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China is attracted to paper

Why in the Khabarovsk Krai PPM on Chinese funds

"Far East Agency for Investment and Export Support" (IPA) and Chinese China Paper signed a memorandum of understanding on the implementation of the project to build a pulp and paper mill in the city of Amursk. EastRussia figured out what is the interest of a foreign investor, and what - of Russia.

China is attracted to paper
According to the signed memorandum, the construction site of the plant will be included in the Komsomolsk TOR, which will allow the investor to receive significant tax benefits.

As is known, in the Far East there was not a single pulp and paper mill left: all enterprises that operated in Soviet times ceased operations in the post-perestroika period. Meanwhile, in the region up to 40% of the forest resources extracted is not used, it remains in the cutting area. This worsens sanitary, fire safety in forests, not to mention direct economic losses. A system solution would be the construction of a large utilizer of low-value wood and logging waste.

It is worth mentioning that in recent years the pulp and paper industry in Russia (the main regions in this regard are the Arkhangelsk region, the Komi Republic and Karelia, the Irkutsk region) is on the rise. According to the Single Interdepartmental Information and Statistical System, in the country, in the three quarters of the year 2017, an average of about 700 thousand tons of wood pulp and cellulose from other fibrous materials was produced on average per month. For comparison, six years ago this figure was about 600 thousand tons. A similar picture is formed on the production of paper and cardboard. The average monthly output of these products reached 705 thousand tons against 630 thousand in 2011 year.

The growth is largely due to the export of softwood and hardwood bleached pulp, unbleached pulp, and containerboard. “It is known that paper consumption in the world is decreasing, but at the same time cardboard consumption is increasing. As the world moves more into the online commerce segment, the demand for packaging board will grow steadily, ”says Pavel Bilibin, director of the management of Vnesheconombank’s timber processing complex.

Meanwhile, over the past 40 years, not a single large pulp and paper mill has been built in Russia, in most cases, domestic manufacturers have upgraded their existing facilities. The only greenfield in this regard is the Amazar pulp and paper mill in the Trans-Baikal Territory (the project is being implemented with the participation of the Chinese Huae Sinban).

As a consequence, Russia occupies only the eighth place in the global pulp production, although it has considerable reserves both in terms of import substitution and expansion of exports. In 2016, the RF exported 2,1 million tons of commodity pulp. For comparison, the largest exporters with annual deliveries from 7 to 11 million tons are Brazil, Canada and the USA. Also among the leaders of exports - Chile, Indonesia, Sweden and Finland with volumes from 3 to 4,5 million tons.

In turn, the largest consumers of pulp - the state of South-East Asia. In particular, China imported 12 million tons last year. It is these countries that will account for the bulk of global demand, which by 2030 will increase by 17 million tons, the Ministry of Industry and Trade of the Russian Federation forecasts. As noted in the department, Russia has the potential to create in the short term three or four plants. This will not only affect the increase in the volume of wood processing, but it can also open new markets. For example, the production of role pulp, which is currently not produced in Russia, promises to be promising, and only the medical industry consumes it about 120 thousand tons annually. Another attractive business in the world is the production of viscose pulp, the demand for which is growing due to the replacement of cotton in the light industry, the widespread use of viscose in the manufacture of building materials, paint and varnish coatings, cosmetics, etc.

The pulp and paper industry becomes the driver for the development of the timber industry, Pavel Bilibin emphasizes: "In terms of scale, the plants created by us and in the world have capacities from 0,5 million tons of finished pulp. This volume requires an order of 3 million cubic meters. m of raw materials. At the same time, these are the most profitable industries: EBITDA of pulp mills starts from 50%. This is a very high level of marginality, probably, rare industry production can boast of such figures, only some furniture and plate production. "

Of course, the creation of a pulp and paper mill is a capital-intensive project, which is extremely difficult for one investor to master. “We are a large timber industry company in the Far East, have consolidated a fairly large amount of forest resources, built two mechanical processing plants for a total of 1 million cubic meters. m of wood, - said earlier the president of RFP Group Konstantin Lashkevich. “They invested $ 300 million over the past eight years, while the volume of investment in one pulp and paper mill exceeds $ 1 billion.”

The future of each individual project of the pulp and paper mill, the manager explained, depends on many components: raw materials base, quality of timber, timber suppliers, infrastructure. There must also be long-term guarantees from the state. "Even if at least one of the 20 key factors is not taken into account and the risk is not closed, then the investor will not go into the project. Today, no company in the Far East, including us, can independently implement the project of the pulp and paper mill. There must be an industrial partner, a financial partner, like VEB (in recent years, with the participation of Vnesheconombank in the domestic forestry complex, 100 billion rubles have been invested - EastRussia), and, of course, state support. Without this conglomeration, it is impossible to implement a project of this scale, "Konstantin Lashkevich believes.

The same is said by the president of the timber holding company Segezha Group (part of AFK Sistema) Kamil Zakirov. "We are interested in the construction of the pulp-and-paper mill, but such a project is impossible without scrupulous calculations, on the one hand, and without the help of the state on the other," Kamil Zakirov argues.
Segezha Group, which owns two pulp and paper mills - Segezha and Sokolsky - in Karelia and the Vologda region, is working with Chinese CAMCE to create additional capacities on the basis of a wood processing plant in the Krasnoyarsk Territory. Previously, the new plant will be able to produce at least 500 thousand tons of commercial pulp a year. Given the convenient logistics, these products will be focused on the markets of China, Indonesia, the Republic of Korea.

In the Far East, China Paper Corporation (part of the China Chentong Holdings Group) is considered a strategic investor. It is assumed that the plant will produce up to 500 thousand tonnes of pulp. The total investment will be about $ 1,5 billion.

The signing of the memorandum with the IPA was preceded by lengthy negotiations. In early November, this topic was discussed by Deputy Prime Minister Yuri Trutnev with the president of China Chentong Holdings Group Zhu Bisin. "This is a significant project for us, so we must carefully discuss all the nuances of its implementation. For our part, we will involve other financial institutions, including counting on financial support from the Chinese government, "Zhu Bixin said then.

The fact that Amursk is chosen as a platform for the future of pulp and paper production is not accidental. RFP Group's factories for the production of veneer and sawn timber work here, and the holding company is able to provide at least 40% of the required volume of raw materials for processing at the pulp and paper mill. "We are interested in an industrial partner who guarantees off-take - long-term, on understandable terms," ​​says Konstantin Lashkevich, head of the RFP Group.

In addition, about 230 km from Amursk in the village of Berezovo, another timber processing cluster is developing, from which raw materials can also be delivered to the pulp mill.

It should be said that China plans to reduce the commercial logging to zero level by the year of 2020. Therefore, it is extremely important for Chinese companies to have time to arrange deliveries of a pulp source from outside. Russia intends to reduce the export of raw timber. In order to achieve its deep processing, it is proposed to introduce in the Far East the possibility of exporting roundwood at a reduced duty to the volume of input processing capacities. In other cases, the export of round timber will be taxed at the highest rate. The task of Russian manufacturers is not to miss the right time for diversification and business development and to bring the forestry industry to a new level - to the products of high conversion.

"Over the past 10 years in the country, the volume of exports of raw timber has significantly decreased. This was facilitated by a number of decisions. For example, on coniferous trees that are harvested in Eastern Siberia, an increased duty rate of 80% was introduced, with the exception of the timber that is exported according to our commitments made when entering the World Trade Organization in accordance with the quota historical principle. We want to make the same changes to the resolution that regulates the preparation and implementation of the timber industry complex in the Far East, "the Ministry of Industry and Trade announced.  
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