantities of 2, 4, 6, or up the preparation of fuelwood. to 12 m3, depending on the soum. The numbers for fuelwood have recently been revised downward A conflict of interest exists at the level of the aimag ad- from figures of 8­30 m3, recognizing that these were ministrations, which are urged by MNE to minimize too high for the purposes required, in an attempt timber harvests but at the same time depend on the to regulate unsustainable use. If more fuelwood is forestry-generated revenues planned by the Ministry of required, more than one permit can be issued. Permits Finance (MoF). Local authorities have a stronger inter- are usually only available to rural residents, following est in pushing for the maximum possible quantities of payment to the forest ranger responsible for the area timber to be harvested in order to generate increased from which the timber is to be cut. The permits for budget revenues than in encouraging the sustainable cutting timber for house construction are not issued harvest of their forest resources. The majority of the in large numbers, and once a family has received revenues generated from forestry fees (85 percent) a permit, they will not be eligible for another for a are supposed to be reinvested in conservation of the number of years. The fuelwood permit must be shown resource in accordance with the Mongolian Law on to bring the fuelwood into a city. It is often used Reinvestment of Resource Use Fees for Conservation repeatedly--although it shows the allowed quantity (2000). In practice, this rarely occurs. of timber on it, it is not marked when inspected. The governors of some soums refuse to authorize urban Certificate of Origin In order to transport and sell timber intended for 6 commercial use, businesses and other organizations A company wishing to harvest timber in more than one aimag need only submit one application. MNE would specify on the permit the must possess a certificate of origin, intended to verify amount of timber that could be harvested in each aimag. 12 Wood Supply in Mongolia: The Legal and Illegal Economies residents from the aimag centers to cut fuelwood, but resources of their own beyond the extremely limited insist on supplying only local residents. saxaul shrub forests, a central fuelwood shipping and distribution point was established at Choir. The issue of fuelwood supply to urban areas is The organized supply of fuelwood to the capital city currently being overlooked; there is an absence of stopped in 1990. Up until three or four years ago, any policy, production and distribution system, or large enterprises such as Mongolian Railways, military organization responsible for the supply of fuelwood to units, and Monrostsvetmet7 would order and prepare the capital city or other parts of the country. While fuelwood in bulk for distribution to their employees. there was also no official plan concerning fuelwood The only body that still prepares fuelwood today is the production prior to the 1990s, fuelwood supply Municipal Care Organization, which prepares 10,000 and distribution were well-organized according to m3 of fuelwood annually and distributes 2 m3 loads to a functioning system. Policy was focused on using the elderly and to impoverished families. off-cuts from timber production as firewood, making the most efficient use of resources and channeling fuel Permits to cut timber for the production of private-use to where it was required. A Fuelwood Agency employ- timber are not granted to inner-city residents of Ulaan- ing 60 to 70 people used to be responsible for meeting baatar because there is no local area from which wood the fuelwood demands of Ulaanbaatar, supplying can be cut; instead, residents must buy their timber 150,000 to 200,000 m3 of wood annually. Timber was and fuelwood from individual traders or from the obtained from various regions in Tuv aimag, as well wood markets. MNE sets relatively higher limits for as from the green areas under the jurisdiction of the municipality--Ulaistai, Terelj, and Tuul. To supply the aimags of the Gobi region, which have no timber 7 A joint Mongolian-Russian mining company. Fuelwood on sale in a residential area on the outskirts of Ulaanbaatar. Image: Bryony Morgan, May 2006. 13 Mongolia fuelwood preparation in the soums of Tuv and Selenge for fuelwood each year, but residents of the city itself aimag near Ulaanbaatar, in an attempt to meet the are not eligible. Therefore they are forced either to city's fuelwood demands by allocating approximately purchase wood from markets at a high price or to cut 80,000 m3 of timber annually for this purpose. The wood illegally. As a result, many people do not view Office of the Environment of Ulaanbaatar City grants cutting timber from the mountainside for their own a limited number of permits to households in the private use as theft. green areas of the municipality to cut 2 m3 of timber 14 2. Wood Consumption S ince the collapse of the centralized economy, Table 2. Estimated Annual Wood Consumption by no institution has assessed and categorized Category (million m3) 8 overall timber demand or consumption in Mongolia. Statistics are of poor quality, and Fuelwood 0.6­ 4.38 are often found to change. To produce an estimate of Private-use timber 0.59 consumption for this report, we compared available "current" data with previous statistics, and held Industrial timber 0.54 additional consultations with relevant officials. Total: 1.74­5.51 National Timber Consumption "Industrial" and "private-use" timber are differentiated Total annual timber consumption in Mongolia seems not by the end-user of the wood, but by the manner in to be within the range of 1.74 to 5.5 million m3; actual which the wood is processed. For example, the wood consumption is probably toward the upper end of used to produce ger9 frames and furniture is consid- this scale. This large variation is due in particular to ered industrial timber, as the timber is processed in disagreement over national fuelwood consumption, commercial workshops. The timber cut and prepared with estimates differing widely (Table 2). by families for use in constructing private fences and homes, on the other hand, is classified as private-use It should be noted that the upper end of this timber, since it is not industrially processed. estimate--5.5 million m3--is significantly higher than estimates that have been produced in previous No accurate figures exist on the proportion of the years; for example, 1 to 3 million m3 in the Mongolia total wood consumed that enters market circulation. Forestry Sector Review (Crisp et al., 2004). This is During the course of this research, we formed in large part due to the figures for annual fuelwood opinions on the volume of wood entering trade, consumption produced by the National Statistical based on the likelihood of the end-users in different Office (NSO) in 2004, which based calculations on a regions buying timber versus directly obtaining their higher annual household consumption than previously used in estimates (see section below on fuelwood for discussion). Demand for timber for use in construc- tion is also thought to be growing, in large part due to 8 Private-use and industrial timber consumption are not expressed in roundwood equivalents, and actual consumption in these categories the number of people migrating to Ulaanbaatar and will therefore be higher than stated. widespread construction of wooden houses. 9 Traditional Mongolian tents. ­ 15 ­ Mongolia own supplies. The authors assumed that all industrial Poor families cut and sell wood as a means of earning timber in Mongolia reaches its end-user after having money to cover for occasional or unexpected needs, been sold at least once. In addition, the results of such as medical expenses, a funeral, or the construc- the survey of khoroo governors (Figure 4) revealed tion of a home. that the vast majority of fuelwood in Ulaanbaatar is traded, although a small proportion of residents In Ulaanbaatar, the peak consumption period for will endeavor to cut their own supplies directly, private-use timber is during the four summer months, and the poorest households that cannot afford to when the majority of construction occurs, while the buy supplies will obtain fuelwood from a number peak season for fuelwood consumption corresponds to of sources. The same is likely to be true for private- the four winter months. Peak sales occur just ahead of use timber. In other parts of Mongolia, nomadic these periods, as illustrated in Figure 2. families and households in soum centers prepare much of the fuelwood and timber for construction Industrial Timber on their own--perhaps 10­15 percent of private- use timber might be traded, and 35 percent of In order to assess the actual consumption of industrial fuelwood. timber, data were sought from a variety of sources, including statistics on the production of timber and Timber harvesting occurs year round, but reaches its wood products compiled by the NSO; informa- peak in August and again just before and after the tion concerning the proportion of wood entering traditional Lunar New Year, as people cut timber from Ulaanbaatar and sold on the market as industrial the mountains in order to generate extra income to timber; and details of the AAC allocated by MNE pay for their children's school tuition, their family's for the preparation of industrial timber. Faced with winter food reserves, or New Year celebrations. The considerable irregularities in the official records, timber price goes down during these periods, reaching we obtained an informal assessment from a senior its lowest point at the Ulaanbaatar timber markets just specialist from MIT (600,000 m3 per annum, Box before the traditional Lunar New Year celebration. 2) and from the (former) Water, Forest and Natural Figure 2. Illustration of Estimated Relative Sales Volume of Wood by Month 12 10 8 units)y (arbitrar 6 oulmev alesS4 2 0 J F M A M J J A S O N D Month Commercialtimber Fuelwood `Commercial timber'refers to both industrial and private-use wood. 16 Wood Supply in Mongolia: The Legal and Illegal Economies Box 2. An Estimate of Industrial Timber Consumption (Sawn-wood) "First,ourcountryusedtopreparetwomillioncubicmetersofindustrialtimberannuallyduringthesocialistera.Then asnow,themainconsumerofindustrialtimberwastheconstructionsector,andinrecentyearsthissectorhasbeen booming,reachingtheformerpeaklevelsitattainedduringthesocialistera.Thesetwomillioncubicmetersoftimber weremostlyorderedbyourministryandusedforindustrialpurposes.Althoughthereisdocumentationconcerning apparenttimberexportstoRussia,inrealitythattimberwasusedfortheconstructionofbuildingsbuiltinMongolia withtheassistanceoftheRussians.Thetimberwasrecordedas"exports"becauseitwaspaidforbytheRussians,but thetimberwasneversenttoRussia;itwasusedintheconstructionsitesofUlaanbaatar'smicro-districts. "Secondly,theMinistryofIndustryandTradereceivesapplicationsfromcompaniesaskingforpermitstoharvest timber,totallingabout150,000m3ayear.However,theseapplicationscomeonlyfromthosecompaniesthathave registeredwithourministry.Therearealsomanycompaniesthatarenotregisteredwithus,companiesthatarenot awareoftheregistrationprocess,andcompaniesthatareawareoftheprocessbutdonotapplytotheministry becausetheyknowthatinanycasetheyareunlikelytoobtainalicensefortheamountforwhichtheyapply. "Thenumberofapplicationshasbeendecreasinginrecentyears.Applicationsaresubmittedonlyforthesakeofget- tingone'snameinthelistofallocations,withtheexpectationthatmostoftheactualharvestvolumewillbelogged illegally.Withthiscurrentsituation,theamountappliedfor,150,000m3,isseveraltimeslessthantheactualdemand. "Inaddition,thelifestylesandlivingstandardsoftheMongoliansarechanging.Peoplearebuildingmoreprivate homes,doingrepairs,andpurchasingmorehomefurniture.Astheirlivingconditionsimprove,theyprefertobuy woodenproducts. "Basedonthesevariousfactors,Iconcludethattheminimumnationaldemandforindustrialtimberis600,000m3." Source: Senior forestry specialist, MIT Resources Agency10 (500,000­600,000 m3 per industry. There was a discrepancy among figures annum). These estimates were verified by surveying concerning the actual number of companies operating companies in the timber processing industry. There is in the forestry sector nationwide (Table 3). The figures good evidence that the national yearly consumption from the National Taxation Authority were considered of industrial timber is at least 540,000 m3. This figure to be the most reliable of the three, as the tax records is for sawn-wood. The harvest of roundwood would showed that these companies were all active, paying be much higher--the Mongolia Forestry Sector Review taxes varying from 1,000 Tg to 211 million Tg in (Crisp et al., 2004) estimated a recovery rate of 40 per cumulative tax as of the first half of 2004. The figures cent. Consumption of industrial sawn-wood in the categorized a total of 678 companies as follows: Mongolia Forestry Sector Review is given as 135,000 to 400,000 m3 annually.11 These new estimates suggest that these figures may have been on the low side. 10Now named the Forest and Water Research Center. 11At a recovery rate of 40 percent this translates into a roundwood Efforts were made in this study to establish the timber harvest of between 340,000 and 1 million m3. The Mongolia Forestry Sector Review (Crisp et al., 2004) did not distinguish consumption by companies in the wood processing between private use and industrial timber. 17 Mongolia 2 Producers of construction materials and compo- annually by these companies would be expected to be nents (175) considerably higher. 2 Producers of other wooden and woven products (207) The survey revealed that the processors are consuming 2 Producers of wooden panels (48) volumes of timber orders of magnitude higher than 2 Producers of wooden crates and containers (36) the AAC set by MNE, which in 2006 was 32,500 m3. 2 Producers of timber (123) This was revealed openly by the companies. It should 2 Logging companies (89) also be noted that many of these manufacturing businesses are currently operating below capacity, After excluding the logging companies from this predominantly due to the lack of raw material, or list, the remaining 589 manufacturers of finished by naively overestimating the sustainable supply, as products were divided into three groups, according to has happened in many other parts of the world. If the quantity of their registered capital (see Appendix licensing were unrestricted and timber more readily B and Table 4). Representatives of ten or more available, these companies would have the capacity to companies from each group were interviewed to obtain process nearly 1.2 million m3 of timber annually. figures for their annual timber consumption. The companies selected for interview were spread among the different categories12 within each group; the timber Private-Use Timber consumption quoted by the different company types The nationwide private consumption of timber was were comparable. Therefore, it was decided to calculate calculated separately for Ulaanbaatar and for the rest the mean timber consumption for each group and of Mongolia. Rural timber consumption is estimated use this to estimate total consumption by the wood to be 75,000 m3 per annum (Table 5). Adding the processing industry. Ulaanbaatar private timber consumption of 450,000 m3 (Table 8 and following text) brings the estimate These calculations produced an estimate of 582,900 for the annual nationwide demand for private-use m3 timber consumed annually by the 589 forestry timber to about 525,000 m3. In Ulaanbaatar and product manufacturers in Mongolia. However, as there in some of the larger aimag capitals, a certain is some overlap between the consumption figures for percentage of newly built houses are constructed companies producing timber and manufacturers of using industrially processed timber. Therefore, finished products, a more conservative estimate was there may be some overlap between this category derived by deducting 50 percent of the total consump- and the industrial timber category--perhaps 30 tion of the companies producing sawn timber, equiva- lent to about 46,500 m3. This resulted in a revised estimate of 536,400 m3 of industrial timber consumed annually. As the raw materials for all companies except 12Although the companies were officially registered in one of the six those producing timber would be sawn-wood, not categories, most produced goods in more than one category and roundwood, the total volume of roundwood consumed there was therefore less difference between the companies' annual timber consumption than may otherwise be expected. Table 3. Number of Companies Operating in the Forestry Sector (June 2004) Source Ministry of National National Industry and Statistics Taxation Trade Office Authority Rural 90 131 406 Ulaanbaatar 66 61 272 Total 156 192 678 18 Wood Supply in Mongolia: The Legal and Illegal Economies Table 4: Timber Demands of Forestry Product Manufacturers (June 2004) Present annual timber Maximum processing Companies by Number of consumption (m3) capacity (m3) registered capital companies Per company Total Per company Total Up to 10 million Tg 279 300 83,700 500 139,500 10 to 50 million Tg 241 1,200 289,200 2,500 602,500 Over 50 million Tg 70 3,000 210,000 6,000 420,000 Total 589 582,900 1,162,000 Large amounts of high-quality timber are available to supply the wood processing industry. Image: Bryony Morgan, May 2006. 