RUSSIAN FEDERATION

All-Russian Research Institute of Pulp and Paper Industry
St Petersburg State Technological University of Plant Polymers

Forest, pulp and paper industry - 2000

In 2000 the output of pulp and paper products progressively increased in the Russian Federation. The output growth in 2000 was as follows (as against 1999):

- pulp after cooking - by 17.4 percent (30.7 percent in1999);
- market pulp - by 16.2 percent (27 percent in 1999);
- paper and paperboard - by 17.5 percent (25.1 percent in1999);

which included:

- all paper grades - by 12.5 percent (20.2 percent in1999);
- newsprint - by 4.7 percent (16.2 percent in 1999);
- all board grades - by 21.3 percent (35.7 percent in 1999).

This significant increase in pulp and paper output was observed in spite of the overall economic upturn that is in progress in the Russian Federation. The GDP increased by 7.6 percent during 2000 instead of 5 percent as expected.

General economic and political situation in the country

In 1999-2000 important economic and political changes have taken place in the Russian Federation. However, in general, it can be said that there has been some considerable political stabilization and a possible beginning of an economic one.

In mid-2000, seven Federal Areas have been formed in the Russian Federation. This has become one stage of political stabilization and consolidation of `power vertical line'. There are 89 subjects of Federation: these are republics, regions and territories. There are also two special subjects such as Moscow and Saint Petersburg megalopolises. Their heads (Governors, Presidents of Republics), elected directly by the inhabitants, were members (together with leaders of Legislative Assemblies of the subjects of Federation) of the Upper Chamber of the supreme legislative organ of the country (the Federal Assembly) - the Council of Federation. However, their place in the Council of Federation will be occupied in the future by representatives of heads of subjects of the Federation.

The President has appointed his representatives in seven new Federal Areas, with each incorporating 10-15 subjects of Federation.

The North-Western Federal Area, for example, comprises a number of subjects, which occupy a special position in the Russian Federation Forest Industrial Complex. Among these are: Saint Petersburg city, the Leningrad and the Arkhangelsk regions as well as the Pskov, the Novgorod and the Kaliningrad regions, and Karelia and Komi Republics. Forest potential of the North-Western Federal Area is the basis for both existing enterprises of the Forest Industrial Complex and their reconstruction and for further development of the Complex based on construction of new mills.

The North-Western Federal Area with its economically sound geographical location (in particular, as to exports of timber and convertibles) offers a number of unique advantages:

- possesses most of the share of forests of the European part of the Russian Federation;

- major pulp and paper mills and forestry complexes accounting for 70-90 percent of the pulp and paper products made in the European part of the Russian Federation are located in this area;

- main scientific potential of the pulp and paper industry (leading universities and sector research institutes) is concentrated at this area;

- major sea ports are located in this area; they make possible large-scale exports of timber, pulp and paper products.

By late 2000, the Russian Federation reached a more or less complete political stability.

After a severe political, economic and financial crisis suffered in autumn 1998, the Russian Federation economy not only stopped its recession in 1999 but became more brisk as well. Instead of the forecasted reduction in GDP by 7 percent in 1999, there has been its estimated growth by 7-8 percent (according to different estimates, the growth has ranged from 4.5 percent to 14 percent) and there has been an increase in GDP by 7.6 percent in 2000.

In recent years profound political and economic changes have taken place in the Russian Federation. It became a democratic open country. Large-scale privatization has taken place and transition to a market economy is being realized. However, for a number of reasons this transition has been accompanied by a slump in the economy of the Russian Federation. Industrial production has been drastically curtailed (in several times). As late as 1999, the setback of industrial production has been brought to a stop and its growth has begun.

Some economists believe there will be an economic explosion in the Russian Federation in the next two-three years.

The Russian Federation transition from a centralized, planned to a market economy was accompanied by a long-term recession with alternating periods of stability and depression. In summer 1998, a bank crisis has taken place in the Russian Federation when six major banks of the country stopped paying deposits. The dollar rate (that did not show any variations during the previous 18 months and was in so-called rather narrow `currency gap') rose more than three times - from R 6 to R 22 per US dollar - during the period from mid-August till late 1998.

During 1999, the dollar rate has been changed much less than during the last four months of 1998 - from R 22 to R 26.5 per US dollar, and during 2000 it was in the range of R 26.5 to R 28.8 per US dollar.

The variations of dollar/rouble exchange rate of late 1998 and 1999 changed radically the competitive capacity of imported and Russian goods and contributed to development of the manufacture of Russian goods, which began to supplant imports in the Russian market.

A considerable rise of oil prices (oil is one basic constituent of Russian exports) contributed also to the economic stability in the Russian Federation.

Situation of the forest, pulp and paper industries

In 1999-2000 the majority of the Russian forest, pulp and paper enterprises have increased their output and raised their profitability. Both their adaptation to market conditions and the change in the dollar exchange rate are responsible for this fact. Once cost of pulp and paper products in rouble terms was changed three to four times, there was an increase in their production cost only by the factor of 1.5-2.

