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5 Oct, 2007 09:57

International Paper buys 50% stake in Russian company

One of the world’s biggest paper groups International Paper has paid about $US 650 MLN for a 50% stake in ILIM Holding, Russia’s biggest timber and pulp company. Experts say other foreign investors are likely to follow.

The partners will invest an additional $US 1.5 BLN in Ilim's four pulp mills over the next few years.

President of the Ilim Group, Zakhar Smushkin, said the joint venture will focus on value-added products, such as uncoated papers, packaging and high-quality carton.

“The strategic plan for the joint venture is to invest in developing higher value products that will be consumed in the retail sector here in Russia. About 90% of what we produce in Russia today – which is higher value products – does stay in Russia,” Mary Laschinger, Senior Vice President of International Paper, said in her interview to RT.

The investment is the first of its size in the sector and is likely to stimulate other foreigners to look for Russian partners in the sector, analysts say.

“As a result of the so-called timber wars, the sector’s structure has become more transparent and the risks of entering the market have decreased, so the timing is not coincidental,” Anna Krylova, analyst from Antanta Capital, commented.

Russia’s timber and paper sector has a huge potential. The country accounts for more than 20% of the world's forests. Its timber reserves total 82 billion cubic meters compared to its closest rival Brazil with 71 billion and far ahead of the United States, which has roughly 31 billion.

But when it comes to paper and carton production, Russia is in 13th spot with just 7 million tons a year, well behind the United States which produces 81 million tons annually.

Following President Putin’s call to invest more in processing, the government this year boosted export duties on raw timber aiming to stimulate local producers to focus on value added products.