19 Mongolia Table 5. Annual Nationwide Demand For Private-Use Timber (excluding Ulaanbaatar) Number of Timber volume Total timber Form of private timber use units required per unit (m3) volume (m3) Private house constructiona (6x8 m) 591 19.2 11,347 Fence construction 1,970 8 15,760 Sheds, storehouses, etc. (3x4 m) 1,970 3.0 5,910 Outhouses (2x2 m) 1,970 0.9 1,773 Enclosed New 766 9.8 7,507 livestock pensb Repairs 3,675 6.6 24,255 Unenclosed New 733 3.4 2,492 livestock pens Repairs 3,310 1.7 5,627 Total 74,671c a. To estimate the number of new private houses built each year, we assumed that 30 percent of the households receiving land permits in a particular year would build new houses. We obtained the number of issued land permits from the State Cadastral Department. We also assumed that all households that received a land use permit would construct a wooden fence surrounding the property, a shed, and an outhouse. The average size of the lots was estimated as 20×20 meters. b. To estimate the number of new livestock pens, we used the average annual nationwide increase in the number of livestock pens based on data from the last three years (Statistical Bulletin, 2003, National Statistical Office). To estimate the number of livestock pens that would be repaired, we assumed an annual repair rate of 10 percent for all unenclosed pens and 5 percent for all enclosed pens. The quantity of timber required for the construction of pens was calculated with the help of a livestock-owning forest ranger (see Appendix C). c. Insofar as this estimate is based on official data alone, it is considered to be lower than the actual figure due to the relatively common practice of constructing houses and fences without official land permits in rural areas. Lately, many households have been migrating from the countryside toward aimag centers, creating small neighborhoods grouped by their native soums. Most of these migrants do not obtain proper land permits and settle in locations without electricity or water. percent of the volume calculated for private-use trees are being used, but approximately 500 logs, each timber in Ulaanbaatar. This was not included in 2.60­2.80 m long, are used to construct a five-story the calculations due to the lack of reliable informa- building--equivalent to about 30 m3 of timber. tion--the calculations in this category are considered Builders prefer to use freshly cut poles as scaffolding, conservative in any case due to the large numbers but once they can no longer be used for this purpose of families constructing houses and fences without they will be used in domestic construction or as permits. Industrially processed timber is also used for fuelwood. windows, doorframes, staircases, and other parts of the house requiring a higher quality finish; this is not included in the calculations below. Fuelwood Domestic fuelwood consumption has been estimated Another use of timber--not included in this assess- in a number of other studies. The Household Living ment--is the use of smaller-sized trees as mining Standards division of the NSO estimated demand props and lately as scaffolding in the construction of in 2004 at 4.6­4.7 million m3; the World Bank's molded concrete buildings. As these trees are not pro- Mongolic Forestry Sector Review in 2004 quoted cessed by sawmills but are brought directly by traders various estimates of between 0.6­2.3 million m3; and to the mining and construction sites, the quantity of the UNDP in 2002 estimated demand at 1.3­1.5 such wood is not included in any compiled data or million m3 (Report on the Project to Develop Forestry reports. It is difficult to assess how many smaller-sized Policy and Programmes). Fuelwood may have been 20 Wood Supply in Mongolia: The Legal and Illegal Economies Poles being used in construction on a building next to the State Department Store, Ulaanbaatar. Image: Bryony Morgan, May 2006 substantially underestimated in studies prior to the that consumption by households is higher in forested NSO, due to the lack of data on consumption in areas steppe areas than in the arid Gobi; these differences outside Ulaanbaatar. It was not possible to critique the were taken into account in the calculations by the calculations performed by the NSO, nor to verify the NSO. figures through assessments in the field; the range of estimates is included in the report. Table 6 shows the calculation of the higher end of the range, with figures Ulaanbaatar Timber Consumption for Ulaanbaatar taken from a World Bank report, and figures for other parts of Mongolia taken from those As there was no means of accurately determining the produced by the NSO. These were the figures that types and quantities of wood sold in Ulaanbaatar, sales most closely matched those produced by households volumes were calculated indirectly through an analysis in surveys based on recall; however, this method is of timber consumption. According to this estimate, intrinsically unreliable. total wood consumption in Ulaanbaatar amounts to approximately 1.16 million m3 annually. The estimated Households in urban areas increase their consumption consumption of fuelwood and private-use timber is of fuelwood in winter, while households in rural calculated as equal, with each category making up 39 areas increase their fuel consumption in the summer percent of the total, while industrial timber consump- months due to their seasonal processing of traditional tion is roughly half that of the other two categories, at dairy products. A more detailed analysis would show 22 percent (Figure 3). 21 Mongolia Table 6. National Fuelwood Demand (m3) Number of householdsa using Annual fuelwood consumption per Total consumption (as of 2002) householdb (m3) (million m3) Ulaanbaatar 99,000 4.7c 0.46 Aimag centers 135,400 10.4 1.40 Soum centers 85,288 12.9 1.10 Countryside 159,877 8.8d 1.40 Total 479,565 9.2 (average) 4.38 a. The number of households using fuelwood was obtained from the National Statistical Office (NSO). b. Annual consumption per household was taken as the lower of the two sets of figures produced by the NSO, reflecting the number of households that use fuelwood and the distribution of firewood use among all households. The estimates of annual household consumption were verified by surveying residents from the different categories at terminal bus stations in Ulaanbaatar; however, surveys based on recall are inherently unreliable. c. Annual consumption in Ulaanbaatar is lower than other categories, since many households use a mixture of wood, coal, and electricity for their energy supplies. This figure is taken from the World Bank Monitor (2004), which was closer to the survey results. d. Annual consumption in the countryside is lower than in the aimag and soum centers, as herders also use dried animal dung. Figure 3. Annual Consumption of Wood in Ulaanbaatar Fuelwood39% Industrialtimber22% Private-usetimber39% While it is considerably easier to calculate consump- be noted that a significant number of individuals tion for Ulaanbaatar than for the rest of the country, manufacture wooden products at home, without a the large proportion of informal and unregistered registered business, and sell their goods at the Zuun activities in the city presents a challenge. Based on a Ail and Narantuul markets. Such products are not survey of khoroo governors13, it was estimated that included in any wood consumption category. there are 336 families in Ulaanbaatar that privately saw timber they cut themselves from the surrounding mountains. In addition, there are 1069 families that cut, chop and sell timber as fuelwood. There are also 13 A survey was conducted by questionnaire among 77 governors of 2690 household businesses that purchase wood in bulk the 121 khoroo (urban sub-districts) in nine duureg (districts) of Ulaanbaatar, to assess the usage of fuelwood and commercial and and resell it in smaller quantities. In addition, it should household timber. 22 Wood Supply in Mongolia: The Legal and Illegal Economies Table 7: Annual Consumption by the Timber Processing Industries in Ulaanbaatar (data collected June 2004) Present timber usage volume Maximum processing capacity Number of per year (m3) (m3) timber and wood product manufacturers in Ulaanbaatar Per company Total Per company Total Up to 10 million Tg in registered capital 116 300 34,800 500 58,000 10 to 50 million Tg in registered capital 98 1,200 117,600 2,500 245,000 Over 50 million Tg in registered capital 37 3,000 111,000 6,000 222,000 Total 251 263,400 525,000 Industrial Timber citizens wishing to construct private houses and Calculations of the timber consumption of Ulaan- summer residences. As of 2003, land permits had baatar's wood processing industry were made by been issued to a total of 6,381 households from nine surveying companies; a subset of the data collected for districts. the calculations of national industrial demand. There are currently 251 companies and two NGOs registered Most of the private homes built in ger districts in Ulaanbaatar as timber and wood product manufac- in Ulaanbaatar are one-story buildings with an turers (Table 7), representing 37 percent of Mongolia's average floor area of 6×8 m. Residents who build forestry companies and processing approximately 48 summerhouses are generally wealthier, and therefore percent of the nation's industrial timber. The mills typically construct two-story houses that are typically in Ulaanbaatar are usually large and have compara- 10×12 m in area, situated on relatively larger lots. tively large capacities, with an annual consumption All lots are usually surrounded by fences, which estimated14 as 256,000 m3. Many companies locate tend to be very roughly sawn, making use of off-cuts their mills in rural areas because of the advantages and bark. Not all households in possession of land conferred by proximity to raw materials, ease of tax permits are actually able to construct private homes, evasion, and lower chance of inspections. Therefore, but single lots are often used for the construction it can be assumed that Ulaanbaatar is actually the of several residences--particularly in the case of main consumer of industrial timber from these rural summerhouses--and therefore it was assumed that mills although it was not possible to demonstrate this on average it was possible to take the number of land empirically. permits issued as roughly equal to the number of new houses. Based on calculations of the volume of timber, we estimated that an average of 287,800 m3 of wood Private-Use Timber is used annually by Ulaanbaatar residents for private Most of the private-use timber in Ulaanbaatar is used purposes (Table 8). in the construction of private houses, various types of fences--for homes, office buildings, and livestock--as well as sheds and outhouses. There are no reliable data on the number of private homes and summerhouses 14 In the same way as was calculated for the national timber being built in Ulaanbaatar. The District Land Units consumption, 50 percent of the consumption of the companies were consulted to determine the number of land producing sawn timber in Ulaanbaatar (7,500 m3) was subtracted permits issued by the district administrations to from the total consumption calculated for Ulaanbaatar. 23 Mongolia Table 8. Annual Private-Use Timber Consumption in Ulaanbaatar (2003) Timber requirement for each Form of use Quantity unit constructed (m3)a Total volume of timber (m3) New house in ger district 5,305 19.2 101,856 New summerhouse 2,153 55.15 118,738 New fenceb 7,458 8 59,664 New outhousec 8,380 0.9 7,542 Total 287,800 a The volume of timber required for the building of a private house was based on calculations by the Industry and Service Department of the Municipality of Ulaanbaatar and engineers from the Ulaanbaatar Urban Services Improvement Project (USIP) (see Appendix C). b We estimated that 90 percent of those who received land permits would build fences surrounding their lots, measuring on average 20×20 m. c We estimated that all households that received land permits for the construction of private houses in ger areas--and 70 percent of households that received land permits for summer occupancy--would build wooden outhouses in any given year. In addition, large numbers of families migrating to Unit in October 2004 revealed that 6,000 households Ulaanbaatar from rural areas have constructed fences had already built fences without permits in the previ- and houses without official land permits. The land use ous 15 months. Authorities are now discussing the inspection conducted by the Ulaanbaatar City Land possibility of issuing post hoc land permits for 4,000 of Houses and gers on the outskirts of Ulaanbaatar; plots are separated by roughly sawn fences. Image: Bryony Morgan, 2006. 24 Wood Supply in Mongolia: The Legal and Illegal Economies Woman cutting fuelwood for sale at an Ulaanbaatar timber market. Image: Bryony Morgan, May 2006. these 6,000 households. It was estimated that at least Fuelwood 162,000 m3 of wood must have been used to build fences and houses in these unauthorized settlements. Due to the high rates of migration to Ulaanbaatar, From this it was concluded that the annual consump- and the fact that many of these families were not yet tion of private-use timber in Ulaanbaatar must be at officially registered, it proved difficult to obtain an least 450,000 m3. As this figure refers to sawn timber, accurate figure of the number of households using a considerably greater volume of raw timber must be fuelwood in the capital. However, the different cut from the forest to obtain this amount. institutions consulted did provide broadly concurrent figures concerning the official number of households The consumption of private-use timber in Ulaanbaatar heating their homes with stoves burning solid fuels. was higher than expected. Government officers were The Ulaanbaatar Statistical Office reported 99,747 unaware of the high demand; some even believed that households, and MNE reported 99,000 households the total consumption amounted only to 39,000 m3, using such stoves at the end of 2003. The survey of the limit for production of sawn-wood established khoroo governors calculated 98,995 officially regis- by MNE in 2005.15 However, timber traders and tered households using fuelwood in Ulaanbaatar, in forestry industry businessmen believed that the figure addition to an undetermined number of unregistered of 450,000 m3 could easily be true, since timber flows into the city almost around the clock every day of 15 This limit was entirely allocated to industrial sawn timber in 2005; the year. no allocation was made for private-use timber. 25 Mongolia households, likely numbering into the thousands in The survey of khoroo governors was also used to each district. For this report, we assumed that 99,000 estimate the sources of fuelwood used in Ulaanbaatar households were using fuelwood. (Figure 4). The respondents listed the primary source for households; in reality, households will often obtain The annual average fuelwood consumption per house- fuelwood from more than one source. The survey hold has been variously reported as 8.2 m3 (NSO), 3 divided households into four main categories, includ- m3 (Improved Stoves Project), 4 m3 (MNE), and 4.7 ing those who: m3 (World Bank, 2004). The last of these estimates was considered to be the most reliable and was used in 2 bought their fuelwood from the market; these calculations. The figure was verified by surveying 2 bought their fuelwood from other sites; residents at four bus stations in ger districts of Ulaan- baatar, which produced a similar estimate. Multiplying 2 were able to purchase fuelwood, but instead chose the total number of households using fuelwood by the to harvest timber; annual average household fuelwood consumption, we 2 were too poor to purchase fuelwood, and instead calculated an estimated annual fuelwood consump- relied on stealing or gathering scraps of fuelwood. tion of 465,300 m3 for Ulaanbaatar. Although some company guard posts, kiosks in ger districts, and This last category--the poorest households--was offices in the outskirts of the city also use fuelwood, broken down further into subcategories by the these are relatively minor and were excluded from the respondents (Figure 4). In addition to these primary present calculations. sources of fuelwood, an important secondary source Figure 4. Sources of Fuelwood in Ulaanbaatar 80,000 70,000 60,000 Pickedfromgarbage Stolenelectricity 50,000 Stolenwoodandcoal Gatheredfromforests Unspecified 40,000 Households 30,000 20,000 10,000 0 Purchasedfrom Purchasedfrom Harvestedfrom Stolenor market anothersite forests gathered Figures refer to the number of households, as estimated by khoroo govenors. Total number of households listed here is 98,884; total number of registered households using fuelwood in Ulaanbaatar according to the survey is 98,995. It should be noted that although households were assigned to one category primarily, in reality they will use a mixture of sources. A secondary source of fuelwood for many poor families that cannot afford to buy supplies (stolen or gathered category) is from charity. The survey estimated that 7,648 of these households received donations, which are usually only 2m3 and therefore must be supplemented from another source. The category "stolen electricity" refers to the number of households currently thought to rely on stolen electricity. As the electricity companies are currently tightening controls over theft, these households will be forced to use fuelwood in the near future and are therefore included in the graph. 26 Wood Supply in Mongolia: The Legal and Illegal Economies of fuel for the poorest households is from charities Influences on Timber Consumption such as the Municipal Care Organisation--donations of 2 m3 of fuelwood were given to an estimated 7,648 In recent years the demand for timber, particularly households in 2004. This amount is not sufficient to for industrial and private timber, has been increasing meet a household's annual consumption, and therefore rapidly, and it seems likely this will continue. Possible these households will also rely on other sources. reasons for this are given below. This survey showed that the vast majority of fuelwood was thought to be traded in some way before reaching Land Privatization residents (approximately 84 percent of households Currently the fastest growing area of consumption in primarily purchased their supplies). However, a sig- the capital city is for private-use timber, largely as a nificant number of households were thought to harvest result of land privatization. Since the Land Privatiza- their own supplies directly; these families would be tion Law entitled households to own the land they relatively well off and would own basic equipment occupied, it has become common for people to develop and vehicles to allow them to exploit the lack of their residential lots by building new fences and control over the forests surrounding Ulaanbaatar by houses, or settle in new lots. This trend is likely to harvesting timber. This category differs from those in increase significantly if entitlement to land ownership the subcategory of the poorest households, who also is eventually extended not only to households but also gather fuelwood from the surrounding forests, as these to individuals--as promised during the parliamentary households lack equipment and transport and typically election campaign of the party currently in power. gather smaller branches and scraps to carry down Although the Land Privatization Law also applies on foot. to rural areas, there has been little increase in fence Land privatization and urban migration are resulting in fences appearing all over Mongolia, such as in this residential area on the outskirts of Ulaanbaatar. Image: Bryony Morgan, May 2006. 