The logging industry, a cross-section

Denied, minimized, covered-up, the looting of the domestic forests comes to light in all its hideousness. What the media and regular folks have reported / found is now confirmed at the highest level. The accusations are serious, and the fact that a minister accuses the former government of trying to hide the facts should lead to repercussions.

The Minister of the Environment, Water and Forests, Costel Alexe, recently stated in a press conference that in Romania, approximately 20 million cubic meters of wood are cut illegally in one year.

An analysis conducted by Frames shows that, beyond the legal businesses of the logging sector, the black timber market has grown spectacularly, and has surpassed the segment monitored by the state.

According to data from the National Forest Inventory, 38.6 million cubic meters of wood are cut annually in Romania. Out of that, only 18.5 million cubic meters are logged legally, for which taxes are paid, while the remaining 20 million cubic meters are trees that are logged without any legal documentation, most of them from privately owned forests.

Costel Alexe said last week that the biggest volumes of illegal logging are seen in the privately owned forests, then in the forests owned by the local public authorities and, thirdly, in the forests managed by RNP Romsilva.

The analysis by Frames shows: "The situation in the area of logging and timber processing tends to worsen from one year to the next, as demand for timber exported from Romania is rising significantly, and the authorities are not taking the steps needed to fight illegal logging".

"It's possible that, if the vote of no-confidence had failed and the Dăncilă government hadn't been replaced, the minister would have denied the existence of these numbers, even today. Me, as a minister of the Environment, Waters and Forests, I not only accept the data in the study, but I have decided that I would support Mr. Marin Gheorghe (ed. note: the director of the Forest Inventory) with all the financial and logistic resources in order to conduct the 3rd cycle of the National Forest Inventory.

Among other things, the minister mentioned that the first thing he wanted to see when he came to the ministry was the report of the National Forest Inventory: "I was familiar with the subject from the discussions of the Environmental Commission from the Chamber of Deputies and from articles in the press, but I was curious to see the official version. I found some shocking figures there, so shocking that upon first reading them it was hard for me to believe them. I called Mr. Marin Gheorghe, the person in charge of the IFN (ed. note: National Forest Inventory), to explain to me exactly how the entire documentation process was carried out, which techniques were used, what the indicators were, and after listening to all the explanations, I fully accepted that report. The data there is real, I can confirm today that, in Romania, in a year about 38.6 million cubic meters of wood gets cut every year, 20 million more than the official figures. The fact that this report has been kept in a drawer for more than a year by the former leadership of the ministry is all the more serious".

The official is of the opinion that the former Government tried to hide the fact that under its term over 60 million cubic meters of timber was logged illegally: "Probably, if the success of the censorship motion and the replacement of the Danube Government had not been successful, and today the ministry would have denied the existence of these figures. I, as Minister of the Environment, Waters and Forests, not only accept the data from this study, but I decided to support Mr. Marin Gheorghe (no director of the Forest Inventory) with all the financial and logistical resources to carry out the III cycle of National Forest Inventory.

Cycle no. III which, by the way, was also delayed by the PSD for more than a year. They probably wanted to permanently cripple it, as they did with SUMAL and the Forest Inspector".

According to Frames analysts, the illegal logging should also be directly tied to the situation of the companies in the sector.

"As most companies are micro-enterprises, and the median debt is quite high, they do not have enough capital to survive the market conditions and, it's possible that many of them, being understaffed, operate on the edge of the law in order to to keep their business alive", the quoted sources say.

They also state that the state is also guilty to a large degree for the expansion of the illegal logging phenomenon: "Beyond the cases presented by the media, and the reports from NGOs that showed that among the beneficiaries of illegal logging would be well-known factories timber and furniture makers from Romania, we have only seen victims, unfortunately, (one dead and 16 other cases of aggression on Romsilva rangers in 2019) and too few prosecutions, or administrative sanctions against those who do illegal logging''.

According to experts, a clear difference must be made between those who legally exploit forests in Romania and those who do so illegally.

Frames research points out: "It is essential for the new Government to come up with concrete measures to protect forests and to limit logging drastically. Prohibiting timber exports, at least for a few years, could be a viable solution for the environment, but disastrous for businesses in the industry. So a middle-of-the-road solution must be found, which will stimulate the sustainable exploitation of forests. Tighter regulation of the business, including by significantly raising taxes for timber harvesting, similar to that practiced in other Western countries, seems to be the best solution".

Upon his appointment, Costel Alexe announced that he has in mind a series of measures that would help stop illegal logging: "Regarding the traceability of wood, next year the state budget will surely include the amounts for the purchase of satellite maps (...) GPS mounting on the vehicles that will transport the timber is mandatory. We will strengthen the rangers' monitoring capability (...). The environmental policies concerning forests will not be devised only with the specialists from the ministry, because I think that the civil society there are people with expertise maybe as good or better than our colleagues who are part of the ministry today".

• Forest world in numbers

This year, the logging and wood processing business will reach an-all time high, according to the Frames study. The research points out that the over 6000 companies active in the industry will see an estimated turnover of over 2.5 billion euros, up more than 100 million euros over last year's figure.

According to Frames, in 2018, the companies' combined turnover reached 11.43 billion lei (2.4 billion euros), up 800 million lei YOY and double the 2010 levels (5.48 billion lei). The profitability of the sector followed the same trend, rising from 480.1 million lei in 2010 to 678.1 million lei last year.

