Wood Wars: Corruption Threatens Welfare of Siberia

by Natalya Shulyakovskaya St. Petersburg Times, Feb 16, 2000 

Russia's forests are among the nation's most valuable resources. But as Natalya Shulyakovskaya reports, their chaotic exploitation means that wise guys and foreigners are the main ones reaping the rewards. TIMBER is the blood trickling through the soggy veins of the town of Balagansk, a small disjointed town of 11,000 souls that spreads along the Angara River, 70 kilometers from the nearest railroad and 205 kilometers north of Irkutsk.

Without timber, there would be nothing to pump life into the endless cycle of barter deals that makes it possible for Balagansk to survive. Because of timber, bread is still baked here, kindergartens are still heated, new houses go up and sparkling four-wheel-drives roar along the wide but bumpy roads of the town.

Balagansk is a clear model of how a timber-based economy works, a perfect example of the logging centers throughout the Irkutsk region-where close to 90 percent of the territory is covered with forest, and timber reserves are equal to 9.2 billion cubic meters or 11 percent of Russia's total reserves. Balagansk is a model emulated across most of the nation. 

The best houses here line the street where the forestry officials traditionally have lived. Another center of influence is the office of the district administration, which has the power to allocate permits for individuals to chop wood. Here, from dawn to dusk, babushkas dressed in their very best line up for hours to get their timber requests signed. The bureaucrats from neighboring, timber-less districts come here-driving sparkling sports utility vehicles and escorted by bulky men in track-suits-to plead for their own bit of the timber "pie" to keep their districts' own barter cycles going.


"This is thanks to timber," says Valery Yemelyanov, deputy head of the Balagansk district administration, as he waves his arms in the direction of his shiny new cherry-colored Lada.The Russian government's regulations on logging have helped to concentrate enormous power in the hands of this calm man with a shrewd and ready smile.  

In addition to ordinary logging permits, granted to companies for commercial purposes, Russian legislation lays down guidelines for granting permits to regular citizens to cover civilian use for building and maintaining the wooden houses in which a large proportion of the population live.

Yemelyanov, who says he has set up his own logging team and has been chopping wood in addition to his administrative duties, is responsible for approving the locals' timber requests. He also has an even more crucial duty: He lobbies the region for allocation of new timber permits. Under federal law, each villager has the right to cut down 125 cubic meters of timber to build a house. Once every three years, each family is then entitled to an additional 20 cubic meters for timber to fix their homes. Furthermore, the 1997 Forestry Code establishes categories of residents-such as pensioners, the disabled, forced migrants, veterans and so on-who have the right to receive timber for free. Local district authorities have increased the allotted amount of timber to 300 cubic meters, bringing the flood of villagers hoping to convert their right to timber into some hard cash to the administration's offices.

"Now everyone, every single person, is getting into timber," Yemelyanov says. When villagers receive their timber-cutting permits, they pay about 12 to 17 rubles per cubic meter of uncut forest-a little bit more than 1 percent of the market value of cut timber. In 1999, the 50,000 cubic meters of timber allocated for individuals' needs in Ba lagansk district during the first six month were used up long before the first two quarters ticked away. And it was Ye me lyanov's turn to don his best suit and polish the hallways of the regional administration with the soles of his dress shoes. 

While officially, companies cut about 85 percent of the timber logged in the Irkutsk region, and individuals log the rest, those numbers are probably deceiving."The real comedy is that these grandmas and grandpas have no means of their own to actually cut down the trees. So they go sell their timber cutting permits to the wise guys around the corner," says Tatyana Goritskaya, a section head at the regional administration timber industry and forestry department. Goritskaya, Irkutsk's leading forestry expert, has worked in the region since 1958.


But the "wise guys" themselves are not much further up the feeding chain than the babushkas. In order to operate, they need to strike their own deals with leskhozy, or local forestry officials, before they can move into the woods with their chain saws and tractors.  Russia has the largest forest resources in the world, with 22 percent of the world's forest area and 21 percent of all standing timber volume. The country is divided into forestry sectors supervised by Leskhozy or forestry management districts. These forestry "gods" have the power-free from any right of appeal-to decide life or death for timber producing enterprises. They issue so-called forest tickets that set logging quotas.

