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Ruukki Group to pull out of pulp mill and sawmill project in Russia

External Reference/Copyright
Issue date: 
November 11th, 2010
Publisher Name: 
International Forest Industries
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Timber Procurement


Ruukki Group, a Finland-based company that focuses on wood-based industrial business operations, has scrapped its plans to build a large pulp mill and sawmill in the Kostroma Oblast in Russia. reports Helsingin Sanomat..The company did not accept the contract changes requested by the Kostroma authorities and decided to pull out of the project. 
Ruukki is accusing the Kostroma local administration of contract violations and plans to seek damages in a local court of first instance.
The company had planned to set up an 800,000-ton-a-year pulp mill in the town of Manturovo. The facility would have commenced its operation in a couple of years’ time. Adjacent to the pulp mill, a sawmill would have been erected, the chip produce of which would have served as pulp raw material. 
 The Helsinki Stock Exchange has reacted strongly to the company’s announcement to ditch the project. On Monday, Ruukki Group’s stock price fell by over a fifth. Presumably investors primarily fretted over the profits that will now never materialise, for so far Ruukki has only invested a mere EUR 4 million in the Kostroma project.
Last spring everything was still going as planned. Ruukki collected capital of EUR 337 million from investors. This would have been used to part-finance the billion euro project. Currently the money rests in a bank account.
 The crucial shift took place in September, when the project’s Russian “godfather”, Kostroma governor Viktor Šeršunov, died in a car accident near Moscow.  Russian President Vladimir Putin then appointed Igor Sulnjajev as Šeršunov’s successor, but with Sulnjajev the Ruukki leaders have failed to form the kind of warm and functional relationship that they enjoyed with his predecessor. In Russia personal relationships have more weight than in the West. 

Ruukki Group CEO Matti Vikkula heavily criticises the Russian authorities’ behaviour.  “It feels utterly incomprehensible that the Russian Federation first announces it wants large-scale forestry investments in the area. And then, just two months after we have completed official contracts on this premise, it turns out that they want to revoke them”, said an exasperated Vikkula.  “This decision will regrettably have a definite impact on the development of international investments in Russia.”
In May 2007, Ruukki Group signed an investment contract with the Kostroma authorities regarding a pulp mill and a sawmill. Later, an application to obtain priority investor status was sent to the Russian Federation.

The priority status would have made it possible for Ruukki to acquire felling rights without having to go to auction for raw material.  In Russia, the federal government owns the nation’s forests, so the priority status is decided in Moscow, not in Kostroma. However, in the original investment contract the local administration had promised to second Ruukki’s application, but it failed to do so.

 After the change of governor the Kostroma authorities started requiring changes to the contracts. In Ruukki’s view the requirements were groundless, for the company felt it had followed the contracts minutely.



Extpub | by Dr. Radut