By leaps and bounds

Republic of Sakha (Yakutia)
Москва, 20.08.2012
«Expert: invest in Russia » №2 (2)
Yakutia’s time has come. The territory of this republic witnesses intensive implementation of investment projects of global importance. And this enables Russia’s largest area to become one of the most dynamically developing and rich constituent territories of the Russian Federation

Photo by RIA Novosti

Yakutia is the Russian Klondike with its huge reserves of diamonds, gold, oil, gas, coal, uranium, iron ore, and rare-earth elements. But it is also a huge (the size of India) poorly inhabited and lowly accessible territory characterized by very tough climatic conditions. For this reason, the federal budget allocates RUB 40 billion to Yakutia annually so that the living standards in the republic could meet the average Russian standards. However, in 2010 the republic’s consolidated budget surpassed for the first time the psychological level of RUB 100 billion; in 2011, its revenue side totaled RUB 126.5 billion, RUB 73 billion of which are Yakutia’s budget own revenues, which rose by more than a quarter in a year. And this is only the beginning of progressive development of the republican economy, says Republic of Sakha (Yakutia) President Yegor Borisov.

Sudden acceleration

— In 2007, Yakutia became one of the first Russian areas that adopted a clear and well-thought strategy of its development until 2020. And this strategy was written by your team at the time when you served as a chairman of the republican government. Are you happy with the extent to which Yakutia has been developing for the last five years?

— Transformation of the regional economic structure, appearance of new growth sources, primarily in the fuel and energy sector were the main result of implementation of the first phase of the Plan. During this time, the gross regional product doubled as compared to 2006, and the amount of investments increased by 1.7 times. Over the period from 2007 to 2011, the amount of RUB 765.8 billion was invested in equity across the republic representing 31% of the total investments necessary to implement the investment projects under the Plan-2020.

Every year, the Republic is among the leaders in terms of the consolidated index of the socio-economic situation of regions, the consolidated index of the budget system, the companies’ revenue growth rate.

Structural changes in the economy have a positive impact on social indicators. The real household disposable income rose by 19% to RUB 25.5 thousand per month while the level of real wages grew by 34% to RUB 33.3 thousand per month. The number of registered unemployed individuals dropped by 29.3% as compared to 2006.

From the natural population growth (11.3%) perspective, Yakutia is ranking seventh in the Russian Federation and first in the Far Eastern Federal District. Mortality has declined by 2.7% and infant mortality has decreased by 29% for the last five years.

— People outside Yakutia still believe that the republic’s economy continues to rely on diamonds and gold. To what extent is it real at present?

— We have been gradually departing from dependence on a single mining industry. The new oil and gas industry has been formed in the republic for the last five years. Putting into operation the first phase of the Eastern Siberia — Pacific Ocean oil transportation system permitted fuel hydrocarbons of the Eastern Siberian fields to enter the ESPO markets. Oil is extracted on the Talakanskoye, Alinskoye, and Otradninskoye fields by using the latest technologies. In 2011, 5.6 million tons of oil was extracted, which represents a ten-fold increase as compared to 2006. It is planned to reach the level of 13.7 million tons by 2020.

According to the Eastern Gas Program, the Yakutsk gas extraction center is formed on the basis of the Chayadinskoye and Botuobinskoye gas fields in Western Yakutia. The Yakutia-Khabarovsk-Vladivostok gas transportation system is planned to be built in the same corridor with the oil transportation system. On the whole, we hope to supply over 24.5 billion cubic meters of gas by 2020. The specific weight of the oil and gas sector in the structure of the mining industry grew from 3% in 2006 to 27% in 2011.

Along with construction of new mining enterprises in Southern Yakutia and start of operation of the Elginskoye field, which is one of the world’s largest fields, it is planned to increase coal mining from today’s 9.8 million tons to 24.8 million by 2015 and 38.4 million tons by 2020.

— What are development outlooks in Yakutia for plants processing source mineral resources and raw materials into higher-value-added products?

— Today the republic’s key processing industry is production of jewelry which has doubled. We associate further development of diamond and lapidary production with creation of a special economic area for jewelry production in Yakutsk, where we could minimize the legislative, administrative, and customs restrictions that prevent the industry from being developed.

However, apart from the diamond and lapidary, jewelry industry, the building material industry, we associate the main development outlook for processing plants with full cycle gas processing and gas and chemical plants with non-waste extraction of valuable gas components.

Yakutia’s gas processing and gas and chemical sector will process up to twenty billion cubic meters of natural gas annually. Production products will include methane, liquefied helium, polypropylene, and butane. A motor fuel plant with the capacity of 560 thousand tons of motor fuel is planned to be built in Aldan.

But when it comes to development of processing plants in the republic, I would like to emphasize that objective conditions such as a severe climate, high cost of heat and energy resources, and undeveloped transport infrastructure result in high production costs in Yakutia. This is why I believe it is high time we adopted a federal law setting forth a mechanism of government regulation of oil and oil product prices, including their retail prices. It is also necessary to exempt gas extracting companies supplying gas to the local gas supply system from taxes. In other words, companies having no access to the unified gas supply system of the Russian Federation may not export gas.

