by Andrey Vasenev
Stretching over four time zones, the territory of the Russian Far East (RFE) region is about two-thirds the size of the United States. The northeastern territory of Chukotka is just several kilometers away from Alaska, and the southern tip of Sakhalin is only a few kilometers from Japan. By contrast, the distance between the largest city in the region, Vladivostok, and Moscow is more than 9,000 kilometers (over 5,600 miles). The region is rich in natural resources, such as diamonds (almost 100% of Russia’s output); precious metals, including gold (70% of the country’s output), platinum, and silver; oil, gas, and coal; timber; and seafood.
Most of the RFE population (about 7 million) resides in urban areas. The majority of the territory is virtually uninhabited or sparsely populated. The largest cities in the region are: Vladivostok, Khabarovsk, Komsomolsk-on-Amur, Blagoveshchensk, Petropavlovsk-Kamchatsky, and Yakutsk.
The proximity to Alaska and synergetic industry profiles of the two regions result in strong economic ties between the Russian Far East and the U.S. West Coast. In addition to growing trade with the United States, the RFE also enjoys strong commercial ties with other neighboring countries on the Pacific Rim. The three top trade partners are Japan (29% of total trade turnover), China (28%), and South Korea (15%). The RFE’s domestic market is also showing consistent growth.
In a recent speech to the Security Council of the Russian Federation, President Putin outlined positive growth in gross regional production and average incomes, as well as growing foreign trade and investment. However, severe deficiencies in industrial infrastructure, the current difficult socio-economic situation, as well as a declining population pose serious threats to the nation’s security and call for a complex RFE development strategy. President Putin emphasized the importance of eliminating infrastructure barriers for RFE socio-economic growth through the development of power engineering, border infrastructure, transportation, logistics and telecommunications network modernization. Development of a favorable business environment and potential improvements in tariff and tax policies were also mentioned as top priorities.
In October 2006, the Far Eastern International Economic Forum was held in Khabarovsk. Seven sector-specific roundtables focused on effective use of mineral resources, power and fuel sectors, timber sector development, fishing industry, and information and communication technologies. The Forum also focused on the need for substantial infrastructure development. Participants discussed over 200 investment projects that are currently being implemented or prepared for implementation in Siberia, the Far East and Zabaikalye. The total volume of the proposed investment projects exceeds $370 billion.
The RFE industry sectors outlined below represent best prospects for U.S. companies interested in exporting to or investing in the region.
Oil and Gas
Today, the RFE’s economic potential lies with its immense natural resource base. RFE oil and gas reserves are practically undeveloped and deposits contain an estimated 8.5 billion tons of oil and 30 trillion cubic meters of natural gas. The regions that are especially rich in oil deposits are Sakhalin, Kamchatka, Magadan, and the continental shelf of the Yakutia region (Sakha Republic).
The neighboring Pacific Rim countries create a large consumer market for RFE oil and gas. In the next 15 years, experts claim China’s demand for oil will increase by 300 million tons and natural gas by 90 billion cubic meters. In North America, the demand is expected to grow by 150 million tons and 70 billion cubic meters respectively.
The program for gasification of the RFE entails construction of four gas processing operations in Yakutia, Primorsky and Khabarovsk krais. By 2020, demand for natural gas in the RFE region is expected to reach 20 billion cubic meters. Gazprom is finalizing negotiations for the purchase of a section of the Sakhalin–Komsomolsk-on-Amur–Khabarovsk Gas Pipeline. It plans on expanding the existing pipeline system and constructing one more pipeline from Sakhalin through Khabarovsk and on to Vladivostok and China. The capacity projections will take into account Yakutia gas from the Chaindinskoye Deposit that is expected to reach Primorye by 2016. This network will also allow the transport of gas to other countries.
