There was duty in the dark forest – Kommersant newspaper no. 58 (7259) dated 05/04/2022

The timber traders sent a large list of proposals to the government for measures to support the industry. Among the main problems of the timber industry complex are the logistics, the unavailability of imported equipment, as well as the difficulties in attracting financing and debt service. Market participants note that now foresters are trying to solve not only the problems associated with sanctions, but also long-term issues.

The presidents of Delovaya Rossiya and Opora Rossii, Pavel Titov and Alexander Kalinin, sent a letter to Deputy Prime Minister Victoria Abramchenko with a list of risks facing the timber industry and options for support measures. The companies in the industry, whose proposals are gathered in the document, did not comment on the situation. Andrey Goncharov, Chairman of the Opora Rossii Committee on Timber and Forestry, First Vice-Chairman of the Russian Forest Union, stated that the issues of maintaining the efficiency of production facilities and equipment, reorienting sales, developing new logistics routes and of finding new sales markets are the biggest concern.

The document states that the producers of fuel pellets faced significant logistical problems, the cost of transport of which is either proportional to the price of the goods at the port or higher. For example, loading at the port of Vladivostok costs $ 148 per ton, while the price of a ton at the port is $ 132. In order to maintain pellet production in Russia, it is proposed to subsidize the cost of transporting them through Vladivostok, to create the necessary port infrastructure in the Far Eastern Federal District and also to stimulate demand for fuel pellets in Russia.

The authors of the letter point out the risks of losing high value-added timber markets abroad. To avoid them, it is proposed to introduce borrowing at an interest rate not exceeding 10% per annum to reorient production in the domestic market and replenish working capital and exempt export-oriented timber companies from income tax for at least one year. Also, in order to reorient sales in the Chinese market, it is proposed to cancel the duty on the export of sawn timber with natural moisture.

As Sergey Tarasyuk, head of the Delovoy Rossiya timber subcommittee and director of Angara Les LLC, Sergey Tarasyuk, explained to Kommersant, another important issue facing the industry is the supply of equipment and spare parts for European brands. Their circulation through third countries, he believes, must be organized at the governmental level and it is also necessary to systematically approach the organization of production in Russia of analogues, if not all equipment, but at least spare parts.

The letter states that due to the ban on the supply of timber processing equipment by the EU and the US, companies are unable to meet their obligations to develop new timber processing capabilities as part of priority investment projects. The authors of the document call for participants in priority investment projects to be allowed to process timber at third-party facilities before launching their own, to extend investment projects for at least two years and to introduce a moratorium on termination of forest lease agreements and the exclusion of the lessee from the list of priority investment projects for this period.

The authors also point out the problems associated with requiring the sale of at least 80% of foreign exchange earnings: since banks operate at their own interest rates, companies lose more than 30% of their mandatory sales revenue. In this regard, it is proposed to sell export earnings at the exchange rate or the exchange rate of the Central Bank. The letter also notes that due to the sharp rise in the key interest rate, the cost of financing becomes unsustainable, as the profitability of forestry companies in the Russian Federation does not exceed 16% and there is no access to long-term money at low rates. Agencies are being asked to introduce a moratorium on raising interest rates on loans taken out before February 28, to subsidize low-interest loans and to introduce six-month export credit cuts.

A Kommersant source in the industry notes that the business proposals are sensible and realistic, but at the same time, the timber traders have decided to seek the maximum benefits and support – not only in the current situation, but also in the systemic problems that have existed for decades.

The WhatWood agency notes that an additional risk for the industry is the suspension of international certificates for Russian forest products, such as FSC, SBP, EN Plus. All of this is forcing investors in the timber industry to look for options to reorient themselves from European markets and adjust plans or deadlines for project completion, they say, so that support measures are critical to the industry.

Olga Mordiushenko

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