Preliminary data regarding consumption, production, and exports of pulp, paper and forest products in 1999-2000 and their comparison are given in the tables that follow.

The certain trends towards stability, which were evident in 1998, have been boosted in the forest, pulp and paper industry in 1999-2000. The output of key pulp and paper products has increased by 20-30 percent. The first positive results of privatization and realization of investment programmes have emerged. Structural reorganization of the industry proceeds and the pulp and paper industry of the Russian Federation has become export-oriented. A share of sulfite pulp output has been reduced. There was a drastic increase in A4 cut-size office paper production that made it possible to reduce significantly imports of this paper grade. The newsprint output is really on the level of 1988-89 or of its peak and it can be said that newsprint mills are in full operation.

Outlook for the future

As compared to other sectors of the Russian economy, the pulp and paper industry offers a number of advantages, which allowed to stabilize the situation in the sector in 1999-2000 and created prerequisites for its fast growth in the near future.

In 2001 it is planned to hold three international scientific and practical conferences in the framework of the UN-ECE (United Nations Economic Commission for Europe) project for development of the Russian forest sector: `Sustainable Development and Certification in the Russian Forest Industry', Saint Petersburg, 5-6 March 2001; `Sustainable Development and Biofuel Utilization in the Russian Forestry Complex', Saint Petersburg, 1-2 July 2001; and `Sustainable Development and Logistics Issues in the Russian Forestry Complex' Saint Petersburg, 10-11 December 2001. A conference will also be held on regional aspects of the Kyoto Protocol in Arkhangelsk from 28 February to 2 March 2001.

Issues of particular interest

Environmental aspects such as carbon sequestration and substitution (Kyoto Protocol)

As applied to the Russian Forestry Complex, implementation of the Kyoto Protocol concerns:

- rise in forest productivity;
- reduction in the transportation a distance of timber and wood residue;
- increase in the intensity of wood processing in the immediate region of trees growing;
- increase of the share of plant fuel in the total power balance;
- transition to resource-saving and, in particular, power-saving technologies.

The first of these points directly relates to the problem of sustainable forest management. While the estimated cutting area in the Russian Federation is about 540 million m³ a year, tree harvesting has never been more than 300-350 million m³. As a result of the economic recession of the 1990s, tree harvesting dropped to 82 million m³ in 1997 and to 75 million m³ in 1998. In other words, no more than 20 percent of the allowable cut is really being used presently. The Russian Federation not only possesses a quarter of the world's forest resources but it is also located geographically in the northern hemisphere where the greater part of fossil fuel consumption takes place (west European countries, United States of America, Japan). Russian forests, therefore, play a very important part in maintaining sustainability of the ecosystem. This is one of the most important factors for intensifying forest management in the Russian Federation.

Currently, the intensity of tree growth in Russian forests is 1.5 m³/ha/year for coniferous species and 2.5-3.0 m³/ha/year for leaf species. From the point of view of global climate change, increased productivity of Russian forests and the more efficient use of their wood in manufacturing of both pulp and paper products and biomass is of no lesser importance than the development of healthy growth plantations in Latin America or in the Asia-Pacific region.

The reduction in tree harvesting is not only a Russian problem as it concerns climate change all over the northern hemisphere. Intensity of tree growth in Russian forests could really be doubled, and this would have a major favourable impact in preventing climate change in the northern hemisphere. However, implementation of such a programme would require major investment (many billions of dollars) into the Russian Forestry Industrial Complex, proper attention from the world's financial institutions, and the political and economic stability in the Russian Federation.

Thus, in the context of sustainable development and global warming, there is a mutual relationship between the development of the Russian Forestry Complex and large-scale investment from international financial structures. The fact is that, in the coming decades, the political and economic situation in the Russian Federation will influence significantly the environmental situation at a global level.

It is worthwhile to consider here one more aspect of the Kyoto Protocol. In the context of the global carbon dioxide balance and prevention of the `greenhouse effect', it makes far more sense to process wood as close as possible to where it is grown rather than to export roundwood from the Russian Federation. In this case, transport costs and power consumed to transport the wood are sharply reduced. Besides, the place where carbon dioxide is emitted - a processing plant - approaches as near as possible to the place where these emissions can be absorbed - a forest. This points to the advisability of making environmental estimation of the Russian timber export structure along with the intensive development of the Russian pulp and paper industry and of the mills where wood is subject to mechanical processing. At the same time, the analysis of structure of the Russian forest exports (table below) shows that rough timber exports are dominant (36.3 percent in 1999), with their increase even taken place, as compared to the 1998 level of (31 percent). Of special note is the fact that Finland, with almost 40 percent of the total exports of forest products, occupies the first position among importers of Russian timber. In the context of the Kyoto Protocol and macroeconomy, intensive processing, both mechanical and chemical, of wood directly in the Russian Federation is more promising. This calls for investments into the Forestry Complex. The North-Western Area and, first of all, the Leningrad region are preferable for the investment. However, even here rough timber has been the prevailing type of exports in 1999-2000.

