 Thanks, hello everybody. So in this presentation I would like to share with you some observations about why formalization of small scale forestry sector in Indonesia has been a difficult process and it's kind of a continuous to be an elusive journey, elusive process. And I would like to do that basically by combining some research material that I have collected on the history of logging of forestry sector in Indonesia some time ago with much more recent material on sort of legality, verification, legality, timber legality verification in Indonesia which we have been doing at C4 over the last two years. Putting it all together I think would enable us or enable me to kind of say something about some of the obstacles or barriers to formalizing small scale sector, forestry sector in Indonesia. And I would like to do this kind of by placing this discussion in historical perspective because I believe that by looking at the history of the small scale sector and how it kind of evolved over time and went through different phases of attempts of formalization I think we can learn a lot about what's happening today, where is it now. I think it enables us to understand the current situation much better. And it also kind of enables me at least to better understand what may be the sort of possible steps that could be taking to overcome the barriers, overcome the problems and under what circumstances that's possible. So I will do this chronologically, I don't want to kind of bore you to death but I would like to kind of go step by step through pre-colonial, colonial, post-independence and sort of the democratization period and then sort of the current situation with the small scale forestry sector and then maybe draw some conclusions at the end. So this is going to be a bit of a history lesson but I hope you bear with me. And most of this discussion will be kind of heavily based on what I found and what I, the research I've done in Kalimantan, in Indonesian part of Borneo, specifically East Kalimantan province. It's been the center of Indonesian forestry for decades, for even we could say centuries. There continue to be a lot of forest in that area, it continues to be important economically and that's why you know I'll focus there. But at the same time later on in my talk I will kind of try to pull back and connect this to the national level to Indonesia more broadly. So about the pre-colonial period, what about small scale logging in that time period? In those days basically in the 17th, 18th, 19th century all natural resources including timber, as already was mentioned before in the presentation by Nancy Paluso, all of that was the main of local sultanates and essentially they handed out rides to traders to exploit these resources in exchange for tribute payments, so the 10% tax essentially. And in those days the focus of this extraction was on NTFPs and gold, timber was there as well but very specific timber, iron wood, for trade to other parts of the archipelago. And essentially this extraction was done through buy-up schemes whereby these traders would engage in relationships with local communities to extract resources and buy them up and take them out of the forest. As we kind of move forward to the early years of the 20th century, the forest resources for these local power holders, sultans, become more and more important because what some of the major resources such as coal, rubber, oil and so on, that's being increasingly taken over by the Dutch administration. And so as a result there's greater emphasis on these small-scale extraction operations in exchange for these tribute payments. That eventually also catches attention of the Dutch and they say in 1924 they say basically well it's actually, is it small-scale or is it you know becoming large-scale? So they came up with this regulation whereby they wanted to kind of declare the entire forest area, the domain of the state and explicitly they wanted to make sure that logging is being done through commercial concessions. However at that time they did this proposal didn't go through because there was some debates going on between the academia, the people who were kind of this, the debate about land rights and indigenous land rights, not indigenous land rights, it was about community land rights, the systems and whether or not these should be somehow reflected in the formal system of land planning and control. So this was, the debate went for a few years but in 1934 eventually it was decided that yes, there will be formalization and all logging from now on takes place through concessions and there was a very clear kind of explanation at that time that you know the reason why we're going to do that is because there's a lot of inefficiency in small-scale, there's a lot of waste, there's a lot of tax evasion, there's a lot of smuggling and you know concessions will basically generate a lot of new additional tax revenue. Plus of course there was this kind of ethical reason to protect the local communities, the indigenous people from exploitation. So as a result what happened was that the concessions did multiply, there was actually growth in concessions but it didn't mean that small-scale logging has disappeared because in fact most of these commercial concessions operated based on small-scale logging. They employed these small-scale loggers to extract timber and for basically for cost-cutting reasons and small-scale logging continued essentially because you know they paid these traditional tribute payments to sultans which in turn kind of blind eye on these activities and avoided paying official taxes. If they were to pay you know both the sort of traditional tribute plus the official tax that would be an excessive tax burden and that was the reason why they essentially refused to formalize. In the early independence period in late 1940s, 50s, 60s, so this sort of official policy of formalization of carrying