Bashkortostan special report: Industry - Building on success

By:
Lucy Fitzgeorge-Parker
Published on:

Bashkortostan’s traditional strengths in petrochemicals, agriculture and machine engineering are providing the springboard for the creation of a new generation of high-tech industries.

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The key to Bashkortostan’s consistent economic outperformance is to be found in its outstanding mineral resources and diverse industrial expertise.

Historically, the Republic’s prosperity has been based on petrochemicals. Oil extraction began in Bashkortostan in 1932 and today the region is the third-largest oil producer in the Russian Federation, producing around 15 million tonnes a year.

Bashkortostan also boasts world-class refineries, which process oil from both within and outside the region. At present, the Republic’s refining complex has a total capacity of around 30 million tonnes a year and production is running at close to 90% of that level.

Both industries are dominated by local oil giant Bashneft, part of the Sistema Group. The company has recently spread its wings beyond Bashkortostan, exploring production opportunities in the Arctic and Iraq, but still obtains the vast majority of its oil from the Republic. Indeed, preliminary results for 2013 showed a significant increase in oil production in Bashkortostan.

Bashneft’s refining subsidiaries also saw a step up in production last year. In total, its Ufa refining complex – comprising Ufa Oil Refinery, Novoil and Ufaneftekhim – processed 21.4 million tonnes of oil, a 3% increase on 2012, while the share of light products rose to 60.4%. The firm is also investing heavily in new downstream operations in Bashkortostan – work is due to start this year on a $3 billion plant for the production of ethylene by its recently created subsidiary United Petrochemical Company.

Bashkortostan’s other main petrochemicals firm, Gazprom Neftekhim Salavat, is also rapidly boosting its presence in the region. The company, part of the Gazprom Group, is undertaking extensive development and expansion of its refining and chemical production facilities at Salavat, to the south of Ufa.

Work began last July on a new catalytic cracking unit, part of the company’s extensive refinery modernization programme, while December saw the start of construction on a new complex producing a range of acrylic acids that is due to start operations in 2015. The company is also building a unique new power station using clean steam gas technology to provide a large part of the power at its Salavat facility.

Mineral wealth

In addition to oil, Bashkortostan also produces natural gas, coal, lignite and peat – and the region’s mineral wealth is not limited to fossil fuels. Sixty different types of minerals occur naturally in the Republic, providing the base for a wide range of industries including ferrous and non-ferrous metallurgy, the chemical industry and building materials.

Evgeniy Mavrin, deputy prime minister - minister of economic development
Evgeniy Mavrin, deputy prime minister - minister of economic development
Bashkortostan accounts for 10-12% of copper production in the Russian Federation and is also a leading producer of zinc, gold and silver. Major non-metallic deposits include rock salt, as well as essential raw materials for the chemical industry such as fluorspar, phosphorus rocks, carbonates, zeolites and glauconite.

Key companies in the non-metals sector include Soda, the largest producer of purified sodium bicarbonate in the Russian Federation, and caustic-soda producer Kaustik. Both firms are based in Sterlitamak, in the south-west of Bashkortostan.

The Republic’s natural resources provide the basis for several other major industries, including agriculture, timber processing and tourism. Bashkortostan has 7.1 million hectares of agricultural land and is one of the top five regions for agriculture in the Russian Federation, ranking first nationally for cattle livestock, second for horse livestock and milk production, and fifth in the production of poultry.

Bashkortostan also possesses extensive timber resources. Forests cover more than one-third of the Republic’s territory, amounting to 62,000 sq km, and the timber stock is estimated at 718 million cubic metres, with key varieties including birch, lime, oak, maple and conifers.

Engineering expertise

The fastest-growing industry in Bashkortostan, however, is outside the resources sector. Machine building and mechanical engineering has been a key sector for the Republic since the 1920s, when the first jet engines in the Soviet Union were produced by the Ufa Engine Industrial Association (UMPO), and is still today a major contributor to the region’s economy.

UMPO remains the largest aircraft engine producer in the Russian Federation, and has also expanded its range of products to include tractor and automobile parts, gas pumps and turbines. Other aviation leaders include the Kumertau Aviation Production Enterprise (KUMAPE), which makes helicopters and related equipment in the southern city of Kumertau.

