Question: You have devoted 33 years of your life to Khanty-Mansi Autonomous Area, Ugra. You have been heading it since 1989. The position was called differently at different times, but you held it. What does the area mean for you?
Answer: A unique climate. Amazingly beautiful nature. Enormous mineral riches. Diligent and hospitable local people. Numerous opportunities for self-realization. All this is Khanty-Mansi Autonomous Area—Ugra, in northern Russia. The average age of the population is 32.4 years. People have lived here for four generations already. The birthrate is the third-highest in Russia, with over 20,000 babies born annually. The age of the labor force is four years higher than in Russia on average.
On December 10, 2006, the area will celebrate its 76th anniversary. Over this time people have crossed hundreds of difficult swamps and rivers, have built roads and railways across the taiga, laid tens of thousands of kilometers of gas and oil pipelines, constructed hundreds of oil-producing facilities, different industrial facilities, modern cities and an extensive telecommunications network. Today the area is the country's storehouse of natural resources.
Q: The Khanty-Mansi Autonomous Area is Russia's major oil and gas province, and one of the biggest oil producing regions in the world. What is the oil sector's contribution to its budget?
A: The area is Russia's energy heart and foreign-currency mint. It accounts for 57 percent of Russia's oil output and for 7.3 percent of the world's.
It has a huge industrial and financial potential, one of the biggest in Russia, and holds first place for oil production and power generation, second for gas production, and leads in the industrial production growth rate. Its population is only 1 percent of the country's total, but its industrial output exceeds 1 trillion rubles. This is what Moscow, St. Petersburg and part of Sverdlovsk region produce put together. Companies working in the area account for one-fourth of the Russian budget. This year the gross regional product will exceed 2 trillion rubles [per capita GRP is more than in the United States], and although this will be an all-time high, I believe we can achieve a bigger one.
This year we project oil production at 276 million tons and gas production at 29.4 billion cubic meters, an increase of 4 percent and 7 percent, respectively, against last year. Local power generation companies will generate 67.2 billion kilowatt hours, up 2 percent against 2005.
Thanks to its unique natural resources, production opportunities, development of industrial infrastructure and mining profitability, the area will remain Russia's strategic energy base for more than 60 years. Today we are increasingly implementing projects that involve high technology and processing of commodities produced in the area. This should spur its development many-fold, instead of by several percent. Tomorrow will largely be defined by the development of transport infrastructure, an increase in power generation, including through the construction of new thermal power plants working on coal, new companies for deep processing of hydrocarbons and timber, and development of high-tech industries.
Q: How would you describe the area's investment attractiveness?
A: I believe it has many advantages for attracting investment compared to other regions. Direct investment in 2005 amounted to 220 billion rubles, second only to Moscow.
The oil sector is very attractive, thanks to well-developed production and transportation infrastructure, power generation and a good geographic location: The western border of the area passes along the Urals, which divides European and Asian Russia. All routes connecting European Russia with East Siberia, south or the Extreme North pass through the area. Its attractiveness is also supported by the legal framework, which seeks to develop big, medium-sized and small businesses. There are at least a dozen other investment advantages of the area.
We keep monitoring this. Occasionally, to check the results, we turn to rating agencies. Standard & Poor's awarded the area a BB+ foreign-currency rating, and defined the outlook as Positive. The area also received the highest rating on the Russian national scale, ruAA. I can say that we have been consistently moving forward in recent years and are always among Russia's top five regions.
The area attracts investors because of its numerous unused land plots that have all the necessary infrastructure—water, electricity and gas supply—a wide choice of production sites, transport accessibility of all potential sites, existence of long-distance oil and gas pipelines, and the developed structure of modern means of communications and telecommunications.
The best sectors to attract investment are oil production and refining, exploration and mining, the timber processing industry, production, transportation, communications and tourism. There are profitable and promising projects in the production of super-pure materials of polar quartz and development of digital communications.
What investors might find especially interesting is the Industrial Urals—Polar Urals project, which envisages industrial mining, using resources of the Urals near the Polar Circle. That area holds huge reserves of metal and iron ores, estimated at hundreds of millions of tons. There are also deposits of bauxites, copper, lead, zinc, niobium and tantalum. We are preparing to develop deposits of trim stone, brick and expanded clays, and construction sands. We have explored commercial reserves of mineral (iodine and brome containing) thermal waters. The Polar Urals region has almost all the minerals that can be found on the planet.
