1) IRKUTSK OBLAST REGIONAL OVERVIEW

2) UPCOMING TRADE SHOWS - SIBERIA

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IRKUTSK OBLAST REGIONAL OVERVIEW

Prepared by Azim Mamanov, BISNIS Representative in Novosibirsk

January 2000

This report gives a brief overview of the Irkutsk Oblast, and covers various industries developed in the region. In addition, it includes contact information that can be useful for American businesses considering business opportunities in the region.

Of particular interest to U.S. companies are non-ferrous metallurgy, forestry, and electrical engineering. The food-processing industry is another sector of the local economy that can be beneficial for American investors.

Geographical Location and Population of the Irkutsk Oblast

The Irkutsk Oblast is located in south-eastern Siberia in the basins of Angara, Lena and Nizhnaya Tunguska rivers, and occupies an area of 774,000square kilometers (4.6 percent of Russia’s territory). The Irkutsk Oblast borders with the Buryat and Tuva Republics in the south and south-west, the Krasnoyarsk Krai in the west, the Sakha (Yakut) Republic in the northeast, and the Chita Oblast in the east. A unique and world-famous lake, Lake Baikal, is located in the southeast of the region.

The climate is continental. Almost half the year the temperature is below 0C. Winter is frosty, and the temperature is generally from -17C to -33C. Summer is hot, short, and dry in the first half, and humid in the second. The temperature is generally between +17C and +33C.

The population of the region is 2.77 million, from which 79.6 percent are urban, and 20.4 percent are rural. The density of the population is 3.5 people per square kilometer, whereas the average density for Russia is 8.7. Irkutsk is the administrative center, with a population of 594,500. Other large cities are Angarsk (267,000 people), Bratsk (253,600 people), Usolie-Sibirskoe (104,300people), and Ust-Ilimsk (107,200people). The average wage in the Irkutsk Oblast is about 1,800 rubles (US$72).

Transportation

Two major airports in the Irkutsk Oblast with international status are located in the cities of Irkutsk and Bratsk. There are direct airline links with China, Japan, Uzbekistan, and Mongolia. In addition, charter flights to South Korea, Greece, Turkey, Spain, Italy, Bulgaria, UAE, and Egypt are available. Westerners travelling to the region usually take a direct flight from Moscow to Irkutsk. About 36,000 people take international flights to and from the region. In 1998, 7,200 tons of cargo were transported, which is half that in 1997.

Irkutsk is on the Trans-Siberian Railroad, and has a railway connection with Moscow. The total length of railway track, the main transportation “artery” of the region, amounts to 2,481 kilometers. In 1998, 39 million tons of freight was transported from the region by railroad, which is 6.4 percent less than in 1997. The main products delivered by railroad are oil, ores, timber, and coal. Since 1986, the Baikalo-Amurskaya Magistral (BAM) railroad has been working to facilitate exploration and mining of the natural resources in the region. A well-developed network of automobile highways allows making shipments to any destination in Russia, NIS countries, China and Mongolia. In 1998, 4.8 million tons of freight was transported by trucks, which is 17 percent less than in 1997.

River transportation also takes place in the region. In 1998, 2.2 million tons of freight was transported by water, which is 25 percent less than 1997.

Imported goods from Western countries are usually transported to the region through Moscow by railroad.

Banking

Banking in the region consists of a dozen local banks, and affiliates of more than fifteen banks headquartered in Moscow (Alfa-Bank, Sberbank, Promstroibank, VneshTorgBank etc.), St. Petersburg (Menatep), and Novosibirsk (SibAcademBank).

Natural Resources

The region is rich with natural resources. Approximately 86 percent of the region’s territory (66.8 million hectares) is covered by forests mainly consisting of pine and larch trees. Wood reserves total 8.3 billion cubic meters (which is 11 percent of all the wood reserves in Russia). The forests are inhabited by a large number of fur bearing animals, such as minks, muskrats, and ermines.

Agricultural land totals 5.1 million hectares (6.6 percent of the region’s territory), and the share of land occupied by industrial and other companies is 2.2 percent.

Lake Baikal, by its major characteristics (23,000 cubic kilometers of fresh water, or 20 percent of the world reserves of fresh water; 31,500 square kilometers of surface area; maximum depth of 1,637 meters) is one of the greatest lakes in the world. The overall water resources of the region total 120 cubic kilometers annually.

