At a meeting in June, the Russian government discussed the proposed development of the country’s timber industry. The programme, which takes the industry to 2015, is expected to be completed and given the government’s final approval on October 1.

The day before the government’s meeting the industry’s problems were discussed by the State Council where president Vladimir Putin emphasised the need to fix clear rules of work in Russia’s forestry sector.

Discussion about the timber industry at such high level is evidence that the sector is approaching a crisis. As prime minister Mikhail Kasyanov declared while opening the government meeting, the industry is very inefficient.

Russia boasts 25% of the world’s timber resources but has only 3% of the global timber market. Mr Kasyanov said that the timber industry’s contribution to the national economy was low but that it was possible, “without any extreme measures”, to achieve growth of 5-8% per year in the manufacture of some wood products.

According to the document approved at the meeting, the industry needs to change to reduce raw material production and increase the volume of value-added products. To achieve this, it is necessary to change the structure of customs duties as well: export duties for value-added products will be reduced gradually, and duties on round timber exports will increase. According to Iliya Klebanov, minister of RF Minpromnauka (Ministry of Science, Technology and Industry), duties on raw timber may rise over the next five years.

Another proposal is to provide preferential investment terms for rent payments, and at the same time it will be possible to use the right for rent as a security when the tenant wants a bank credit. The terms of land rent are also to be changed, because the existing rent term of one to five years does not encourage businesses to invest in forestry. The minimum rent term is to be 49 years, with a standard term of 80-100 years, which will encourage planting in deforested areas.

It is also proposed that recreation in forests will become the responsibility of logging companies, under the control of the state. This was not greeted with enthusiasm in the regions, such as the Komi republic where timber companies consider it to be double taxation. They are also against the suggestion of using the right of rent as a security for getting a bank credit: such security, according to them, is non-liquid for Russia and will not meet even a small part of borrowed costs. But regional timber businesses still hope that their suggestions will be included in the document before the final draft is approved by the government.

&#8220From January to May, round timber exports were up 20% on the same period last year. It is expected that export duties for round timber – now 10% – will double”

At least US$20bn is needed to implement the development plan. Investments in forestry, timber processing and the industry are very slow so the government has to believe that long-term rent will attract investors to the industry.

Export prospects

As for export prospects for this year, Miron Tatsyun, the chairman of the union of timber industrialists and timber exporters, says revenue will not exceed Rb4.5bn. According to him, 13,000 companies export timber, mainly as raw material, and Russia has 1.3% of the timber export market. However, the proposed plan for the industry includes complex measures to stimulate exports.

Meanwhile, expectations arising from new export duties have hastened activity among timber exporters who have begun to increase exports of round timber. According to customs statistics, from January to May round timber exports were up 20% on the same period last year. It is expected that export duties for round timber – now 10% – will double. But experts say that the rate of growth will not be sustained. The situation with export duties is still unclear, but it is possible that the decision to raise duties will be taken by the government in the autumn.

Although exports rose dramatically in the first half of the year, production rose by only 1.9%, although in June it was up 2.6% on June 2001.