2/7 The Avenue

Randwick NSW 2031

Australia
Mob: +61 415 383 354
Tel: 61 2 9398 8639

Email: bmckelvie@cvbeyan.com

Community Reforestation Project Plan,

Indonesia.
__________________________________________________

Prepared by Bruce McKelvie and Dolna Sherly Lage, Project Directors

September 2013
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‘Leda’ (Eucalyptus deglupta) is native to Indonesia and the project area. It is endangered across its
native range due to excessive logging. It is a colonizing species and is effective in restoring
grasslands and other degraded land areas into bio-diverse tropical forest ecosystems.
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Project area map

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Contents:

Executive Summery…………………………………………………………………………... 5

Background Information……………………………………………………………………... 8
The key objectives of this project……………………………………………………………. 8
Local area National Park………………………………………………………………………. 8
The local area and people…………………………………………………………………… 8
CV. BEYAN - Background, aims and objectives……………………………………………. 9
Project development……………………………………………………………………………. 10

Proposal………………………………………………………………………………………… 11
Share of funds and benefits to the community……………………………………………… 12
Species to be planted………………………………………………………………………….. 13
Biophysical data……………………………………………………………………………....... 13
Diseases and pests…………………………………………………………………………….. 13
Growth rates and timber yield…………………………………………………………………. 14
Proposed number of trees……………………………………………………………………... 14
Timber value and estimated return……..…………………………………………………….. 15
Nursery supply………………………………………………………………………………….. 16
Areas of reforestation...………………………………………………………………………… 16
Grassland management……………………………………………………………………….. 17

Time Frame, Labour and Management………………………………………………........ 18

Time frame………………………………………………………………………………………. 18
Labour and management………………………………………………………………………. 20

Financial data………………............................................................................................ 24

Additional Proposed Projects……………………………………………………………… 27

Community Reforestation Project Team Profile ……………….................................... 28

Annex – List of project documentation........................................................................ 30

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Executive Summary:

Background information:
The key objectives of this project are; to rehabilitate deforested, community owned areas of Alang-
alang grassland, which have been highly under-utilised for centuries due to the presence of Alang-
alang grasses which have made the land unviable for local people for agriculture. Rehabilitation of the
land will be achieved through eradication of the grasses and the plantation of ‘Leda’ trees for timber.
After harvesting the trees there will be reforestation planting of mixed local native trees to create
conservation forests. There will also be preservation programs for local endangered native animal
species, and the project will provide significant economic, social and cultural benefits to the local
community.

The area, where the project will be located, is some distance from a capital city and is relatively
remote. Population of the area is approximately 5,000 people spread over ten village areas. Average
altitude is 1,210 metres; rainfall is 3 - 4,000 mm per year. The people of area are predominately poor
and many are malnourished. In the area there have not been any attempts to occupy any lands within
the surrounding National Park boundaries and there is no history of illegal logging.

CV. BEYAN has been formed from a family business operating in the area. We have a high level of
local experience and knowledge and are committed to the local people and culture. We aim to provide
much needed employment, including suitable employment for women, stimulate the local economy
over the long term and help to provide for community welfare.

Proposal:
CV. BEYAN has been allocated 1,080 hectares, which includes open areas of Alang-alang grassland
and some re-growth forested areas, that was originally all forested land that was cleared through
ancient shifting agriculture methods over a thousand years ago, 460.88 hectares (532.9 hectares
including buffer zones) of grasslands will initially be used for tree plantation. The land is owned as
‘Adat’ (traditional, customary) land by the community of a village within the area. The project is
scalable and can be expanded to further areas of allocated land and additional areas of community
owned Adat land once this stage of the project is established. With scaling up from its current stage
there will be lower costs per hectare upon expansion.

The areas of land will be planted with Leda trees and ten years after plantation 35% of the trees will
be harvested over one year, and, fifteen years after plantation 100% of the remaining trees will be
harvested over two years.

Following the final harvest conservation forests will be established which over time will develop
broad biodiversity from further tree growth from seed spawning from the Leda, species encroachment
from the adjoining National Park forests, and from further mixed native tree planting. We also intend
to use an area of conserved forest as an enclosed breeding area for the endangered Anoa and
 6

Large Kus Kus. The allocated areas of land are suitable for crop cultivation and once the Leda
plantation is in place, incorporating agricultural products within areas of the plantations may be
carried out, to create additional, annual income for investors and local people.

10% of the profits from harvests will be shared with the community land owners of the local village
and the whole of area specifically for community and conservation programs.

Species to be planted: Leda (Eucalyptus deglupta). A local native species, that is readily available
on the island. Eucalyptus deglupta is hardy, tall, straight and fast growing and yields high quality
lightweight hard wood which can be used for building and a wide range of other uses.

Number of trees to be planted = 512,088, with 168,220 trees, after thinning operations and attrition
reductions, harvested for saw logs. Following the final harvest the conservation forest planting
will be of 108,767 mixed local native tree species, including more Leda.

Timber value and estimated returns: From information coming from the Indonesian Ministry of
Forestry and comparing domestic saw log prices from the International Tropical Timber Organisation
(ITTO), the early 2013 cubic metre domestic value of Leda timber shows as being US$232 - $330,
domestic price. Logs will be sold within the island for local processing.

These returns are calculated for tree bole only and additional income could be generated from tree
tops and branches which may be sold for fibre or biomass.

The areas for plantation will be demarcated with signage at regular intervals for designation and
protection. The local village government will oversee the construction of a road from the village to an
intermediary area close to the sites of plantation where storage of seedlings, tools and equipment will
take place.

Alang-alang grasses will need to be eradicated using Glyphosate herbicide, which is generally
considered safe when used for brief periods and over warm climate soils. Other measures for
management of Alang-alang and other grasses are not cost effective and without eradication of the
grasses there would be extensive tree losses and much reduced tree growth.

Time Frame, Labour and Management:

The establishment phase of the project is planned to cover two years including project set up, land
preparation, planting, and follow up weeding and evaluation.

