17 March 2009 Russian Forest Based Industries 2008 Results Lesprom

Pulp and Paper

Growth of pulp and paper production, publishing and polygraphic activities
in 2008 was very weak (+0.8% compared to the similar indicator of 2007).
Production volume growth of pulp, wood pulp, paper, paperboard and its
products increased by 0.3%, mainly because of growth of paperboard (+5.6%)
and cardboard boxes (+4.3%) production.

Considerable retention of pulp and paper production growth in 2008 compared to

the prievous year accounts for decline in demand of major consumers of market
pulp.

Table 35. Major pulp and paper products output in 2008, thousand tons

Product Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Paper 349 331 353 336 339 337 335 339 320 319 312 302
Paperboard & cardboard 302 287 317 310 348 305 320 325 315 304 302 257

Table 36. Major pulp and paper products output in 2008

Product 2006 2007 2008 2008/2007, %

Pulp cooked, thousand tons 6,045 5,954 5,880 99

Market pulp, thousand tons 2,379 2,418 2,287 95
Paper, thousand tons 4,004 4,064 3,973 98
Newsprint paper, thousand tons 1,993 1,982 1,988 100
Offset paper, million sq m 6,744 6,355 6,125 96
Writing and copybook paper, thousand tons 69.5 69.7 65.0 93
Printing paper, thousand tons 7.4 5.0 4.6 92
Coated paper, thousand tons 1.0 0.9 0.7 83
Paperboard, thousand tons 3,444 3,494 3,693 106
Containerboard, thousand tons 2,493 2,568 2,815 110
Cardboard boxes, million sq m 2,243 2,687 2,907 108
Paper bags, million items 564 595 552 93

In the second half-year of 2008 there was a considerable decline in demand for
pulp and paper industry products both on domestic and foreign markets.
Enterprises selling products abroad suffered most of all; above all, these are pulp
and paper mills which sold pulp on external markets. The crisis hit mostly those
enterprises which do not have diversified markets oriented for several large product
consumers. These companies had to review their production plans for 2009 and
alter them decreasing planned output.

Demand for all kinds of paper decreased on the domestic market, prices for this
product also fell by 30-40%. Production cost grew at that, partly because of growth
of fuel prices.
One of the specific characteristics of Russian pulp and paper industry is that there
are completely no capacities producing highly effective products. Many office paper
grades are still not produced in Russia. Among these grades are high-quality paper
for artistic printing, i.e. art paper. Diversity of packaging paper is very limited,
especially of packaging for food products. Numerous Russian-made paper grades
(for example, paper for office appliances, coated printing and book & magazine
paper) loses in quality to its foreign competitors.

Following the results of 2008, about 165 pulp and paper mills built as fas as in the
1970s, are still in operational or half-operational state. Along with that, just ten pulp 10 Russian pulpmills
and paper mills produce about 70% of all Russian pulp and 80% of all paper, for produce 70% of pulp
example, Bratsk and Ust-Ilim timber processing complexes in Irkutsk region, Kotlas and 80% of paper
pulp and paper mill (all belonging to Ilim Group timber processing holding),
Arkhangelsk pulp and paper mill, Segezhskiy pulp and paper mill, Kondopoga,
Solikamskbumprom, Nizhniy Novgorod’s Volga, Neusiedler, Syktyvkar and
Svetogorsk.

Under conditions of financial crisis of the second half-year of 2008 enterprises of

North-West Timber Company (SZLK) – Neman pulp and paper mill and
Kamennogorsk offset paper mill – found themselves in a complicated economic
situation. Total debt of SZLK is about 6 billion roubles. Segezhskiy pulp and paper
mill (Karelia) also curtails production output.

For many industries, growth of export volume is regarded as a development

indicator, but in this sector export trend of products sales (84% of pulp and 50% of
paper and paperboard) has become a major problem.

For the last ten years, despite unstable growth of production volume, Russian pulp
and paper industry still did not manage to reach 1989 indicators, when the
production output was maximal.

Russia possesses one fourth of the global forest stock. This potential, however, is
used poorly: share of Russian pulp and paper products on the global market
amounts to just 2-3%. Even such non-forested countries as Japan, Germany and
Italy, are ahead of Russia.

Under conditions of declining demand, appreciation of raw materials and decrease

of production efficiency due to decline in production capacities load competition on
global markets becomes more active. Following the results of 2008, revenue of
Finland’s Stora Enso corporation decreased by 6% compared to the level of 2007
and amounted to Eur 11.8 billion. Along with that, net loss of the company
amounted to Eur 893 million.

Maximal decrease was registered in the fourth quarter of 2008, when the company
had to close several mills.

UPM company closed the year with a revenue of Eur 9.5 billion with a net loss of
Eur 180 million. Canada’s Tembec announced idling of two pulp and paper millls in
France and one in Canada.

Generally, in 2008 there was a decrease in production volume on global markets.

In North America, production curtailment amounted to 853 thousand tons, Asian
producers curtailed 785 thousand tons, mainly bleached hardwood pulp. Latin
American producers curtailed manufacturing volume by 193 thousand tons of
eucalyptus pulp. European pulp and paper mills decreased production output by
360 thousand tons.
 17 March 2009 Russian Forest Based Industries 2008 Results Lesprom

Pulp

Pulp
Market pulp production volume in 2008 amounted to 2.287 million tons, which
is 5.4% lower than the similar indicator of 2007. Pulp cooking also decreased
(by 1.2% down to 5.88 million tons).

Chart 32. Market pulp and total pulp cooked production After production growth
volume fluctuations in 2006-2008 thousand tons in the first three quarters,
in the full 2008 there was
a 1.2% decrease
7000 6045 5954 5880
6000
5000
4000
3000 2379 2418 2287
2000
1000
0
2006 2007 2008
Market pulp Total pulp cooked

Decrease of pulp cooking volume was registered in the fourth quarter of 2008,
while in the first three quarters a growth was registered.

