Astrakhan, which lies on the Volga River delta, has long been known for its caviar. But local officials are determined to emphasize the area’s full value to the Russian economy, including its fuel and energy sector and a vibrant freight transport sector.

Astrakhan Oblast has raised industrial output by more than 75 percent over the last six years. The fuel and energy industry and the shipbuilding sector accounted for most of this growth. The region is second among the 11 regions of the Southern Federal District for per capita industrial output. Freight turnover in the region is growing at a faster rate than the national average, which is natural given the region’s ideal geographical location.

There are still problems with attracting investment from large companies, however. Investment in the region’s economy has increased by 43 percent since 1996, but this is clearly insufficient. The region’s administration thinks that the main reserve to draw on here is developing transport infrastructure and oil and gas production.

Investors on their way

Germany is the largest foreign investor in the region. German company Knauf, for example, one of the world leaders in modern construction material production, has invested $80 million in setting up plaster production at Mineral Knauf. Shipbuilding companies in the region are making dry cargo carriers for Wessels Export-Import GmbH.

When sizeable oil and gas deposits were discovered in the region, Russian giants Gazprom and LUKoil moved in, followed by international oil companies. Italy’s ENI Agip is exploring and extracting oil and gas in the region and is also taking part in a comprehensive program to build up the infrastructure needed to develop the region’s oil and gas deposits.

Iran is the second largest foreign investor in the region, which has now registered 54 businesses set up with Iranian capital. Two years ago, Iran opened a consulate in Astrakhan to coordinate their work. Neighboring Kazakhstan supplies cereals and grain feed to the region and imports vegetables and construction materials from Astrakhan Oblast.

The region’s shipyards are making drilling platforms and equipment for Kazakh companies performing oil exploration on the Caspian Sea shelf. They are also modernizing equipment for offshore oil extraction for Offshore Kazakhstan International Operating Company. The region’s companies have contacts with 65 countries, including Iran, Britain, Hungary, the Virgin Islands, Kazakhstan, Ukraine and Azerbaijan. The region sends exports to 45 countries and imports goods from 55 countries. Countries other than CIS members account for more than 65 percent of the region’s trade.

The importance of transport

The intensive development of Caspian Sea oil production over recent years and the increased amounts of petroleum products shipped from Astrakhan to the rest of Russia and abroad make it essential to develop the region’s railway and waterways freight transport infrastructure. This in turn will help develop the fuel and energy sector. The regional administration cites the example of the Caspian Pipeline Consortium.

Last year alone, 25 million tons of oil were pumped through the Tengiz-Novorossiisk pipeline. The consortium’s pipeline system crosses five of the region’s districts (222 kilometers) and the crossing under the Volga, a unique example of horizontal-incline drilling, is listed in the Guinness Book of Records as the longest underwater crossing in the world at 1.5 kilometers. The underwater section was constructed by German company FAB.

Regional authorities say that the pipeline will help develop local oil deposits. The pipeline’s capacity can eventually be raised to 67 million tons a year.

There has been intensive construction of new roads and bridges in the region over the last few years. Reconstruction of old roads is also a priority because insufficient engineering and maintenance work mean that old roads are not up to speed with the pace of economic development.

The regional administration is placing a lot of hope on the development of the new north-south transport corridor that is to run from Mumbai in India through Bender-Abbas and Enzeli in Iran and then across the Caspian Sea to Astrakhan. Astrakhan has been growing rapidly in importance as a trade center between Europe and Asia — freight transport has increased more than ten-fold since 1996. Russia and Iran plan to double port capacity for transporting freight along the north-south route to 8 million tons over the coming two years.

According to Rosmorflot, more than half of the 4 million tons of freight transported along the corridor last year went through Astrakhan ports. Container freight shipped on the trans-Caspian lines came to around $1 billion. Studies carried out by Russian, Iranian and Indian specialists show that freight transport along the north-south corridor could increase to 12-15 million tons per year. The British association of sea trading ports carried out a study of the north-south corridor project’s potential attractiveness.

The British specialists found that transporting goods from the Indian Ocean and Persian Gulf area through Iran and the Caspian Sea and across Russia into northern and eastern Europe would be three times shorter than using the Suez Canal. Freight owners would save more than $400 per container on this route. Russian companies Vagna Shipping, Volga Vaster, Lakor, Regi, joint Russian-Iranian company Irsotr and joint Iranian-Indian venture Irano-Hind are already paving the way in developing this transport corridor.

The Astrakhan water transport sector is divided into two main centers — the Astrakhan Consolidated Port and the sea port of Olya, located on the Volga-Caspian Canal 100 kilometers down the river from Astrakhan. The Astrakhan port has limited development capacity because it is in the city, so hopes are focused on Olya, which is still under construction. Olya has a 180-meter long dry cargo dock and a vehicle transport complex equipped for roll-on-roll-off type ferries working on the freight and passenger Caspian Trucker Line to the ports of Turkmenbashi in Turkmenistan and Anzali in Iran.

The docks already built can handle 540,000 tons of freight a year, but this is not enough for developing the new transport corridor. The Astrakhan sction of SoyuzmorNIIproyekt received orders from the Astrakhan port administration and the regional authorities to develop a project for a new cargo sea port with annual capacity of 4 million tons.

