The current condition of this country’s “green lungs” is always causing heated debates in society. It has become a tradition in the past few years that the population of western Ukraine and environmentalists put down heavy springtime floods in this region to uncontrolled large-scale logging. Another debate was triggered recently by furniture producers who began to talk about a shortage of Ukrainian raw materials. Meanwhile, those who live in forest areas also claim that deforestation is rife. So The Day asked Viktor SIVETS, chair of the Ukrainian State Forest Resources Agency (Derzhlisagentstvo), to describe the real situation in this country’s forestry in an exclusive interview.
When are the two ministries going to finally transfer land to Derzhlisagentstvo? What area of the forests will be under your control after this?
“Discussions are still underway with the Ministry of Defence. We have already reached agreement with the Mi-nistry for Agrarian Policies and Food (MinAPK), and they are drawing up a resolution to transfer their woodlands under our control. So Derzhlisagentstvo will have 80-90 percent (against today’s 68 percent) of all Ukrainian forests under control by the end of 2011.”
What condition are these forests in?
“There is practically nothing to log there. Almost everything has been felled and destroyed. We are being given stump-studded fields. It will take considerable funds to restore forests in these areas. While an average stock of Derzhlisagentstvo-controlled forests is 200 cubic metes per hectare, it is only 80 cubic meters in the forests of these two mi-nistries. Incidentally, these two figures were almost equal in early 1991.”
Do the figures mean that these forests were logged illegally? Do you have any proven facts of illegal logging in the Defence Ministry- and MinAPK-controlled forests, which have been referred to prosecutors?
“I cannot say that all the trees were felled illegally. There are no facts of this kind today. Yet a lot of infractions have been recorded in these areas. We keep watching for illegal logging and referring the information on this kind of facts to the law-enforcement bodies.”
When is the agency going to finish taking the inventory of forests? And what is the purpose of it?
“Indeed, the agency is now taking an inventory of its cultivated lands. We are monitoring in detail – for the first time since 1995 – all the greenbelts in order to conclude what condition they are in, what the timber resource is, where sanitary work should be done, and where new trees should be planted. This work is necessary to improve Ukraine’s ‘green lungs.’”
And when will Ukraine see a consolidated list of artificial and natural users of forest resources, who are authorized to do wood harvesting? This would simplify combating illegal logging and lay the groundwork for organizing a Europe-oriented market.
“There is a list like this at the State Tax Administration of Ukraine (DPAU), but it would be wrong to call it a detailed one.
“When an enterprise is being launched, it can include any kind of activity, including wood harvesting, into its statute. But this does not mean that the entity is obliged to do this. So it is difficult to monitor everybody. Besides, it is difficult to control because somebody may do it covertly while somebody else overtly. Therefore, this kind of fighting against illegal logging is ineffective.
“A totally different system of control works in the world. To avoid illegal timber trafficking, they resort to electronic tagging. This works as follows: after the wood has been harvested, an electronic chip is inserted into every trunk, which carries information on the place of harvesting, cubic capacity, the team of workers, etc. This information goes to the central forestry department and to a specific forestry enterprise that turns out a certain batch of timber. So in this case it is very easy to keep track of a tree’s itinerary by just pushing a computer button and looking up these data. In case of no chip, we have a shadow market.”
“TEN REGIONS ARE GOING TO ADOPT THE ELECTRONIC WOOD TAGGING SYSTEM”
Do you mean a similar electronic system will appear in Ukraine in the nearest future?
“Zhytomyr oblast has already launched a pilot project: all forestry enterprises have acquired the required equipment and begun setting up the electronic wood tagging system. Ten oblasts will adopt this system by the end of 2011. I mean, first of all, Zakarpattia, Ivano-Frankivsk, Lviv, Chernivtsi, Zhytomyr, Rivne, Chernihiv, Poltava, Kyiv, and Vinnytsia oblasts. This will cost 25 million hryvnias.”
The idea is good and it works successfully in the world. However, according to the World Bank-funded survey, one third of Ukrainian forestry experts and entrepreneurs do not believe that it will be successful in Ukraine due to the rampant corruption in this country.
“There is no end to accusations of corruption. Of course, this may be happening from time to time, and the agency has been doing its utmost since the beginning of this year to eradicate corruption. But we have very few facts of this kind. As far as I know, law-enforcers have opened only four corruption cases over the past six months in the industry that employs 60,000 people.
“Corruption emerges when there are direct agreements between state-run forest enterprises and the entities that buy wood from them. This creates a temptation to buy what the documents will show as third-rate timber, pay money for it, and really supply it as first-rate, or else underrate the cubic capacity of the harvested timber per hectare of the forest. This is now dying out because all timber is sold via open auctions. So whoever pays the most will be the owner.
