29 september 2010

Prime Minister Vladimir Putin attends round table discussion on issues of the timber industry

Vladimir Putin

(round table discussion on issues of the timber industry)

“We strongly believe that our niche on the global market is in products with high value added, including construction materials, paper and the like. New jobs should be created here in Russia, not elsewhere. Tax revenues should go to our budget, and our forest territories, as they’re called, are the ones that should be developed.”

Vladimir Putin's introductory remarks:

Good afternoon,

I would like to welcome everyone at this round table discussion of the issues facing the Russian timber industry. I would like to start by noting that the industry has experienced stable growth during this difficult year. We are seeing positive trends in logging and at enterprises turning out finished products. Exports of Russian construction materials, paper and pulp are growing at a good pace. And conversely, round-timber exports have declined by almost 4%, just like we had wanted. This is thanks to Russian investors and our foreign colleagues, who are opening up the Russian market.

From January through August in 2010, logging output increased by 8.8%. Timber production rose 11.8%, while the production of pulp, paper and cardboard increased by 7.1%. In the first six months of 2010, exports of sawn timber, pulp and paper increased by 13%, 7.3% and 1.1%, respectively. As I have already mentioned, round-timber exports declined by 3.9%.

On Tuesday, I had the chance to familiarise myself with the major investment projects in Syktyvkar and elsewhere during a videoconference. You are probably aware of this; the media has reported on it. The specialists and I discussed the development prospects for the national timber-processing industry.

Today, we will continue this conversation at this round table. I hope to take a close look at important issues and problems facing the national timber industry.

I would like to remind you that the Forest Code, which was passed in 2006, established new regulations on forest use. At the same time, regulatory acts on investment activity in the forest industry were passed, and a timeframe for phasing in higher round-timber export duties was approved.

At the same time, we offered a clear and promising alternative to our foreign partners. We proposed that they build timber-processing plants in Russia. There have not been, nor will there be, any investment restrictions in this sphere.

In general, we intend to pursue a constructive policy and take all factors into consideration. In consideration of the global financial and economic crisis and the requests of our foreign partners, we have twice delayed the scheduled increase in round-timber export duties.

That said, I would like to stress that our strategic objective remains unchanged: Russia must transition away from the outdated raw-materials export model.

We strongly believe that our niche on the global market is in products with high value added, including construction materials, paper and the like. New jobs should be created here in Russia, not elsewhere. Tax revenues should go to our budget, and our forest territories, as they're called, are the ones that should be developed.

Needless to say, you all understand this perfectly well. I visited Syktyvkar on Tuesday and asked a skilled specialist about his salary. He was reluctant to answer my question, but eventually he told me that he earned 70,000 roubles a month. This is very good for Russia, especially for that region. We need such jobs so that our people can live better, the economy can grow and more people are paying taxes into the local budgets. This is the result of manufacturing products with high value added, which is our objective.

In fact, we formed the entire chain of timber-industry relations in order to accomplish this objective. Moreover, we introduced government support measures for the timber industry and provided incentives for major investment projects, including projects involving foreign capital.

This involves no-bid contracts for forest plots and a 50% discount on rent for investors implementing comprehensive forest-development programmes. The videoconference on Tuesday involved an enterprise in the Irkutsk Region. Its representatives noted that they were already working and that they had already made substantial investments, but they were still unable to obtain the necessary forest plots to create a raw materials base. Although they are entitled to certain privileges, they are forced to bid in auctions to no avail. I promised that I will inform the governor about this, and I expressed my hope that the governor will take the necessary measures.

Dmitry Mezentsev, governor of the Irkutsk Region: I'll get back to Irkutsk tomorrow and will return to this issue on Monday.

The problem arose not only because the Forestry Agency or the region's Forestry Ministry procrastinated. They rejected 115,000 [hectares] because they didn't like the quality of the forest there. We're now preparing a new plot. I'll discuss all the main issues with them so as to resolve this problem by Monday.

