The joint-stock company “Latvijas valsts meži” (LVM) has marked the twenty-fifth anniversary of its existence at a moment when the fate of the company and of the forestry sector hangs in the balance, dependent on the state's forthcoming decisions about the sector's development.
“The state must be the locomotive of economic life, pulling everything along behind it. The state must not allow the green course to be abused, because that would go on to cause enormous losses,” believes Pēters Putniņš, Chairman of the Board of LVM.
“Latvijas valsts meži”, on the basis of public assessment, has received the brand of the greenest company in Latvia and took second place among those companies recognised as the most humane. A brand – does it capture what people think of you?
What people think of us is merely the consequence. The foundation of it all is the work we do. Greenness is inherent in our very foundations. We create the new forest, we tend it, we shape landscapes. That is a reflection of the whole substance. Compensating for the results of logging is also a green activity.
Our employees are in the vanguard of the green movement, and the public has noticed it. Of course, ensuring greenness, humaneness and sustainability takes money.
What will the company's profit be this year?
We have submitted a forecast to the Ministry of Finance of 210 million euros, and we will meet it. This year we can do that. The development budget too – infrastructure development in the forest, science and innovation, and the renewal of recreation sites – we can secure that.
Has the felling estimate for the next five-year period been approved?
No. Everything has been calculated, and we hope for the government's approval. Following sustainable forest management models and scientific principles, the maximum felling volume calculated by the State Forest Service for the next period would be around 6.5 million cubic metres a year, which is just under half a million less than before.
But... there is still no clarity about biotopes. We expect that when the government approves the results of the nature census and what follows from them, economic and social interests will also be taken into account, because it is precisely an economic result that is expected of us – a state joint-stock company. Many thousands of jobs in the regions likewise depend on our operations. The whole sector depends on us. If an economically ill-considered decision is taken, half of the harvested cubic metres will be withdrawn from circulation. At current prices, that would mean the state losing hundreds of millions of euros in profit. What is more, it is the processors who multiply all the added value. Then the whole model, which is currently in balance, collapses.
Now is the decisive moment – defining the maximum felling volume and approving the results of the biotope census, and accordingly setting out clearly and comprehensibly, in law, what additional areas are to be protected. It is important to know how large an area of state forest we will be able to keep in economic circulation.
Is it true that the managers of the state forests will buy up restrictions in private forests, thereby compensating forest owners for the losses they incur?
No such decision has been taken yet. The question is whether it would be financed from the state budget or the company's. We are a commercial entity and can earn more or less depending on the market situation. What matters is allowing LVM to earn and to make its contribution to the budget; then what is needed can be financed from the budget. Of course, one has to consider the impact this has on LVM, because in buying back land we would essentially be buying an illiquid asset. Land in itself is a value, but if you cannot do anything with it, it is an encumbrance and a factor that weakens the company's balance sheet. There are many technical questions too. Who will be first, who will we buy from? At what price? What happens if the property is encumbered? If a person lives on that property and their house stands in a biotope, are we going to buy the house with the people in it? All of this would need to be thought through at state level. We are ready to make our contribution through dividends, and we draw attention to the fact that ill-considered decisions can land you somewhere other than where you hoped.
What is the current situation in the timber market?
The situation is twofold. It is better than it might have been, yet for now there is not too much optimism. The market is fairly stagnant; naturally, we in the forestry sector would like growth. Forecasts indicate that the business environment shows signs of inflation and there is no development. There is no catastrophe, but no growth either. The main task is to hold on and lose as little as possible. We too are shifting the company onto an economy footing. We are “optimising” and looking for ways to become more efficient. That is the task for this year and next.
If the stagnation drags on, if sales volumes do not grow, the sector too will in time be forced to do something. If all the restrictions were dropped, we could supply far more material, the sector could process far more and exports could rise. Our capacity is greater than what we use, and large investments were made in the sector as recently as three years ago. Back then confidence was greater than it is now.
Have you received an instruction to cut all expenditure by five per cent?
We have no such task, because we are not part of the direct state administration. But we are a commercial entity, we understand the situation much sooner and better, and we have been preparing for it for a long time. This is now something of a belt-tightening period. There are various routes to achieving efficiency. You have to look at the process, at how we can produce more cheaply, which functions we can centralise and how to arrive at more efficient management. Of course, that may also have a bearing on the staff list, but we are not planning anything that would have a negative effect on production figures. First we make the process more efficient, and then we look at whether we can reduce headcount.
To reduce the CO₂ footprint, there is an idea to build a small-diameter timber processing plant in Latvia. Will “Latvijas valsts meži” take part in this project too?
In building the plant, no, because we are a state company and we do not plan to get involved in activities that private capital can do perfectly well. But if deep timber processing is planned, the question is one of raw material. We have an interest in having customers who want the small assortments that would then no longer be exported unprocessed to Scandinavia.
Will there be a peony festival in Kalsnava next year?
There will! We will carry on maintaining the arboretum in Kalsnava as a wonderful place to learn and relax; we have exited the ornamental plant market. Not because anyone told us to, but for economic reasons. Besides, over these years, and not without our help, that market has developed. So we will leave it in private hands. I think that is a fitting decision.
Did similar reasoning prompt the withdrawal from the joint venture with “Latvenergo”?
That is slightly different. Every company has its own specialisation and should do what it does best. We are not competent in producing and trading electricity. You have to look at how those decisions came about. A partner was needed who could offer land, and we can offer it just as well without being involved in other companies. We also find it hard to assess the future of this business, so we are glad to be back in our own niche and that the government supported our initiative to withdraw from the project. In accordance with the law, we will offer land for lease at auction to all who want it. A key question is the restrictions on economic activity due to nature reserves. Just as with “Latvijas valsts meži”, so too with wind farms the government will have to decide how far the state will let wind energy develop, or whether it will restrict it because of biotopes, just as it does forest management.
What has been the nicest thing this year?
The nicest thing – “Latvijas valsts meži” turns 25 this year! The company's development has climbed uphill and we have held our position there. In this time we have paid two billion euros into state and municipal budgets, built almost 9000 km of forest roads and created 300 tourism sites. We have supplied the national economy with 144 million cubic metres of timber, and at the same time the volume of timber in the forest, the growing stock, has not fallen over these years but grown!
And the hardest?
The hardest thing is wondering how and how far the government will support us, and how seriously the state will come down on the side of production and economic growth. The state must be the locomotive of economic life, pulling everything along behind it. That is why the government must not allow the green course to be abused, because that would go on to cause enormous losses both to the state and to rural residents. Wondering which way this card will fall is the hardest thing of all.
Are we strong enough to say – no?
It is a myth that Europe makes us do everything. At least half of the problems are our own handiwork. We do not have to follow in anyone else's wake. The state must defend the interests of its citizens and tell falsehood from truth. That is the most important thing.
The interview was first published on 5 November 2024 in the newspaper Latvijas Avīze