GENERAL OVERVIEW OF THE KRASNOYARSK REGION, RUSSIA

Siberia: Investment Opportunities in Krasnoyarsk Region

December 2007

Prepared by Azim Mamanov, BISNIS Representative in Novosibirsk, Russia

SUMMARY

Economic development of Krasnoyarsk Region plays important role in Russia’s further growth. The key features of the region are abundant natural resources, highly developed industries, and scientific and intellectual potential. These features make the region attractive for investments.

For the past three years, investments in the regional economy increased by 73.9 percent, whereas the increase for entire Russia was 39.6 percent. In 2006, investments in capital assets of enterprises in the region totaled RUR 89.6 billion, 12.9-percent increase compared to that in 2005. Own funds of enterprises remain to be main sources of investments, constituting over 50 percent for large enterprises in 2006. However, the share of attracted funds has increased from 31.9 percent in 2003 to 46.6 percent in 2006.

NATURAL RESOURCES

The Krasnoyarsk Region is one of Russia's richest of natural resources areas. Nearly 100 percent of the platinum group metals in Russia, 65 percent of nickel, 30 percent of copper, 26 percent of coal, 10 percent of gold and timber resources are concentrated in the region.

Kansko-Achinsky coal deposit located in the region is one of the largest in Russia, with the total reserves of coal estimated 600 billion tons. In 2006, 37.9 million tons of coal were mined in the region.

The major factor stimulating regional economy growth in 2006 was high prices for non-ferrous and precious metals in the world market. Thus, in 2006 prices for nickel increased by 64.5 percent, copper – 82.7 percent, aluminium – 35.4 percent, palladium – by 59.1 percent, and silver – by 58 percent.

Oil and gas extraction increased by 41.5 and 27.4 percent respectively in 2006. Share of oil and gas in energy resources extraction constituted 36.5 percent. In the nearest future, oil and gas exploration and production in Krasnoyarsk region will significantly increase due to ongoing development of gasification process in Russia, exports prospective to China.

INDUSTRY STRUCTURE OF THE KRASNOYARSK REGION

Economy of Krasnoyarsk region continues to be the strongest in Eastern part of Russia. GDP of the region exceeds RUR440 billion (approx. US$18 billion), the sixth largest in Russia (share in GDP of Russia is 2.5 percent), and the largest in Siberia (share of the region in Siberian GRP is 20 percent).

For the first nine months of 2007, GDP of Krasnoyarsk region increased by 4.7 percent. According to the regional administration’s estimates, GDP will increase by 4.1 percent for 2007, and total RUR 672.7 billion.

Major industries-contributors to the regional production are non-ferrous metallurgy, mechanical engineering, food-processing, chemical products and ferrous metallurgy.

Investments

Within the first half of 2007, investments in Krasnoyarsk region increased by 29.1 percent, whereas investments in Russia increased by 22.3 percent. Investments in the region in 2006 totaled US$4 billion.

Not only private companies, but also the regional government plans to make substantial investments. In 2008, investments will be made mainly in transportation and infrastructure development projects. Total volume of investments for 2008 is estimated RUR 2 billion.

Oil and Gas

One of the largest investors in the region is Gasprom. The company plans to invest RUR 6-7 billion in geological exploration in Evenkia within 2010-2020. By end of 2007, the company was planning to invest RUR 4 billion. For 2006, investments made by Gasprom are estimated RUR 3.5 billion.

Another oil and gas company active in the region is Slavneft. The company plans to invest US$5 billion in oil and gas exploration and to increase volume of extracted oil up to 1.2 million tons. The company plans to actively invest in transportation infrastructure development projects, such as oil pipeline in Evenkia jointly with Rosneft. The project is estimated at US$330 million.

Ferrous and Non-Ferrous Metallurgy

Metallurgy is the leading industry in the Krasnoyarsk Region. Four out of the five monopolies in the region are involved in metallurgy: Norilsk Mining Company JSC, Krasnoyarsk Aluminum Plant JSC, Non-Rerrous Metals Plant JSC, and Achinsk Bauxite Plant JSC. Norilsk Mining Company produces up to 70 percent of the total volume of production of copper, nickel and cobalt, and up to 90 percent of platinum group metals in Russia.

Norilsk Mining Company is making substantial investments in the region. In particular, it invested into the construction of the mines “Skalistiy” (US$56 million), “Komsomolskiy” (US$48 million), “Taymirskiy” (US$23 million) and “Oktyabrskiy” (US$19 million). This will enable the company to complete within the next few years for a number of important investment projects in the Krasnoyarsk region. In addition, US$46 million were invested in the Kolskiy branch of GMK, where the company also has a powerful mining base.

Other companies are developing large investment projects as well. For example, the “Russian Aluminum” and GidroOGK companies launched construction of the Boguchansky Aluminum Plant. The plant with the production capacity of 600 thousand tons of aluminum per year will be in the top five largest aluminum plants in Russia. Investments are estimated US$2.3 billion.

Fuel & Energy Production

Energy production industry of the region is presented by 29 enterprises employing over 25,000 people. The industry contributed 13 percent in GRP of Krasnoyarsk. Substantial reserves of brown coal and hydropower energy create favourable conditions for electric power production in the region. The use of hydroelectric power, amounting to over 41 percent of all the energy power, allows the government to keep power prices lower compared to many other regions in Russia. The surplus of electric power is exported to other Russian territories. Hydroelectric power energy reserves of just the Lower Angara River Region are an estimated 100 billion kilowatt-hour, of which 80 billion kilowatt-hour can actually be exploited. There are several large power stations in the region such as Krasnoyarsk Hydroelectric Power Station (HEPS), Krasnoyarsk State Regional Electric Station-2 (SRES), Nazarovo SRES, Boguchany HES, and Berezovka SRES. The main suppliers of electric power are: the United Energy System of Russia JSC, the Krasnoyarskenergo JSC, and the Norilskenergo JSC.

