Vladimir Artanovsky: “Tyumen Region offers everything for investment projects"
Forestry today is one of the most promising directions for Tyumen Region economy development. Forest cover over 11 million hectares of land. The region demonstrates versatile industry forest usage ranging from timber harvesting to high-value product manufacturing. We discussed the Tyumen Region Forestry and investment project protentional with the Tyumen Region Forestry Department Head, Vladimir Artanovskiy.
Vladimir, people tend to believe that forestry is not the best area for making money due to production facilities low profitability. Do you agree with the statement?
I wouldn’t say that many people share this thought. We’ve already adopted a nice tradition in our forum and conduct annual “Technologies. Territories. Personnel.” Tyumen Investment Forum. Every year we register interest to the forest business. In 2016 10+ forestry investors arrived to our region. We discussed and reviewed a number of projects ranging from school furniture production to cellulose and timber processing facilities. We even had projects related to bioenergy business. Oversimplified forest harvesting companies – i.e. following the cut a tree and sell timber model – may not report a continuous financial stability and high profitability values. However, Tyumen Plywood Manufacturing Facility is a large and steadily developing production facility. Moreover, the facility annually increases its production capacity. Furthermore, the facility currently exports 75% of plywood. Both M&S business may run smoothly with the right approach. High-value wood products is mandatory in our daily life. This clearly means constant demand and steady market. In Tyumen we promote wood recycling within the region and do hope to achieve 100% recycling rate.
You’ve mentioned the M&S business. Forestry is challenging field that requires specific skills and technology. If we set various SMB achievements aside, what are the main challenges or problems that slow down the active development of the business?
First, we are trying to make Forestry industry transparent. It shall be clear to SMB. For instance, in 2015 Forestry Department, Economy Department, and Municipalities Development Council already included the Forestry development programs into their roadmaps. In its turn, the Tyumen Region Investment Agent Fund developed six typical business project with investment amount from 500,000 to 10,000,000 RUR. Any entrepreneur may use the fund. The entrepreneur will not have to waste any time on studies and calculations but will be able to get all the answers from these projects and select the most appropriate field.
Is there any demand for this?
Over the past two years SMB owners executed over 60 projects in the Tyumen Region Forestry sector. Most enterprises is engaged in timber harvesting and processing – 25 facilities. SMB also produces furniture, constructs houses, and pellets. Some companies process timber and produce wooden packing materials. The region is open to new fields. Nowadays, manufacturers show more interest in the “Scandinavian Model”, i.e. combining agriculture (spring-summer period) and wood sector (winter period). Six businesses already implement this model. And the interest is going up. Currently the Region accommodates some 400 forestry facilities.
Well, we’ve made the choice but now need funds to execute the project. Do you render any financial support to forestry business – existing or starting up in your region?
Forestry businesses may enjoy about ten different state support programs. The support program includes interest compensation on Credit Agreements, subsidies compensating some expenses related to investment projects, soft bank financing, subsidies to increase current assets, etc. Businesses may also enjoy decrease of regional income tax share as well as property tax, land and transport tax discount, investment loans. I would like to underline that investors in Tyumen Region get full administrative support in a great number of matters. This cuts down expenses by 20-30%. To start a sawmill today you need some 500,000 RUR. Existing state support programs make this possible even for rural area entrepreneurs.
How real is this support? May you give any specific case studies of successful forestry projects in your region?
Earlier I mention the interest of over 10 investors who want to develop forestry business. They visited the region, studied the conditions, and expressed their interest to set up production in our Region. We already discuss some project with the administration. Moreover, some of the project already received allocated areas. At least three large projects are ready to start the construction stage. To be specific: in 2016 business launched Varvara sawmill for high-quality timber, we also opened a new workshop for Istok Group of Companies in Setovo settlement of Tobolsk District. In Setovo the entrepreneurs started the smallwood recycling into pallets. CJSC Tyumen Forestry signed a Partnership Agreement in summer 2016. Now the region government shall provide the business with allocated timber supply area, plot of land, and will assist with utilities. The business plans to start construction of added-value wood processing facility in Tobolsk region in 2017. CJSC Rovial will go to life in Mugen settlement of Uvatsk district in 2017. The planned capacity is 70,000 m3 of raw wood per year. In Isetsk Disctrict we run preparatory activities for timber processing. These are few cases from the previous year.
