Professor says wood tariffs could be payback for Finnish rejection of undersea cable
Peter Lund, Professor of Energy Economics at the Helsinki University of Technology, says that Russia's decision to raise the export tariffs of raw timber might be a response to Finland's rejection of an undersea electric cable from St. Petersburg to Kotka.
"I do not consider it at all impossible that this could be a small-scale trade war. I am in contact with the Russians, and I know that they took offence when Finland rejected the cable", Lund says.
Minister of Trade and industry Mauri Pekkarinen (Centre) said a few days before the Christmas holidays last year that the government would reject the application by United Power to set up a 1000 MW cable link between the countries.
The reasons for the rejection were mainly the fear of becoming excessively dependent on electricity imports from Russia, as well as the need for investment in the Finnish national grid if the electricity link were set up.
Last week Russia said that it would raise export duties for timber by degrees so that exports of raw wood to Finland would come to an end in a few years. This would be a severe problem for Finland, as one fifth of the wood raw material used by the Finnish forest industry currently comes from Russia.
The move affects other countries, but although timber is sold to China, Japan, the Baltic Countries, and Central Europe, it is not as important a raw material for any country other than Finland.
Lund, who spoke at an electricity seminar on Thursday, said that the undersea cable project was important for the Russians, who wanted to establish a two-way electricity line between Russia and the European Union.
"The Russians want to refine all of their exports, and to shake off their role as a supplier of raw materials. Compared with exports of oil and gas, electricity is more refined trade, so in this respect, Finland's negative decision was a disappointment to them."
Lund believes that it was difficult for the Russians to understand the reasons given by the Finnish government, as the price of the electricity would have been considerably below market rates, and the seller would also have paid some of the grid investments.
Lund feels that the tariffs that Russia plans to place on exports of raw timber is consistent with the desire to achieve a greater degree of refinement in Russia's export structure.
Lund also believes that in addition to the reasons that it gave, Finland's decision to reject the cable also involves more general aspects of relations between Russia and the European Union.
"When we made the decision, it was already known that the energy relations between Russia and Belarus would become more tense at the beginning of the year. This led to a situation in which exports of oil through Belarus were cut off when the German EU presidency began.
"The EU has tried to find a common line toward Russia and its energy policy. I believe that this decision had some significance."
In recent years Lund has worked as an expert in the formulation of the EU's energy programmes.
Previously in HS International Edition:
Russian export tariff could end timber imports into Finland (12.2.2007)
Finland rejects undersea electricity cable from Russia (20.12.2006)
Russian undersea electric cable proposal receives mixed reception (3.10.2006)
Finnish industry holds discussions on Russian electricity cable (9.8.2006)
Spokesman for Russian electric grid denounces proposal for power cable to Finland (21.4.2006)
Minister Lehtomäki: Russia not actively pushing for undersea electric cable (19.4.2006)