Vladimir Putin: Okay, they didn't like the quality, and those who work on-site like it but haven't received anything. I'd like you to pay more attention to this issue. I'm sure if you take it up personally, the problem will be settled quickly.

Dmitry Mezentsev: Thank you, Mr Prime Minister. I will.

Vladimir Putin: Turning our attention back to government support, the federal government subsidises interest payments on loans taken out to modernise production and create inter-seasonal timber reserves.

We have started a new programme to export highly processed timber products. In 2009, it received relatively few investments, a bit over half a billion roubles, while in 2010 we allotted 1.7 billion roubles for it.

I'd like to hear your opinions. Has everything been done properly? I'm sure there are problems and shortcomings here. What else needs to be done, given the plans for the development of the industry? Let's also discuss how large companies are doing here and what should be done to support small and medium-sized businesses. Do they have the opportunity to fulfil their potential?

According to the Ministry of Industry and Trade, 12 large-scale forest development projects have been carried out in the past years. Another nine projects will be implemented by the end of this year. They have received 70 billion roubles in investment and have created 7,000 new jobs.

I'd like to get a clear picture of investors' plans. This is important not only for production planning. The most important thing for the state is the effect of projects. Clearly, prospective leaseholders must use forest resources rationally, observing all forest protection and restoration requirements.

It is critical for us to do away with the image of timber processing as a dirty business and ensure that this industry is resource efficient and innovative, and that it meets strict environmental standards.

In closing, I have to touch on the problem of wildfires, which affected thousands of people this summer. Wildfires spread to a total of 1.6 million hectares. This is less than in 2008 and 2009, but this year's situation was still very difficult, primarily because the European part of Russia was struck by unusually hot weather, and temperatures of +40 °C persisted for two months. Some regions, for example in the Volga Federal District, saw no rain for two or three months. These are densely populated regions, which is why the hot weather and wildfires became a true disaster, wreaking serious havoc. In the past 10 years, wildfires were the most widespread, 2.4 million hectares, in 2003. In 2009, the area affected by wildfires was 2.1 million hectares, while in 1972 it was 4.5 million hectares. This year 1.6 million hectares have been affected. I'd like to repeat that in 1972 it was 4.5 million hectares. In most cases, fire spread from forests to villages.

We all understand that it was not the changes made by the new forestry legislation that aggravated the situation. Regions now have the right and responsibility to manage forest land, maintain it and protect it from wildfires. Federal agencies also gave them machines and equipment. But the problem is that most of this equipment is obsolete. The regions didn't waste anything. Nor did they improve anything, to be honest. But this is because they had to use worn-out equipment. But would it be better if the federal government had kept it for itself? I doubt it.

The root cause of the problem is not that these rights were delegated to regions. The thing is we haven't done enough to modernise our fire fighting and prevention units. Nothing was done at the federal level, and these responsibilities were transferred to regions, but little or nothing has been done at the local level either. This is why we need to look at the problems in the system of forest protection and management, identify weak points and overhaul the entire system. Our main mission is to build up our technical capabilities.

As you know, housing is being rebuilt in the areas affected by wildfires, but it's not only housing that we will rebuild. I hope builders will meet the deadline and finish everything by the end of October. Several regions were hit by wildfires later than others, and the reconstruction schedule has been pushed back by one month there.

We'll do our best to restore destroyed forests. We'll buy all necessary fire-fighting equipment and supply it to the regions. All relevant decisions have been made and funds have been budgeted. The Federal Agency for Forestry will receive an additional 8.5 billion roubles next year, of which 3.2 billion roubles will go toward restoring forests and 5.3 billion roubles for fire prevention measures.

As you know, the Forestry Agency has been made directly accountable to the government. We're planning to develop unified regulations for this agency, making it fully responsible for the condition of forests. It will supervise the use of forest resources, forests in specially protected natural territories, forests in rural areas and other types of forests. Forest protection rules and methods are the same for each region.