The project will be managed by a Project Coordinator and an Assistant Coordinator (the project
directors), and an Economic Management Team of two members responsible for estimates,
purchasing, banking and wages, wage transport and distribution, accounting and taxation, organising
audits, licences and legal matters. There will be two Site Managers, and one Site Supervisor to an
average of every 30 workers. Our team also includes two Horticulturalists from the local National Park
 7

to be responsible for ongoing horticultural consultancy, site demarcation and seedling supply. Core
staff numbers are fairly high due to the need to ensure there is sufficient staff in an environment
where infectious diseases, such as Malaria, Dengue fever and Dysentery are common and could at
times cause staff downtime.

Financial data:
The profit to investors over 18 years is conservatively estimated at US$14,148,453, before taxes
and profit sharing to the community.

Investment Overview
Productive area 460.88 Hectares
Earnings per Hectare $44,999
Total Establishment Costs per productive Hectare over first 2 years $4,272
Total Costs per Hectare over 18 years including harvests $14,300
Total investment sum $6,590,694
EBIT (Earnings before interest and taxes, and costs) $20,739,147
Overhead expenses 7.35%
IRR 12%
Run-time of the investment 18 Years

Earnings do not include annual incremental timber price increases and costs do not include projected
inflation within the investment period

The exchange rate of the US Dollar to the Indonesian Rupiah of $1.00 = 9,190 Rp is calculated as a
median over the past three years.
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Background Information:
The key objectives of this project are; to rehabilitate deforested, community owned areas of Alang-
alang grasslands, which have been highly under-utilised for centuries due to the presence of Alang-
alang grasses which have made the land unviable for local people for agriculture. Rehabilitation of the
land will be achieved through eradication of the grasses and the plantation of ‘Leda’, Eucalyptus
deglupta, trees for timber. After harvesting the Leda there will be reforestation planting of mixed local
native trees to create conservation forests. There will also be preservation programs for local
endangered native animal species, and the project will provide significant economic, social and
cultural benefits to the local community.

The local National park, of which the project area is a residential enclave, is one of the biologically
richest areas on Earth and is globally recognized as a centre for plant and animal diversity. More than
fifty percent of the fauna is endemic and includes two marsupial species.

The local area and people:

The people of the area are considered indigenous and are culturally and linguistically distinct. Their
first language, a Malayo-Polynesian language, is predominantly spoken rather than Indonesian.

There are seven villages within the immediate valley area, and three more villages in smaller adjacent
valleys that are of the same culture and ethnicity and governed by the area government. The area is
some distance from a capital city and is a relatively remote. There is limited electricity supply, no
banks (the nearest bank is over 80 kilometres away) and quite limited transport, some families
own a motor bike but not all and car ownership is rare.

There are approximately 5,000 people within the area. Population growth is 2 - 3% per annum and
it is estimated that 1 - 2% of people move away from the area each year.

The population of the local village, the area where land has been allocated to CV. BEYAN, is
approximately 800 people. The area of the local village lands is 18,000 hectares including ‘empty’
Adat (traditional, customary) land and a large area of unused fertile land suitable for crop farming. In
other village areas there are also large areas of unused Adat and privately owned land, which allows
for ample expansion for future population growth needs for agricultural and urban land use across
area.

The people of area practice Christianity along with long held animist beliefs and practices. Spiritual
belief is a central aspect in everyday life of the people along with ‘Adat’ (tradition and custom). Adat
includes traditional spiritual belief and practice, traditional medicine, arts, marriage, community land
ownership and community power structures including the continuation of the Adat (traditional)
councils. The Adat councils, which are non-elected bodies, exert power over many aspects of daily
life, make laws, impose penalties, liaise with local police and still hold more power than locally
 9

elected governments, i.e. the ‘Kepala Desa’ (Village Head) and village secretary. Important
decisions made by the local governments, such as issues around traditional land ownership,
must be vetted by the Adat council; as such the Adat councils form an important layer of local
governments.

In the mid 1990’s a road was completed which connected the area to the capital city. The introduction
of the road had major social impact. Bartering was replaced with a cash economy, much
subsistence farming has been replaced with cash crop farming and consequently people’s
diets have become more limited and commonly inadequate. The overall culture has also been
affected with a decline of traditional arts, medicine and crafts.

Although some have become wealthier through the cash economy, and the general standard of living
has improved in the past few years with some agricultural innovations, the general standard of living
is still quite low and the area government figures state that of 1,200 families in the area 800 are
poor; and many people are malnourished.

In the area there have not been any attempts to occupy lands within the surrounding National Park
boundaries and there is no history of illegal logging. Generally the people have respect for the
environment and are supportive of conservation, and maintain cooperative relations with National
Park officers and administration.

The average wage for farm labourers in the area is 25 - 35,000 Rp - $2.72 - $3.80 per day. The
average worker’s wage on the island is around 995,000 Rp – $108.27 per month, average
professional salaries range from 1,500,000 to 9,000,000 Rp – $163.22 to $979.32 per month.

The area has an average valley floor altitude of 1,210 metres above sea level and high rainfall, 3
- 4,000 mm per year. With high rain fall the soils retain moisture and forest areas remain moist and
fire resistant, the local National Park does not have issues with forest fire. An important
consideration in planning this project is that due to climate change the regular cycle of wet
and dry seasons are disrupted and there is a tendency to later wet seasons and many periods
of heavy rains interspersed throughout the year.

CV. BEYAN - Background, aims and objectives:

CV. BEYAN has been formed from a family business which for the past seven years has been
operating a Teak (Tectona grandis) plantation. Although we have some reasonable success with
cultivating Teak it is not a suitable species for a larger scale plantation on the allocated areas of land.
We also have a small scale cultivation of Leda (Eucalyptus deglupta) trees as a trial.
 10

The Teak plantation has created some much needed local employment and given us expertise in
organising fairly large numbers of workers in the area, experience in plantation management, and
provided a clear understanding of the logistics involved for a larger scale tree plantation project.

Prior to establishing the Teak plantation we introduced a program to help raise funds, through the
establishment of a community corn crop, to contribute to the welfare of the elderly. Currently we are
working to establish a local library, to meet a need for children to practice reading, as books are very
scarce in the area and consequently literacy is at a low level. The library will include books on
conservation and on the local National Park, including some books for adults.

