Wind of changes

Republic of Sakha (Yakutia)
Москва, 20.08.2012
«Expert: invest in Russia » №2 (2)
The global economy growth vector has been steadily moving to Asia. This opens new and unknown opportunities for development of Russia’s Far East. The Republic of Sakha (Yakutia) is driving such changes

Nobody doubts that the Asian Pacific Rim (APR) is becoming a new center of the global economy. For example, in 2011 China’s Gross Domestic Product rose by 9.2% as compared to 2010 and totaled USD 7.5 trillion, despite the global financial crisis. Russia’s largest south-eastern neighbor has already overpassed Japan in terms of oil imports and closed the USA, the largest black gold importer. Coal imports in the Celestial Empire are increasing as well: they grew by almost 11% in 2011 to reach the level of 182 million tons in spite of the fact that China is the largest coal mining country in the world. These processes in the APR are opening new opportunities for Far East areas, in particular, for Yakutia, which has a huge development potential. “Along with the federal center, we have to develop our strategic territories according to the intensive scenario. At the same time, we have to profit from the current unique opportunities of the Arctic Zone rapid development”, says Republic of Sakha (Yakutia) President Yegor Borisov.

Rich store area

“The territory of Yakutia is the richest resource base, which is important for both Russia and the world and development of which is at the initial phase. According to the Ministry for the Protection of the Environment and Natural Resources of the Russian Federation, the balance reserves of explored fields are estimated at RUB 60 trillion, coal — at RUB 24 trillion, gas — at RUB 19 trillion, iron ore — at RUB 5 trillion, oil — at RUB 5 trillion, noble and rare-earth metals — at RUB 5.5 trillion, diamonds — at RUB 2 trillion. However, the explored reserves, given low exploration of minerals, constitute just a small portion of the richest territory’s forecast resources. Furthermore, Yakutia has unique possibilities for building hydroelectric power plants”, assessed the Republic of Sakha (Yakutia) development potential Nikolay Podlevskikh, Head of the Analytical Department at Zerich Capital Management investment company, for the Expert. However, until this century diamond extraction was Yakutia’s main specialization in the Russian labor distribution system. Revenues from operations of ALROSA, Russia’s key diamond producer, formed the Republic’s consolidated budget at more than 50%. On the one part, this was objective because Yakutia has 82% of Russia’s diamond reserves, and ALROSA holds a 25% share of the global diamond extraction market. On the other hand, this did not clearly correspond to this Territory’s actual potential and the global economic trends. For this reason, the republican authorities started targeted work to attract investors to other economic sectors of Yakutia; in 2007, in cooperation with the federal ministries and agencies, they developed a Plan of comprehensive development of production forces, transport, and power engineering of the Republic of Sakha (Yakutia) until 2020.

This strategy is based on three cornerstones. The first one consists in modernization and support to the then primary industry in Yakutia — the diamond one (including the lapidary and jewelry industry), the timber industry, and the agricultural sector. The second cornerstone includes creation of new mining and fuel and energy industries: oil extraction and processing, coal chemistry, iron ore extraction and metallurgical production, gas processing and gas chemistry, uranium ore extraction. The third one is intensive development of the transport and power engineering infrastructure.

The key feature of the strategy is formation of large industrial clusters in the southern (hydropower engineering, extraction and advanced processing of coal, iron and uranium ore, natural gas, and apatites), western (underground development of diamond, oil and gas fields, creation of the gas processing and gas chemical industry), north-eastern (development of gold and complex deposits), and central Yakutia (transportation hub).

This plan was fully supported by Russia’s Government and large national companies. So, over the period from 2007 to 2011, the economy of the republic received investments totaling RUB 752 billion. Fifty-two large projects were launched, twelve of which have actually been completed. Yakutia’s gross regional product has grown by 19% for the last five years despite the global financial crisis and the real income of the population has increased by 21%.

Wind from the East

One of the first implemented large projects was construction of the Eastern Siberia — Pacific Ocean (ESPO) federal mega oil pipeline, which has been transporting Russian oil to Asia and the USA since 2009. One and a half thousand kilometers of this mega pipe was laid across the territory of Yakutia constituting more than one third of the total length of the oil pipeline. After that, black gold extraction in the republic grew from 300 thousand tons (2007) to 5.6 million tons (2011).