27 Mongolia building in these areas to date, as land is readily the timber and wood products sector; in Ulaanbaatar available, people generally are poorer and lack the alone, numbers rose from 92 at the beginning of resources to pay for new houses or fences, and there is 2000 to 196 in 2002, and then to 270 by June 2004 no real need to keep others out of their land. (Table 9). Migration to Ulaanbaatar A June 2004 survey conducted by MIT, involving 40 large timber mills and wood product manufacturers, Many thousands of households have been moving found that such companies were operating at only from rural areas to Ulaanbaatar, increasing the 35­40 percent of their total capacities, and hoped to demand for all categories of wood. The study Urban increase their production to 75 percent of total capac- Poverty of Ulaanbaatar and Migration (UNDP, 2004) ity by the year 2015. The mills are currently limited concluded that this migration trend may continue on by availability of timber, and the predicted increase a major scale into the future. The majority of migrants in demand could only be met by a further increase construct wooden houses heated with stoves burning in illegal and unsustainable logging, or, if illegal and solid fuel as soon as they have the resources to do so, as unsustainable logging is curtailed and a reasonable construction materials are abundant and inexpensive (non-distorted) price structure emerges, by increasing in Ulaanbaatar. use of imported roundwood from Russia. This would, of course, be more expensive and should force some Growth in the Forestry Industry efficiencies in wood use. Production and sale of timber and wood products are increasing steadily, with increases of 62 percent Growth of the Construction Sector in production between 2000 and 2003 (MIT, 2003). The construction sector, Mongolia's main consumer of There has also been a rapid increase in the number industrial timber, is one of the most rapidly developing of small and medium-sized enterprises working in sectors of the domestic economy (Table 10). This Table 9. Trends in the Number of Timber Mills and Wood Product Manufacturers, 2000­04 Number of timber mills and wood product manufacturers 2000 2001 2002 2003 2004 Nationally 355 420 518 646 678 Ulaanbaatar 92 117 196 258 270 Source: National Taxation Office Table 10. Contribution to GDP by the Construction Sector (million Tg) Increase from 2000 to 1995 2000 2001 2002 2003 2003 (percent) Unadjusted value 9,237.0 24,631.7 32,955.3 4,6812.1 48,637.7 198 Value at 1995 prices 9,237.0 7,915.9 8,772.8 10,399.2 11,713.1 148 Source: Statistical Yearbook, NSO 2004 28 Wood Supply in Mongolia: The Legal and Illegal Economies sector was forecast to grow at a continuing annual rate of 7­8 percent (Economic Growth Support and Poverty Reduction Strategy, Government of Mongolia, 2003). With the introduction of new building technologies such as poured-concrete buildings in recent years, large numbers of pole-sized trees are being used in construction. Changes in the Standard of Living The transition to a free-market economy has resulted in rising incomes for some and changes in patterns of consumption. Mongolians want to improve and enlarge their homes, or to construct secondary residences; they also want to use natural wooden products to the greatest extent possible, as these are considered healthier. High levels of air pollution in A variety of different types of building are appearing in Ulaanbaatar; the construction sector is booming. Image: Bryony Morgan, May 2006. Ulaanbaatar are encouraging more people to build homes in suburban areas. 29 3. Illegal Timber Harvest and Trade T he commercial illegal wood business has also contributed to the development and sophistication a well-organized structure, specialized of illegal logging activities. workforce, contacts in government and legal institutions, and networks at all levels Illegal logging is conducted either by organized that extend from harvest to transport to Ulaanbaatar networks of people, or by independent groups. An and sale to end-users. There seems little dispute that organized network usually involves a manager who most of the approximately 1.2 million m3 of wood takes all the (minimal) risks and almost all of the consumed annually in Ulaanbaatar is supplied profits, paying set wages to contract workers. Where through illegal logging. This is known to public the different stages in the illegal forestry operation are servants at all levels, including high-ranking officials conducted by unrelated groups, the risk is shared and of MNE, and is also readily accepted by those who so are the profits. work in the timber business. In other words, this is a complete and independent sub-industry within the Logging Sites forestry sector. Industrial timber. In addition to improving their techniques, illegal loggers are also changing their Organization of the Illegal Timber Trade locations. Whereas illegal logging formerly occurred mostly in the northern soums of Selenge aimag, The illegal harvesting sites, logging methods, and currently it is taking place nearer to Ulaanbaatar--in composition of the workforce are evolving from year to the southern soums of Selenge aimag (Zuun Kharaa, year. Recently, the illegal timber industry has changed Tunkhel, Altanbulag and Zuunburen and the villages dramatically and illegal loggers have become more of Bulgant and Tunkhel), Tuv aimag (Jargalant, Bor professional and more powerful, with an expanding Nuur, Erdene, Batsumber, and Mungunmorit) and reach. Timber traders and inspectors agree that since elsewhere (Figure 5). 2002 the number of people involved in the illegal timber trade and the quantities of bribes have risen One of the reasons why illegal logging for timber may sharply. The recent intensification of inspections and have shifted closer to Ulaanbaatar is that inspections controls by MNE has resulted in small-scale traders throughout the country have been tightened recently. without contacts being essentially forced out, and Transporting timber over long distances increases large-scale traders and groups with many powerful the chance of an inspection, and the associated costs contacts or significant financial resources now making and risks of fines or bribes. As a result, areas close up the majority of the business. The broadening to the city--such as Udleg, Bayangol, Gunt, Terelj, availability of mobile phone service in Mongolia has and Gatsuurt--are becoming popular sites for illegal ­ 31 ­ Mongolia logging. Researchers for this report participated in a aimags--by trucks that would otherwise be empty on night patrol conducted by the officers of SSIA to Ar the return journey to Ulaanbaatar. They carry fuel- Gunt, located 28 km from the capital, where eight wood to subsidize their petrol costs, or as shipments to people were found cutting trees; they had already students and children living in the city. As fuelwood is loaded five trucks with timber. This was one of three indispensable for cooking and household heating, its large groups of illegal loggers known to be operating consumption cannot be limited by laws or regulations; to the west of the capital. The largest illegal logging the quantity of fuelwood entering Ulaanbaatar can be groups have gone so far as to declare some mountain determined only by demand. valleys as their own territory, blocking the entry of other illegal operations. Although the demand for fuelwood is relatively high in Ulaanbaatar, its extraction from the surrounding This shift to sites near Ulaanbaatar is likely to be forests is generally not too damaging because most of temporary as the forests in Selenge and around the trees taken are already dead and dried. Households Ulaanbaatar become depleted and controls are do not buy green wood for fuel, as it burns poorly. A tightened. Some illegal loggers are now in fact moving larger amount of damage is done by illegal loggers who farther afield to aimags such as Khuvsgul, Khentii, cut timber to be sawn into planks, felling only the and Arkhangai. highest quality trees that can be easily cut with hand saws, and bringing them into Ulaanbaatar disguised as Fuelwood and private-use timber: The forested areas fuelwood. The activities of such loggers have denuded under the jurisdiction of Ulaanbaatar City (namely Ar several valleys surrounding Ulaanbaatar city, including Gunt, Gatsuurt, Uliastai and Terelj) contain 266,900 Baishint, Yargait, and Chingeltei. In the western part ha of forest, or 1.3 percent of Mongolia's total forest of Tolgoit alone there are between 150 and 200 people area. Most of the fuelwood consumed in Ulaanbaatar cutting wood at any given time. This situation is not is obtained from this small area, as the economics of sustainable in the long term, as the areas surrounding fuelwood supply do not allow for high transport costs. the city risk being devastated within a few years. To Fuelwood is usually cut only 20­70 km from the point quote the director of one logging company, "it's like a of sale, but is occasionally transported from more robbed home after the burglar has left." distant locations--such as Arkhangai and Khuvsgul Figure 5. Sources of Timber Entering Ulaanbaatar 1--Jargalant, Bor Nuur, Batsumber, Partizan, Udleg. 2--Arkhangai, Khuvsgul, Jargalant. 3--Bogd Khan Mountain. 4--Tuv, Erdene, Khentii, Batshireet. 5--Gachuurt. 6--Uliastai. 7--Udleg, Bayan Gol, Gunt. 32 Wood Supply in Mongolia: The Legal and Illegal Economies Transport of logs, Tunkhel. Image: Tony Whitten Harvesting become depleted of trees, and inspections increase, The most demanding work is often conducted by the sawmill operators are moving toward more remote, poorest people, including women and children, for hidden locations. Sawmills have been found within the smallest gains. Local people work in teams of six private residential lots, in abandoned town sites, and to fell the trees--two people cutting the timber and in settlements far from forested areas. A considerable two others stripping the branches from the logs, while proportion of the timber sold in Ulaanbaatar arrives the remaining two perform other jobs such as loading in the form of logs ostensibly intended as fuelwood, and unloading. A variety of techniques may be used to which are then cut and processed at secret locations avoid detection (Box 3). The timber is purchased on- or at the timber markets. Lately, people have obtained site by a separate group, moved to the foot of the hill, permits to establish sawmill facilities and fuelwood and sold to a sawmill. Only powerful trucks like the sales points in suburban districts, which they use to Russian "Ural 66," which consumes almost 100 liters cut and sell illegally logged timber. of gasoline per 100 km, and some military vehicles are able to traverse the rough mountain roads. In Tunkhel Three to five people operate a sawmill: two cut the village alone, there are 83 such trucks transporting timber, one removes the trimmings from either side of timber. The local governor was able to show research- the board, and another cleans the sawdust. These are ers the registration file of these trucks, complete with often former employees of state-owned sawmills, who license plate numbers and drivers' names. obtained some capital following their privatization. At this stage, the timber is cut into different widths and Milling sold to transporters. Many forest rangers and govern- ment officials believe that prohibiting the operation Before Transition, sawmills were located close to of sawmills would greatly contribute to stopping the timber harvesting sites. As the former harvesting sites illegal timber trade. 33 Mongolia Box 3. Methods of Illegal Timber Harvest Illegal loggers are becoming increasingly refined in their techniques; some of these are outlined below: 2 People obtain permission to cut a fire break, to thin trees, or to clear undergrowth. This provides an easy, virtually risk-free, opportunity to illegally cut additional timber. 2 Loggers enter the forest in a small vehicle, cut timber as quickly as possible, and then call for a truck to collect the logs. If questioned, they will claim to be vacationers. There have been reports of rangers being threatened with violence and therefore they may not be too keen to investigate further. 2 Illegal loggers track the whereabouts of the local forest ranger who is typically responsible for a much larger area of forest than can be monitored effectively. An accomplice informs the loggers as soon as the ranger leaves his post, or may mislead the ranger with false information about illegal harvesting or a forest fire in another area to ensure that the loggers can fell trees undisturbed. 2 During the day, trees are sawn part-way through until they can be felled with a single push. Even if a ranger should hear the noise of the chainsaws and come to investigate, the part-felled trees are difficult to find. The loggers return at night with their vehicle headlights off, knock down the trees, and load their truck. 34 Wood Supply in Mongolia: The Legal and Illegal Economies 2 Logging camps are established deep in the forest, with a team of workers who live there permanently and are supplied by the trucks that collect the timber. 2 Loggers cut large quantities of trees in the autumn, just before the snow falls. In spring, when the snow melts, the trees look as though they have been felled long ago. The loggers then inform the authorities that they have discovered an illegal logging operation and ask to collect the timber before the thieves return or the wood rots. To prevent wastage, the officials issue a permit to the loggers allowing them to recover the wood. 2 Loggers superficially burn a stand of trees, then obtain a forest cleaning permit allowing them to recover the burnt timber for use as fuelwood. Although the scorched trees appear to be useless except for fuelwood, once the bark is stripped they can produce excellent timber. One advantage of this method is that inspection patrols are likely to ignore a truck full of burnt-looking logs, despite the absence of any documentation. Environmental sector staff have no firm evidence of this practice but are convinced that it has occurred, reporting that local residents know who has started fires and where, but do not report these incidents because they believe the government is unwilling to take action. This theory is supported by the large number of fires that occur in the forests near Ulaanbaatar: in 2003 more than half (20 out of 38) of all reported forest fires took place in territories of Selenge and Tuv aimags, situated closest to Ulaanbaatar (StatisticalYearbook, 2003, NSO). Cartoonsby AlanHesse 35 Mongolia Trees are often cut in the autumn before the snow falls, and then are claimed in spring. Image: Ya. Ariunzul, 2005. Transporting of Timber There are four official and twelve unofficial roads Timber can be transported to the city by rail or by entering Ulaanbaatar. In addition, a further two to road. Trucks enter Ulaanbaatar at night and make three secret roads have been created recently along direct deliveries, if arrangements have already been routes that were previously unused. These are used made, or otherwise park out of sight near the timber primarily by those wishing to transport illegal goods, market in order to sell the wood wholesale when and in particular, timber. Surprisingly, the officers the market opens in the morning. Until recently, of MNE, inspectors, and patrols mostly check the the widely available old Russian trucks were most official roads, ignoring the clandestine routes. Trucks frequently used to transport timber, but the vehicles commonly use paved roads and divert onto dirt roads of choice for illegal wood traders have now become just before reaching checkpoints. According to a light, Korean-manufactured pickup trucks, enclosed checkpoint officer, permanent post officers are aware delivery trucks, or even mini-vans, as these are less of this situation but feel unable to leave their stations likely to attract attention. As the drivers of trucks unmanned in order to chase after these trucks--and carrying illegal cargo run a high risk of being caught therefore remain largely ineffective. A fair assump- by inspectors, and eventually being fined or even tion would be that all trucks traveling at night on having their trucks and loads confiscated, they take a unauthorized roads are carrying illegal timber. Drivers slightly higher percentage of the profits from the illegal with papers enter the city during daylight hours, operation. If the drivers have police contacts they can although 80 percent of them have some irregularity travel by paved roads, otherwise they must take longer with their documents. Many drivers transporting routes over rough tracks. illegal timber travel at night, although this may be 36 Wood Supply in Mongolia: The Legal and Illegal Economies due to the Mongolian climate as much as to the presence of inspectors; in the summer, engines become overheated during the hot days if the load is heavy, and in the winter drivers travel at night to keep the engine warm and prevent damage from freezing in the colder night-time temperatures. A driver who transports illegal timber said: "Otherwise there is nothing to be afraid of. Inspectors are easy to please." Those who transport illegal timber using the railway do not have to worry about sudden inspections, but incur the regular cost of bribery. Recently the frequency of inspections has increased, thus reducing the opportunities for illegal rail transport; as a result, One of many wood processing sites at Tunkhel. Image: Ts. Erdenechuluun, most illegal timber is now transported by road. When 2005. freight trains enter the city, retail traders from the timber market come to the railway terminal and buy the timber wholesale. layers of fuelwood. The main reasons for thus disguis- ing timber are: a certificate of origin is not required The majority of wood entering Ulaanbaatar is declared for fuelwood; permits to cut timber for fuelwood are as fuelwood. However, in reality there is a substantial readily available and relatively inexpensive; wood quantity of timber that enters the city hidden under that is labeled as fuel is less frequently inspected, and Workers load a truck at one of Ulaanbaatar's timber markets. Image: Bryony Morgan, 2006. 37 Mongolia Fuelwood and planks on sale at a bus stop near a timber market in Ulaanbaatar. Image: Bryony Morgan, May 2006. therefore easier to bring into the city; and royalties the timber traders are becoming more organized and paid on fuelwood are considerably lower than on powerful. industrial timber. The big timber markets of Ulaanbaatar are Sales divided into two groups, representing the aimags that currently supply the most timber--Selenge and Four centralized timber markets were established Arkhangai.16 These, rather than the SSIA, dictate the in 2001 to help regulate sales and take initial action working procedures of the wood markets. Traders against illegal logging. However, the timber business who sell wood at licensed markets generally hold a boomed; according to the SSIA's assessment, at the permit, although it may be forged, but a considerable beginning of 2004 there were 37 timber markets and a proportion of the wood on sale at these markets will far greater number of fuelwood markets in operation. in fact have been obtained illegally. All of the timber The SSIA is working to clamp down on this situation. at the illegal markets has been illegally cut, and is sold As one official said, "it's very difficult because people call by unlicensed traders. A significant quantity of wood the very next morning after an illegal market has been is also sold privately by families from their homes or closed, asking us to reopen it. Among those who operate at street corners and bus stops in ger districts; these fuelwood markets there is even a state-honored actor." sales points in the residential areas are convenient for Although there is a widely held perception that the SSIA officers conspire and cooperate with illegal log- 1 gers, it was suggested that they may also be pressured The aimag of Tuv, traditionally an important source of timber, is depleted to the extent that it is no longer represented by a distinct by people in higher positions of authority. In addition, market. 