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Forestry: From Raw Material to End Product
6 September 2022
17:15—18:45
KEY CONCLUSIONS
The Far East is becoming a lucrative investment destination

Markets are reorienting to the East in a natural way – economically and logistically. Far Eastern companies and Far East investment plans are getting into a better investment shape. In short, it is profitable to invest in the Far East. And this is the most important thing for investors who are willing to do so <...> and existing forest leasees to find common ground, rather than warring with each other — Oleg Bocharov, Deputy Minister of Industry and Trade of the Russian Federation.

Regulators and agencies are ready to support the industry

This year, the industry’s problems are also related to the challenges we currently have. <...> What have we been able to do? In fact, we have developed a new support measure to subsidize the shortfall in income of credit institutions. We are subsidizing half of the key rate plus two per cent under the anti-crisis support measure. <...> Both banks and companies will be able to apply for it and actually receive this support — Ilya Chernov, Director of the Investment Development Department, Ministry of the Russian Federation for the Development of the Far East and the Arctic.

Both the Ministry for the Development of the Far East and Arctic and the Far East Development Corporation are ready for a dialogue on fine-tuning the support measures that we already have in place, and, in fact, to help companies implement their projects, whether they are related to the creation of infrastructure facilities, logistics or other problems they have — Ilya Chernov, Director of the Investment Development Department, Ministry of the Russian Federation for the Development of the Far East and the Arctic.

The likelihood of losses in the forestry industry, despite all the difficulties and cataclysms that are now occurring, is four times better than in the real sector as a whole. That is why this is a priority for us: we have not closed any limits — Vladimir Sitnov, Senior Vice President, Sberbank.

Solving the logistics problem take involving the counterpart

The main competition [on the railway, – Ed.] today is not with coal: the main competition is between timber producing companies in fact with each other. It’s just that a larger number [of cargoes, – Ed.] are small in volume, which our Chinese partners agree to accept – that is the whole story — Aleksey Shilo, Deputy Managing Director, Head, Centre for Corporate Transport Services (CFTO), Russian Railways.

Digitalization will help to optimize processes in the forest market

The digital should become like the lube in a car engine, reducing friction and improving movement. In other words, free access to information about forests, as well as free information about where you can cut, what volumes of wood you can harvest. It should encourage forest users to apply more efficiently and to participate more efficiently in tenders and priority investment projects. The Federal Forestry Agency is doing a great job in this sense — Viacheslav Spirenkov, Deputy Head, Federal Forestry Agency.

ISSUES
Forest recycling projects to emerge in the Far East

Of course, the situation of the development of priority investment projects is very important to us, but we would like to see the development of projects in the Far East that would utilize local wood. This is the biggest problem: the quality of the wood is fundamentally different. Cutting everything would still be inefficient — Oleg Bocharov, Deputy Minister of Industry and Trade of the Russian Federation.

The ‘pivot to the east’ has led to logistical problems in reorienting from European markets

The crisis has, of course, significantly reconfigured the market for our traditional products. We have always been oriented towards European markets, especially in lumber. But the turnaround of goods to the East has led to very serious logistical problems for us. We were always mainly focused on sea transport, but the European shipping companies left us. The Russian company we were working with fell under personal sanctions and we were forced to switch to railways. And together with everyone else we are standing in queues, waiting for cars. It takes us a long time to send our products to markets that have changed radically for us – Southeast Asia instead of European markets — Nikolay Krotov, Deputy General Director, Arkhangelsk PPM.

No one, as they say, probably anticipated before that the problem that we have today could happen. We consider it our number one problem – it is logistics. Today it has become difficult not just to sell, to find a buyer, but today it has become difficult to simply deliver things to the buyer. And as paradoxical as it may sound, the majority of forestry companies today are ready to produce much more but are holding back production volumes. They are holding back because there is simply no way to ship, no way to deliver — Vasilii Ganchenko, General Director, Group of Companies «VTK».

The situation is such that the passage of goods across our border is regulated by China. We are trying to fight this, so to speak. That is probably the right word. There will soon be a series of interdepartmental meetings with Chinese colleagues in the run-up to the intergovernmental meeting that takes place in November every year. Both we and our colleagues from the Ministry of Transport and the Ministry of Foreign Affairs have raised this issue with the Chinese side at practically every platform: 'Open the border control points'. It is clear that COVID still exists. It is clear that it will be difficult for you to work with passengers. But it is wrong to detain cargo under the pretext of COVID — Vladimir Ivin, Deputy Head, Federal Customs Service of the Russian Federation.

The state should support projects that invest in training

There is a need for systematic state support for companies that invest heavily in vocational and advanced training of specialists and their employees. Today, the problem of human resources is probably the second most important for large companies such as ours, after logistics — Nikolay Krotov, Deputy General Director, Arkhangelsk PPM.

Digitalization is still stalling in the field

It is strange when a forest user produces a document, for example, a forest development project in electronic format, but submits it on paper, where again the regional bodies have to scan it, digitize it, and enter it into the databases manually. Of course, such anachronisms must be abandoned — Viacheslav Spirenkov, Deputy Head, Federal Forestry Agency.

SOLUTIONS
All market players should agree on a common approach

All interested parties need to work out a single clear, open, and transparent scheme for receiving forest resources in return for investments <...> The old rules need to be changed in time. We need to open up investments now, and primarily for the Far Eastern District — Oleg Bocharov, Deputy Minister of Industry and Trade of the Russian Federation.

Holdings such as ours, holdings not in the legal sense, but in the sense of integrated wood processing, are very difficult, often impossible to build based on the forest concession of one region. And here it seems absolutely essential for us to consider inter-regional logging and transferring the authority to provide large investment projects related to SWIFT – pulp and paper mills, other recycling companies – to the federal level — Nikolay Krotov, Deputy General Director, Arkhangelsk PPM.

Currently, only priority investment projects can be granted new forest concessions outside of competitive procedures. The residents of the Free Port of Vladivostok, which includes our company New Forest Pro, do not have the same right to secure raw materials for their investment projects. We believe it is necessary to level the playing field legally for investors in both programmes whose projects meet similar common criteria — Dmitrii Dobrynin, Vice President, New Forest Pro.

The development of border crossing points is a necessity

Colleagues are right to say that we need to develop border crossing points. In addition to developing the backbone infrastructure of the Eastern Polygon, BAM, Trans-Siberian Railway, and this year we are already ahead of schedule, albeit slightly, and achieving the target parameters for cargo transportation at the Eastern Polygon. Right now, we have a separate line of business – the development of border crossing points. There is financing, and we are implementing quite a few measures today in terms of approaches to railway border crossing points — Aleksey Shilo, Deputy Managing Director, Head, Centre for Corporate Transport Services (CFTO), Russian Railways.

All forest services must go digital

For us, the target is all forest services in electronic form. The electronic form does not imply contact with the controller, contact with the government agency. In other words, corruption risks are minimized here, while cooperation accelerates — Viacheslav Spirenkov, Deputy Head, Federal Forestry Agency.

Sanctions are not an insurmountable obstacle to sales abroad

The geography is changing dramatically, but it is fortunately only changing on paper. Everything we have been selling, we are selling in roughly in the same areas. It is just sold through trading houses registered in Singapore jurisdictions. <...> So, I would recommend thinking about it – registering a trading house in a country with a friendly jurisdiction is not a big deal — Vladimir Sitnov, Senior Vice President, Sberbank.