According to cautious expert estimates, they are worth around $340 billion. In-depth exploration of the main fields may upgrade this figure; after all, only 25 percent of the area has been explored. Moreover, we plan to develop a coal basin holding 15 billion tons, which is situated near European Russia and the minerals-hungry industrial Urals. Power generation is becoming an important factor in this project. Any attempts to develop the eastern slope of the Urals range will fail without new generating capacities and power grids.
We are now launching this mega-project together with other regions of the Urals Federal District. It is supervised by President Vladimir Putin, who has given specific instructions to ministries and agencies. Boris Gryzlov, speaker of the State Duma [the lower house of the Russian parliament], has repeatedly said that this project is one of the Duma priorities. It is quite possible that the program of Near-Polar Urals development, initiated by Khanty-Mansi Autonomous Area, will grow into a federal target program, obtaining both moral and substantial financial support from the government.
Q: You said this project was of national importance. Is it an economic, or a political and image-shaping project for your area?
A: For us, this is a crucial project for the area's social and economic development. It will bring about 60,000 new jobs. It is a powerful factor that will develop production and, consequently, ensure that our revenues grow. It is a vitally important project. It will promote the area's further development, setting long-term goals for the next 100 to 150 years, rather than just 10 to 20. But we should not forget that this is a national project, in its essence. It involves not only our area, but also Yamal, Sverdlovsk, Chelyabinsk and Perm Regions. It will serve national goals, influencing whole sectors of the Russian economy.
I have described in detail only one project that can be a target for future investment, but there are many more in the area. We hold biennial international investment forums. The third forum, held in November, was attended by businessmen from Austria, Israel, Germany, Japan, and Uzbekistan. Many assured us that they were not afraid to invest in Russia and, notably, in Khanty-Mansi Autonomous Area. They were willing to cooperate and to provide unlimited credits for specific projects. And such specific proposals were voiced at the forum, for example associate gas disposal during hydrocarbon production.
Q: Your area is known in the world not as just an oil and gas supplier. It also has a significant felling area, yielding about 30 million cubic meters annually. Are investors interested in your timber projects?
A: They are. We are already involved in talks on some of the projects. We intend to develop the timber industry comprehensively and are now investing massively in it. Apart from simple timber processing, we are setting up production of different kinds of plates, bars and beams made of glued materials that are much stronger than plywood. These materials can be used for any load-carrying structures, and flooring. Paper and pulp production has not been forgotten either. And, of course, we develop production of other construction materials. The area will set up a modern, large industrial base to produce them. It will supply both residential housing and industrial construction. We assess our investment potential at 270 to 320 billion rubles. This includes investment in the construction industry. So our growth potential is really great compared to the already-received 220 billion rubles of investment.
Q: You said tourism was one of the best sectors for attracting investment. Can we seriously speak of developing tourism in such a northern region?
A: We do not just speak about it, we are already working on this. We have both recreational, historical, and event opportunities to do so. The area has a unique natural landscape: thousands of rivers and lakes, swamps with berries, and the taiga forest. All of this is great for recreation and such enjoyable activities as hunting and fishing. We are also developing a rare sphere of business tourism. The amount of tourist services provided has been growing by 50 percent annually in the last three years. Experts have calculated that in the near future we will be able to attract 1 million tourists annually.
Q: Can you say that Khanty-Mansi Autonomous Area has built a reliable social and economic base, has accrued a resource, industrial and intellectual potential that allows it to be confident of its future?
A: The area is steadily improving its positions, achieving significant progress in social and economic development, making an important contribution to the country's economy and to Russian people's living standards. We are proud of our high birthrates, of growing life expectancy, of greater social optimism of our people, of growing assets and increasingly innovative economy. Living standards in the area are on the rise, and so are people's real incomes.
We have worked out a strategy for social and economic development which seeks to create a many-sector economy that would be socially oriented, based on innovation technology and resistant to fluctuations on global commodities markets.
And we have everything we need to put these plans into practice.