Visits within Russia

25 october, 2009 14:56

The Russian Prime Minister Vladimir Putin, on a working visit to St.Petersburg, has taken part in the Third Russian-Finnish Forestry Summit

Vladimir Putin's opening address:

Prime Minister Vanhanen,
Ladies and gentlemen,
I am glad to be able to welcome you all to St Petersburg.

Forums like the Russian-Finnish Forestry Summit undoubtedly enrich the relations between our countries and contribute to the direct dialogue between national governments, regional governments, the business and scientific communities, and environmental groups.

The partnership between Russia and Finland are a model for genuine, good neighbourly relations. This is also true of our political, business and cultural ties, especially since in 2008 Russia has again emerged as Finland's biggest foreign trading partner. The trust we have built up enables us to discuss the most complicated issues frankly and reach the best solutions for both our countries' benefit.

I believe that this summit will also help find new common ground with regard to the timber industry, which is a priority for both our countries. The importance of this industry for the Finnish economy is hard to overestimate. It is also important for Russia, especially its Northwestern, Siberian and Far Eastern regions. It is natural that our lumber companies now face strong cooperation. Such complementariness offers many benefits and competitive advantages.

At the same time, I would like to repeat what has already been said more than once: Russia, like any other country - and I would like to stress this point - cannot be content with merely supplying primary raw materials to the world market. I am referring to all kinds of raw materials, be they hydrocarbons, bio-resources, or timber.

Like any other country, Russia is interested in using its natural riches in the most effective and rational way. This is our strategic objective. We will tackle it by transforming our economy, making it less dependent on the export of commodities, and introducing advanced, innovative technologies. I must say that we find Finland's example very inspiring.

The new Russian Forestry Code, which came into force in 2007, has set transparent, market-oriented rules for the industry. They are based on environmental responsibility, equal access to resources, and incentives for those who invest in advanced timber processing. Such investors will receive tracts of forested land without auction.

We have simultaneously decided to phase in higher export duties for unprocessed lumber. I would like to stress that this is by no means an attempt to weaken the position of our competitors. It is a very natural and long overdue step towards a more modern and diversified economy. I am confident that such steps open up new opportunities both for us and for our traditional partners.

To be fair, one cannot but notice that we have given our foreign colleagues an excellent opportunity to expand their business. In effect, we have given them direct access to the Russian market and sent them a signal: come and build your facilities, create jobs, and work.

It is likewise clear that in the medium term demand for forestry products will grow, which means that constructing new production facilities in Russia will not create an alternative to the existing companies, including Finnish enterprises. I think there is enough room for everyone in this market.

True, we must take into account the current situation, of which I will say more in a minute. We are aware of what is happening in the world markets.

Our foreign partners, as a rule, are very sensitive to environmental issues and conservation. I agree with them entirely. In that sense the establishment of new, state-of-the-art enterprises in Russian regions will contribute to the responsible use of natural resources, help put an end to predatory exploitation of forests, and improve the environment not only in Russia, but in the whole north-west of the European continent. And this also holds for other parts of the world, for example the Far East.

At the same time we are well aware that it takes some time to modernise our own logging industry and for foreign companies to adapt to the new realities. That is why the increase of export duties on unprocessed lumber is continuing, and that is why all our decisions are absolutely transparent.

Our colleagues had nearly three years to adjust their development programmes, to prepare new investment and technological solutions, and to establish themselves in Russia. Many have availed themselves of this opportunity.

Seventy-five priority forestry investment projects worth 430 billion roubles have already been approved. They involve the processing of 68 million cubic metres of timber every year.

These are substantial figures. At the same time, as we understand only too well, the results could have been more impressive. But you also know the consequences of the global economic crisis, which has seriously affected the timber industry. This applies to all countries, including Russia.

Even so, we do not believe that the current problems are reason enough for giving up our plans for modernisation altogether, or for abandoning our commitment to scaling down the export of raw timber. I am speaking about our development strategy.

I understand that businesspeople expect me to tell them what we are going to do in the immediate future, and I will do so. But at this point I am speaking about our development strategy. We have always behaved honestly with regard to our partners. I would like to say for everyone to hear: we will not change our strategy.

Any other approach would run counter to the logic of our strategic course for rebuilding our economy and - this is also very important - would undermine Russia's reputation as a reliable partner.

I have already cited the number of investment projects underway in the timber industry. Each of them involves people, concrete enterprises, and companies that have come here knowing the terms of our development plans and development strategy, and have invested their money on these terms. And of course it would not be entirely fair to those who have made their decision and invested in the Russian economy if we changed the rules of the game under the pretext of the world economic crisis.

At the same time, wherever it is in keeping with the chosen strategy, we must be flexible and meet our traditional partners halfway while taking into account the situation in the world, including in neighbouring Finland.

As you will know, the Russian Government has already postponed the next increase of the export duties on unprocessed lumber. We are talking about duties that are prohibitive for all intents and purposes.

I have spoken about the current situation in the current market on two occasions. You know the situation. I have said that in the future there would be room enough in the world market for everyone, because demand will grow. However, for now it has fallen, and it is a fact that demand has shrunk. We are very well aware of this.

In this regard I can tell you that the moratorium on the increase of unprocessed lumber prices will be extended into next year, 2010. I believe a similar decision can be taken for 2011. But we will make a decision based on our analysis of the situation on world markets.

