According to official sources the Russian timber industry is continuing to make progress. But debate continues on reform of the sector, notably the long-term plans to limit exports of raw material and boost value added production.

The Russian federal service of state statistics reports that from January-October the country’s plywood production increased by 12.7% to 2.1 million m3 compared with the same period in 2004, chipboard production rose 9.9% up to 3.3 million m3 and paper production was up 2% to 800,000 tons. On the downside, lumber production fell by 2.2% to 17.3 million m3.

Meanwhile, Rosleskhoz, the federal agency for forest management, reported overall positive results in every area targeted in its wood industry development plan for 2003-2010. Over the past two years, it maintains, Russian logging volumes have increased by 11% to 129 million m3 and the share of the industry covered by long-term forest lease treaties, designed to bring private business acumen into commercial forest management, has risen from 27% to 51%.

The official figures show forest products exports for the first half of 2005 reaching US$3.3bn. The largest increase came in overseas sales of round timber, plywood and, despite the production downturn, lumber.

Rosleskhoz also expresses optimism about the industry’s prospects: it says annual investment in the sector could reach US$4bn by 2007-2008 if “the right rules of the game” are accepted. This year total investment – from both Russian and foreign investors – is expected to reach US$2.4bn. And added-value processing is targeted as one of the priorities for investment.

According to the ministry of economic development, the forestry industry’s output for the year as a whole will increase by around 21.8% over 2004. Added-value products are expected to grow by 10%, while exports of rough sawn timber will fall by 5%.

Ongoing debate

&#8220There is still scepticism about government promises, with its critics pointing to the slow progress of the Russian Forest Code as evidence that any reforms are going to take time”

While the official headline figures may make encouraging reading, the Russian industry is still facing structural difficulties, and the debate about how to resolve them continues. The main problems for the industry are generally agreed to be a lack of modern technology and the ongoing high level of unprocessed timber exports.

This autumn the government promised to elaborate on its proposals to increase export duties for round timber. At the same time its reform programme includes a reduction, or “nullification” of export duties on modern timber processing equipment. The changes are expected to take three or four years to implement.

Among the latest comments on the subject of timber indusry development was a statement from prime minister Mikhail Fradkov. He raised the possibility of a “special programme” to boost added-value processing and is also reported as saying that a list of specialist equipment that is not manufactured in Russia is to be drawn up as a precursor to import duty reforms.

Export licensing

In addition, a timber export licensing system is under discussion, as well as changes to taxes to encourage investment in the sector. The government is also considering proposals from potential foreign partners on the construction of pulp and paper mills. Three are proposed, with capacity to consume 5 million m3 of raw material a year.

There is, however, still scepticism about government promises, with its critics pointing to the slow progress of the Russian Forest Code as evidence that any reforms are going to take time. German Gref, chief of the economic development ministry, has also warned that a sudden rise in export duty on roundwood could lead to reduced production and increased unemployment.