Sakha, a remote Russian region five times the size of Texas, holds strong business opportunities. This northern region is already one of the world’s leading producers of diamonds and potentially one of Russia’s leading producers of gold, oil, and gas.

Yakutia accounts for 47 percent of Russia’s coal reserves and 35 percent of natural gas and oil in Eastern Siberia and the Russian Far East. Yakutia supplies 98 percent of diamonds in Russia, 40 percent of tin, and 15 percent of gold. The introduction of new operations to develop oil, gas, and coal deposits, extensive road construction projects, as well as power engineering development, could present multiple investment, partnership, and trade opportunities for U.S. businesses.

Geographic overview

The Sakha Republic (Yakutia) covers an area of 1 188 339 square miles. It is about twice the size of Alaska and covers about one-fifth of Russia’s territory. Situated in northeastern Siberia, the Sakha Republic stretches 1 243 miles from north to south and 1 554 miles from east to west. It also includes several islands in the Arctic Ocean.

The Sakha Republic borders Krasnoyarskiy Krai on the west, Irkutsk oblast on the southwest, Amur and Chita oblasts on the south, Khabarovskiy Krai on the southeast and Magadan oblast and Chukotka on the east. To the north, the border is shaped by the Laptevikh and Vostochno-Sibirskoye seas. The distance between Yakutsk, the republic’s capital, and Moscow is 5 300 miles. The distance to Khabarovsk city is 1 000 miles. Yakutia’s territory falls within three time zones, which differ from Moscow time by +6, +7, and +8 hours.

Almost half of the territory of Yakutia lies within the Arctic Circle. The climate is sharply continental with seasonal temperature variations in excess of 100 degrees centigrade (from 40 degrees C in the summer to -60 degrees C in the winter). Much of the republic is mountainous, although a plain along the Lena River provides some support for agriculture, primarily livestock. The northern regions of Sakha are tundra similar to the sub-arctic regions of northern Canada and Alaska. The city of Yakutsk, like most settlements in Sakha, is built on permafrost.

Yakutia is divided into 33 ulusses (administrative and territorial units) and two municipalities. Yakutia’s overall population is around one million people, while the figure of economically-active adults is around 500 000.

Yakutia is extremely rich in mineral resources. There are approximately 600 gold deposits, 44 tin and 44 coal deposits, 34 oil and gas fields, 26 mica deposits, 7iron ore deposits, as well as a number of antimony, zeolite, and apatite deposits. The republic accounts for 47 percent of explored coal reserves and 35 percent of natural gas and oil reserves of Eastern Siberia and the Russian Far East. Sakha accounts for 100 percent of Russia’s overall antimony mining, 98 percent of rough diamonds, 40 percent of tin mining, 15 percent of gold mining, and 24 percent of diamond cutting.

Transportation infrastructure

Cargo delivery to Yakutia remains rather costly due to the vast distances and underdeveloped infrastructure.

The Sakha Republic has six river ports (Yakutsk, NizhneYansk, Belogorodsk, Lensk, Olyokminsk, Khandyga) and two seaports (Tiksi and Zelenomyssk). River navigation, however, is available for only a few weeks in the summer before the rivers freeze. The 2 735-mile Lena River is the primary transportation network. The annual volume of cargo transported via the waterways is over 2.5 million tons.

The republic’s railroad network stretches 306 miles, including 225 miles of the Berkakit-Tommot railway, which was put into operation in 2004. The Berkakit-Tommot-Yakutsk railway is currently being constructed. It is expected to provide reliable transportation in the northeastern part of Russia and substantially decrease the expense of cargo delivery. The volume of cargo transportation is around 2 million tons a year.

The air-travel network of the Sakha Republic includes 33 airports, two of which are of federal importance (Yakutsk, Tiksi). Roughly 12 million tons of cargo is transported annually by air. In 2005, Yakutia Airlines (Sakha Republic) opened its own regular flight from Yakutsk to Harbin (China) using its current fleet of Tu-154 airplanes. However, Yakutia Airlines eventually envisions the use of the most recent Tu-154M model.