We hope that our foreign partners will use the additional breathing space judiciously - incidentally, this applies not only to foreign partners, but to our own logging industry as well - in order to expedite the implementation of their development projects and not appeal to the Russian Government to extend the moratorium year in and year out.

I am warning you, and I am saying this absolutely honestly, that we will go ahead with this, but we will not proceed blindly, oblivious to what is happening in the world. But the situation will change, and we will move to implement these plans. There is still time, and you can prepare yourself calmly for these steps.

We are ready to work to create favourable conditions for investment with regard to specific projects, above all the construction of new paper and pulp plants.

Ladies and gentlemen,

Finland's authority as a major player in the world timber market is unassailable. And very importantly, it applies not only to the quantity, but also to the quality of its products. I am referring to Finland's modern technologies, the advanced processing of raw materials, and advanced environmental programmes.
All these areas are extremely important for us. The experience of our Finnish partners and their advanced know-how will certainly be used in Russia.

I think it is in our mutual interests to shift the focus towards joint development of the markets in third-party countries, and to concentrate our resources on creating and promoting high-tech nanotechnology and biotechnology products in the timber industry. Ultimately, the future belongs to these technologies.

In conclusion I would like to express my hope that the summit will be a success and will find interesting ideas that will provide the basis for new, mutually beneficial projects.

Thank you.

* * * 

Vladimir Putin's closing remarks:

Ladies and Gentlemen,

What we have just heard is always in the focus of our attention. There is nothing here that we have not discussed in the last year or two. We discuss these problems at every one of our meetings, and we in the Russian Government revisit these issues almost every month.

Of course, we should work jointly to ensure that our product is competitive, that our companies in north-west Europe can hold our own against any producers, wherever they may be in the Amazon rain forests or here in north-west Europe.

Regarding the claim that enterprises are being shut down because of limited supply of cheap raw materials: I think this is only partly true, if at all. In reality this is just due to falling demand around the world. If we had flooded the market with cheap raw materials, the results would be hard to predict. Perhaps the result would have been even worse than what we see today. There would be a glut in the market, and the overproduction crisis would be even more painful.

At the same time we are listening to the arguments of our colleagues, and we will meet with Mr Vanhanen very soon. We will put our heads together to see what else can be done to expand the size of the raw materials that can be exported duty-free. At present it is 15 centimetres. I am aware of the experts' opinion. We have heard it and we have conferred with our governors. We will discuss this issue with Mr Vanhanen. This is my first comment.

The second has to do with what we in Russia must also do in order to support this industry. I fully agree with Mr Smushkin (Zakhar Smushkin is chairman of the board of directors of the Ilim Pulp Enterprise) and the other speakers who said that more attention needs to be paid to the development of infrastructure.

This is not only about roads, although roads, railways and waterways are important. A lot needs to be done in these areas because unfortunately the waterways are obstructed in many places, and not enough has been done on this issue. We will of course solve this problem. This is also about the power infrastructure, and we will also pay attention to this.

Finally, about credit resources. The work of VEB has already been mentioned here. Yet this is still direct intervention. We hope that all the measures the Russian Government is implementing to curb inflation will lead to decreased interest rates. That would be a truly beneficial not only for the timber industry, but for the economy at large.

I very much hope that this will be the case. These are not mere words. You know that we have set our target for inflation at 8-9%. This year it will probably be a little over 8%, after which we may cut it to 6% and then hopefully to 5%. Then interest rates will be acceptable. This is a target that can realistically be reached within the next three or four years.

And one more remark in response to Mr Smushkin's speech about the possible privatisation of the forests. We have made this decision. We are aware of the experience of other countries, including our neighbours. At the same time I would like to note that these countries have a long-established procedure for administering these matters.

We have decided that forests will be offered for long-term, commercial use, with the possibility of renewing the contract. I believe that this provides the legal framework for economic activity. It is a solid structure.

Now about privatisation. The speaker said that it should not be close to the cities. But if we bear in mind the previously mentioned problem, the lack of an adequate infrastructure, we shall see that it is the forests around cities and other communities that present the greatest interest.

Moreover, a colleague has just shown me what areas have received Finnish investment. They are outside Novgorod, outside Nizhny Novgorod, outside Petrozavodsk and outside St Petersburg. All activity is centred here. In the Far East, too, it is close to the population centres.

So privatisation would only make economic sense if it were allowed everywhere. This is a very difficult decision for us to make, because there are those who believe that if forests are allowed to be privatised, before we know it even air will be privatised and we will have to pay for air. So I agree with the speaker that we should proceed carefully and without haste.

I would like to repeat that we believe that the legal framework for economic activity has been provided by the Forestry Code, which allows long-term use of large tracts of the forest with the right to prolong the agreement.

As for your work, I think it is very useful. It merits attention and encouragement: such professional contacts, especially if they are marked by such a friendly atmosphere of partnership, yield good results.

Thank you very much for your attention. Once again, I wish you success.

* * *

During the conference Prime Minister Vladimir Putin answered a question from the audience.

Question: What about access to energy? What I see is that electricity is wasted, on the side, left and right. But neither the Forest Code, nor corporate law or anything else will help me if I don't have electricity. Thank you.

Vladimir Putin: Energy being "wasted on the side, left and right" - that's interesting. But this really is a serious problem. I absolutely agree with you. We will certainly look into this specific case. This is exactly what the Russian colleagues said in their presentations here, when they talked about infrastructure. I also mentioned it. Energy is one of the most important infrastructure components. Regarding your case, we will look into it separately.