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President Vladimir Putin: Good afternoon, dear colleagues,

I would like to discuss with you today the situation in the forestry sector and look at the development prospects for the timber industry.

We need to take a fundamental decision and adopt the Forestry Code. Today we have the opportunity to examine the whole range of issues we face in this sector. I think that we are entirely justified in meeting in this format. Key government ministers are present here today. Their ministries’ work will have an impact on how this sector develops. Also here are regional representatives, people directly involved in this sector. As I said, it is fitting that we meet in this format today considering that forests represent not just part of our natural wealth but are also one of our country’s biggest economic advantages. Competent use of our forest resources can and must provide high and sustainable revenues for our state and our citizens. Moreover, Russia’s forests are an environmental ‘shield’ not just for our country but for the entire planet.

Steps have been taken of late to draw up state policy in this area. In particular, we have adopted the Forestry Development Concept for 2003–2010 and the Main Timber Industry Development Priorities for the period through to 2015.

But so far these steps have only helped us make a start in resolving the problems that have built up. Last year, for example, forestry revenue almost doubled, and we have also finally managed to achieve a turnaround in forest regeneration after many years of negative results in this area.

We are also seeing some positive change in the timber industry, in particular as regards primary wood treatment and processing. The number of companies producing goods that can replace imported products, including companies making use of foreign investment, is growing.

We visited one such company today. This is without doubt a good company. The manager is here and has had a lot of interesting things to say. The company is clearly developing quite well. Investors and owners are putting considerable amounts of money into its growth and the company has good development plans. This is having a positive impact in the social sphere, too. The company pays decent wages – somewhere around 18,000 roubles, isn’t it? Yes. And most importantly, the company is set to develop further and is in the process of modernising its equipment.

But the overall situation in the sector has not undergone any real change. In this respect I would like to look at a few of the principal issues that I think require our urgent attention and action.

The situation remains not very optimistic overall, and this is above all due to problems that you are already well aware of. Take the issue of round timber, for example. We export this unprocessed wood in huge quantities. Russia’s share of the world wood products trade is less than three percent in terms of foreign currency earnings, but it is 22 percent for round timber. Our neighbours continue to make billions of dollars out of Russia’s forests. We, meanwhile, are doing little to develop our own wood products and timber processing industry.

We still have not put in place new customs tariffs regulations that would encourage the creation of processing companies on Russian soil rather than the export of unprocessed wood.

We export more wood than any other country, but this is in part the result of a purely wasteful approach to our natural resources. And this means that we are letting slip opportunities that we could have benefited from if we were to process timber here in our own country.

If we don’t develop our own processing facilities here in the Russian Federation we will just have to keep travelling along the same bad roads. After all, if we don’t develop our own industry, the money gained from timber processing will stay where it is now – beyond our borders. And it is there that taxes will be paid and there that wages will rise, while we will just supply the raw materials.

Improving the quality of our wood is another issue requiring our serious attention. You are well aware that the regeneration of certain types of forests is taking place at a very slow pace. We have managed to regenerate only 10 percent of the needed tree species.

At the exhibition just now I was shown what kind of work is being done in this area today. But this is still not enough. After seventy years of intensive logging it is clear that we will not be able to regenerate our conifer forests overnight. But we are not even trying as we should to resolve this problem. We are only now starting to look at the issue and it is still not considered a priority task, though a priority is exactly what it is.

Another issue was raised today that is very relevant to us now if we want to think about the future. Advanced countries are already effectively developing new forest regeneration technology. As one of our colleagues said, if these countries continue this work, we may soon find that no one even needs our big forests anymore. We have to think about this and we need to start now. Here too we need to make use of the latest technology. The forestry sector also requires a high-tech approach. We need to take urgent and specific measures in this respect. I would like to hear your proposals on this matter today.

Another very serious problem that I would like to mention today is illegal logging – barbaric poaching of our forest resources. Known cases of illegal logging alone cause losses of more than five billion roubles every year.

