OVERVIEW OF AMURSKAYA OBLAST (REGION)

OVERVIEW OF AMURSKAYA OBLAST (REGION)

January 2000

FCS in Vladivostok has also prepared a list of major / priority investment projects in Amurskaya Oblast. This list is available via BISNIS online, at bisnis.doc.gov/bisnis/country/FarEast.htm.

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AUTHOR: YANA TSELIKOVA, Commercial Assistant, US & Foreign Commercial Service (FCS), US Consulate Vladivostok.

1. Summary. On December 8-9, 1999, PCO Steffens and CA Tselikova visited the Russian Far East city of Blagoveshchensk, the regional center of the Amurskaya region. This report updates a 1998 FCS profile. End summary.

The Amurskaya Region -- An Overview

2. Blagoveshchensk in the Amurskaya region is one of the least accessible and least visited cities in the Russian Far East, lying 18 hours East by train (two hours by prop-driven plane) from Khabarovsk. The region's south is rich farmland sprawled against a 1,243-kilometer border with northern China; the region's north is sparsely forested tundra bordered by the vast Republic of Sakha.

3. Blagoveshchensk (population 216,700) is a singularly attractive city, and one of the oldest In the Russian Far East. The city lies on a flat riverbank, separated by a kilometer of river from the modern Chinese city of Hei-Hei. The city’s many ornate nineteenth century buildings were repaired during its 140^th anniversary celebration last summer.

Meetings with Local Officials

4. On December 8, PCO Steffens and CA Tselikova met with Tatyana I. Kurts, Deputy Governor of Amurskaya territory, Chair of International Economic Relations and Trade Committee, Vladimir I. Dmitriyev, Acting Chair of Economic Committee, Vitaliy N. Sevastyanov, Deputy Chair of Industry and Transport Committee, Nikolai B. Trubnikov, Deputy Chair of Mining and Natural Resources Committee, and a number of other leading regional officials. Regional officials are intent on attracting U.S. trade and investment. The officials outlined a regional investment attraction program initiated in 1996 that includes tax privileges for investors and leasing. In general, the regional profit tax on leasing is halved during the two first years of the lease. Bank profit from the investment is exempt from regional profit tax. Collateral created or purchased for investment projects is taxed at half the regional profit tax rate. In 1997, the Administration of Amurskaya region established the "golden fund of the Amurskaya region", in which gold owned by the territory serves as a guarantee for investments in the region. In 1996, the Amurskaya was the first territory in the Russian Far East to adopt a regional investment law. Since the situation in Russia is fluid, the law is amended and improved on a regular basis in order to keep the Amurskaya region attractive to foreign investors. According to Russia’s domestic rating, currently the Amurskaya region ranks 56 (compared to 72 in 1998) among the 89 regions in terms of being friendly to foreign investment. Local officials are hoping that the adoption of a federal law on the free economic zone “BAM” (The Baikal-Amur railroad area, halve of which is located on the territory of the Amurskaya region) will have a significant positive impact to the development of the international trade and investments in Amur. The law has already gone through all the regular readings in the Lower Chamber of the former Federal Duma, and the newly elected Duma is expected to finally adopt it this year. While visiting the Russian Far East this summer Putin expressed his support of this project. Regional officials noted that the August 1998 crisis and devaluation of the ruble served as a stimulus to the local economy; e.g., in 1999 energy consumption grew 8 per cent, there was noticeable growth in the turnover of goods, all of which was tied to a growth in production.

The Amurskaya Region Trade and Investment

5. Statistics on the Amurskaya territory are of uneven quality. After the financial crisis in August 1998, most transactions were arranged through barter, two-third of which were with neighboring China. Like in many other Russian territories, in 1999 there was about a 65 per cent decline in imports (although the U.S. share grew), and about a 40 per cent growth in exports in the Amurskaya region.

