Development and reform of state forest enterprises in Vietnam: From policy to practice

 Development and reform of state forest enterprises in Vietnam: From policy to practice

Le Thien Duc[1], Dang Tung Hoa[2] and Jürgen Pretzsch[3]

This paper is part of ongoing PhD research: “Strengths and constraints of State Forestry Companies in Vietnam - Two case studies in the Central Highlands”.

Abstract:

State Forestry Companies (previously named State Forest Enterprises and recently named State Owned Forestry One-Member Limited Liability Companies) Are forestry units which manage most of the production forest areas in Vietnam. The precursor to the State Forest Enterprises (SFEs) Were called Logging Sites (after 1954, with the need for economic rehabilitation and development after the war, the State established a series of Logging Sites). The name SFE (Lâm trường) Bears the mark of the historic development of the forestry sector, and SFEs have made great contributions to the development of the forestry sector in Vietnam. In the period from the 1950s to the 1980s, most forest areas in Vietnam were managed by a system of many SFEs, which were under direct management of the Ministry of Forestry and provincial and district authorities. Over the last 50 years of development and renovation, from their establishment up to the present, SFEs have gone through various changes in terms of name, number, management areas, management objectives and mechanisms. From 413 SFEs (before the reform era, 1992), extending over milestones of reform, re-arrangement, conversion policies under a series of Decrees, Resolutions, and Decisions to date, there are now 151 State Forestry Companies (SFCs).

However, in reality, the reform of the existing management mechanisms of SFCs is only done in terms of form and not yet in terms of content. Operational models for SFCs are not really completed for the enterprise so that it can be operated following the Law of Enterprise. Case studies in two SFCs, which are managing natural forest for timber production, include Ha Nung (Gia Lai province) And Dak To (Kom Tum province) In the Central Highlands of Vietnam. These studies clearly show a number of limitations and problems with enterprise and forestry governance with new mechanisms - a lack of capital and equipment, competence in planning, financial management and forest protection, administrative procedures in forestry, control of demand pressure of wood use and land, quotas of logging distribution, standing charges, relationship and benefit sharing between SFEs and local people. Mechanisms are needed to concretize the reform policies on both the national and local level in order to remove the above limitations and problems, so that the SFCs can promote, financial stability, and improve forest management leading toward sustainability and the livelihood of local communities.

Key words: State Forest Enterprise, State Forestry Companies, development, renovation, policy, practice, forest management, local people, Central Highlands, Vietnam.

I. Introduction

1. Forests in Vietnam

In Vietnam, forests are classified into three categories based on major forest use purposes: Protection forests, special-use forests, and production forests (National Assembly of Vietnam, 2004) . According to Article 4 of the Law on Forest Protection and Development in 2004:

- Protection forests are used to protect water sources and land, to prevent soil erosion and desertification, to minimize natural disasters, to regulate the climate, and to contribute to environmental protection. Protection forests are managed by households or Forest Management Boards under the Provincial Forest Protection Departments.

- Special-use forests are used mainly to reserve nature, the national ecosystem, and the genetic diversity of fauna and flora; To serve research purposes; To protect historical and cultural relics and landscapes; And to provide resort and tourist sites. Special-use forests are normally managed by Forest Management Boards under Provincial Forest Protection Departments or National Forest Protection Department of MARD.

- Production forests are used mainly for the production of timber and non-timber forest products, combined with environmental protection. Production forests are normally managed by the State Forest Enterprises, households or other institutions and organizations.

The total area of forest in the entire country is 13,258,843 ha (of which 10,339,305 ha are natural forests and 2,919,538 ha are plantations) With the forest cover of 39.1%. The forest area was divided into three types: Special-use forest: 1,999,915 ha, accounting for 15.1% of the total area; Protection forest: 4,832,962 ha, accounting for 36.5% of the total area; Production forest: 6,288,246 ha, accounting for 47.4% of the total area. The Central Highlands has the largest natural forests in Vietnam with 2,715,746 ha, accounting for about 26.3% of the total area (FPD, 2010) .

Figure 1 Overview of forest classifications

(Source: FPD, 2010, presented by the authors)

2. Forest Owners

Currently, forests in Vietnam are managed by different owners, such as the Forest Management Boards, State Forest Enterprises, other Harvesting Operations, Household, and the People Committees (FPD, 2010) . Both natural forests and plantations are managed mainly by 4 owners: Forest Management Boards (mainly National Parks and Nature Reserves), People Committees, Households, and State Forest Enterprises.

