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The issues discussed include different aspects of state policy on the use, protection and rehabilitation of forests, the development of the timber industry and forest management.

Before the meeting, the President learned about the work of a number of logging and timber processing companies.

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Opening remarks at the State Council Presidium meeting on strengthening the timber sector of the Russian Federation

President of Russia Vladimir Putin: Good afternoon, colleagues,

The theme of our meeting today is strengthening Russia’s timber complex. As we know, Russia is the largest producer of timber products, and it is the highest forest cover country.

Forests cover 69% of its territory, which is a quarter of global forest cover. Russian forests are the most powerful green lungs of the earth, the most powerful green lungs of the planet. We can say that this is a key factor in maintaining the environmental balance of the planet.

This global importance of Russian forests augments our responsibility for its preservation and reproduction, especially as it is an ecological framework for the whole world, an enormous economic resource that is essential for economic growth and the prosperity and health of our citizens.

Today let us look at how we manage this resource. The State Council working group has issued a report that contains a detailed analysis of the timber industry. I will focus only on some important points.

Of key importance are the protection, conservation and rehabilitation of forests. I must say that today we do not have full and most importantly, reliable information about the amount and the quality of forest resources. Such information is available only on 19% of forest areas. One of the reasons for that is the protracted process of forest management decentralisation.

Under the new Forest Code, the responsibility for the protection and rehabilitation of forests has been transferred to the constituent entities of the Federation, but most regions did not tackle the development of forest plans with due attention and based them on generally outdated approaches. This has had some grave consequences.

The funding for forest management has decreased to a minimum, including for the assessment and management of forest lands. It became necessary to renew federal funding. In 2012, 300 million rubles [$10 million] were allocated for this purpose. As a result, work was conducted on 15 million hectares, which is slightly more than 1% of all Russian forests.

That is a very small share but before we increase the funding, we must analyse the use of the funds that have already been distributed and whether they were spent on top priority tasks.

The low level of forest management is due to the reduction by seven times of the number of people employed in this sector. Their average age is close to 60. We must take measures that encourage the inflow of young professionals in the industry. I should add that the number of fire protection personnel has decreased by 4.6 times compared to 2005.

I will come back to this matter but let me just say that I just visited two small timber companies, and no fire fighting services available to them at all except their own resources. They run around themselves, and that’s all the fire fighting services they have.

Dogmatism and corruption are thriving in forestry management because of the short-sighted, ill-conceived financial, staffing and management decisions. All this leads to the deterioration in the environmental safety and reduction in the forest area available for felling.

The imbalance between forestry and timber industry has not been addressed. Currently 20% of the forests have been leased for harvesting and processing timber. Moreover, the auctions’ organisation is not transparent. They are primarily won by companies close to the authorities and intermediaries. People living near forests often cannot lease them for their own needs and at an affordable price. They have to beg the local authorities, grovel, run around different offices and overpay. All of this is simply a manifestation of despotism.

At the same time, the tenants do not always fulfil their contractual obligations, to put it mildly. The felling sites often look lamentable: there is abandoned bark, branches and land scarred by heavy vehicles. Incidentally, we will talk about the transport and the roads separately. The leasing term (49 years) means that only one harvest of timber can be collected, and after that it is not clear what to do.

The forest must also be protected from illegal logging. In the past five years, it has increased by 66%, its volume is still huge, and there is no problem selling the stolen timber at all. Only 60% of such illegal logging sites are identified, whereas regions with intensive logging have 30% on average, but this information is incomplete. I think the real figures are actually even lower.

It turns out that the Federal Agency for Forestry and a number of regions have been submitting intentionally misleading information. The law enforcement agencies have been ineffective and sometimes they do nothing at all. Let us now discuss all these issues.

First of all it is crucial to establish an accurate monitoring system and introduce more severe penalties for those who are brutally destroying the forests. I can tell you that in 2012, more than 7,000 people have been charged with criminal and administrative offences for illegal logging. The damage amounted to 10 billion rubles [$33 million], and only 2% of that amount was recovered.