The region is rich with mineral resources as well. The most significant deposits in Russia, can be found, particularly in the Lenskaya (gold), Mamsko-Shuiskaya (mica), Angarskaya (ferrous ores), and Vostochno-Sayanskaya (rare metals) provinces. Also the Irkutsk coal basin, and the world’s largest East-Siberian salt basin are found there.

Major mineral resources that determine the industrial potential of the region are raw materials based on hydrocarbon, gold, mica, common salt, iron, brown and bituminous coal. Diamond is found in the region as well. One of the most promising diamond deposits is Chuno-Biryusinskaya. Reserves of natural resources found in the region are as follows:

Natural Resource Reserves

Oil 260 million tons

Gas 900 billion cubic meters

Iron Ores 2 billion tons

Coal 15 billion tons

Potassium Salt 627 million tons

Rock Salt 20 billion tons

Mica 80% of Russia’s total

Magnesite 75% of Russia’s total

Rare Metals:

Niobium 65% of Russia’s total

Tantalum 45% of Russia’s total

Lithium 50% of Russia’s total

Eleven tons of gold is being mined annually in the region. In the first 10 months of 1999, the amount of gold mined in the region exceeded 12 tons for the first time in a long time. Over 94 percent of gold was mined in the Bodaibinsky district. The reserves of gold are substantial enough to continue mining for another 15 years.

The list of the most significant deposits in all of Russia includes these locations in the Irkutsk region: Verkhnechonskoe (oil), Kovyktinskoe (gas), Sukholozhskoe (gold), Nepskoe (potassium chloride), Beloziminskoe (niobium, tantalum), Savinskoe (magnesite), and Mugunskoe (coal).

Major Industry Sectors

In terms of gross domestic production volume, the region is ranked third, after the Tyumen Oblast and Krasnoyarsk Krai. The leading industries are: non-ferrous metallurgy, electric engineering, fuel, mechanical engineering and metal working, and the forestry and wood working industries. The following table demonstrates the contribution of different industries to the local economy in 1997 and 1998:

Industry: Share in 1997 (%) Share in 1998 (%)

Electric Engineering 19.7 21.6

Fuel 14.3 10.3

Mechanical Engineering and

Metal Working 11.9 7.0

Food-Processing 7.7 7.9

Chemical and Petrochemical 5.7 5.1

Ferrous Metallurgy 2.5 2.0

Non-Ferrous Metarllurgy 21.3 25.6

Flour, Groats and Feed Making 0.4 0.3

Construction Materials 2.1 1.5

Forestry and Wood Working 11.7 16.7

Light 0.4 0.3

Microbiological 1.8 1.3

Other 0.5 0.4

Compared to 1997, the share of the electric engineering industry increased by 1.9 percent, non-ferrous metallurgy – by 4.3 percent, forestry and wood working – by 5 percent, and the food-processing industry - by 0.2 percent. In all these industries production increase was noticed. The share of the mechanical engineering and metal working industry decreased by 4.9 percent, fuel industry – by 4 percent, ferrous metallurgy – by 0.5 percent, and the chemical and petrochemical industry - by 0.6 percent. In terms of production volume, significant production decrease was noticed in light industry (by 40 percent), ferrous metallurgy (by 31 percent), construction materials industry (by 28 percent), and fuel industry (by 16 percent).

Financial Situation

The financial situation for local industry remains difficult. A shortage of raw materials for manufacturing goods, and a lack of investment capital and funds for existing and potential clients, aggravated by the financial crisis in August 1998, and has made it extremely difficult for local companies to survive. In 1998, the majority of large- and medium- size companies (823 enterprises) were working at a loss totalling US$300 million, and other companies (463 enterprises) gained in profits totalling US$200 million. Thus, the overall financial result for local businesses in 1998 was negative.

Mechanical Engineering and Metal Working Industry

Mechanical engineering and metal working occupies 7 percent of all industrial manufacture in the region. In 1998, the production volume decreased by 9.8 percent, and totalled US$112.6 million. The largest enterprises for mechanical engineering and metal working are: Irkutsk Aircraft Production Plant JSC (produces aircrafts and consumer goods); IrkutskCable JSC (produces cables and wires); UsolMash JSC (produces cranes); VostSibElement JSC (produces batteries, galvanic elements); and IrkutskTyazhMash JSC (produces metallurgical and mining equipment).

