COMMERCIAL VIABILITY OF FOREST PLANTATIONS IN SRI LANKA

Abstract

The Forestry Sector Master Plan (FSMP) approved by the Government of Sri Lanka hasidentified the need for commercialised state owned forest plantations. This study examinescommercial viability of single species forest plantations (Albizia. Eucalyptus. MahoganyPines and Teak) for Timber (saw log and non-sow log) production and Pines plantationsfor resin tapping and subsequent timber production.

Financial analysis aids planning of investment. financing and assessing businessoperations. Decisions on investments and financing a business primarily depends onfinancial profitability. In financial analysis benefits and costs rcaliscd over time arediscounted using market lending interest rate to compare benefit and cost in present values.A most common decision criterion that is used is the Internal Rate of Return (lRR).

Silvicultural data were based on plantation management plans of the Forest Departmentand price data were based on estimates of stumpage values (base case) and past modelmarket price of timber. The opportunity cost of capital was considered as 14% and theenvironmental benefits of forest plantations. which were non-financial. have beenconsidered to determine public incentives required for forestry.

The results indicate on the base case and the sensitivity analysis for yield (10% increaseyield) and cost (20% reduction of cost) that only teak plantations are financially viable.Pines resin tapping from new plantations is not financially viable. Albizia, Eucalyptus.Pines and Teak harvested for timber is financially viable. if suhsidiscd to compensateenvironmental benefits. It is also found that forest plantations arc not financially viable onvalue at site (stumpage value) but financially viable at processed timber sales.

This study indicates that indiscreet commercialisation of state owned plantations is notpossible. However some forest plantations could he commcrcialiscd if a subsidy equivalentto environmentally benefit is provided