Colleagues, we must recognise that the enormous economic potential of the forest sector remains unused. Its contribution to the GDP is declining. For example, it was 2.3% in 2003, and only 1.6% today. At the same time, we have every opportunity to increase the state revenues by several times.

Our key tasks are to facilitate the establishment of timber processing enterprises, increase the capacity of the national timber and paper industry to make full use of low quality timber and waste materials, and begin the implementation of biotechnology projects.

In order to achieve a breakthrough, it is necessary to develop the industry’s scientific potential. Today, this area leaves much to be desired. The number of scientists employed in the sector has decreased by 50 times. Research teams are dispersed and fulfil only short-term orders. Stagnation in the industry’s science perpetuates our backward position in the global timber market.

We must also promote the investment attractiveness of the timber complex. There are plans to invest over 400 billion rubles in 118 projects that have received priority status. Currently only 26 projects are being implemented, and the rest remain on paper.

The project selection system prioritises large-scale production. However, let me stress that all timber processing companies are important, including small and medium-sized ones. They have a good, sometimes excellent, potential. Today, I had the opportunity to see this for myself when I visited two logging operators: Sergei Kukhtin and Sergei Tagmazyan. We must develop universal methods to support all businesses that are able to bring economic and social benefits.

We do not have such a mechanism at present, and the ones that we have are not working efficiently or not at all; some of them are absolutely counterproductive. I have already mentioned the fire fighting situation and the roads, and I will return to these matters in a minute. But how do they organise their sales? It’s a complete mystery.

I asked the two colleagues who, by the way, are present at our meeting, we have brought them along. The market situation is tough, the market is down a bit, that is the objective reality, but the problem here is that it is difficult to sell the goods. The tenders are organised, the Rosatom mining plant is nearby, so I asked them, ”Do you participate in tenders?“ They said they no longer participate because there is no point, they have no way to get through. The rules are such that they have nothing to do with reality.

Mr Kukhtin, what is your price when you sell to intermediaries?

Sergei Kukhtin: 2,000 rubles.

Vladimir Putin: And the intermediaries charge the mining plant 5,000 rubles?

Sergei Kukhtin: That’s right, 5,000.

Vladimir Putin: You know what my suggestion to you would be? You have a crazy working regime here. This should work automatically. Clearly, the market economy cannot function without intermediaries, but what is the result of these intermediaries’ involvement? I want to draw the attention of my colleagues in the Government and the Presidential Executive Office: you must return to these issues.

We have repeatedly discussed the problems associated with Law No. 94. It looks good on paper. In practice it brings about such a distorted situation when the mining plant pays an inflated price while the producers don't make any profit. Someone skims the cream off the top. What do we need that for?

Another reason for the inefficient use of forest resources is the lack of infrastructure, especially forest roads. These two colleagues have told me about this too. By the way, these roads are not accounted for, not even by the Federal State Statistics Service.

Businesses are ready to use their own resources as far as they can to improve the forest road infrastructure, but there are no regulations for attracting investment in this area, there is no mechanism of registering private roads built on Forest Fund land.

Meanwhile, the regions have their own road funds, which we established in addition to the Federal Road Fund.

Where is Mr Nagovitsin? What is the size of the Forest Fund?

Head of the Republic of Buryatia Vyacheslav Nagovitsin: We have a felling area of 8.5 million.

Vladimir Putin: No, sorry, how big is the Road Fund?

Vyacheslav Nagovitsin: Two billion.

Vladimir Putin: And in the Trans-Baikal Territory?

Acting Governor of the Trans-Baikal Territory Konstantin Ilkovsky: Four and a half billion, Mr President.

Vladimir Putin: Four and a half billion. You know, the law allows the establishment of municipal road funds. Moreover, no one can stop you from allocating some of the regional road fund’s money for the construction of forest roads.

We went for a drive and both logging operators told me that no forest roads are being built in their area. All businesses pay money into the road fund, but they then don’t get anything in return. So why don't you give this money back to them? Why don’t you allocate some of the money for these purposes where it is necessary, because not all areas need it, not all of them have forests. Why don't you spend the money where it is necessary, why don’t you establish municipal road funds and give them the necessary subsidies, even small amounts, as you told me yourself, at least 5%.

