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23:53 | Aug 10 | 2011

Industrial and Intellectual Source of Russia

As it historically came round Yakutia has always been one of the key places of Russia. In as early as the XVII century Yakutsk became the main base point for Russian pioneers plotting their routes to the Zeya and the Amur Rivers, Chukotka and Kamchatka, the Sea of Okhotsk and Sakhalin Island. 

Here Cossack troops were grouped by Semyon Dezhnyov and Vasiliy Poyarkov, Ivan Moskvitin and Erofey Khabarov. From here after three years of preparation the famous Second Kamchatka expedition under the command of Vitus Bering and Aleksey Chirikov set sailing to the shores of America.

Nearly four centuries went by and this northern region considered by many as extremely severe has become a powerful resource base of the country. Here on the fifth part of the territory of Russia at various times have been discovered and explored vast stock of gold and diamonds, oil and natural gas, coal and iron ore, tin and uranium, silver and zinc, lead and rare-earth metals. And at the beginning of the XXI century when the renewed Russia was to re-join the Great Powers and needed a powerful economic breakthrough the Republic of Sakha (Yakutia) was one of the first who was able to offer a large-scale as well as careful, detailed and based on factual prerequisites plan.

“The Scheme of integrated development of the productive forces, transport and energy sector of the Republic of Sakha (Yakutia) until 2020” came up as a response to the commission set by Russian President Vladimir Putin after a session on socio-economic development of the Republic of Sakha (Yakutia) in early 2006. However, the creators of the plan, the head of the republic Vyacheslav Shtyrov and the government of Yakutia, headed by its Chairman Egor Borisov, decided not to be limited by the goals and objectives of a single region but to link social and economic development of Yakutia with deep strategic interests throughout the country. This resulted in a document which in due time became a starting point for the working out of an entirely new “Strategy of social and economic development of the Far East and the Baikal Region until 2025”.

As the current head of Yakutia Egor Borisov pointed out immediately after the adoption of the Strategy in the Republic: “After as far as four years of implementation of the “Scheme of integrated development of the productive forces, transport and energy sector until 2020” it proved to fit into the Far Eastern Strategy, and now it is brought into step with the goals, objectives and most importantly the implementation mechanisms of our neighbors’ long-term plans. So now we have a clear picture where to make our further efforts.”

The scope of the “Scheme” conception, the amplitude of its plans amazed and still continue to surprise not only outside observers, but also many senior officials of the Russian state. For example, at a meeting of the RF Government on February 8, 2007 the then Prime Minister Mikhail Fradkov made no disguise to his delight and declared expressly: “... Frankly speaking, up to now we had no experience in reviewing such programs at the government meetings, which are regional by nature but being complex at the same time claim to be statewide.

Given the nature and potential of the republic it is easy to overstep between reality and fantasy. Frankly speaking, the foregoing takes my breath away. The numbers are great, the ambitions are great and we cannot neglect that...”

Equally strong impression got Regional Development Minister of Russia Viktor Basargin during his visit to Yakutia last July who admitted at the final meeting in Yakutsk that before this trip many endeavors of the Republic of Sakha (Yakutia) seemed virtual to him. And only after seeing what is happening on the territory of the Republic personally he got rid of the doubt.

And what occurs in Yakutia is as following.

Oil for ESPO

Giant trunk pipeline “Eastern Siberia – Pacific Ocean” has gained popularity all over Russia long before the beginning of its construction. Due to ESPO for the first time in history our country was able to enter the markets of rapidly developing Asia-Pacific region with significant and most importantly stable volumes of domestic oil production.

Numerous environmental organizations even claim credit for modification of the original route of the ESPO to the north of Lake Baikal.

However, less biased experts believe that the reasons for the resolutions adopted by Russian President Vladimir Putin on April 26, 2006 during a meeting in Tomsk are based on causes many times more reasonable and covering multitude of different factors.

So, for example, in case of sending ESPO route along the shore of Lake Baikal “Surgutneftegaz” company would have to supply an additional 600-kilometer loading line from Talakan to Ust-Kut, and TNK-BP would bear similar significant costs during the development of Verkhnechonskoe field.