“The fact that this industry is working better is evidenced by its increased profits: in the first six months, the sales of wood harvested by state-run businesses rose by 41 percent. The net profit is about 2.4 billion hryvnias, which is 689 million more than at the same period of last year. Besides, for the sake of comparison, we have already handed over 306.1 million hryvnias to the state in 2011 – 32 million increase comparing with the 274.1 million hryvnias paid in 2010. Besides, contributions to the Unified Social Deposit have risen by 120.7 million hryvnias. So the forest enterprises have earned additional money to update their equipment and forest-planting appliances, plant trees, build new woodland roads, and purchase fuel. They also spend their own funds to control the bush fire situation.”
And what about the Ukrainian Specialized Forest Commodity Exchange which resumed its activities in late 2010 and became the center of scandal – for it in fact became the timber sales monopolist?
“Once I came, the agency dropped this practice and opted for the mechanism of open auctions. Today, the entire timber market applies the following pattern: every oblast has a specialized commodity exchange. It is a ground for selling the harvested wood to small-scale producers. And a specialized auction is held in Kyiv for large businesses which process at least 5,000 cubic meters of timber a month.”
“TWO THIRDS OF ILLEGAL LOGGINGS OCCUR IN COMMUNALLY-OWNED FORESTS”
So there is no longer such thing as the Ukrainian Specialized Forest Commodity Exchange?
“It may still exist, but I am sure it does not deal with wood sales.”
I have come across expert estimations that illegal logging accounts for one million cubic meters per year, or 12-20 percent of all the harvested wood. Do you agree with these figures?
“This is absolutely wrong. The figure is too big. If this were true, the market and the agency would immediately feel this. Still, undoubtedly, Ukraine does have a problem of illegal wood harvesting, which is especially acute in the communally-owned forests. These forests de jure belong to communities, but de facto nobody controls logging there. So the populace that resides next to these forests fells trees to get firewood or building material. Today, two thirds of illegal loggings occur in the communally-owned forests.
“Law-enforcement bodies officially claim that illegal harvesting in state-run forestry enterprises accounts for 0.5-1 percent of the overall annual wood-cutting. On the whole, about 15 million cubic meters of timber is logged in Ukraine every year (12 million by the State Forest Resources Agency and 3 million by the MinAPK and the Ministry of Defence). In other words, the annual illegal logging is about 150,000 cubic meters of wood. But it is not one million cubic meters.
“One more fact confirms that this is not so high a figure: 30 percent of Ukrainian timber (including items made of it) is exported abroad. This export is only possible if the entrepreneur shows a special certificate on the acquisition of timber or lumber at the border. Forged consignment notes are quickly identified at the border checkpoints. Therefore, it is no use doing illegal logging, only to be apprehended at the customs office.”
But it looks like an imperfect mechanism because even the European Union is going to introduce a new certificate in 2013, which will reflect the passage of timber at all stages – from harvesting to delivery to customers. Is Ukraine going to change the regulations?
“Introducing the electronic tagging of timber will help in this respect. This will show that the wood was felled legally.
“But we are not setting a goal to increase the sales of round timber abroad. On the contrary, the president has instructed us to develop domestic woodworking by attracting world-known brands of furniture-makers to Ukraine, who will build powerful wood-processing facilities. I think Ukraine will develop its woodworking capacity within 3-4 years and begin import timber from Russia, as it did in the Soviet era.”
“UKRAINE IS GOING TO BUILD FOUR WOODWORKING PLANTS IN TWO YEARS”
You mentioned investments. What amount do you expect to be invested in the forestry sector in 2011-2012? What investment projects are in the pipeline?
“Negotiations are in progress with some well-known furniture brand makers to encourage them to launch their woodworking businesses here. We will only be able to speak of concrete results when they buy out woodcutting areas and begin the construction. But I can still say that minimal investments in the construction of a woodworking plant are about 50 million euros. We expect at least 200-million-euro-worth investments in the woodworking sector within two years. This means four woodworking plants will be built in Ukraine in two years. This will give an impetus to build powerful international-brand furniture factories. I hope we will have a powerful woodworking industry in five years time.”
Let us get back to selling wood abroad. How much timber is Ukraine exporting today?
“Ukraine exports 28 percent of harvested wood annually, or 3.9 million cubic meters, the main buyers being Turkey, China, India, Germany, Austria, Hungary, Slovakia, and Poland. We mostly export finished pine-tree and hard timber (beech, hornbeam) items and auxiliary raw materials, such as brushwood and sawdust, which are used as fuel additives at thermal power plants. A cubic meter of unprocessed timber is sold at 482 hryvnias for export and at 272 hryvnias on the domestic market. The sales of wood abroad fetched revenues worth 360 million dollars in 2010, and we expect 520 million dollars in 2011.”
In other words, the domestic purchases of wood are on the wane?
