Necessary revision of contracts for renewable sources, repositioning of Croatian forests and strategy

‘Let’s build the brown highway’ was the name of the conference held on the first day of Ambiente, the 43rd international furniture, interior design, and related industries fair at the Zagreb Fair.

The conference was divided into three panel discussions, and in the first, there was a heated debate about the small quotas that cogeneration from biomass received for selling electricity from this renewable source. All panel participants were united in the view that the quotas should be larger and that the current wood processing industry has the right (quota) to sell 13.2 megawatts of electricity from biomass. As the president of the HGK’s Association of the Wood Processing Sector, Ivić Pašalić, somewhat angrily stated, it is unacceptable that wind farms receive a quota of 750 megawatts.

– Wind farms have a very small number of employees, and those are the ones who issue invoices. Moreover, they are not Croatian products, so no new value is created, while our sector employs a total of 50,000 people, including Croatian forests – said Pašalić.

Željko Lovrak from the Pellet project added to Pašalić’s words by stating that in this sector, unlike wind farms, every megawatt produced employs 20 new people. The CEO of Spačva, Dario Puljiz, said that encouraging the wood processing sector could have a significant impact on regional development and demographic renewal in Croatia. He added that it is sad that a large amount of heat is lost because cogeneration cannot convert it into electricity.

– We are practically heating the air – said Puljiz.

Is Vrdoljak to blame?

During the discussion, former HNS Minister of Economy Ivan Vrdoljak was called out several times, with claims that he is the main culprit for the current state because he changed the Regulation on quota allocation and the Tariff System for electricity production from renewable sources, adapting it to other activities. The participants stated that it is precisely the wood processing activity that has the greatest potential in resources. Thus, Lovrak from the Pellet project stated that the annual Croatian biomass potential for electricity is 3.75 million cubic meters, while the annual growth of forests in Croatia is 10.5 million cubic meters. He sees an opportunity for utilizing this resource and called on the future Government and the Ministry of Agriculture to revise all previous projects.

When it comes to legal regulations and other normative acts, Vedrana Pulić from the Energy Institute Hrvoje Požar stated that cooperation with the Croatian government is poor and that the Institute collaborates better with countries from our region, as well as some African countries, indirectly suggesting to the attendees that the disputed regulation and tariff system were written in ‘a very strange way,’ as Pašalić expressed, without consulting the profession. Furthermore, it was stated that many who received quotas did not fulfill all the conditions they accepted when obtaining the right to produce energy from renewable sources after a certain period, even though they sent certified statements to the Ministry of Economy that they were working according to the assumed obligations. One of the biggest problems, it could be heard, is that the oversight of companies that received the right to produce electricity is not effective, and it could be concluded from their words that this is also an indicative sign that the quotas were distributed ‘in a strange way.’

The conclusion of this panel was that all granted permits should be revised as soon as possible and that the wood processing sector should be granted more rights for energy production from cogeneration, as this not only helps one of the most dynamic sectors in Croatia but also achieves other goals, such as regional development and stopping the emigration of the population.

The topic of the second panel was also interesting, but it seems to be somewhat poorer in content as participants occasionally strayed from the main idea, which is to improve the efficiency of raw material use through strategic measures over raw material bases.

Ban on log exports

Branko Liker from the Faculty of Agriculture stated that we do not use resources purposefully, in this case, the forests that nature has bestowed upon us. Participants often repeated that a state strategy for forests is needed, to which the still-current Deputy Minister of Agriculture, Tugomir Majdak, responded that this will be one of the main tasks for the new government. Majdak is also one of the candidates for Minister of Agriculture, but to that question, he only diplomatically replied that ‘mandator Andrej Plenković will surely choose the best ministers.’