For the Republic of Sakha (Yakutia) the redirection of the ESPO to the north of Lake Baikal was literally crucial, principally in socio-economic terms. Earlier, the lion’s share of the republic income were “ALROSA” payments, but since the advent of the oil industry the almost complete dependence on the financial success of the diamond company gradually began to decline.

First stage route of the Eastern oil pipeline runs from Taishet (Irkutsk region) to Skovorodino (Amur region). The final point is special sea tanker port “Kozmino” (Primorye).

The length of the linear part of the oil line equaled 2694 km, 1458 km of which was the share of the territory of Yakutia. The pipeline string ran through Yakut cities of Lensk, Olekminsk, Aldan and Nerungri.

ESPO pipeline began its work in October 2008. Within half a year after the start of the first stage main pipeline operation the U.S. business newspaper Wall Street Journal wrote: “Due to the oil pipeline ‘Eastern Siberia – Pacific Ocean’ Russia has become one of the largest suppliers of oil to the United States.”

According to the publication, the volume of Russian oil delivered to the ports for the states from Alaska to California, increased from zero to 100 thousand barrels per day. Such progress was achieved in just a few months since the start up of the pipeline system “Eastern Siberia-Pacific Ocean”.

And in early August 2010 the “Nezavisimaya Gazeta” website published an article under the catch headline: “Russian eastern pipe unnerves competitors”. According to the newspaper, the beginning and the possible expansion of Russian oil delivery from the East Siberian fields being higher in quality caused a nervous reaction from competitors. The newspaper has learned that Saudi Arabia state oil company Aramco lowers the price of oil for consumers in Europe and Asia in September. The newspaper’s experts noted that the current aggressive pricing policy of Aramco in Asia aims to prevent a reduction in the share of the Asian market crude oil that Saudi Arabia has traditionally controlled.

“Russia supplies to Asian countries ESPO oil – “Nezavisimaya Gazeta” cites independent analysts – of the highest quality and has increased competitiveness also because of the strategically important for the Asian export port location in the Russian Far East.”

Eastern oil pipeline became an equally important milestone for the oilmen. “Construction of ESPO oil pipeline is an invaluable experience for the company”, said the vice-president of “Transneft”, Anatoly Bezverkhov, in an interview with “Truboprovodny Transport Nefti” journal.

The construction of the first stage of ESPO had no less effect on the socio-economic development of the regions where the oil pipeline was running through. For example, the construction of two new electricity transmission lines was required to ensure two pumping stations sustainable energy supply in the Republic of Sakha (Yakutia). As the head of Yakutia, Egor Borisov, recently pointed out it has not only enabled to increase the reliability of the entire pipeline system “Eastern Siberia – Pacific Ocean” but has also created conditions for the transition from purely local unprofitable power industry to higher quality and cost-effective centralized power supply of a whole number of regions of the republic.

Chayanda Gas

The construction of trunk oil pipeline “Eastern Siberia – Pacific Ocean” is interlinked with the start of Chayandinskoye oil and gas field development by ‘Gazprom’ company.

September 2007 Order by the Russian Federation Industry and Energy Ministry approved the “Development Program for an integrated gas production, transportation and supply system in Eastern Siberia and the Far East, taking into account potential gas exports to China and other Asia-Pacific countries” otherwise known as the Eastern Gas Program.

The owner of the Unified Gas Supply System OJSC “Gazprom” was put into operation at Chayanda oil and gas condensate field located in the Lena area of the Republic of Sakha (Yakutia) by April 16, 2008 Decree of the Russian Government.

The field’s C1 + C2 reserves make up 1.24 trillion m2 of gas and 68.4 million t of recoverable oil and gas condensate. Commercial production of oil from the field is scheduled to begin in 2014, gas – in 2016.

“The tough deadline is set for bringing on-stream the prioritized facilities in Yakutia: launching the Chayanda field gas transportation system construction in 2012, starting oil production from the Chayanda field in 2014 and in 2016 assure gas feeding into the gas transmission pipeline of “Yakutia – Khabarovsk – Vladivostok”, announced Chairman of the Board of OJSC “Gazprom”, Alexey Miller, following the results of the March 12, 2010 joint meeting with the government of Yakutia. In the future gas pipeline “Yakutia – Khabarovsk – Vladivostok” will be part of the “Sakhalin – Khabarovsk – Vladivostok” gas transmission system. As a result, the system will be able to transport about 47.2 billion m2 of gas.

