In forestry and forest industry

The President deems that Russia's lead in the world wood exports testifies to the effect of wastefulness with regard to the nation's resources. The Head of State instructed the Ministers that they should promptly settle all disagreements concerning the new Forest Code. In addition, V. Putin pointed to the need to promote structural reforms in the forest sector and to create an enabling investment environment.

The President also suggested developing an action plan to combat illegal logging, noting that this challenge had acquired an international dimension. Earlier, Vladimir Putin visited a forestry exhibition providing an overview of the current situation in Russian forestry and prospects for its development. He also visited forest industry enterprises in the Komi Republic: a forest plot harvested by the Luzales Forest Logging Company and a wood-processing facility of the Mondi Business Paper Syktyvkar LPK Company. The Head of State saw the full cycle of timber harvesting operations and talked to the enterprises' employees. Keynote address at the meeting on forests V. PUTIN: Dear Colleagues, I would like to discuss the situation in forestry and to talk about realities and development prospects in timber industries. We must adopt a fundamental decision - adopt a Forest Code. Today, we have one opportunity to discuss the whole package of issues faced by our forest sector.

I deem it quite reasonable to conduct the discussion in such a format. This meeting is attended by the key federal Ministers. The forest sector development depends on activities of their ministries/agencies. There are also representatives from regions here - those who are engaged directly in this sector. I shall reiterate that such a format is quite reasonable bearing in mind that forest is not just a natural treasure. It is a major economic advantage for Russia. Its sound use can and must generate sustainable and weighty revenues for the country and our citizens. Moreover, Russian forests act as an environmental shield not only for this country, but for the whole planet.

In the recent time, certain steps were made to develop a national forest policy. In particular, such steps include the adoption of the Forestry Development Concept for 2003-2010, and Timber Industry Development Guidelines for the period up to 2015.

However, the implementation of these policy decisions helped to push a way from the deadlock in addressing only some of long-standing problems. E.g., last year, the public revenues from forest use almost doubled. There was also a reversal of the negative trend in reforestation which had persisted for many years. There are some positive changes in forest industries as well, in particular, in primary wood-processing and wood-working. An increasing rise is observed in production of import-substituting products, including those manufactured by enterprises with foreign capital.

Today, we have visited such an enterprise. The enterprise is, undoubtedly, not bad. Its manager is present here, and he has provided a lot of information. It is quite evident that the enterprise is developing, and developing fairly well. Its investors and owners invest money therein, and the amounts of the money are not small. The enterprise has good development plans. It also positively tells upon the social aspects. The remuneration there is quite decent: about Rbl 18,000, isn't it? Yes. The most important thing is that there are good prospects for further development, new equipment.

However, no drastic improvements have occurred in the sector. In view of this, I would like to dwell upon the most critical issues which must be, I think, urgently addressed.

The general situation here still fails to be very joyful, primarily due to the problem or problems which are well-known to you. I am speaking about the so-called "roundwood" issue. We keep on exporting abroad this unprocessed wood in huge amounts. In the global timber trade, Russia accounts for less than 3 % of foreign currency earnings, with its unprocessed wood, or "roundwood" making up 22 %. Our neighbours continue to earn billions of dollars relying on Russian timber. And we do so little to create proper conditions for wood-processing within the country.

New customs duties are as yet not adjusted in a way to act as incentives to establish wood-processing facilities in Russia rather than to export wood resources.

Our global lead in terms of forest exports often implies blunt dissipation of the national resources, resulting into the lost opportunity which we could use, should we process the wood domestically.

We would keep on driving along dirty roads, unless production capacities are developed within the Russian Federation, because all revenues from processing would remain abroad. And taxes would be paid there, and salaries would rise there, whereas we would be only supplying wood resources.

Close attention should be paid to improving the qualitative properties of forests. We are well aware of critically slow progress in renewal of certain tree species in the forests. So far, only 10 % of the needed species have been "renewed". At the exhibition, I have seen what is being done to this end, but it is still insufficient. Clearly, it is impossible to restore at once the conifers which have been intensively removed over the seven decades. But we do not even try to resolve this problem in a proper way; we are rather only approaching it. Though, essentially, it is a high-priority issue, it is yet not ranked as such.

There is another issue which has "emerged" today during the discussion and is very important for us, if we want to think of future. The point is that advanced countries are very efficient at developing new reforestation technologies. In the case of further progress along this way, as one of the colleagues put it, our vast forests will be not needed by anyone soon. We should think about it, and think well in advance. In this area, we should also apply new up-to-date technologies. High-tech is required in this sector. I presume it necessary to take urgent and specific measures. Today, I would like you to present your proposals on this issue. I shall make particular mention of another critical problem which is illegal -literally barbarian -logging. Annual losses only from recorded cases of illegal logging exceed Rbl. 5 billion. So, today, I have also seen how satellite-based equipment is coming to be used to address this issue. It is likely to be good, though I am not sure that it would be sufficient.

