The Oblast extends far into the Arctic with the islands of Franz-Josef Land and Novaya Zemlya. The 250-day-long winter averages low temperatures of -26 C and strong winds which make it seem even colder. This is a climate in which polar bears and seals flourish and whales gambol in the seas off the Solovetsky islands in the Onega Bay of the White Sea.
Vladimir Beloglazov, General Director of Arkhangelsk Pulp and Paper Mill, says the surprisingly warm winter of 2007 damaged the forest logging roads resulting in reduced logging. To maintain production APPM had to truck in timber at, considerable cost, logs from neighboring regions which pushed prices up and pulp production was still reduced by 31,000 tons in the first quarter of last year.
While keen to shed its Soviet-era reputation as the “Sawmill of the whole Union”, Arkhangelsk’s industry is still dominated by the forestry and wood processing sector which accounts for 48.6 of the region’s industrial output and commanded $34 mn in foreign direct investment last year, over 17% of the total invested in the region. The integrated pulp and paper mills of Ilim Pulp at Kotlas, Solombala Pulp and Paper Mill and the Arkhangelsk mill produce a combined 32% of Russian pulp, nearly 9% of Russian paper and 25% of the country’s cardboard. More than 1000 lumber companies harvest timber supplying over 30 sawmills with the raw lumber to produce over 2 mn cubic meters of sawn timber a year more than 80% of which is intended for export.
The Regional Administration, headed by Governor Ilya Mikhalchuk, believes that small and medium-sized enterprises must become the main driver for regional growth. Over the last year, the number of small enterprises in Arkhangelsk Oblast has increased by more than 1,200 to a total of 6,400. Small companies now employ 64,000 people and account for 27 percent of the regional economy, turning over 69 billion Rubles (€1.87 billion), head of the regional Department of Economic Development, Mr. Roman Nakozin has said.
I accompanied the head of EC Delegation to Russia, Ambassador Marc Franco and Dr. Frank Schauff, CEO of the Association of European Businesses to Arkhangelsk in the early summer on a European Mission to engage the Region. We were all amazed by the vibrancy of the city, the determination of its population to make the most of a brief warm summer and the open friendliness of everyone we met. For me a walk along the crowded Dvina embankment on one of these endless summer nights when the sun only dips below the horizon briefly in a flame of golden-red around 11 p.m. was enlivened by being constantly greeted by newly graduated students, all enquiring where I was from and why I was in their city. The widespread use of English among the students is not typical of the older generation but in government and business the number of senior people in their thirties with a command of the language was enlightening. Approaching the River Port on a Saturday morning an old sailor asked in haltingly remembered English if I’d like to come on the tug he was engineer on so he could reminisce about his voyages to Leith and Liverpool, Aberdeen and London.
The region’s potential to play a key role in the development of the energy resources on the Arctic Shelf and the growing importance of diamond mining are just two examples of the new economy that is developing in Arkhangelsk. A StatoilHydro-backed project to identify potential sub contractors for the Shtokman gas field is proving successful and a dedicated business association, Sovzvezdye for oil and gas industry suppliers has been established.
The association and regional authorities are encouraging Federal authorities to open some facilities on the Novaya Zemlya islands, a Closed Military Area in the Barents Sea, north of Arkhangelsk city, to civilian use so they can be used for supply operations to the Shtokman field. “The Shtokman field is out of helicopter range of Murmansk but within helicopter range of Novaya Zemlya in terms of shift teams and emergency cervices deliveries, as well as ice-management” Mr. Sergei Smirnov, Director of the private sector Archangelsk Regional Association for External Economic Relations told us.
StatoilHydro, a key partner with Total in the Shtokman development consortium led by Gazprom, is doing more than promote subcontractors in the North West of Russia. It is funding departments to develop engineers, technical experts and managers at universities in Arkhangelsk and Murmansk, where it has a regional office. It also contributes generously to charitable and social programs in the two neighboring regions.
Mr. Smirnov, who also heads the Sovzvezdye organization, works closely with Mr. Vladimir Kirillov head of the Administration’s Committee on International Relations and Tourism Development and we were struck by this effective partnership between the private sector and local government. Mr. Nakozin told BSR that while industrial production in Arkhangelsk Oblast grew by 11.3% this was achieved through the 22.6% growth in machine building. Key to this are the enterprises of the State Russian Center of nuclear marine industry in Severodvinsk, 35 kms north of Arkhangelsk in the delta of the Northern Dvina River, particularly Sevmash the largest shipbuilding engineering works in Russia covering 320 hectares and employing 27,000 people. Sevmash continues to build nuclear powered military submarines but has diversified into producing not only offshore ice-resistant platforms for the oil and gas industry but also titanium alloy medical instruments. Sevmash turns over in excess of $500 million a year. The retail sales industry in the region grew by 9.2% in 2007, according to Mr. Nakozin, to a turnover of 74.2 bn rubles. But the growth of the contribution to the economy of small enterprises was the most spectacular. This reached 68.8 bn rubles, an increase of 126.9% over 2006.