Yakutia transformation

— Most investors that have come and continue to come to the republic are large companies of at least the federal level: Gazprom, Surgutneftegaz, Mechel, FSK, RusHydro, Transneft, etc. How easily, if at all, can you find a common language with them in the process of implementing investment and social projects?

— Industrial giants such as Surgutneftegaz, Transneft, ALROSA, Mechel, Polus Zoloto, and other companies are sources for revenues to the budget and assume additional obligations: they participate in construction of educational, healthcare, sports institutions and facilities, residential buildings, hold environmental protection events, engage and train local human resources, and offer diverse sponsor support.

For example, Surgutneft offered financial assistance in construction of a new building of Yakutia State Agricultural Academy (built in 2008), a secondary school in Vitim for 700 students (2010), a kindergarten for 240 children (2011), Cholbon swimming pool in Yakutsk with a 50 x 25 meter water track, and other facilities.

Vostoknefteprovod LLC, a subsidiary of Transneft JSC, invested over RUB 4 billion in building and reconstruction of highways. ALROSA JSC transfers more than RUB 500 million annually under an agreement for socio-economic development of the republic alone.

One should understand that this is a bilateral traffic: at first, the republic offers, within the framework of its competence, considerable tax benefits to companies, assists them in reducing any administrative barriers at the local level, develops the investment infrastructure. Of course, certain disagreements on some issues do happen, but we always manage to find mutually acceptable solutions.

— In one of your speeches you said that laying of the golden element of the Berkakut-Tommot-Yakutsk railway line at the Nizhniy Bestiakh station in 2011 in which Russian President Dmitriy Medvedev participated was the “main event of the year in the republic”. Why is this railway line so important for Yakutia?

— The immature transport infrastructure is one of the basic problems today, which prevents the progressive development of the republic’s economy. Eighty percent of our territory, which can be compared with the territory of the entire Western Europe, has no year-round highway service.

For this reason, construction of the Berkakut-Tommot-Yakutsk railway line is the key project as it creates a base of the republican transport network and the key strategic facility of its transport construction. Last year, construction of 439 kilometers of the railway line from the Tommot station to the Nizhniy Bestiakh station was complete. At present, construction of facilities at this station continues, including a railway station. The start-up facility Tommot-Yakutsk (Nizhniy Bestiakh) is scheduled to be put into operation in 2013.

Upon the order of the President of Russia based on the results of visiting the republic, variants of building joint highway and railway bridge crossing across the Lena River are now studied. Implementation of this project will make it possible to reduce the cost of supplying resources needed by the republic at least by 30%, which will help save up to RUB 2.5 billion.

And when this railway reaches Yakutsk, Yakutia capital will become one of the largest transport and logistics hub in the Far East. The railway, water transport, and three federal highways will end there.

 exp_august_107.jpg Photo by RIA Novosti
Photo by RIA Novosti

— The food problem has always been the cornerstone problem in development of the North. And now you have to feed both the republic’s population and a large number of specialists coming to Yakutia to implement global and federal projects. Is your agricultural sector ready for this?

— The issue of supplying own food products is particularly relevant in all the areas of the Far East. During the years of reforms, the regional agricultural sector suffered to a considerable extent, although the republic’s agricultural sector has been declining at a lesser rate for the last two decades than other territories of the Far East. Yakutia’s agricultural sector is unique. Cattle breeding and crop farming are not developed in these latitudes around the world. And our republic accounts for more than half of all cattle in the Far Eastern Federal District.

However, today we meet local demand for food products, depending on the type of products, at 30% — 70%. In order to change this situation, the system of support to the republican agricultural sector has been reoriented toward commodity production since 2011. It is achieved primarily by using new technologies, growing highly productive crops, and creating conditions for long-lasting storage of products. The main measures include support to the economic activity of the rural population, reduction of the rural unemployment level, and recovery of the agricultural property sector.

In order to activate commodity production and organize the market for commodities and food products, we form territorial placement of milk and meat cattle breeding and poultry breeding facilities, including in the areas of industrial development. Last year, 13 modern animal complexes started to be built; a broiler meat production facility (with the capacity of 3,300 tons annually) was organized in Neriungri. Highly breeding cattle is purchased from outside Yakutia.

Over the period from 2006 to 2011, the amount of RUB 34.8 billion was allocated as government support to Yakutia rural economic development, representing more than half of the total support to all the areas of the Far Eastern Federal District. Over RUB 37 billion will be allocated over the period from 2012 to 2016. The average annual growth rate of the gross agricultural products until 2016 should be at least 4.4%.

— Will the republican building industry cope with such rates of the republic’s development?

