Wood industry in trouble

Andres Reimer
, majandusajakirjanik
Copy
Please note that the article is more than five years old and belongs to our archive. We do not update the content of the archives, so it may be necessary to consult newer sources.
Photo: Tairo Lutter

Forest owners and companies are set to declare an emergency today, asking contractual partners not to punish them for a situation where it is impossible to haul timber out of flooded forests.

Heating companies see the joint declaration as an attempt to charge more for previously agreed upon shipments and see no way to accommodate their struggling partners.

“A force majeure situation can be declared on the level of mutual contracts in Estonia. We want to draw the attention of sector participants to extraordinary weather conditions,” said Henrik Välja, head of the Estonian Forest and Wood Industries Association (EFWIA).

“We are seeking understanding of clients and partners in the sector regarding the situation that can lead to difficulties in performing contractual obligations, and we ask partners not to resort to contractual penalties as a sign of good faith. We are not looking for financial aid or concessions from the state.”

Industries say that heavy precipitation and warm weather have made it impossible to work in a lot of forests. Felling and extraction have been halted in several places to avoid damaging the soil.

The emergency first and foremost affects the heating market and producers, while its effects are felt by all sector participants to some extent.

“Several companies have switched to minimal production capacity or have been forced to order work stoppages due to shortage of raw material. Because the wood sector is one of the largest economic sectors in Estonia, the situation will have a broader effect on the entire economy, while it is too early to assess its extent,” Välja said.

The government can declare an emergency that will result in special measures, but the industries’ plea has found lukewarm reception in the environment ministry.

“While the sector is dealing with an unusual climatic situation, this is not an emergency,” said Deputy Secretary General Marku Lamp.

Heating companies will not be swayed

“Hopefully, it will be possible to solve this matter without declaring an emergency. We urge all participants to show understanding, consider the possibility of supply problems.”

Member of the board of Rakvere Forest Cooperative Meelis Matkamäe admitted difficulty performing contracts. “The practical side of things is that declaring an emergency gives the industry an excuse for failure to deliver in full should partners start demanding performance of obligations,” Matkamäe explained. “Above all, it’s so all participants would understand the situation.”

Representatives of heating providers see no reason to relax suppliers’ contract conditions.

“Utilitas has fixed contracts with suppliers based on our partners’ responsibility, and we are sure they will be complied with,” said owner of Estonia’s leading heating provider Kristjan Rahu.

Head of Eesti Energia subsidiary Enefit Green that provides heat for the cities of Paide and Valga, Aavo Kärmas, admitted he has heard signals the situation is almost as bad in Estonian forests as it is in Latvia that has already declared an emergency.

“While we do have a warm winter, suppliers always want more. We have contracts in place, and there is no need to alter them at this time,” Kärmas explained. “Changing the price is a protracted process and cannot be launched based on a single statement.”

Postimees talked to another heating sector entrepreneur who wished to remain anonymous and was far less restrained than their colleagues. “These kinds of situations need to be anticipated by both heating providers and wood chip suppliers and sufficient stockpiles maintained as it is not so extraordinary,” they said.

“Suppliers have made their offers based on favorable weather conditions, and now they’re simply asking for more money. But heating companies do not have to pay for suppliers’ risks. They have signed the contracts and have to ensure sufficient and timely deliveries.”

Stockpiling criticized in the past

Agencies have discouraged stockpiling in the past to keep prices low. That is why tenders have been based on price alone.

“Were we to agree to unexpected demands of higher prices, we would be the ones paying for suppliers’ risks or have to hike the price for the consumer,” the anonymous entrepreneur said.

“Claims that people will switch to natural gas instead of wood are baseless as it would constitute a major price hike and losses for heating providers.”

Head of state forest manager RMK Aigar Kallas also saw no reason to declare an emergency and said that the weather is not such a great obstacle today. “One simply needs to find the areas that can still support the weight of the equipment,” Kallas said.

“Roads are too soft to allow access; however, even a slight drop in temperatures would help the situation and make the roads trafficable. The situation will become clear in a few weeks’ time when we will see whether temperatures will drop enough for us to start extraction.”

RMK had no trouble meeting its 3.8-million cubic meter target last year. Kallas believes that declaring an emergency would rather harm the wood industry as it would impact its reputation in the eyes of foreign partners. “If we shirk our obligations pointing to an extraordinary situation, we will not see orders next year,” he said.

Gas provider Eesti Gaas refuted claims heating providers have turned to gas because of the extraordinary situation. “Warm weather means that fuel consumption is too low to show any kind of anomalies in gas consumption,” said member of the board Raul Kotov.

The timber and wood industry makes up approximately 5 percent of the Estonian economy and employs nearly 36,000 people.

Comments
Copy
Top