Russian Far East News Update

 

March 2007

 

Author: Andrey Vasenev, Bisnis Representative in Khabarovsk, Russia

 

INTERNATIONAL COPYRIGHT, U.S. & FOREIGN COMMERCIAL SERVICE AND U.S. DEPARTMENT OF STATE, 2006. ALL RIGHTS RESERVED FOR USE OUTSIDE OF THE UNITED STATES.

 

This Monthly News Update provides news briefs on the major economic and social developments in February – March 2007 in the Russian Far East Federal District focusing on the following sectors:

 

 

Sources of Information: press services of the regional administrations, information agencies and publications in Dalnevostochniy Capital, Priamurskiye Vedomosti, TOZ, Zolotoy Rog, Commersant.

 

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Russian Far East Federal District

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Investment

 

RFE Expects Investment Boom

According to Aleksey Kudrin, the Head of Russian Ministry of Finance, the RF Government plans to increase financing of the social and economic programs of the Russian Far East Federal District several times in 2008-2009.  For example, in February 2007, the Government reviewed the Scheme for the Republic Sakha (Yakutiya) industry, transportation and power development up to 2020 that outlines the primary “growth points” for the region’s economy.  According to Mr. Kudrin, the next five years will be very important for the Republic resulting in Yakutiya becoming a donor-region in six-seven years.

 

Mining

 

Gold and Titanium Rush in RFE

The Russian Federal Agency for the Use of Mineral Resources (Rosnedra) has approved an approximate list of deposits of precious metals, precious stones and platinum group metals to be put up for a tender in 2007, including those in Primorskiy and Khabarovsk Krais and Amurskaya Oblast.

 

In Amurskaya Oblast, Rosnedra plans to put the following deposits up for an auction: gold ore deposits of Khugderskaya (Zeiskiy District), Bomskaya (Zeiskiy District) and Sagur-Semertakskiy ore perspective areas (Selemdzhinskiy District), Mogoktak Ore-bearing (Tindinskiy District), Ilichi Unakhibskiy Ore-bearing (Tindinskiy District), Oroldyanskaya Ore zone (Tindinskiy District), Mogotinskoye Ore-bearing (Tindinskiy District), Kharga Stream Gold Section (Selemdzhinskiy District).

 

In Primorskiy Krai, the following deposits will be put up for an auction: gold ore - Veseloye Ore Deposit (Krasnoarmeyskiy District); gold and silver ore - Pasechniy Plot (Partizanskaiy District); gold and silver ore - Milogradovskoye Ore Deposit (Olginskiy District), gold ore – Kumirniy Plot (Terniyskiy District); silver – Levobereznhiy Plot (Terniyskiy District).

 

In Khabarovsk Krai: gold ore, silver – Mukalakitskiy Ore Knot (Okhotskiy District), gold ore, silver, copper – Avladzhinskaya Orefield (Ayano-Mayskiy District), gold ore- Krasnogorskaya Field (Nikolayevskiy District), gold ore – Iskinskiy Ore Knot (Nikolayevskiy District), gold, silver, copper ore – Srednetemginskiy Ore Knot (Solnechniy District), Silver – Burgalinskaya Orefield  (Okhotskiy District).

 

Rosnedra has also approved an approximate list of non-ferrous metals to be put up for a tender in 2007 in Primorskiy Krai: Avgustovskoye Deposit (Dalnegorsiy City District) – lead, zinc, silver; Noyabrskoye Deposit (Krasnoarmeyskiy District) – lead, zinc, tin; Ariadnenskoye Titanium Ore Bearing  (Dalnerechenskiy District) – titanium; Ariadnenskoye Placer Ilmenite Deposit (Dalnerechenskiy District) – titanium (placer ilmenite)

 

Mass Media

 

173 New Periodicals in the FRE

In 2006, 173 new periodicals were officially registered in the RFE Federal District.  According to the RFE Office of Rosokhranculture organizations and business retained high interest in creating new mass media - during the past year, it received 239 applications for registration.  A total of 1,448 mass media are currently registered throughout the RFE, including 440 electronic.  Republic Sakha (Yakutiya) leads with 386.  In Khabarovsk Krai, Amurskaya and Kamchatskaya oblast, mass media are most often established by individuals and businesses, while in Koryakskiy and Chukotskiy Autonomous Districts and the Jewish Autonomous Region and partially in Yakutiya, mass media is most often owned by the regional and local governments.

