TIMBER MAFIA HAS BEEN DEFEATED

By Otar Kiria

Existing in Georgia situation in timber production is the hardest ever. In terms of increasing legal consumption of timber, illegal one as well as the export of it expands by day.

As the initiator of solving the above subject concerning problems appears the Ministry of Economics, Trade and Industry of Georgia. Thus, as always, there are a lot of contradicting innovations by Ministry. Despite all, probable outcome of the reform is still unclear. However, we may guess where timber and the amounts for that will circulate.
Before describing concrete principles and suggestions within timber reform, I’d like to inform that the above reform is initiated by Mr. Ivan Chkhartishvili the Minister for Economics, Trade and Industry of Georgia and Mr. Givi Japaridze the Chairman of Timber Industry Department of Georgia. As the contradictors at the presentation of the above initiative held in Ministry of Economics for NGOs, experts, economists, executives, policymakers and others, appeared the Ministry of Finance and the part of Non Governmental Organizations.
According to presented initiative, reform is based on principles as follows:
1. Important for entire timber complex is to establish the entire distribution system for resources and supply-demand. Timber is the state property and as all others has to be sold, stipulating also the fact that State should receive the compensation, or, in other words, amount due to market price. Existing system collects only 30% for state budget. However, the rest of 70% may compensate not only producer’s costs, but also save the reserves important for budget.
On the other side, doing that, we may disturb small businessmen involved in timber production. In return for that, we will “legalize” hidden part of business and “increase” budget revenues. Why do not we say anything about large businessmen those manage the same rules as middle and small ones, but fell the absolute majority of timber as well as important part of state budget?! Limiting small businessmen, large ones will seize the monopoly, contribute the same amounts as early and, finally, profit rather more then today. God knows! But gained experience has shown much. Should also be mentioned that Ministry of Finance, presented by Vazha Petriashvili, contradicted the opinion that “rejection of any act or the reform postponement is impossible with the purpose that population is incapable”.
2. Important is the mechanism of trading. According to suggestion by Ministry, timber has to be sold not in prices regulated by state, but in those of market, or, in other words, state should set the auction and establish the beginning price, later, purchases that who pays more. This will solve the problems of all sides. Budget receives increased amounts equal to market prices those include cost prices and profit. Besides, the above sample establishes and holds the controllable minimal prices favourable for market.
There’s no comment with this chapter, as the idea of it relates to that of the first one. Or, state will seize the monopoly. It’s acceptable, if not private interests are prior then those of country, which is too frequent in Georgia.
Mikheil Jibuti: “Would be better if reform sets about to work with resolving the question of privacy, or who will be the proprietor. Timber in Georgia is presented in some kinds: one is community forest those are in state property and were that of nation not long ago. Anyway, ancestor – the state, in this case, is not hidden. The second are forest, owners of which are dead – so called collective forest settled mainly along with villages. Reform, first of all, should define the proprietor: forests those are useless for industrial production has to be left in state’s ownership, with responsibility of maintenance and recreation. This is the essential part of forest in Georgia. The owner of forests those are useful for industrial production has to be defined in accordance with requirements implying not only utilization, but maintenance and future cultivation as well. As to collective forests, the owner of those should be defined in coincidence with local governing bodies. Moreover, that may be better if so, as they will utilize and maintain forests better then any other”.
3. Interesting is who will carry the auction on, which of institution. Fitting substitute for tender commission could be the private sector. After Timber Department announces the details about timber for trade, private company established especially for that matter may carry auction out suitably. That challenges the initiative to create the timber exchange that may be in the ownership of state or private sector.
The idea is too impressive; however, hard to carry out, because it’s still uncovered will the timber or the claim to fell it will be sold on the exchange. Rather important question is the owner of exchange. Who warrants, that even the private organization won’t carry the auction for own favour, if that’s not chosen with public decide, as none spoke about publicity at the meeting. Or why will entrepreneur trust to state that has fluctuating reputation?
David Saganelidze: “I understand the pretension of entrepreneurs in this business to government and state; that both of them provide not protective, but obstructive policy to the development of the above business. During last eight years, government prohibited timber export six times and did permit the same times, so it changed its position twelve times at all. Thereof, which of businessman wills to invest in this sector. Right because of that timber business in Georgia is less developed”.
4. Another important question is regulation of entering and exiting the market. Existing legislative basis implies licenses. For the end of system liberalization in view, Ministry suggests to define the object of license and fix the timber fell as an entrepreneurial business. Or, in other words, companies, material basis and qualification of which do respond to ecological and other requirements should be revealed and certified for the purpose not to injure forest in the process of felling the timber. As to business itself or timber trading, purchase of timber on the exchange, manufacturing and export has to be available for each enterprise wills.
George Shonia, Deputy Minister for Economics, Trade and Industry: “Everyone may purchase the timber, but if it does not own the qualification for felling, it should appeal to the one that is certified and experienced in it. Thereof, limits and interventions in subject will decrease to minimum, market will fill and turn competitive, as to ecological problems, in the above conditions, they’ll be kept at all”.
All highlighted above challenges the question: if entrepreneur enters the exchange and chooses the best of timber, or the most qualified enterprise, what meaning does the auction have? Seems like both sides have to pass the special exam, the one who fells, awarded lately with certificate in case if succeeds and purchaser that’ll be able to buy only if pays more then any other. It looks like anomaly that is rather hard then “double taxation” or any of other duplicated burdens, which are so accepted in our country.
Givi Japaridze: “Exchange sells not a timber, but the information about which kind of timber is on the sale: from where the material is; is the territory of material useful for industrial business; is there a road; what are the reserves, prices and other important details. Stipulating all highlighted above, purchaser chooses the material of entrepreneur that does fit to his requirements most. As to auction, everything here is too simple: exchange fixes the starting price, then the one who pays most purchases timber. Certification is important for forests, as feeling process has to be operated by professionals and not dilettantes, for the purpose of preserving health and other ecological norms”.
At any rate, the above mechanism disturbs entrepreneur, will it be felling, manufacturing or exporting. Process is favourable for only something or someone, which will make money not only from licenses, but also with some more ways like certificate, auction, exchange etc. Who knows how many new holes will appear later, when even dilettante notices them, but is too late?
All of the our respondents give the same answer to the above question: “It’s an only initiative and not the plan, introduction of reform within system requires additional amounts, time and energy”.
One more, if stipulate the above liberalization of prices and market as well as the fact that Ministry does not recommend to tax the export, it’s interesting how will they be able to keep low prices on timber inside country?
George Shonia: “For that purpose and the support of local enterprises employed in this field, rather important would be to equalize the local prices to international ones. For export and local meanings, we should extract the equal and total prices and subsidize local enterprises with an amount collected by timber business itself”.
It means that source will be budget amounts those were received by state up from own timber sold on own exchange. So, amount and the timber itself will circulate in the certain circle and will be lost somewhere near to center. God knows when will we reach that point! Should also be mentioned that Ministry of Finance protested the idea of subsidizing. “Budget is unable to cover the liabilities of wages and pensions and thereof is not capable to subsidize anything” – George Shonia said.