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How a new factory in Karelia will profit off of the Karelian forests without endangering them
The production of wood pulp is one of the most profitable uses of forest resources for any country. In fact, its added value is much higher than in most other industries. The cost of wood pulp obtained from one cubic metre of wood is more than 200 USD. The export of one tonne of wood pulp is at least five times more profitable than exporting the wood it was made from. And demand continues to grow. To establish its position in this lucrative market, Russia needs modern factories. One such factory is already under construction in Karelia. The Segezha-Zapad project will pave the way for a new-generation timber industry that meets highest standards of environmental protection.
Russia currently places second in terms of wood resources and boasts the largest wood-covered territory in the world. However, although a shift towards the production of pulp and paper will determine the success of the country's future forestry sector, Russia still does not rank amongst the top 10 international manufacturers in the industry. The global demand for wood pulp continues to grow, creating a market with enormous potential.
In 2019, the Russian Segezha group, an affiliate of JSFC Sistema, launched the Segezha-Zapad investment project. This project will help reduce the massive imbalance between Russia's rich supply of natural resources and its role in the global wood pulp market.
The Segezha group owns the Segezha Pulp and Paper Mill, which has spearheaded the pulp and paper industry in the Northwestern Federal District. The Segezha-Zapad project envisages the global modernisation of the Segezha Pulp and Paper Mill to make it a global leader in the production of wood pulp.
Today, the Segezha Pulp and Paper Mill produces 380,000 tonnes of unbleached kraft paper every year. It is used to make industry-purpose and consumer paper packaging that is slowly replacing plastic. Segezha currently exports about 80% of its kraft paper around the world thanks to increasing international demand brought on by concerns about the environment. Paper bags are 7 cents more expensive than plastic ones, but most companies are prepared to bear the extra expenses to protect the planet.
The modernisation of the Segezha mill will facilitate an increase in the production of kraft paper by up to 450,000 tonnes. The mill will also be able to expand their variety of products, allowing for a total manufacturing volume of one million tonnes. The business plans to produce bleached wood pulp: 300,000 tonnes from broadleaved wood and 250,000 tonnes from conifer wood. Broadleaved wood pulp is used in the production of book paper and cardboard, developing paper, paper filters, wallpaper, and the basis for other coating materials. Conifer wood pulp, on the other hand, is used to make high-quality paper for writing, printing, and painting. The demand for these types of wood pulp is also experiencing stable growth.
Such intensive modernisation scale requires significant investment. The Segezha-Zapad project will cost roughly 100 billon RUB. Segezha Group, one of the leading wood and paper groups in Russia, will invest one-third of this amount from their own funds. The remaining amount will be raised using various financial instruments, possibly including IPO.