Imports and Exports

(millions USD)

1997 1998 1999 (9 months)

Total imports 66.6 51.3 16. 5

-from U.S. 2.6 1.6 0.6

Total exports 51.8 44.9 45.5

-to U.S. 0.2 0.1 -

U.S. share in total exports-imports turnover (per cent)

1998 1999 (9 months)

1.7 1.0

U.S. share in total imports (per cent)

1997 1998 1999 (9 months)

3.9 3.1 3.6

Leading imports from U.S. 1997

(thousands of USD)

Sausage 716

Chicken 371

Food processing equipment 356

Heating oil 263

Note: All the above statistics are provided by the government of Amurskaya region.

After the August 1998 financial crisis the composition of imports structure has changed dramatically from primarily foodstuffs to machinery and equipment:

Leading imports from U.S. 1998

(thousands of USD)

Wood-working equipment 474

Bulldozers, excavators 240

Spare parts 232

Sausage 214

Leading imports from U.S. 1999 (9 months)

Heavy machinery and equipment 332

Lifting machines 138

Oscilloscopes, other instruments 36

Fire-extinguishers 30

Wood-working equipment 15

Foreign investment in the Amurskaya region is minimal, and no reliable statistics on it are available. According to the local government, 129 firms with foreign investments are registered in the Amurskaya region, including 6 (only 3 of them actually operate – Daltelecom, Siba-Colbi, and Coca-Cola) with the U.S. capital. China appears to be the leading investor.

Consumer Goods Trade -- the China Factor

6. The river between China’s Hei-Hei and Russia’s Blagoveshensk is guarded by an old Russian gunboat anchored in mid-stream, several deserted World War II vintage pillboxes, and a decaying fort whose buildings date from tsarist times. In contrast to the Russian city's nineteenth century buildings and Soviet era apartment blocks, the Chinese city across the river is made up of new skyscrapers, office buildings, and hotels. On August 17, 1999, a new large international trade center was opened in Hei-Hei.

7. A number of local business and government leaders pointed to nearby China as the key to Amurskaya's future economic development. A lively cross-border shuttle trade (via an ice road in winter and a ferry service in the summer) fills Blagoveshchensk markets with low-cost Chinese foodstuffs and clothing. Local officials noted that exchange rate fluctuations slowed the shuttle trade over the last year, as the Russian ruble’s purchasing power had dropped significantly. However, the central “rynok” (open air market) and a multi-story mall (converted by a local entrepreneur from an old sewing factory) were filled with shoppers and with Chinese (with some Japanese, U.S., European and Korean) goods.

8. In 1992, the Chinese City Hei-Hei received the status of a free economic zone, spurring rapid economic development. Regional officials have been hoping that Blagoveshchensk would be declared as a free trade zone, that a bridge across the river would be built, and that eventually a Russian-Chinese free economic zone would be created. However, this is all dependant on the Federal government, and yet none of these things have happened.

Best Prospects in the Amurskaya Region

9. Beyond barter and shuttle trade, the best long-term economic prospects for Amurskaya territory appear to be farming, food processing and packaging, as well as timber, and mining. The Russian financial crisis gave impetus to the rapid development of the above sectors, and U.S. firms may find opportunities to export:

-- food-processing equipment

-- packaging equipment

-- mining equipment

-- wood-working equipment

With the recent introduction of new legislation on leasing, leasing operations are expected to be a good tool for long-term cooperation with the region.

Mining

10. The Amurskaya region is rich in mineral resources, which can be attractive to the foreign investors. The total economic potential of regional mineral reserves is estimated at 400 billion US dollars. Amurskaya territory ranks third among the gold-producing regions of Russia (prospective reserves are estimated at 2,300 tons). The most promising gold deposits are Bamskoye (46 tons), and Malomyrskoye (45 tons). The Amurskaya territory is estimated to have about 71 billion tons of brown and bituminous coal reserves in 90 deposits. The Amurskaya region is also rich in such mineral resources as silver (3,000 tons), platinum (100 tons), iron (2,000 million tons), copper (10 million tons), titanium (40 million tons), zinc (400,00o tons), apatite (30 million tons), zeolite (100 million tons), tufa, kaolin (100 million tons), limestone (100 million tons), phosphatide, chalcedony, dolomite and other construction materials. One of the richest deposits is in Garinsk, with estimated reserves of 389 million tons of iron ore (37.1 percent iron). Despite the fact that only 5 per cent of the total mineral resources are being currently industrially exploited, the mining sector produces about 15 per cent of the regional gross product. The sector is open for foreign investments. Joint ventures and equity participation are welcomed. Several foreign companies from US, UK, Canada, and Australia have already expressed their interest or are participating in mining projects in the region. Among them are: “Peter Hambro PLC, “Falcon Bridge”, “Echo Bay Mines”, “GeoExplorers Intl” and others. There is also a demand for mining equipment (excavators, bucket-shovels, digging, earth-moving equipment), with leasing preferred over purchase. The Natural Resources Committee of Amurskaya region (representation of Ministry of Natural Resources of Russian Federation) and The Natural Resources and Mining Committee of Amurskaya regional Administration regulate commercial and industrial activities in the mining sector of the Amurskaya region.