Table 37. Pulp cooking volume in 2006–2008, thousand tons

Month 2006 2007 2008 2008/2007, %

January 498.3 487.1 532.1 109
February 450.7 469.8 499.0 106
March 521.8 526.0 523.4 100
April 516.1 484.5 505.0 104
May 527.8 451.2 496.8 110
June 501.4 486.6 504.9 104
July 502.2 510.3 531.5 104
August 526.0 504.7 526.3 104
September 509.2 501.2 498.9 100
October 521.5 511.4 472.1 92
November 487.6 496.6 389.9 79
December 482.6 525.2 400.2 76
Total for the year 6,045.0 5,954.3 5,879.9 99
 Chart 33. Regional pattern of total pulp cooking in 2008, %

Arkhangelsk region

Irkutsk region

6 Republic of Komi
2 2
8 36
Leningrad region

9 Republic of Karelia

Republic of Mariy El
9
Republic of Buryatia
28
Other regions

The region leading in pulp cooking in 2008 was Arkhangelsk region. It has a 36%
share of the total production volume. The second place is steadily occupied by
Irkutsk region (28%), while Republic of Komi and Leningrad region have a joint
share of 18%.

Table 38. Regional pattern of pulp cooking in Russia, thousand tons

Region 2005 2006 2007 2008 2008/2007, %
Arkhangelsk region 2,037 2,052 2,043 2,095 103
Republic of Buryatia 90 97 99 104 105
Irkutsk region 1,633 1,694 1,766 1,671 95
Republic of Karelia 467 497 508 479 94
Republic of Komi 545 551 550 546 99
Krasnoyarsk region 78 103 118 104 88
Leningrad region 506 533 506 533 105
Republic of Mariy El 104 151 105 108 103
Perm region 182 138 65 91 141
Republic of Adygea 21 26 28 31 112
Vologda region 36 21 31 29 94
Kaliningrad region 182 132 89 52 58
Sverdlovsk region 45 43 42 37 90
Russia 5,934 6,045 5,954 5,880 99

The most dramatic curtailment of pulp cooking volume was registered in

Kaliningrad and Krasnoyarsk regions (-42% and 12% respectively). Ilim Group
holding had a 44% share in the total pulp cooking volume, following the results of
2008, Investlesprom had 5.2%, Continental Management – 3.5%, Solombalales –
3.4%.

In terms of companies, the most dramatic curtailment of pulp cooking volume in

2008 was registered at Kama pulp and paper mill OJSC (-69%), Sovetsk pulp and

paper mill OJSC (-52%), Neman pulp and paper mill LLC (-33%), Baikalsk pulp and
paper mill OJSC (-28%), Novolyalinskiy pulp and paper mill LLC (-14%), Segezha
pulp and paper mill OJSC (-12%), and Eniseiskiy pulp and paper mill LLC (-12%).

Table 39. Pulp volume cooked by major pulp and paper companies in 2006-2008, thousand tons
Enterprise Region 2006 2007 2008 2008/2007, %

Ilim Group affiliate in Koryazhma OJSC Arkhangelsk region 1,023 1,024 1,067 +4
Ilim Group affiliate in Bratsk OJSC Irkutsk region 0 421 763 +81

Arkhangelsk pulp and paper mill OJSC Arkhangelsk region 834 804 755 -6

Ilim Group affiliate in Ust-Ilimsk OJSC Irkutsk region 713 404 753 +86

Mondi Syktyvkar Timber Processing Plant

Republic of Komi 551 550 546 -1
OJSC
Svetogorsk OJSC Leningrad region 373 360 393 -9

Segezha pulp and paper mill OJSC Republic of Karelia 294 302 266 -11
Solombala pulp and paper mill OJSC Arkhangelsk region 195 214 198 -8

Baikalsk pulp and paper mill OJSC Irkutsk region 202 216 155 -28

Kondopoga OJSC Republic of Karelia 112 111 110 -11

Mariyskiy pulp and paper mill OJSC Republic of Mariy El 111 105 108 +33

Selenga pulp and paperboard mill OJSC Republic of Buryatia 97 99 104 +5

Eniseiskiy pulp and paper mill LLC Krasnoyarsk region 103 118 104 -12

Pitkyaranta pulp mill OJSC Republic of Karelia 91 95 102 +7

Vyborgskaya Tselluloza OJSC Leningrad region 67 71 72 +1

Syasskiy pulp and paper mill OJSC Leningrad region 94 75 69 -8

Solikamskbumprom OJSC Perm region 61 17 35 +99

Neman pulp and paper mill LLC (North-Western
Kaliningrad region 41 48 32 -33
Timber Company)
Kartontara CJSC Republic of Adygea 26 28 31 +12
Sokolskiy pulp and paper mill OJSC
Vologda region 21 31 29 -6
(Investlesprom Holding)
Rabotnikov Turinskiy pulp and paper mill CJSC Sverdlovsk region 22 23 23 +3
Sovetsk pulp and paper mill OJSC Kaliningrad region 64 41 20 -52
Novolyalinskiy pulp and paper mill LLC Sverdlovsk region 0 16 14 -14

Major curtailments of production at pulp and paper enterprises occurred in

November and December of 2008. For example, Arkhangelsk pulp and paper mill
OJSC curtailed load of production capacities down to 70% in December of 2008.
Due to lack of financing the company has to freeze some investment projects, the
report says. For instance, investment cost of the project of cardboard production
reconstruction in 2009 was cut from Eur 40 million down to Eur 7.5 million, start of
the construction of a new neutral sulfite semichemical pulp cooking line is

postponed for a year. This project would enable to improve cooking efficiency up to
308,000 tons. Investment costs of the project of cardboard production
reconstruction during 2008-2013 are planned on the level of Eur 149.4 million. In
2008, the company invested Eur 5.7 million of own funds, in Q1 of 2009 it is
planned to invest Eur 1.3 million.

