Development of Management and Cost Accounting of Wood Harvesting in the Republic of Karelia

Dissertationes Forestales 106 Development of management and cost accounting of wood harvesting in the Republic of Karelia Olga Tyukina School of Forest Science Faculty of Science and Forestry University of Eastern Finland Academic dissertation To be presented, with the permission of the Faculty of Science and Forestry of the University of Eastern Finland for public criticism in Auditorium Borealis 100 of the University of Eastern Finland, Yliopistokatu 7, Joensuu on May 28th, 2010, at 12 o’clock noon. 2 Title of dissertation: Development of management and cost accounting of wood harvesting in the Republic of Karelia Author: Olga Tyukina Dissertationes Forestales 106 Thesis supervisors: Prof. Olli Saastamoinen University of Eastern Finland, Faculty of Science and Forestry Prof. Anatoliy Petrov All-Russia Institute of Continuous Education in Forestry, Russia Prof. Lauri Sikanen University of Eastern Finland, Faculty of Science and Forestry Pre-examiners: Docent Markku Penttinen Finnish Forest Research Institute, Vantaa Unit Dr. Yuri Gerasimov Finnish Forest Research Institute, Joensuu Unit Opponent: Prof. Vladimir Syunev Petrozavodsk State University, Faculty of Forest Engineering, Russia ISSN 1795-7389 ISBN 978-951-651-301-3 (PDF) (2010) Printers: University of Eastern Finland Printing House, Joensuu 2010 Publishers: The Finnish Society of Forest Science Finnish Forest Research Institute Faculty of Agriculture and Forestry of the University of Helsinki Faculty of Science and Forestry of the University of Eastern Finland Editoral Office: Finnish Society of Forest Science P.O. Box 18, FI-01301 Vantaa, Finland http://www.metla.fi/dissertationes 3 ABSTRACT Tyukina, O. 2010. Development of management and cost accounting of wood harvesting in the Republic of Karelia. Dissertationes Forestales 106, 131 p. Available at http:// www.metla.fi/dissertationes/df106.htm. During the Soviet Era, in the Karelian Autonomous Soviet Socialist Republic, the harvesting of wood was mainly arranged by state logging companies called lespromkhoz. The logging method then was the tree-length (TL) method, which was targeted for full mechanisation. A centralized management system with extremely centralized decision making was used in the whole of the Soviet Union. In this planned Soviet economy, the volumes of wood harvested and the roundwood prices were set by the Ministry of Forestry and Forest Industries, and costs were set according to standard, internally agreed upon, methods. In the early 1990´s, during the period of transition from the Soviet planned economy to the market economy the logging industry of the newly established Republic of Karelia fell into economic crisis. Wood harvesting in most of the Karelian logging companies had become unprofitable; the major reasons were cost increases and other cost factors due to the markets. In addition, the outdated technology and undeveloped infrastructure also affected the profitability. Many of the state owned lespromkhozes changed ownership, becoming joint stock companies, and many small logging companies were established. Within the context of drastic economic and societal transformations, this study describes and analyses both the changes in the wood harvesting management systems in the Republic of Karelia and the theory and practice of cost accounting for wood harvesting in Karelia and the Russian Federation. At present in Russia, and specifically in the Northwest, both the cut-to-length (CTL) and tree-length (TL) harvesting methods are commonly used. During the last 10-15 years, modern CTL technology has accounted for an increasing share of the harvesting. While there has also been some modernisation in TL technology, the traditional machines and methods still prevail. Harvesting cost calculations for the processes that are involved in the cutting areas and in the delivery to the domestic wood processing industry, or for export, were made for both the TL and CTL methods. All harvesting operations in the forest, as well as work at the logging terminal, are divided into the main activities along a logistic chain. Wood harvesting cost calculations for the TL and CTL methods are based on several work options, including the use of Russian and Nordic mechanisation, as well as manual methods. As part of the theory of cost-price accounting, the Russian method of cost-price and the Nordic method of wood harvesting cost calculation are studied and compared. Similarities exist in the cost categories of both methods, in that cost accounting is divided into fixed and variable costs, but there are also significant differences. One of the differences between the two is that an exchange value for machinery is taken into account in the Nordic method, but not in the Russian method. Cost