 

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Khabarovsk Krai

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foreign Affairs

 

Rimbunan Khidzhau at a Start-up

In October, 2008, Malaysian Rimbunan Khidzhau plans to launch a fiberboard producing plant at a Khor Settlement of the Khabarovsk Krai.  The new operation will be the first one in the world to employ modern German technology for the production of the thinnest and thickest boards of high and medium density. The plant will produce approximately 150 thousand cubic meters of fiberboards annually and consume 250 thousand cubic meters of timber.  At this time, Rimbunan Khidzhau has identified the construction site, obtained positive responses from the sanitary-epidemic and environment bodies, considered the logistics of the raw materials flow and is conducting project design.  The estimated cost of the design works under the project is $1 million.  According to the company’s representatives, the plant will market a portion of its products in Russia and a portion in China and South Korea.

 

TRANSPORTATION

 

Bolshoi Ussuriyskiy Will Become a Boarder Passage

Upon completion of the process of demarcation of the new Russian-Chinese boarder a new boarder pass will be established on the Bolshoy Ussuriyskiy Island in the Khabarovsk Krai.  The overall process of boarder demarcation will be completed this year.  There are currently 16 available boarder passages but some of them are unable to meet current requirements. For example the traffic capacity at a passage at Khabarovsk river port does not satisfy the growing needs of the city.  Demand for a new boarder pass with the capacity to process 250 automobiles and 1,500 people daily becomes even more evident as the Krai Government plans construction of a large logistics center at Bolshoy Ussuriyskiy.  The project will be jointly financed by business and government; it will cost two billion rubles ($75 million).

 

The future of the boarder passage at the Khabarovsk International Airport is still uncertain as the two large companies – Aeroflot JSC and Alyans-Prom JSC lay claims to it.  Both companies have independent concepts for the development of the Khabarovsk air transportation.  In February 2006, Alyans-Prom became a sole owner of Khabarovsk Airport and has designed a program for its renovation including construction of the new airport building and creation of a large multimodal transport and logistics center.  The company is willing to invest 3.5 billion rubles (over $130 million) in the project implementation.  At the same time, Aeroflot considers establishment of an affiliate that will unite a number of RFE air carriers, including Dalyavia Regional Airline, which previously owned the boarder passage at the Khabarovsk International Airport.

 

Aeroflot-Cargo Will Operate On Schedule

Aeroflot-Cargo – the cargo transportation affiliate of Aeroflot Airlines will begin operating regular flights from Moscow to Novosibirsk and Khabarovsk.  These would be the first scheduled cargo flights on the domestic air market.  According to the sector-specific experts, the new project seems very promising and is expected to bring Aeroflot $ 10-14 million annually.  Starting in March 2007, Aeroflot-Cargo will operate two flights to Novosibirsk and one to Khabarovsk weekly.  In the fall, the number of flights may increase.  Khabarovsk shipping agencies are very optimistic about the news and are willing to take advantage of the new service.

 

Vanino Seaport Added 4.4%

During the 2006, Vanino Trading Seaport processed 6,438.7 thousand tons of cargo exceeding its 2005 performance by 4.4%.  Compared to 2005 results, export and import volume grew 3.5% and 43.7% and totaled 3,351.8 thousand tons and 828.1 thousand tons respectively.  The primary exports were timber – 1,910.6 thousand tons (+3.8%), coal – 493.1 thousand tons (+70.1%) and fertilizers – 97.5 thousand tons (+1.8%).  In 2006, the port increased import of alumina by 800.9 thousand tons (+54.0%) and machinery – 14.2 thousand tons (+31.1%).  The container turnover totaled 26,117TEU, which was an 18.8% decline compared to 2005.

 

In January 2006, the representatives of the Russian Railroads JSC and Norwegian Hydro Aluminum, planning to construct an aluminum producing operation in Khabarovsk Krai discussed RR’s capabilities for transporting of the raw materials for the aluminum production (alumina) and finished products via the Vanino – Komsomolsk-na-Amure –Vanino rail route.  During the 2007, Russian Railroads plans to ship approximately 1 million tons from the Vanino Seaport to Krasnoyarskiy Krai.

