Money We Walk on

This is the way Pavel Slipchenko assesses the wastage of logging. SP-Co is known in the market as a manufacturer of timber fuel pellets, as well as a supplier of machinery for their production. We asked its head, Pavel Slipchenko to tell us about the enterprise, as well as the bottlenecks Russian entrepreneurs may run into having decided to get involved in this business. - Pavel, timber pellet manufacture has been gaining more and more attention recently both in Russia and abroad. This attention grows day to day; one could say this business is booming. What can you say about it? - I agree. It is the laziest timber processor who is not interested in the topic. - How can you explain that? - There are a number of long and clever articles written on this. However, if we cast away the witticisms, it’s one phrase: “Timber processing is profitable now, and will be more profitable in future". - Let’s dwell on this. Why is this business so profitable? - It is fairly simple. As always, there are many reasons: e.g. the fast growth in prices for the fossil fuels, strife to minimize transit costs, or stricter environmental requirements. There’s no need to list them all, since from the entrepreneurial point of view there is only one significant reason – timber pellets are a commodity, whereas timber wastes are not. In other words, the pellets can be sold regularly, at a foreseeable price, with a profit. There is a pellet market. Well, you can sell wastes, and there’s a commodity code for that too, but the sales are non-systemic and episodic, the prices are petit, and the transactions are all local. Most often wastes are given away for free. There’s no market for timber wastage processing. There are several reasons for that: the diversity of wastes and the ensuing absence of options to standardize; the procurement inconvenience and the high transit costs; the inconvenience of storing and using. Thus, in this business it is frequent that the raw material is not a commodity, it has a zero or minimal value, and the output is a highly consumable commodity which is expensive, and highly and incrementally demanded. You add on the inexhaustible source of raw materials, and the growing demand for raw materials – the picture is complete. Hence the timber waste is the money you walk on. - And the competition? If everybody produces pellets, there is the over-production and plummeting prices? - In the next 100 years – hardly, since the published statistics says the global pellet demand today is met by mere 2%. And that being said when the demand in Russia is in its infancy, and – so long as we watch Europe – it will boom soon. - All right, so profitability is clear. But there are weaknesses to every business – some hidden agenda. Can you give tips to our readers to avoid those? - A few tips to start with. First off, count the wastage you have to see if you need to process them. You should see that to get a ton of pellets you’ll need a 10 m3 of sawdust. The details can be found on our site. Second, you need to correctly select the equipment. That is not easy. Recently, companies offering to put together the equipment are popping up everywhere, and the Internet and press are full of it. However, the real manufacturers are as few as five. Indeed, to sell equipment you don’t need to produce it; yet you have to be aware well of the technology, or – better – its industrial application. And as for us – we do not just build equipment or its parts, we are actively using it. Hence the three tips on choosing equipment: 1. Always ask where the proposed equipment is already deployed, and before you see the line producing the right pellets do not sign the contract! 2. Do not believe statements that European-quality pellets can only be produced with the right equipment costing ?1.5-3 million. We proved practically that the pellets along the strict DIN+ can be produced with domestic equipment, costing RUR 1.5 million. Even for enterprises mastering large finance, it is not the obvious choice to favor expensive foreign equipment. One of the economic criteria to select equipment is its profitability term, which is 5-6 years for import, and about a year for internal. 3. Another thing is for those who think of briquetting: first find a buyer, since the demand is much lower than that for pellets, especially in summer. Besides, there is another important thing – it is just the dry sawdust that can be briquetted or milled. Thus, if your raw material is damp – you will need a drying line. The briquetting mill sellers usually silence this thing. As regards the weak spots – there are few, yet I see two: 1. There is no quality die for domestically produced sawdust. This is why you need to bring them from Europe, ordering 2 months prior to use. 2. There is a weak demand for pellets internally. This is why the sales are mainly towards Europe. Yet for a manufacturer far from Europe a considerable cost will be that of transit. Though, there is a wonderful solution coming up – the private utility sector is finding its way (and soon the entire utility market will become totally private). Commercial utility enterprises are purchasing heat power now at RUR 850 per 1 GCal, and 1 GCal is the heat generated when burning 200 kg of pellets. So it looks that a ton of pellets yields RUR 4,250. What’s there else to wish? - How can your enterprise help the start-ups? - We provide all services, starting with consultancy and pre-design preparations, and finishing with the test-runs and training. Further details can be found on our web-site: www.ecology-energy.ru - To conclude: a question – what do you think of the statement claiming that the fuel pellet manufacture is only profitable as a support activity? - I totally disagree. The principle is to correctly place the enterprise. Thus, you need an individual waste processing plant next to a big pulp plant or a timber processing plant. And in a provincial town it is expedient to have a plant equally away from the sawmill supplying the materials. And that’s the principle we built our plant on, and we’re happy with the result. Elena Alekseeva, interviewer Bioenergetika Magazine, issue 1, 2006