Olya, which is being built using modern technology, has taken a solid position on the transport services market in the Caspian Basin. Construction began in the 1990s, but the development of the north-south corridor has given the project a decisive boost. Now two docks with a total length of 330 meters and total capacity of 540,000 tons are operating. A container dock able to handle 29,000 containers a year will be in operation at the end of this year. A railway line from Yandyka station to the Olya railway station is being built with state money and will be completed in 2005.

Moscow-based company Quantum Petroleum won an investment tender to develop and operate the freight complex at the Olya port. The container dock was built by Transstroi with help from Astrakhan-based ELKO, Olya Plavstroiotryad, Stalkonstruktor and Most. Along with construction work, a search was made for investor-operators willing to equip the new dock with port equipment.

Quantum Petroleum’s plans include equipping the dock with Kondor port cranes, loading and unloading equipment, vehicles and so on. The company has also promised to invest in developing the port infrastructure, construct buildings, expand warehouses and buy 50 trains to carry containers from Yandyka to Olya. Olya’s largest problem at the moment is that it is still not connected to the railway network, thus hampering its development and making investors cautious. The regional administration says that this problem can be resolved, however.

The Transport Ministry, State Railways and the regional authorities will soon begin building a 51-kilometer railway link to the Volga Railway line — a project expected to cost $140 million. But the federal budget does not have enough money to fund the project and investment will come from Russian companies involved in trans-Caspian freight transport and from a 50.8 million euro loan from the European Bank for Reconstruction and Development. Big business is in no hurry to invest in the Caspian, however, so long as the sea’s legal status still remains unclear.

Land of fish and caviar

The Caspian Basin is a unique fishing ground for Russia. Astrakhan Oblast owes much of its fame and prosperity to its fish resources. The region’s fishing industry is now in a disastrous state, however, as a result people not observing agreed quotas and scientific recommendations on fishing, and also increased poaching.

The region’s scientific potential was tapped to help solve the problem. Astrakhan Oblast is today the only region in the Caspian where sturgeons breed (at six fish breeding centers). One of the largest innovations in recent years is the introduction of technology that makes it possible to raise the fish to the age at which they can reproduce while obtaining both caviar and sturgeon meat. The Bios scientific-production center works using this technology. Further development of the fishing industry in the Caspian will depend on what is done to restore and increase fish populations in the region.

Making the region more attractive

The Astrakhan Oblast authorities say there is no difficulty finding investors for projects in sectors that promise rapid returns. Problems arise with projects requiring long-term funding. The regional administration is now working with the European Commission to help restore the region’s agricultural sector to its former fame. A TACIS program, Restructuring Agricultural Enterprises on the Lower Volga, aims to help local agricultural businesses adapt to the free market.

But the regional administration says that one of its main priorities today is organizing a dialogue with business. "Regulation is about supporting initiatives from below, creating the conditions and making sure this process becomes something that reproduces itself," said Tatyana Maximova, deputy governor and chairwoman of the economic development and trade committee. "Relations between the authorities and business should take the form of a dialogue." Maximova said it is important to find a balance between the interests of business development and the interests of the authorities, who are responsible for the region’s overall development.

The region is currently implementing a program to develop small private farms. The former collective farms have collapsed and small private farms have appeared in their stead. "We realize that this is just the initial stage of their development," Maximova said. "But cooperation comes next. Now they need help to develop, to find sales outlets for their products, and get the equipment they need."

The regional authorities have decided to subsidize interest rates on Sberbank loans taken out by these small farms and has created an association of milk processing companies that includes processing companies and large wholesalers. Budget money has been allocated to help companies buy the equipment they need and organize leasing schemes with leasing rates affordable for small businesses.

The administration has taken a chain approach to the scheme, organizing as links in the chain the larger companies and the auxiliary companies that collect milk from the small farmers and perform the primary processing. One of the region’s companies, Astsyrprom, needs to develop but cannot because milk and cheese are more expensive in the region than if imported from central Russia where cows produce 12-14 liters and sometimes even 25 liters a day. This is the kind of case in which the administration thinks it should use administrative levers.

"Of course, we cannot stop milk coming in from other regions, that would be ridiculous," Maximova said. "What we need to do then is work with the wholesalers who buy the milk and bring it in. It is in their interest, after all, to work with local businesses because it cuts their transport costs. Not all wholesalers have reacted favorably to our proposal, but many have listened to what we are saying."

Administrative officials say they have had to ask the directors of local markets to ensure that local producers’ products are at least on the shelves.

The regional administration takes an individual approach to each sector. In the sausage sector, for example, it is hard for local producers to compete with the likes of big names like the Mikoyan meat processing plant. The regional authorities and local producers decided they could attract buyers by putting emphasis on the fact that local sausage is made from fresh meat (the big companies tend to use imported frozen meat). Another problem was that not all trade in the sausage sector was above board. This problem was partially resolved through dialogue and the example of the milk producers.

"We spent a long time talking and worked out exactly what the producers’ largest problems are," an administration official said. "They want to develop their businesses and some even have the funds available to do so, but they do not invest because turnover is insufficient."

The businesses then turned to the administration with their projects. The administration in turn went to the banks and offered them various forms of cooperation such as partial interest rate subsidies and official guarantees. The result was that a new meat processing plant, Gubernsky, has been built and reconstruction is underway at two others. The administration says that local sausage producers now hold 30 percent of the local market, though they began essentially from scratch.