 

Information Technology

 

Microsoft Business Forum in the RFE

On March 21, 2007, Microsoft Rus plans to hold a Microsoft Business Forum in the Russian Far East to promote its new software and IT solutions to the RFE businesses.  Microsoft has opened its representation in Khabarovsk in August 2006.  The office is primarily engaged in the development and expansion of the partners’ network and joint marketing activities and work with clients to promote Microsoft software in the region.  It also offers corporate licensing of software and holds joint activities with Intel and the ministry of education.

 

In February 2007, Microsoft has launched a new campaign to fight pirate versions of the Office software on the Russian Federation market.  In the spring of 2007 it plans to begin selling new Office 2007 with the new notebooks and desktops and expects a 30% decrease of the volume of pirate copies by July.  According to the research performed by Microsoft in late 2006, every fifth Russian consumer is willing to pay for Microsoft Office 2007 to be installed on his home computer. The experts support Microsoft’s efforts but are less optimistic about the immediate transfer to the legal software.  According to the IDC estimates, in 2006, approximately 80% of all Microsoft products in Russia were pirate, while in 2005, the figures were 83%.

 

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Amurskaya Oblast

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Investment

 

Mega-farm is established in AO

80 million rubles (roughly $3 million) out of 240 million ($ 9 million) allocated for the construction of the mega-farm at Luch kolkhoz in Amurskaya Oblast have been successfully used for construction.  The mega-farm became one of the sites of the program fro the 8-year investment loans under the national agriculture development project.

 

High River Gold invests in Berezitoviy Deposit

In 2006, Canadian High River Gold Mines, Ltd. invested over 600 million rubles (roughly $ 22.5 million) in the construction of the Berezitoviy Mine in Amurskaya Oblast.  According to the company’s representative, High River Gold Mines invests $100 million in the development of a deposit in Tindinskiy District of the Oblast and construction of the necessary infrastructure in the Skovorodinskiy.  The operation will be officially launched in July 2007.

 

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Republic Sakha (Yakutiya)

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Mining

 

Mitsui Takes Interest in Yakutiya’s Uranium

Japanese Mitsui & Co plans to finance the exploration activities at the uranium deposit in Yakutiya. According to Georgiy Nikonov, the Minister of RS(Y) Foreign Affairs, in 2004, Yakutiya’s Government and Mitsui signed a memorandum for Japan’s participation in a number of large projects, including those in geological prospecting. Japanese are interested in the development of Elginskoye coal as well as oil and gas deposits of Yakuitya. Minister also pointed out that in the near future, Mitsui office may be established in Yakutsk.

 

Investment

 

Yakutiya Will Receive 2.5 trillion

RF Government has approved the plan for the development of Yakutiya’s industry, transportation and power system.  Republic will receive approximately 2.5 trillion rubles ($ 93.6 billion) up to 2020.  One of the projects under the program envisions merging of the iron ore deposit on the boarder of Yakutiya and Amurskaya Oblast and construction of the metallurgy combine in Yakutiya with the production capacity of 10 million tons or iron ore concentrate.

 

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Primorskiy Krai

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Foreign Affairs

 

Primorye Wants to be Special

Vladivostok will soon host an international conference on special economic zones.  Primorskiy Krai Government has recently negotiated preliminary agreement with the Agency for Special Economic Zones.  The event will be held this year under the Year of China in Russia and marked by participation of a big delegation from South Chinese Provinces that have an extensive experience in the topic.  Primorye Administration seeks to attract investments and technology from the highly developed Chinese provinces for the development of the Special Economic Area in Nakhodka-Vostochiy Seaport Special Economic Zone.

 

Power Engineering

 

RFE Power Company Doubts Primorye’s Gasification

Victor Myasnik, the head of RFE Power Engineering Company announced skepticism towards the perspectives for Primorski Krai gasification and construction of nuclear power plant in the region.  According to Mr. Myasnik, there is little expediency in transferring regional power stations from coal to gas under the current pricing tendencies.  The electric power generated by the nuclear power plant will also have poor competitive ability in the current market situation.  However, Primorskiy Krai Administration stands for construction of such plant to produce cheap power to be used as a base for the aluminum producing plant. 

 

RFE Power Generating Company began operation on February 1, 2007.  51% of its stock belongs to RAO EES Rossii, while the RFE Power Generating Company owns 100% of RFE Generating Company.