accounting models for 2000-2005 indicate that the cost for harvesting with the CTL and TL methods in Karelia have increased by 2.5 times in real terms. The wood harvesting costs depend on the harvesting method and roundwood transportation distance; in 2005, for the CTL method, they ranged from 11-35 €/m3, and for the TL method, they were from 13-42 €/m3. However, it seems that the increasing use of the CTL method with Scandinavian technology in many cases is as much due to the new forms of organisation and management of harvesting work, as it is to cost calculations. Keywords: Management systems, Soviet cost accounting, Tree-length method, Cut-to- length method, Cost accounting development 4 ACKNOWLEDGEMENT This study was initiated in 1999 as a part of research project “The transition of the forest sector in the Republic of Karelia: economics and politics” (1999-2001), funded by the Academy of Finland. It was continued and supported by the project “Intensification of forest management and improvement of wood harvesting in Northwest Russia” from research programme Russia in Flux, in 2004-2006 and funded by the Academy of Finland. The finalisation of this monograph was supported by grants from Niilo Helander Foundation in 2007 and Niemi Foundation in 2009. Professor Olli Saastamoinen from the University of Eastern Finland, Faculty of Science and Forestry has coordinated the first project and Professor Timo Karjalainen, from Finnish Forest Research Institute Joensuu Research Unit has coordinated the second project. Funding was received from the Graduate School in Forest Sciences and from the grants of the Faculty of the Forestry, University of Joensuu in 2001-2003. I would like to thank my supervisor Professor Olli Saastamoinen and co-supervisors Professor Anatoliy Petrov Rector of the Russian Institute of Continuous Education of Forest Specialists and Professor Lauri Sikanen for their long-term guidance and support. During 2004-2009 research was supported by Finnish Forest Research Institute. I would like to thank Professor Antti Asikainen, Professor Pekka Ollonqvist, Doctor Katja Lähtinen, Doctor Jan Ilavskiy, Senior Researcher Timo Leinonen, Senior Researcher Sari Karvinen, and Researcher Elina Välkky from Joensuu Unit of the Finnish Forest Research Institute for their time for discussion and comments. My special thanks for individual consultations to Professor and General Director of JSC “NIPIEIlesprom” Nikolay Burdin, Researcher Mr. Sergey Korotkov from the JSC “NIPIEIlesprom”and General Director of JSC”TSNIIB” Candidate of Economic Sciences Evgeniy Tyurin. Thanks for Reseacher Kari Väätäinen, who has been of great assistance in the wood harvesting cost calculation and modelling, Markku Härkönen for provided consultation about the work of Finnish contractors in Republic of Karelia and Candidates of Economic Sciences, assistant professors Victor Evdokimov, Lidiya Murashkina, Antonina Frolova and Veronoka Bespalova who have been involved in the time-consuming process of data collection. Special thanks also to General Director of JSC “Tikhvinskiy KLPH” Mr. Yuriy Orlov, Direcor of LTD Company “Idän metsäkone Oy” Mr. Tapio Lauronen, Director of LTD Company “ Metsäkuljetus A.Saari” Mr. Anssi Saari, Lawyer Mr. Aleksey Veselov and Finance Deputy Director Mrs. Alla Veselova from JSC “Zapkarelles”. I would also like to acknowledge Finnish experts Mr. Kalevi Kyyrönen, Mr.Klaus Rantapuu and Mr.Hannu Kivelä, and Mr. Vladimir Mineev from Petrozavodsk State University, Mr. Fedor Semenov and Mr. Sergey Moshkov from JHC “Karellesprom” for their support. Thanks also for Mr. Mark Richman for improving the language in key parts of work and Jukka Matero for organizing some resources for that. At this stage, I would also like to thank the pre- examiners Docent Markku Penttinen and Doctor Yuri Gerasimov for their through-going and constructive criticism and suggestions. Finally, I would like to thank my father Professor Nikolay Murashkin from Saint Petersburg’s Forest Technical Academy for his support, and my lovely daughters Alexandra and Lyudmila for their love and encourage. Joensuu, 05.05.2010 Olga Tyukina 5 TABLE OF CONTENTS ABSTRACT ............................................................................................................................3 ACKNOWLEDGEMENT ......................................................................................................4 TABLE OF CONTENTS ........................................................................................................5 ABBREVIATIONS.................................................................................................................7 1. INTRODUCTION...............................................................................................................8

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