Biorefinery – Est-For Invest

Est-For Invest and State Forest negotiate joint memorandum of understanding

The goal of the memorandum of understanding is to word common interests, which would serve as the basis for conclusion of a potential long-term supply contract. Based on the supply contract, the State Forest Management Centre (RMK) would supply ca 500 000 cubic metres of birch, spruce and pine pulpwood to the biorefinery annually from summer 2022 over a period of 15 years.   

According to RMK Chairman of the Board, Aigar Kallas, RMK would like to reach the conclusion of a memorandum of understanding, because the planned biorefinery would give the possibility to add value to pulpwood in Estonia which currently is mostly exported. “At present, RMK sells 86 per cent of birch pulpwood, 55 per cent of spruce pulpwood and 61 per cent of pine pulpwood for export. If it stayed in Estonia, then everyone would win. A long-term supply contract with an industry in Estonia would guarantee a higher price for forest owners, a stabile wood market and fewer price fluctuations,” he said.

The memorandum of understanding aims to define common interests, whereby the amount of the potential supply contract would be approximately 500 000 m3 of pulpwood a year. Half of it would be birch and the rest, spruce and pine. This makes up about 50 per cent of RMKs annual volume of the given pulpwood and 14 per cent of the total timber sold by RMK annually.

Previous practice
According to Est-For Invest Chairman of the Management Board, Margus Kohava, long-term contracts are commonplace for capital-intense industries. “Conclusion of a memorandum of understanding or a future potential supply contract does not presume changing legal acts, regular procedures nor RMK strategies. The only difference would be concluding a 15-year contract instead of a 5-year contract, which is also in correspondence with Estonian legislation,” he said.

In the past, RMK has concluded a 15-year supply contract with Estonian Cell AS for adding value to aspen locally. With the establishment of an aspen wood pulp industry, RMK gained a domestic buyer and a processer for low-value timber that up until then had been exported.

Forest owners would earn more
If a biorefinery were built, then a local company with stabile demand for raw material adding value to timber would enter the market. “It is likely that pulpwood would cost somewhat more in the future compared to now. So RMK would earn more profit selling the same volumes. Birch pulpwood might make up about half of the planned biorefinery`s roundwood demand. Up until now, earning income from birch forests has been a problem for Estonian forest owners, as there has been no stabile demand for birch,” said Kohava.

According to the wood marketing strategy, RMK sells 85 per cent of the total annual timber volume on the basis of long-term contracts with a negotiated price and 15 per cent using other sales methods. If the negotiations to conclude a memorandum of understanding are successful, then RMK will make the sales announcement regarding the pulpwood 15-year long-term contract conclusion in 2019.