Extension of contracts will increase the term of the forest lease in Russia up to 98 years

March 3, 2016
Head of the Russian Federal Forestry Agency shares about Russia’s forested land use and the laws in place to protect them.

Interview with Ivan Valentik, Deputy Minister of Natural Resources and Ecology of the Russian Federation and Head of the Federal Forestry Agency.

Forests are a national asset. What are the main revenues and expenditures in managing this asset?

Forests are essential economic resources and an ecology that needs to be protected. This requires support from the state. The federal budget provides about 24 billion Rubles to its constituencies for this purpose. Individual regions also provide financing from their own budgets (about 8 billion Rubles in 2014). This amount has dropped slightly compared to previous years, due to the recent economic recession. The third source of financing comes from lessees.

These are paid to support the construction of infrastructure, forest protection and prevention of fires, and reforestation. Today, the burden of payment is also on forest users. Forest utilisation in the Russian Federation is subject to a charge in accordance with the law. For wood procurement, the rate is set at per harvesting volume unit.

For recreation or geological study, the rate is set for an area unit. The average rate of wood harvesting today in the Russian Federation is approximately RUB 30 per cubic meter. The rates are not high, compared to that of well developed forest industries, such as Finland, Sweden, Canada, and USA. However, the Russian Federation has its own uniqueness related to shipping, processing, and other expenditures that form the production cost. Hence the low per volume unit rate allows the business to be price competitive.

 Just how profitable can wooded lands be?

The highest potential lies in the recreational use of forests. The existing rules for recreational forest use are imperfect. For this reason, forest plots lack investment opportunities and many law violations have occurred. Sometimes, complete facilities have been constructed on forest plots under the veil of temporary structures. Now we need to adopt decisions aimed at improving the legal terms for using forests for recreational purposes.

These changes are now being developed. On behalf of the government, the Ministry of Natural Resources and Environment of the Russian Federation is developing a concept for improving recreational activity and a draft federal law for amending the Forestry Code. It is also necessary to consider the opinions of the citizens who have been traditionally living and using the forest in this territory, before developing these forested lands. Their consent is mandatory.

Other uses of state-funded forest lands include subsurface resources management, construction and operation of infrastructure facilities. These must also be developed in accordance with the natural resources utilisation principles.

What were the most significant events in 2014?

The event that affected the whole forestry sector was the implementation of Federal Law No. 415, ‘On State Registration and Regulation of Logging’. This is a very important law, in my opinion. Of course, it will not solve all the problems related to illegal logging. In Russia, the volume of actually cut timber has never been taken into account, accompanying documents have never been required for shipping, marking valuable species has never required, and the timber turnover has never been controlled in the context of declaring all transactions related to wood.

By implementing these requirements, 415-FZ establishes the legal background for developing a normal legitimate market of cut timber. We already see some results, for example, the volume of wood citizens prepare for their own needs has decreased significantly. The consumption rate remains almost the same; but now we realise that the wood that was formerly sold to major corporations has also declined.

What difficulties did you encounter in implementing this law?

Initially, some misunderstanding and resistance from the business community. But the work group we created managed to defuse the tension. This included businessmen and specialists from expert organisations. All regulations in place today are a result of a concerted effort between entrepreneurs, the expert community, nongovernment organisations, and the government.

How do you assess the efficiency of the regional agencies in exercising their powers over forestry affairs, which was recently transferred to them?

These powers are mainly exercised in a proper manner. But at the same time, some constituencies such as the Primorye Territory, the Irkutsk Region, the Republic of Tyva, and the Zabaikalye Territory have failed to do so properly. In 2015, some personnel changes were made in these regions. We keep an eye on these constituencies especially during dry periods as forest fires often occur. It is essential that forest management authorities in these regions are headed by competent professionals.

In addition, we devote special attention to field meetings. I personally conduct such meetings in almost every Federal District. It is very important for the heads of particular forest services and subordinates to understand the range of problems and the actual state of forestry affairs.

We constantly monitor constituencies and have our own instruments for this. For example, performance evaluation of measures for forest protection and regeneration, as well as remote monitoring over the forest usage. Starting 2015, we have a new type of monitoring: the state forest regeneration monitoring. Earlier, our approach was a qualitative assessment of implementing a particular stage (eg: soil preparation, forest plantation establishment, replenishment, weeding). Under the new monitoring approach, the main result and criterion of reforestation efficiency will meet certain requirements.

At the start of 2015, the Federal Agency entered into a number of forest utilisation agreements with the regions. What are these agreements aimed at?

My basic concept of forest administration development in Russia rests upon the necessity to consider regional peculiarities. In fact, rules and standards for forest exploitation, reforestation, and fire protection existed even in the time of USSR. Unfortunately, the statutory regulations adopted within the Forestry Code implementation do not make allowance for forest management peculiarities in each specific territory.