Chemical and Petrochemical Industry

The share of the chemical and petrochemical industry in the local economy is 5.1 percent. Intensive development of the industry in the region has been determined by the existence of the resource base (salt, bituminous coal, wood etc.), and the construction of the West Siberian – Angarsk oil pipeline. More than 2000 products have been produced in the region.

The chemical and petrochemical industry is located in the cities of Angarsk, Usolie-Sibirskoe, Zima, Sayansk, and Bratsk. The largest chemical production complex in East Siberia and the Russian Far East is the Angarsky Industrial Hub combining a number of plants. The Angarskaya Petrochemical Company is the core of the Hub. The company is involved in oil processing with a production capacity of 24 million tons of oil annually. Other companies combined in the hub are UsolieChimProm JSC specializing in the production of caustic soda (244,000 tons annually) and calcium carbide (100,000 tons); the Usolsky Pharmaceutical Plant, and SayanChimProm JSC.

Agricultural Industry

The agricultural industry’s share in overall domestic production is 7.9 percent. A severe climate does not facilitate development of the industry in the region. Only 2.6 million hectares of the vast territory is used for agricultural purposes. Among sub-sectors of the industry, raising cattle is the most developed: about 46 percent of the agricultural land is used for raising cattle. In 1998, the overall production volume in the agricultural industry totalled 7.1 billion rubles (US$355 million), which is the 2.5 percent less than in 1997. Compared to 1997, the production volume in plant cultivation sector decreased by 7.1 percent, whereas the production volume in cattle raising increased by 1.8 percent. The region does not produce enough food products to satisfy its own needs. About 42 percent of meat, 101 percent of dairy products, and 55 percent of grain is exported from outside.

The main agricultural products are grain, vegetables, and potatoes. Grain production amounted to 742,000 tons, and increased by 0.2 percent more in 1997. Production of potatoes totalled 903,000 tons, and decreased by 9 percent. Vegetable production amounted to 119,000 tons, and decreased by 16 percent as well.

Agricultural producers in the region can be divided into three categories: agricultural enterprises, farmers, and the local population. As of January 1, 1999, over 3,000 farms were registered in the region. Many farms were challenged by hardships in the economy of Russia, and the number of farms decreased by 6 percent compared to 1997, and 1,385 farms have gone bankrupt since 1992. In other regions of Russia, the majority of the local population cultivates vegetables itself. Thus, most of the potatoes (96 percent) and vegetables (81 percent) in the region were produced locally.

Raising cattle plays an important role in the region’s agriculture. Livestock consists mainly of cattle, swine, sheep and goats. The main products in the cattle sector are meat, milk, wool, and eggs. The major meat producers (59 percent) and milk producers (67 percent) are from the local population, whereas the major egg producers are agricultural enterprises. The share of agricultural enterprises in meat and milk production is significant as well (38 and 31 percent, respectively). Main type of meat produced by agricultural enterprises is beef which is 84 percent of all the meat produced. Among the thirteen regions, located in Siberia, the Irkutsk Oblast is ranked seventh in the volume of meat and milk production, and third in the volume of egg production.

Ferrous and Non-Ferrous Metallurgy

The ferrous and non-ferrous metallurgy industry contributes 27.6 percent of the gross domestic product. Thirty-five percent of the Russian aluminium production capacity and 6 percent of iron ores mining capacity is located in the region. Over one million tons of aluminium, and 3.5 million tons of iron ore is produced in the region annually.

The low cost of electrical energy produced in the region has facilitated the development of aluminium production. Unlike in other regions, the second stage of aluminium production, electrolysis of alumina is carried (the first stage is alumina production). Raw materials for aluminium are imported from the Urals, NIS countries (Kazakhstan and Ukraine), and Australia, India, Italy, Jamaica, the United States, and Venezuela.

The industry is represented by such companies as the Bratsky and Irkutsky Aluminium Plants. The annual production capacity of the Bratsky Aluminium Plant is 850,000 tons of aluminium. The plant mainly exports its product to Japan, Great Britain, Italy, Hungary, Poland, Turkey, and the United States. The annual production capacity of the Irkutsky Aluminium Plant is 252,000 tons of aluminium. The plant is the major supplier of aluminium to the IrkutskCable plant which in turn produces wires and cables.