Exports of timber, pulp and paper products in 1998 and 1999

Construction of new ports in the Leningrad area, in the regions of Ust-Luga and Vyborg, and expansion of the St Petersburg port, open up opportunities not only to develop new logistics schemes of carriage of timber cargoes but also to construct large modern timber processing mills which would export both sawlog and the products of more extended timber processing.

As noted above, such decision would be appropriate, both in the context of the Kyoto Protocol and for reasons of creation of new jobs in the country. The Russian Federation is known to have a rather high scientific and engineering potential, which could provide intensive development of the processes of extended timber conversion. The political and economic stability in the Russian Federation produces presently the favourable conditions for investments as well as for import of up-to-date technologies into the country. Taking into account that the level of remuneration of labour will remain significantly lower in the Russian Federation than in west European countries, it would be quite promising to export the products of extended wood processing from the Russian Federation.

Thus, in the context of Kyoto Protocol implementation, it is advisable not only to increase felling volume in the Russian Federation but also to achieve better wood processing next to where it is grown. In so doing, an increasing wood residue output at the woodworking and pulp and paper mills is obtained. Besides, in the context of sustainable forest management, industrial wood and pulpwood logging must be accompanied by firewood logging and logging waste utilization. All the above measures extend considerably the biofuel raw material base both in case it is utilized directly in the region and also if it is exported.

The current prices for gas on the Russian domestic market differ from those on world markets and from export prices for the Russian gas by approximately a factor of ten. Because of this, a significant increase is being planned in prices for gas on the Russian market in a short time (they will be approximately doubled in a year) and, in prospect, they will be equal to the world ones. The increase in domestic prices for gas fuel results in considerable changes in biofuel competitive capacity and just in a short time wood will be quite a competitive type of fuel in the north-western region of the Russian Federation.

The forecast of development of the Russian power sector presented at the Saint Petersburg Economic Forum (June 2000) provides for 8-20-fold increase in utilization of unconventional renewable power resources under favourable conditions. However, in our opinion, these figures are inadequate to the biofuel potential which is really available in the Russian Federation and, first of all, in its north-western region.

In the Russian Federation, the use of wood as a fuel is in conformity with the Russian mentality and its historical traditions. However, conversion of the existing boiler-houses to woodfuel involves major technical and economic reorganization but this problem could be overcome.

A number of Russian pulp and paper mills increase a share of wood waste in their power balance. For example, the Arkhangelsk Pulp and Paper Mill made a fundamental reconstruction of its bark boiler; the Svetogorsk Mill (International Paper Company) scheduled to start up a new bark boiler of a capacity of 150 tonnes of steam per hour in summer 2001.

Forest certification issues

In recent years, intensive work has been done for certifying the Forest Complex production to comply with the ISO 9000 system. For example, in summer 2000 the certificate of conformity with the ISO 9001 has been issued to the IP Svetogorsk Mill. The Saint Petersburg GOZNAK Paper Mill has been accredited in accordance with the ISO 9001 in December 2000. Similar work is being done at a number of other enterprises.

The issue of forest certification is considerably more complicated. In 1999, the Russian Federation brought into effect the obligatory certification for cut wood. Unfortunately, this system differs from most of the other international and national systems, as it is obligatory and is effected by the state bodies, which manage forests, rather than by a third independent party. At the same time, representatives from the scientific and industrial sector realize that it is necessary for the Russian Federation to develop such forest certification systems, which are compatible with the international ones.

A number of international workshops on forest certification have been held where forest certification schemes such as ISO 14000, Forest Stewardship Council (FSC) and Pan European Forest Certification Scheme (PEFC) have been discussed. For example, in December 1999, the UN Economic Commission for Europe together with the Section of Forest Sciences of the Russian Academy of Natural Sciences, the Section of Forestry Technologies of the Russian Engineering Academy, the Ministry of Science and Technologies of the Russian Federation, the Government of the Leningrad Region and the St Petersburg University of Plant Polymers have held a special workshop on forest certification. The next similar workshop is scheduled to be held in March 2001.

In September 2000, within the framework of the Lesdrevmach-2000 and PapFor 2000 Exhibitions, the Finnish Council for Forest Certification has held in Moscow and in Saint Petersburg the special-purpose workshops: "Today's Forest Certification in Europe", where the special matrix for comparison of all existing certification methods published by CEPI in April 2000 has been considered among other things.

The FSC forest certification scheme supporters are also rather active in the Russian Federation. In the next years about 1 million ha of forests are planned to be certified according to this scheme.

A start has been made for a number of pilot projects on forest certification according to different schemes. Presently, realization of the pilot projects and comparative analysis of their compatibility and suitability for Russian conditions are among the primary tasks.

Pulp, paper and board output in January-December (thousand tonnes)

Exports of market pulp, paper and board in the former USSR (1980-1990)
and in the Russian Federation (1993-1999)

Source: Gascomstat of the former USSR, PPB-express, and author's data handling