**OVERVIEW OF AMURSKAYAOBLAST (REGION)**

January 2000

 

**

FCSin Vladivostok has also prepared a list of major / priority investment projectsin Amurskaya Oblast. This list is available via BISNIS online, atbisnis.doc.gov/bisnis/country/FarEast.htm. 

 

***

 

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

 

Internationalcopyright, U.S. & Foreign Commercial Service and the U.S. Department ofState, 2000.  All rights reservedoutside of the United States.

 

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

 

The AmurskayaRegion -- An Overview

 

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

 

3.   Blagoveshchensk (population216,700) is a singularly attractive city, and one of the oldest In the RussianFar East.  The city lies on a flatriverbank, separated by a kilometer of river from the modern Chinese city ofHei-Hei.  The city’s many ornatenineteenth century buildings were repaired during its 140thanniversary celebration last summer.

 

Meetings withLocal Officials

 

4.  On December 8, PCO Steffens and CATselikova 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, DeputyChair of Industry and Transport Committee, Nikolai B. Trubnikov, Deputy Chairof Mining and Natural Resources Committee, and a number of other leadingregional officials.  Regionalofficials are intent on attracting U.S. trade and investment.  The officials outlined a regionalinvestment attraction program initiated in 1996 that includes tax privilegesfor investors and leasing.  In general,the regional profit tax on leasing is halved during the two first years of thelease.  Bank profit from theinvestment is exempt from regional profit tax.  Collateral created or purchased for investment projects istaxed at half the regional profit tax rate.  In 1997, the Administration of Amurskaya region establishedthe "golden fund of the Amurskaya region", in which gold owned by theterritory serves as a guarantee for investments in the region. In 1996, theAmurskaya was the first territory in the Russian Far East to adopt a regionalinvestment law.  Since thesituation in Russia is fluid, the law is amended and improved on a regularbasis in order to keep the Amurskaya region attractive to foreigninvestors.  According to Russia’sdomestic rating, currently the Amurskaya region ranks 56 (compared to 72 in1998) among the 89 regions in terms of being friendly to foreigninvestment.  Local officials arehoping that the adoption of a federal law on the free economic zone “BAM” (TheBaikal-Amur railroad area, halve of which is located on the territory of theAmurskaya region) will have a significant positive impact to the development ofthe international trade and investments in Amur.  The law has already gone through all the regular readings inthe Lower Chamber of the former Federal Duma, and the newly elected Duma isexpected to finally adopt it this year. While visiting the Russian Far East this summer Putin expressed hissupport of this project.  Regionalofficials noted that the August 1998 crisis and devaluation of the ruble servedas a stimulus to the local economy; e.g., in 1999 energy consumption grew 8 percent, there was noticeable growth in the turnover of goods, all of which wastied to a growth in production.            

 

The AmurskayaRegion Trade and Investment 

 

5.   Statistics on the Amurskayaterritory are of uneven quality. After the financial crisis in August 1998, most transactions werearranged 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 Amurskayaregion.   

 

                         Imports andExports               

                            (millions USD)

                      1997      1998     1999 (9 months)             

Totalimports              66.6      51.3     16. 5     

-fromU.S.            2.6      1.6     0.6

 

Totalexports          51.8      44.9     45.5

-to U.S.              0.2        0.1       -

 

 

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

1998    1999 (9 months)

1.7     1.0

 

U.S. share intotal imports (per cent)

1997      1998    1999 (9 months)

3.9       3.1     3.6

 

Leadingimports from U.S.                  1997

(thousands ofUSD)

Sausage                                     716 

Chicken                                     371

Foodprocessing equipment                   356

Heatingoil                                 263

 

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

 

After theAugust 1998 financial crisis the composition of imports structure has changeddramatically from primarily foodstuffs to machinery and equipment: 

 

Leadingimports from U.S.                  1998

(thousands ofUSD)

Wood-workingequipment                      474

Bulldozers,excavators                      240

Spareparts                                 232

Sausage                                     214

 

Leadingimports from U.S.                  1999 (9 months)

Heavymachinery and equipment               332

Liftingmachines                          138

Oscilloscopes,other instruments             36

Fire-extinguishers                           30

Wood-workingequipment                    15           

 

Foreigninvestment in the Amurskaya region is minimal, and no reliable statistics on itare available. According to the local government, 129 firms with foreigninvestments are registered in the Amurskaya region, including 6 (only 3 of themactually operate – Daltelecom, Siba-Colbi, and Coca-Cola) with the U.S.capital.  China appears to be theleading investor.

 

ConsumerGoods Trade -- the China Factor

 

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

 

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

 

8.   In 1992, the Chinese City Hei-Heireceived the status of a free economic zone, spurring rapid economicdevelopment.  Regional officialshave been hoping that Blagoveshchensk would be declared as a free trade zone,that a bridge across the river would be built, and that eventually aRussian-Chinese free economic zone would be created. However, this is alldependant on the Federal government, and yet none of these things havehappened.

 

BestProspects in the Amurskaya Region

 

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

 

--   food-processing equipment

--   packaging equipment

--   mining equipment

--   wood-working equipment

 

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

 

Mining

 

10.  The Amurskaya region is rich in mineralresources, which can be attractive to the foreign investors. The total economicpotential 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 golddeposits are Bamskoye (46 tons), and Malomyrskoye (45 tons). The Amurskayaterritory is estimated to have about 71 billion tons of brown and bituminouscoal reserves in 90 deposits.  TheAmurskaya 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 (100million tons), tufa, kaolin (100 million tons), limestone (100 million tons),phosphatide, chalcedony, dolomite and other construction materials.  One of the richest deposits is inGarinsk, with estimated reserves of 389 million tons of iron ore (37.1 percentiron). Despite the fact that only 5 per cent of the total mineral resources arebeing currently industrially exploited, the mining sector produces about 15 percent 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 areparticipating in mining projects in the region.  Among them are: “Peter Hambro PLC, “Falcon Bridge”, “Echo Bay Mines”, “GeoExplorersIntl” and others.  There is also ademand for mining equipment (excavators, bucket-shovels, digging, earth-movingequipment), with leasing preferred over purchase. The Natural Resources Committeeof Amurskaya region (representation of Ministry of Natural Resources of RussianFederation) and The Natural Resources and Mining Committee of Amurskayaregional Administration regulate commercial and industrial activities in themining sector of the Amurskaya region. 

