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. Last Updated: 07/27/2016

Timber Producers Edgy As Customs Duty Looms

Foreign timber producers are not rushing to establish processing facilities in Russia before prohibitive new customs duties on raw timber take effect, First Deputy Prime Minister Sergei Ivanov lamented Thursday.

Russia, which has the world's largest forests, has primarily exported unprocessed timber to neighboring Finland, Sweden and China. The higher export duties ordered by President Vladimir Putin last year to promote domestic processing will take effect July 1 and will be further hiked over the next two years.

Finnish and Swedish timber producers have not come in droves to invest in Russian processing plants, Ivanov said at a Cabinet session dedicated to the industry. Russia has yet to implement its new Forestry Code, which came into force at the start of the year, or make the new rules clear to potential investors, he said.

If foreign investors are not attracted soon, Russian logging firms will face overproduction in 2009 when export duties will reach their peak, Ivanov said.

Zakhar Smushkin, chairman of Ilim Pulp, said in a statement Thursday that the country's current annual exports of 50 million cubic meters of timber would no longer be profitable under the new export duties.

Asked why Finnish companies were being slow to invest in Russian paper mills and other processing facilities, Anneli Kotonen, director for Russian affairs at the Finnish Forest Industries Federation, said, "You have a new Forestry Code."

Under the new code, government officials across the country are required to survey existing timber resources and map out woodland boundaries by the end of this year. Natural Resources Minister Yury Trutnev on Thursday proposed to push back the deadline until the end of next year.

Only woodlands already surveyed can be made available for development, ministers said at the Cabinet meeting.

Problems facing investors in the Russian timber industry include a lack of access to unprocessed timber, a scarcity of roads and a multilayered bureaucracy, Finland's UPM-Kymmene, which has assets in Russia, said in a statement.

Finnish timber producer Stora Enso, which is building a new packaging plant south of Moscow, said it was looking at possible further investments in the country, executive vice president Kari Vainio said by telephone from London. The company praised the new Forestry Code, saying it gives companies better opportunities for securing unprocessed timber, he said.

Trutnev warned that some exporters would try to outsmart the authorities to evade duties. By carrying out light processing, such as debarking logs, such exporters claim they are not subject to the duties, Trutnev said.

Under a February government decree, export duties will rise from 4 euros ($5.38) per cubic meter of unprocessed timber to at least 10 euros in July, 15 euros next year and 50 euros in 2009.