Chemical and Petrochemical Industry

The region’s chemical industry is represented by 176 enterprises employing over 17,000 people. following are the basic types of products manufactured by the chemical sector: pharmaceuticals, automobile tires, plastic products, synthetic rubber, chemical fiber, basic and raw chemicals (sulphuric acid, soda ash, caustic soda), synthetic resins and plastics (4.4 percent), and paint and varnish.

Chemical enterprises are mainly located in the central part of the Region, particularly in Krasnoyarsk, Kansk, Achinsk, and Zelenogorsk. The largest are the ones in Krasnoyarsk (plants producing tires, synthetic rubber products, chemical fiber, medicines, varnishes and paints, and particularly the Yenisey chemical plant), Kansky Biochemical Plant producing spirits, Sibvolokno plant in Zelenogorsk, and Zheleznogorsky Mining and Chemical Plant processing radioactive materials. The oil-processing industry of the Region is represented by the Achinsk Oil-Processing Plant, which produces gasoline and other products.

Machine-Building and Metal-Processing Industry

The industry is represented by up to 900 enterprises, employing over 56,800 people. The main types of machines and equipment produced are bridge-building cranes, excavating machines, combine harvesters, mowing machines, automobile hooks and trailers, and home appliances. The following are the largest companies in the complex: Sibtyazhmash JSC (bridge-building cranes, conveyor complexes, ore transportation complexes); Krasmashzavod JSC (space satellites and rockets, oil-refining equipment, heating equipment, equipment for food industry); Combine-Building Factory JSC (combine harvesters); Krastyazhmash JSC (excavating machines); and Kraslesmash JSC (logging and wood-processing equipment).

Timber & Wood Processing Industry

The Krasnoyarsk Region has one of the largest timber reserves in Russia. Woodlands occupy 168.1 million hectares, or 45 percent of the Region. Siberian larch, cedar, pine, aspen, and birch are widely represented among the species found in the Region's forests.

The forest industrial complex includes over 700 enterprises, including over 100 sawmills, 2 board factories, and a pulp and paper plant. The industry employs over 56,000 people. The main types of products include commercial wood and round timber, sawn timber products, railroad sleepers, pulp, paper, and cardboard.

New projects are being developed in the region. Thus, a new pulp production factory will be constructed in the city of Lesosibirsk, Krasnoyarsk Region. Investments will total US$1.3 billion. The plant will be processing 5 million cubic meters of timber, and producing 900,000 tons of high-quality cellulose annually.

Another project, construction of a veneer production factory, is underway in the region. This is the largest wood processing project in the region. The combined projected capacity is 600 thousand cubic meters. The project is financed by the Russian-American company Midway United Ltd. Investments total US$150 million. New US-made equipment is purchased and will be installed in the factory.

FOREIGN ECONOMIC ACTIVITY

The Krasnoyarsk region is significantly involved in foreign economic activity. Its economy is fully integrated in the world economy and depends on foreign trade, which significantly increased since 2003. Foreign trade turnover in the Region in 2006 amounted to over US$6.8 billion, an increase by 75.1 percent more than for 2003. Exports accounted for 89 percent of the total turnover. Foreign trade balance in 2006 was up to US$ 4.7 billion as opposed to US$4.6 billion in 2005, and only US$2.9 billion in 2003. In 2006 the major foreign trade partners were companies from Great Britain, Switzerland, France, USA, Japan, Portugal, Netherlands, China, Germany, Turkey, and South Korea. Trade operations with these countries constituted over 90 percent of the total exports volume.

Exports

Krasnoyarsk is traditionally one of the most significant export-oriented regions in Russia. The exports in 2006 exceeded US$ 5.7 billion, 9.7-percent increase compared to that in 2005. Products of ferrous and non-ferrous metallurgy (aluminum, nickel, and copper), chemical industry, timber and wood processing, machine building, and other types of products were mainly exported from the region.

Imports

The import volume in the region in 2006 exceeded US$1 billion. The main imported products are those of the chemical and petrochemical sector, mostly aluminum oxide (alumina) and plastic, machine-building products. Additional product categories are: food products and raw materials for the production of meat, flour, fruits, vegetables, wine, and confectionery.

USEFUL CONTACTS

First Deputy Governor

Lev Kuznetsov,

110 Mira Prospect,

Krasnoyarsk, Russia 660009

Phone: 7-3912-493111

Fax: 7-3912-493621

Economic Development Management Department

Krasnoyarsk Regional Administration

Edkham S. Akbulatov,

Deputy Governor

Chairman

123a Lenin St.,

Krasnoyarsk, Russia 660009

Phone: 7-3912-493480

Fax: 7-3912-651236

Natural Resources Management Department

Krasnoyarsk Regional Administration

Anatoly Galkin

Chairman

110 Mira Prospect.,

Krasnoyarsk, Russia 660009

Phone: 7-3912-493215

Fax: 7-3912-493623

Foreign Relations Department

Krasnoyarsk Regional Administration

Andrey Uzhva,

110 Mira Prospect

Krasnoyarsk, Russia 660009

Phone: 7-3912-493232

Fax: 7-3912-217039

For more information on Siberia, visit BISNIS online at http://bisnis.doc.gov/bisnis/country/siberia.cfm

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

BISNIS Representative in Novosibirsk: Azim Mamanov (bisnis-nsk@mail.ru)