So do it. If the situation is such that 5% won’t resolve anything, you can submit your own proposals. We will think about adopting amendments to the regulatory framework. But you are not doing anything.

I would like to note that what we have here is the usual bureaucratic inefficiency. While the agencies are getting down to work, the businesses cannot make use of mature sections of the forest. The Government and businesses are suffering huge losses, including from the transportation of timber down impassable roads.

Let us now discuss all these issues calmly, without unnecessary emotions. I am sure that there are many problems at the federal level as well, and I will say more about this later. Let's discuss all these issues.

<…>

Vladimir Putin: Clearly, our forests are a very large, an enormous renewable resource, provided they are treated with care and used rationally and have a responsible and disciplined keeper. Our discussion today has demonstrated after just a few hours that unfortunately, neither government agencies nor business entities or structures apparently merit the high title of such a responsible keeper. Despite the new Forest Code, its constant improvement and various programmes, plans and projects, we are continuing to witness inert, inefficient forest development.

The issues that came up have a common theme, one common problem. And just now, our colleague who spoke about it stated quite clearly that these are outdated managerial decisions, which constantly hamper the process. He also mentioned some discrepancies, to put it lightly, in reports on unlawful felling. There are also other data speaking to the fact that the sector overall is in a critical state. Just look: the share of timber industry in Russia’s GDP, as I already mentioned in my opening remarks, has decreased by 7 percent. Foreign currency earnings from timber exports are down by 6 percent.

Incidentally, I’m not sure that timber export volumes have even gone down, but currency returns have declined. Tax proceeds and duties in the consolidated budget for the forest sector dropped by 32 percent. The average annual forest area destroyed by fires grew 1.6-fold compared to 2003–2007. The average annual volume of unlawful felling, as was mentioned, grew 1.6-fold, but in reality, judging by everything happening, the actual figures are much higher. Forest management fieldwork after the passing of the Forest Code dropped three-fold. The volume of forest restoration is 22.9 percent, down by 9 percent.

And finally, the fires that we spoke about. According to the data I have at my disposal – our colleague said that the difference is even more dramatic, but the data I have are fairly objective, from satellite monitoring – the area of forests destroyed by fires was 5.1 million hectares in 2011. And in 2012, this figure was 11 million hectares. According to Russia’s Federal Forestry Agency, those figures are 1.3 and 2.5, respectively. What does this mean? Is it really that hard to obtain these data? And you don’t have to use foreign satellites to get these data – we have enough of our own, at least for these purposes.

The cadastral work over the last five years has covered a total of 196 million hectares of forestland, of which over 70 percent are forest areas where timber harvesting is simply impossible for objective reasons (remoteness, low timber quality). According to my data, the Federal Forestry Agency spent over five billion rubles on these works. Meanwhile, the amount of federal budget funds spent over the same period on financing forest management activities, which are extremely important, was 30 times less – just 158.6 million rubles.

What does it mean? It means that in essence, the funds for forest management activities have actually been allocated by the government to the extent required, but the money was redirected to perform works that were more advantageous in terms of spending but at the same time were ultimately useless projects implemented in remote, underdeveloped regions where it was practically impossible to monitor their performance.

Clearly, the officials responsible for the development of our forest sector are not managing the tasks set before them. I think the Government needs to make corresponding personnel decisions as soon as possible. At the same time, reshuffling will not be enough to radically change the situation in the sector. We need a modern state forest policy overall, we need a clear action plan based on comprehensive, reliable information about the state of our forests. And most importantly, we need intensive, coordinated, honest, engaged work on the part of all agencies involved in the forest sector.

Suggestions were made here to create a separate department. I don’t know whether we need a separate department; there are always many arguments on this matter, but in any case, they need to be resolved structurally. This is a job for the Cabinet; I will agree with whatever the Prime Minister proposes. But even if we leave it within the Natural Resources and Environment Ministry, we need to organise our work in a proper way and give the department the corresponding powers. I hope that today’s discussion will provide a serious impetus for qualitative changes in the sector overall.

Thank you.