As a team we have a high level of local knowledge and experience and have close ties through work
and extended family within the community. We hold a strong commitment to the local people and
culture with an understanding of their particular cultural needs. In planning this project we have been
careful to not impact negatively upon the local community and culture. There has been extensive
community consultation, both formally and informally, throughout the project development. Twelve
local people have been chosen by community consensus as project Site Managers and Site
Supervisors and all labour will be conducted by local people.

Our aim is to provide much needed employment for local people, including providing suitable
employment for women, with fair working conditions and payment, and include the provision of onsite
qualified nurses and a worker’s health and safety insurance fund. Our project will over time
significantly stimulate the local economy and help to provide for community welfare, and in the long
term establish conservation forests in which we intend to include protected habitat areas for
endangered local animal species.

Project development:
This project has gone through several stages of development, which can be seen reflected in the
letters of agreement with the local village and area governments, and also at one stage included
further land at a neighbouring valley. Initially the aim was to establish conservation forests funded
through carbon credits, in conjunction with crops to provide further income to investors. Coffee,
Cocoa, Corn, Cassava, Turmeric and Jatropha have each been researched. However in some cases
the altitude is inappropriate or there is the threat of animal species invading crops from nearby
forests. At a further stage, by request of the local village community, cattle were considered for
grazing on select areas of the allocated lands in conjunction with Leda forests, but following a
feasibility study and costing this option was abandoned on humane and environmental grounds and
as being potentially high risk business.

The allocated areas of land are suitable for some crops that would not be susceptible to invasion from
animals from the forests, such as Cassava and Coffee and once the project is in place incorporating
 11

agricultural products within select areas can be reassessed, to create additional, annual income for
investors and ongoing employment and profit share for local people.

Other tree species, apart from Leda, have also been researched, including Teak, Mahogany, East
Indian Sandalwood, Dammar, Palapi, and Meranti. These options have also been put aside due to
time frame, timber output, potential diseases and pests or in some cases inappropriate altitude. The
conclusion is that a Leda plantation for timber is, to begin with, the most appropriate and profitable
use of the allocated areas of land.

Proposal:
CV. BEYAN has been allocated 1,080 hectares which includes open areas of Alang-alang grassland;
some re-growth forested areas and some small areas of land that are presently under cultivation and
can’t be used for this project. The whole area was originally forest cleared through ancient shifting
agriculture methods over a thousand of years ago. The presence of Alang-alang grasses has made
the land predominantly unusable for local people, except for some cattle grazing, as the grasses are
so labour intensive or expensive to manage. To effectively reclaim and rehabilitate the land for
productive use it is necessary to eradicate the Alang-alang grasses prior to any agricultural use.

The land is owned as ‘Adat’ (traditional, customary) land by the community of a local village in the
area and the majority of the land has been unused for centuries. The land allocation has been
confirmed by the area government. The area government is willing to have ‘empty’ Adat land, much of
it on rain forest fringes, utilised in ways that assists the local economy, and the local National Park
administration is keen for rain forest fringe areas to be reforested. As protected Adat land the
allocated areas cannot be taken over by the State government, local Regency government or the
National Park administration. We currently plan to use 532.9 hectares (including plantation buffer
zones) that are suitable for reforestation at this first stage of the project. The project is scalable and
can be expanded to further areas of allocated land and additional areas of community owned Adat
land once this first stage of the project is established. With scaling up from its current stage there will
be lower costs per hectare upon expansion.

The plantation areas will adjoin existing National Park forests. Seed from the plantation trees will
spawn growth of new trees, some of which may need to be thinned. In the area Leda is known to
attract a wide range of birds, Macaque monkeys and the endangered Small and Large Kus Kus
(marsupials sharing an ancient lineage with the Australian Possum). Following the second harvest we
will plant out the sites with mixed species native trees, including more Leda, which along with the
remaining seed spawned Leda trees, and from plant and animal encroachment from adjacent forests,
will over time create forests of broad biodiversity.
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It is also our long term intention to fence off an area of conserved forest as an enclosed
habitat and breeding area for the endangered Anoa, a local endemic forest dwelling miniature
buffalo. Once the Anoa breeding program is established we also intend to establish a further breeding
program for the endangered Large Kus Kus, also endemic to the region.

Anoa Large Kus Kus

Share of funds and benefits to the community:

9% of the profits from each harvest will be given to the community of the local village, the traditional
land owners. These funds are to be used specifically for community welfare and culture, community
infrastructure, for investment in community projects and for conservation programs. A further 1% of
profits from harvests will be taken to assist an area wide community welfare program with a key focus
on providing for the nourishment and medical needs of the more disadvantaged members of the
community, particularly the elderly.

Another benefit to the whole community of the area will be the provision of fire wood and light
construction timber from tree thinning operations conducted in the plantations. Both fire wood and
light construction timber, such as timber poles, are much needed within the community. By agreement
with the National Park dead wood can be collected by the community in the National Park forests for
fire wood. This creates considerable hard work for the people in distances that need to be travelled on
foot to collect and carry dead wood, which is essential to the people for both cooking and boiling
drinking water. The community will conduct two plantation thinning operations with each family
receiving cut timber in exchange for labour.
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We further intend to establish a community cultural centre in conjunction with an eco-tourism program
that will help to fund it, which will include bringing elders and young people together to help preserve
the local language and culture and maintain the continuance of traditional arts and crafts, with tourism
encouraging the production and presentation of traditional arts and crafts.

Species to be planted:
Leda (Eucalyptus deglupta), common names; Kayu Leda (Indonesia), Kamarere (Papua), Bagras
(Philippines), is a local native species and has been planted by National Park reforestation programs
in the local area. Local people are skilled in planting the species, and seedlings are readily available
on the island.

The natural distribution of Eucalyptus deglupta covers New Britain, New Guinea, Ceram, Sulawesi
and neighbouring islands and Mindanao. It is endangered in its natural range due to loss of habitat
and logging for timber and firewood.

Eucalyptus deglupta is a hard wood and is light weight. It is easily processed and dried, with few
defects. The timber is suitable for housing components including flooring, as well as boat building,
furniture, veneer, plywood and particle board. The wood is a light red colour. It also takes stain easily
which adapts it to many uses. The working characteristics of the wood are similar to Lauan, Philippine
mahogany. It saws and planes well and is considered to be a high quality wood.