They also decide where logging can take place-and where it can't-whether or not a company gets an allotment with ripe tall trees close to roads or a remote marshy patch with few trees and dense bushes. In the Irkutsk region, transportation expenses can run as high as 80 percent of the production costs for timber. 

The leskhozy also have the power to fine timber companies if they do not clear logging allotments of debris and low-quality lumber. They decide which parcels could be put up for tenders and run logging tenders. At the same time, leskhozy have the responsibility for replanting trees and clearing off sick and decaying trees during so-called sanitary logging, a loophole that some leskhozy have turned into sizable timber harvesting operations.

"Our sanitary tree cutting has increased sevenfold since 1993," Goritskaya says bitterly, "In 1998 alone, forestry officials cut down 1.5 million cubic meters of timber under the pretense of doing necessary cleaning cuts."  The going price for a permit is about 30 rubles per cubic meter. But the best, export quality timber can fetch between $40 and $55 per cubic meter at the local warehouses of TM Baikal, a Russian-Japanese joint venture. Sold at about 1,000 rubles per cubic meter, export timber costs no more than a third of its sale value, bringing in 65 percent profits. 


In Soviet times, forests were given out under long-term leases to Lesprom khozy or forestry industrial companies that logged timber and harvested tree sap and forestry products. The Lesp romkhozy were privatized during the early 1990s along with so many other state enterprises. But far from transforming Soviet monsters into capitalist champions, the privatization process decimated the industry. Timber logging in Russia fell from 304 million cubic meters in 1990 to just 85.4 million cubic meters in 1997.

In Irkutsk, the effects can be seen to this day. Traditionally a raw materials "appendage"-rich in natural resources but lacking high-tech industry to produce final products-the East Siberian region is today haunted by that legacy.  In the early 1990s, most of the Irkutsk region's state-run timber industrial complexes were privatized and quickly fell apart. Some 96 percent of all lesprom khoz equipment was privatized and 80 percent of the former state enterprises are now either bankrupt or facing bankruptcy, according to Sergei Tka chyov, director of the Siberian Timber and Pulp Industry Institute in Irkutsk. 

Some of the surviving lespromkhoz have entered into exclusive agreements with large local pulp and paper mills in order to keep operating. Most of them have no other choice. Like 15 of the les prom khozy who signed agreements with the Bratsk Pulp and Paper Mill and can ship their timber only by river, most forestry enterprises simply cannot afford to ship their timber across the wide expanses of the region by truck or railroad because they cut timber so far from the roads. 

There are now only a few major timber companies in the region, several of them joint ventures between the Japanese and Irkutsk regional administration-something of a conflict of interest considering the administration's right to grant logging permits. For example, TM Baikal, one of the largest Irkutsk timber producers, is a joint venture between the Irkutsk regional administration and two Japanese companies-Tajima Lumber and Mitsui.  

Likewise, another large producer is Igirma-Tairiku, a joint venture 51-percent owned by the Irkutsk region and 49-percent owned by Tairiku Trading. Nine years ago, when it built its timber mill, the company installed two managers, one Russian and one Japanese to run the site. Now, their timber products are among the very few locally made items that are of export quality.  Since 1998, TM Baikal and the other main lumber firms have had to fight off an influx of Chinese timber dealers who have been pushing out from Buryatia where many of them have registered businesses. Yemelyanov says he shipped all of his timber to TM Baikal, as did many in Balagansk district. But most small businesses are eager to make as much money as they can from the eager Chinese buyers. Timber exports to China soared 274 percent year-on-year for the first nine months of 1999, said Vladimir Gorshkov, the head of forestry department at the Economics Ministry, quoting Customs Service data. Pulp exports to China increased 55.7 percent, while cardboard exports rose 74.7 percent. There were no absolute figures available.


Eastern Siberia is one of the richest timber regions in Russia, with more than a quarter of Russian timber logged here. After decades of merciless Soviet chopping, the taiga, once dense and practically impassable, has been cleared down in the southern part of Irkutsk region as far as Bratsk, 460 kilometers north from Irkutsk. Loggers are now moving further and further north to cut down century-old pines. "There is no timber as far as 80 or even 150 kilometers around Irkutsk. This is mayhem," said Vladimir Sakha rov, vice president of Irkutsk Timber Union.  The post-Soviet decline of the timber industry has done much to arrest the damage. Russia's forestry industry these days regularly cuts much less than the amount allocated by forestry experts for commercial tree-logging. The possible volume of timber allocated for harvest each year is 54 million cubic meters, although Goritskaya at the Irkutsk administration's timber industry and forestry department says the more realistic estimate would be about 40 million cubic meters.