Last year, the main oil extracting company Surgutneft (SNG) started to develop the third field in Western Yakutia: the Northern Talakan field that is adjacent to the Talakan field, the main reservoir of black gold in Yakutia. Since 2004, when SNG obtained the right to develop the central part of Talakan, the company has invested more than RUB 220 billion into oil extraction in Yakutia (taking into account the cost of acquiring the license and social infrastructure development), including construction of its own airfield capable of receiving aircraft such as Boeing 737-400. By 2013, the total amount of oil extracted in the republic as a result of joint efforts of all the companies should rise to 8.7 million tons annually. After 2017, 6 million tons of oil will be annually extracted by the Central Block of the Srednebotuobinskoye OGCF, which is developed by Taas-Yuriakh Neftegazdobycha (by the end of this year, the company intends to put into operation a 169 km permanent oil pipeline worth RUB 20 billion leading to the ESPO).

Operation of the Chayadinskoye oil gas condensate field, one of Russia’s main gas reservoirs, will start with development of its oil rim in 2014 (the project is worth RUB 214 billion). By 2016, Gazprom plans to put into operation a main gas pipeline to Khabarovsk, within the same corridor with the ESPO that will transport gas from the Yakutia gas extraction center to the APR countries. The estimated cost of this 2.8 thousand kilometer line totals RUB 280 billion. Gazprom will invest RUB 444 billion in development of the Chayandinskoye GCF and construction of facilities for storing helium generated from Chayanda gas in Yakutia under the Eastern gas program until 2016. Therefore, the amount of natural gas to be extracted in Yakutia may reach 34 billion cubic meters annually by 2020 as a result of implementing projects of the Yakutia Fuel and Energy Company and Sakhatransneftegaz. Naturally, this will accelerate the program of providing gas supply to communities in the republic. During the last ten years, seventy-nine communities in nine districts of the republic and suburbs of the republican capital were gasified. Twenty-one communities are planned to be gasified, over one thousand kilometers of gas networks are intended to be built, fifty-two boiler houses will start to operate on gas, one hundred and forty-eight production facilities in the agricultural sector and 8,660 residential houses are going to be gasified within the next five years. After 2016, in cooperation with Gazprom, the area of gasification in the south of the republic plans to be considerably extended (Lensk District, Olekminsk District, Aldan District, and Neriungri District). In addition, as oil and gas projects progress, several enterprises processing oil and gas into products with a higher added value are planned to be set up in Yakutia.

Under the influence of the wind from the East, coal mining that has been successfully carried out for almost forty years in Yakutia, found a new lease of life. Last year in August, Mechel MMC launched industrial development of the Elginskoye coal filed in southern Yakutia, which is one of Russia’s largest fields (balance reserves total over 2 billion tons). By using its own resources (RUB 40 billion), the company built a railway branch connecting the field to the Baikal-Amur Mainline. The Elginskoye field coal grade is scarce on both the Russian and global coal markets. This coal is characterized by a high content of volatile substances, high fluidity, an extremely low content of sulfur, nitrogen, and phosphor, and a high heating effect. “In terms of coal reserves and quality, this is a field of global importance”, say the republican government representatives. Last year, Kolmar Company started building the Inaglinskiy coal complex in southern Yakutia with the capacity of about two million tons of coke concentrate, which will reach its designed capacity in 2015. Successful implementation of all the coal projects will make it possible to achieve the amount of coal mining in Yakutia equal to 38.4 million tons by 2020. “The total amount of investments in the republican economy to be made by 2020 is estimated at USD 154 billion. Of course, both the federal and Yakutia’s authorities and the country’s largest companies are interested in developing the regional potential. This will make it possible to improve the socio-economic situation of the republic, its citizens, give momentum to development of the entire Far East and Eastern Siberia, increase revenues to the budgets of all levels, and strengthen the country’s integrity”, says Dmitriy Baranov, Senior Expert at Finam Management MC, to the Expert.

