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Small Sawmill Operators Venturing to Siberia : Timber: As U.S. supplies decline amid environmental concerns, a Pacific Northwest group hopes to log the vast forests of eastern Russia.

November 08, 1994|From Reuters

PORTLAND, Ore. — A group of small family-owned sawmills in the Pacific Northwest has entered into a joint venture to log the vast forests of eastern Russia, hoping to secure supplies as U.S. logging declines.

The Global Forestry Management Group, or GFMG, made up of 10 small, independent forest products companies in Oregon, Washington and California, is shipping $3 million in heavy logging equipment to Russia's Khabarovsk region.

The equipment is part of a $9-million investment by the U.S. mills. They announced a joint venture late last month with two Russian partners based in Khabarovsk: Exprales and SovGavan Lespromhoz Joint Stock Co.

The two private Russian companies were formed to develop a forest-products industry in Khabarovsk, a part of Siberia lying along the Russian border with China, said Mike Haglund, an attorney representing Portland-based GFMG.

The joint venture includes the construction of a log-export facility at Sovetskaya Gavan, a former Russian naval base, and the leasing of about one million acres of Russian timberland.

Eventually, the venture could involve the investment of $40 million to $70 million, Haglund said in an interview with Reuters.

All of the U.S. mills depend heavily on timber from federal land in the Pacific Northwest, where harvesting has been curtailed to protect endangered species such as the northern spotted owl.

They hope Russian forests will eventually provide a new source of either logs or rough sawed lumber that can be turned into finished lumber products in the U.S. mills, Haglund said. GFMG negotiated the deal with help of a Russian attorney who came to the United States in 1990 to attend law school in Portland as part of an exchange program.

"The Russian people are quite excited about this," said attorney Larisa Rasskazova, who made five trips to Russia to aid in the negotiations. "They have small harvesting enterprises but they are on the verge of collapse."

Haglund's firm hired Rasskazova before she finished her studies at Lewis and Clark Law School because of her expertise with the Russian legal system. She had worked as a trial advocate and criminal lawyer in Leningrad, now St. Petersburg, before coming to the United States to study.

"She has been a very important player on the negotiating team," Haglund said. "If you are going to deal in Russia, the deal must be crafted in both languages."

Weyerhaeuser Co., based in Tacoma, Wash., has also been attempting to start a timber venture near Sovetskaya Gavan. But the company has run into repeated difficulties with the Russian bureaucracy, said spokesman Frank Mendizabal.

Mendizabal told the Portland Oregonian he wished the consortium luck with their joint venture, but he warned that "Russia is a difficult place to do business."

Rasskazova said Weyerhaeuser may have run into difficulty because it tried to move too quickly and expected immediate profits. "They try to capture too much, too soon," she said.

She said that while Russian business people tend to be tough negotiators, the reason it takes a long time to complete deals is that they lack experience in modern business management.

"Some of them still believe that capitalists are out to rip them off," she said. "We try to convince them that what we are proposing is good for both sides."

The first goal of the GFMG venture is to establish a working logging industry that first will sell timber to markets in China, Japan and Korea to raise capital, Haglund said.

Money from those sales will then be invested in construction of modern mills in Russia, which could produce rough sawed lumber for export to the United States, where it would be turned into finished lumber.

The import of raw logs from Russia to the United States is currently prohibited unless the logs are heat-treated to kill moths and other pests. No plants exist yet to heat-treat the lumber, Haglund said.

Rasskazova said the group plans to introduce modern, selective-cutting forestry techniques to Russia to replace traditional clear-cutting. The techniques include helicopter logging and other methods designed to protect the environment.

The U.S. partners include the lumber companies and two trading companies. They are Avison Lumber Co., Croman Corp., Lyons Hanel Lumber Co., Ochoco Lumber Co., Sun Studs Inc. and S.L. Vollen Co., all based in Oregon; Jones International Services Co., S.D.S. Lumber Co. and Columbia Vista Corp. of Washington, and Hi-Ridge Lumber Co. and Sierra Forest Products of Northern California.

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