38 Wood Supply in Mongolia: The Legal and Illegal Economies customers, and indeed many of the private merchants We sought to verify the actual impact of these make deliveries. activities on the illegal logging supply. 2 Trucks were counted arriving at the two There are two types of retail sellers at the timber largest official timber markets--Khangai and markets--those who sell timber and those who sell Tsaiz--during the course of one day, to estimate fuelwood. Timber traders usually have significant the percentage of the wood entering Ulaanbaatar financial resources and may have acquaintances in the that is sold at official wood markets. railway authority; often they are natives of forested 2 To establish the routes taken by timber trucks, regions who currently live in the city. Selling timber vehicles were counted at the 22 km check- is fairly easy and profitable. Fuelwood traders, on the point--the official entry point to Ulaanbaatar other hand, are relatively poor--often migrants from from the northwest--and again further down the the countryside without official registration papers, main road at the Route 61 level crossing, the route who are unemployed and sell fuelwood in order to taken by most of the illegal timber trucks. survive. Selling fuelwood cheaply generates very little income despite the hard work of sawing, chopping, In addition, on-site investigations were conducted and packing the wood in sacks. at 39 markets selling both industrial timber and fuelwood, and several tens of markets selling only fuelwood, to make relevant observations. Nine of these Investigating the Illegal Supply Of Timber markets were officially licensed; the others were illegal. to Ulaanbaatar Surveys were conducted at 22 of these markets, and 54 salespersons and members of the market administra- We investigated the illegal supply of timber to tion staff were interviewed. Ulaanbaatar, including volumes, techniques, and mechanisms. The research included initial consulta- tions with the Specialized Inspection Department Findings of Ulaanbaatar City, MNE, the Registration Unit This study took place during a period when MNE of the Central Police Department, and local govern- had launched a two-month campaign to intensify the ment officials. However, the data made available fight against the illegal timber harvesting business. were unsatisfactory, as none of the organizations the After they increased the number of inspections in interviewees represented had investigated the illegal areas around Ulaanbaatar, the number of trucks logging issue in depth. Therefore, we sought additional observed carrying illegal timber appeared to be lower quantitative information in a number of ways. than average. Nevertheless, 93 trucks were observed entering the city at night and 56 entered during the Survey Methods day--a total of 149 trucks entering the city with loads of wood in one 24-hour period. The unofficial SSIA 2 Trucks were monitored entering the city from estimation of an average of 300 trucks entering the all directions over a 24-hour period, through city every 24 hours during the normal period seems stationary and mobile patrols at five points, to a reasonable figure. Based on this estimate, around obtain accurate and comprehensive figures on 1 million m3 of timber must enter the city by truck the number of timber-carrying trucks entering during the course of the year. During a partial repeat Ulaanbaatar in a given day. A partial repeat of this count at one site, 78 trucks were recorded of this count was conducted almost one year entering Ulaanbaatar with loads of wood within a later following the establishment by MNE of an period of 10 hours, indicating that there had been no Office for the Management of Wood and Wood significant decrease in the amount of timber arriving Products. The establishment of this office was in Ulaanbaatar. The study also revealed that of the 89 thought to contribute to a decrease in the quantity trucks and trailers recorded at Route 61 level-crossing, of illegal wood entering Ulaanbaatar; the reduced only 26 had entered the city through the 22-km supply was apparent through the relative increase checkpoint. Therefore, the remaining 63 vehicles had in wood prices in Ulaanbaatar over this period. entered the city via illegal routes. 39 Mongolia During the first study period, wood traders claimed year-round, others only when they need money or that very few trucks had lately been entering Ulaan- can find work. Most logging is done in teams of baatar due to the intensified inspection and checking three or four people. The group manager can sell operation. However, on the day of the survey, 46 a truckload of logs for processing for 40,000 Tg, trucks arrived at the Ulaanbaatar markets (19 at Khan- making a profit of 20,000 Tg. gai and 27 at Tsaiz) and unloaded mostly fuelwood. 2 Transport to sawmill. Drivers of special heavy-duty Based on this observation, it is estimated that only 15 trucks move timber from the harvesting site to the to 25 percent of the timber sold in Ulaanbaatar goes landing and sell the timber to sawmill operators. through the large official timber markets. The distance covered is only one to five kilometers, but road conditions are extremely difficult and as As a result of these investigations, we estimate that a result drivers can only make one or two trips a 85­90 percent of the current total wood consumption day. Drivers earn 10,000 Tg per trip in addition to of Ulaanbaatar--1.0 to 1.1 million m3 of the 1.2 mil- fuel costs. lion m3 consumed annually--is derived from illegal 2 Sawmill operators. Sawmill operators share 25,000 sources. This estimate is supported by an inspection Tg per truckload of wood, while the owner conducted at Ulaanbaatar's timber markets in June makes a net profit of 45,000 Tg from the timber 2004 by the SSIA and the Inspections Department and additional sums from the sale of offcuts and of Ministry of Nature and the Environment, which sawdust. found that about 90 percent of wood being sold had 2 Transport to sales point (truck). This is the easiest no certificate of origin. but riskiest stage of the operation. The minimum profit after expenses for transporting timber to If the upper end of the estimates of total annual the city, which takes one night, is 60,000 Tg. consumption of wood in Mongolia is correct--ap- The driver's take-home pay can be considerably proximately 5.5 million m3--with limits of about increased if he does not encounter inspectors 650,000 m3 set annually by MNE, this means that along the way, or has contacts to avoid paying around 88 percent of all wood consumed in Mongolia bribes or fines. In addition, drivers can increase is supplied illegally. However, a large amount of the their profits by purchasing 8 m3 truckloads of timber consumed in rural areas is fuelwood, which timber and selling them on the market as 10 m3. is often done without permits. This should probably Whereas bribes paid to police and traffic inspec- not be categorized as illegal, since it is meeting the tors used to range from 10,000­30,000 Tg, in the subsistence needs of the users and they currently have past year the rates of both fines and bribes have no real alternative. increased dramatically, reportedly now ranging between 100,000 and 350,000 Tg. 2 Transport to sales point (rail). This method of Profits in the Illegal Timber Trade transportation is only used by a small number of people with large amounts of money. There are 15 Illegal logging is considered to be one of the three such traders in Ulaanbaatar; two of them are con- most profitable natural resource-based businesses in sidered big players, with turnovers of more than Mongolia today--the others being illegal gold mining 50 million Tg, and the remainder are small players and the wildlife trade. As a result, those involved in with turnovers of around 10 million Tg. After the illegal logging are highly persistent, even in the face of costs of transport, loading, unloading, and bribes, intensified government inspections and controls. the manager of the process stands to make around 300,000 to 500,000 Tg. In recent months, with Industrial Use Timber increases in the costs of both gasoline and wood and the intensification of inspection activity, the Data collected indicated the following: cost of bribes has also risen, which has impacted the profitability to traders. Timber traders have 2 Loggers. Each logger earns 5,000­6,000 Tg for therefore transferred the increased costs to the cutting a truckload of 60 to 70 logs, which takes sales price of the wood, leaving their profit margin between a few hours and a day. Some loggers work intact, with the result that the price rise is felt only 40 Wood Supply in Mongolia: The Legal and Illegal Economies Often poor people, including women and children, have the hardest jobs in the timber trade chain for the lowest salaries. These women are working at a sawmill in Tunkhel. Image: Ts. Erdenechuluun, 2005. by purchasers. However, timber remains cheap in Fuelwood comparison to alternatives and therefore demand 2 Fuelwood traders at the market earn 45,000 to is still high--sales have not decreased as a result of 50,000 Tg from each truckload. If they sell wood the price increases. not by the sack but by the cubic meter, they can 2 Merchants. Wood merchants specialize in the increase their earnings by cheating on measures. sale of either timber or fuelwood. In addition, Customers prefer to buy fuelwood in the form of some merchants saw lengths of fuelwood and individual logs because they can see what they are sell them as timber. Commercial wood sellers getting; however, even in this case it is possible to make a profit of approximately 65,000 Tg from cheat for additional profit, as was demonstrated to one truckload of wood. They increase their profit researchers by a fuelwood trader. by cheating on measures, for example selling 2 Cutting logs intended as fuelwood into timber 0.46­0.9 m3 as one cubic meter. This is easily increases the value of the wood; one truckload done because most buyers do not know how to can bring a profit of 57,000 Tg, with additional measure the wood. revenues possible from cheating on measures. 2 Assistants. Those at all stages of the timber busi- Offcuts and sawdust can also be sold for extra ness work for 3,000­5,000 Tg per day, earning income. This form of trade has decreased some- 90,000­150,000 Tg a month. With bonuses, and what since MNE regulated that wood designated sometimes by cheating on measures, some workers as fuel must be cut into 50-cm lengths upon entry may earn 200,000 to 300,000 Tg a month. into Ulaanbaatar. However, this rule is not always 41 Mongolia followed, and wood destined for timber can be Most forestry companies accept that they cannot hidden by a layer of cut fuelwood. obtain a timber harvesting allocation from MNE 2 Many people buy fuelwood packed in sacks without connections among high-ranking of- wholesale from the timber market and resell it ficials, and/or the ability to pay important bribes. at bus stops or in streets on the outskirts of the As a result, many companies have resorted to a city. These people add 150 Tg onto the price of variety of illicit methods in order to do business each sack to resell it and make a profit of 57,000 in the forestry sector. The accountant for one Tg from one truckload of wood. Nevertheless, as such forestry company encapsulated the situation it takes between two and four weeks to sell one with the following story from 2005: "We are one truckload of wood, depending on the season, such of the few remaining old timber mills, having been merchants only make enough money to cover in operation for the past four decades. We were not their daily needs--although they do also obtain able to get a certificate of origin even after running "free" fuelwood. around and begging for almost two months, so finally we asked a favor from a public figure. He called the Abuse of Procedures and Permits in the minister and, just half an hour later, I was exiting Illegal Industry the ministry with the permit in hand. If it was this difficult for us, it must be nearly impossible for According to official procedures, once companies everyone else." have been granted an operating license, they should be able to obtain a timber harvesting allocation from The ways in which companies commonly obtain MNE simply by submitting an application through permits include: their local aimag administration and MIT. Yet in practice it is extremely rare for companies to obtain a 2 Direct bribery of officials; larger bribes have timber harvesting allocation according to the official resulted in larger volumes of timber indicated on procedures. There are two main reasons for this certificates of origin. problem: 2 Using contacts to obtain licenses or greater harvesting volumes. This can take several forms: 1. Obtaining an operating license can be a difficult and drawn-out process. The procedure for issuing 2 Connecting with those in a position of such licenses was set out in 2002 by MNE Order authority at a permission-granting office at No. 100, which identifies seven basic criteria any level. that must be met by all applicants. Many of the 2 Offering favors, either personally or through application requirements are relatively unimport- a close friend or relative, in return for special ant but highly inconvenient--such as a reference consideration. letter from the local governor, a bank guarantee, 2 Eliciting a telephone call on one's behalf from and a business plan. Most companies are denied an influential individual, such as a member licenses on the grounds that they do not possess of Parliament, a minister, a managing official the technical and financial capacities to meet of the governing political party, or a famous the licensing criteria. Such obstacles are usually artist or sportsman. faced, however, by applicants without relevant 2 Collusion and sharing of profits with officials. connections. For those with useful contacts, the 2 Offering bribes through the intermediary of operating license is simple to obtain. In fact, there well-connected contacts, in cases where money or are cases in which timber harvesting allocations connections alone are not enough. have even been granted to companies with no 2 Buying licenses on the black market. license at all. Evidence exists that the certificate of origin and 2. The official AAC set by the MNE is far lower forest-use permits, once obtained, are being misused in than the demand for timber in Mongolia, as was a variety of ways (Table 11). demonstrated in previous chapters of this report. 42 Wood Supply in Mongolia: The Legal and Illegal Economies Table 11. Types of Misuse of the Certificate of Origin and Forest-Use Permit by Illegal Timber Suppliers Certificate of Origin Forest-Use Permit Multiple use of the permit, made possible by gifts to appropriate individuals. Cutting of a greater quantity of timber than allowed by the permit. Leaving the date on the permit blank, and only entering the date when an inspection patrol is encountered. Obtaining a forest-use permit with an extended period of validity, with the assistance of the forest ranger, and using this permit for repeated trips. Falsification of the certificate of origin. This is very Falsification of the forest-use permit. Inspectors simple as the document is printed on hard, glossy are generally satisfied with any permit carried by paper. An inexperienced inspector cannot distinguish a transporters of fuelwood, even if the document has forged document from the original. been slightly modified. Presentation, in the case of large companies with Use, in the case of companies with timber harvesting timber harvesting allocations from the ministry, of a allocations from the ministry, of a company expenditure simple expenditure sheet in place of a certificate of sheet in the place of a permit to prepare fuelwood. origin when bringing timber into the city. Typically no one checks whether the company's permit has expired or not. Shipping wood in a spaced convoy of trucks covered by a collective certificate of origin. This strategy is designed to confuse inspectors, who may not keep track of how many trucks have already passed by under the same document. Sale of certificates of origin by employees at all levels of issuing organizations. A certificate of origin for a truckload of industrial timber costs 50,000 to 100,000 Tg and for a railway wagonload costs 150,000 to 200,000 Tg. Use of certificates of origin issued to companies in rural areas--who have little need to present the certificate--by companies bringing forest products into Ulaanbaatar, possibly in conspiracy with local and national environmental officials. Forms and Rates of Bribes Negative Impacts of Illegal Timber Harvests People involved in the illegal timber trade carry out their business by working in collusion with or by brib- ing relevant officers at all stages--from the purchasing Ecological Impacts of logging permits to the sale of wood in Ulaanbaatar. The damage to forests by pests and forest fires is Almost all civil servants and members of the business widely reported, albeit frequently without a complete community are aware that such bribes have established understanding of the important ecological role these rates, and are open transactions carried out at set elements play in maintaining forest structure, but the locations with specific individuals. Bribes are mostly negative impacts of illegal timber harvesting on the paid in cash, but in some cases they are offered in the ecology of the forests are rarely discussed. form of vodka or wood. Details are listed in Table 12. 43 Mongolia Table 12. Details of Bribes Reason and situation for the bribe Recipient Amount Ensure selection of one's company in the Ministry of Nature 1­5 million Tg or 10 percent of application process for logging licenses. and the Environment profit. staff, tender process working group. Purchase of a certificate of origin. Seller of the certificate 150,000 Tg for a 10 m3 license of origin. 