Energy has only recently begun to figure in the Oblast’s budget with the administrative union between the Oblast and the Nenets Autonomous District to the North East. While the Polar Lights Oil Company, a joint venture between ConocoPhillips of the U.S. and Rosneft had always had its headquarters in Arkhangelsk its fields were in the Nenets district. The Timan-Pechora field alone is ranked the fourth most important oilfield in the world in terms of its proven reserves. Bringing them online will be a major boost to the Arkhangelsk economy.
According to preliminary data of 2007 the gross regional product was 172.1 bn rubles, a modest increase over 2006 of just 2.4% which Mr. Nakozin attributed to vastly reduced construction activity as major infrastructure projects including the gas pipeline north from Velsk to Plesetsk was completed as well as the trunk gas pipeline from the northern districts of Tyumen Oblast to Arkhangelsk.
Plesetsk Cosmodrome was, for many years (1969-1993) the busiest launch facility in the world, and the gasification project is estimated to reduce its operating costs by up to 250 mn rubles a year. The 1,762-km square Cosmodrome is supported by the adjacent 30,000 population town of Mirny, whose resident have been told their gas costs will be slashed by three quarters. The first space launch from Plesetsk was in 1966. It has since executed over 1,300 launches, or more than a third of all orbital or planetary launches in the world. It continues to be the planet’s busiest launch facility, with most launches military orientated, typically to deliver polar orbiting sensor payloads and many communications satellites on the northern ‘Molniya’ orbit.
“The Arkhangelsk Region possesses significant transport potential, represented by railway, motor, water, aviation and over-land electric transport,” Mr. Nakozin told BSR. “Transport commands 24.5% of total value of capital assets in the whole region. Over 11% of all employees in the Region are employed in the transport sector.
However the infrastructure of highways and railways is roughly half the average of Russia, on a km per 1,000 sq.km basis, and plans are already being implemented for a massive expansion of the highway network on a littoral basis. The Belkomur trunk rail project, envisaged as a Public Private Partnership, which has been stymied since its official launch in 1998 will get a shot in the arm this month when a framework agreement on the project will be signed by the Russian Railways and the involved regions – Arkhangelsk Oblast, the Komi Republic and Perm Kray.
Experts believe the railway will pay back the up to 100 bn ruble investment within six years.
The 1,300 km railway from Perm in the Urals to Arkhangelsk on the coast of the White Sea will cut transport distances between Siberia and the Barents Sea by 800 km and be a powerful new route for Russian exports.
At the same time the new line will dramatically improve transport services for the bordering territories and help to develop the rich timber resources where only 30-40% of the annual harvest is being logged now. The new line has a strategic importance for Russia as it connects the Urals and the Republic of Komi with non-freezing ports of Arkhangelsk, Murmansk and Finland. In future the new line will provide the shortest way to the Northern Europe from Siberia, Kazakhstan and the Central Asian republics.
Mr. Nakozin sees the logical extension of the Belkomur project being another multi-billion ruble investment in Arkhangelsk’s sea port facilities on the White Sea. Some experts favor the construction of an entirely new sea port on the island of Mudyug in the Northern Dvina.
Apart from Public Private Partnerships in infrastructure, Mr. Nakozin sees the most attractive industries for attracting foreign investment to be paper milling, woodworking, communications and lumber, which in 2007 attracted combined foreign direct investment of $196.4 mn, up 30% on 2006.
A “key task for the local authorities” is to improve the procedural and legal conditions to improve investment attractiveness, Mr. Nakozin told BSR. He expects the regional parliament to vote into law this year a mechanism for “state support for priority investment projects, implemented in the territory of the Arkhangelsk Region, which shall be represented not only by provision of financial, taxation and property preferences to investors, but also in administrative support, the so called ‘close support’ of investment projects”.
“The Arkhangelsk Region should become an important industrial and transport center facilitating the development of hydrocarbon fields in Arctic shelf”, Mr. Nakozin stressed. “It will contribute to the revival of military and strategic potential of the Northern Fleet and development of the port system in North-Western Federal District, as well as becoming the center of forestry-industrial cluster formation in the North-West of Russia.” Meanwhile to help maintain the vulnerable ecology of the Arctic tundra the Polar Lights Company limits construction work and drilling to winter months. All facilities are installed on earthen pads and raised above the ground, to protect the tundra from heat. Four custom-built animal crossings, along with nine stream crossings and 12 road crossings, were built along the length of the pipeline at sites selected by local herders. The stream crossings were built to withstand severe spring break-up conditions. In the winter of 1998-1999, Polar Lights drilled a well from an ice pad, a technology first applied by Conoco in the North Slope of Alaska. That was the first time this technology was ever used in Russia.
The Nenets reindeer herders are hoping western recognition of venison as a healthier meat than beef, lamb or pork will lead to an upswing in demand in Russia and that their ecologically raised, free-grazing herds will prove attractive for the export market ultimately gracing the chill cabinets of Safeway and Wal-Mart where farmed venison prevails.