conducting logging through commercial permits continued and the only change basically was that until 1958 people in charge of this policy were sultans after 58 these people in charge became government officials, forestry officials at the provincial and district level. The real change started in 1965 with the political changes in Indonesia from sort of semi-socialist system to market based capitalist oriented system and then in 1967 there was the introduction of basic forestry law and some investment laws which actually stimulated investment in forestry on large scale. The interesting thing at that time was that there was a regulation as well in place for small-scale logging which was very simple and which also imposed fees or let's say taxes on small-scale logging which were very lenient and they were based on the logging area and not per cubic meter extracted. So it was actually quite lenient and quite easy to follow as a result you know just showing some figures that the number of the size, the cumulative size of small-scale logging concessions actually increased dramatically, doubled in fact from 67 to 69 over a two-year period and timber production also grew several times in the late 60s and early 70s. But again as this market develops as Japan at that time particularly was the main destination for timber. As demand is growing there is this new initiative to consolidate and to to maximize on this new resource so there's this new regulation coming in in 1971 that essentially saying that you know from now on logging has to be done through larger concessions, more capital intensive, it has to be mechanized so again small-scale logging is becoming marginalized and very similar reasons again you know efficiency, tax evasion and you know desire to collect to generate more tax revenues all of that comes into play again. So millions of hectares of being allocated for large scale concessions I think by 1979 Indonesia was the largest tropical roundwood producer in the world and and until 1990 or so I think something on the order of 50 million hectares was handed out to large-scale logging concessions. At the same time there's basically no room for small-scale logging and but it doesn't mean that it disappears because the same system continues in exchange for this protection money they operate at the you know fulfilling local demand as well as for inter-island trade and it's a kind of a conscious decision to avoid this double taxation and operate informally at the local level. Okay I will have to speed up a little bit because I'm being prompted from in 1999 we have this this decentralization happening in Indonesia and again there is a news kind of scheme a lot to allow small-scale logging to recur but again because these small-scale operations are very much kind of front for large larger companies there's a fair amount of abuse smuggling and so on there's a kind of pullback in 2002 and 2003 and and and the small-scale logging operations sort of disappear again they recur again in 2009 with a sort of new acronyms and new schemes but there's a strict much stricter regality requirement at this time. Essentially at this time Indonesia is in the process of negotiating voluntary partnership agreement with EU and there's this timber legality verification system SVLK which which is being implemented and all timber operations in Indonesia including small-scale sector have to be fully compliant. This involves costs so that presents some problems for small-scale operations. So what is the small-scale sector in Indonesia today in the face of these demands for verification? I'm just presenting here some some numbers basically we're dealing with thousands of units of these small-scale industries as well as logging operations in Java we've got maybe Java and Bali 140,000 units according to the National Statistics Bureau there may be up to 680,000 units of these small-scale businesses throughout the country so we are talking about large numbers. All of them are supposed to be legally verified by January next year in theory and what has been done so far so far as far as we know there's about 62 units of those small-scale industries that have been certified and again you know from what we know there is there's good this great reluctance actually to get into this formalization and legality verification because of cost concerns of double taxation yes they become formal they pay taxes to the state but they still are subject to informal taxation as well and protection money. So there is a problem here. So to conclude you know looking historically how this developed up and down I think we see some kind of regularity of kind of attempts to formalize but then pull back, attempts formalize and pull back and this pull back is largely to the concerns of costs I think and double taxation which pushes them these small-scale operations to kind of go back to the informality and again there's a question of this protection money that this kind of entrenched practices of corruption and also complicated bureaucratic procedures to obtain permits and to sustain businesses. So I'm just thinking well it's kind of some of the steps that could be considered to how potentially formalization could be made easier but as you know it's not going to be easy but essentially you know simplicity in regulatory mechanisms that there are many policies in Indonesia which are supposed to encourage small-scale sector to grow but they are not easy. They are centralized and they are not easy to follow. So the simplicity is needed. Cheap credit for small-scale operations small-scale sector is also needed to stabilize their operations and actually to be able to kind of mainstream their activities. And then of course the big question is about eliminating this protection money and this corruption which is kind of a never-ending topic and I think it's a major question and it's a lot of hinges on it. I think I'll stop here.