Chart 34. Regional pattern of market pulp production in 2008, %

2% 2% Irkutsk region
4%
Arkhangelsk region

Republic of Karelia
34%
58%
Leningrad region

Republic of Mariy El
Table 40. Regional pattern of market pulp production, thousand tons
Region 2006 2007 2008 2008/2007, %
Irkutsk region 1,347 1,430 1,300 91
Arkhangelsk region 775 775 783 101
Republic of Karelia 90 95 101 107
Leningrad region 62 58 51 88
Republic of Mariy El 37 39 43 110
Kaliningrad region 56 15 8 50
Other regions 12 5 0 0
Russia 2,379 2,418 2,287 95

Irkutsk region, following the results of 2008, was the leader on production of market
pulp (1.3 million tons). This indicator is, however, 9% less than in the previous
year. The second is Arkhangelsk region with 783 thousand tons of pulp produced
in 2008. Generally, Russian production of market pulp decreased by 5% in 2008
compared to the previous year.

Table 41. Market pulp production by major pulp and paper companies in 2006-2008, thousand tons
Enterprise Region 2006 2007 2008 2008/2007, %
Ilim Group affiliate in Ust-Ilimsk OJSC Irkutsk region 660 373 690 +85
Ilim Group affiliate in Bratsk OJSC Irkutsk region 0 267 474 +77
Ilim Group affiliate in Koryazhma OJSC Arkhangelsk region 351 356 365 +2

Arkhangelsk Pulp and Paper Mill OJSC Arkhangelsk region 234 211 206 -2

Solombala Pulp and Paper Mill OJSC Arkhangelsk region 189 209 192 -9
Baikalsk Pulp and Paper Mill OJSC Irkutsk region 181 194 137 -30

Pitkyaranta Pulp Mill OJSC Republic of Karelia 90 95 101 +7

Mariyskiy Pulp and Paper Mill OJSC Republic of Mariy El 37 39 43 +11

Syasskiy Pulp and Paper Mill OJSC Leningrad region 54 46 41 -11
Vyborskaya Tselluloza OJSC Leningrad region 7 13 10 -20
Sovetsk Pulp and Paper Mill OJSC Kaliningrad region 34 15 8 -50

Ilim Group mills has produced 2.345 million tons of pulp and paper products in
2008, i.e. down 0.5% over 2007 results. Market pulp production totaled 1.492
million tons, 4.1% down compared with twelve months of 2007. Containerboard
production rose by 12.9% to 612 thousand tons. Paper output was 242 thousand
tons, down 6.6% compared with 2007. The reduction in annual pulp and paper
production volume was due to shrinking manufacturing capacities in 4Q 2008
caused by the global financial crisis and economic recession. As pulp and paper
production volume reduced, the Company optimized costs by reducing
consumption of its highest cost wood and cut back own harvesting volumes at
IlimSeverLes, ULiL and IlimSibLes. The Company harvested 6.7 million cubic
meters of wood, which is 6% down on 2007. The share of own wood supplies
accounted for 48.3% of the total supplies volume. The company's priorities for 2009
will be to retain its financial stability, increase overall Company efficiency and
search for new opportunities during the crisis period which would secure Ilim's
long-term competitiveness and performance.

In 2008, Vyborgskaya Tselluloza OJSC (Leningrad region) cooked 1.4% more pulp
than in 2007 (71.9 thousand tons versus 71 thousand tons). Paper and paperboard
production volume in 2008 increased by 3.2%, from 91.7 thousand tons up to 94.6
thousand tons, while production of powder lignin sulphonate at the enterprise, on
the contrary, fell from 41.85 thousand tons down to 39.98 thousand tons (-4.5%).

In 2008, Solombala pulp and paper mill (part of Solombalales holding)

manufactured 191.6 thousand tons of market pulp. The planned volume was
exceeded by 1.4%. Compared to the level of 2007 pulp production volume
decreased by 8.5%. In 2008, 5 thousand tons of folding paper was produced,
which is on the planned level. 3.3 thousand tons of paper were produced in the
previous year.

Market pulp export volume in Russia in 2008 amounted to 2.214 million tons, which
is 8.4% higher than the similar indicator of 2007.

Chart 35. Pulp export fluctuation in 2004-2008,

thousand tons

2500 2020 2043 2214

1931 1841
2000
1500
1000
500
0
2004 2005 2006 2007 2008
 17 Marchм 2009 Russian Forest Based Industries 2008 Results Lesprom Network

Paper

Paper
Following the results of 2008, production of paper amounted to 3.973 million
tons, which is 2.2% lower than in the previous year.

Chart 36. Paper production in 2005-2008, thousand tons

Paper production started

4100 4064 to decrease in the second
4050
half-year of 2008
4004
4000 3969 3973
3950
3900
2005 2006 2007 2008

Paper production started to curtail since July 2008. Average monthly curtailment in
the second half-year was 5%, while in December just 87% of paper compared to
the level of December 2007 were produced.

Table 42. Paper production volume in 2006-2008, thousand tons

Month 2006 2007 2008 2008/2007, %

January 337.3 336.1 349.1 104

February 313.4 318.5 330.8 104
March 350.9 351.0 352.9 101
April 343.4 330.9 335.6 101
May 344.6 347.3 339.1 98
June 323.1 336.5 336.7 100
July 344.0 347.8 335.4 96
August 342.2 342.1 339.3 99
September 336.5 337.6 320.5 95
October 343.5 339.5 319.5 94
November 317.5 330.2 312.2 95
December 307.5 346.2 302.2 87
Total for the year 4,004.0 4,063.8 3,973.2 98
 Chart 37. Regional pattern of paper production in Russia in
2008, %

7 Republic of Karelia
1
2 24
8 Republic of Komi

Nizhniy Novgorod region

13 Perm region

Leningrad region
16
14 Arkhangelsk region
15 Kaliningrad region

Republic of Tatarstan

Other regions

Republic of Karelia, following the results of 2008, was the leading region in terms of
paper production. It had a 24% share of the total Russian output volume. The
second is Republic of Komi with a share of 16%, the third is Nizhniy Novgorod
region with 15%.