While about 36 million cubic meters of timber a year was harvested in the Irkutsk region in the 1980s, 1998 saw permits for cutting at about 11 million cubic meters-of which only 8.5 million cubic meters were harvested. But that hides the growing illegal and semi-legal tree cutting industries, fueled by the timber smuggling business to China. Spurred by the drain this business represents for the regional budget, the regional police have launched a special investigation into the illegal trade in timber.  Whenever the timber team of the Irkutsk regional police can scrape together enough money for gasoline, it heads for the makeshift timber markets that sprout in Irkutsk's industrial neighborhoods. The goal: To plug the holes through which freshly cut logs of export-class timber float out of the region, bypassing the local budget on their way. On a Saturday afternoon, on a wide shoulder of a busy highway tracing the walls of Irkutsk's rusting industrial park, street-corner "timber traders" in sparkling foreign-made cars are parked side by side with their day's catch: Two trucks laden with export-class timber. The timber's official paperwork pointed at more official destinations for the logs. But these days in Irkutsk, it is the side of a highway where timber supply and demand curves meet. 

It's about noon and drivers of the trucks are chatting feverishly with the traders from the passenger cars. But the business atmosphere quickly evaporates as a squeaking red Zhiguli and a utility vehicle packed with police officers pull in. Foreign-made cars immediately drive away; gloomy drivers climb back into their trucks. Nikolai Nikolayev, a Buryat truck driver from Ust-Orda Buryat auto no mous district adjacent to Irkutsk region from the east, said he wanted to sell the 10 cubic meters of timber he hauled 450 kilometers to Irkutsk for about 1,000 rubles per cubic meter. "But I would take 800," he adds. Nikolayev, 51, brought along two friends as "bodyguards" to carry "the huge money" back home to "his boss." For such a trip, he gets a sack of sugar, about 380 rubles worth. "We never see any real money," Nikolayev adds, squinting. "What else can I do? I have five kids and four grandchildren and all of them beg for candy ..." 

According to Goritskaya, the timber industry brought in just 96 million rubles for the region's six-billion-ruble budget in 1998. The Irkutsk region is also Russia's leading producer of pulp. Bratsk pulp and paper mill once used to produce 6.5 million cubic meters of the region's timber, and Ust-Ilimsk another 5.6 million. But those days are far gone.  


That's because the fragmentation of the industry has made it almost impossible to keep track of the precious timber, say local police officials. In 1998, when the ruble sank, lumber started floating away from Irkutsk-most of it in its rawest form. In 1998, Russia exported $3.02 billion worth of timber, pulp and paper products. In 1999, timber export climbed to $3.3 billion. But while unprocessed timber accounted for $938 million of 1998 timber exports (31 percent), in 1999 its share rose to $1.2 billion (36 percent). "The share of raw timber in total exports is growing," said Gorshkov at the Economics Ministry's forestry department." Raw exports to China are rapidly growing too."

Gorshkov says Russia has little choice but to go on exporting raw timber to China: Russia can't make enough quality timber products itself. Indeed, to be able to accumulate money needed for investment in its forestry industry, Russia needs to sell its raw logs to raise cash. "The situation with China is simple: We are offering China timber products that have been processed here, but they stubbornly insist on buying only raw, round logs from us," said a long-time industry insider who declined to be named. "We know that export to China has been very large. The Chinese are moving in to Khabarovsk, the Chita region and Buryatia." 

According to information compiled by the regional administration using customs data, timber exports from the Irkutsk region more than doubled last year. In the first half of 1998, one tenth of all timber harvested here was shipped abroad, but by the first half of 1999, the share of timber export exploded to 23.7 percent. At the same time, export of pulp went up only 20 percent. 

Vladimir Sakharov of Irkutsk Timber Union says it has always been a lot more profitable to export timber from Irkutsk region, but after the 1998 ruble crash, the entire region found itself caught in the timber-exporting boom. 