Biophysical data:
Eucalyptus deglupta is a tall, straight, fast growing evergreen. It is hardy and will grow successfully in
a wide range of soils; coarse-textured sands and loamy soils, volcanic ash and limestone-derived soil.
It will grow in eroded soils and where there are a concentration of stones and rocks. It tolerates wet or
dry soil, but does not well tolerate standing in long term pooled water. It regenerates well on disturbed
sites, landslide areas, volcanic blast areas or old shifting cultivation sites. Soil at the proposed sites
for reforestation, being rich black alluvial loam, although acidic and in some areas shallow and
eroded; are high quality soils for the cultivation of Leda. Eucalyptus deglupta is a colonising species
and grows in abundance in areas where disturbance has occurred. Leda has a growth altitude range
of 0 - 1,800 metres above sea level, and tolerates periods of dry conditions as well as high annual
rainfall of 2,500 – 5,000 mm. The altitude range for the proposed reforestation ranges from 1,220 to
1,580 (at highest point) metres above sea level (average 1,220 to 1,400).

Diseases and pests:

According to the local National Park head of the nursery department, who is experienced in Leda
plantation management, diseases and pests (which are commonly known to affect the species in
locations outside its native range and at lower altitudes) do not pose any problems in the area and will
not cause tree losses. This is confirmed by observation of a local National Park seven year old
 14

plantation of originally 1,500 Leda in the local village area where no diseases or pests have been
observed and also of the seven year old Leda trees we have planted as a trial.

Growth rates and timber yield:

Eucalyptus deglupta grows up to an average of 60 metres high, to a maximum of 80 metres, over 50
to 60 years, with girths of up to 1.5 to 2.4 metres diameter, with a buttress of 3 - 4 metres; the bole is
50 - 70% of the tree height, on un-pruned trees. Eucalyptus deglupta can reach 44 metres in height in
15 years. On good sites it can maintain a mean annual increment of 3 cm in diameter per year.
Highest incremental growth can be expected in the first 10 – 15 years.

Our own experience with cultivating this species on a small scale has been in unfertilised soil, that
was not first cleared of Alang-alang grasses, which seriously impede tree growth and the Leda have
had to compete strongly and therefore grown very slowly. We have observed much higher growth
rates at the seven year old, 2006, National Park plantation of originally 1,500 Leda in unfertilised soil,
and without pruning and thinning, in the local village area. In this plantation the trees that have grown
most successfully are those that were planted in an area of bracken fern, which is also known to slow
down subsequent vegetation development, and there is evidence of reduced growth as a result of the
bracken initially competing with the Leda for light and nutrients. Where trees were planted amongst
Alang-alang grasses there is extremely reduced growth and very high tree losses. We expect better
growth rates from a plantation where the competing grasses and bracken are eradicated and the
trees are pruned in the first 3 – 4 years, regularly fertilised and there are thinning regimes.

Based on horticultural data and observation of the seven year old National Park plantation in the
local village area a conservative prediction for plantation Leda, on the allocated areas of land,
is for an average growth of 2 metres in height and 3 cm in diameter, at breast height (abh), per
year. With thinning regimes the selected trees that will be harvested for sale will have much greater
volume, as smaller under-performing trees will have been removed, allowing much stronger growth
for the remaining trees. The reduction factor calculation of harvested timber volume includes a
reduction percentage to account for plantation altitude.

Proposed number of trees:

The total number of seedlings to be purchased = 532,571 including a 4% attrition allowance for
transport and storage. The number of trees to be planted = 512,088 over 460.88 hectares. There
will be two plantations thinning operations, of an expected 50% of the trees three years after
plantation and a further estimated 27% at five years after plantation, to open the plantation canopy
and allow for stronger growth of the remaining stronger, larger trees. This will leave an expected
168,220 trees harvested for timber, after 10% attrition allowance for any malformed or harvest
damaged trees. Following the final harvest the conservation forest planting will be of 108,767
 15

(planted 6.5 x 6.5 metres square) mixed local native tree species, including some further Leda
planting.

Timber value and estimated returns:

Eucalyptus deglupta has in the past been highly undervalued as a timber considering its high quality.
Due to its prior abundance across its natural range it has tended to be used as pulp wood or for
producing charcoal or for fire wood. There have been some unrealistically low prices on the
international market per cubic metre of Eucalyptus deglupta logs. These prices may be for logs from
Malaysia, the Philippines or Papua and highly likely from illegally logged timber. Illegal logging is still
wide spread across South East Asia and illegally logged timber on the international market is sold at
around a third of its real value. The Leda logs for sale will be legally verified plantation timber
and sold locally on the island for local use.

The local market in Indonesia is in high need of timber due to the dwindling supply from
natural forests. The level of illegal logging is declining with more government intervention which will
give ever increasing value to legally verified timber sold locally, and internationally. Tropical
hardwoods are becoming increasingly scarce and their prices will continue to increase. Indonesia has
a growing population, currently 1.2% per annum, and fast expanding home building market which is
expected to continue well into the future.

From information coming from the Indonesian Ministry of Forestry and comparing domestic
saw log prices from the International Tropical Timber Organisation (ITTO), the early 2013 cubic
metre domestic value of Leda logs shows as being US$232 - $330, domestic price. As a
concrete example for this pricing a colleague of one of our Horticultural consultants, who is growing
Leda, in late 2010, sold 12 year old plantation Leda logs at 1.8 million Rupiah - $195 per cubic metre,
this amount concurred exactly with price data provided at the same time by the Indonesian Ministry of
Forestry and the ITTO.

In Indonesia Leda is classed and priced the same as Palapi (Heritiera javanica), Dammar (East
Indian Kauri - Agarthis) and Meranti (Shorea), all of which species, having similar qualities, are
sometimes sold as Meranti. The Indonesian Ministry of Forestry categorises all these timbers
as Class 2 timber. Examples of Class 1 timbers are Teak and Mahogany.

