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INDUSTRY LEADERS WANT TO CREATE STATE-OWNED STOCK COMPANY TO IMPROVE PERFORMANCE AND TRANSPARENCY

Wood processors push for forestry transformation

WITH THE establishment of a new government that supports continuing market transformation, Slovakia's wood processors are pushing for fundamental reforms in the country's forestry sector.
The Association of Wood Processors (ZSD) has presented a plan to restructure the country's forestry and timber industry according to the Austrian model. This would involve converting the state-owned forestry company, Lesy SR, into a public stock company, fully owned by the Slovak state.
Under this plan, say wood processors, Slovakia's forests will remain a national treasure, while a state-guided forestry sector, controlled by a publicly listed and audited Lesy, will be much more transparent and competitive.


FORESTRY subsidies to end.
photo: TASR

WITH THE establishment of a new government that supports continuing market transformation, Slovakia's wood processors are pushing for fundamental reforms in the country's forestry sector.

The Association of Wood Processors (ZSD) has presented a plan to restructure the country's forestry and timber industry according to the Austrian model. This would involve converting the state-owned forestry company, Lesy SR, into a public stock company, fully owned by the Slovak state.

Under this plan, say wood processors, Slovakia's forests will remain a national treasure, while a state-guided forestry sector, controlled by a publicly listed and audited Lesy, will be much more transparent and competitive.

Explaining why the ZSD is keen to follow the Austrian model, general secretary Roman Réh said: "We are not foresters; we are not going to be doing the transforming. But we wanted to show a successful example of this [transformation] from a neighbouring country."

"[In Austria] the forests were removed from the state budget, but not privatised. Thus forests remained the property of the state," said Michal Sutter from Profit Centre Consulting, which oversaw the transformation process in Austria.

"We connected our activities with those of our major clients, and now we can participate in the success of the whole industry. This is the result of the transformation," he said.

Following the removal of state subsidies in forestry prior to EU entry, losses in Austria's forestry sector were reaching millions of dollars per year, said Sutter, leading to the transformation of the state forestry company into a state-owned stock company.

The process was started in 1995, Sutter said, and by 1997 the sector was already turning a profit. "In 2001, profits in Austrian forestry reached 12.5 million euro," he said.

However, in Slovakia, wood processors have long been at odds with the state forestry company, largely over what producers say is Lesy's shortsightedness in selling raw wood at auction in Vienna for slightly higher prices than Slovak processors offer.

In July, Swedwood, a subsidiary of Swedish furniture giant Ikea, iced plans to build its fifth Slovak facility - a Sk500 million ($11 million) sliced-veneer plant - because of what they said was Lesy's failure to keep contract conditions.

Swedwood was offering to buy 16,000 cubic metres of wood annually from Lesy, but company officials say the foresters balked at this amount because they could get a higher price on smaller lots of wood by selling at auction.

"At our factory in Trnava we unfortunately have to import all of our veneer from abroad. It's ridiculous, because [Slovak beech] logs are exported mostly to Germany, and we are importing veneer from Germany," said Swedwood managing director Štefan Sústrik at the time.

According to ZSD officials, this pattern has held back Slovakia's wood-processing sector, prevented the creation of employment and meant the loss of value-added exports and tax revenue for the state.

In addition, Magulák, vice-president of ZSD, pointed out that one of the most pressing issues faced by Slovak wood processors is that payment deadlines to Lesy are at odds with European norms.

While processors have 90 days to pay foresters for timber in Switzerland and 42 days in Germany, Lesy requires payment for raw wood in 28 days or less, said Magulák, while buyers of processed wood have at least 60 days and as long as 120 days to pay for the product.

"It's not about buying raw wood at low prices, but at realistic prices," said ZSD president Peter Lispuch. "Sell to us at Austrian prices, but under Austrian conditions."

However, Lesy officials have defended their actions, saying that the vast majority of state wood is sold domestically, and that the transformation plan backed by ZSD would harm Slovak forestry.

"We understand that a state stock company might be interesting for those who want to see state shares on the stock market, and consequently state forests under their influence," said Lesy general director Blažej Možucha in an open letter to ZSD last summer.

"Securing a dominant position over one's supplier of strategic raw materials is the dream of every manufacturer. In the case of forests, that dream is very improper.

"Essentially, the question is whether or not a business is able to uphold all the rules and business responsibilities on time, directly and effectively.

"From the point of view of work effectiveness, there is no substantive difference if state forests are controlled by a state company or a state-owned stock company," said Možucha.

While Lesy expects revenues of Sk656 million ($15 million) for 2002, without its Sk50 million state subsidy the company would be nearly Sk40 million in the red for the year.

Wood industry leaders stress that whatever transformation takes place will require the cooperation of the incoming Agriculture Minister, Zsolt Simon, who has already announced plans to cancel subsidies for forestry as a prelude to EU integration.

"We need a wide discussion of this because we want to transform, not privatise, a state industry," said Magulák, whose Smrečina concern is planning to double sales over the next three years.

"We want to see Slovakia become a net importer of raw wood rather than an exporter," he added.

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