How Russia’s $26 Billion Bet on Timber Turned Into a Logging Free-for-All
Priority Investment Projects, or Persistent Illusions?
A timber reform that promised transformation but delivered mostly paperwork
Part I – The Facts on the GroundA grand bargain was struck. In return for vast, long-term leases on Russia’s immense forests—some stretching for 49 years—companies pledged to build the sawmills, pulp plants, and processing facilities that would catapult the timber industry into the 21st century. The mechanism, known as Priority Investment Projects (PIP), was meant to turn the key on modernization.
The goal was clear: to move a historic reliance on raw log exports up the value chain. The state offered a significant incentive—preferential lease rates—foregoing potential revenue in the short term for the long-term prize of a developed, high-tech timber sector.
Yet, a recent audit of four key forest-rich regions—Arkhangelsk, Vologda, Irkutsk, and Krasnoyarsk—paints a picture of a system struggling to find its footing. The findings reveal a gap between ambition and execution that has proven costly.
The state has forgone nearly 26 billion rubles in revenue through these preferential leases. In return, the audit suggests, it has often received less than promised. The utilization rate of timber allotments under PIP has not exceeded 60% since 2015. Nearly a third of all projects initiated since 2008 have been excluded from the program for failing to meet commitments.
Perhaps most tellingly, the export of unprocessed round timber remains a dominant feature, even as new processing capacity was the program's raison d'être. Of the 140 projects formally completed, 69% failed to reach their established targets.
The diagnosis from auditors points less to bad actors and more to a system built on shaky foundations. They note a lack of unified federal criteria, vague objectives, and no formal performance indicators. Regions approved projects without rigorous analysis of demand or regional development plans. Once a project is formally "completed," effective oversight seems to vanish, even as companies retain their valuable, long-term access to the resource.
Part II – Analysis & The Path ForwardThis is not a story of simple failure, but of a complex policy experiment revealing its design flaws. The PIP mechanism, in its current form, appears to have created a corridor of expectations where having the incentive did not always necessitate delivering the result.
The fundamental issue is one of accountability within a framework of immense opportunity. Distributing a precious natural resource for half a century requires ironclad covenants and relentless follow-through. The audit suggests the system has relied too heavily on goodwill and not enough on enforceable, measurable benchmarks.
However, the value of such a rigorous audit is that it provides a clear blueprint for correction. The proposed remedies are not cosmetic; they aim at a fundamental redesign:
Clear, Quantifiable Metrics:
PIP selection must be based on hard, measurable outcomes, not declarations of intent.
Competitive Allocation: Moving toward auction-based allocation of forest plots would introduce market discipline and transparency.
Enforceable Reclamation Clauses: The system requires a clear and inviolable mechanism for the state to reclaim resources if they are left unused or used contrary to the project's stated, value-adding goals.
The crossroads is now evident. Russia's forest wealth remains vast and underexploited in terms of its finished potential. The PIP framework was a recognition of that potential. The audit is a recognition that the framework's architecture needs reinforcement.
The coming response will be telling. Will the proposed reforms—creating federal-regional commissions, strictly defining "deep processing," and installing a true performance covenant—be implemented? If so, the PIP could yet become the engine it was intended to be. If not, the risk is a continuation of the status quo: a wealth of resources awaiting the industrial transformation that has been, so far, more promised than realized.
The timber, as they say, is still there. The question is what will finally be built with it.
