New! Overview of forest complex in Irkutsk region, includes a very detailed economical statistics: Institutions and the Emergence of Markets - Transition in the Irkutsk Forest Sector, Y. Blam, L. Carlsson, M.-O. Olsson, IIASA

Irkutsk Oblast is situated south of East Siberia, in the watershed of the upper Angara, Lena and Nizhnyaya Tunguska rivers, embracing an area of 767,900 square km. (4.6 percent of the Russian territory). It borders on Saha Republic (Yakutia), Buryatia, Tyva, the Krasnoyarsk region and the Chita region.

In 1996, the regional population amounted to 2,786,000 people, 79.5 percent of whom live in cities. The population density is 3.7 people per sq. km. (compared to 8.7 in Russia as a whole). The region consists of 33 districts and 22 cities, 14 of which are regionally subordinate. Five cities have populations of over 100,000: Irkutsk (the regional administrative center), Bratsk, Angarsk, Ust-Ilimsk and Usolie-Sibirskoye. Based on the 1989 census, 88.5 percent of the population are Russians, 3.4 percent are Ukranians, and 2.7 percent are Buryats. The l990s saw the population decreasing due to a low fertility rate, a rather high mortality rate, and migration outside of the region. The registered unemployment rate is 4.1 percent of the active population, or 51,200 people (in Russia, this rate is 3.8 percent.)

The Baikal area continues to be the base of Russian economic expansion towards the Far East. Any Russian territory north or east of the Irkutsk region is less industrially advanced. A number of cities, and in particular Irkutsk, enjoys rich cultural traditions and massive scientific and educational potential.

The region concentrates considerable mineral wealth in deposits of gold, coal, oil and gas, rare metals (niobium, tantalum, lithium, rubidium), 47 kinds of precious and semi-precious stones (lazurite, charoite, etc.), common salt and potassium carbonate, iron ore, manganese, titanium, and mineral building materials (magnesite, dolomite, etc.) On the list of deposits of federal importance are those of of Verchnyaya Chona (oil), Sukhoy Log (gold), Kovykta (gas), Nep (potassium carbonate), Belaya Zima (niobium, tantalum), Savinskoye (magnesite), Mugun (coal).

About 76 percent of the territory is covered with forests. Timber resources amount to 8.3 billion cubic meters, over 11 percent of all Russian timber. The Irkutsk region is one of the largest industrial timber bases in the country - second in size after the Krasnoyarsk region. The timber is of uniquely high quality as measured by variety of trees, their concentration and accessibility.

Lake Baikal contains 20 percent of the planet's fresh water. The availability of energy, timber and mineral resources gives shape to the region's industrial complex, which consists of 4,500 large, medium and small enterprises, and concentrates over 60 percent of fixed assets.

The timber industry accounts for 13.5 percent of the regional production. The Irkutsk region leads Russia in the amount of forest exploitation and cuts about half of the timber in East Siberia. Per capita timber exports are five times the Russian average. The region produces 8 percent of Russia's cardboard and over 50 percent of its pulp, including almost 100 percent of Russia's cord pulp and over 50 percent of its viscose pulp. The regional share of the total volume of timber production in the Russian Federation increased from 12.5% in l994 to 15.3% in 1995. The largest enterprises are the Bratskkomplex holding, the Ust-llimsky concern, and the Baikalsk pulp factory. The region is one of the largest consumers of electrical and thermal energy in Siberia.

The Baikal area produces almost a quarter of Russian aluminum. Two large aluminum manufacturers are operating in the area, one in Jrkutsk and the other in Bratsk. Thirty-one percent of the regional oil production is produced by the Angarsk oil and chemical joint- stock company, which uses West-Siberian oil. The region produces around 70 percent of oil-derived products used in East Siberia. A considerable amount of product goes to the Far East. The enterprises Usoliekhimprom, Sayanskkhimprom and Angarskkhimreaktiv, and, partly, Angarsk and Bratsk Timber Industrial Complex, control the production of polymerized plastic, artificial fiber, and mineral fertilizers. The Irkutsk region accounts for more than half of the commercial chemical production of East Siberia.

The engineering, metal processing and consumer goods industries are less developed.

Along with natural resources and industrial potential, an important condition for dynamic development is political stability and "advancement." This issue has been pointed out by domestic and foreign observers (for instance, by the first secretary of the U.S. Embassy in Russia, Thomas Graham). Advancement is closely related to the rate of market economy changes. The Irkutsk region is numbered among the country's 12 regions with the most developed securities markets. In the Baikal area, around 700 joint-stock companies are operating, and these account for almost 74 percent of total production. Small and medium-sized businesses produce 17.7 percent of commercial production, a higher percentage than anywhere else in East Siberia. Non-ferrous metallurgy, wood processing, oil and chemicals, as well as infrastructure industries (communications and commerce) are quite attractive for foreign investors.