(Note: FCS will issue reports on any tenders in mining industry open to foreign participants)

Food Processing and Agriculture

11. The soil of southern Amurskaya is as fertile as the famous black earth of western Russia. The Amurskaya region, the agricultural center of the Russian Far East, has 57 percent of the RFE region’s arable land (1,371.17 thousand hectares) and produces nearly one-third of RFE region’s gross agricultural product. Within Amurskaya territory, there are 25 state-owned agricultural enterprises, 54 joint-stock agricultural enterprises and 3,419 family farms. Amurskaya's products (soybeans, potatoes, vegetables, and honey) have been traditionally exported to other territories. But currently Amurskaya region has a surplus of agricultural products, such as potatoes (3 times more than Amurskaya’s domestic consumption) and soybeans, which are neither consumed by the RFE markets nor processed locally due to lack of food-processing facilities. The region is very interested in developing a food processing and packaging industry. This will give opportunities to U.S. exporters of food processing and packaging equipment.

12. With the devaluation of the ruble, Amurskaya food processing firms have become more competitive in RFE market against higher-priced products of foreign competitors. For instance, high quality milk products from Amurskaya are currently sold in Khabarovskiy Krai, the Sakha Republic, and Primorskiy Krai. However, most of the food-processing companies lack experience in marketing and promotion of their products. There are several projects in the food-processing sector of the Amurskaya region, and the demand for food-processing and packaging equipment is growing.

Timber

13. The Amurskaya region has more than 20 million hectares of forest. Timber companies export their production mainly to the former Soviet republics, China and Japan. Historically Japanese logging equipment (Komatsu sold by Sumitomo) has been traditionally purchased locally for decades. However, some of the U.S. also have been supplied recently (Caterpillar). Timber processing is not well developed, and ninety per cent of the timber is exported in raw form. Currently there is a big interest among the local firms to develop a wood-processing industry in the Amurskaya region, which would make it a prospective market for U.S. wood working machinery.

Energy

14. The energy sector of the territory is primarily based on the Zeyskaya hydropower station, the biggest in the Russian Far East. Several smaller electric power stations use coal both locally mined and imported from Neryungri (Sakha-Yakutiya). A new big hydropower station Bureyskaya, which is being built on the Bureya river, will be a significant stimulus not only for the Amurskaya’s economy, but also to the economy of the entire RFE. Japanese investors have expressed a strong interest in this project. The first stage is planned to be implemented by the year 2003. Final preparations for construction of the last foundation pitch for Bureyskaya hydro power station have been started recently. The Amurskaya regional government recently concluded a contract with China amounting to 1 million USD for cutting timber to clear the construction site.

Transport and Telecommunications

15. The Amurskaya's east-west communication is mainly by railway: the Zabaykalskaya section of the Trans-Siberian railway, and the Baikal-Amur Railway (BAM). About half of Amurskaya's 5,424 miles of roads are paved. The Amurskaya-Yakutsk highway is the only south-north automobile route between Amurskaya territory and the Sakha republic (Yakutiya). There is no east-west highway link in and out of Amurskaya, though the Russian government hopes to raise financing to complete a Trans-Siberian highway.