Management of natural forests: Forest Management Boards: 3,818,718 ha (37%), People Committees: 2,037,578 ha (20%), Households: 1,961,517 ha (19%), and State Forest Enterprises: 1,551,473 ha (15%). Management of plantations: Management, Households: 1,325,553 ha (45%), Forest Management Boards: 499,774 ha (17%), State Forest Enterprises: 492,779 ha (17%), and People Committees: 384,907 ha (20%) Respectively (see Figure 2).

Figure 2 Different types of forest owners

(Source: FPD, 2010, presented by the authors)

Note: FMB: Forest Management Board; SFE: State Forest Enterprise; OHO: Other Harvesting Operation; HH: Household; PC: People Committee

II. State Forest Enterprise

State Forest Enterprises (SFEs) Are forestry units which manage most of production forest areas in Vietnam (Le & Pretzsch, 2011) . To date, although the SFEs have transformed into one-member liability limited companies owned by the State, the name of SFE (Lam truong) Bears the mark of the historic development of the forestry sector, and SFEs have made great contributions to the development of the forestry sector in Vietnam. (Artemiev, 2003, EASRD, 2005, Le, 2011) .

However, since the shift from the centralized, bureaucratic and subsidized economy to an oriented market economy, the majority of SFEs that were converted into forest companies, and nowadays one-member liability limited companies, are still facing a lot of difficulties (Le, 2011) .

1. Historical development and reform policy

During the period from the 1950s to the 1980s, most of forest areas in Vietnam were managed by a system of many SFEs, which were under direct management of the Ministry of Forestry (now called the Ministry of Agriculture and Rural Development) And provincial and district authorities (Nguyen, 2001) . Over the last 50 years of development and renovation, from their establishment to the present, SFEs have gone through various changes in terms of name, number, management areas, management objectives and mechanisms. From 413 SFEs (before the reform era, 1992), operating under centralized planning mechanisms and subsidies, completing harvest quotas of natural forests by the state, and implementating silvicultural treatments to reconstruct the forests (Nguyen, 2001, MARD, 2006) , and extending over milestones of reform, re-arrangement, and conversion policies under a series of Decrees, Resolutions and Decisions to date, there are now 151 State Forestry Companies (SFCs) (Le, 2011) .

The summary of SFEs development is presented in Table 1 as below:

Table 1. Development of SFEs in periods

Period	Total No. Of SFEs	Of which, under direct management by	Sources
1954-1992	413	76 under Ministry of Forestry 199 under Provincial People’s Committees 138 under District People’s Committees	(Nguyen, 2001)
1993-2004	368	40 under central 328 under provinces	(FSSP&P, 2006)
2005-2009	256		(Le, 2011)
2010- now	151	141 under central and provinces 8 under Vietnam Forest Corporation 2 under Paper Corporation	(Le, 2011)

Since establishment, names and management mechanisms of SFEs have been changed in accordance with reforms policy, especially after the reform era milestone in 1986:

Logging Site

State Forest Enterprise

Forestry Agriculture and Industry Union

State Forest Enterprise

State Forestry Company

Forestry One-Member Limited Liability Company (One-Member = State-owned)

Numerous reform policies regarding SFEs are:

Decree No. 388/1991/HDBT, on the regulations for setting up and closing down State Owned Enterprises

Decree No. 200/2004/ND‐CP, on reorganization, renewal, and development of State Forest Enterprises

Decree No. 25/2010/ND-CP, on transformation of state companies into one-member limited liability companies and management of state-owned one-member limited liability companies

Details on reform with change of name, task and mechanisms of SFEs are shown in the following table:

Table 2. Detail on changing of name, tasks and mechanism of SFEs

Year	Name changed	Main tasks	Policy remark	Management mechanism
1954	Logging Enterprise	Logging in order to meet the need of economic recovery and development after the war	Establishment of logging enterprises.	By central
1960	State Forest Enterprise	Forest management and protection; Timber exploitation; Transportation to log yard; And implementation of silvicultural measures for forest regeneration	Logging enterprises were converted into State Forest Enterprises	By central
1993	State Forest Enterprise	Forest management and protection; Timber exploitation; Transportation to log yard; And implementation of silvicultural measures for forest regeneration	Decree No. 388-HDBT dated 20/11/1991 on regulation on establishment and dissolution of State owned enterprises. Decree No. 12/ CP dated 02/3/1993 on organizational restructuring and managerial mechanism reform of state agricultural enterprises	The management of most of SFEs was decentralized to provincial level
2004	State Forestry Company	Forest management and protection; Timber exploitation; And implementation of silvicultural measures for forest regeneration	Decree No. 200/2004/ND-CP dated 03/12/2004 on reorganization, renewal and development of forest enterprises	By province
2010	One Member Forestry Liability Limited Company	Forest management and protection; Timber exploitation; And implementation of silvicultural measures for forest regeneration	Decree No. 25/2010/ND-CP dated 19/3/2010 on transformation of state companies into liability limited company members and one-member liability limited company owned by the State	By province
Future	Joint Stock Company	-	-	-

 (Source: Own Elaboration, Policy Review and Interview 2011)

The historical development of SFE is based on specific policies in periods. The reform process of SFE can be summarized in the figure below. Upper horizontal axis shows how the names of SFE are called in different periods, lower horizontal axis shows the policies effect to SFEs.

Figure 3. Overview of historical development of SFE

(Source: Own Elaboration, Policy Review and Interview 2011)

2. Current status

To date, all SFEs operating under the Law on State Enterprises in 2003 were converted into Forestry One-Member Limited Liability Companies following Decree No. 25/2010/ND-CP dated 03/19/2010. According to reports and data compiled from 36 provinces and cities directly under the Central Government, the Forestry Corporation of Vietnam and the Vietnam Paper Corporation, by 31/08/2011, basic data and information of the state-owned one-member forestry liability limited company could be described as following table:

Table 3. Current status of SFEs

No.	Basic indicators	Unit	Total	Of which
				Companies under management of provinces	Vietnam Forest Corporation	Paper Corporation
1	Independent financing enterprises	Company	151	141	8	2
2	Dependent financing enterprises	Company	19			19
3	Allocated, leased land	Ha	2,091,899	1,918,278	92,171	81,450
4	Forest area	Ha	1,790,228	1,669,158	61,760	59,310
5	Production capital  (1USD = 20,000 VND)	Mil., USD	168,769,339	103,632,983	18,035,250	47,101,106
6	Laborers	Person	17,133	13,774	1,309	2,050
6.1	Management staff	Person	3,254	2,372	272	610
6.2	Contracted laborers	Person	13,879	11,402	1,037	1,440

 (Source: Le, 2011)

So far, very few forest management units are being recognized and awarded for sustainable forest management (SFM). There are in total only 61,488.05 ha of forests that are certified, of which, 72% are certified plantations and 28% are certified natural forest. This shows that forest management in Vietnam has not yet been appreciated by third parties or certification bodies in terms of sustainability because there is still a big gap between the conventional forest management standard in comparison with the international forest management standard. Details on certified forests are showed in following table:

Table 4. Current state of Forest Management Certification

No.	Name of Forest Management Unit	Certified since	Total certified area (ha)	Natural forest (ha)	Plantation (ha)
1	Quy Nhon Plantation Forest Company of Vietnam Ltd (QPFL)	2006	9,762.61		9,762.61
2	Forest certification for household groups in Quang Tri province	2010	571.00		571.00
3	Vietnam Paper Corporation (VINAPACO)	2010	12,201.30		12,201.30
4	Vietnam Rubber Corporation	2011	11,696.14		11,696.14
5	Dak To plantation single member limited liability company (DAKTOPLANCO)	2011	16,318.00	16.264,90	53.1
6	Ben Hai Forest Company, Quang Tri Province	2011	9,463.00	1,679	7,013
7	Forest Products Export Joint-Stock Company of Quang Nam	2012	1,476.00		1,476.00
	Total		61,488.05	16,266.58	42,773.15

 (Source: FSC website, 2012)

III. Case studies

1. Setting

The case studies are carried out in two SFEs (Ha Nung and Dak To Forestry Companies) Which located in Gia Lai and Kom Tum provinces, in Central Highlands of Vietnam. Both Ha Nung and Dak To Forestry Companies have been supported by WWF and GIZ for couple of years to promote SFM. While Ha Nung Forestry Company is state-owned medium size company, Dak To Forestry Company is a large size company.