200,000 Tg for a 20 m3 license 500,000 Tg for a 50 m3 license 1 million Tg for one rail wagon load (the permit can be used repeatedly) Arrangement with the forest ranger prior to Forest ranger 10,000 Tg logging . Secure release if caught by forest ranger. Forest ranger 30,000 Tg Traffic police posts on the road Policeman 20,000­30,000 Tg Transport timber to UB Permanent main checkpoints to Policeman/ enter Ulaanbaatar (avoid and go Inspector around the checkpoint if there is no contact) Avoid detention if an inspection team is Inspectors Confiscation of timber or half its encountered on the road while transporting the monetary value (100,000­350,000 timber to Ulaanbaatar. Tg). Two to three trucks can attempt to enter with a single payment. Avoid detention if an inspection team is Inspectors 200,000­300,000 Tg encountered while transporting the timber via railway. One payment will usually cover three or four trips. Ensure that cars are available for rail transport. Head of railway depot 50,000 Tg per wagon Multiple re-use of the certificate of origin at point Railway officer of 50,000 Tg per wagon of departure. departure terminal Multiple re-use of the certificate of origin at point Railway officer at 10,000­20,000 Tg of arrival. Ulaanbaatar railway terminal Paper with instructions for the load to be allowed High-ranking official Not known to pass freely through checkpoints. Avoid capture by inspectors while selling timber Inspector About 100,000 Tg, at a market without any documents. One depending on timber volume. payment will protect the seller for about a year. 44 Wood Supply in Mongolia: The Legal and Illegal Economies Illegal timber harvesting clearly has reduced the size since 1995, incorporates fee schedules to raise revenues of forest inventories in those stands that are readily from resource use. Forestry companies are supposed accessible or near urban areas, with valleys stripped to pay both license fees and stumpage fees in order bare of timber. In areas that are being utilized for to undertake forestry activities. Although difficult to private-use timber or fuelwood, non-professionals estimate, collecting fees for all of the wood sold at selectively cut trees of around 20-cm diameter to timber markets could raise an additional 6.5 billion produce rough-sawn timber, as well as smaller trees to Tg ($5.4 million) annually. That is ten times the state be used as scaffolding in construction work. In fact, revenue currently raised from forest-use fees, which removal of smaller trees could play an important role was only 630 million Tg in 2003 (MNE, MOSTEC, in thinning forest stands and making them more fire Open Government Website in Wingard and Zahler, resistant if this was done according to a management 2006). In addition, a large proportion of all timber plan. Currently, there is no effective management of used is not actively traded, being mostly used as fuel- this process and the benefits are not being realized. wood and private-use timber in rural areas. This wood In areas where high-value timber is being felled, only should also be subject to fees, as should construction the largest, most fire- and wind-resistant individuals poles and pit props. In 2003, the 678 business entities are taken, damaging the structure of the forest and operating in timber production and timber products making it more vulnerable to fire. In addition, the paid 1.1 billion Tg in taxes (Report of the National wood that loggers consider to be scrap is trimmed Taxation Authority, 2004). This amount is insufficient, from the trees and left in the forest. This dead wood as the majority of timber cut by companies is done so results in a high fuel load, increasing the chances that secretly and illegally, and consequently all associated a forest fire will burn fiercely and spread to the crowns activities are inevitably hidden. If full taxes were of trees, rather than merely burning the undergrowth collected on all forestry operations and cut wood, this and keeping the fuel load low. sum would reach several billion Tg. Other potential problems resulting from the depletion Although it is not by any means recommended that of forest cover include impacts on the quantity and the government attempt to legalize the current levels quality of water resources in the area, although the of harvest, which are unsustainable, it is clear that relationship is complex. Soil from clear-cut areas may more realistic harvest volumes could provide vital also be more prone to erosion. state revenue, which would allow for sustainable management of the resource. According to the Law on As timber is not extracted according to a long-term Reinvestment of Resource Use Fees for Conservation forest management plan, there is no attention given (2000), 85 percent of timber and fuelwood fees to the impact on NTFPs. Timber harvests are not should be channeled into environmental management, optimized to provide the maximum possible benefits although this rule is not always followed. Inspection for biodiversity and the production of NTFPs. Illegal and monitoring expenses are increasing with rising loggers may hunt wildlife unsustainably--hunting costs of operation, while revenue collection is remain- being identified as a crucial natural resource manage- ing roughly constant. It is a commonly held view that ment (NRM) issue in Mongolia (Wingard and Zahler, the government is unable to control illegal logging 2006). The creation of logging roads can provide because of constraints on finances, and the manpower access for others to do the same. While felling timber, and equipment to do the job. If resource-use fees were workers may also gather products such as berries, collected in their true amounts, these constraints could mushrooms, moss, nuts, medicinal plants and juniper, be lessened. possibly depleting these resources in many areas. Illegal logging is also harming the national economy by preventing the development of the forestry industry Economic Impacts and constituting a barrier to the establishment of a By preventing people from harvesting timber legally positive business environment. Illegal loggers have and according to transparent procedures, the govern- minimal costs--only fuel and labor--and do not ment denies itself important revenues. The Law on pay taxes. They are thus able to sell their timber and Fees for the Harvest of Timber and Fuelwood, enacted wood products at a relatively low cost, hindering the 45 Mongolia competitiveness of those working within the law. This People are no longer afraid of breaking the law. In undercutting of the market value for timber lessens the the past, the government successfully suppressed economic contribution of the legal Mongolian forest many illegal activities, such as the theft of copper and sector; in fact, the Mongolia Forestry Sector Review aluminium and illegal distillation of spirits. At that (Crisp et al., 2004) found it to be marginal. During time, government and law-enforcement institutions one of the interviews for this report, a manager of were not caught up in crime to the extent that they are one sawmill said: "If we paid taxes according to the now, and people used to fear the state. Civil servants official procedures and regulations and sold our products have lost the respect of the population through their at the current market price, we would not make any involvement in the illegal timber trade and people profit at all. Therefore, in order to compete with people no longer respect or trust the government, the justice who use cheap, stolen timber, we have no choice but system, or the police. Although the forestry sector is to act illegally. With the current situation, companies not a large part of Mongolia's economy, it is important operating within the law have no opportunity to grow; to tackle corruption in this industry because illegal and if this continues, eventually they will have to declare logging requires the compliance of actors at so many bankruptcy." stages of the chain. Corruption in the natural resource industries is particularly pervasive, and tends to spread In addition to the lessened contribution to the formal to other areas. economy, unsustainable and illegal logging can also harm the livelihoods of those citizens dependent on natural resources. If timber supplies become depleted Likely Future Trends in Illegal Harvesting in an area, rural residents may have to travel further to get fuelwood, or buy supplies. Illegal timber harvesting offers a low-cost, high-profit business opportunity that is attracting more and more Social Impacts people. The illegal industry, with its lower costs, easily out-competes those who are trying to operate legally. During the course of these investigations of illegal The widespread nature of illegal logging inspires more timber harvesting, we discovered great changes taking people to enter this occupation. This spiraling situation place in Mongolian society. People are no longer is constantly worsening, and now even women and restrained by the taboos that used to protect the foreign citizens--such as Chinese and Koreans--are forests. These taboos have not been replaced by an becoming involved. Many people believe that illegal understanding of modern ecological principles, which logging will not stop until the last tree in Mongolia would encourage people to value the forests. In former has been felled. Only the Government of Mongolia times, Mongolians worshipped nature and showed can bring the forests under wise and profitable respect for trees in particular, as reflected in traditional management. proverbs such as: If the root of the tree is cut, the root of the seed is cut. The curse of a tree damns the seeds of the seeds. Selling water will make you rich; selling wood will make you poor. 46 4. Causes and Control of Illegal Logging T here are many reasons for the expansion authorized timber harvests, coupled with increasing de- of illegal logging activity. They include mand for timber and fuelwood, constitutes the ultimate increasing demand for timber; outdated cause of the increase in illegal logging. Timber demand government policies; problems with the and consumption are likely to remain artificially high forest ranger system; corruption, with some inspection as long as prices are subsidized with cheap illegal wood. and legal personnel deeply involved in the illegal trade; If consumers had to pay the true cost, including taxes high profits generated by the business; unemployment and royalties, they might well make different decisions caused by the collapse of the Soviet-era forestry sector; in their usage of fuelwood and timber. and poverty. Multiple areas of conflict exist in the processes controlling the forestry industry, and the In fact, the survey of timber product manufacturers private sector and illegal loggers have acted quickly (Chapter 2) shows that not only does the demand for to take advantage of the confusion to expand their timber exceed legal supply, as shown by their current businesses. Furthermore, the work of the authorities is annual consumption, but in fact there has also been an often slowed by bureaucracy, while the thieves act with overinvestment in this industry, as most companies are speed and innovation. not able to obtain the raw materials needed to allow them to operate close to full capacity. To meet the processing capacity that currently exists in Mongolia Causes for the Expansion of Illegal Logging would require a further increase in illegal logging, which would not be sustainable over even the medium High Profitability term. If the illegal trade can be brought under control, and a realistic, non-distorted price structure emerges, Those involved in the illegal timber business stand the price of timber will rise, which should result in a to make large profits, given the lack of control over more efficient use of wood. Under these conditions, the industry, limited legal supply, and the low chance imports of timber from Russia may also be more of encountering any major penalties through law economically viable, which could be another source of enforcement. raw materials for Mongolia's wood processing industry. Demand Exceeds Legal Supply Uncertain Land Tenure and Natural Resource While the question of whether Mongolia's forest Use Rights resources are sufficient to sustainably meet the annual Forests in Mongolia are essentially an open-access demand is a contentious one, it is clear that the legally resource, and there is no recognition of rights over the authorized supply of timber is far below current levels timber by the local community. The contrast between of consumption. The sharp reduction in the levels of attitudes toward private property and common ­ 47 ­ Mongolia resources is telling. If a family should lose ten planks controlling the illegal timber harvest and trade are of wood from its compound, it is likely to result in contributing to the rise of illegal logging. The Govern- confrontations and the police being called in. When ment of Mongolia is taking action to deal with some of trees far greater in value are stolen by the truckload these problems. These efforts are examined in the next from the forest, there is little reaction. section. Poverty and Unemployment Overlapping Roles and Responsibilities With many people in poverty, there are many who Nationally, there are several institutions that are have no choice but to make use of the free, unguarded responsible for developing and monitoring the forest timber resources on the mountainsides. Although this industry, but there is some overlap between their may add up to significant amounts, the volume of responsibilities. For example, there have been a timber taken per person is low and is meeting subsis- number of attempts to increase the inspection role of tence needs. The most damaging exploitation--the MNE, which can conflict with the role of the SSIA. large-scale illegal timber harvesting and trading--is This is detrimental when the organizations involved done by people who possess at least vehicles and do not cooperate. In addition, some issues--such the finances to bribe their way through inspections. as fuelwood supply to Ulaanbaatar--are not ad- Those who regularly steal small volumes of wood, dressed by any institution. Many problems related to without any form of mechanized transport, are usually timber production and supply result from the lack of extremely poor. Local authorities are responsible for information, capacities, or resources within MNE, helping to improve the livelihoods of such people, and but many issues that could have been resolved without clamping down on their role in illegal logging would significant resources have remained unaddressed due simply increase their hardship. Local administrations to insufficient organization and interest. often turn a blind eye to small-scale illegal log- ging--for example, drivers transporting stolen timber may have their documents and vehicle plate numbers Unclear Legal and Regulatory Framework confiscated, but within a few days they generally The current legal framework for the timber business is manage to obtain replacements. not satisfactory. Overlaps in regulations create confu- sion over implementation. For example, three different Although the illegal timber trade is largely driven by procedures were approved in 1997, 2000, and 2002 for the large profits that can be captured by those at a forest cleaning activities, and it is unclear to operators high level within the supply chain, the people who which of these should be followed. There are already actually harvest the timber often have little alternative a sufficient number of laws in place that prohibit for making a living. The collapse of the legal timber illegal logging, but there is a lack of implementation industry has produced unemployment, exacerbated by procedures, personnel, guidelines, and mechanisms. a lack of planning and retraining, and the privatization There are also many laws and regulations that simply process led to the dissolution of most professional take the form of general declarations (Appendix D). organizations responsible for forest protection and Furthermore, rather than collaborating to ensure the timber harvesting. Thousands of former forestry implementation of existing laws and regulations, the employees are now working illegally within the sector. various agencies and organizations each offer their own In addition, many engineers and technicians have interpretations of the rules, thus creating technical become managers of illegal operations. In recent years, obstacles to the effective fight against illegal logging. some employees dismissed from posts in the environ- ment sector have gone on to become illegal loggers. Lack of Long-term Strategy The old forestry policy disappeared with the collapse of Poor Governance the socialist system; since then, activities in this sector have not been guided by a consistent strategic policy. A number of issues concerning the structure, The government is reluctant to make major changes operation, and policy of the institutions charged with since it is under constant pressure from opposing 48 Wood Supply in Mongolia: The Legal and Illegal Economies political parties and local residents. A major problem the mass media, in reality attention is focused on is that government policy decisions have tended to a few small traders without real connections, while be made by temporary, non-professional political the true managers of large, illegal logging operations appointees with little input from experienced profes- remain untouched. In addition, the effectiveness of sionals, and with little sense of long-term strategy. organizations responsible for controlling illegal logging This situation has not been helped by the politicization is limited by their inability to operate in a coordinated of the Mongolian civil service: nearly the entire civil manner. service tends to be shaken up following each election. As a result of this lack of long-term focus, MNE can get caught up in minor details and distractions, while Perverse Incentives major policy issues are not addressed. Local authorities are charged with generating revenues from their forest reserves, which conflicts directly with Poor Policy their role and responsibility in forest conservation. In addition, local governors have full authority over the Increasingly, the guiding principle of Mongolia's na- use of income generated by forest-use permit fees, so tional forestry policy is that timber production should their priority tends to be income generation rather not be directed by market demand. The government than conservation, and the harvest levels set by MNE has adopted a strategy of forcing a reduction of supply are not observed. There is no institution or structure rather than controlling demand, a policy it attempts serving to control volumes of timber harvesting in to implement through increasingly tough inspections comparison to revenues from forest-use permits, or to and controls. This policy has significantly reduced monitor the use of such revenues. According to the state revenue, while failing to address current market Law on Reinvestment, 85 percent of these revenues demand. The overwhelming majority of all wood should be used for the conservation of the resource. consumed in Mongolia is prepared illegally. This cheap timber undercuts the market, lowering prices so that the ability of legal operators to work in the forestry Weak Capacity and Lack of Resources sector is further decreased. In addition, by setting The ability to combat illegal logging is constrained legal harvest limits an unrealistic 20­30 times lower by a lack of capacity and financial resources. As in than actual levels, a situation is created where abuse many other sectors, a lack of research and reliable and corruption inevitably flourish. MNE has thus statistical data in the forestry sector make it impos- trapped companies by issuing licenses with unrealistic