Table 43. Regional pattern of paper production, thousand tons

Region 2006 2007 2008 2008/2007, %
Republic of Karelia 960.6 964.4 964.5 100
Republic of Komi 610.8 638.5 635.9 100
Nizhniy Novgorod region 551.1 579.3 582.9 101
Perm region 646.5 587.8 562.4 96
Leningrad region 483.6 504.8 507.3 100
Arkhangelsk region 348.5 344.7 326.9 95
Kaliningrad region 70.4 97.2 60.1 62
Republic of Tatarstan 52.4 54.8 53.7 98
Kaluga region 37.7 52.0 48.9 94
Sverdlovsk region 40.5 41.5 37.7 91
Krasnoyarsk region 38.7 36.4 33.5 92
Vologda region 19.4 24.0 31.2 130
Penza region 33.3 30.0 27.1 90
St. Petersburg 27.2 25.3 23.1 91
Republic of Mariy El 20.9 19.5 19.4 100
Kirov region 19.6 21.0 17.1 81
Novgorod region 13.3 13.3 13.4 101
Vladimir region 1.5 4.5 6.5 144
Republic of Buryatia 6.4 5.8 6.0 104
Other regions 21.6 18.9 15.7 83
Russia 4,004.0 4,063.8 3,973.2 98

Share of Kondopoga company in the total Russian paper production volume for the
full year of 2008 amounted to 18.9%, of Mondi Syktyvkar Timber Processing Plant
— 15.4%, of Solikamskbumprom — 10.4%, of Svetogorsk — 8.8%, of Ilim Group
— 6%, of Continental Management — 2.2%, of Investlesprom — 7.1%, of North-
West Timber Company (SZLK) — 1.2%.

Table 44. Paper production volume by major pulp and paper companies, thousand tons
Enterprise Region 2006 2007 2008 2008/2007, %
Kondopoga OJSC Republic of Karelia 741.00 732.56 752.83 +3
Mondi Syktyvkar Timber Processing
Republic of Komi 594.79 621.55 614.23 -1
Plant OJSC
Volga OJSC Nizhniy Novgorod region 551.10 579.26 582.78 +1
Solikamskbumprom OJSC Perm region 456.13 418.31 415.16 -1
Svetogorsk OJSC Leningrad region 324.32 333.11 351.98 +6
Ilim Group affiliate in Koryazhma
Arkhangelsk region 261.66 260.32 243.36 -7
OJSC
Segezha pulp and paper mill OJSC Republic of Karelia 219.61 231.86 211.26 -9
Goznak Krasnokamsk paper mill
Perm region 73.98 74.37 76.42 +3
(FGUP affiliate)
Arkhangelsk pulp and paper mill
Arkhangelsk region 81.44 80.79 71.39 -12
OJSC
Kama pulp and paper mill OJSC Perm region 105.60 92.09 70.72 -23
Naberezhnye Chelny Paper and
Paperboard Mill (Public Enterprise) Republic of Tatarstan 52.43 54.85 53.45 -3
CJSC
Neman pulp and paper mill LLC Kaliningrad region 47.79 76.90 48.89 -36
Syasskiy pulp and paper mill OJSC Leningrad region 43.23 43.64 45.05 +3
SCA Hygiene Products Russia,
Leningrad region 42.26 41.84 40.78 -3
Svetogorsk affiliate LLC
Troitsk paper mill OJSC Kaluga region 21.76 22.30 37.51 +68
Eniseiskiy pulp and paper mill LLC Krasnoyarsk region 38.66 36.40 33.52 -8
Vyborgskaya Tselluloza OJSC Leningrad region 35.32 32.73 32.21 -2

Kommunar Paper Mill OJSC Leningrad region 35.22 46.30 27.08 -42
Sokolskiy pulp and paper mill OJSC
Vologda region 17.51 24.09 26.06 +8
(Investlesprom holding)
Syktyvkar Tissue Group OJSC Republic of Komi 15.91 16.95 21.58 +27
Goznak St. Petersburg Paper Mill
Vologda region 21.96 22.51 20.51 -9
(FGUP affiliate)
Turinskiy pulp and paper mill CJSC Republic of Komi 18.79 19.91 20.19 +1
Mariyskiy pulp and paper mill OJSC Republic of Mariy El 18.21 16.46 16.88 +3
Kondrovo Paper Company OJSC Kaluga region 23.84 24.47 16.74 -32
Elikon OJSC Kirov region 17.91 18.84 14.95 -21
Mayak-Technocell LLC Penza region 4.49 14.87 14.90 Flat
Novolyalinskiy pulp and paper mill
Sverdlovsk region 0.00 16.27 14.62 -10
LLC
Velgiyskaya Paper Mill OJSC Novgorod region 13.30 13.31 13.40 +1
Mayak OJSC Penza region 28.84 15.14 12.18 -20
Sovetsk pulp and paper mill OJSC Kaliningrad region 22.59 20.33 11.19 -45
Kamennogorsk Offset Paper Mill
Leningrad region 22.65 26.53 10.41 -61
CJSC

In 2008, Syktyvkar Timber Processing Plant produced 812.8 thousand tons of

paperboard and paper products, which is 1% higher than the planned level and 1%
less than in the previous year. Slightl decrease in production volume was planned
for 2008 because of start of Step project implementation which required to shut
down some equipment in order to update it. In particular, in October and November
modernization works were finished at the BM-14 unit which produces Snegurochka
office paper, the main brand of the enterprise. Short temporary shutdowns of the
equipment caused by difficulties with products sales in late 2008 were also used by
Syktyvkar Timber Processing Plant to modernize production lines within the
framework of the project. Development and reconstruction project started at Mondi
Syktyvkar Timber Processing Plant on July 1, 2008. By the end of the year project
experts concluded contracts amounting to about Eur 400 million in total (overall
project cost is Eur 500 million), all major equipment was also procured. By the end
of 2008, Syktyvkar Timber Processing Plant received 12 thousand tons of details
and parts of machinery units which is more than half of the total volume of
deliveries within the framework of Step project.

