Dozens of companies have announced plans to process timber in Russia. The latest to announce his intentions in this area is Alexey Mordashov. He is willing to invest in the timber business $1.2 billion. However, representatives of the timber industry have noted with sadness that this initiative will most likely remain unfulfilled. Despite the measures taken by the government to promote intensive processing of timber, the current situation in the timber industry makes the profitability of this business zero
One of the world’s largest timber industry companies, Finland’s UPM-Kymmene has agreed with the Russian holding company Sveza, which is owned by Alexey Mordashov, to establish a joint venture. The intention is to build a complex of timber processing businesses in Vologda that will produce 800,000 tons of pulp, 450, 000 cubic meters of OSB and 300, 000 cubic meters of saw timber.
Investment in the project may reach $1.2 billion. Building is scheduled to start early in 2009 and production in 2011.
The joint enterprise is counting on attracting loans for the construction of the complex. Mordashov has named the European Bank for Reconstruction and Development as one possible creditor. According to Mordashov, the return of the project will be five to six years. The project of the Finnish company and Sveza could become one of the largest in the Russian timber industry.
And this is not the only planned project in timber processing. In autumn 2007, the Swedish-Finnish group Stora Enso announced plans to construct an industrial complex with an output of 1 million tons of pulp and 500,000 tons of enamel paper in the Nizhny Novgorod Region for $1.5 billion. By 2008 Finland’s Ruukki Group intends to build a sawmill in the Kostroma Region with an output of 500,000 cubic meters a year, and by 2010 to open a pulp factory with an output of up to 800,000 tons a year for 40 billion rubles. In all, there are about 30 such projects.
A year ago the new Forestry Code came into effect to provide favorable conditions for investment. In summer 2007, the government approved an order about priority investment projects. But businessmen and experts agree that the projects with giant investment that have been declared will remain only on paper - of the 30 announced not one has begun to be implemented.
The reason is that currently the profitability of timber processing is zero, the director of development at Arkhangelsk’s Pulp and Paper Plant, Nataliya Pinyagina, told Expert Online. “We are not competitive in comparison with the very low cost of production in Brazil, and the countries of the Asia-Pacific region, where tropical forests grow much faster than forests in temperate climate (20 years against 100).” Sergey Vetchinin, an advisor to the chairman of the Russian Chamber of Commerce and Industry committee for developing the timber industry and forest sector, agrees with her.
A private-state partnership would be good in the timber industry.
This, incidentally, is what Mordashov is setting his hopes upon.But, in order to use an investment fund to finance infrastructure a development strategy for the sector should be worked out. “And there is not one because each ministry sees measures for developing the timber industry differently, interdepartmental feuds happen, abuse, there is no single federal center,” says Pinyagina.
Therefore, experts agree that Mordashov’s plan, like dozens of others, will not be realized in the near future.
Yekaterina Shokhina
Photo: RIA Novosti
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