Just now I have been shown how space technology is being used in this area. This is a good step but I think that it is still not enough.

This is a problem that is international in dimension. Other countries buy illegally logged wood. Russia made a proposal at the 2004 UN Forum that international work begin to ensure the enforcement of laws in this area with the aim of mobilising international effort in order to join forces in combating illegal logging and the trade in this wood.

It is my firm belief that we need our own clear action plan today, an action plan that will enable us to take decisive measures against illegal logging and wood trading.

Yet another issue that calls for our attention is the problem of making our timber industry more effective. At the moment it accounts for only 1 percent of GDP.

As in the early 1990s, we still have some 30,000 companies working in this sector. Most of these are small-capacity enterprises that cannot carry out forestry regeneration and protection work and are even less able to develop their own infrastructure and produce high-value added wood products. There are not even enough companies performing even minimum processing.

We visited a company that prepares timber and we heard how they said they have so much wood stockpiled that they don’t know what to do with it all. Processing facilities are needed. We are desperately short of processing capacity.

The result is that, although we are rich in wood resources, our imports of wood and paper products are growing every year, paradoxical though this may seem, and has already reached a figure today of more than $3 billion.

That is how much we spend to import wood and paper products into Russia – the country with the biggest forestry resources in the world.

True, non-tariff barriers, administrative barriers and various pretexts are being used to keep our products out of other markets. And we, meanwhile, import $3 billion worth of products from abroad.

We are also lagging behind when it comes to applying new technology to the high-value added wood processing sector. One of the new directions in this area is the production of glulam constructions. We saw some examples of them at the exhibition. These kinds of constructions are being used effectively in other countries, too.

I would be happy to hear your thoughts on this matter and also on the use of wood in housing construction. Wood products account for less than 0.1 percent of the cubic metre of materials used per square metre of housing according to official data. This is a very low figure indeed considering that Russia is a country where wood was traditionally used in private sector housing construction. Other countries, in Europe and in North America, use a much higher percentage of wood in housing construction, even though we are the ones, you would think, who have this developed tradition of using wood.

I think that we can make our forestry sector and timber industry competitive only under the following conditions.

First – we need to put in place a serious legal foundation for the sector’s development, the cornerstone of which will be the new Forestry Code. As you know, this draft law has gone through only the first reading and has already sparked a lot of debate, criticism and discussion. Most important is that there is no policy consensus between the different ministries responsible for this work. I ask the ministers present today to iron out these contradictions quickly and find acceptable solutions.

Second – we need to encourage structural change in the sector. Countries with a developed forestry industry have a high degree of integration in this business. As I said, the forestry sector in our country is dominated by small companies. Of course, there is also a need for these small companies but they are not yet equipped to manage the transition from logging to establishing a developed processing industry. We need to help them and create the conditions that will enable large companies to emerge. We need to intensify their integration and propose favourable economic conditions to encourage this process.

Third – we need to create the conditions that will make the timber processing industry attractive to investors.

These issues are all interlinked. If we fail to deal with one of them we will fail to resolve the problem as a whole.

I propose that we discuss all these questions in detail today. I remind you that the government decided last November to prepare a draft targeted programme for developing high-value added timber processing capacity by March of this year.

The deadline has come but the draft programme is still in the process of being approved by the various ministries. This acts as a further brake on the sector’s development and is yet more proof of the very slow pace of change.

Dear colleagues,

I have outlined just some of the main problems that lie on the surface. In reality, we face many more issues. I propose that we have a frank discussion of all these problems today. Once again I note that is not by chance that we are meeting in this format because this is not just a sector of our economy but is a significant part of the lives of millions of people. Our forests are our national wealth and we need to give them care and attention, but at the same time we must not forget that they are also a part of our economy and need to be developed. Decisions in this area must be the product of careful thought and analysis, but they must be taken.