The State Forest Agency's old schemes are destroying the timber industry.
The State Forestry Agency (Goslesagentstvo), headed by Valery Chernyakov, a representative of the All-Ukrainian Union "Svoboda," exports huge volumes of unprocessed timber. However, the Ministry of Agrarian Policy claims that only the products that were not in demand at the quarterly auctions are exported.
However, according to official data from regional forestry departments directly reporting to the State Forestry Agency, all hardwood timber, such as oak and ash, has been auctioned off to the domestic market. How then are train cars loaded with oak shipped to Poland every day? What kind of timber is this? Are the State Forestry Agency and the Ministry of Agrarian Policy colluding? It appears that the State Forestry Agency is operating under the same schemes that existed under Viktor Yanukovych, resulting in significant revenue shortages for the treasury. Meanwhile, domestic wood processing companies are experiencing a severe shortage of raw materials, leading to many companies closing and job losses.
Whether to export raw materials or finished products—this decision determines budget revenues. Clearly, raw material exports generate less revenue than finished product exports. The same applies to wood processing products. Therefore, according to the Ministry of Agrarian Policy and Food (MinAP), all unprocessed timber is auctioned for domestic use.
But there's a discrepancy: according to the State Fiscal Service (SFS), from January 1 to August 31, 2014, 1,943 million cubic meters of unprocessed timber were exported, valued at $177 million. This data is confirmed by a report from the State Forestry Agency, which states that 27% of unprocessed timber is exported. Meanwhile, a total of 7,662 million cubic meters of unprocessed timber was offered for sale at general and special auctions this year.
At the same time, Zhytomyr, Khmelnytskyi, Rivne, Kyiv, Vinnytsia and other regional forestry and hunting departments provide information that 98% of coniferous and hardwood sawn timber has already been sold.
Questions arise: why does the Ministry of Agriculture have one set of statistics, while the State Forestry Agency and the State Fiscal Service have different ones? And is the State Forestry Agency even subordinate to the relevant ministry?
It's worth noting that Valery Chernyakov heads the State Forestry Agency (Goselesagentstvo) under a quota from the Svoboda party. However, even under him, industry representatives say the schemes established under Viktor Yanukovych, under which the "Family" received up to 20%, have been retained. Specifically, the kickback system has returned—$10-$15 per cubic meter of pine. This information circulates throughout the market with remarkable regularity.
Moreover, in early summer, forestry directors and engineers reported that export contracts not approved in Kyiv, at the State Forestry Service level, were once again being blocked. Furthermore, a contract approval system was introduced through Ukrlesconsulting, which instructs forestry enterprises to reduce prices for pine roundwood.
According to experts, it was through Ukrlesconsulting that forestry enterprises were forced to sign contracts under Yanukovych. Incidentally, 263 wood processing companies closed in the last quarter alone, according to the All-Ukrainian Association of Woodworking Enterprises.
The association's president, Dmytro Artemchuk, noted that the main problem facing the wood processing industry is the lack of a law prohibiting the export of unprocessed round timber abroad. "Ukrainian wood processing companies are experiencing a severe timber shortage and are losing jobs because of it, but we see every day timber being shipped to Poland, China, Turkey, and everywhere else—but Ukrainian companies are not getting it. Meanwhile, export prices are currently even lower than on the domestic market," Dmytro Artemchuk said.
Currently, the State Forest Agency earns UAH 2,5 billion annually from domestic sales. Export revenues bring in another UAH 1 billion. Simple arithmetic shows that if the sale of unprocessed timber were banned, government revenues from exports could increase to UAH 4,5 billion.
Dmytro Artmechuk reported that the association had already contacted the Presidential Administration, the Cabinet of Ministers, and the Ministry of Agriculture, but no one had responded. "They're sending us formal replies that what we've described isn't true. But every day we see entire trainloads of timber leaving the country. We've now inquired with the customs service about the volume of timber shipped abroad by state forestry enterprises. We've also inquired with the State Statistics Committee, the regional forestry departments, and the forestry enterprises. Once we receive responses, we'll continue our efforts with the prosecutor's office and other agencies," said the head of the All-Ukrainian Association of Woodworking Enterprises.
He stressed that the time has come when every government employee must bear personal responsibility for what is happening.
"Every forestry director must be personally responsible for their own activities and understand that the head of the regional department, the head of the Forest Resources Agency, and each director bear the same responsibility. Currently, the heads of regional departments shift all responsibility to the forestry directors, who are accustomed to no one monitoring their activities, citing orders from the head of the regional department. To prevent this, we now have a dedicated department to monitor timber sales and the fulfillment of contracts signed at auctions. The Association has engaged a legal partner, S.T. Partners, and is prepared for a legal and informational confrontation," said Dmitry Artemchuk.
Experts believe the current situation in the woodworking industry is dooming small and medium-sized businesses to extinction. Not to mention craftspeople like carpenters, who have been a dying craft for over a decade.
The All-Ukrainian Association of Woodworking Enterprises' goal is to protect the industry from such negative developments and assist companies during these challenging times.
Whether it's a three-person carpentry shop or a massive woodworking plant, everyone has a right to exist and should be able to afford the raw materials needed to run their business. Every entrepreneur has a staff: some employ thousands, others just two or four. But all these people have families, all are Ukrainians, and all should have the right to earn a living.
The All-Ukrainian Association of Woodworking Enterprises invites everyone to cooperate. "We must unite to create a force capable of resisting the bureaucratic state machine and unscrupulous officials," the Association states.
However, experts are confident that the way out of this situation is quite simple.
1. It is necessary to reform the existing industry management structure in order to divide its 37 functions among other government agencies and market players, which will allow for oversight of the State Forest Agency's work.
2. Prohibit by law the export of unprocessed timber and allow only surplus timber to be exported.
3. Introduce a state duty for foreign buyers of at least 30% of the domestic market price (export will be justified in terms of budget revenues).
4. It is necessary that all harvested timber, including sanitary felling, be put up for auction (the artificial shortage of raw materials will disappear).
5. Ban the sale of unprocessed timber under direct contracts (this will eliminate the corruption component).
6. Ban the export of finished products whose raw materials were not purchased at auction. This will close a loophole for unscrupulous companies that allegedly purchased timber from agricultural and military forestry enterprises that do not auction their products.
Based on materials RBC-Ukraine
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