1 Oct '08
St. Petersburg developer and furniture manufacturer Universalstroy has started implementation of a $353.6m project aimed at constructing a timber processing complex in Nizhny Novgorod region. The situation is evolving in such a way that Universalstroy, together with another long-standing aspirant to Nizhny’s wood resources, Finland’s Stora Enso, may soon get access to virtually all the region’s timber resources. Observers are beginning to question the government’s role in protecting enough forestland for local players.
Under the government’s wing
St. Petersburg developer and furniture manufacturer Universalstroy has announced a $353.6m investment in construction of a timber processing complex in Nizhny Novgorod Region.
The firm plans to launch logging facilities in 2010 with a capacity of 100,000 cubic-meters a year and then go into production of chipboards (400,000 cubic-meters a year) and laminate boards (360,000 cubic-meters a year) in 2011.
In the second half of 2011 Universalstroy intends to start processing dried lumber and producing synthetic resins, followed by the launch of plywood production by mid-2012.
This integrated timber processing complex is expected to churn out 750,000 cubic-meters of timber a year.
The project is being carried out by Universalstroy’s subsidiary Nov-LK in the Semyonovsky district of the region on a 1.12 million square-meter land site. The complex is expected to employ over 1,000 people.
This project has been given “priority status” by the regional Investment Council that allocated the land site for the project last fall. Their decision to fast track the complex stems from, among other things, the expected tax revenue once the factories are up and running (almost $30.8m a year).
Softwood is always the primary target in lumbering. According to regional forestry officials, almost 50% of the region’s territory is covered in woods (38,160 sq. km out of 76,900 sq. km of total acreage). Useable timber resources amount to 572.52 million cubic-meters. However, forest land that is authorized for lumbering is limited to only 5.9 million cubic-meters.
Official sources report that in the whole Volga Federal District only two-thirds of all woods are being actively exploited and processed. One of the key reasons for this inefficiency is that most lumbering operations are carried out in the central and south-western parts of the region as forests there are more easily accessed by transport.
But adding to the problem is the dearth of advanced timber processing facilities in the District.
Is there enough wood for everyone?
Nizhny Novgorod’s forests have been a magnet for investors for years. For example, international lumbering company Stora Enso has announced that it is doing due diligence on a project to build a large pulp and paper factory with a capacity of one million tons of pulp a year in the region. If completed, this project will devour an estimated 2.5 million cubic-meters of birch and 1.5 million cubic-meters of pine every year, according to sources.
All of this activity will put more pressure on regional investment officials to increase the lumbering quota. Although local producers are currently only using half the quota, the forecasted appetites of the two projects mentioned above will consume almost all of Nizhny Novgorod timber resources allowed for production.
According to Nov-LK’s data, 5.5 million cubic-meters of felled wood are required annually for industrial wood processing, without taking into account community needs. If we do consider these needs, this figure will exceed 6.5 million cubic-meters. So the current 5.9 million quota will have to be revised.
There are, of course, rich forests in neighboring regions and part of shortfall can be easily be made up there. Volga Paper, one of Russia’s leading exporters of newsprint paper, has a major factory in Balakhna, just 30 km from Nizhny Novgorod. Volga brings in 2.5 million cubic-meters of wood each year from outside the region to produce its newsprint.
Local players being squeezed out?
Not everyone is thrilled about big timber companies moving into the region. Yury Kochubeynik, director of the nonprofit Nizhny Novgorod Forest Complex, complains that Stora Enso intends to process exactly the kind of commercial timber (pine tree, birch), that the region lacks. To his mind, “the current wood shortage for domestic firms willing to do forestation is around 4.6 million cubic-meters.”
“Currently,” he continues, “the region simply does not have enough wood available for commercial purposes, in particular, due to the emergence of new investors that lease large forest areas. We are being asked to sacrifice all the wood in Nizhny Novgorod Region for the sake of improving Finnish paper quality,” Mr. Kochubeynik says.
Local timber operators are scrambling to get their share in the region, but according to Mr. Kochubeynik, their interests are not taken into account. As their advocate he believes that companies – members of his non-commercial partnership – have the willingness and the capacity to cope with the full quota by themselves if the government signs long-term lease agreements with them.
But as Mr. Kochubeynik complains in his interview to Kurs newspaper, “a regional program of allocating wood resources to local producers is a ghost.” Contracts with some firms are being terminated and their new applications are not being considered properly by authorities, he claims.
The timber director blames inadequate legislation as the root cause of the problem. A new Forestry Code, which came into force at the beginning of the year, in his opinion, only protects the interests of the timber giants.
Regional authorities need to make the playing field more level
Local producers are worried. Smaller and less efficient, they are facing escalating competition from larger, better financed players coming to the regional market. As a result, they feel sidelined and overlooked by the regional administration.
It’s too early to forecast how this conflict of interests in the Nizhny Novgorod region will play out. But the trends are clear. In the regional retail sector, for example, small businesses have long been dominated by large chains. If regional authorities continue to offer big incentives to lure in multi-nationals and set the rules of the forest management game arbitrarily, both local timber firms and Nizhny Novgorod’s forest treasure could be at real risk.
Svetlana Zabaluyeva, Senior Journalist