An official sanction of as much as thirty times the IHH can be applied at the 

processing mill for every cubic meter above the assigned AAC.  Several companies 

ceased logging for a period of two months to avoid this sanction. 

A maximum fine of US$50,000 or a jail sentence for logging within a Protection 

Forest (Hutan Lindung) was imposed. 

The impact of sanctions on timber company behavior is ineffective because of the high financial 

returns from timber. The average annual timber company sanction in West Kalimantan 

produced US$32,000 in official fines. Larger timber groups were able to recover these costs 

from less than two weeks of production. Repayment of all fines by the top eleven conglomerates 

required harvesting an average of 73 hectares, based on a 60% AAC. While fines and sanctions 

may appear large to forestry officials, they are relatively inconsequential for influencing 

concessionaire behavior.  Tremendous financial benefits still flow to non complying corporations 

that incur low penalties even if caught in violation of the regulations. 

Non compliance persists for other reasons as well. In West Kalimantan, 16% of the production 

forest area on the Sarawak, Malaysia, border is controlled by the military through logging 

subcontractors.  While other forest operators work through provincial agencies, these operators 

work directly through the central forestry agencies for their annual work blocks and 

determination of harvesting areas. Local and provincial forestry officials provide the AAC for 

these areas.  Unfortunately, data used to allocate the AAC are unverified, and the harvested 

areas did not coincide. 

The NRMP response to constraints resulting from non compliance and enforcement of forestry 

regulations was to promote the use of  performance bonds .  To encourage compliance, the 

contingent liability of non compliance must equal or exceed the benefits of non compliance.  

Current sanctions do not reflect the economic benefits of non compliance and are ambiguous in 

both their application methods and levels.  In response, the use of performance bonds involving 

a large deposit (75% of annual gross income) by logging concessionaires was recommended by 

Curran (NRMP Report No. 4, Curran 1992).  This performance bond was to be applied in 

combination with outcome based indicators on the leased area.  However, this recommendation 

has not developed further, and there has been no action.  If performance bonds are adequately 

assessed, made transparent and accountable, they will hold great promise for identifying 

responsible concessionaires and for providing security deposits on forest leases.   

2.4.4  Negotiation and Production Costs  

Natural forest concessionaires must cope with more than 65 distinct regulations, many of which 

require annual, quarterly or monthly reporting after field implementation. Corporate 

concessionaires engage full time administrative and technical staff to meet the reporting and 

processing requirements of these regulations, which often require several bureaucratic steps for 

acceptable compliance.  An example of a concessionaire s reporting efforts to meet these 

regulations highlights the problem.  During 1995, this concessionaire filed reports on two 

presidential decrees (Keppres), four government acts (Peraturan Pemerintah), ten ministerial 

decrees, 37 Director General decrees or circulars (Surat Keputusan or Surat Ederan), in 

addition to circulars from Litbang (1), Kanwil (12) and Dinas Kehutanan (3).  The concessionaire 

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