The situation in the regional economy is, however, ambiguious. Trends for industrial and financial stabilisation have been inconsistent. in 1996, tough government-imposed anti-inflation policies pushed the region, whose market structure was still rather undeveloped, into a recession. In 1996, the industries that continued to produce steadily were non-ferrous metallurgy (with a volume index of l03%), energy, and food. As a whole, production decreased by 11.9 percent in comparison with 1995. The decrease in the consumer goods industry was 42.3 percent, in the construction materials industry, 41.9 percent, and in the timber complex, 19.1 percent. The crisis was not helped by the agricultural sector, which is entirely situated in an area of risky agriculture.

The reduction of capital investment is continuing. The flow of financial resources into the financial sector and out of the production sector is growing, partly to cover the budget deficit. A non-payment crisis, inter-industry price disproportions, narrowing purchasing power of the population, and a world market situation unfavorable to some export positions brought about a serious worsening in the financial situation of enterprises. The resulting decrease in profits and increase in losses have in turn created a shrinking tax base.

A decrease in the budget income, in turn, aggravated the above- mentioned processes. The introduction of "currency band" in 1995 also played a negative role in the economy of the region, which is an export-oriented primary producer that depends only partly on macroeconomic factors of the developing situation in Russia. To maintain political stability and, at the same time, create conditions for dynamic economic development, specific regional problems need to be addressed.

One of these problems is the tolling scheme of operations that has been adopted by the major regional enterprises. The major taxpayers, primarily Angarsk Oil and Chemical (ANKhK) Company and Bratsk Aluminum Plant, changed their de facto owner (ON EXIM bank in the case of ANKhK and Trans World Group for BRAZ) and switched to processing raw materials without participating in selling the finished product. The tolling scheme allows the owner companies to keep jobs in large cities outside the region and retain a considerable amount of profit. This arrangement, however, provides minimal income to the regional budget. So, the flight of profits from energy-consuming enterprises outside of the region (in the case of Angarsk chemicals) or outside of the country (in the case of BRAZ) offsets the potential gain by the Irkutsk region from the availability of inexpensive energy.

The location of environmentally dangerous production facilities in the Irkutsk region according to the tolling scheme continues to reinforce the colonial nature of the area's economy. Along with macroeconomic factors, the tolling scheme blocks the renovation of obsolete technologies and sharpens the struggle for the access to raw materials in the export-oriented industnes.

Another "long-playing" problem is the dispute between the Irkutsk region and the federal government over the issues of ownership and rates in the power industry. Introducing the power plants on the Angara to the wholesale market may cause energy-consuming enterprises to close down, resulting in runaway unemployment. Whether or not another aluminum factory will be built in Ust-llimsk is dependent on the solution of this problem.

Another important energy-related question is whether the region's primary industry should be coal- or gas-oriented. On one hand, Vostsibugol, the largest regional coal producer, is a stable operation, and the cost of coal extraction in this region is among the lowest in Russia. On the other hand, depletion of old deposits necessitates placing new ones into operation. Additionally, an environmentally grave situation in the regional industrial centers (Baikalsk, Angarsk, Shelekhov, Bratsk, Usolie-Sibirskoye, Cheremkhovo, Irkutsk) can be improved by using natural gas instead of solid fuel in thermal power plants and boilers. So, which is better: investment in coal extraction or development of the condensed gas deposits in Kovykta?
Either response will significantly influence the relationship between the "coal" and "oil-and-gas" teams of the regional elite.

Another problem worth mentioning is conflicts between strategic owners of the enterprises on which whole towns are dependent and urban communities (e.g., Menatep hank in Ust-llimsk). The conflicts result not only from a clash of interests, but also from bad management.

There are also strictly objective difficulties to economic growth in the region:

On the positive side, international relations with the countries of the Pacific region, Korea, China and Japan hold potential for the region.

A public policy regarding regional interests is still non-existent, and, in our opinion, for a deeper reason than just experts' negligence. There is no such policy in place because as yet there is no true civil society, either in Russia as a whole or in the region. Only the realization of their interests by major social groups, the rise of developed political institutions, and the tradition of democracy will allow for shaping social demands to be addressed to the authorities and executed under public control. While these factors are absent, the regional leaders are very subjective in interpreting the will of the people and the notion of "regional interests." The "regional interest" often hides industrial lobbying and attempts to promote clan interests as public ones. The situation will take some time to change.

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1997 Copyright by Business Net - Irkutsk.
April 03, 1998