23 june 2010

Prime Minister Vladimir Putin meets with head of the Federal Agency for Forestry Alexei Savinov

Prime Minister Vladimir Putin and head of the Federal Agency for Forestry Alexei Savinov discussed issues related to the application of the Forestry Code, in particular the transfer of forest management authority to regional governments. The prime minister was particularly interested in how the federal agency is working with regions to protect and restore forests, and how the government agencies are developing their relationship with companies that lease forest land. Mr Putin and Mr Savinov also discussed the situation in timber processing.

Transcript of the beginning of the meeting:

Vladimir Putin: Good afternoon, Mr Savinov,

It's been three years since the Forestry Code was adopted. We have a wealth of information about how this law is working.

Some forest management authority has been transferred to regions. I'd like to hear your opinion about how these measures are working out and how your interactions with the regions are developing. This authority brings certain responsibilities. And how is the issue of forest conservation being addressed in the regions? What's being done to protect forests there?

Every issue pertaining to forests is important to us. A few years ago the government made a decision to abandon the privatisation of forest land and resolve all development issues through leasing. How is the relationship between government bodies, forest management agencies and lessees developing? What challenges do you see here? Let's discuss the whole array of related issues.

Alexei Savinov: Mr Prime Minister, we've had enough time, three years, as you mentioned, to see whether the Forestry Code is effective. It has both strong points and shortcomings, as does any other legislation.

Its objectives were relevant and justified: the Forestry Code was developed to transfer the powers to use, protect and restore forests to regional governments. Here the state transferred its authority and initiative to the regions. It's always easier to do this work on location. And most importantly for the governments of the regions with forested areas, these regions now have the authority to manage the budget funds allotted for forest programmes. And this is why this legislation has been so relevant.

Second, there is the leasing component. Our woodsmen, so to speak, support the leasing measures set forth in this legislation, and so do I. The code provides for long-term leases, up to 49 years. If a lessee uses land properly, they are given preferential rights to extend their lease for another 49 years. Therefore, it is possible to lease land for almost 100 years, which provides businesses with stability, predictability and confidence in the future.

Vladimir Putin: They have the right to extend...

Alexei Savinov: ...extend it for another 49 years. That's almost a hundred years, or four generations. This legislation upholds family businesses, allowing a son to continue his father's business.

When we look at the situation in other countries, Finland has faced one problem: where forests are in private hands landowners are not interested in their intensive use. They want to use if for...nature, pleasure, as a forest. But the state sees it as a source of timber that could be obtained if the land were state property. The Americans also buys out such land. That said, I believe that our government's decision about leasing forests is very sound.

As far as the new powers, most regions are using them in a very effective manner. Here I can cite as an example the Vologda Region, the Arkhangelsk Region, the Krasnoyarsk Territory, the Altai Territory, as well as the Kursk and Bryansk Regions, where forests are relatively scarce. On the other hand, some regions have been using these powers ineffectively.

As far as leased land, some 462 million acres out of 2.9 billion acres are currently under lease. Timber is produced at about 341 acres of land, with some 204 million cubic metres of timber produced annually. In 2009, lessees produced 90 million cubic metres of timber, which constitutes about 43% of average production rates.

This decrease in output can be explained by two reasons. The first reason is the effects of the downturn.

Fortunately, the situation has stabilised. Growth has now reached 9%, which shows that more timber is being consumed. This is gratifying. There's demand for our products, and the industry is getting stronger. It's very encouraging.

But on the other hand, not all timber produced on leased land can be used in timber processing: some of it is low-quality timber, aspen, as they call in the industry. Nobody buys it. Lessees only use the timber from coniferous tress, like spruce and pine, and do nothing with the timber of lower quality.

There's another important issue here. Some lessees lease their land to third parties. They pay for everything. Lease rates are pretty low, and it's easy to find someone to sublet land to, which the law doesn't prohibit. But do you know at what rates lessees sublet their land? They mark it up by 600% sometimes. The state leases land to them at 35 to 40 roubles, and they sublet it for 300 to 400 roubles. They take the role of the lessor away from the state, which is something we should deal with.

Yet, whatever the flaws in this policy, there certainly have been positive changes. The lessees of forest land have begun to manage their assets more responsibly. They prevent illegal logging and theft, and they are better addressing issues related to protection and preservation.

Reforestation is an issue, but it is part of a larger spectrum of issues, not directly related to leasing. The seeds and other planting materials we produce are still not as good as, say, those in Finland.

However, we are working on it. I believe we will find a solution in this area as well.

There are also problems with the Forestry Code and the forestry development strategy. Nevertheless, we have amended the old Forestry Code significantly over the last three years. We have made progress in this area. We have good working relations with the State Duma parliamentarians. We will improve the Forestry Code. We have always agreed that clear laws are the key to successful forest management. That is if these laws are good; otherwise, they would certainly slow down successful development. We are working on it.

Vladimir Putin: Based on your experience, how would you assess the current situation in timber processing? What about your relationship with the industry?

Alexei Savinov: This is a factor, of course. Government policies designed to encourage domestic timber processing are wise. This certainly makes a difference. Yet there are critics who insist we should export unprocessed timber. We cannot agree with this. I say, "Why are we taking round timber out of the country? Why is it that they need it there, and we don't? What's wrong with us?"

These are our forests; our property. So the government policy is absolutely correct. The capabilities for advanced timber processing would certainly benefit the development of our forests, including in management, protection and reforestation. If businesses begin investing in forest infrastructure and roads, we'd have additional resources.

Vladimir Putin: How is your agency's relationship with this industry?

Alexei Savinov: The agency has acted on behalf of federal authorities in approving investment projects since January 1, 2010, and I think our relationship will become even closer in future. We are working closely with businesses and processing companies. We also work to ensure that large and medium-sized businesses are involved in this relationship. Because they are the ones that can bring investment to the forestry sector. Most of the businesses in this industry are small, with just one or two employees. These are not real businesses, just cut-and-sell operations.

But the forestry sector requires capital investment, for example in road construction and reforestation. And this is the sort of thing that only large and medium-sized businesses can provide. That is why we plan to meet these businesses halfway, and the regional forest management plans - and this is the official policy of the Federal Agency for Forestry - will provide timber processors with resources.

Finally, and this is also our official policy, we have not increased resource taxes in 2010, during the downturn. Our revenues were still pretty good: 1.6 billion roubles.

Vladimir Putin: Indeed, you have created favourable economic conditions for timber processing.