The Union sees the infusion of Chinese timber traders that started in early 1999 as "a serious problem." "They are paying the minimum, but in cash, which is attractive," Sakharov says, "They have a high demand for timber in China, so they appeared here in early winter and even tried to set up their own timber harvesting. But so far, they have not succeeded." In Chita region, which is closer to China, the Chinese timber producers are bringing in their own labor, Sakha rov said. And because of the transportation cost, the way timber is harvested is drastically changed in Irkutsk region, too, said Sakharov, who spent 50 years working for the regional Irkutsk Les prom khoz and was its director. "What is happening now is robbery," he said. In Soviet times, the region  which could theoretically harvest up to 40 million square meters of timber annually, usually cut down only 20 million. "Now, the region harvests only 8 million, but when we cut down 20 million, we used  every bit, from the stump to the needles. And now, everything but the best logs are left behind."  

But the official data might not disclose the real volumes of timber cutting in the region. No one knows how much forest is cut illegally, says Alexander Vasyanovich, the head of the Natural Resources Department of Irkutsk regional administration. "No one will tell you the truth. The trees are cut down, hauled away and stolen." 


"Timber took off," Goritskaya says, summing up what happened in the Irkutsk timber market. Hundreds of one-day private companies surfaced overnight to handle the export flow. In 1998, small private companies already handled 78 percent of all timber export from Irkutsk region, says Goritskaya, citing official data compiled by the East-Siberian Railroad. The trend was worrisome because the region has few resources to ensure that such a multitude of tiny companies pay their taxes, cover the proper customs fees and log legally.

There are at least 2,600 timber logging companies working in the region, with only 200 large firms, according to the Irkutsk administration. "If we had five or six large companies dealing in timber export, we would not be selling it off for close to nothing," Goritskaya says. The only way to bring some order into timber hauling and trading, the officials say, is to introduce licensing for timber logging and for export. "We want to cut off the small-change companies, but even when we were writing the law, I knew we were wasting our time: The region has no power to enforce such laws," Goritskaya says. Such changes to the Forestry Code, the main set of laws governing forest use in Russia, could be made at the federal level only. 

Another way to eliminate abuse would be to separate the function of managing forest reserves and supervision of its use-but there is little hope for changing the system any time soon. Goritskaya believes that forestry management agencies should lose their authority to sell off timber or lease logging allotments, but the main demand voiced by regional authorities is for control over forests to be shifted to the region. "This is the power. Our natural riches are the foundation of our regional economy. So give this foundation to us to run," says Goritskaya, outlining the regions' arguments. 


Even Anatoly Petrov, editor of the Balagansk district newspaper-which bears the unusual title "10,000 of Me (10,000 Ya)"-devotes only part of his time to his publishing business. The rest of his working days he spends cutting timber in order to keep the newspaper afloat. Petrov, who also publishes the district's official newspaper, managed to squeeze what the district administration owed him for printing the newspaper, but not in cash. Instead, he was awarded a tree-chopping permit for 1,000 cubic meters of timber. He promptly recruited three editorial workers to form a lumberjack team and made his driver the foreman. Having not seen a kopeck of his 600-ruble salary for 18 months, Vladimir Petrov, 50, was happy to oblige.  "I am my own man here," says the driver, who now spends weeks in a row chopping and clearing woods by himself." My wife is not picking on me, and I need very little here." Like most lumberjacks in the region, Petrov mostly gets his pay in bread, flour and, rarely, cash. But the editor says, the reasons for that run deeper than a simple desire to cut costs on salaries. "If you give our men money, they will immediately spend it on booze at the nearest store, and spend the next few days studying the world through happy, bleary, alcohol-laden eyes." On Petrov's staff, there are four people whom he tries never to give any money to: "They drink like hell," he says.

Nevertheless, it's hard to find men in Balagansk on weekdays. Most have gone to the woods. "You can land a Boeing in the taiga these days," said Aleksei Gritsko, one Balagansk young truck driver working with the lumberjacks. "If it continues on the same rate, in about five years, there would be no forest left around here."  

Copyright 2000 THE ST. PETERSBURG TIMES all rights reserved as distributed
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