Power Engineering
According to Kamil Iskhakov, Russian President’s Plenipotentiary Representative in the Russian Far East Federal District, the region possesses immense opportunities for hydropower engineering development. The South Yakutia hydropower complex may become the largest such project in Russia’s Eastern territories. The project envisions construction of seven hydropower stations with the total capacity of 8,500 MWt. In addition, the hydropower opportunities of Amur Region will be explored further. Hydropower station construction is also initiated in Primorsky and Khabarovsk Krai as well as tidal power plant construction on the Shore of the Okhotsk Sea.
During his visit to Khabarovsk in December 2006, Anatoly Chubais, head of RAO EES Rossii (Unified Power Systems of Russia JSC), signed an agreement with Governor Ishayev for RAO EES’s investment policy in the Khabarovsk Krai. The document envisions a number of large joint projects including:
- Construction of the gas-main pipeline to Nikolayevsk-na-Amure
- Construction of the coal power station to export electric power to China (Argal Power Station with the capacity of 2,400-3,600 MWt)
- Construction of the power station for the projected aluminum production plant
- Electric power supply to the developing Vanino-Sovetskaya Gavan Transportation Node.
Machine Building and Metallurgy
In 2006, the District’s machine building sector showed trends of revival. Five machine building investment projects are expected to add over 100 billion rubles ($3.75 billion) to the Region’s gross product. A number of new development programs are currently being launched, including the program for production of Su-27SM planes and the creation of the fifth-generation aviation complex. Khabarovsk aircraft manufacturer KnAAPO will also be responsible for production of the first Sukhoi Super Jet 100. From 2008 to 2010, approximately 100 planes will be produced and sold on domestic and foreign markets.
In metalworking, the construction of the steel producing plant project in Yakutia is a top priority. The Republic possesses 4.5 billion tons of iron ore, 4.2 billion tons of coke, and all accompanying components. Baikal-Amur Railway (BAM) provides the infrastructure.
Because the RFE hydropower resources are underused, there are real opportunities for establishing at least two aluminum plants. In the fall of 2006, the representatives of U.S. Alcoa visited Amur Oblast to discuss construction of an aluminum processing plant. The plant’s estimated annual production capacity would exceed 320,000 tons of aluminum. The operation will require four million kilowatt/hour of electric power and will probably employ Bureiskaya Hydropower Station as the primary power source.
Transportation & Logistics
Due to the region’s large size, the transportation sector plays an important role in the RFE. The share of transportation costs in the region is 25 percent, nearly twice the Russian average. Transportation accounts for 11 percent of the RFE regional gross product. Railway transportation accounts for 82% of cargo turnover and 40% of passenger turnover.
In 2006, 10.64 billion rubles ($400 million) were allocated from the federal budget for transportation development in the RFE. Another 44.6 billion rubles ($1.67 billion) will be allocated through 2010. The primary transportation projects to be implemented in the next few years include strengthening of the Transiberian railway; completion of BAM and AYaM; completion of the Berkakit-Tommot-Yakutsk Railroad; reconstruction of the Sakhalin railroads; modernization of the Vanino-Kholmsk ferry; and full-scale introduction of the Lidoga-Vanino highway.
By 2010, Russian Railroads company will invest over 241.5 billion rubles ($8.95 billion) in the Transsiberian Railway under the federal target program for modernization of the Russia transportation system. Nearly half of that amount will be allocated by 2008. The future demand for freight services utilizing the eastern section of the Baikal-Amur Railway is primarily associated with the transportation of oil from Komsomolsk and construction of the coal terminal in Vanino.
As a part of the RFE logistics development, Moscow-based Avalon Holding will construct a $30 million Logistics Center in Khabarovsk. The 50,000 sq. meter center will consist of large storage facilities with transport communications, parking lots, hotels and other infrastructure. The company expects to commence construction in April 2007 and put the center into operation by the first quarter of 2008.
To read the full version of this report, including information on border cooperation, click here.
For further information on the Russian Far East, visit www.bisnis.doc.gov/bisnis/country/fareast.cfm
Andrey Vasenev is the BISNIS representative in Khabarovsk.
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