Older wood is more robust and resistant and the price increases with the age of the Leda trees up to
$330 per cubic metre for 20 year old trees, dependant on quality. Eucalyptus deglupta wood has few
defects and with the procedures that will be in place for these plantations the quality of timber is
expected to be high.
 16

Estimated current cubic metre domestic merchantable value for:

 10 year old Leda logs: $193.33 per M³

 15 year old logs: $247.50 per M³
 16 year old logs: $264.00 per M³

The recently agreed one billion Dollar expenditure from Norway on the Norway-Indonesia REDD+
Partnership is expected to increase the value of Leda by 30% (over its’ existing annual price increase)
over the next 3 - 5 years as more native forests will be restricted from logging. The domestic
Indonesian cubic metre log price for Meranti (Class 2 timber), averaging out price fluctuations, shows
an average of 10% price increase per annum over the past 10 years1. The current international
market average annual price increase for tropical hardwood is 6 - 8%.

Allowing for reductions for tree branches and foliage at the tops of trees, varying according to tree
age and pruning regimes, 20 - 33.33%; a further 30% reduction in tree volume for altitude of the
plantation sites, 20% reduction in tree bole calculating for tree tapering, 1 cm reduction in
circumference for tree bark, 40 cm reduction to each tree for above ground cut with chain saw and
reducing a further 10% to cover damage to trees during felling and for timber defects.

Total return from 84,426.5 M³ merchantable timber, before costs and deductions, and not
including annual timber price increases is estimated to $20,739,147.

These returns are calculated for tree bole only and there could be additional income generated from
tree tops and branches which could be sold for fibre or biomass.

Nursery supply:
The local National Park nursery department has committed to supply the Leda seedlings. Seedlings
will be trucked from the nursery near the capital city to the local village.

Areas of reforestation:
The total area of land initially for this project is 532.9 hectares. There are nine adjacent areas for
productive plantation of a total of 460.88 hectares. As these areas adjoin areas of rainforest 15 metre
buffer zones, a total of 72.02 hectares, are necessary to provide for prevention of rain forest tree and
under storey vegetation encroachment into the plantation areas. 4.659 hectares of the buffer zones
will act as fire breaks where the plantation areas meet open Alang-alang grasslands, areas of which
are often burned by local people for access to the forests through the dense tall grasses.
Trees will be planted one per 3 metres².

1
International Tropical Timber Organisation – Market Information Service
 17

The areas of reforestation will be demarcated with signage at regular intervals following GPS map
points for designation and protection by a team contracted by the local National Park. The local
village government will oversee the construction of a road from the village to an intermediary area of
land closer to the sites of plantation where storage of seedlings and equipment will take place.

Grassland management:
The grassland areas that have been allocated to us have a range of different grasses including
Imperata, which is one of the grass species in Indonesia included under the more general category of
‘Alang-alang’. Alang-alang grasses have traditionally been used for roof thatching because of its
strength and high durability. Most species have difficulty competing with Alang-alang grasses for
water, nutrients and light. The roots of some Alang-alang grasses will penetrate the roots of trees
inhibiting growth and even killing the tree. Some Alang-alang grasses will grow up to two metres in
height and freshly cut or burned Alang-alang will grow at 1 to 2 cm per day, fast outgrowing any other
species which may be planted in conjunction with it.

Where there has been significant disturbance to a forest by logging, shifting agriculture and burning,
Imperata and other Alang-alang grasses tend to take over. Commonly across Indonesia grasslands
are frequently burned. Alang-alang, including Imperata, burns readily and fire stimulates re-growth,
and where fires are frequent Alang-alang continues to become more dominant.

Imperata itself is extremely well adapted and highly competitive with other plant species. Imperata
propagates by seeds and lateral growth of its rhizome system. Some plant species are affected by
toxic substances produced in its roots and rhizomes. Other grasses, apart from those referred to as
Alang-alang, and bracken ferns which can grow to nearly two metres in height, that will survive with
Alang-alang are also extremely hardy and will also compete strongly against trees.

There are a number of approaches to rehabilitating grasslands in South East Asia. Highly intensive
planting of fast growth trees, e.g. one tree per one or two square metres with regular cutting down of
grasses may over many years gradually shade out grasses, however Alang-alang grasses are quite
shade tolerant. In the case of a timber plantation there would need to be replacement of many trees
as they are killed off by the Alang-alang grasses and trees would have very restricted growth. Tree
planting in conjunction with other agricultural plants, where there is continuous and extensive weed
management, will eradicate the grasses over time, however, this approach is highly labour intensive
and unless the trees were inter-planted with very high value crops it would not be cost effective as an
investment. These approaches are labour intensive and expensive, and in the case of using trees to
shade out Alang-alang, impossible to quantify the amount of timber that could be produced from a
plantation.
 18

For a Leda plantation for timber production it is essential to eradicate competing grasses, and
bracken, and it has been confirmed through our own experience of growing Leda that attempts to
shade out competing grasses with Leda is ineffective, even when Alang-alang has been regularly cut
back.

The most expedient way to rehabilitate the grasslands for Leda plantation is the use of Glyphosate
herbicide. Killing off the grasses and bracken ferns will also protect the Leda trees from any threat of
fire from the frequent burning of adjacent grassland areas. Although the use of Glyphosate appears
initially expensive it is not as expensive to employ as other more labour intensive and less
quantifiable methods.

Glyphosate herbicide is generally considered safe if not used along waterways, or used repeatedly
for prolonged periods of time. It will not maintain long term soil residues, or have any severe affects
on soil biology in warmer climate soils if not used for prolonged periods. Glyphosate is a broad-
spectrum systemic salt based herbicide that kills plants by penetrating through the whole system of
the plant and breaking down the plant cell structure. It is used by farmers in the area to kill off Alang-
alang, following years of trial and error. In the area Glyphosate has been found to effectively kill
Alang-alang grasses, and have them replaced with plants which don’t pose problems, if applied up to
three times over the same area of grasses, at a concentration of 15 ml to 1 litre of water, requiring 2
litres of Glyphosate per 10 x 10 metre area. This quantity is based on information from land clearing
specialists in the area and from our experience with using Glyphosate on our own land. This is a high
quantity and it may be possible that lesser quantities could be used. Prior to purchasing large
quantities further experimentation will be conducted on small areas of grassland to assess whether it
is possible to completely eradicate Alang-alang with smaller quantities.

Quantities of Glyphosate, at current estimation, needed to clear 532.9 hectares of predominantly

Alang-alang grasses are 200 litres per hectare, i.e. 106,580 litres.