Forestry and Wood-Working Industry

Forestry contributes 16.7 percent to the local economy. Approximately 86 percent of the region’s territory (66.8 million hectares) is covered by forests. Reserves of wood are the second largest, after the Krasnoyarsk Krai, and total 8.3 billion cubic meters (11 percent of reserves in Russia), which is more than the reserves of Sweden, Norway, Finland, Yugoslavia and France put together. Reserves of coniferous trees total 4.7 billion cubic meters. The share of larch in the reserves of coniferous trees is 30 percent, pine – 26 percent, cedar – 12 percent, fir – 3 percent, and other – 17 percent.

The major sub-sectors of the industry are cellulose and paper production (contributes 63.5 percent in the industry production), wood-processing (22.6 percent), and logging (13.9 percent). Since 1990, the share of the region in the forestry industry of Russia has been increasing. Today, the region contributes to Russia 10.9 percent of the timber, 8.8 percent of the saw-timber, 33.7 percent of the sleepers for railways, 48.2 percent of the cellulose, and 10 percent of the cardboard. The largest enterprises involved in the industry are BratskComplexHolding JSC, Ust-Ilim Timber Industrial Concern JSC, and the Baikal Integrated Pulp-and-Paper Mill.

Foreign Economic Activity and Foreign Investments

According to the West-Siberian Customs Committee, in 1998, the volume of foreign trade turnover for January – November of 1998 totalled US$2,497.2 million (including US$152.4 million for exports, and US$127.7 million for imports), which is 1.1 percent less than in 1997. Export volume totalled US$1,891.7 million (by 3.6 percent less than in 1997), and import volume totalled US$605.5 percent (by 7.6 percent more than in 1997). The trade balance in 1998 was positive, and amounted to US$1,286.2 million.

The following products are mainly exported from the region:

Product Amount, $US million Share, %

Aluminium 1,200.1 63

Cellulose 197.8 10

Forestry products 156.9 8

Aircrafts 53.7 3

Oil 31.3 2

The products are mainly exported to non-NIS countries, particularly to Japan (aluminium, forestry products, coal), Singapore (oil products), India (aircrafts), China, and the United States (aluminium, silicon).

The main products which are imported are raw materials for the aluminium industry, equipment and machinery, food products, and pharmaceuticals.

Products are imported from 68 countries, particularly from countries located in Asia (20 percent), Europe (21 percent), the United States (14-15 percent), Australia (4-6 percent), and the NIS (30-40 percent). The main exporters are Kazakhstan, China, the United States, India, Ukraine, and Australia. The region imports from Kazakhstan, aluminium ore, beef, grain, flour; from India - aluminium ore, electric equipment, sugar, food products, tram-cars, and wagons; from China - fruits, paper and cardboard, consumer goods, and food products.

For January-September of 1998, investment volume totalled US$106.8 million, and 90.1 million rubles. Compared to 1997, the dollar investments increased by 11.4 times, whereas the ruble investments decreased by 54 percent. Investments were mainly made in the following industries: electric engineering (US$69.2 million), fuel (US$15.4 million, and 16.2 million rubles), forestry and cellulose (US$9.6 million, and 71.1 million rubles). Dollar investments were made by companies from Germany (65 percent), Great Britain (14 percent), and ruble investments were from Cyprus companies (79 percent).

Representative offices of Pepsi, Coke, Mars, Lucent Technologies, and British Petroleum Amoco are located in the region.

Industries that can be attractive for American investors are non-ferrous metallurgy, forestry, and electrical engineering. The food-processing industry is another sector of the local economy that can be beneficial for American investors. Due to the ruble’s depreciation, and low average wages in the region, domestic producers have gained a considerable part of market share. Despite this temporary windfall, domestic producers need investment to continue their growth. Since many of them have obsolete equipment and lack resources, yet have facilities equipped with the necessary infrastructure, investment in the local consumer-oriented industry could be a good opportunity for U.S. companies interested in the Russian market.