The analysts of the consulting company say: "2019 has brought a growth of the business for the overall sector, with a focus on the forest areas of Bucovina, Maramureş and Moldova. Companies have invested significantly in the expansion of operations, from machines to labor force, and the estimates go towards a new record level of turnover, of over 2.5 billion euros ".

Among other things, the cited analysis mentions: "A recent statistic, made public by Greenpeace, estimated that Romania loses more than 3 hectares of forest every hour. In the absence of legislation limiting the disappearance of "green gold", with authorities only paying lip service to the state of the forests, massive deforestation, legal or illegal, has escalated in recent years.

As the business is relatively simple and under-regulated, logging has attracted more and more investors concerned with cutting as fast and as much as possible, looking for profits with many zeros.

That's how it has come that the number of companies active in logging and timber processing has significantly increased since 2010, from 3937 to 6189 companies in 2018 (NACE code 220 and 1610)".

According to Frames data, in 2018, in the field of logging, 3,305 companies were active, with 15,480 employees. They ended the year with turnover of 3.68 billion lei and a combined profit of 320.8 million lei.

At the same time, the wood processing sector (wood cutting and planing) had 2,884 active companies last year, with 23,590 employees. Their combined turnover exceeded 7.74 billion lei, with a significant combined profit, of 357.2 million lei.

Adrian Negrescu, manager of Frames, says: "After 30 years of capitalism, Romania has become a resource-drained country. From oil to gas, mineral water, gold and forests, the authorities sold the country's resources for pathetic royalties. The forest has become a successful business, in a country that isn't concerned enough with ecology, resource sustainability, clean air, the future".

• The X-Ray of the players in the forest

Holzindustrie Schweighofer, recently renamed HS Timber Productions, has been for years the most important player in the market.

According to the Frames analysis, the Austrian-owned company closed last year with a turnover of 1.78 billion lei (374 million euros) and a profit of 34.5 million lei (7.23 million euros).

"The Austrians recorded a low profit last year compared to the ones recorded in their heyday of 2010-2016, when they reported profits that were constantly above 200 million lei, with the record being set in 2013, of 431.4 million lei. But overall, the company is the largest and most powerful player on the market'', analysts say. Last year, the Austrian company employed 1779 people, twice as many as in 2008. Since 2003, the company has invested 800 million euros in Romania.

Regarding the sustainability and traceability of the timber, Dan Bănacu, the general manager of the company, thinks that the system must be refined, as the initiatives of the company that he is leading complement the governmental ones.

HS Timber Productions data shows that, currently, the company processes about 6% of the timber brought to the market placed on the market in Romania, and last year imported 46% of the processed timber, and 54% was purchased from the domestic market.

According to its representatives, the company buys timber from 14 European countries, of which three are non-EU states (3% of the raw material).

According to the representatives of the company from Austria, this year, the volume of imports equaled the volume of purchases from Romania, as the Romanian timber is more expensive than the one from other countries of Europe - 86 euros / cubic meter in Romania; 65 euros / cubic meter in Austria; 50 euros / cubic meter in the Czech Republic; 55 euros / cubic meter in Germany; 65 euro / cubic meter in Slovakia. As a result, the exports of our country decrease due to the shrinking competitiveness of the forestry sector - the Romanian timber exports have decreased by 45% -50%, lately, and those of HS Timber Productions by 30%, as Dan said Bănacu, in October.

The next positions in the chart of the companies involved in the exploitation of Romania's "green gold" were held in 2018 by Kostamonu Romania SA, from Mureş, with a turnover of 705.2 million lei (160.3 million euros) and Karelia Upofloor SRL, from Maramureş , with a turnover of 180.5 million lei (41 million euros).

For both companies, business growth over the past ten years was significant.

In 2010, for example, Karelia Upofloor SRL reported a turnover of 50.4 million lei, and 84.5 million lei in 2015. Kostamonu Romania SA saw an even bigger turnover increase, from 158.1 million lei in 2010 to 705.2 million lei last year.

The chart further includes, ranked according to turnover, by Barlinek Romania SA (Bacău) with business of 156.1 million lei (35.5 million euros), Xilobaia SRL (Maramureş), with 119.9 million lei (27.2 million Euros), Lacul Codrilor SRL (Alba) with 92.2 million lei (21 million Euros), Silvania International Prod SRL (Bistriţa-Năsăud) with 89.7 million lei (20.4 million Euros), Forestar SA from Bacău (69.4 million lei / 15.8 million Euros), Cerasus Avium SRL from Bucharest (63.4 million lei / 14.4 million Euros) and Virix Prod SRL from Dâmboviţa (55.1 million lei / 12.5 million Euros).

From a regional point of view, most companies operate in Suceava (758), Harghita (451), Argeş (382) Maramureş (334), Vrancea (332), Neamţ (316), Bistriţa Năsăud (275), Bacău (236) and Bihor (235).

According to the Frames analysis, the average turnover in 2018 was 1.59 million lei and profit was at approximately 100,000 lei, given that over 90% of the active companies were micro-enterprises.

"The study of the sector shows that the market is largely controlled by a few players who make up over 80 percent of the total turnover. It is a business that grows from year to year and in which foreign investors, especially Austrians, Dutch, British, Cypriots, Poles and French, are in the forefront ", Frames analysts say.