Rent payments for forest resources in Russia may grow since 2015

Given the favourable market conditions, the Russian Forest Service intends to hike forest rent in order to increase the profitability of forestry, as Russian Forestry News reported. In 2009-2014, these rates remained unchanged. The draft resolution provides for the indexation of payment rates based on the forecasted level of inflation and taking into account the main parameters of the forecasted socio-economic development of Russia for 2015-2017.

The rate of indexation for forest lease per unit of wood volume since 2015 will grow to 1.37, in 2016 – to 1.43, in 2017 – to 1.49. Rate per forest area unit in 2015 will increase to 1.19, in 2016 – to 1.24, in 2017 – to 1.3.

Department of forest policy, economics and forest management of SPbGLtA (St. Petersburg Forest Academy) together with the “National Forest Agency” (a private consulting company) carry out research on the order of the Ministry of natural resources. Experts analyse the pricing of standing timber in Russia and Finland. It was found that in the Russia’s Northwest loggers are required to pay 13 types of taxes and fees, with the largest share in the logging cost being occupied by forest rent (10%), while payroll tax is the second. All taxes comprise about 13-15% of the logging costs, not counting the profit tax.

“It seems that 13-15% of the cost is little compared to the tax burden of private forest owners in Finland, but Russia has very different business environment: the low quality of forest fund, lack of logging roads, and the economic relations between the forest industry and the state are based on the imperative principle,” says Vladimir Petrov, professor at the Forest Academy. The expert is convinced that the increase in rent payments will lead to the closure of small businesses, and budget revenues will decline in the end.

The General Director of the Centre for forestry economic Nikolai Petrunin and analyst at IFC Markets Dmitry Lukashov, on the contrary, agree that indexing is planned only within accumulated inflation and will not have a significant impact on the forest industry. Both in Russia and abroad, there are favourable market conditions now, lumber and wood panels are in good demand and growing in price, noted Lukashov.

For the small businesses, indexation of rates will be noticeable and will lead to an increase in the price of their wood, which will ultimately push up the cost of the end-use product, says the Supply Director at Sveza Group Pavel Yaroshenko.

According to Nikolai Petrunin, market pricing of forest resources is needed. Vladimir Petrov agrees: the Forest Academy proposes to consider the interests of all parties and introduce differentiated approach with quarterly fluctuations of indexation rates, which would be calculated based on the current economic situation in the regional markets of roundwood.

The growth in budget revenues can be achieved by assigning higher indexation rates to forest owners who are not engaged in forestry. The proceeds can be then reallocated to the companies that carry out forest care following state orders. This will raise their motivation, Petrov is assured.

Business representatives propose to increase budget revenues through better control of the rent collection at current rates and to postpone the introduction of indexation from 2015 to 2016, as this year the companies have already faced another problem, which is tightening weight control.