Replacement growth of plants, after the grasses are killed off using Glyphosate, will provide
sufficient ground cover to prevent Alang-alang and bracken from returning and are also very easy to
manage with manual weeding and do not pose problems to tree growth or pose fire risk. Many of the
plant species that take over are local natives, however the non-native species that also take root will
not spread into surrounding forests as these plants cannot survive within the forests.

Time Frame, Labour and Management:

Time frame:
The establishment phase of the project is planned to cover a period of two years including initial
project set up. Time frames throughout the project allow for local cultural events for workers such as
weddings, funerals and festivals, and for wet seasons and additional wet weather brought about as a
 19

result of climate change. Labour will be based on a six day working week, eight hour working day with
breaks, which is standard for the people of the area; however we will rotate workers on a 3 day basis
for each group to allow time for workers to be able to work on their own farms.

Project set up will occur over the first four to six months and will include purchasing, construction of
temporary accommodation for the CV. BEYAN team and consultants, and shelter for vehicles,
construction of a road to the intermediary area, a storage shed for tools and equipment, office,
seedling shade areas and mobile storage and office with a nurse’s station, preparation of tools, and
clearing paths to the plantation sites from the intermediary area. Construction will also be done on a
stone and wooden house to accommodate the Project Coordinator and Assistant Coordinator, the
Economic Management Team, and consultants for when they are in the area.

Alang-alang grass eradication will start according to the most suitable driest period available during
the dry season, including following advice from a long range weather forecasting organisation, and is
expected to be completed within three months labour over a three to five month period. In the latter
part of the first project year seedlings will be established in preparation for planting. Tree planting will
occur at the beginning of the second project year. Following planting there will be a period of four to
six months allowing for growth of replacement plants (plants that take occupancy following Alang-
alang eradication) and then a period of follow up weeding wherein weeds will be cleared from around
the base of each tree and trees will be evaluated.

Year 1 – 2014-15
Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug

Project set-up Alang alang eradication

Establish seedlings

Year 2 – 2015-16
Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug

Planting Follow up weeding & evaluation

Nb. By this current time frame plan the project can start as late as February 2015, or as early as February 2014,
according to when investment is established.
 20

Wet seasons: Four to six month periods of expected regular heavy rains, generally expected to be
mostly concentrated in the months October to January.

Project set-up: Purchasing tools & equipment, construction of road, storage shed, mobile storage
& office, shelter areas for seedlings & workers, & construct office & house over 4 - 6 months.

Alang-alang eradication: Brush-cutting & herbicide application, over a maximum of 63 days.

Establish seedlings: 4 to 5 month period for National Park nursery to establish seedlings and to
transport of seedlings to the local village.

Planting: Plant seedlings over a maximum of 40 days.

Follow up weeding & evaluation: Clearing weeds around each tree & evaluating tree growth and
numbers over 20 days.

Labour and management:

Land preparation labour will consist of teams with backpack brush-cutter machines, 50 workers,
cutting down the Alang-alang grasses & controlled burning of grasses (weather permitting*) over 32
days; and 50 reserve workers to relieve brush-cutting workers, cut paths to plantation areas, move
mobile storage and shelters, and transport fuel and water; over 37 days. Following brush-cutting there
will be teams with backpack spray tanks spraying Glyphosate herbicide, 140 workers over 23 days,
plus 140 reserve workers mixing and moving containers of herbicide to Spray workers, relieving
Spray workers, and moving mobile storage and shelter.

*Nb. Burning grasses requires three to five days of dry hot weather in order to obtain an effective
burn, therefore, due to the unpredictable state of the climate on the island with frequent rains now
during dry seasons, for the first stage of preparation we have planned and costed for cutting grasses,
as this is quantifiable. Where possible, in relation to proximity to National Park forests and where
there has been sufficient periods of dry weather grasses can be burned rather than cut and therefore
reduce the amount of cutting time, and costs, prior to spraying. Spraying with Glyphosate only
requires 24 hour windows, with repeated days of spaying, of dry weather for an effective result and
poses fewer issues with weather.

Planting will be carried out using spades and by hand and each seedling will be fertilised. The holes
dug for each tree will be large bowl shaped holes of about .5 metre square to dig out the Alang-alang
root masses, so that newly planted trees are not competing with the decomposing root masses and
being starved of nitrogen from them. There will be 300 Planting workers planting an average of 50
trees per day, over 35 days, and an additional 14 Drainage digging & stone removal workers over 35
days. There will also be 16 Tree sorting workers to organise, distribute and count the number of
 21

seedlings given out to each Planting worker and to construct and move mobile storage and shelters,
and transport seedlings, water and fertiliser, over 40 days.

Follow up weeding will be conducted using hoes to reduce plant regrowth mass around the base of
each tree, by 300 workers and workers will count and assess the trees, over 20 days, plus 14 workers
to set-up, cut pathways to sites, transport shelter and tools and equipment over 20 days.

There will be two Site Managers, briefed on the sequence of brush-cutting, and burning, herbicide
application and planting, and up to 10 Site supervisors, one to an average of every 30 workers. There
will also be two onsite nurses in the event that any worker may be ill or injured.

The project will be managed by a Project Coordinator and an Assistant Coordinator (the project
directors) and one team of two, the Economic Management Team, responsible for estimates,
purchasing, banking and wages, wage transport and distribution, accounting, land taxes and
organising audits and legal matters. This team are members of CV. BEYAN and comprises one
economic manager, and one civil engineer who will also supervise construction. We also have two
horticultural consultants from the local National Park who will oversee nursery stocking of seedlings,
site demarcation and provide horticultural advice. Core staff numbers are fairly high due to the need
to ensure there is sufficient staff in an environment where infectious diseases, such as Malaria,
Dengue fever and Dysentery are common and could at times cause staff downtime. This also applies
to families of staff and staff members may be unavailable at times due to serious illness or death of a
family member.

There will be two Drivers and two Driver off-siders for two trucks for transportation of construction
materials, tools and equipment, fuel and seedlings, and where necessary workers from other villages.
There will also be two other Drivers for two mini-vans for transport of wages and the Economic
Management Team and consultants, and for transport around the area for the Project Coordinators,
Site Managers and horticultural consultants and where necessary workers from other villages, and for
business trips to the capital city.