At the same time, regions carry out the main forest management functions, receiving subventions from the federal budget for this purpose. Today we should review their performance to see how effective this work is and how prepared regions are for natural disasters. As I said, I don't think anything has changed for the worse, but little has been done to improve the situation. Anyway, something needs to be done here. Recent events have shown that we need to pay more attention to these problems.

The Forestry Agency should monitor the situation in forestry locally, rate the performance of each region and submit this information to the government so that it can make conclusions and administrative decisions.

Let's get down to work. Yesterday we heard from the head of the Forestry Agency. And I think now we should give the floor to regional leaders, those who work on-site, directors of timber processing plants and logging businesses. Let's start with the region that has the distinction of having most its territory covered with forests, high-quality forests, which can be used to produce commercial timber. I'd like to hear from Vologda Region Governor Vyacheslav Pozgalyov. Please.

* * *

Viktor Zubkov: I would also like to thank all the participants for such a substantive discussion because when we first met to begin the work of the Government Council on Timber Industry Development three years ago, the discussion was completely different. In fact, over these three years we managed to unite the efforts of the federal government, regional authorities and businesses to more efficiently address the issues of the timber industry. We now have a development strategy for the timber industry until 2020 in place, it may be good or bad, but there is a strategy. It has been discussed and approved by this council and we will be implementing it. Over these three years, the council, and many of its members here today, managed to identify the conditions of the timber industry in each federal district and drafted 91 priority investment projects. They are really wide-ranging projects, like the one that representatives of Vyborg spoke about, which will benefit several regions rather than only the Leningrad Region. The problems we had three years ago, for example, the existence of 7 or 8 million cubic metres of timber which was not being used and needed to be urgently dealt with, will no longer arise because these facilities annually require such large volumes of timber. Other facilities developing in this region will also use this timber. That's why we have to work on decreasing the volumes of round timber we export and set up processing facilities to create new jobs here. We spoke about this in Syktyvkar yesterday: we plan to create 42,000 new jobs there by 2017. These will be new modern-day jobs that will help people substantially change their lives by giving them a completely different level of income. We spoke about such facilities yesterday.

I believe that some very interesting discussions and promising projects came out of these two days. Many governors were struck by this because they realised that this sector can produce actual results, including new jobs and revenues for both regional and federal budgets. That's why I believe that the government departments in question should prepare corresponding instructions based on the results of these two days which you, Mr Putin, will give to the involved ministries and government bodies. Issues that will not be included in these instructions can be preliminarily discussed at the meeting of the Council on Timber Industry Development. We will look at these issues once again, examine and discuss them and will then possibly submit them to you so you can issue corresponding instructions or to the government presidium for approval. I think this is possible.

I strongly believe that we have had a very substantive and interesting discussion over these two days. Foreign investors are also interested, but I think that they have to make up their minds as soon as possible because Russian investors are also interested in developing this business in Russia with their own funds and with Vneshtorgbank's support, which has stepped up its work on investment projects. That's why I advise you to invest in Russia and not to drag this out.

  * * *

Prime Minister Vladimir Putin's closing remarks:

Ladies and gentlemen,

At the meeting yesterday we agreed to hold this round table. This discussion has been even more frank than yesterday's, and I appreciate that.

In closing, I'd like to highlight that this industry is critical for the economy because we have more resources than any other country.

The industry is facing a great deal of problems, but clearly we're moving in the right direction, and the 70 billion roubles invested in projects in the industry attest to this.

Yesterday we toured the construction sites for facilities that will begin operating late this year and early next year. These will be large modern production facilities. But these projects alone are not enough.

I met with you yesterday and today to discuss what else should be done to attract more investment in this very promising industry.

As I said, we'll sum up the proposals made yesterday and today, analyze them thoroughly and adopt the necessary resolutions to implement them. We'll keep in touch with you to alter what needs to be improved and do everything in our power to move forward with these initiatives.

It's been a pleasure to work with you. Thank you very much.


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