Key conclusions

Wood processing industry attractive for investors

“The amount of investment has already totaled 39 bln rubles in recent years here, plus up to 20 bln in the planning stage <…> This demonstrates that enterprises are interested in expansion,” said Viktor Evtukhov, State Secretary, Deputy Minister of Industry and Trade of the Russian Federation.

Creation of pulp and paper factories is the most promising area in the wood processing industry

“Pulp and paper plants are driving the wood processing industry up, this is the main area in wood processing both in terms of scale and profitability,” said Pavel Bilibin, Director of Wood Processing Complex Directorate, Bank for Development and Foreign Economic Affairs (Vnesheconombank).

“Russia’s apparent advantage is the existence of our softwood forests, which can be used to produce long-fibre pulp,” Pavel Bilibin said.

“All producers of lumber logs should be interested in such a serious utilization mechanism, and it can only be implemented via the construction of pulp factories or pulp and paper plants,” Ivan Valentik, Head of the Federal Agency for Forestry, said.

“Pulp and paper plants serve the purpose of collecting lumber waste in order to make forest users not leave waste in the forest,” Viktor Evtukhov said.

Challenges

Focus on timber export

“There are challenges <…> One of them is a very high fragmentation of roundwood exporters,” Viktor Evtukhov said.

Forest management issues

“Our forest management administration is provided blindly <…> Forest engineering is using outdated technologies <…> Huge resources that the state spends to update forest management are not providing a radical solution to the issue,” said Vladimir Solodov, Deputy Presidential Plenipotentiary Envoy to the Far Eastern Federal District of the Russian Federation. 

 “The second issue is stale forest management data,” Viktor Evtukhov said.

Restricted data, non-transparent procedures

“How can business find out that there are accessible managed woodland plots if the information is closed at the regional level <…> Today this information is restricted,” Ivan Valentik said.

“Online auctions are only organized in one constituent entity of the Russian Federation today, the Kirov Region, launched not so long ago,” Ivan Valentik said.

“So far, unfortunately, regional administrations don’t have enough approaches to boosting transparency of procedures on granting land rights,” Ivan Valentik said.

Imperfect legislation

“The legislation doesn’t provide an understanding of what is going to happen within the next 20-30 years, and everyone is aware of what guarantees there are,” said Olga Epifanova, Deputy Chair, The State Duma of the Federal Assembly of the Russian Federation. 

Restricted access to credit resources

“There is a problem, which is very important for the Far East, the availability of credit resources,” Viktor Evtukhov said.

Solutions

Development of wood processing and limited export of unprocessed timber

“In Korea we import more than 1.8 mln tonnes from Southeast Asia, but in Russia you just import less than 50,000 tonnes per year. So the problem is the price <…> The solution is that you make wood pellets at sight <…> Making wood product lines you can save the cost <…> We have pilot projects in Vladivostok, Primorsky Territory and Khabarovsk,” said Changyoon Han, Chief Executive Officer, Sewon Mars Co,. Ltd. 

“We set quotas on export of unprocessed timber of Far Eastern wood species,” Viktor Evtukhov said.

“We put an important focus on the creation of big sawmills <…> I can’t but say about this very promising trend for the region, for the Far East, taking into account the development of wooden house construction,” Viktor Evtukhov noted.

“Whether we’re talking about a 100% foreign investor or 75-25, it is important for the timber industry that those enterprises do not simply mimic supplies of unprocessed timber,” Viktor Evtukhov said.

State support for pulp and paper plant projects

“I can see that it is hardly possible to implement projects on construction of cellulose enterprises in Russia without state attention and participation,” Pavel Bilibin said.

“There is a specialized agency for investment attraction <…> Besides, the mechanism of priority development area implies that projects in the wood processing industry are covered <…> Unprecedented conditions have been created in the Far East for investors in the wood processing field <…> The pulp and paper plant construction is a top priority, and the whole range of state support measures will be provided to this type of projects. Similarly, there are mechanisms of financial support, the Far East Development Fund provides funds under 5% per annum,” Vladimir Solodov said.

Regulation improvement

“The rules of the game should be predictable and clear,” Ivan Valentik said.

“We are preparing a draft decree to consolidate the timber market in order to ensure resource security for timber processing companies in the region,” Viktor Evtukhov said.

“The mechanism of allocation for priority projects is obviously an important mechanism. This should also be transparent,” Ivan Valentik said.

“An up-to-date provision of access to information, and the second thing is transparent auction procedures, the implementation of the declarative principle when business says what it needs,” Ivan Valentik said.

“A shift to a new technological stage in the forest management and in the system of forest management administration will give a critical additional push towards the creation of motivation both for forest users and regional authorities,” Vladimir Solodov said.