Modern economic POTENTIAL OF UKRAINE

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Pulp and paper production

In the end of 2003, several leading enterprises and organizations of Ukraine operating on the local market of pulp and paper products created UkrPapir (Ukrainian Paper) Association of Ukrainian pulp and paper enterprises.

Today the Association includes:

• OJSC Zhidachev Pulp and Paper Works (Lvov region),
• OJSC Kiev Pulp and Paper Works (Kiev region),
• OJSC Izmail Pulp and Paper Works (Odessa region),
• UkrPapirProm State Joint-Stock Holding Company (city of Kiev),
• OJSC Malin Paper Factory (Zhitomir region),
• OJSC LvovKartonPlast (Cardboard Plant) (city of Lvov),
• UkrVtorma (Ukrainian Secondary Resources) Production and Economic Association (city of Kiev),
• OJSC Dnepropetrovsk Paper Factory (city of Dnepropetrovsk),
• OJSC Koryukovka Technical Paper Plant (Chernigov region),
• OJSC Poninkivskiy Cardboard and Paper Works (Khmelnitskiy region),
• CJSC TechMontazh (Technical Mounting) (city of Kiev),
• LLC Donetsk-Vtorma (Donetsk Secondary Resources) (city of Donetsk),
• LLC Kiev Cardboard and Paper Works Trade House (Kiev region),
• LLC ELO Ltd (city of Kiev),
• LLC August-Ukraine (Kiev),
• Ukrainian Paper Trade and Industrial Group (city of Kiev),
• LLC KantsOptTorg (Office Products Wholesale Trade) (city of Dnepropetrovsk),
• LLC Kiev Cardboard and Paper Works Trade House (town of Obukhov, Kiev region),
• LLC Ukrainian Paper Trade and Production Group (city of Kiev),
• LLC Tetrada (city of Kiev),
• LLC Shkolyaryk (Schoolboy) (city of Ternopol),
• LLC Mriyi Zbuvayutsia (Dreams Come True) (city of Kiev),
• LLC Trisk (city of Kharkov).

The goal behind creating the Association is to improve the efficiency of its members, represent and protect their interests, and contribute to the economic and social development of pulp and paper enterprises and organizations in Ukraine. The main direction of the Association’s activities is to develop and implement the state program of pulp and paper industry development through 2015 regarding the attraction of investment.

The members of the Association are the top producers of pulp and paper articles in Ukraine. In 2005, the Association’s members accounted for some 70% of the UAH 3.3 bn gross commercial pulp and paper output in Ukraine.

The illustrative feature of the Ukraine’s present stage of development is a positive change in the country’s economy – the all-time-longest period of Ukraine’s economic crisis has passed and now the independent state is on recovery.

Throughout 1990-2005 the country has been seeing simultaneous changes in production level, as well as the specific consumption of paper, cardboard, and their articles. In the last five years alone, aggregate consumption of paper and cardboard items in Ukraine has been growing by average 18.0% per annum. It is expected that by 2010, paper articles consumption in the country will exceed 2.0 mn tons, of which more than 1.0 mn tons will be provided as imports.

Each year industry enterprises forward some UAH 300 mn as taxes and fees to the state budget and special funds.

Regarding production, export, import, and consumption of cardboard and paper articles in general and by types (newspaper, offset, sanitary and hygienic paper, packing cardboard, including fluting, box cardboard, cardboard packages for transportation, wallpaper, and notebooks), the industry showed a slight overall rise. Almost every enterprise throughout the year showed stable performance and even more – kept boosting production volumes and improving product quality each month.

In 2005, Ukraine produced 760.3 ths. tons of paper and cardboard, which accounted for 106.5% of the previous year level (714.1 ths. tons in 2004). Meanwhile, the most encouraging fact is rising volume of paper production – by 102.4% (175.1 ths. tons in 2004 and 179.3 ths. tons in 2005), as well as cardboard manufacturing on upturn – by 107.3% (539.0 ths. tons in 2004 and 581.0 ths. tons in 2005).

Producers of cardboard boxes experienced a sizable boost last year – production growth rates were at 108.6% of 2004 levels.

At the same time, the volume of paper and cardboard production of 1990 has not been yet reached by the enterprises (for reference: 912 ths. tons). It is expected that this level of production will only be met in 2007.

In the last several years, the limited capacities of the State budget of Ukraine prevented the allotment of government funds to the development of the local pulp and paper industry. That is why, almost all jobs in reconstructing and upgrading working production is conducted by the industry’s companies via current assets, cash from stockholders, and bank loans.

By and large, more than USD 120 mn was invested in development of Ukraine’s pulp and paper segment over 2000-2005. The main recipients of the investments were OJSC Kiev Cardboard and Paper Works, OJSC Rubezhnoye Cardboard Container Works, OJSC Zhidachev Pulp and Paper Works, OJSC Koryukovka Technical Paper Plant, OJSC Izmail Pulp and Paper Works, as well as other large enterprises.

Among the problems that pulp, paper, and cardboard producers face is first of all the problem of raw stock supplies to paper and cardboard manufacturing. The problem is not new, and its solution is to create a pulp manufacturing enterprise in Ukraine, yet the economic situation in the country prevents this step from occurring. Thus, today the primary task is to support the development of the secondary raw stock market – that is, the market of scrap paper. For this very reason, companies operating in the industry keep making bulk investments in the system of scrap paper procurement in Ukraine.

The pulp and paper industry of Ukraine has shown production volume growth in the last few years. The utilization level of installed capacities in 2005 ran at 83-85%. Meanwhile, reserves of intensive growth are only now available among medium and small businesses. There are almost no opportunities to use intensive factors to increase output volumes at large enterprises.

Therefore, the main direction of development for local pulp and paper companies in the short term is to reconstruct and upgrade available paper and cardboard manufacturing machinery, improve production processes, and introduce new and more efficient chemicals and technological additives, which will improve quality of finished product.

One should also expect facilitated growth of technologies related to the utilization of local natural resources, including processing of straw, which is practically a free resource in Ukraine.

Today Ukraine’s cardboard and paper products market has plenty of free niches which may be challenging for investor to develop. The most effective directions for investments, as experts from the Association claim, are development of the following materials:

• fiber semis (thermomechanical pulp, chemical thermomechanical pulp, and pulp) for cardboard and paper production based on utilization of annual crops (including straw);
• printing types of paper;
• perforated paper for endless formularies;
• office paper for copiers; and
• bag paper.

Analysis of local cardboard and paper enterprises’ performance as well as the situation with their assets helps determine key problems in the way of further development. The conclusion was that the gradual upgrade of effective assets via project financing is the only realistic way to develop effective enterprises of Ukrainian pulp and paper industry over the next several years.

Output of main pulp and paper products in January-December 2005

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