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. Last Updated: 07/27/2016

Senators Approve Forest Code

The Federation Council voted Friday to adopt a new Forestry Code, intended to attract foreign investment to the lucrative wood-processing business.

The new code seeks to decentralize control over the country's forests, passing them into the hands of regional governments, Nikolai Kosarev, a Federation Council member, told journalists.

The law, which comes into effect Jan. 1 next year, also scraps compulsory auctions for investors to win the rights to a forest area, enabling regional executive branches to sign direct contracts with them.

"This boosts investment opportunities," said Kosarev, deputy head of the council's Natural Resources and Environment Committee.

He said, however, that the maximum tenure of lease for forests had been cut to 49 years from 99 years. "This period can still be reduced or extended," he said.

President Vladimir Putin said last month that the country should raise export duties on timber logs and cut import duties for wood-processing equipment to protect forests and promote domestic wood-processing.

Kosarev said none of the innovations proposed by Putin had become part of the new forestry code but that the government itself could still make the changes any time.

In October, on the day of Putin's appeal to diversify the country's wood processing, U.S.-based International Paper agreed to form a joint venture with Russia's leading forestry firm, Ilim Pulp.

The joint venture will produce annually 2.5 million tons of market pulp, uncoated papers and packaging for sale to the Russian and Chinese markets.

But Finland's Stora Enso, the world's leading paper and board maker, complained Thursday that plans to hike duties on timber exports were a further blow to the struggling industry.

"The situation is quite serious for Finnish companies. Competition is fierce, and if we get extra costs on the logs then there is no business opportunity any more," said Markku Pentikainen, an executive vice president at Stora Enso, at an EU-Russia business meeting Friday.

Finnish forestry companies are importing plenty of Russian timber to be used at Finnish mills, with some analysts estimating that 20 percent of raw material coming from Russia.

"If Russia becomes self-sufficient to process all these timber logs into saw-timber, then it will probably affect [Finnish] businessmen," Kosarev said. "The Finns are welcome to come and invest in Russia. Why not? They are most welcome."

"[But] it's still much easier to sell timber logs. ... There is a lack of investment to launch wood processing [in Russia]."

The country has one quarter of the world's forests by area. But investors have been slow to come to the country, instead buying its logs to process into paper and other products in their home countries.