In the meanwhile, this problem has already become international in nature. Illegally sourced timber is bought by other countries. Therefore, during a Session of the UN Forum on Forests in 2004, Russia put forward its initiative to launch an international forest law enforcement process with the aim of mobilizing joint efforts to fight against illegal logging and illegal timber trade. I am convinced that, as of today, the highest priority must be given to a clearly worded national plan of actions. And such actions should rigidly suppress illegal logging and illegal timber trade. Another issue calling for our attention is the need to improve the forest industry performance. Now, its share in the GDP is as small as slightly above 1 %. Nowadays, like in the early 1990-ies, about 30,000 enterprises are engaged in timber industries. Most of them have low capacities and are not capable of undertaking reforestation and forest protection functions, to say nothing of developing their infrastructure relying on downstream wood-processing. Though, primary processing is also insufficient. For example, today, we have visited a forest logging enterprise. They say that their timber yards are filled with so much timber that they do not know what to do with it. Processing is needed. Currently, it is insufficiently developed by all means. Consequentially, strange and paradoxical as it may seem, but with a real wealth of our forest resources, we are facing a yearly growing dependence on imports of, e.g., forest and paper products. The total cost of the imports already exceeds US$ 3 billion.

This is the amount spend to import forest and paper products into the Russian Federation which is the largest forest nation in the world. By the way, our products are not easily allowed to markets with the means to block our entrance therein including non-tariff constraints, administrative barriers, and ever newly invented reasons for keeping us away from the markets. And we import products worth of US$ 3 billion. We are also lagging behind with introduction of advanced technologies into downstream wood-processing. As I understand, one of such new developments is production of glued wood elements. We have seen them today at the exhibition as well. They are already efficiently used in other countries, too. I would be glad to get acquainted with your proposals on how to address this issue as well as on the use of wood for housing construction. Currently, its consumption is officially reported to be no higher than 0.1 % of m³ per m² of housing. This is a very low rate in view of the fact that private housing construction traditionally relies on wood in Russia. In the meanwhile, other countries - both in Europe and North America - have much higher rates of wood consumption for purposes of housing construction than we do, though we seem to have well-developed traditions in this area. I deem it possible to ensure competitiveness of Russian timber industries on meeting the following conditions: The first one is to provide a sound legal framework for their development. In this respect, a key role should rest with the new Forest Code. As you know, its draft was adopted only in the first reading and gave rise to numerous controversies, criticism and discussions. The most serious problem is lack of agreement on approaches among the agencies responsible for this work. I would request the Ministers who are present here to settle all disagreements and find acceptable solutions.

The second one is to promote structural reforms in the sector. Countries with well-developed forest sector manage to ensure a high level of integration in this business. It has been already noted that small business entities are prevailing in our country. Certainly, they are also needed, but they are, so far, unable to cope with shifting the emphasis from forest logging to downstream wood-processing. It is necessary to help them, and to create new conditions conductive for the emergence of large enterprises. Their integration processes should be promoted through establishing advantageous economic conditions for these purposes. And, finally, the third condition is to create an enabling environment for investment into wood-processing. All these issues are closely interrelated. Should at least one of them be omitted, there would be a failure to "remove" the problem as a whole. I suggest having a detailed discussion of all these issues today. As a reminder, according to the decision adopted by the Government last November, a targeted programme of downstream wood-processing capacity development should have been drafted by this moment, i.e. by March 2006. The deadline is reached; however, this draft is still at the stage of interagency agreement. Doubtlessly, this also contributes to "freezing" the situation in the sector, and is another proof of a very slow pace of change here. Dear Colleagues, I have identified only the basic issues which are on the surface. Obviously their range is much boarder. I suggest having a frank talk on all of them. I want to reiterate: I think it is not just an occasion which has brought us together in this format - I mean that the forest is not merely a site for production, it is also a significant constituent of life for millions of people. The forest is our national wealth. It must be managed dedicatedly, attentively, and carefully, but at the same time without forgetting that it is also a sector of the economy to be developed. Its related decisions must be considered, mature, and verified. But they must be adopted.

Closing remarks at the meeting on forestry and timber industries V. PUTIN: Today, we have discussed practically the full package of issues related to the development and functions of wood-processing, and the forest sector as a whole. We also have talked about the efforts to strengthen the control of illegal logging. A Governor (V.A. Shershunov) has just told us about it. We have spoken about various options of transportation infrastructure development, about diverse public support, including incentives to be provided through tax law enforcement and improvement, through our export/import policies, and customs policies.

All these are aimed at making this very promising sector competitive. And the need for it is really great because, unfortunately, a lot of problems still remain unsolved. I presume that both the Government and the regions have been often failing to make appropriate decisions in a timely manner to make new gains from our potential opportunities. But, in general, the sector is developing, and, it is certainly evident not only from the demonstrated performance rates we have seen today in the slides, but also from actual data. But, I would like to conclude our discussion with raising another issue. A major problem is to strengthen the legal framework for the sector performance. And, in essence, numerous issues are concentrated around it. Hopefully, in the nearest future, the Forest Code will be indeed adopted in spite of all the agitation of ongoing debates. At the same time, we should not forget that practically all the peoples within the Russian Federation have been most closely linked with the forest throughout their history. The forest has been always serving as a shelter, a source of food and water, a supplier of energy for heating and needed products for housing. Any Russian citizen perceives the forest (like the water and air) as a property of the whole nation. Please, never forget about it. But we are also aware that it is a most important sector for the national economy. So, it is necessary to find such solutions which would not infringe on the ordinary citizen's interests, but, on the contrary, which would help to harness the enormous potential of the country's forest sector. We have talked about this, today. Overall, although there are some differences in understanding of where we should move further, I do expect the Government, business representatives, and regional leaders to be able to mobilize themselves to act and move ahead in a much more daring and dynamic manner. As for the problems discussed today (I have already enumerated all of them, and you are familiar with them), a list of appropriate instructions will be prepared with due regard to the remarks you have made today.

Thank you very much.