The trees will be fertilised each year and regularly assessed throughout each year, observing
growth rates and tree canopy cover and general health of the trees, by the CV. BEYAN Team (i.e.
Project Coordinators, the Economic Management Team and Horticulturalists); and additional local
workers will carry out tree pruning, over the first three to four years, and annual clearing of buffer
zones.

Harvesting: A logging company can be negotiated to pay a stumpage price for the timber (a price per
standing tree), which is standard in Indonesia and would eliminate the need for further investment for
harvesting and haulage. However, the estimations of costs for harvesting are based on a model of us
taking full responsibility for harvesting and haulage; this provides a sound basis for estimating costs
 22

that a logging company would deduct from the cubic metre value of logs if paying a stumpage price.
Should a stumpage price be paid these costs could be lower. We will negotiate the best price for logs
with a logging company, or take full responsibility for harvesting and transport if this is the more
profitable route; therefore costs have been included for infrastructure and purchase price of tools and
equipment. The predominant cost is for road haulage of logs. Pricing per truck load has been based
on the cost of trucks being purchased, plus drivers and driver off-siders, however hire cost of trucks,
or as a cost deducted from price of logs within a stumpage price, could be lower. Purchasing trucks
though could actually be more cost effective than truck hire or costs deducted from a
stumpage price as at the conclusion of harvesting trucks can be sold and return some of the
costs back to investors. It is also preferable, should we conduct log transport rather than a logging
company, to purchase new trucks rather than hiring or leasing for safety, as hired vehicles in
Indonesia can be very poorly maintained. This will be assessed at the time as to which option is
most efficient and cost effective.

In year 11 of the project; all necessary purchases of tools, equipment and Heavy duty trucks and
trailers, and construction of required infrastructure, such as a 14 x 14 metre cement floor equipment
storage shed and a log truck and truck trailer parking area, 20 x 20 metre asphalt concrete paved
area will take place.

Harvesting will begin in year 12 using hand held forestry chain saws with 24 workers, including
relief workers, cutting an average of 26 trees per day over 201 days, including 12 days for clearing
some of the forest undergrowth, such as unwanted Leda seed spawned saplings and forest plants
spawned from seed carried by wind and animals, with machetes for access to trees for felling.
Hauling logs to trucks for transport can be most effectively done using ‘Hand’ or ‘Walking’ tractors, to
work with the hilly terrain of the plantation sites, with 22 workers over 179 days, 5 tree logs, cut into
sections, per tractor, 3 trips per tractor and trailer per day over an average return distance of 4
kilometres. The use of ‘Hand’ tractors is standard across Asia and they can haul very heavy loads.
There will also be an additional 12 workers to assist with loading logs onto tractor trailers and onto
truck trailers, and for transporting fuel, water, tools & equipment and shelter to and around the
plantation sites, and for setting up and packing up, over 194 days. Two trucks doing return trips will
be needed for the first harvest with drivers and driver off-siders, including relief drivers and off-siders,
working six days per week over 144 days.

Prior to harvesting of particular areas teams will be sent in to move on any animals that may inhabit
the plantations to adjoining National Park forests with consultation with National Park officers.

In year 16 of the project further purchasing will be made for additional Hand tractors and trailers,
Heavy Duty trucks and trailers and other incidental tools and equipment. Infrastructure upgrades will
also be carried out.
 23

For the second harvest, years 17 & 18, there will be 24 workers cutting an average of 23 trees per
day over 409 days, including 24 days for clearing some of the undergrowth with machetes for access
to trees. Hauling logs to trucks with Hand tractors will involve 45 workers over 405 days, with 2 trees,
cut into sections, per tractor, 3 trips per tractor and trailer per day over an average return distance of
4 kilometres. There will also be an additional 20 workers to assist with loading logs onto tractor
trailers and truck trailers, and for transporting fuel, water, tools & equipment and shelter to and around
the plantation sites, and for setting up and packing up, over 517 days. Four trucks doing return trips
will be needed for the second harvest with drivers and driver off-siders, including relief drivers and off-
siders, working six days per week over 383 days.

Haulage of logs by road: Heavy duty Prime mover trucks, with 70 tonne payload capacity with
trailer: 8 metre length x 2.5 metre width will be used. Estimations for log truck haulage have been
calculated by number of sectioned logs to trailer; by volume, at an average of 50 cubic metres per
load; and by payload weight in accordance with steep mountain roads, with fuel consumption
estimated accordingly.

Fuel consumption estimates for trucks are for 1 litre of diesel per kilometre under full load and .5 litres
per kilometre on return trip with empty trailer, 650 kilometres return trip, averaged to .75 litres per
kilometre. A more exact fuel consumption estimate is to be advised.

We expect to transport logs to a processing plant in the south of the island, operated by a company
currently predominantly controlled by the Singapore based company Samko Timber Ltd, with whom
we have established relations.
 24

Financial data:
Profit to investors for this project over 18 years is conservatively estimated at US$14,148,453,
before taxes and profit sharing to the community, however, it is reasonable and conservative to
assume 7 to 8 % annual increase in Leda timber value, projected inflation to costs included,
which would give an IRR of 19 – 20%.

In the following tables projected earnings do not include annual incremental timber price increases and
costs do not include projected inflation within the investment period

Investment Overview
Productive area 460.88 Hectares
Earnings per Hectare $44,999
Total Establishment Costs per productive Hectare over first 2 years $4,272
Total Costs per Hectare over 18 years including harvests $14,300
Total investment sum $6,590,694
EBIT (Earnings before interest and taxes, and costs) $20,739,147
Overhead expenses 7.35%
IRR 12%
Run-time of the investment 18 Years

Logging revenue calculation for one hectare

Reduction
factor of Logging
Annual Mean Standing Harvesting Harvested Timber
Project Tree harvested Merchantable revenue
increment/ dbhob volume percentage volume price
Year Age timber timber [m³] per
ha [m³] [cm] [m³] [%] [m³] [m³]
volume hectare
[%]