Kommunar Paper Mill OJSC shareholders (Leningrad region) approved attraction

of a Sberbank credit to the amount of not more than 50 million roubles at an
extraordinary meeting held on October 15, 2008. Kommunar company is going to
attaract this credit for the period of five years at an annual interest rate not more
than 14.25% in order to offset investment expenses incurred earlier. Shareholders
also approved transfer of some company’s equity on a mortgage in order to secure
credit obligations.
In the third quarter of 2008, loss of Stora Enso Oyj company, the largest paper
producer in Europe, was less than predicted by analysts. The company announced
its plans to curtail production volumes and investments and increase prices. Stora
will be cutting production down to “realistic volumes”, which will “obviously have
adverse affect” on benefit. Despite complicated macroeconomic situation, the
company will increase prices for newsprint and magazine paper in 2009. European
prices for paper decreased by 25% since 2001 due to a growing share of internet
media, but demand for both paper and paperboard still decreased due to
weakening of consumer preferences amid worl economic recession. Stora also
announced closure of its paper-making machine in Germany and line producing
consumer packaging in Finland. These measures are taken in order to fight decline
in demand which did not revive after previous pulp and paper mill shutdowns.
According to a data from Stora’s corporate site presentation, the company will
curtail capital investments down to Eur 650—700 million, which is lower than July’s
estimations (Eur 700—750 million). In the previous year, capital expenses were
Eur 820.4 million. The company has to spend around Eur 250 million for current
maintenance of the machinery. The decision on pulp and paper mill construction
project in Nozhniy Novgorod region of Russia is still not made. Loss of the
company in the third quarter amounted to Eur 119.5 million, or 15% per a share,
compared to Eur 273 million, or 56 cents per a share in the previous year. Sales
deepened by 5.4% down to Eur 2.72 billion.

Chart 38. Paper, paperboard and cardboard export volume

fluctuations in 2004-2008, million tons

2,7 2,6 2,6

2,6
2,6
2,5 2,5 2,5
2,5
2,5
2,4
2,4
2004 2005 2006 2007 2008

Paper and paperboard export volume in 2008 amounted to 2.5 million tons, which
is on the previous year’s level.

Chart 39. Regional pattern of paper, paperboard and cardboard

export in Russia in 2008, %

Republic of Karelia
6
7 30 Arkhangelsk region
7
Republic of Komi
10
Nizhniy Novgorod region

Perm region
13 14

13 Irkutsk region

Leningrad region

Other regions

Share of Republic of Karelia in the total Russian export volume was 30% (+2%
compared to the level of 2007). The second is Arkhangelsk region with 14% (-1%),
the third is Republic of Komi with 13% (-5%).
Table 45. Regional pattern of paper and paperboard export, thousand tons
Region 2006 2007 2008 2008/2007, %
Republic of Karelia 695 718 735 102
Arkhangelsk region 387 353 351 99
Republic of Komi 344 347 329 95
Nizhniy Novgorod region 290 303 317 105
Perm region 278 222 258 116
Irkutsk region 167 181 172 95
Leningrad region 152 165 168 102
Kaliningrad region 23 40 22 56
Republic of Mariy El 21 14 18 133
Krasnoyarsk region 23 21 12 61
Kaluga region 10 11 11 97
Republic of Buryatia 15 16 9 55
Republic of Tatarstan 5 7 8 107
Tula region 5 7 8 111
Moscow 9 9 8 89
Vologda region 5 6 7 123
St. Petersburg 16 10 6 59
Moscow region 5 6 5 82
Novgorod region 2 4 4 100
Other regions 27 29 25 85
Russia 2,481 2,469 2,472 100

Republic of Karelia exported 735 thousand tons of paper and paperboard in 2008,
which is 2% higher than the similar indicator of 2007.
 17 March 2009 Russian Forest Based Industries 2008 Results Lesprom

Newsprint paper

Newsprint paper

Newsprint paper production volume in 2008 amounted to 1.988 million tons,

which is 0.3% higher than the similar indicator of 2007. Maximal decrease
during the year was registered in the third quarter. However, in the fourth
quarter there was a growth compared to the similar period of 2007.

Chart 40. Newprint paper production in Russia in 2006-2008,

thousand tons

1995 1993

1990 1988

1985 1982
1980
1975
2006 2007 2008

Table 46. Newsprint paper production volume in 2006-2008, thousand tons

Month 2006 2007 2008 2008/2007
January 173 164 168 103
February 158 157 158 101
March 176 170 170 100
April 173 166 163 98
May 169 164 164 100
June 170 166 167 101
July 171 168 161 96
August 169 171 169 99
September 165 165 161 98
October 168 167 172 103
November 154 158 166 105
December 148 166 168 101
Total for the year 1,993 1,982 1,988 100
 Chart 41. Regional pattern of newsprint paper production in
Russia in 2008, %
9 2 Republic of Karelia

37 Nizhniy Novgorod region

23
Perm region

Republic of Komi

29
Krasnoyarsk region

The leader in newsprint paper production in 2008 was Republic of Karelia, which
had a share of 37% in the total Russian volume. Then are Nizhniy Novgorod region
with 29% and Perm region with 23%.

Table 47. Regional pattern of newsprint paper production, thousand tons

Region 2006 2007 2008 2008/2007, %
Republic of Karelia 726 716.8 737.7 103
Nizhniy Novgorod region 536 564.6 568.4 101
Perm region 510 471.3 460.2 98
Republic of Komi 180 190.3 187.1 98
Krasnoyarsk region 38 34.9 31,6 90
Vologda region 3 3.6 2,7 76
Russia 1,993 1,981.6 1,987.7 100

Newsprint paper production volume in the Republic of Karelia was 737.7 thousand
tons, which is 3% higher than in the previous year. Kondopoga сompany produced
37% of all Russian newsprint paper volume in 2008, one third of the total volume
fell within Volga company, one fifth within Solikamskbumprom. Mondi SLPK
produced 9.4%.