It is very important to consider the forest sites and the socioeconomic status of each constituency. There is a classic understanding of forest in the dendrology as a geographical notion. Accordingly, each constituency should be able to independently form its forest policy. In 2013, the Russian Federation Government decree vested the national policy basics for protection and regeneration of forests.

Now, each region must define the priorities within their own programmes. This allows a territory to develop in its own unique way. At the same time, these developments are fully in line with the intensive wood exploitation transfer model vested in the national policy basics.

The Forestry Code also provides for the approval of regional standards for utilisation, protection and regeneration of forests. My colleagues and I carry out this work, analysing the peculiarities with scientific organisations and forestry universities. For example, the Ural State Forest Engineering University is developing programmes for forestry development. This work is carried out at the municipal district level. Such fragmentation is essential for developing a higher quality forest management model. Accordingly, the social and the economic benefits will be quite different.

What is the level of interest foreign investors have for Russian forests?

Interest in Russian forests has always been high. For example, China recently started a large wood processing complex in the Tomsk Region and in Ufa, Republic of Bashkortostan. Finnish companies are also considering constructing pulp-and-paper plants in different Russian regions.

While foreign investors' interests may be high, Russian companies also consider the forest sector to be highly attractive. Not long ago, the Sveza Group decided to construct a cellulose fibre plant in the Vologda Region. The announced sum of investment is approximately $2 billion.

What is the impact of the economic recession on the forestry sector?

The economic recession was sparked by sanctions imposed on certain sectors in Russia. According to available data, this had no serious impact on the forestry sector; in fact, there was an increase in the wood export volume in 2015. There was a slight decrease in the import of wood and paper-based products, while the corresponding export volume of these products increased. With regard to the USD and EURO rates, roundwood and wood products exporters feel rather comfortable as the Ruble expenditures have not caught up with the increase of the world currency rates. For this reason, the forest industry was not affected by the recession. However there have been some difficulties securing loans from foreign banks.

2015 was rather tough , however. The sequestration amount for the state forestry development programme reached 10%. One significant measure is to introduce mature wood in non-leased territories into economic circulation. We are going to give government institutions the right to harvest wood under purchase and sale agreements at a minimum and sell it in the market at commercial rates. The price will be transparent, and conducted either via an exchange-traded mechanism or via public bidding. The funds obtained by such institutions will be used for the following: a) implementation of corresponding measures for forest protection and regeneration; b) salaries; c) other social protection for employees directly involved in forestry management. Other measures are aimed at supporting lessees. For instance, allowing them to pay in installments, or fixing prices for fuel and lubrication materials during a fire danger period.

What were the Federal Agency's most important plans?

The most essential task for us was finalising the issuance of the laws forming the so-called ‘business package’. The first one is the law on purchasing forest ranges for smalland- medium businesses. This law has already been introduced to the State Duma by the government. We do hope this law will be efficient and help smalland- medium businesses regain access to forest resources under purchase agreements. This law also requires state organisations to implement measures for the protection and regeneration of forests.

Because small-and-medium businesses are different from lessees, they will not be implementing forestry measures but cutting forest stands under purchase agreements. The price of a purchase agreement would have covered the standard expenses incurred for the execution of such works. The constituencies will set them at the regional level with respect to their conditions.

The second law is the extension of rental agreements for a new period with conscientious lessees. This will increase the industry's investment attractiveness. In this case, the rental period for a lessee can be extended from 49 up to 98 years. At the same time, the priority right will be preserved.

The third is the law on returning the system of forestry tenders for companies that carry out advanced wood processing. Now companies planning to implement a large-scale wood processing project can also participate in a tender for renting forest plots. As companies involved in advanced wood processing need resources, they must have an unconstrained and comprehensible advantage over those that simply cut trees and export roundwood.

Another law in the ‘business package’ also significantly reduces the duration of implementing forest protection measures from 240 days down to 45-50 days. Moreover, it is important for us to maintain forest resources under the conditions of reduced forestry financing. The first thing to do is protect forests against fires.

It is also important to develop another approach to solving the territory zoning issue according to manpower and resources. This year, we are going to withdraw from extinguishing the part of the territory without economic entities or residential areas. It comprises the northern districts of the Krasnoyarsk Region and the Republic of Sakha (Yakutia).

In fact, any region can distinguish such territories within itself in order to let the natural burning processes develop, as it has always been in nature, without causing harm to people. Forest regeneration is also a vital component. Our new function, the state forest regeneration monitoring, will contribute to this component. We are also trying to increase wages for forestry employees. The matter is brought up at federal meetings. Unfortunately, we keep losing this battle.


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