 

Automotive

 

Mercedes-Bents Arrived to Vladivostok

In February 2007, Altair-Auto Ltd. - the official dealer center of Mercedes-Bents began its operation in Vladivostok, Primorskiy Krai.  The total area of the new service center is 2.5 thousand sq. m. including a 502 square meter auto salon that exhibits automobiles that are certified and are officially delivered to Russia.  The center also possesses a 1000 square meter repair zone that is able to serve up to 20 vehicles.  The dealer center will also be selling collection accessories.

 

Transportation Infrastructure

 

Bridge Across Zolotoy Rog Will Be Built in Two Years

Administration of Primorskiy Krai has sent a project for the construction of a bridge across the Zolotoy Rog Bay near Vladivostok for federal expertise.  According to the design documents, the construction will be completed by 2009.  The total cost of the bridge is estimated at 8.1 billion rubles ($ 303 million) and the regional government hopes that the federal government will contribute its share to the project financing as a part of preparation for the 2012 Summit for Asian Pacific Economic Cooperation to be held in Vladivostok.  The Primorye Government also seeks to attract private investors to finance the construction – their share in the total project cost should not be less than 25%.

 

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Magadan Oblas

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Business support

 

Magadan’s Special Economic Zone Expands

The State Duma has accepted the draft law for reorganization of the special economic zone in Magadanskaya Oblast.  The document envisions extension of the term for the special zone’s operation to 2014 and expansion of its boarder up to the limits of the Oblast’s administrative boarder.  The Magadan Economic Zone (MEZ) was established in 1999 providing its participants with tax and duty privileges, and exemption from paying federal budget taxes. Import goods are brought into the zone under duty free conditions and without any economic sanctions. Goods manufactured in the MEZ and sold throughout Russia and abroad are not subject to customs duties and any other levies except the export charges at the Customs.  From January 1, 2006, to December 31, 2014, MEZ participants are exempt from paying the profits tax for investments in the socio-economic development of Magadan Oblast. MEZ participants are expected to use revenues resulting from their tax and duty exemptions for business expansion and new industries development, thereby promoting investment activity in the Oblast.

 

mining

 

Omolskaya Gold Ore Company Received No Interest

1.865% of stock of Omolonskaya Gold Ore Factory located in Magadan and engaged in the development of Kubaka Deposit were recently put up for an auction.  The stock is currently owned by the government.  The start up cost of the shares was nearly 40 million rubles ($1.5 million). The auction itself did not take place due to the lack of proposals.  The decision regarding the new date for the auction will be made later.  Omolonskaya Gold mining Company is one of the largest gold producers in the Russian Federation.  98.1% of its stock belongs to Canadian Kinross Gold Corp.  The corporation is ranked eight in the world and third in Canada for the volume of gold production.

 

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jewish Autonomous Region

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oil & GAS

 

JAR Aims at Oil and Gas Production

By the end of the thirst quarter of 2007, Jewish Autonomous Region (JAR) will put Dimitrovskaya Oil and Gas Field up for an open tender.  The estimated reserves of the field are 40 million tons of oil and 100 billion cubic meters of gas.  However these figures may be changed after $4 million geological exploration activities are performed.  Experts view Idemitsu – large oil company from Japan and Peter Hambro Mining Gold Ore Company engaged   in the development of iron ore deposit in JAR as potential participants in the tender. Development of Dimitrovskaya Platform is one of investment projects initiated by the JAR Government.  The project’s estimated payback period is five years. 

 

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Chukotskiy Autonomous Region

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GOVERNMENT

 

Roman Abramovich Retains Governor’s Position

Roman Abramovich, one of Russia’s richest businesspeople will retain his positions as a Governor of Chukotskiy Autonomous Region for at least one more year.  This agreement was made at a recent meeting between President Putin and Governor Abramovich, who previously sought to leave the position prior to the completion of his term in 2010.  Mr. Abromovich’s desire to complete his program for the transfer of Chukotska to a prosperous region could be one of the reasons for a continued stay.  The program envisions Chuskotka’s development up to 2015 with and emphasis on mining sector.

 

 

For more information on the Russian Far East, visit BISNIS online at http://www.bisnis.doc.gov/bisnis/country/rferegions.cfm

 

BISNIS (www.bisnis.doc.gov) is part of the U.S. Commercial Service (www.export.gov).