sible to conduct realistic and accurate analyses of harvest limits, and in return the companies trick the the situation. This results in policy development and ministry by pretending to do business according to actions being based essentially on guesswork. A lack these licenses. of adequate financing makes the situation even worse. For example, financial constraints have prevented the Moreover, MNE's detailed guidelines and regulations construction and maintenance of logging roads to for the limitation and elimination of illegal timber regions with large timber reserves, placing still more production set excessively stringent requirements, pressures on the forests close to urban areas. Human creating a situation where the regulations cannot resources within government forestry sector institu- be implemented in practice. This system gives civil tions are also inadequate at every level. servants significant powers, tempting many of them to act outside the law, while at the same time limiting the Much of the responsibility for fighting illegal logging opportunities for businesses to harvest timber legally, is now being given to local administrations; however, and thus pushing them toward illegal logging. they are not given a corresponding budget, and hence are often powerless to take action. For example, in Considerable sums from the state budget have recent years the number of forest rangers has been been expended to date on high-profile inspection reduced by a factor of four, and provisions such as activities, but the results have been poor. Although rifles and horses have been eliminated. Whereas the fight against illegal logging and the campaign during the socialist period there were more than 30 for environmental protection are widely reported in rangers and five inspectors employed in Mandal soum 49 Mongolia of Selenge aimag, according to current standards there increases during election campaigns, as some candi- should be only 17 rangers and four inspectors--yet in dates from forested areas allegedly order the release of reality there are just five rangers and two inspectors. offenders in order to obtain their votes. Illegal loggers In addition, the area assigned to one ranger is too know this and behave accordingly. This situation large, as all inspectors and many forest rangers live in apparently occurred during the 2005 presidential settlements that are often far from the forests where elections when illegal activity rose to near peak levels. the illegal logging activity takes place. Once started, the problem is extremely difficult to fix. Many of those charged with enforcing the restric- Law enforcement and inspection agencies, and in tions on timber trade lack the training to do so. particular police officers, are deeply involved in the For example, the knowledge of police officers of the illegal timber business. It is common to see a uni- issues is often very scant. They find it difficult, even formed police officer sitting in the front seat of a truck embarrassing, to work with thieves who are far more loaded with stolen timber, escorting the load. Cases knowledgeable than themselves. Policemen cannot referred to the police are often unresolved, or verdicts identify and differentiate between different types of are given in favor of the thieves. There are also reports wood by sight, and in some cases they cannot even of cases brought by the police that were stopped by the distinguish a fuelwood permit from a certificate of prosecutor's office. origin. The police department, like other governmental institutions, suffers from financial constraints. For The average monthly salary of field-based forestry example, the meager daily gasoline allowance of the sector government workers--48,000 Tg--is lower police force is just barely enough to patrol the city than that of almost any other sector. This is 42 percent center, leaving nothing for trips into the countryside lower than the national average of 81,500 Tg (Statisti- to investigate illegal logging. In addition, the police cal Bulletin, October 2004). This might be one reason department lacks proper equipment, and cooperation why such government employees are easily subject to with inspection authorities is poor. Other departments bribes. It should be stressed, however, that many that could play an important role in controlling illegal hard-working civil servants were met during the logging, such as the traffic police, are not involved work on this report, people with great loyalty and since it is not their primary duty. A traffic policeman integrity in their mission to protect the forests, might stop a truck loaded with stolen timber for despite their low wages. having a broken light, but never look at the load it is carrying. Lack of Transparency, Independence and Accountability Corruption As much of the responsibility for management and Corruption is an important factor supporting the control is being transferred to local governments, local widespread existence of the illegal timber trade. For- governors are responsible for appointing the majority estry sector authorities, the police, and inspectors have of staff, e.g. forest rangers, who depend financially on all been implicated. The illegal timber trade requires their local administrations and therefore cannot act collusion at all levels within the supply chain. The with complete independence. Environmental inspec- Mongolian civil service is shaken up following each tors report directly to the SSIA at all levels. However, election, and professionals are sometimes dismissed they too can be influenced by local government, and from their posts. In the forestry sector, many of these during work for this report a number of cases were people may end up involved in the illegal timber trade. described to the researchers in which environmental Their replacements, who often have little knowledge inspectors were directed toward other duties to remove of their new position, have ended up fighting against them from the scenes of illegal activity. their own predecessors, who have become thieves with specialized inside knowledge. Corruption within the forestry sector is made possible by the lack of transparency that exists in decision Some high-ranking officials reportedly use the sector making. As the sector is now so dominated by the for political gain. For example, illegal logging activity illegal economy, everything has become secretive, 50 Wood Supply in Mongolia: The Legal and Illegal Economies impenetrable, and uncoordinated. As a result, official focused on fairly narrowly focused prevention and statistics, reports, and other data concerning the detection responses. There is a notable lack of attention forestry sector are unreliable, and a stage has been paid to suppression. This is reflected in the poor results reached where poor decisions are made on the basis regarding the reduction of illegal logging. There of data that is known to be false. The weakness of the have been very few convictions of illegal loggers, and accountability mechanism at all levels has made this large-scale operators and corrupt officials are largely issue even more serious. There is considerable abuse of unaffected by actions taken to date. the rights to harvest, use, and inspect timber in rural areas. Even the governors of some soums and aimags, Prevention granted four-year mandates but no money, are said to organize logging teams themselves and harvest timber. The government has taken various actions to prevent illegal logging, including putting in place a permit system to manage timber harvest and trade, with Government Responses to Illegal Logging requirements for a logging company to have a certificate of origin for timber and a forest-use permit. Responses to illegal logging can be broadly divided Some of the contradictions in government policy that into three categories: (1) actions concerned with are the root cause of unsustainable harvests have been preventing illegal logging; (2) efforts to increase identified. For example, at the beginning of 2006, the detection of illegal harvest and trade; and (3) attempts SSIA issued an official request to MNE and MoF to to suppress the activity (Box 4). The "Prevention, resolve the contradictions between the requirements Detection and Suppression" framework has been on state income from logging set by MoF, and the developed as part of the World Bank's Forest Law timber cut limit given by the MNE. Enforcement and Governance (FLEG) program, which has also supported regional FLEG processes. Measures to combat corruption. Beginning in 2006, Mongolia participates in the Europe and Central Asia aimag governors have control over the allocation of process; the MNE state secretary is the focal point for 50 percent of the industrial timber quota within their the government. jurisdiction. This is considered by MNE to be more transparent and less prone to corruption, although Tackling illegal logging in Mongolia requires a without the necessary measures in place to prevent coordinated response by the Government of Mongolia corruption from occurring or to detect it when it does, that draws in elements from all three of these cat- it is likely that the source of corruption will merely egories, and links the response to the socioeconomic shift. context in which the illegal logging is occurring. For Measures to increase transparency in the allocation of example, logging for subsistence purposes may require concessions. Draft procedures have been submitted to responses predominantly from the prevention category, the Ministry of Justice and Internal Affairs that would such as increasing legal supplies of timber, promoting cover the procedure for selecting the companies to be alternative energy sources, and strengthening resource granted timber quotas and increase the rights of local user rights. Tackling illegal logging by large companies communities in this process. will require more emphasis on combating corruption, increasing transparency, improving monitoring and Reducing demand. Attempts have also been made auditing of operations, and strengthening the ability of to reduce demand for timber by banning exports of the police and judicial systems to prosecute criminals. uncut timber. The government is becoming involved The government has taken action at many levels, but with several projects that reduce the amount of unfortunately the desired outcomes have not always domestic fuelwood needed, such as the improved been achieved, due to lack of effective implementation stoves project (which decreases the use of both coal or abuse of procedures. In some cases, the policy or and wood), and also the production of briquettes as an action has actually made the situation worse (Ap- alternative fuel. pendix D). When actions to date are examined in the context of the prevention, detection, and suppression Elimination of excess processing capacity. Steps are being framework, it is apparent that activities have mostly taken to reduce the number of operating forestry busi- 51 Mongolia Box 4. Potential Governance Responses to Illegal Logging Prevention 2 Measures to combat corruption through administrative procedures or fiscal control 2 Measures to increase transparency in the allocation of concessions and timber sales 2 Simplification of administrative procedures and elimination of discretionary powers 2 Institutional reforms (separation of control and management functions) 2 Increasing the supply of legal timber / providing alternative sources of energy 2 Increasing information and awareness 2 Increasing civil society participation at different levels 2 Providing secure land tenure or forest use rights for communities 2 Alternative income generation in rural areas 2 Promoting demand-side measures (corporate codes of conduct, use performance bonds, certification, legality verification, elimination of excess capacity) Detection 2 Improved information management systems to detect violations (e.g. statistical systems that detect inconsistencies) 2 Use of satellite-based monitoring to detect illegal logging 2 Independent monitoring of forest operations and transport 2 Financial auditing of forest administrations and state forest enterprises 2 Making information related to forest operations (concessions, logging permits etc.) publicly available Suppression 2 Strengthening police capabilities in remote forest areas 2 Increasing capacity of forest crime investigators to put together comprehensive cases 2 Improving awareness of prosecutors and judges on the importance and consequences of forest-related crimes 2 Building the capacity of prosecutors and judges to prosecute/convict forest offenders (e.g. by using environmental and/or money laundering-related legislation 2 Adjusting penalty codes for forest-related crimes 2 Increase transparency and establish public monitoring of enforcement operations and judicial processes. nesses. Of the over 100 companies that applied for new operates at well below its full capacity. Many factories or extended licenses to operate in 2005, only 48 were producing chopsticks have also been closed due to lack successful. In 2005, the capacity of MG Wood was of raw materials. In 2006, SSIA, MNE, MIT, and reduced. This factory in Darkhan is one of Mongolia's forestry NGOs made a joint inspection of all forestry largest, and was built with advanced technology. Even organizations in 33 soums in 14 provinces, determin- following this forced capacity reduction, the company ing which should be allowed to continue. Logging 52 Wood Supply in Mongolia: The Legal and Illegal Economies companies were also issued guidelines to supply logged the forest users, and does not fully address the rights trees only to registered processing factories, and not of and benefits to those leasing the forest. In 2005, an to traders; this has become one of the requirements to amendment to the Law on Environmental Protection receive an operating license. clarified the rights of a community group (nokhorlol) to own and sustainably use the natural resources they Increasing legal supply. The government has also are conserving through a time-limited and condition- attempted to increase legal supply through waiving framed contract. In 2006, a new model of the contract of customs duties and VAT on logs and timber being for community-based NRM (Order No. 114, MNE), imported into Mongolia. There appears to be no which MNE hopes will better address these issues. evidence of an increase in imports over the last three This form of agreement is still in its infancy. years, although the quality of the statistics is poor and contradictory numbers were given when inquiries were Institutional reforms (separation of management and made on different occasions. The imports should be control functions). In 2002, the Government of monitored closely over the coming years. The supplies Mongolia united all ministry-level inspection units of cheap illegal timber from within Mongolia will into the SSIA, which at that time was under the prime depress market prices and make it hard for the imports minister's office, although it has now become an to compete, even when tariffs are not imposed. Any independent ministry. Separating the control function real impact will probably depend on a decrease in the from MNE, the management institution, was an supply of illegal timber. important step toward establishing an independent The government has tried to support the legal industry inspections system. However, in February 2005, the through providing soft loans to seven villages to Office for the Coordination of Wood and Wood Ma- revitalize the forestry sector there, but little impact has terials Inspections was established in MNE. This was been reported. To be successful, greater opportunity an attempt to bring back some of the control function. for the legal industry to operate has to be promoted, The Ministry of Justice and Internal Affairs later found since with the current boom in illegal supply, it is the Office to be in violation of Mongolian law, which hard for legal enterprises to operate. The AAC is in puts the responsibility for inspections firmly with the theory currently identified by Mongolia's scientific SSIA, and in February 2006 the Office was abolished. institutions (although in practice it is kept the same Interviews with MNE staff revealed that there are still each year). It is set by MNE, which then allocates differing views on whether this inspection function quotas to the aimags. This decision is now discussed should be within MNE or not. at a meeting of the minister's board to provide more oversight, but there are still major problems at all Increasing information and public awareness. MNE has stages. Recent interviews with MNE officials revealed participated in pilot programs with a variety of differ- that there is a recognition that the AAC has been set ent international partners using a wide range of media at an unrealistically low level, and some attention is at local and national levels. The challenge remains to currently being given to the scientific basis on which scale this up, and to make information available on a this was made. In addition, mention has been made of sustained basis. the possibility of increasing domestic wood supply at the aimag and soum level through forest cleaning and Increasing civil society participation. Around 40 NGOs thinning activities. now operate in the forestry sector. According to the new amendments to the Law on Environmental Providing secure land tenure rights or forest use rights Protection, there should be increased opportunities for for communities. Although communities are legally both these and also community groups to participate allowed to collect fuelwood and timber for private use, more fully. SSIA is increasing its cooperation with civil they must do so by obtaining a new permit each year, society groups, and intends to work more closely with and have no long-term control over their local forest NGOs in the future. The Mongolian Forest Society resources. Resolution No. 125 provides an opportunity and Forest Association recognized these efforts by for leasing forest reserves to business entities and local awarding a "Certificate of Gratitude" at the beginning residents; however, it focuses on the responsibilities of of 2006 to SSIA for cooperating with NGOs. 53 Mongolia Alternative income in the rural areas. The government the National University of Mongolia, and the head has invested in pilot projects for alternative income of the Supervision Department for Environment, generation, focusing on promoting crafts, increasing Geodesy and Cartography of SSIA is basing her PhD value-added products for livestock through processing research on the possibilities of using satellite imagery raw materials, and production of vegetables. However, in the forestry sector for Mongolia. these pilots have not been systematically targeted to areas where illegal logging has been identified as a Independent monitoring of forest operations and particular problem (such as former forestry towns). transport. The SSIA has started to cooperate with They remain on a small scale with limited impact to some NGOs to create "Volunteer Inspector" positions, date. although this has not yet begun in earnest. Indepen- dent monitoring is intended to be conducted through Detection "Irves" (see below). The government has also expressed interest in establishing an "ecological police force" as Recently, the government has increased the emphasis independent monitors of the inspection service. on high-profile inspections, and MNE has been cooperating with the SSIA. However, the impact of Increasing capacity and resources for inspections. SSIA this strategy to date appears to have been negligible, recently increased the number of state inspectors in and in reality illegal logging activity has failed to charge of forests from one to four. In cooperation with decline. For example: a GTZ project, it plans to establish a specialized forest protection scheme named "Irvis" which draws on the 2 Following the tightening of controls, the quantity experience of an NGO in the forestry sector. Recently, of illegal timber entering Ulaanbaatar decreased fuel and a vehicle have been specifically allocated to for a time but eventually climbed back up to its the forest unit of Ulaanbaatar's Specialized Inspections former level--although the amounts paid in fines Office for forest inspections. and bribes had increased. 