USEFUL CONTACTS:

1. Mr. Boris A. Govorin, Governor

1a Lenin St.,

Irkutsk, Russia 664027

Phone: 7-3952-276760

Fax: 7-3952-276760

2. Mr. Pavel V. Davydenkov, Head of Foreign Economic Relations Department

Irkutsk Regional Administration

1a Lenin St.,

Irkutsk, Russia 664027

Phone: 7-3952-241631

Fax: 7-3952-243340

Email:

3. Ms. Tatyana U. Galyga, Consultant

Entrepreneurial Department for Medium and Small Business

Irkutsk Regional Administration

1a Lenin Street, Office 154

Irkutsk 664027, Russia

Phone: 7-3952-241265

Fax: 7-3952-241580

4. Mr. Vladimir I. Snegirev, Director

Regional Small Business Support Center

7b Proletarskaya St.,

Irkutsk, Russia 664011

Phone: 7-3952-343037

Fax: 7-3952-340599

Email: ibp@angara.ru

5. Mr. Alexander Vasilenko, Vice President

The Leader fo the Council of Noncommercial Partnerships for Small Enterprises in the Irkutsk Region

Noncommercial Partnerships for Commodity Producers and Employers

4 Marata Street

Irkutsk, 664000, Russia

Phone: 7-3952-294354

Fax: 7-3952-348891

Email: nova@irk.ru

6. Nikolai K. Ivanov, General Director

Marina V. Igoumnova, Assistant Manager, Travel and Convention Bureau

Baikal Business Center

279 Baikalskaya Street

Irkutsk 664050, Russia

Phone: 7-3952-259-113, 358-000

Fax: 7-3952-259-110, 259-103

Email: travel@bbc.ru, info@bbc.ru

Website: www.bbc.ru

7. Mr. Sergei Loskutnikov, Eat Russia Branch Director

Lucent Technologies, Bell Labs Innovations

(Located in the Baikal Business Center)

279 Baikalskaya Street

Irkutsk, 664050 Russia

Phone; 7-3952-259350

Fax: 7-3952-259351

Email: sloskutnikov@lucent.com

Website: www.lucent.com

Large Enterprises:

1. BratskComplexHolding JSC

Bratsk, Irkutsk Region, Russia 665718

Phone: 7-39534-448687

Fax: 7-39534-441048

Wood-processing, cellulose production

2. Irkutsk Aluminium Plant (affiliate of the Siberian-Ural Aluminium Company (SUAL))

Shelekhov, Irkutsk Region, Russia 666020

Phone: 7-39510-94012

Fax: 7-39510-22224

Aluminium production

3. Bratsk Aluminium Plant

Bratsk, Irkutsk Region, Russia 665716

Phone: 7-39534-411751

Fax: 7-39534-437522

Aluminium production

4. Angarsk Petrochemical Company

Angarsk, Irkutsk Region, Russia 665830

Phone: 7-39518-75200

Fax: 7-39518-66488

Production of petroleum, aircraft fuel, kerosene, etc.

5. IrkutskCable JSC

Shelekhov, Irkutsk Region, Russia 666020

Phone: 7-39510-22242

Fax: 7-39510-23862

Cable and wire production

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UPCOMING TRADE SHOWS - SIBERIA. The following trade shows are being

organized by the Siberian firm Vostochnye Vorota Agency located in Chelyabinsk, in 2000. They provide an

opportunity for firms to present their goods and services to Siberian markets.

1) "Education and Careers Move to the Future" - Feb. 17-19;

2) "Medicine in Our Lives" - March 1-4;

3) "Advertising Media - Still Photography, Film, Video - 2000" March 21-24;

4) "Spring Construction Market" - April 4-7;

5) "Vacation, Sports, Tourism" - April 20-22;

6) "Light Industry in the Urals - 21^st Century" - May 17-19;

7) "Auto 2000" - May 25-28;

8) "Construction Industry - 2000" - Sept. 5-8;

9) "Information and Communications" Oct. 10-13;

10) "Home and Office - the Modern Woman" - Nov. 15-18;

11) "Wood Processing and Ecology - 2000" - Nov. 22-24;

12) "Southern Urals Universal Fair" - Dec. 6-9.

All firms are cordially invited to attend and/or exhibit at any of the fairs. The agency offers its assistance. Full details upon inquiry.

Contact Ms. Lyudmila Parnevova

Firm: "Vostochnye Vorota" Agency

Address: 454080 Russia, Chelyabinsk

ul. Entuziastov, 2, of. 223, a/ya 9563.

Tel. (7-3512) 66-67-83

Fax: (7-3512) 33-75-12, 33-75-18.

E-mail: vorota@modem.ru