M J Antony: Payback time

OUT OF COURT

There are several laws that are easy to legislate but so difficult to implement that the executive has to be prodded by the judiciary at every step. The forest and environment laws are a few examples.

In the past 10 years, it was the Supreme Court that stopped illegal felling of trees, transport of timber, running of industries in the forests and set formulae for compensatory afforestation. Last week, it entered a new phase in the economics of environment management in T N Godavarman Tirumulpad vs Union of India.

The court considered the question whether the user agency should be required to compensate for the loss of benefits accruing from the forest land if it had been diverted for non-forest purposes.

If so, should not the user agency be asked to make payment of net present value (NPV) for such diversion of land so as to utilise the amounts so received for getting back in the long run the benefits that were lost by the diversion?

What are the guidelines for the determination of NPV? Should the guidelines be applicable to all industries or agencies? How should the NPV be calculated? Should some projects be exempted from the payment of NPV?

The court was guided on these issues by the senior counsel appointed to help it, Harish Salve. According to him, the basis for calculation of NPV should be the economic value, spread over 50 years, which would be the regenerational value for forest regeneration to be taken into account as opposed to the restoration value, that is, the financial value.

The court explained NPV in detail in its 75-page judgement. NPV is the present value of net cash flow from a project, discounted by the cost of capital. Forestry is a public project. A benefit received today is worth more than that received later.

The benefit received today is in fact "cost incurred" today. The time value of the cash inflow/outflow is important in investment appraisal. NPV is a method by which future expenditures (costs) and benefit are levelised in order to account for the time value of money. The object behind NPV is to levelise costs. The value of rupee today would not be the value of rupee 50 years later, for instance.

Therefore, expenses incurred each year between, say 2005 and 2050, have to be brought down to their present values by using appropriate discount rate in NPV. The details have to be worked by a committee set up by the court. It will report within four months.

Some states have already thought of such schemes. In Madhya Pradesh, Chhattisgarh and Bihar, NPV is being recovered at the rate of Rs 5.80 lakh per hectare to Rs 9.20 lakh per hectare of forest land, depending upon the quality and density of the land diverted for non-forest purposes.

A committee appointed earlier by the court has recommended the creation of a "compensatory afforestation fund". The monies received from the user agencies towards compensatory afforestation, additional compensatory afforestation, penal compensatory afforestation, NPV, catchment-area treatment plan funds and the like would be deposited in this fund.

The user agencies, especially large public sector undertakings such as the Power Grid Corporation and NTPC, which require forest land for their projects, should also be involved in carrying out compensatory afforestation by establishing special purpose vehicles.

An authority will manage the amounts collected, after depositing them in the Reserve Bank of India, public sector banks and government securities. The funds shall be used for specific schemes received from the states.

The court noted that the authority shall consist of NGOs, conservationists, economists and experts in forestry. The executive body should not be packed with government officials.

The response from the states was encouraging. Though many of them had lost revenue from the forests following the earlier orders, and had, in fact, pleaded that forests have become an economic burden, all of them have agreed to toe the Supreme Court line. Some states like Kerala wanted NPV to go to the states.

The court, however, was not in favour of this idea. It emphasised that environment is not a state property but a national asset. It applied the doctrine of public trust, founded on the idea that certain common properties such as rivers, seashores, forests and air are held by the government in trusteeship for the free and unimpeded use of the general public.

The effort to protect forests began with the Forest Acts of 1878 and 1927. Many laws were passed after Independence. Yet, the forest cover has decreased at a fast rate.

The Supreme Court makes a dig at the rulers of the past five decades with its caustic remark: "The pragmatic reality faced by the governments and the administrators is that trees do not vote while people do."