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Arkhangelsk Region supports transport incentives for local forestry sector enterprises

Transport subsidies should use differentiated approaches

MOSCOW, January 31. /TASS/. The Arkhangelsk Region's authorities stress it is important to increase transport subsidies for the forestry complex's enterprises, working in the Northwestern Federal District, the region's deputy prime minister Yevgeny Avtushenko said at a meeting at the Federation Council.

"We think it important to reiterate transport subsidies and to increase them for the forestry complex's enterprises. We are now facing an unfavorable situation, because the flows that have shifted towards, say, Asia, are "eating up" the transport subsidy and the entire economy. Our idea is that transport subsidies should be eyed based on company sizes and shipment volumes, as well as on the distance to sales markets," he said.

Transport subsidies should use differentiated approaches. The larger the company, the bigger the subsidy, he continued. "We have large enterprises, such as the Titan Group, ULK, Segezha. If the group's consolidated transportation expenses reach up to 10 billion ($143 million), then, for them in order to overcome the situation, they will have to split companies into four, or five or six companies to get these subsidies, which apparently is not quite right," he said.

Meanwhile, smaller companies have been redirecting operations to the domestic market, and they also require support from the state. "Small and medium-sized enterprises have practically stopped wood cutting - it is not reasonable for them to be moving towards Asia. They say, it's easier for us to sell a little bit on the domestic market than to ship products by trains, because the shipment costs eat up everything," the official said.

The Arkhangelsk Region's forestry complex has been export-focused, mainly to the West, to European countries. Export flows have shrunk dramatically. At the end of 2021, about 67% of wood products and 55% of pulp and paper products were shipped to the EU, the UK and America. In 2022, the share of African, Asian and CIS countries in exports increased significantly (from 7% to 50%), and that of China - from 20% to 43%. The biggest growth was in export of pulp and paper to China - from 2% to 40%. As a result, the region's forestry complex sector turned out to be one of the most remote suppliers from new consumers. The shipment expenses take up to 40% of the products' cost price.

Credit load

The main approach to develop the timber industry in the Arkhangelsk region is to use the priority investment projects mechanism. Normally, investors borrowed funds from banks to build timber processing facilities. Many banks have already sent credit tranches to equipment suppliers, including to European companies. But, as the sanctions were introduced, the suppliers refused to cooperate with Russian businesses or to return the advance payments.

Companies, anyway, still owe money to banks. "More than one billion ($14 million) has been paid to purchase equipment for the forestry complex, but this equipment has not been delivered and would not be delivered. First of all, this situation has happened with one of the priority investment projects worth over 28 billion rubles ($400 million), which we are implementing in the Pinega District. More than 17 billion rubles ($243 million) have been invested in it," the regional press service quoted the official as saying. "Even if some of the equipment does arrive, it will not be possible to use it in work, it will not generate income. Taking into account these circumstances, the project will be reviewed for alternative equipment and available technologies."

Thus, the initiative is to recommend to the Russian Federation's government to develop a set of additional measures to cut the credit burden for timber enterprises that have attracted financial resources to implement priority investment projects in the forestry complex.

Containers for transportation

The Arkhangelsk Region also asks for containers to be used in eastbound sea transportation along the Northern Sea Route for the forestry complex enterprises, working in the Northwestern Federal District. "We propose to consider the possibility of using ports and port infrastructures in Murmansk, Arkhangelsk and St. Petersburg. Transportation could be by sea, and then the difference will no longer be as critical as it was at the beginning of the sanctions story. Additionally, we ask to consider possible cargo quotas and funding quotas. The situation is - if we eye the general amounts, then the Northwestern forestry companies will not manage to compete with companies in metallurgy, chemistry, petrochemicals'" the expert continued.

This approach will help to attract to the North the cargos, which presently are transported from the European part of the country to the east. The companies experience a shortage of container trains, despite the fact that following active talks with Russian Railways, the number of containers for the region's forestry complex enterprises has been almost doubled, but still this is not enough. "We are shipping our wagons, although the demand is still twice as high, but we understand that Russian Railways now faces more complex tasks, and they physically are unable to increase [the number of trains]," he said in conclusion.