2 The cost of wood in 2005 increased by a factor Inspections of transport by rail have been facilitated by of two to three over its cost in the previous year. a requirement to unload timber transported by railway Although it is understood that this increase is due only at crossing No. 44. To prevent timber from being to the reduction in the timber supply, in reality it falsely declared as fuelwood, a new regulation requires reflects the increased risks and costs assumed by that fuelwood now must be cut into 50-cm lengths illegal timber traders. before it can be brought into Ulaanbaatar and the 2 If the supply of wood, and in particular timber, aimag centers. However, this regulation is not being to Ulaanbaatar City had actually decreased, wood rigorously enforced; wood continues to be transported product manufacturing would have slowed. Yet into Ulaanbaatar in two-meter lengths and declared manufacturers apparently continue to work at as "fuelwood," and in some cases loads of timber are normal levels. hidden below layers of correctly cut fuelwood. In fact, this restriction is likely to be lifted, as it is difficult Improved management systems to detect violations. In to enforce. There have also been complaints that the 2005 the now-defunct Office for the Coordination wood cannot be used for any other purpose, such as of Wood and Wood Materials Inspections in MNE, domestic construction. The restriction will likely be with assistance from the International Development returned to 2.2 m. Research Center, started compiling a database on legal violations, but the current situation is not clear. Financial auditing of forest administrations and state forest enterprises. State forestry enterprises have now Use of satellite monitoring to detect illegal logging. Mon- been privatized. Although inspections are required, golia does not yet make use of the technology available these are not often carried out. to monitor its forest resources. Satellite imagery is not used in forest inventories, let alone to detect illegal Making information related to forest operations publicly logging. However, a remote sensing laboratory was available. Details regarding forest operations are established in 2005 in the Department of Ecology of considered, at least in theory, to be public information. 54 Wood Supply in Mongolia: The Legal and Illegal Economies Some information, such as the AAC for each aimag, of permits of illegal loggers. An amendment to the and reports of illegal logging, are published in the Forestry Law (2002) allows fines for damage to be press and occasionally through websites, but this is based on an environmental impact assessment, and not yet done in a systematic fashion or made avail- further decrees have set minimum values for damaged able from a single, consolidated source. In practice, forest wood. MNE Order no. 61--"Adoption of information on more sensitive issues, such as the ecological/economic assessment of the loss of forest tender process and granting of timber harvesting resources"--allows fines to be based in accordance allocations to logging companies, is not accessible by with market values, which are determined following the public. Changes in this area may occur within the comparison with prices in neighboring countries. government's new World Bank-financed Governance Implementation of this order has been slow to date, Assistance Project. and in practice the previous order on this topic (2002) remains in force. Suppression Increasing capacity for prosecution. Although there To date, the government has made some legal changes is legislation in place, in reality there is very little to enable easier prosecution of criminals and the prosecution. Police in remote areas are few and far suppression of illegal logging, but there remains little between, and have no training on how to deal with capacity to make use of these laws, nor is there much these crimes. There are no forest crime investigators political will to tackle the problem. who are specifically trained to put together cases against those in the illegal logging networks. Although Adjusting penalty codes for forest related crimes. Several some training courses and workshops for members amendments have been made to laws to increase the of the judicial and legal system have been conducted, penalties for forest crime. For example, an amendment there is still little awareness on the part of prosecutors to the Law of Natural Environment Conservation and judges regarding the importance of forest crime allows the confiscation of trucks and cancellation and the legal mechanisms for dealing with it. 55 5. Recommendations T he Government of Mongolia has taken Tackling Lack of Accountability and some positive steps toward curbing illegal Corruption in the Forestry Sector logging. However, it is clear that much work still remains to be done. The lack of success in controlling this industry is due in part to the bribery and corruption endemic within it. As neither local governments nor MNE Increasing Political Will are held accountable for the state of the forests, there is currently little incentive to improve the situation. Mongolia is a member of the Europe and North Asia One way forward would be to establish a compulsory Forest Law Enforcement and Governance (FLEG) case-tracking system, where every incident of potential process, and participates in this regional drive to tackle illegal logging or illegal trade would be recorded. forest crime. In recent years, illegal timber trade has In this manner, it would be evident when cases are also been given more attention within the country, dropped part way through the investigation--often for with strengthened inspections and rearrangements dubious reasons. The number of cases that are success- of the government departments to place the forestry fully resolved could be tracked and this information coordination unit at a higher level within the hierar- made public. chy. However, the political will to tackle this situation in a sustained and coordinated fashion is still not It should be noted that many of the employees within especially apparent, and the government forestry sector the forestry sector are honest and hardworking people, remains underfunded and limited by low capacity and who are frustrated at the constraints they face. Greater inadequate resources. Greater recognition needs to be support needs to be given to these staff. This could made of the economic and environmental benefits of include establishing a safe mechanism for reporting a well-managed forestry industry, with investment in corruption or illegal activities with protection and the sector made accordingly. Much of the necessary anonymity for "whistle-blowers," and would require legislation and management agencies are already in appropriate legislation. The government could also place, and improvements could be rapidly made if the consider a system of incentives for information that political will were present. This would be indicated leads to successful prosecutions. First steps have most clearly by appropriate budget increases. been taken towards these developments with the ­ 57 ­ Mongolia amendments to the Law on Environmental Protec- production of fuelwood and domestic use timber, tion (November 2005)--implementation should be and that required for the management of industrial monitored closely, and changes made as needed to timber production. These two activities operate in ensure an effective system. In addition, government very different contexts in terms of the actors involved officials need to be paid at rates high enough to and their motivations for participating. In both cases, encourage honest, ethical behavior. Those at any level it is important to ensure that the focus of sector who engage in corrupt practices must be punished to management is balanced and addresses both limiting the full extent of the law. supply and regulating demand. Policy decisions should be guided by sound research results and economic assessments, using the advice of professionals that Strengthening Prosecution prioritizes the interests of the sector (both communi- ties and industry). The case-tracking system described above would have additional benefits in terms of strengthening prosecu- Given the large proportion of timber consumption tions because there is a gap between the legislation and that is due to fuelwood use, a greater amount of atten- what happens in reality. Implementation of a case- tion needs to be paid to this area. The Government of tracking system, especially if made publicly available, Mongolia should develop a national fuelwood supply would allow critical points within the justice system and demand management strategy, which covers sup- to be targeted, as it would reveal at which stage of the ply to urban areas, and also addresses the need for fuel process cases are dropped, and highlight where the efficiency. Initiatives and activities aiming to reduce or bottlenecks are to successfully convicting criminals. replace the volume of timber harvested for fuelwood or domestic use should be supported. For those involved in the legal system, it is important to improve awareness of the charges and penalties In the case of industrial timber, a more attractive available under environmental law and the importance legal and regulatory environment should be created of pursuing these cases. Mongolia currently has no for investors to allow them to operate legally within environmental investigators who are charged with the sector, with realistic harvest permits issued and building complex cases and pursuing them. The the elimination of regulations that are unnecessarily technical capacity and knowledge of those in the stringent or confusing and hinder efficient operations justice system needs to be strengthened, to allow them in the industry. to utilize the existing environmental legislation and prosecute to the full extent of the law. Improving Utilization of Timber and Management of Forest Resources Improving Policies and Coordination of Management Strategies Although there is an urgent need for companies to be able to work legally in the sector, and opportunities to The management of forestry in Mongolia has under- do so must be provided, it should be recognized that in gone frequent reorganization as government depart- recent years there has been a proliferation of businesses ments and ministries shift and recombine. Emphasis in the forestry sector, most of which currently work needs to be placed on improving coordination and illegally. Many of these companies are working inef- cooperation within the structure that currently exists ficiently, as cheap supplies of illegal timber provide no and eliminating overlap of responsibilities among incentive to reduce wood consumption. In addition, public organizations, rather than undergoing further the cumulative processing capacity of these companies reorganizations, which tend to demoralize staff is beyond what can sustainably be harvested from without making any clear improvements. Mongolia's forests in the long term. It is therefore desirable both to reduce the number of operators, and Regarding the policies put in place for the manage- ensure that those that remain and receive permits are ment of forest resources, a clear distinction needs to demonstrably professional and efficient. The govern- be made between the approach necessary to manage ment could achieve the former by increasing royalties 58 Wood Supply in Mongolia: The Legal and Illegal Economies Sawing timber at one of Ulaanbaatar's many markets. Image: Bryony Morgan, May 2006. on legally felled timber, and reducing the supply of where competition for nutrients and water is high, and illegal timber. Only the most efficient operators will hence growth is suppressed. These are very useful and be able to stay in business. This will encourage the valuable to the construction industry, and should be adoption of less wasteful timber-cutting technologies. recognized as such. Secondary permits should be provided for the use of sawmill offcuts, so that these are utilized and not Increasing wood prices by restricting the supply of treated as waste. cheap illegal timber and implementing royalties will also have the effect of altering people's choices when It is generally thought more effective to downsize it comes to consumption. A reduction should accord- an industry and increase its efficiency through tax ingly be seen in consumption, with a corresponding disincentives rather than by introduction of incen- increase in use of wood alternatives. For example, tives; the latter almost always creates unintended increased royalties could cut down on the affordability market distortions. The government should also of plank fences in urban areas, causing a shift to small encourage increased production of value-added timber round wood, or live hedging (e.g. Caragana) which goods; creating tax disincentives for the use of large might stimulate an urban re-greening industry. amounts of timber should also have this effect. All commercially valuable wood products should be During these changes, the government should be subject to appropriate taxes, including fuelwood and aware of, and support, those people whose livelihoods poles used in construction. The latter are typically the would be negatively affected. In particular, a program densest, strongest wood available, and are often cut with international support should be developed to from the many thin trees that grow in dense forests address livelihood and social issues in former forestry 59 Mongolia towns, many of which have a large proportion of graduates with appropriate training or work experi- residents illegally involved in the forestry industry. ence may be hired as general state environmental In addition, if further royalties are introduced on inspectors, and that rangers must have completed a fuelwood, the poorest people who rely on supplies of training course from an education institution licensed cheap or free fuelwood need to be be supported. This by the state administration to conduct environmental could be through free or subsidized harvesting permits training. In addition, the amendments fix maximum or supplies of fuelwood, or through schemes that areas of land for which a ranger can be responsible. provide alternative fuel. Implementing these amendments would be a positive step. Management of forest resources in situ and production of timber could also be improved. This may require investment in the creation and maintenance of logging Increase Transparency, Public Participation, roads in areas with timber reserves to reduce pressure and Awareness on the accessible stands of timber near urban areas. However, if this is not accompanied by increased Improving transparency by granting increased civil inspection and enforcement capacity, with proven society oversight is not only an opportunity to increase effectiveness, this would provide more opportunity accountability and prevent corruption, but also an both for illegal logging and for the extraction of non- opportunity for those charged with managing the timber forest products, and thus must be undertaken forestry sector to show how decisions have been made, very slowly and carefully. Forests should be managed and demonstrate where allegations of improper actions under long-term plans that identify the appropriate are in fact misguided. The Government of Mongolia is harvestable forest areas and optimum harvest rate, not embracing this concept, and is embarking on projects the year-to-year plans that are currently developed and to increase public access to information through are usually not followed. Industrial use of relatively websites and other media. Much of this information is abundant and fast-growing species such as birch could already available to the public, but not readily acces- also be increased, as these trees are currently not often sible. In addition to increasing access to information, utilized. A large amount of timber is available from the government should further increase opportunities regular, managed forest cleaning and thinning activi- for local communities, NGOs and faith groups to ties, which are required to reduce fuel loading of the participate directly in the control and monitoring of forests and make them more fire resistant. The biomass forestry activities. produced must be utilized effectively, for production of timber for construction and fuel supplies. More attention needs to be paid to improving the knowledge of the general public about the problems of illegal logging, and the ways in which they can act Focus on Training and Human Resources to stop it. Public awareness of conservation issues can be raised through targeted publicity campaigns. There Although the number of employees in the rural areas is may be a need to establish a public forestry informa- far below the levels required to supervise and manage tion and training center, although it is important forest resources efficiently, a greater impact can be that this has a degree of independence and does not obtained through improved training and efficient uncritically promote government policy. One of the use of human resources. Training is crucial for new universities might fulfil this function. recruits to environmental inspection and law enforce- ment agencies, and also important for NGO workers. Many of the factors that have permitted the expansion Operational guidelines should be improved for forest of illegal logging to occur--such as uncertain forest rangers and inspectors. It is important to recruit those use rights, poverty, and unemployment--provide a who have a passion for environmental protection. rationale for the devolution of management control Professional ethics and attitudes to the environment to local communities. Greater involvement of those should be taken into account in hiring decisions. The who rely on forest resources for their livelihoods and recent amendments to the Law on Environmental subsistence should increase their incentives to demand Protection (November 2005) state that only university effective management. The Government of Mongolia 60 Wood Supply in Mongolia: The Legal and Illegal Economies has made some progress in providing a legal basis for be challenging, the potential benefits of this approach this involvement, and has recently developed new are great and these options should continue to be forestry legislation that provides greater opportunities explored. Providing transparent, long-term land use for community involvement. Further regulatory work and timber harvest contracts to communities and will need to be done to complete the process; for the private sector--addressing both benefits and example, community groups are currently intended to responsibilities of all parties involved--should increase be "unregistered" bodies which will present numerous the likelihood of responsible forest management. obstacles to their operation, as they will have not have By increasing the chances for communities to have the status of a legal entity under Mongolian law (for ownership and responsibility for, and to benefit from, a full discussion, see Wingard and Zahler, 2006). their forests, there is a better chance that the ancient Although the implementation of community forestry Mongolian tradition of conserving and respecting the projects in Mongolia, with its nomadic culture, would forest can be revived. 