“No, the scale of logging is on the rise, but also on the rise is the share of harvested wood sold at auctions to which domestic producers have a priority access. For example, an average 60 and 70 percent of all the put-up timber was bought out at regional auctions in the 1st and 2nd quarters of 2011, respectively, and we hope it will be 75 and 80 percent in the 3rd and 4th quarters.”
But Ukrainian furniture makers are saying there is a shortage of national raw materials.
“They are wrong. The whole amount of timber is openly auctioned off, the minimal size of a lot at a regional auction being 20 and 50 cubic meters. The auction mechanism provides that Ukrainian producers have a top-priority right to buy the wood harvested by forestry enterprises. The lots put up for an auction will only be cleared for export if they have not been sold.
“Now let us see who lacks Ukrainian wood. According to the State Statistics Committee, the woodworking sector’s output rose by 16.2 percent in the five months of 2011, the manufacture of woodchip boards by 25 percent, doors and windows by 35 percent, and furniture by 32 percent. So the businesses that are complaining of raw material shortage have shown a fantastic rise in output over the past five months. This raises a logical question: where do they take the raw material for this? I am sure they do not import crude timber from Russia because only Ukrainian businesses supply it.
“So there can be only one explanation: open auctions ruin the illegal circulation of timber and the schemes of making furniture out of the illegally felled wood. So woodworking is gradually becoming legal.
“This should be welcomed if this country really wants to join Europe. This is also a message to furniture factory owners, for many of them have similar businesses in Poland and Hungary. And the latter have long been purchasing raw materials at auctions only. But in those countries a cubic meter of timber costs 45-50 euros, while in Ukraine furniture makers used to buy ‘illegal timber’ for 10-15 dollars before auctions were introduced, and now they are doing this for 22 euros. For this reason, furniture makers are unwilling to pay a true price for legal timber. This is why they are clamoring about the death of woodworking, shortage of timber, and resumption of direct contacts with wood harvesters.”
“FORESTRY ENTERPRISES WILL NOT BE CUT IN NUMBER”
Reforms are being launched in all fields. What changes are in store for the forestry sector? Will the administrative reform touch state-run forest enterprises?
“There are a total 360 state-run forestry enterprises in Ukraine today, which employ 60,000 people. In my view, this is an optimal and historically-proved structure. In all the years of independence, this industry has seen no generous funding from the budget to be able to inflate its staff. So the current structure is optimal, and no reductions are being planned.
“Today, state-run enterprises harvest and deliver 60 percent of the total timber, the rest being done by private companies. The sector is gradually getting ready to transfer wood harvesting and delivery to private facilities at a certain payment.”
But why? It would be more logical to leave these cost-effective activities to state-run forestry enterprises which could thus be raising budget revenues.
“It is more beneficial for the state if a private entrepreneur is doing this job. Why? For example, harvesting one cubic meter costs a state-run enterprise 100 hryvnias (obsolete equipment, the number of the employed workers is larger than at a private facility, etc.), whereas the production expenses of a private company are 60 hryvnias.”
In other words, the state admits that it manages forests ineffectively?
“Not at all. It manages effectively, but a private entrepreneur will carry out harvesting more effectively. In Poland, the state does not deal with wood harvesting and delivery; it only exercises control and supervises sanitary logging. Our enterprises seek private firms through a bidding procedure, which will be authorized to cut wood. As a rule, the price of one cubic meter of the wood felled by private companies is lower: 70-60, not 100, hryvnias. Therefore, our state-run businesses can use the saved money to fund the planting of new trees, building roads, updating the equipment, etc.”
So Ukraine is going to use Poland as a role model in carrying out forest reforms?
“This may be true. Ukraine and Poland have a similar structure of forest areas. Like Ukrainians, the Poles employed about 100,000 workers [in the forestry sector – Ed.] in 1991. But today, as I have already said, it is private entrepreneurs who deal with the processing and delivery of timber in Poland, while 30,000 public-sector workers monitor logging in forestry. They also have a very effective forest security service.
“Today, Ukraine and Poland are felling 15 and 30 million cubic meters of wood respectively. The Polish output is higher because their forests have reached the age of maturity (80-120 years) and need to be replaced by other plantations. Ukraine will also be felling twice as many trees in five years because the forests planted after World War II will be mature by then.”
Am I right that the reform calls for reducing the share of wood to be harvested by state-run businesses? If so, what is the optimal ratio?
“In my view, the share of state-run and private forestry enterprises should be 30 and 70 percent of the total harvested timber respectively.”
What form of forest ownership do you think should be in Ukraine? For today, there is only a mechanism of temporary use, while neither the Forest Code nor the Land Code provides for such thing as leasing or selling woods.
“Ukraine has 10.5 million hectares of the forests that belong to the state. There will be no privatization of forests in the next few years, and they will remain as state property. And it is up to the Cabinet of Ministers to decide whether to allow long-term leasing of forests or changing their purpose, provided the parliament passes a law later this year on amendments to the Forest Code.”