Russia looking to double lease terms of forest areas to attract investors
March 30, 2015 - The head of the Federal Forestry Agency of the Russian Federation, Ivan Valentik, would like to have lease terms with tenants increased from 49 to 98 years, as a way to increase investment in Russia’s forestry sector, according to an article published by Lesnaya Industriya, a Russian trade magazine for forestry sector professionals and businesses working in logging, woodworking, furniture production and wooden home construction.
Alexei Bogatyrev, CEO and founder of the Lesprom Network, says that the move to increase the leasing agreements is a good long-term measure that could create a positive effect for the industry in Russia, which is needed to increase investment in areas such as new resource roads and updated equipment for logging and sawmilling operations. However, in the short-term he doesn’t expect this to generate any major shifts on the international market.
“I don’t think this move will have an immediate effect on the Russian position of the world’s wood market,” said Bogatyrev. “To increase the supply of lumber on the international market, Russian companies need to increase production. Currently, no Russian companies are implementing the upgrading of facilities.”
He cited the position of the Russian Ruble and the lending rate of the Russian Central Bank – currently at 14 per cent – as the main hindrances to increased investment by Russian companies in the sector.
“The ideas of Russian state industry are very interesting,” he said. “In Russia, the forests belong to state, and companies have problems investing [under this arrangement]. Increasing the lease period will help companies to invest more in forest development and road construction, so it’s a good measure. In the long-term, we expect it will have a positive effect on the whole industry.”
The sectors that he expects would benefit the most from extending the leasing agreements with companies would be woodworking and logging, with increased investment in resource roads playing a major factor.
“We have a huge amount of forest, but not enough accessible forest,” he says. “We need to construct more roads to go farther into the forests. Once companies have forests leased for 100 years, it will be easier for them to invest.”
Image of Vologdaleskhoz sawmill operation in Vologda, Russia, courtesy of Lesprom Network.