In addition to aviation, Bashkortostan is a national leader in the production of passenger coaches and trolleybuses. The Bashkir Trolleybus Manufacturing Plant, based in Ufa, was established as early as 1979, while passenger coaches are produced in the north-west of the region by the Neftekamsk Automobile Plant (NefAz).

The Republic is also home to leading utility truck manufacturers such as the rapidly expanding Tuimazinsky Concrete Delivery Truck Works, as well as automobile parts manufacturer BelZAN, based near the western city of Oktyabrsky, and metal-cutting machine tools manufacturer Sterlitamak MTE.

Meanwhile, the south-eastern centre of Beloretsk is home to one of Russia’s top three hardware producers. The Beloretsk Metallurgical Plant – part of the Mechel group – is a leading manufacturer of cutting-edge products including high-strength wire, micro wire and hot-rolled carbon products, which it exports to more than 30 countries worldwide.

Hi-tech development

Bashkortostan’s long-standing expertise in aviation has also prompted the development of related areas such as radioelectronics, with leading companies such as PS-UFA, as well as providing the expertise necessary to expand into new sectors such as light aircraft and automobile production.

Similarly, policy-makers are looking to build on the Republic’s other traditional strengths to establish a leading position in a range of cutting-edge sectors. Bashkiri companies are already leveraging the region’s dominance in agriculture to expand into the biotechnology sphere, while promoting the development of high value-added petrochemical products is a policy priority for the regional government.

The formation of clusters and industrial parks around Bashkortostan’s leading companies is a key component of this policy  and crucial support will also be provided by the region’s world-class educational facilities.

The Republic boasts 10 independent state universities, including the Ufa Scientific Centre of the Russian Academy of Sciences and the Academy of Sciences of the Republic of Bashkortostan, as well as specialist institutions such as the Ufa State Petroleum Technological University, Ufa State Aviation University and Bashkir State Agricultural University. Key areas of scientific research include cutting-edge spheres such as ecology, power engineering, IT technologies and nanotechnologies.

Investor incentives

Policy-makers are also targeting a substantial increase in inward investment into Bashkortostan, especially from foreign companies, and in the past three years have introduced a broad array of measures to boost the Republic’s appeal for external investors.

On the financial side, these include generous reductions to – and in some cases exemption from – income and property taxes, as well as land grants, subsidized interest rates, co-financing of leasing payments and the provision of state guarantees to underwrite loans. Policy-makers also stress the government’s willingness to provide services and infrastructure for investors looking to develop new sites.

Artem Kireev, head of investments and foreign economic relations, Ministry of Economic Development
Artem Kireev, head of investments and foreign economic relations, Ministry of Economic Development
"The changes to the legislation we have made since 2011 have significantly improved the ease of access and speed of access to government support for foreign investors," says Artem Kireev, head of investments and foreign economic relations at the Ministry of Economic Development.

Another key plank of the offering to foreign investors is provided by the Corporation of Development. Established in December 2010, the corporation has a broad remit that includes securing new investment, implementing government-approved investment projects, and liaising between the government and local authorities in relation to priority projects.

Overseas appeal

This broad-based effort to improve the investment climate for foreign firms has already yielded significant results. In 2011, French engineering giant Alstom and Russian firm RusHydro established a joint venture for the manufacture of hydropower equipment at a new plant outside Ufa. The scope of the new venture has since been extended to cover services including the inspection of power plants, supply of components, retooling, repair and upgrade of equipment, and both parties have also indicated their intention to extend their cooperation to include innovation and R&D activities.

Austrian firms have also been notably active in the Republic. In 2011, Palfinger acquired a base in Bashkortostan via the takeover of local crane producer INMAN, while the following year saw wood-processing giant Kronospan commit up to R6 billion to the establishment of a plant for woodworking and the manufacture of construction materials in Ufa. Other major international names that have established ties with Bashkortostan include General Electric, Snecma and Honeywell.

Policy-makers also report recent expressions of interest in Bashkortostan from companies in countries as diverse as South Korea, Germany and China. Kireev adds that these developments all speak to the success of the government’s measures to attract and support investment. "We have already seen 1,214 jobs created thanks to the new investment legislation and we have provided R470 million of support to priority projects," he says.