Table 48. Newsprint paper production by major pulp and paper companies, thousand tons
Enterprise Region 2006 2007 2008 2008/2007, %

Kondopoga OJSC Republic of Karelia 725.8 716.8 737.7 +3

Volga OJSC Nizhniy Novgorod region 536.0 564.6 568.5 +1
Solikamskbumprom OJSC Perm region 446.1 406.8 403.9 -1
Mondi Syktyvkar Timber
Republic of Komi 179.7 187.3 187.0 flat
Processing Plant OJSC
Perm region
Kama pulp and paper mill OJSC 64.2 64.6 56.2 -13

Krasnoyarsk region
Eniseiskiy pulp and paper mill LLC 37.8 34.9 31.6 -10
Sokolskiy pulp and paper mill
Vologda region 2.9 3.5 2.7 -22
OJSC

In 2008, Volga OJSC (Balakhninskiy paper mill, Nizhniy Novgorod region)

manufactured 568.4 thousand tons of newsprint paper, which is 3.8 thousand tons
more than the level of 2007. In 2008, a record volume of products in the whole
history of the enterprise was produced. All paper produced is shipped to
consumers, including 338,870 tons of paper for export.
 17 March 2009 Russian Forest Based Industries 2008 Results Lesprom

Paperboard and Cardboard

Paperboard and cardboard

Paperboard production in 2008 amounted to 3.693 million tons, which is 5.7%
higher than the similar indicator of 2007. Containerboard production also
increased: the growth was 9.6% up to 2.815 million tons.

Chart 42. Paperboard and cardboard production in 2006-

2008, thousand tons
Steady paperboard
production growth is
accounted for less
4000 3693 considerable fall of
3444 3494
3500 demand compared to
2815
3000 2493 2568 other pulp & paper
2500 products
2000
1500
1000
500
0
2006 2007 2008

Total cardboard and paperboard, thousand

tons
Containerboard, thousand tons

Paperboard production growth in 2008 was 5.7% compared to the level of 2007.
Growth of containerboard production compared to the previous year’s indicators
was also registered (+9.6%).

Table 49. Paperboard production volume in 2006-2008, thousand tons

Month 2006 2007 2008 2008/2007, %

January 266 275 302 110

February 255 267 287 108
March 290 304 317 104
April 292 294 310 106
May 276 278 348 125
June 286 271 305 113
July 286 285 320 112
August 299 305 325 107
September 295 297 315 106
October 300 308 304 99
November 300 299 302 101
December 300 313 257 82
Total for the year 3,444 3,494 3,693 106

Growth of paperboard production was registered in almost all months of the year,
except for October and December. The decline in these months amounted to 1%
and 18% respectively.
Table 50. Regional pattern of paperboard production, thousand tons
Region 2006 2007 2008 2008/2007, %
Arkhangelsk region 809 809 863 107
Leningrad region 499 473 489 103
Irkutsk region 232 220 239 109
Republic of Komi 207 214 208 97
Perm region 143 171 191 112
Republic of Tatarstan 154 159 161 102
Kaluga region 113 130 134 103
Republic of Mariy El 89 105 117 112
Bryansk region 98 92 98 106
Republic of Buryatia 91 93 96 104
Krasnoyarsk region 88 103 91 89
Tula region 42 66 69 105
Republic of Karelia 84 83 68 82
Republic of Bashkortostan 68 72 66 93
Vologda region 54 62 65 105
Republic of Adygea 58 60 65 108
Yaroslavl region 11 8 64 802
Kirov region 43 54 60 112
Tver region 49 51 54 106
Other regions 510 472 493 104
Russia 3,444 3,494 3,693 106

Arkhangelsk region was the leader in terms of paperboard production volume in

2008: 863 thousand tons were produced (+7%). Then are Leningrad region with
489 thousand tons (+3%) and Irkutsk region with 239 thousand tons (+9%).

Chart 43. Regional pattern of paperboard and cardboard

production in Russia in 2008, %
Arkhangelsk region
Leningrad region
17 Irkutsk region
29
Republic of Komi
3
Perm region
4
Republic of Tatarstan
5
Kaluga region
5
16 Republic of Mariy El
6
Bryansk region
7 8
Other regions

Arkhangelsk region leads the pack of paperboard producers. It had a 30% share of
the total Russian paperboard production volume. The second is Leningrad region
with 17%, while Irkutsk region occupies the third place with 8%.
 Chart 44. Regional pattern of containerboard production in Russia
in 2008, %

Arkhangelsk region
Irkutsk region
26
31 Republic of Komi
Perm region
Republic of Tatarstan

