The web site for the Ivanovo regional administration proudly displays Czech plans to build an 870 million ruble ($28 million) timber-processing plant.

This is the kind of project that the region’s forestry committee has used to justify its reluctance to lease small plots to small and medium-size forestry companies. It wants big investors.

The catch is that the Czech plant, which was approved by the regional administration in September, has never materialized. Industry insiders said that of 187 investment projects in the timber industry that have been approved by the Industry and Trade Ministry, investors have stayed put for only five.

Most of the projects are “soap bubbles,” flaunted by regional administrations and existing only on paper, and even the few remaining investors may quit soon, said Denis Sokolov, director of the Timber Industry Confederation of the Northwest, a lobby group.

Financial crisis aside, Russian forests are not commercially attractive to international timber companies, which would need to invest more than 1 billion euros ($1.4 billion) to build a single large paper plant in a forest-rich area. The high cost is associated not only with the plant but with the construction of transportation, energy and housing infrastructure required to reach the country’s 880 million hectares of forests, much of which is remote and underdeveloped.

The Forest Code leaves responsibility for those costs to the investor, while the government merely gives them access to the forest on preferential terms. Faced with such hurdles, companies tend to choose ­tropical timber markets, where denser biomass provides a bigger profit margin and facilities do not have to be heated during the winter.

What exactly derailed Czech company CE Wood’s plans to build a timber-processing plant in the Ivanovo region is unclear.

The holding was expected to build the plant within two years and invest into forest works in the region while operating on a 49-year lease.

The Ivanovo regional administration, in an e-mailed reply to faxed questions, would only say the plant had not been built because “the investor stopped activities on the project in the region.”

It did not say why the project remained on its web site. But a regional forestry committee official called the administration’s announcements about the investment “just PR.” Moreover, the project was supposed to be developed using bank loans, which is unlikely given the credit crunch, he said.

The September decree that approved the project expired in June, he added.

CE Wood, which offered to construct the facility in March 2008, declined to comment when asked to explain its departure.

The federal government had hoped to attract investors like CE Wood with the Forest Code, a law that has been implemented in phases since 2006 in an effort to reform the industry. Investment projects that boost deep processing of timber are part of the government’s plans to lead the country away from exporting cheap rough timber. Such exports made up about 30 percent of the industry’s total production last year.

According to the Forest Code, investment projects in the timber industry need to receive at least 300 million rubles ($9.6 million) of investment into infrastructure or timber processing facilities to receive access on preferential terms and bypass the auction procedure.

Both President Dmitry Medvedev, who worked as a director at Ilim Pulp in the 1990s, and Prime Minister Vladimir Putin have publicly endorsed the development of timber processing as a national goal. As part of that effort, the government had intended to hike export tariffs for rough timber to 50 euros per cubic meter at the start of this year, hoping to encourage exports of timber products with higher added value. The tariff would have made it essentially impossible to export rough timber, industry players said, and in November the government delayed the hike by nine to 12 months.

Putin attempted to re-engage interest in the country’s rough timber at a meeting with Finnish Prime Minister Matti Vanhanen in early June. “It’s important for our Finnish friends to use this time-out to develop deep processing industries for timber on Russian territory,” he said at the time.

But his words appear to have fallen on deaf ears. Between 6 million and 10 million cubic meters of rough timber have been stuck at the Russian-Finnish border since September as Russian exporters hope that their contracts with Finnish importers will be renewed, Finnish radio station YLE reported July 14.

The Finns instead have introduced a program to use domestic timber, while China, another big importer, is now taking Canadian timber, said Sokolov, of the timber industry confederation.

“We have lost those markets because they know the tariffs will be introduced eventually, and the one-year time-out doesn’t change anything,” he said.

It’s already been a rough first half for the industry. Board lumber, hardboard and plywood output in the first six months of 2009 is down 30 percent to 40 percent compared with last year, according to the State Statistics Service. Pulp and paper products are also down, by 10 percent to 30 percent.

Roughly a quarter of the country’s timber is used as firewood and for other personal needs, while about 30 percent is exported before processing.

Russian timber is also facing a formidable challenge from tropical countries. Sokolov said a large plant producing 1 million tons of pulp per year would require 5 million hectares of Russia’s northern forest but only 700,000 hectares of tropical forest. It is no wonder then that Stora Enso, a Finnish company that considered a project in Nizhny Novgorod last year, eventually went to Uruguay, Sokolov said.

With the conditions set by market forces, the credit crunch and the Forest Code, the industry could soon lose all small timber producers, and no large investors will materialize to take their place, said Alexei Yaroshenko, director of the forest program at Greenpeace. The industry is currently contracting by about 10 percent every month, he said.