The main resource base for the development of the transmission system will be offshore Sakhalin gas and Yakutia fields. Optimal loading of the “Yakutia – Khabarovsk – Vladivostok” GTS with at least 30 billion m2 of gas per annum will be very important for efficient development of the Yakutia Center through involvement of all regional gas resources. In this regard, “Gazprom” submitted requests to the Federal Subsoil Resources Management Agency for obtaining the right to use the subsoil resources of the Srednetyungskoye, Tas-Yuryakhskoye, Sobolokh-Nedzhelinskoye and Verkhnevilyuchanskoye fields listed as the fields of federal significance.

Celebrations to mark the opening of a branch of OJSC “Gazprom Dobycha Noyabrsk” of Chayanda oilfield management, the main task of which is to develop Chayanda oil and gas condensate field began in Lensk on April 24, 2010.

Elga Coal

One of the most interesting projects under implementation on the territory of the Republic of Sakha (Yakutia) today is the development of unique in its characteristics Elga deposit of coking coal. This project became especially important for the country economy in general after the tragic accident at the Raspadskaya mine which killed 67 people this May. Raspadskaya was the country’s largest coking coal mine.

The accident resulted in a shortage of coking coal in Russia with all that it implies. Many companies have had to reorient to import. So, ‘Mechel’ has started deliveries of medium volatile coal from the U.S. for its metal manufacture. Similar contracts are also signed by Novolipetsk metallurgical complex.

The Government got involved with the situation. On July 2, 2010 Deputy Prime Minister Igor Sechin held a major meeting in the Yakut city Neryungri on the problems of the coal industry of the country. Upon returning to Moscow, Mr. Sechin reported to Prime Minister Vladimir Putin: “The meeting was held last weekend in Neryungri on your instruction and in the context of the decisions that you took on June 24 in Novokuznetsk. The venue was associated with the end of preparations for the commissioning of the Elga coal deposit...”

However, the Yakut Elga is not just a unique field of high quality coking coal with the balance reserves of 2.7 billion t, with a powerful, up to 17 m, flat seam, extremely convenient for the organization of open-cast mining.

Elga is the first example in modern Russian history of the new coal deposits development “from scratch”, which requires extremely high initial expenses. Only the railroad Ulak – Elga construction is worth $ 1.36 billion today.

Actually, the fact that Vice-Premier Igor Sechin held the July 2 meeting on the country coal industry issues just in Neryungri can be considered as a civil proposal of the State to the exploitation licensee, “Mechel”, to pay the bills.

As a matter of fact, according to the published financial statements for the 1st quarter of the crisis 2009 OJSC “Mechel” has suffered a loss of $ 690.7 million. But over the same period in 2010 the company has already shown a net consolidated profit of $ 82.58 million.

The authorities’ unambiguous signal was perceived adequately by the company. Already on July 14 the top management of “Mechel” announced their plans to invest up to $ 650 – 700 million in the development of Elga deposit until the end of 2010. The company plans to produce the first 200.000 t of Elga coal at the end of this year, to build up the production to 1 million t in 2011 and reach 9 million t production capacity in 2013. In the longer term, this figure should reach 30 million t of coal per year.

“We need to bring this field into production as quickly as possible, as it can replace the missing in the Russian market coal ranks and start selling these ranks in foreign markets”, the head of the “Mechel-Mining” Boris Nikishichev commented on the company plans.

The Main Project “Schemes”

Over the past few years, changes, certainly, very much altered the face of Yakutia. However, in spite of the success the region lacks basics – reliable all year round transport links.

Republic, which geographically lies at the intersection of the shortest routes between Europe, Asia and America and has great potential in international and inter-regional transit, has no capacity to provide the communicative needs of its own economy. More than 85% of the country territory is available only with the use of seasonal types of transport and only 16% of the population live in the area of the year-round transport service.

Measures to address the lack of road challenge are currently being taken. The regular passenger and freight rail traffic opened between the Berkakit and Tommot stations in 2004. Tommot – Yakutsk railway and the Lena bridge construction are included in the federal target program “Development of Transport System of Russia (2010-2015)”.

The presence of the permanent railway line between Berkakit and Tommot made real the development of most promising reserves of natural resources such as the Elkon uranium ore region, Tarynakhskoe, Gorkitskoe, Tayozhnoe and Desovskoe iron ore deposits, Inaglinskoe coal deposit.