3 Kaluga region
4 Republic of Mariy El
4 8
leningrad region
4
6 7 Republic of Buryatia
7
Other regions

In 2008, the same Arkhangelsk region was also the leader in containerboard
production. Its share in this industry was 31% of the total Russian volume. Then
are Irkutsk region (8%) and Republic of Komi (7%).
Table 51. Paperboard production by major pulp and paper companies, thousand tons
Enterprise Region 2006 2007 2008 2008/2007, %
Ilim Group affiliate in Koryazhma OJSC Arkhangelsk region 333.2 330.7 542.5 +64
Arkhangelsk pulp and paper mill OJSC Arkhangelsk region 476.1 478.5 480.8 flat
St. Petersburg paperboard and polygraphic
Leningrad region 239.8 247.2 250.7 +1
plant OJSC
Irkutsk region
Ilim Group affiliate in Bratsk OJSC 0.0 121.6 237.4 +95
Mondi Syktyvkar Timber Processing Plant
Republic of Komi 206.2 213.6 207.5 -3
OJSC
Permskiy Karton LLC Perm region 138.5 168.7 187.8 +11
Public Enterprise Naberezhnye Chelny Paper
Republic of Tatarstan 151.7 156.9 158.5 +1
Mill CJSC
Mariyskiy pulp and paper mill OJSC Republic of Mariy El 85.7 100.1 110.6 +11
Republic of Buryatia
Selenga pulp and paperboard mill OJSC 91.2 92.9 96.3 +4
Krasnoyarsk region
Eniseiskiy pulp and paper mill LLC 87.5 102.6 91.1 -11
Svetogorsk OJSC Leningrad region 82.1 78.3 83.3 +6
Stora Enso Packaging BB LLC Kaluga region 77.6 80.8 77.0 -5
Proletarii CJSC Bryansk region 75.4 72.2 72.3 flat
Aleksin paper and paperboard mill CJSC Tula region 47.6 63.6 67.8 +7
Kartontara CJSC Republic of Adygea 57.2 59.3 64.3 +8
Vyborgskaya Tselluloza OJSC Leningrad region 57.7 59.0 62.4 +6
Sukhonskiy pulp and paper mill LLC Vologda region 43.2 50.5 59.8 +8
Elikon OJSC Kirov region 38.0 51.4 58.5 +14
Yaroslavskaya Bumaga CJSC Yaroslavl region - - 57.0 -
Kamenskaya paper and paperboard mill
Tver region 48.8 51.3 54.3 +6
OJSC
Smurfit Kappa St. Petersburg CJSC Leningrad region 88.9 50.8 52.2 +3
Ryazan paperboard and asphalt board (roof
Ryazan region 42.4 43.4 42.8 -1
felt) mill CJSC
Republic of Karelia
Segezha pulp and paper mill OJSC 58.1 53.0 40.5 -24
Paperboard and packaging LLC Republic of Bashkortostan 37.6 38.8 40.0 +3
Altaikrovlya CJSC Altai region 40.5 39.6 38.8 -2
Alatyr paper mill LLC Republic of Chuvashia 15.8 25.6 31.3 +22
Mayak OJSC Penza region 9.9 21.9 28.2 +29
Suoyar paperboard mill Republic of Karelia 26.3 29.6 27.0 -9
Paper and paperboard mill LLC Republic of Bashkortostan 32.0 30.9 26.4 -15
Poligrafkarton OJSC Nizhniy Novgorod region 18.9 21.0 26.4 +25
Geopak LLC Moscow region 21.4 22.1 26.1 +18
Kommunar Paper Mill OJSC Leningrad region 16.2 20.9 25.9 +24
Polotnyanyi Zavod Paper Mill OJSC Kaluga region 14.4 17.4 25.6 +47
Bryansk Paper Mill LLC Bryansk region 23.2 25.0 25.4 +2
Karavaevo Paper Producing and Recycling
Moscow region 25.0 23.8 23.6 -1
Mill OJSC

Perm pulp and paper company group is going to invest $80 million into timber
harvesting complex establishment and modernization of the existing paperboard,
paper and corrugated packaging production capacity at Uralbumaga LLC in Perm
region. It is planned that timber harvesting volume will amount to about 1.5 million
cubic meters annually, while capacity of Uralbumaga LLC (in terms of paper, fine
layers of cardboard and corrugated packaging production) will increase fourfold up
to 240 million sq m annually. Perm pulp and paper company group comprises
companies producing corrugated packaging and raw materials for its

manufacturing (Permskiy Karton LLC, Uralbumaga LLC, and Permskie Oboi Trade
House which deals in production and distribution of wallpaper).

The corrugated packaging mill of GoTECH Severo-Zapad CJSC (Leningrad region,

Vsevolozhsk municipality) finished adjustment and commissioning works and is
preparing the equipment for the launch in November 2008. Start of the construction
of the enterprise started in June 2007, not long before 11th St. Petersburg
economic forum, one year later the enterprise manufactured its first corrugated
products shipment. According to independent specialists, GoTECH Severo-Zapad
CJSC is a unique industrial production complex not only in Russia but in Europe,
which allows manufacturing corrugated products meeting top world standards.
Major field of company’s activity is production of transportation packaging with
printing from corrugated board. One of the mill’s advantages is well-organized
production logistics which enable to cut internal expenses and minimize time of
order execution and delivery. Apart from that, in order to meet existing high
regional demand for packaging from moulded paper pulp a production line
manufacturing retail packaging for eggs with multi-coloured printing is installed at
the enterprise. GoTECH Severo-Zapad CJSC company tries to meet top world
standards in quality of its products and services rendered to customers. GoTECH
Severo-Zapad CJSC is the part of GoTECH group, a leader in packaging market in
terms of corrugated products production volume. Cost of this investment project
was about Eur 55 million. Rated capacity of the mill is 160 million sq m of
corrugated products annually. After reaching full capacity the new mill will employ
300 people.
Table 52. Containerboard production by major pulp and paper enterprises, thousand tons
Enterprise Region 2006 2007 2008 2008/2007, %
Ilim Group affiliate in Koryazhma Arkhangelsk region
333.2 330.7 542.5 +64
OJSC
Arkhangelsk pulp and paper mill
Arkhangelsk region 474.5 477.2 479.3 flat
OJSC
Irkutsk region
Ilim Group affiliate in Bratsk OJSC 0.0 121.6 237.4 +95
Mondi Syktyvkar Timber Processing
Republic of Komi 196.2 199.7 197.8 -1
Plant OJSC
Permskiy Karton LLC Perm region 138.5 168.7 187.8 +11
Public Enterprise Naberezhnye
Republic of Tatarstan 151.7 156.9 158.5 +1
Chelny Paper Mill CJSC
Mariyskiy pulp and paper mill OJSC Republic of Mariy El 85.4 99.7 110.3 +11
Selenga pulp and paper mill OJSC Republic of Buryatia 91.2 92.9 96.3 +4
Eniseiskiy pulp and paper mill LLC Krasnoyarsk region 87.1 101.2 89.8 -11
Stora Enso Packaging BB LLC Kaluga region 77.6 80.8 77.0 -5
Kartontara CJSC Republic of Adygea 56.9 59.1 64.2 +9
Vyborgskaya Tselluloza OJSC Leningrad region 57.7 59.0 60.9 +3
Elikon OJSC Kirov region 38.0 51.4 58.5 +14
Sukhonskiy pulp and paper mill LLC Vologda region 28.2 32.0 58.1 +82
Yaroslavskaya Bumaga CJSC Yaroslavl region 0 0 56.0 0
Segezha pulp and paper mill OJSC Republic of Karelia 58.1 53.0 40.5 -24
Altaikrovlya OJSC Altai region 34.3 34.2 38.8 +13
Kamenskaya paper and paperboard
Tver region 33.1 36.1 38.5 +6
mill OJSC
Alatyr paper mill LLC Republic of Chuvashia 15.8 25.6 31.3 +22
Mayak OJSC Penza region 9.9 21.9 28.2 +29
Paperboard and paper plant LLC Republic of Bashkortostan - 30.9 26.4 _25
Geopak LLC Moscow region 21.4 22.1 26.1 +18
Kommunar paper mill OJSC Leningrad region 16.2 20.9 25.9 +24
Polotnyanyi Zavod Paper Mill OJSC Kaluga region 14.4 17.4 25.8 +48
Bryansk paper mil LLC Bryansk region 23.2 25.0 25.4 +2
Sovetsk pulp and paper mill OJSC Kaliningrad region 11.8 12.6 17.9 +42
Rostovbumaga CJSC Rostov region 13.4 13.9 14.3 +3
Komsomolets Paper Mill CJSC Leningrad region 14.7 16.3 14.2 -13
Karavaevo Paper Producing and
Moscow region 11.7 11.2 12.8 1+4
Recycling Mill OJSC
Vesta LLC Kaluga region 13.6 12.2 11.6 -5
Gofropacktyumen LLC Tyumen region - 6.7 10.7 +60
Gofrotara LLC Belgorod region 0.0 13.6 8.7 -36
Kuzbass-Tara LLC Kemerovo region 8.5 8.6 7.9 -8
Technicheskaya Bumaga OJSC Yaroslavl region 9.2 8.3 7.4 -11
Bumaga OJSC St. Petersburg 4.0 6.5 6.6 +2
Astrakhan container and packaging
Astrakhan region - 0.6 4.9 +667
mill LLC
Kondrovo paper company OJSC Kaluga region 11.3 11.9 4.4 -63
Neman pulp and paper mill LLC Kaliningrad region 11.4 8.3 4.2 -49