Map 1 Locations of case studies

 

(Source: Owned Elaboration based on maps from internet)

2. General and technical information of case studies

General and technical information comparing two SFEs are shown in the following table.

Table 5. Basic information about two case studies

Basic information	Ha Nung Forestry Company	Dak To Forestry Company
Type of company	State-owned Enterprise	State-owned Enterprise
Total managed area (ha), In which: -Production forest -Protection forest -Agriculture land	9,089.1 7,813.4 1,275.7 0.0	16,329.3 13,817.4 1,958.0 553.9
Staff and workers	23	17+ 3
Beginning process of toward SFM	2003	2005
Certified status	Not yet	CW since 2011
Supported by	WWF	GIZ
Ethnic groups	8 groups (mainly Kinh & Bana) With 968 HHs, 3.920 people	4 groups (mainly Sedang) With 3,122 HHs, 15,207 people
Permitted logging quota	Every year	Banned 2005-2010
Harvesting rotation (year)	35	30
Minimum forest volume to be planned to harvest (m3/ha)	269.0	270.0
Rate of growth P (%)	2.7	2.6
Annual Allowance Cut (AAC) (m3)  (following harvesting quota) In 2010	3,500	2,651
Annual Sustainable Cut (ASC) (m3)  (following SFM Plan) In 2010	5,908	8,040
Intensity of cut	27%	12 trees/ha
Annual harvestable area (ha/year)	193.8	170.0

 (Source: Ha Nung, 2010, Dak To, 2009, Fieldwork, 2011)

The SFEs is operating as conventional forestry, forest harvesting is the main activity. Other activities are forest inventory, forest planning, and forest protection. Post-harvest activities (silviculture treatments) Are not implemented because of no subsided fund.

3. Historical Timeline

Historical development of Ha Nung and Dak To SFEs are showed in the following figure. Similarly, upper the horizontal axis shows how the names of Ha Nung and Dak To SFEs are called in different periods, lower the horizontal axis shows the general policies effect to these SFEs. Figure 4 shows how are similar and different between two SFEs.

Figure 4. Historical timeline of case studies

 (Source: Fieldwork, 2011)

4. Review of Legal Framework

From a literature review, the legal framework in two case studies are shown in the below table. Both SFEs are acting under many legal frameworks of the state (laws, ordinances, decrees, decisions, circulars, etc.) And provinces (decisions, directives). However, in practice, these legal documents are not fully implemented.

Table 6. Level and type of legal documents

No.	Level and type of legal documents	Ha Nung	Dak To
1	National level
	- Laws, and Ordinances (issued by National Assembly, Party)	7	7
	- Decrees, Decisions, and Directives (issued by Government, Prime Minister)	14	14
	- Decisions, Circulars, Documents (issued by Minister, Department under Ministry	7	7
2	Provincial level
	Decisions, Directives (issued by Provincial People’s Committee, Council)	6	4
	Total	34	32

 (Source: Literature Review, 2012)

5. Financial issues

In-depth case study looked at Ha Nung SFE in term of accounting in five recent years. The result shows that the total revenue of the enterprise is mostly depended on timber harvesting, the turnover from timber is accounting for over 92%. More than two-thirds of timber selling money must contribute to state’s budget via so call ‘standing charge’, the real earning of the enterprise left over is very small amount, almost nothing spends for reinvestment back the forest (see Figure 5).

Figure 5. Business results of Ha Nung SFE

(Source: Fieldwork, 2011)

7. SWOT Analysis

SWOT Analysis was conducted in 2011 in both Dak To and Ha Nung SFEs. Additional meetings with SFC manager and its key staff were organized to gather information, and discuss the issues by using a participatory approach. The results were then compiled into a SWOT standard sample table. The two case studies have many similar findings, and they are synthesized in one form in the following table.