The CEO of Spin Valis, Zdravko Jelčić, warned that no strategy will help if we do not commit to producing higher value, i.e., final production. He also stated that the exchange rate policy is what it is, but he also noted that the negative effects of the exchange rate policy can be compensated by interest and rebate policies. Additionally, regarding sales, he said that the solution lies in direct sales to customers by opening showrooms, as producers depend too much on large retail chains. Jelčić spoke about this in response to a question about the possibility of a joint appearance of Croatian furniture producers in showrooms.

While in the first panel Vrdoljak was declared the main culprit, in this one, entrepreneurs said they should decide what is more important: for the state company Croatian forests to operate with the highest possible profit, or for production to develop. Darko Motik, a professor at the Faculty of Agriculture in Zagreb, stated that nothing is black and white, including the relationship between Croatian forests and companies that purchase logs.

– The problem arose the moment Croatian forests became a limited liability company. And then, logically, every management tried to operate with the highest possible profit – said Motik.

The issue of log exports that should be limited was also raised, according to the opinion of wood processors, to which log exporters in the audience reacted at that moment. But as if nothing had happened, the discussion continued, and Petar Milinković from Croatian forests stated that it cannot be said that there is an enormous export of logs because it accounts for only one percent of the total quantity.

This panel also featured Stjepan Vojnić from the company Pervanovo, which took over Tehnodrvo, announcing an investment in the production of three-layer parquet.

The causes of poorer resource utilization were cited as disorganized legislation, overvalued currency, high capital costs, and the absence of knowledge application. They also propose redefining the role of Croatian forests in relation to the wood industry.

Solution, not problem

At the third panel ‘Furniture production: Reality or delusion?’ the speaker Renato Radić, CEO of Prima, stated that furniture production, especially of the higher price range, is the solution for the domestic wood industry because the common EU market with 500 million consumers spends as much as 100 billion euros on furniture annually.

He added that it is therefore necessary to recognize the needs of EU customers, whether it is about online sales, but also about branding products, as well as finding innovative logistics solutions, which are necessary for transport that affects product prices by up to 20 percent. However, there is also tax pressure on personal income, as well as parafiscal charges that have been legalized as racketeering for entrepreneurs. A particular problem for exporters, he said, is the monetary policy that has destroyed the domestic industry, and the industrial strategy, only two years old, is dead letters on paper.

Marija Peaković from the Ministry of Economy stated that the domestic tourism sector uses too few products from the domestic furniture industry, but there are exceptions, as a hotel company has appeared with an investment of 500 million euros in a five-star tourist capacity, which has taken furniture from Slavonia.

Feđa Vukić from the Faculty of Design in Zagreb believes that design, which has often been a stumbling block in the past, cannot solve everything to make domestic furniture sell better, especially in the EU market, which today does not recognize the Croatian furniture industry, which not so long ago was known and recognized worldwide. However, the example of chairs from Croatia, which are sold in Germany for living rooms at prices ranging from 500 to 600 euros each, shows that success can be achieved even in the prestigious market. As it could be heard, a table from Ikea is incomparable to one made of Slavonian oak produced by a domestic furniture manufacturer, although they are similar in shape and, which is not negligible, in price.

The conference was concluded by Ivić Pašalić, who stated that the goal of this conference, supported by Croatian forests and HUP, was to try to provide answers to the burning issues of this sector. ‘Let’s build the brown highway’ should be the strategic goal of the Croatian government alongside the green (ecology) and blue (sea) highways. He emphasized that this Ambiente is finally the right one because for the first time the Croatian wood industry is presented as a whole, from the simplest to the most complex products. He welcomed the adoption of the Draft Strategy for the Wood Processing Industry by the Ministry of Agriculture but also appealed for the urgent adoption of the Strategy and legal solutions to enable its implementation. Due to the importance of this strategy, the HGK has named this document ‘Brown Highway,’ as proposed by the renowned Croatian economist Guste Santini.

– We want a partnership with the state. We do not bring them problems but offer solutions. The new Government will show its attitude towards us by the very name of the relevant ministry, in which, I hope, they will also include forestry – said Pašalić.