16. River ports at Blagoveshchensk, Poyarkovo (Amur River), Svobodny and Zeya (Zeya River) operate six months of the year. Blagoveshchensk, near the mouth of the Zeya River, is a favorable location for cargo to and from the upper Zeya and lower Amur, including for some Chinese ports. Transit cargo from western Russia arriving by train is shipped through the Blagoveshchensk river port to settlements along the lower Amur, Russia's Pacific coast and on Island of Sakhalin.

17. Small planes serve 22 towns in Amurskaya territory. Blagoveshchensk has regular flights to Moscow, Yakutsk, Yuzhno-Sakhalinsk, Khabarovsk, Irkutsk, and Vladivostok, as well as charter flights to Turkey and Korea.

18. A former state monopolist Amursvyaz is the biggest telecom operator in the Amurskaya region (PSTN, long distance communications, Internet access, etc.). International telephone service is offered by Daltelecom International, a Russian-American joint venture based in Khabarovsk. Several operators (Daltelecom, Amurskiy Sotoviy Telefon, Mobil Telecom Amur, Avers-Etk) offer mobile telecommunications services. There are also several local Internet providers locally. Blagoveshchensk is connected to the Relcom and Sprint e-mail networks. Nevertheless, telecommunications in the region are still undeveloped, and there is considerable potential on the market for telecom services and equipment.

Key contacts

Local officials:

Administration of the Amurskaya Region

135 Lenin street

Blagoveshchensk, Russia 675000

Tel: (7-4162) 443-022, 443-652, 446-241, 446-201,

443-841

Fax: (7-4162) 446-201, 443-833

E-mail: mark@forcom.amur.su

Governor, Anatoliy N. Belonogov

Chairman of the International Economic Relations and Trade Committee, Tatyana I. Kurts

Head of the Natural Resources Department, Nikolai A. Starkov

Head of the Investment Policy Department, Vladimir I. Starkov

The Amurskaya Territory Customs

Igor Stepanov, Chief

1 Lazo Street

Blagoveshchensk, Russia 675000

Tel: (7-4162) 423-224

Territory Committee of Standards and Quality Control

Tatyana Savchenko, Director

24/2 50-The Anniversary of October Street

Blagoveshchensk, Russia 675000

Tel: (7-4162) 445-932

Visa Department of the Internal Affairs Administration

Vladimir Smorodin, Director

18 50-The Anniversary of October Street

Blagoveshchensk, Russia 675000

Tel: (7-4162) 497-259, 426-783

"Amurgeolcom", the Amurskaya Region Committee for Geology and Mineral resources

1 Ryolochny lane

Blagoveshchensk, Russia 675000

Tel: (7-4162) 443-691

Fax: (7-4162) 449-525

Teletype: 154222 nauka

The Amurskaya Chamber of Commerce and Industry

Anatoly Pokazanyev, President

60/6 Shevchenko Street

Blagoveshchensk, Russia 675011

Tel: (7-4162) 426-634, 421-577

Fax: (7-4162) 421-577

Representative of the Russian Ministry of Foreign Economic relations in the Amurskaya Territory

23 Teatralnaya Street

Blagoveshchensk, Russia 675000

Tel: (7-4162) 446-773

Travel information

Travel companies:

Amurtourist, Ltd.

1 Kuznechnaya Street

Blagoveshchensk, Russia 675000

Tel: (7-4162) 423-122, 490-377

Fax: (7-4162) 423-122, 490-388

Gennady Trushin, President

Intourist-Blagoveshchensk, Inc.

27 Shimanovskaya Street

Blagoveshchensk, Russia 675000

Tel: (7-4162) 445-772, 421-446

Fax: (7-4162) 445-772

Galina Prikhodko, General Director

Blagovest, Ltd.

38 Ostrovski Street

Blagoveshchensk, Russia 675000

Tel: (7-4162) 440-765, 441-997

Fax: (7-4162) 440-760

Hotels:

Of the more than 15 hotels in Blagoveshchensk, the following two are recommended:

"Druzhba" hotel

1 Kuznechnaya Street

Blagoveshchensk, Russia 675025

Tel: (7-4162) 490-540

"Zeya" hotel

8 Kalinin Street

Blagoveshchensk, Russia 675000

Tel: (7-4162) 421-100