You say the Region accommodates 400 existing production facilities of different size. Moreover, new businesses enter the region. However, we all know the raw material is key element for business. Do you think there is enough raw materials for everyone?
Forests cover 11 million hectares of Tyumen Region. This makes 71% of its territory. Moreover, the wood stock is 935 million m3. In other words, the possible annual allowable cutting rate is 16.4 million m3. Even if we sum up all the businesses we have the current cutting rate is 15-20% of the allowed one. Therefore, I am absolutely sure that Tyumen forestry suffers no deficiency or lack of raw products. However, the largest timber stock locates in Northern part of the Region and harvesting may be challenging. 1 million m3 of timber requires 100 km of wood track. This means significant expenses that small businesses may not cope with. Therefore, we negotiate with a number of large investors. However, when we create a 1 million m3 processing facility we may a noticeable multiplier affecting the SMB development. For every workplace at large enterprise we get six or eight workplaces in SMB.
What may attract a potential investor in Tyumen Region forestry?
Now the region offers splendid opportunities for forestry business. Large businesses may find their way in cellulose and paper industry, stab production (slywood, chipboard), bioethanol and other forest chemical industry. I also note great potential in bioenergy, slywood, furniture, timber, wooden packs, joinery, wooden housing. This is not just a list of areas. I am talking about promising fields that has everything required for profitable investment. Let’s take slab production, for instance. Tyumen Region is reach in low-grade wood. Moreover, current facilities generate up to 0.7 million m3 unprocessed wastes that may be used as raw material. The region features large furniture manufacturers. The region geography opens Ural, Sibiria, Federal, Northern, Kazakhstan markets. Even the Southern part of the region offers significant market. The region is No. 1 in accommodation construction in Russia: 2014-2020 the region will construct 14 million m2 of living premises, private housing projects will make 6 million m2.
Cooperation is yet another underestimated element of the Russian economy. Moreover, the Forestry may efficiently interact with other fields and industries. Tyumen region has already demonstrated the significant effect of such links and relations. Furniture and construction is only one example. The region actively implements end-to-end apartment construction model, i.e. the apartment is sold with furniture. As of today, the companies have already sold over 1000 apartments using the model. Wood and agriculture: construction of a large number of inexpensive farms. Wooden trays and enterprises: we’ve been actively promoting this field for about two years. Current market demand for wood pallets is at least 1.3 million items. We expect the demand to increase to 3 million items in four years. In cash the market accounts for some 1.5 billion RUR. World is now heading towards wood and polymer composite materials, i.e. for garden furniture, doors, etc. Retailers sell the material at up to 100,000 RUR/m3. There are many other ways of using wood in city environment and food production – birch tree syrup, etc.
We have the idea, calculations, perspectives, market, raw materials, financial and administrative support, so we launch the project and it shall be up and running. However, we need personnel. You may recall many experts believe that we have HR deficit in Forestry. What do you do in this regard?
Personnel preparation is crucial and challenging matter. We pay specific attention to it in Tyumen Region and managed to start up a trend to increasing the number of competent and ready-to-work experts. For some ten years the region has been running a continuous forestry education program. We start the education from school and it runs for the experts’ lifetime. School forestry units is starting point for the ever-going forestry education. From early years children interact with our experts who engage them into some hand-on experience. They already know how to fulfill different forestry activities, visit facilities, and take part in various contests. This enables us to form the most important asset – interest to the profession. Forestry education in Tyumen is harvested by Northern Trans-Ural State Agricultural University and Tyumen Forestry Technical School. I’d like to say a few words about the latter. The Technical School currently trains 15 different types of experts and offers over 60 blue-collar jobs – tree feller, wood processing machine operator, tractor operator, automated processing line operator, etc. Modern material and technical base enables students to improve their practical skills all year round. Moreover, the school offers flexible training program. The industry receives new technologies and processes and the school incorporates everything. The Tyumen Technical School has concluded 45 contracts with employers that may change the training program depending on their needs and demands. Furthermore, 100% of all trainees and teachers go for annual training to forestry facilities. We also develop dual education, i.e. graduates will not need any time to understand the process. As soon as the graduate comes to work he or she may start working immediately and generate value and result. Therefore, Tyumen Region offers wonderful perspectives to forestry business – both for starting new and expanding existing ones.