 

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

 

FoodProcessing and Agriculture

 

11.  The soilof southern Amurskaya is as fertile as the famous black earth of westernRussia.  The Amurskaya region, theagricultural center of the Russian Far East, has 57 percent of the RFE region’sarable land (1,371.17 thousand hectares) and produces nearly one-third of RFEregion’s gross agricultural product. Within Amurskaya territory, there are 25 state-ownedagricultural enterprises, 54 joint-stock agricultural enterprises and 3,419family farms.  Amurskaya's products(soybeans, potatoes, vegetables, and honey) have been traditionally exported toother territories.  But currentlyAmurskaya region has a surplus of agricultural products, such as potatoes (3times more than Amurskaya’s domestic consumption) and soybeans, which areneither consumed by the RFE markets nor processed locally due to lack offood-processing facilities.  Theregion is very interested in developing a food processing and packagingindustry.  This will giveopportunities to U.S. exporters of food processing and packagingequipment.  

 

12.  With the devaluation of the ruble,Amurskaya food processing firms have become more competitive in RFE marketagainst higher-priced products of foreign competitors. For instance, highquality 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 inmarketing and promotion of their products.  There are several projects in the food-processing sector ofthe Amurskaya region, and the demand for food-processing and packagingequipment is growing.               

 

Timber

 

13.  The Amurskaya region has more than 20million hectares of forest.  Timbercompanies export their production mainly to the former Soviet republics, Chinaand 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 centof the timber is exported in raw form. Currently there is a big interest among the local firms to develop awood-processing industry in the Amurskaya region, which would make it aprospective market for U.S. wood working machinery.

 

Energy

  

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

 

Transport andTelecommunications

 

15.  The Amurskaya's east-west communicationis 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 theonly south-north automobile route between Amurskaya territory and the Sakharepublic (Yakutiya).  There is noeast-west highway link in and out of Amurskaya, though the Russian governmenthopes 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 ofthe year. Blagoveshchensk, near the mouth of the Zeya River, is a favorablelocation for cargo to and from the upper Zeya and lower Amur, including forsome Chinese ports.  Transit cargofrom western Russia arriving by train is shipped through the Blagoveshchenskriver port to settlements along the lower Amur, Russia's Pacific coast and onIsland of Sakhalin.

 

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

 

18.  A former state monopolist Amursvyaz isthe biggest telecom operator in the Amurskaya region (PSTN, long distancecommunications, Internet access, etc.). International telephone service isoffered by Daltelecom International, a Russian-American joint venture based inKhabarovsk. Several operators (Daltelecom, Amurskiy Sotoviy Telefon, MobilTelecom Amur, Avers-Etk) offer mobile telecommunications services. There arealso several local Internet providers locally. Blagoveshchensk is connected tothe 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 andequipment. 

 

Key contacts

 

Localofficials:

 

Administrationof the Amurskaya Region

135 Leninstreet

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:[email protected]

Governor,Anatoliy N. Belonogov

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

Head of theNatural Resources Department, Nikolai A. Starkov

Head of theInvestment Policy Department, Vladimir I. Starkov

 

The AmurskayaTerritory Customs

IgorStepanov, Chief

1 Lazo Street

Blagoveshchensk,Russia 675000

Tel: (7-4162)423-224

 

TerritoryCommittee of Standards and Quality Control

TatyanaSavchenko, Director

24/2 50-TheAnniversary of October Street

Blagoveshchensk,Russia 675000

Tel: (7-4162)445-932

 

VisaDepartment of the Internal Affairs Administration

VladimirSmorodin, Director

18 50-TheAnniversary of October Street

Blagoveshchensk,Russia 675000

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

 

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

1 Ryolochnylane

Blagoveshchensk,Russia 675000

Tel: (7-4162)443-691

Fax: (7-4162)449-525

Teletype:154222 nauka

 

The AmurskayaChamber of Commerce and Industry

AnatolyPokazanyev, President

60/6Shevchenko Street

Blagoveshchensk,Russia 675011

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

Fax: (7-4162)421-577

 

Representativeof the Russian Ministry of Foreign Economic relations in the AmurskayaTerritory

23Teatralnaya Street

Blagoveshchensk,Russia 675000

Tel: (7-4162)446-773

 

Travelinformation

 

Travelcompanies:

 

Amurtourist,Ltd.

1 KuznechnayaStreet

Blagoveshchensk,Russia 675000

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

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

GennadyTrushin, President

 

Intourist-Blagoveshchensk,Inc.

27Shimanovskaya Street

Blagoveshchensk,Russia 675000

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

Fax: (7-4162)445-772

GalinaPrikhodko, General Director

 

Blagovest,Ltd.

38 OstrovskiStreet

Blagoveshchensk,Russia 675000

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

Fax: (7-4162)440-760

 

Hotels:

 

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

 

"Druzhba"hotel

1 KuznechnayaStreet

Blagoveshchensk,Russia 675025

Tel: (7-4162)490-540

 

"Zeya"hotel

8 KalininStreet

Blagoveshchensk,Russia 675000

Tel: (7-4162)421-100