61 Bibliography Capital City Specialized Inspection Agency. 2003. MNE. 2000. 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Ulaanbaatar, Mongolia: State Specialized Inspection Agency. World Bank. 2004. Mongolia Environment Monitor 2004--Environmental Challenges of Urban SSIA. 2004. Handbook for Environmental Workers. Development. Ulaanbaatar, Mongolia: World Ulaanbaatar, Mongolia: State Specialized Inspec- Bank. tion Agency. WWF Mongolia. 2002. A Report on Legal and Illegal SSIA. 2004b. "Report on Investigation Operations Timber Trade of Mongolia. Ulaanbaatar, Mongo- Conducted at the Wood Markets in Ulaanbaatar." lia: WWF Mongolia Programme Office. 64 Appendix A Table A1. Forestry Sector Companies in Mongolia (June 2004) MIT NSO NTA Arkhangai 6 9 25 Bayan-Ulgii -- 7 14 Bayankhongor -- 1 7 Bulgan 19 19 27 Govi-Altai -- 2 8 Zavkhan 8 9 31 Khentii 9 3 21 Dornogovi -- 2 7 Dornod 3 3 17 Dundgovi -- 3 11 Tuv 3 4 19 Orkhon 3 7 31 Umnugovi -- 3 14 Sukhbaatar -- 1 3 Selenge 31 35 89 Darkhan-Uul 9 2 9 Khuvsgul 3 10 28 Uvurkhangai 2 7 38 Uvs -- 2 5 Khovd -- 2 2 Subtotal for aimags 90 131 406 Ulaanbaatar 66 61 272 National total 156 192 678 ­ 65 ­ Appendix B Table B1. Survey of Wood and Forestry Products Companies in Mongolia Nationwide Ulaanbaatar From Over 50 Up to 10 10 to 50 Over 50 Up to 10 From 10 to million million million million Category of million Tg 50 million Tg Tg Tg Tg production NGO capital Tg capital capital Total NGO capital capital capital Total 1 Producers of -- 77 68 30 175 -- 28 29 20 77 construction materials and components 2 Producers of -- 112 76 19 207 -- 47 36 10 93 other wooden and woven products 3 Producers -- 23 16 9 48 -- 16 13 6 35 of wooden panels 4 Producers -- 20 15 1 36 -- 15 10 1 26 of wooden crates and containers 5 Producers of -- 46 66 11 123 -- 10 10 -- 20 timber 6 Logging 5 42 39 3 89 2 7 8 2 19 companies Total 5 321 280 73 678 2 123 106 39 270 Subtotal 279 241 70 589 0 116 98 37 251 (excluding logging companies) ­ 67 ­ Appendix C Table C1. Wood Required for the Construction of a Livestock Pen (m3) Of which: Required wood Enclosed Unenclosed 1 Fence with shed 3 cm boards 1.6 2.9 2 Side walls (2) 3 cm boards 1.1 -- 3 Rear wall 3 cm boards 1.35 -- 4 Roof 3 cm boards 4.8 -- 5 Pole or support pillar 15 cm round pole 1 0.5 6 Total 9.83 3.4 Calculated with the help of a livestock-owning forest ranger. Table C2. Wood Required for the Construction of a Private House (m3) One-storey wooden Two-storey summer Required wooden houses in ger areas, houses in suburban materials 6×8 m complexes , 10×12 m 1 Load bearing wall 15 cm rough-sawn boards 11.76 35.0 2 Ceiling 3 cm boards 1.44 4.5 3 Floor 5 cm boards 2.4 6.0 4 Roof 3 cm boards 2.42 4.65 5 Support 15 cm rough-sawn boards 1.4 5.0 6 Total 19.2 55.15 Calculation made by engineers from the Urban Services Improvement Project, Ulaanbaatar. ­ 69 ­ Appendix D The Government of Mongolia has taken action at many levels to directly and indirectly bring illegal timber harvesting under control. However, the desired outcomes have not always been achieved, for the reasons described below. Table D1. Laws and Resolutions of Parliament Implementation, Positive and Date Law Action Negative Outcomes May 19, Law on Royalties for Royalties go to the local budget. 85 Royalty issue was legalized. 1995 Timber and Fuelwood percent of revenue is used for forest recovery. May 28, Law on Preventing Forest and steppe fire prevention Monitoring results unavailable. 1996 Forest and Steppe from measures are legalized. Fire Jan Law on Custom Duties End of exports of uncut timber Export of uncut timber has ceased. 8,1999 Applicable to Exported No negative outcomes. Wood and Timber Jan 27, Amendment to the Law Changes to fees in connection with Implementation is ongoing. 2000 on Royalties for Timber market prices. and Fuelwood April 14, Joint Order No.67/62 of To revitalize the timber industry, It was reported that 2,000 2000 the MIT and MSWL 15 million Tg in soft loans were permanent and/or temporary jobs 30 April, 2003 distributed to the seven villages were created. Action program for involved in the program. This the revival of the comprised 10 million Tg from MSWL timber industry, to to support employment, and an In reality, no noticeable changes solve employment and additional 5 million Tg from MIT, were felt. social issues affecting for supporting small and medium inhabitants of logging enterprises in each village. villages ­ 71 ­ Mongolia Jan 27, Amendment to the Law MNE instituted permits for those Permits enable MNE to impose 2000 on Forestry harvesting timber for industrial and some controls on the activities of private use aimag and soum governors who abuse their authority. It has also become easier to inspect illegal logging activities. Centralization, bureaucracy, and corruption were created. Jan 28, Law on Reinvestment The financial source for budgetary Analysis of budgetary allocations 2000 of Natural Resource Use allocations for environmental for wildlife management by MNE Fees conservation activities was indicated that this law was not identified. Percentages for adhered to (Wingard and Zahler, reinvestment into conservation of 2006). Analysis of budgetary the resource were set as: allocations for forest management · 30 percent for natural plants has not been undertaken for this · 85 percent for timber and fuelwood report, but it is thought that the law · 50 percent for hunting has not been strictly followed in this · 30 percent for land fees case either. · 35 percent for water April 25, Amendment to the Law Fines for damage caused to the Illegal logging rarely results in a 2002 on Forestry forest through illegal logging can be substantial fine. based on an environmental impact assessment. April 25, Amendment to the Law Effective provision to enforce the Implementation seems mediocre 2002 on Nature Conservation law. Illegal logging could result so far. In the two years after the in confiscation of trucks and amendment came into force, no cancellation of permits. accounts were settled with any business entity and apparently only one truck was confiscated. Jan 27, Amendment to the Law Customs duties were waived on logs Currently an effective wood 2005 on Customs Tariffs and on timber being imported into import system has yet to become Mongolia established, and as a result of the relatively low cost of domestic wood and other factors, the quantity of wood imports has not reached the required level. MNE is taking intensive action to organize these actions in a unified manner and to support business owners. Nov 18, Amendments to the This amendment made provision Implementation should be 2005 Law on Environmental for the setting up of community monitored, in particular to identify Protection organizations for the management obstacles to community-based and sustainable use of natural NRM which require further work. resources, and also for the As a follow-up to this, an order was employment of voluntary rangers. issued in Jan 2006 by MNE on the employment of voluntary rangers. 72 Wood Supply in Mongolia: The Legal and Illegal Economies Table D2. Government Resolutions Implementation, Positive and Date Resolution Action Negative Outcomes Dec 6, 1995 Regulation on Provided framework for Hampered by severe human and financial conducting forest forest inventory. resources constraints inventory Dec 18, Percentage of Changes of discounts Discount provided up to 30­40%. 1996 discounting royalties on timber and fuelwood by forest cleaning July 22, Resolution No.125. Currently, 29 communities of The attitude of business entities and 1998 Regulations for leasing local residents have signed individuals toward the forest in their forest reserves to forest-use contracts tenure has improved significantly. They business entities and have become proactive regarding forest local residents. replanting and conservation. Although the regulation very clearly sets out the responsibilities of forest users, it has been criticized for its failure to address the rights of and benefits to leasers, leading to unsatisfactory implementation. 13 Oct 1999 Resolution No. 163 Changes in fees in Cancelled by the Gov. Resolution No. 147 Amendment to connection with market dated 29 June 2006. fees for timber and prices. fuelwood Nov 22, Resolution No. 181. Approve aimag Aimag environmental agencies 2000 Approving Aimag environmental agency established. governor's office structure. structure Oct 31, National Forestry National Forestry Committee, So far no visible outcome. 2001 Program headed by the Minister of Nature and Environment, was established to be in charge of implementing this program. A five-year action plan was approved. Jan 13, 2001 Resolution No.03. Government export of Failed to be implemented, cause Concerningpermission industrial timber unknown. for the processing of timber to be used for export products December Government Establishment of the The basic responsibility of MNE Forestry 2004 Resolution No.236 Forestry Policy Coordination Policy Coordination Department is the (2004), Program Department within MNE development of forestry-sector policy. for structural This performance of this basic role reorganization of MNE remains unsatisfactory, and no significant actions have been taken to bring about important changes in this sector. The department mainly undertakes action to fight illegal logging, participating directly in inspections. 29 June Resolution No. 147 Changes in fees in New fees have been applied. 2006 Amendment to fees connection with market for harvesting timber prices. and fuelwood 73 Mongolia Table D3. Orders of the Minister of Nature and Environment Implementation, Positive and Date Regulation Action Negative Outcomes Aug 31, Guideline on boundaries of Technologies for timber Implementation is ongoing. 1995 timber areas harvesting determined by professional organizations. --FWRC and Aimag Env. Agency Dec 26, Regulation on planning and Reforestation is planned and Many problems exist in the 1995 financing reforestation and financed. execution of the plans. forestry activities July 15, Transferring of reforested Official transfer of reforested Joint commission set up between 1995 area to state forest fund areas to the state. MNE and aimag representatives. Forest inventories updated. Dec 30, Regulation on forest Technology for forest cleaning The technology is not applied 1997 cleaning and thinning and thinning approved to large areas due to financial constraints. Feb 16, Identification of alpine zone To take these areas under MNE determines the alpine zone for 1998 protection. protection purposes. Dec 15, Model norm of cost of 1 ha Apply a standard cost for 1 ha 100,000 Tg for Khangai region 1998 forestry activity of reforestation. 135,000 Tg for Gobi region Jan 7, Introduction of Certificates MNE began issuing permits to Implementation unsatisfactory. 2000 of Origin for raw timber businesses for the preparation of timber Dec 15, Regulation of permission to MNE began coordinating the Unfortunately, it has been reported 2000 log trees for fuelwood and issuing of permits for logging that even staff from MNE itself have commercial timber. in that year violated some provisions of this regulation. Jan 12, Regulation of sale of Timber sales and inspections Implementation has been 2001 industrial timber, fuelwood, became subject to official inadequate. The original objective and timber as a raw regulation of controlling illegal wood through material in the capital city, official markets could, theoretically, aimag centers, and other make control and inspection easier, settlements. but has ultimately facilitated the work of illegal traders, with the establishment of branches of their networks at each site. Jan 15, Decree No. 23 Concerning Fuelwood preparation permits This decree was an important step 2001 the Modification of the were revised and given forward in putting controls on the Permit to Prepare Fuelwood nationally registered numbers, quantities of permits issued by and employed in the manner local authorities and forest rangers, of securities and helping to stop the illegal logging and transport of timber using various types of documents allegedly for fuelwood preparation. The fees for preparing timber and fuelwood were also increased. In some areas an artificial demand for these permits has emerged, and the illegal sale of permits has begun. Feb 12, Decree No. 38 Functions of Environmental Ongoing 2001 Approval of rules and Agency are identified. regulations of Environmental Agencies 74 Wood Supply in Mongolia: The Legal and Illegal Economies Implementation, Positive and Date Regulation Action Negative Outcomes May 28, Introduction of Certificates Replaces order of Jan 2000 to Ongoing 2002 of Origin for raw timber monitor transportation and sale of timber. March 18, Approval of Natural Resource Approval of Natural Resource Agency has since been split into the 2003 Forest and Water Agency Forest and Water Agency FWRC and the Water Authority. rules, business plan, budget rules, business plan, budget and staff and staff Nov 15, Regulation on issuing To regulation licences for The standard cerficiate is modified. 2004 licenses for timber and timber and fuelwood, Licences for timber and fuelwood fuelwood, usage, and usage, and monitoring is separated. See the report for monitoring transportation transportation decriptions of the problems. February Decree of the Minister of the The Office for the In the initial period inspections 2005 Environment, Concerning Coordination of Wood and improved, and the illegal timber the Establishment of an Wood Materials Inspections brought into Ulaanbaatar in Office for the Coordination established under MNE to the spring months actually of Wood and Wood Materials register and inspect wood decreased. But the illegal timber Inspections under MNE and wood materials entering trade intensified in June and July, Ulaanbaatar, as well as the eventually reaching its former levels. wood markets operating in This is connected on the one hand the city. with the weakening of the workforce of this office, and on the other hand with the presidential elections and the Naadam national holiday. March 9, Decree No. 61 of the With this decree, the The establishment of this new 2005 Minister of the Environment, minimum assessed ecological model for assessing the value of Concerning the Ratification and economic value for one damage caused by illegal logging of Assessments of Damage cubic meter of damaged has made a start toward enforcing to Forest Resources forest wood was set at 250.0 the repayment of damages, thousand Tg, with additional establishing the foundation fines charged on the basis of for prosecution by judicial and the forest zone, the species of administrative authorities, and tree, and yield. valuing wood at the same level as neighboring countries. Many people believe that this measure has artificially raised the price of wood and provided an incentive for illegal logging. But this resolution is not being implemented, as Decree 93 (2002) of the Minister of the Environment "Concerning the Ratification of Ecological and Economical Value of Forest Resources" remains in force. Jan 23, Decree No. 24. Regulation on To implement the Ongoing. 2006 employing voluntary ranger Amendment to the Law on and introduction of award Environmental Protection. system April 26, Decree No. 114. Regulation To implement the Implementation not yet begun 2006 for community groups Amendment to the Law on (Nokhrolol) for community- Environmental Protection. based NRM, sample contracts and certificates 75 Mongolia Table D4. Actions of the Office of Specialized Inspection and Others Date Action Implementation, Positive and Negative Outcomes 2002 Resolution No.A/177 Concerning The approval of the requirement to unload the timber Collaboration Between the Office of transported by railway only at crossing No.44 facilitated Natural Environment Conservation and inspection activities. the Chairman of Ulaanbaatar Railway Wood can be unloaded at different places if the thieves Authority conspire with railway employees. 2003 Creation of "Volunteer Inspector" The Office of Specialized Inspection started to cooperate positions with certain NGOs to control illegal activities to expand the scope of the controlling activity. In some cases, authorized volunteer inspectors have reportedly abused their authority and become involved in conspiracies with the timber thieves. 2003 Establishment of the independent Separating the specialized inspection role from the inspection structure ministries and making it subject to the Prime Minister's administration was an important step toward establishing an independent inspections system. Nov 15, Resolution No.54 of the National This measure has made an important contribution to 2004 Council on Standards and Measures. stopping the illegal supply in Ulaanbaatar of timber Fuelwood technical standard No. in two-meter lengths declared as "fuelwood." On the 5413-2004. Fuelwood brought into negative side, the demand for timber has increased. Ulaanbaatar and aimag centers must be Previously people would use dry fuelwood for various cut into 50-cm lengths simple building projects and use the remainder as firewood. Now, however, unseasoned timber is being used for even the simplest applications. 76 Environment and Social Development East Asia and Pacific Region THE WORLD BANK 1818 H Street, N.W. Washington, D.C. 20433, USA Telephone: 202 473 1000 Facsimile: 202 522 1666 E-mail: worldbank.org/eapenvironment worldbank.org/eapsocial