3 1 15.4 3.5 15.4

4 2 16.1 6.3 31.5
5 3 20 10.4 25.75 50 25.75
6 4 27 16 52.75
7 5 28 19 80.75
8 6 28 22 79.3875 27 21.8025
9 7 29 25 108.3875
10 8 29 27 137.3875
11 9 29 30 166.3875
12 10 29 32 127.00188 35 68.38563 54.5 31.115461 193.33 6,016
13 11 28 33 155.00188
14 12 27 35 182.00188
15 13 26 37 208.00188
16 14 24 38 232.00188
17 15 22 39 127.00094 50 127.0009 44.5 70.484995 247.5 17,445
18 16 20 41 0 100 147.0009 44.5 81.584995 264 21,539
dbhob diameter at breast height over bark
Logging revenue per hectare: 44,999
 25

Expenditure Percentages
Infrastructure: 2.75%
Logging & Transport: Site Demarcation: 0.56%
7.79%

Vehicles: 18.03%

Administration &
Management: 25.06%

Fuel for Vehicles:

11.05%

Alang-alang Eradication
Measures: 10.69%

Fertilising: 6.16%
Tree Planting &
Plantation
Management: 12.54%
Additional Labour for
Tools & Equipment: Plantation
3.80% Establishment &
Harvests: 1.54%

Overhead expenses: 7.35%

• Vehicle maintenance, repairs, registrations & insurances

• Tools & equipment maintenance, services & repairs
• Protective clothing & safety equipment
• First Aid kits & medicines
• Incidentals
• Government administration fees
• Travel expenses, overnight accommodation, car hire
• Relocation costs for project directors & tools, equipment, household items
• Office equipment, software, stationary, office equipment repairs & replacements
• Mapping & instalment of monitoring plots, Education in monitoring & thinning
• Drivers for staff
• Nurses
• Security workers
• Tax accounting, audits, legal costs, licenses
• Workers’ health and safety insurance fund
• Infrastructure maintenance
 26

If a stumpage price were paid for timber (a price per standing tree) by a timber company then no
major outlay for harvests would be necessary from investors, however should it be more cost effective
not to enter into a stumpage payment agreement, and investors were agreed, then the estimated
costs shown in the Financial Data spread sheets will apply for harvests.

Additional, annual income may be generated from incorporating agricultural products within select
areas of the Leda plantations, which would offset costs for land preparation, tree planting and
management. This aspect of the project is yet to be worked up and would require some modest initial
seeding capital investment to enable gathering all the required information; or developed once the
project is established.

Under advice from a senior taxation official in the Indonesian Taxation Department in the current
Indonesian tax system, Withholding tax of 12.5% applies to all funds deposited to company accounts
14.2857% will have to be added on top of funds deposited to the project banking account to cover this
tax, and 20% tax currently applies to company profits. In future it can be expected that the Indonesian
government may provide some tax incentives to forestry projects as there is considerable focus on
forest preservation, reforestation and commercial forestry plantation in Indonesia.

Indonesian annual Consumer Price Index inflation has historically been high but in recent years has
been coming down with a stabilising and strengthening economy and it is expected that this trend will
continue.

The exchange rate of the US Dollar to Indonesian Rupiah of $1.00 = 9,190 Rp is calculated as a
median over the past three years. It can be assumed the US Dollar will continue to strengthen in
relation to the Rupiah (as it has shown to do in recent months), in the time period to when expenditure
begins and throughout the project lifetime. Historically the US dollar has been worth over 10,000
Rupiah.
 27

Additional Proposed Projects:

There are further areas of land of the allocated 1,080 hectares, which once the initial Leda plantation
on 532.9 hectares is established, can be used for further plantations. The costs for second stage
Leda plantations would be significantly reduced as there will be already established infrastructure,
tools and equipment, and the majority of administration and management costs covered.

There are also other large tracts of grasslands in the area and immediate region that once this project
is in progress would most likely become available through negotiation with local governments, Adat
councils and local communities.

It is also a key intention for our group, once underway with this project, to either lease or purchase
land at lower altitude suitable for cultivating Teak, Tectona grandis - Thai Golden Teak variety which
is particularly fast growing and of highest quality, and offers very high returns. Investors would be
sought for these additional proposed projects.
 28

Community Reforestation Project Team Profile

CV. BEYAN Team:

Bruce McKelvie - Project Director Dolna Sherly Lage - Project Director

Project Coordinator Assistant Coordinator
Experienced in plantation management Experienced in plantation management,
and Bush regeneration, Government office accounting
Business development and and office management,
management, Diploma of Computer Accountancy
Community project development and Speaks the local area language
management

Alvianus Lage - Company Director Julianus Lage - Company Secretary

Economic Management Team Economic Management Team
Experienced in design and construction Experienced in plantation management
site supervision and in the banking industry
Degree in Civil Engineering Degree in Economic Management
Speaks the local area language
 29

Arjon Arjon - Horticultural Consultant

Andi Masri - Horticultural Consultant Local National Park Horticulturalist
Local National Park Horticulturalist Experienced in reforestation programs
Head of local National Park Nursery Degree in Horticulture
Experienced in reforestation programs
Degree in Horticulture

Site Managers for First Two Years Plantation Establishment and Harvest Years

Maskot Mentara - Site Manager Ernes Tagora - Site Manager

Local area resident Local area resident
Former ‘Kepala Desa’ (Village Head), Experienced work team supervisor and
included implementation community leader
of irrigation systems,
Experienced work team supervisor and
community leader
 30

Annex –

List of project documentation:

1. Project Proposals
 Community Reforestation Project Plan (this document)
 Community Reforestation Project Description Brief

2. Community Reforestation Project Financial Data (Spread sheets)

 Costs Comprehensive
 Cash Flow Analysis

3. Legal documentation
 Description of Consultation Meetings with the local community
 Current Land Allocation Letters and Agreements
 Previous Land Allocation Agreements - Lead up to current agreements

4. Wage Calculations
 Wage Calculations for the Community Reforestation Project

5. Maps
 Official Allocated Land - National Park mapping 2010
 CV. BEYAN Project Area Map 2012
 CV. BEYAN Project Area Map Overlay on Google satellite image 2012
 Project region including Allocated land areas - Google Satellite image
 National Park survey map 1982

6. Photographs
 Allocated land panoramas – 2 photographs
 Representative details of project areas – 5 photographs
 Details of Alang-alang ground cover - 2 photographs