Despite the crisis, Arkhangelsk pulp and paper mill OJSC (Novodvinsk,
Arkhangelsk region) continues implementation of its investment project of
paperboard production reconstruction having top priority status with a total cost of
more than 5.3 billion roubles. The project is listed as top priority forest exploration
investment project, for which forestland lots in Arkhangelsk region were granted
without performing an auction. In 2008, the plant assimilated the full volume of the
funds within the framework of the project (more than 260 million roubles). It is the
first stage of KDM-2 machine reconstruction. By 2010, in the framework of the
project construction of a new production line of neutral sulfite semichemical pulp
cooking with a capacity of 1,000 tons every day and cost of 710 million roubles.

However, the project implementation will be heavily affected by coming problems of

2009, which will direсtly change its schedule and if federal authorities do not take
any corrective measures, the changes will be considerable. Among major problems
which effect directly project implementation are: decline in demand for plant’s ready
products with a decrease of prices for pulp and paper products, growth of payment
delays for products already shipped and, as a result, the company is forced to
curtail production volume and decrease financing of technical reequipment of the
plant. Along with that, a considerable growth of prices for some raw and other
materials which are used in the production process as well as services related to
delivery of required materials is scheduled for 2009.
Paper bags

Production of paper bags in 2008 decreased by 7.2% and amounted to 552 million items.

Chart 45. Paper bags production volume in Russia in 2005-2008,

million units

620
595,1
600
580 563,7
560 552,0

540 526,1
520
500
480
2005 2006 2007 2008

Table 53. Paper bags production volume in 2006-2008, million items

Month 2006 2007 2008 2008/2007, %

January 32.4 46.7 47.6 102

February 36.8 44.1 46.4 105
March 46.5 52.6 55.9 106
April 48.4 51.3 57.6 112
May 54.1 52.8 61.4 116
June 57.9 56.2 60.6 108
July 59.6 59.8 53.3 89
August 60.1 65.3 39.5 61
September 49.8 55.7 42.9 77
October 45.5 43.9 36.6 83
November 38.8 34.6 28.9 83
December 33.9 32.3 21.4 66
Total for the year 563.7 595.1 552.0 93
 Chart 46. Regional pattern of paper bags production in Russia in
2008, %

Republic of Karelia
Arkhangelsk region
2 7
Sverdlovsk region
2
3
3 Republic of Bashkortostan

5 Republic of Buryatia
Tomsk region
7
Moscow region
Republic of Mariy El
10 61
Other regions

Table 54. Paper bags production volume by major pulp and paper companies, million items
Enterprise Region 2006 2007 2008 2008/2007, %
Segezha pulp and paper mill
Republic of Karelia 0.0 182.1 338.1 +86
OJSC
Ilim-TNP LLC Arkhangelsk region 77.8 64.8 53.6 -13
Novolyalinskiy pulp and paper mill
Sverdlovsk region 0.0 40.5 36.9 -9
LLC

Selenga pulp and paper mill OJSC Republic of Buryatia 16.9 16.8 17.7 +5
Mariyskiy pulp and paper mill
Republic of Mariy El 6.0 7.1 8.1 +14
OJSC
YuI 78/3 GUIN Russian Ministry of
Law in Ulyanovsk region unitary Ulyanovsk region 4.2 5.0 4.6 -7
enterprise
Tatlesstroy LLC Republic of Tatarstan 5.1 4.1 4.3 +4
OSh-25/5 GUIN Russian Ministry
Republic of Mariy El 0.4 0.3 0.3 -7
of Law unitary enterprise

Chart 47. Paper packaging export volume fluctuations in 2005-

2008, thousand tonst

30 28
25
25 21
20 17
15
10
5
0
2005 2006 2007 2008
Chart 48. Regional pattern of paper packaging export from Russia
in 2008, %
Republic of Karelia
Republic of Tatarstan
14
26 Novgorod region
3
Kaliningrad region
5
Moscow
6
Kurgan region
6 kaluga region
14
6 Arkhangelsk region
7 13 Sverdlovsk region
Other regions