At a part of the project “Integrated Development of South Yakutia”, about 270 km of total length of railways will be designed and constructed in the nearest future.

The cost of the design of all facilities is about 10.4 billion rubles, including 7.8 billion rubles, or 74,7% of project cost put up by the Russian Federation Investment Fund, and 2.6 billion rubles (25,3%) out of investors’ funds. Such powerful companies of the national and international level as “RusHydro”, “Atomredmetzoloto”, “ALROSA”, holding company “Kolmar” and “Gazprom” are among them.

Today and Tomorrow

The implementation of “The Scheme of integrated development of the productive forces, transport and energy sector of the Republic of Sakha (Yakutia) until 2020” does not cease even for a day.

After the first phase of the work ESPO capacity should go up from 30 to 50 million t a year and at the end of the second phase the pipeline will reach the designed capacity of 80 million t per year. Now the next two objects of the ESPO pipeline system in Yakutia are almost ready for commissioning: LMS “NPS -13” and the built ahead of schedule LMS “NPS-16”. This summer FSI “Glavgosekspertiza” of Russia has issued a positive decision on the design and estimate documentation for the object “Extention of TS ‘Eastern Siberia – Pacific Ocean’ in segment ‘Taishet – Skovorodino’ up to 50 million t a year.”

But the biggest boom of works on the territory of Yakutia is expected in 2011 when the second phase of the Integrated Development Plan in South Yakutia will be implemented.

South Yakutia, the most resource-rich part of the republic and the most prepared for the powerful integrated development, will accommodate 5 new clusters: energy, chemical, nuclear, coal and metallurgic.

On July 16, 2010, the head of Yakutia Egor Borisov held a regular session of the Coordination council on implementation of the “Integrated development of South Yakutia” investment project in Moscow. Taking the chair Egor Borisov reminded that on the July 2, 2010 in Khabarovsk at a meeting on socio-economic development of the Far East President Dmitry Medvedev has set extremely precise targets for economic cooperation between the eastern part of the country and other countries of the Asia-Pacific region. Including the export of raw materials and energy resources to the Asia-Pacific countries which will give the eastern regions of Russia further impetus for their own internal development.

Construction of new plants, production of the highly demanded in the Asia-Pacific markets minerals, development of transport and energy infrastructure, production of new high-tech products, new technologies – all of it meets the requirements set by the country’s leadership to the economy of the Far East. “Neither the public authorities nor the co-investors have any major reasons for delays in the work”, – stressed the head of Yakutia.

The Final Result

On July 28 this year in interview with Gazeta.ru Internet resource the head of the republic Egor Borisov pointed out: “We often repeat: Yakutia is a rich in mineral resources republic. But the true wealth of mineral resources manifests is bringing benefits to the people and not by dead weight storage deep down in the bowels. So what’s the point of being nominal owners of strategic assets if they do not help the development of the republic?..”

For example, the advent of OJSC “Gazprom” to the republic and the beginning of the development of Chayanda oil and gas condensate field was accompanied by the signing of the “General Scheme of gas supply and gasification of the Republic of Sakha (Yakutia)”.

The document, according to board chairman Alexey Miller, “sets an ambitious goal: to provide up to 72% of gasification level. It should be noted that today it is around 22%, while the average for Russia is about 63%. This is an overarching problem, especially in social terms”.

And there are many more exaples off such cases when the beginning of implementation of yet another industrial project and the advent of major world-class Russian enterprises to the republic gave new impetus to the population of Yakutia welfare.

The head of Yakutia Egor Borisov mentioned in one of his interviews: “If in the past five years we have almost doubled the Gross Regional Product from 183 billion rubles to 350 billion, then according to the “Strategy” we will reach the mark of 1.5 trillion by 2025.

The average life expectancy should increase from the current 68 to 74 years, and commissioning of the new housing will rise up to one square meter per inhabitant”.

Today, while occupying nearly one-fifth of the country and having managed to preserve the unique northernmost breeding in the world, Sakha Republic (Yakutia) is rapidly changing its appearance, becoming one of the most dynamic in development subordinate region of the Federation, a powerful resource, industrial and intellectual base for the whole Russia.