Coping with the distance

Creating the reliable transport and power engineering infrastructure is the main objective during implementation of Yakutia’s complex socio-economic development. At present, only 10% of the republic’s territory is accessible for year-roundtransport communication; the republic’s power engineering system is divided into three isolated power areas, none of which is connected to the country’s united power grid. As a result, the share of transport expenses in the end product’s cost is several times higher than the average Russian level reaching 40% - 70%, and the net cost of electricity generated by diesel-powered power plants can reach RUB 60 per kilowatt hour. For this reason, in 2011 financing of the republic’s transport infrastructure increased to RUB 27.7 billion, including RUB 20 billion received from the federal budget.

The first start-up complex of the Berkakit — Tommot — Yakutsk railway main was completed last year, connecting the central and southern parts of Yakutia to the federal railway mains: BAM and Transsib. The republic, the federal center, and the RZD paid over RUB 35 billion to build the 450 km long railway from Tommot to Nizhniy Bestiakh (this community is located near Yakutsk and is separated from it by the Lena River). However, as a result of building a communication to the federal railway network, Yakutia Railway Company will be able to increase the annual amount of cargo transportation from 2 million tons to 14.4 million tons by 2020. In the process of building a railway and highway bridge across the Lena River to Yakutsk, the multiplicative effect will be simply impressive because there is no year-round bridge crossing (!) all along this river in Yakutia. 

Today the production of diamonds are not the only source of the Republic incomes. The regional economy is steadily maturing becoming more complex exp_august_111.jpg Photo by Legion-Media
Today the production of diamonds are not the only source of the Republic incomes. The regional economy is steadily maturing becoming more complex
Photo by Legion-Media

Large-scale projects are developed in the power engineering industry. RusHydro federal holding is currently completing design of the main hydroelectric power plant of the South Yakutia cascade: Kankunskaya HPP on the Timpton River with the capacity of 1.2 GW, which can meet the demand for electricity in the entire South Yakutia industrial hub, including creation of metallurgical plants and Elkonskiy uranium concentrate plant.

Last June, ES Vostoka RJSC and the republican government launched construction of HEPP-2 in Yakutsk, which should replace the exhausted facilities of Yakutsk HEPP-1 and meet the future demand of the capital and communities of the republic’s central power district for heat, hot water, and electricity.

Financed from the federal budget, the Far East Power Managing Company is actively building the 220 kV Chernyshevskiy-Mirny-Lensk-Peleduy power transmission line transporting surplus electricity of the Viluyskiye HEPP to supply power to Lensk and ESPO industrial enterprises. This line will be one of the phases of building the Mirny-Lensk-Peleduy-Kirensk inter-system transmission bringing together the western power district of the Republic of Sakha (Yakutia) and the northern part of Irkutsk Region, Lensk-Olekminsk-Aldan, the western power district and the southern power district of Yakutia reaching the ICS of the East. It will replace the existing Mirny-Lensk-Peleduy 110 kV OL, which is in an unsatisfactory technical condition and has completely exhausted its capacity.

The first phase of building the 220 kV Neriungrinskaya HEPP — Nizhniy Kuranakh — Tommot — Maya OL and NPS-17 substation for supplying electricity to the facilities of the Aldan industrial hub and the ESPO has been completed; the 220 kV Suntar — Olekminsk — NPS 14 and substations in Olekminsk and NPS-14 have been built, which made it possible to shift the ESPO facilities, the city of Olekminsk and communities around it to centralized electricity supply and take out of operation the Olekminsk diesel power plant, which consumed ten thousand tons of diesel fuel annually.

“The infrastructure development in Yakutia is carried out at much higher rates than in several neighboring regions. The republican authorities are well aware of the fact that investors will never come here, if there are no normal highways, power transmission lines, and other infrastructure facilities, however attractive local natural resources may be. And all of these activities only strengthen the investment potential of the republic”, emphasized Dmitriy Baranov, Senior Expert at Finam Management MC, to the Expert.

Today Yakutia gives an impression of being about to make a great leap. Investments in its potential development will start to be generously recovered during the next years. The republic expects that Yakutia’s gross regional product will double by 2020 to reach RUB 1 trillion annually.        

The largest investments projects Republc of Sakha (Yakutia)

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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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