— Implementation of investment projects and construction volume growth resulted in development of the building industry as well. Launch in 2010 of a basalt material plant in Pokrovsk with the capacity of 72 thousand cubic meters of mineral wool plates annually was a milestone in this area. As a result of their heat insulation and consumer characteristics, the plant’s products can confidently compete with imported insulating materials.

The Basalt — New Technologies innovation project is developed jointly with Rosnano Corporation aiming at production of composite materials, in particular, basalt plastic reinforcement products based on basalt continuous fiver.

One of the indicators of the building sector progress was the fact that more than 1.5 million square meters of residential space have been commissioned in the republic for the last five years. Ten schools, eight kindergartens, four hospitals, and four clubs have been put into operation for the last year alone. Citizens are actively moved from old and defective residential buildings. Residential mortgage has been dynamically developing; territories have been comprehensively developed for housing construction purposes.

In 2010, the problem of citizens that became victims to fraudulent housing developers, including beyond the republic, will be fully resolved. The social housing stock for low-income citizens will start to be built and transferred to the municipal entities. A mechanism of profitable buildings will be developed for the first time by engaging interested companies.

The republican authorities pay close attention to providing housing to orphan children and children deprived of their parents. In 2011, 275 orphan children received apartments.

Prying into the future

— When addressing Il Tumen deputies in autumn 2010, you said that the republic needs extra 100 thousand specialists of various levels for implementation of the Plan-2020 projects alone. The current republic’s population totals less than one million residents. How are you going to resolve the problem of training such a large number of highly qualified specialists?

— Depopulation in the Far East has been one of the main threats to the national security of Russia. The republic’s population has stabilized at the level of about 950 thousand residents for the last ten years.

However, the population outflow trend typical of all the Far Eastern areas has not been reversed so far. Engaging enough labor resources in large projects implemented in the territory of Yakutia is one of the most difficult problems the republican government has to cope with.

Over the last three years, we have opened eighteen new secondary vocational education specialties. In the years to come, fifteen secondary vocational education institutions are going to open and restructure dozens of specialties.  

Under agreements with large companies acting as investors or general contractors, we engage workforce from the republic’s districts and assist in creation of conditions they need. It is pleasant that companies actively help us in this process. For example, under an agreement with Transneft, Vostoknefteprovod allocated RUB 1 billion to construction of residential buildings on the territory of the Olekminsk, Lensk, and Aldan Districts of the republic.

In early 2012, 13.3 thousand people were involved in investment projects implemented in the republic. Local residents constituted one third of them. Our objective consists in gradually replacing non-local workforce.

— In your opinion, how will Yakutia be like after 2020?

— Implementation of large investment projects in the territory of the republic will make it possible to create several rapidly growing areas in the region, which will drive growth of the territories surrounding them.

Implementation of projects will give momentum not only to Yakutia development, but also to development of most of the Far Eastern Federal District territories. Gas extraction on the largest Chayadinskoye field, its transportation via the gas main will make it possible to gasify communities located in Amur Region, Primorye and Khabarovsk Territories, Jewish AD.

The oil processing and oil chemical sectors of the Khabarovsk and Primorye Territories will be developed as well. Building power transmission lines, putting into operation hydro power facilities will enable integration of the republic’s isolated power districts into the Russian power grid system, reduce energy tariffs, improve reliability of power supply, and export electricity to the neighboring territories. Operation of floating NPP in the Arctic sea ports of the republic is real and, as a result, it will help save thousands of tons of oil and coal fuel, reduce the load on the seasonal imports by river and road transports.

Construction of federal highways to Irkutsk and Magadan will connect Magadan Region, eastern and western districts of Yakutia to the Russian unique highway network.

In addition, construction of bridge crossings along the Viluy and Kolyma highways, a bridge crossing across the Lena River near Yakutsk, and installation of hard covering on the Lena highway will sharply improve the local population’s living standards, primarily as a result of developing local plants and factories and the commodity turnover exponential growth.

The Yakutsk — Magadan railway line will start to be built and, upon completion, will provide a through passage from Europe to North America. We will be connected to Irkutsk Region by the Lena station (Ust-Kut) — Nepa — Lensk interregional line.

The main milestones that we will have to achieve in the near future are set by Russian President Vladimir Putin in his strategic decrees signed on May 07, 2012. The stipulated parameters and development rates have been mainly incorporated in our long-term Program of Socio-Economic Development of the Republic of Sakha (Yakutia) until 2025 and the main areas until 2030.

Given the targets pursued by the country’s government and aimed at accelerated development of Eastern Siberia and Far East, huge opportunities are opened for Yakutia.

I am confident that in the third decade of the 21st century Yakutia will be a developed industrial territory, and its socio-economic indicators will keep leading positions in the Russian Federation.

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«Expert: invest in Russia »
№2 (2) 20 августа 2012
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Содержание:
North Caucasian Federal District
The Sochi Investment Forum
Economic Results 2011
South Russia
Investments in the North-West
Investments in action
The labor market
Investment appeal Rating of Russian regions
Republic of Sakha (Yakutia)
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