Sverdlovsk Oblast Authorities Looking For Investor To Revive Timber Industry

22.03.2010 — Analysis

The Sverdlovsk Oblast officials decided to replace the proprietor of the OJSC Lobva, a sawn timber producer. The timber integrated plant is insolvent, cannot afford to buy raw materials, the company is comatose, having accumulated 15 million of debt in wages to its staff. The authorities suggested that Vladimir Oghibenin, the Manager of the multifunctional Magistral Ltd, to buy the enterprise and use it as the basis for building a plant that would produce Oriented Strand Board (OSB). The entrepreneur has earlier made a statement of his plans to create a production facility like this jointly with Canadians in another location. Officials managed to convince him to implement his project in Lobva.

The project, however, is in a very loose state so far - Magistral has no money to buy the bankrupt owner out and it is pointless to talk about investment resources before property issues have been settled. What was suggested as a transitional solution is Magistral renting the timber plant with the following buyout. The change of proprietor, according to Andrey Mekhrentsev, the Manager of the Department for the Timber Industry Sector of the Ministry for Industry and Science of the Sverdlovsk Oblast, will happen approximately in August.

The plant with the annual capacity of 200 thousand cubic metres of OSB, worth 100 million Euro, will not be the only enterprise in the new complex. It is planned to have here a complete cycle of timber processing, starting with sawing and ending with the production of timber frame prefab houses. Andrey Mekhrentsev, however, talks about the distant projects with caution; both the construction and the timber industries are not out of the pit of the crisis yet.

Experts reckon that the products of the new plan will be in demand. According to Vitaliy Strelkov, the Deputy Director of CJSC Science and Research Institute VNIIDREV, the production of OSB board in Russia has never been established, despite many statements of intent. The country imports 350 thousand cubic metres of OSB annually. In the future the market capacity may quadruple.

Sergei Basmanov, the Executive Director of the Urals Union of Timber Industry, however, is not predicting any serious growth in the consumption of timber boards in the nearest future as the construction of individual housing in the region is not well developed. Nevertheless the plant in Lobva must be built, according to the expert, the timber industry has no way of utilising deciduous wood timber. Before the soft wood of aspen and poplar was sold to Finland where it was turned into paper. With the introduction of export duties the export of unmerchantable wood has stopped and there is still no paper mill in the Urals due to the lack of investment. Mr Basmanov hopes that the OSB plant can change the situation with processing of deciduous woods.

Andrey Mekhrentsev connects the movement on the domestic wood board market with the support of timber housing at the federal level. The economic crisis is not over which is why banks are in no rush to lend money to timber industry sector. Accordingly the domestic market remains in very difficult state and most of the OSB made by the plant will be exported. The demand for OSB in the South-East Asia is high and there are no production capacities due to the lack of raw material. There are small capacity lines in China but they run on Russian wood.

Iran, Azerbaijan, and especially Kazakhstan, that has a great need in sheet materials for low rise housing construction, may also use the products made in Lobva. Kazakhstan has been planning the construction of an OSB plant with the capacity of 200 thousand tons annually, but the feasibility study conducted by CJSC VNIIDEREV demonstrated that there will be not enough raw materials for the enterprise and this buried the plans.

The need in sheet construction materials, however, does not guarantee high sales for the Urals integrated plant. Having the state of the art equipment in timber processing does not serve as a pass into the market, reckons Andrey Dobrachev, a Professor at the Ural State Forestry University. According to him you can build ten cutting edge OSB plants and still fail to start production due to the lack of qualified staff. OJSC Lobva staff have not been paid for almost a year which means the death of the enterprise and the degradation of the town where it is located. In these conditions one should not expect any influx of qualified specialists to Lobva, obviously. Would the remaining staff be able to provide for the needed depth of processing and the level of quality? This remains a big question.

Viktor Kralin, the Manager of the Urals Timber Housing Construction Association, says that OJSC Lobva has a good reputation but a few more months of uncertainty may become fatal for the company. The scheme with the buyout from the current proprietor does not seem right to the expert as the time is working against the Lobva plant. According to Mr Kralin, the situation has to be rectified straight away; the enterprise needs money to buy raw materials. The advance paid by Vladimir Oghibenin to the proprietor was spent on settling the debts in wages.

Andrey Mekhrentsev reckons that the situation will be clearer by August 2010 when the tenant has accumulated some financial resources and is able to realize its plans. The Sverdlovsk Oblast authorities see the main goal of the project at the moment in calming the people down and help their transition into the newly established TIC Lobva-Ural Ltd.

Since the Canadians' interest to the project has been lost the officials conducted negotiations with a Chinese bank and an investment company, so far they are not interested either. In March the Sverdlovsk Oblast government will consider the opportunity for the provision of State guarantees for the funding of the project. Anatoliy Gredin, the Head of the Regional Cabinet, so far is inclined to support the project, taking into account the difficult social situation in Lobva.

Vladimir Terletski