Table 7 SWOT Analysis

Internal factors	STRENGTHS - Natural forest and land resources: Forest area, timber volume, commercial species. - Good cooperation with national and international agencies.	WEAKNESSES - Weak in enterprise governance. - Lack of new forest management practice. - Not fully understand customs and culture of indigenous people. - - Exclusion of the participation of communities in operations. - Lack of capital and equipments. - Low efficiency of working apparatus. - Difficulty in controlling of illegal logging. - Lack of maintaining and managing rare, threatened or endangered species and their habitats
External factors	OPPORTUNITIES - - Technical support of International agency. - Big market for timber selling. - Pilot sustainable forest management project.	THREATS - Inadequate administrative procedures in forestry - Land-use conflicts with local communities. - More pressure on the need of timber and land. - Weak monitoring and evaluation (M&E) System on performance. - Policies on high taxes and fees leading to lack of capital for reinvestment to forest. - Continuous existence of semi-autonomous entity (old mechanism).
	Positive	Negative

 (Source: Fieldwork, 2011)

V. Conclusions and Implications

1. Conclusions

After almost 8 years of implementation, the reform and re-arrangement of SFEs has not met the expectations the Government has set because of many constraints, and the changes in the SFEs have been done only in terms of name and not yet in terms of management content.

Operational models for SFCs are not really completed for the enterprise so that it can be operated freely following the Law of Enterprise.

Case studies in two SFEs clearly show a number of limitations and problems with enterprise and forestry governance with new mechanisms: A lack of capital and equipment, competence in planning, financial management and forest protection, administrative procedures in forestry, control of demand on wood use and land, quotas of logging distribution, standing charges, relationship and benefit sharing between SFEs and local people.

2. Recommendations

Based on results obtained in two case studies, there should be proposed recommendations to complete the reform and improve the performance of SFEs in forest management practices:

The state and provinces should open and create clear mechanisms for SFEs can promote financial stability.

The state and provinces should allow SFEs to self organize timber auctions and select customers.

The state and provinces should reduce standing charges for timber.

SFEs should involve local people in forest planning and operations.

SFEs should review land and forest areas in order to make clear boundaries and, if necessary, to hand over some land and forest areas to local people.

VI. Bibliography

Artemiev, I. (2003). State Forestry Enterprise Reform in Vietnam Unlocking the potential for commercial wood growing. EASRD.

Dak To. (2009). Sustainable forest management plan: Dak To State Forest Enterprise, period 2009-2028 (in Vietnamese).

EASRD. (2005). State Forest Enterprise Reform in Vietnam Review of Policy and Implementation Framework for Decree 200. World Bank, (November).

FPD. (2010). Forest Status Data 2009. FPD website. Retrieved from http: // kiemlam. Org. Vn/Desktop. Aspx/News/So-lieu-dien-bien-rung-hang-nam/2009/

FSC website. (2012). FSC website. FSC website. Retrieved October 8,2012, from info. Fsc. Org/

FSSP&P. (2006). Forestry Sector Handbook- Management of State Forest Enterprise. (D. T. Ngo, X. P. Pham, H. N. Bui, & H. T. Nguyen, Eds.) MARD (in Vietnamese).

Ha Nung. (2010). Sustainable forest management plan: Ha Nung Forestry Company, period 2010-2045 (in Vietnamese).

Le, D., & Pretzsch, J. (2011). Forest Management Practices in Central Highlands of Vietnam: Case Studies in two State Forestry Companies. In M. Becker, C. Kreye, C. Ripken, & E. Tielkes (Eds.), Tropentag 2011: Book of Abstracts: Development on the margin. International Research on Food Sercurity, Natural Resource Management and Rural Development (pp. 249–249). Cuvillier Verlag, Göttingen 2011.

Le, V. B. (2011). Overview on State Forest Enterprises (SFE) - Curent status, issues and recommendations. Vietnam Administration of Forestry.

National Assembly of Vietnam. (2004). Law on Forest Protection and Development.

Nguyen, V. D. (2001). Vietnam Forestry 1945-2000: Development Process and Lesson Learnt. Agriculture Publishing House (in Vietnamese).

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[1] Msc., Technische Universität Dresden, Faculty of Environmental Sciences, Institute of International Forestry and Forest Products,  Pienner Str. 7, 01737 Tharandt, Germany.

[2] Dr., Water Resources University of Vietnam, Faculty of Economics and Management, 175 Tay Son str., Dong Da, Hanoi, Vietnam.

[3] Prof. Dr., Technische Universität Dresden, Faculty of Environmental Sciences, Institute of International Forestry and Forest Products,  Pienner Str. 7, 01737 Tharandt, Germany.

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