Scholarly record

ASSESSMENT OF THE FINANCIAL EFFICIENCY AND RISK OF POPLAR PLANTATION INVESTMENT IN BULGARIA

Konstantin Kolev, Nasko Iliev

Abstract

Insufficient investment activity in the Bulgarian forestry sector raises questions regarding the financial efficiency of potential forestry investment opportunities. The study estimates the financial efficiency and investment risk of creation a 4 ha plantation of Populus x canadensis cv. I-214 under Bulgarian conditions. The analysis is based on plantation model located within the territorial scope of the State Forestry Asenovgrad and assumes a 20-year rotation period. Financial efficiency is assessed by means of the Net Present Value (NPV) and Internal Rate of Return (IRR) methods, while the investment risk is evaluated through scenario analysis. The application of the investment assessment methods is based on estimation of the investment expenditures incurred during the plantation creation, and the net cash flow expected at the end of the 20-year rotation period when the final harvest is carried out. Three timber price development scenarios – realistic, optimistic and pessimistic are constructed to account for uncertainty in future market conditions. The results show that the investment generates a positive NPV of 1659.96 EUR under the realistic scenario and 7170.35 EUR under the optimistic scenario, while a negative NPV of -3360.39 EUR is achieved under the pessimistic scenario. The calculated IRR ranges from 6.32% to 7.16% under both financially efficient scenarios, exceeding the applied discount rate of 6.0%. The findings show that the financial efficiency of poplar plantation depends on future timber price developments. Although the investment can generate satisfactory returns under realistic markets assumptions, negative changes in timber prices may significantly affect its financial efficiency.

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