The length of highways in the Republic of Sakha is 13 600 miles. Only 2.8 percent of general roads have improved covering, another 33.4 percent have so-called hard covering. The main roads are Big Never – Yakutsk (“Lena”), Yakutsk – Magadan (“Kolyma”), Yakutsk – Nyurba – Mirny (“Vilyi”), Yakutsk – Amga – Ust-Maya – Yugorenok (“Amga”). The volume of cargo transported via the highways exceeds 4 million tons a year.

Economic overview

During the last five years, the republic enjoyed stable economic growth. In 2003, according to the evaluation of the Russian Ministry of Economic Development and Trade, the Sakha Republic was ranked 15th among the regions of Russia for its economic development. The volume of the GRP per capita is about 66 percent higher than the average in Russia (4th in Russia). The Russian Ministry of Economic Development estimated that industrial production in Yakutia increased significantly in 2005-2007 primarily due to the development of the fuel industry.

The republic’s leading industry sectors include nonferrous metallurgy, electric power engineering, the fuel sector, and the food-processing field. These sectors traditionally account for over 90 percent in the region’s economic performance. Approximately 700 enterprises operate in the industry sector, employing 88 700 people. Over 150 enterprises are associated with the mining industry; 57 400 people are employed in the sector.

Introduction of new, large industrial operations (development of oil, gas, and coal deposits), extensive road construction projects (Berkakit-Tommot-Yakutsk Railway, Vilyui and Kolyma highways), as well as power engineering development (South-Yakutia hydro power complex, bulk power transmission lines), and associated infrastructure development open multiple investment, partnership, and trade opportunities for U.S. businesses, especially for manufacturers and distributors of heavy machinery and equipment. Currently, Caterpillar is the only U.S.-made machinery that is represented in the region. Caterpillar equipment, however, has come to be highly regarded, as the machines have proven very effective in the severe climate of Sakha.

A series of prospective investment projects were identified in the republic in mining, power, and fuel, as well as construction and other sectors. These include:

·   Development of iron ore deposits in south Yakutia

·   Development of the Sardana lead and zinc deposit

·   Gold Mining on the Nizhneyakokitskoye Ore Deposit Field

·   Development of the Chayandinskoye Oil & Gas Condensate Deposit

·   Development of the Elginskoye Coal Deposit

·   South-Yakutiyan Hydro Energy Complex

·   Construction of a gypsum processing enterprise

·   Wood Processing Complex in Ust-Maisky ulus

Gold mining

Yakutia’s gold reserves account for more than 20 percent of Russia’s total. Gold is spread widely over the entire territory of Yakutia, but the industrial gold-bearing capacity is concentrated in eastern and southern Yakutia, primarily in the basins of the Indigirka, the Yana, and the Aldan rivers.

The republic has 794 gold deposits; stable supplies of gold reserves in general are expected to last for 67 years, including ore gold for over 200 years, and stream for 34 years. The largest producers in the sector are AldanZoloto JSC, AldGold Ltd., Zolotinka Industrial Complex, Zapadnaya Artel, Seligdar Artel, Nirungan Ltd., Nerungri Metallic Ltd., Novaya Artel, and Drazhnic Artel.

Gold mining in the republic is performed under the Program for Gold Mining Development and Exploitation of Non-Ferrous Deposits. The program envisions continued exploitation of small fields, putting into operation large gold deposits of Nezhdaninskoye and Kuchus, and increasing the production capacity at the Kuranakhskoye ore field.

Diamonds

The total explored reserves of diamonds in the republic are able to supply the diamond industry for 30 years. The five-year plan for Yakutia’s diamond industry development envisions the construction of four underground sites at Udachny, Aykhal, Mir, and International.

The share of the diamond mining industry in the republic’s industrial production exceeds 60 percent. Sakha accounts for 98 percent of Russia’s diamond production and approximately 25 percent of world production.

ALROSA JSC, ALROSA-Nyurba JSC, Nizhne-Lenskoye JSC, Almazi Anabara Ltd., and CDM-Olenyok Ltd. are the main producer of diamonds in the region. ALROSA JSC is one of the world’s leading diamond producers. Its primary activities include industrial production of diamonds, cutting of diamonds, and sales of diamonds on the domestic and international markets. The company is also engaged in the construction of mining enterprises, as well as in civil and industrial construction in general, cargo and passenger transportation via roadways, air, and water, extensive research and design activities, and exploration work.

Upon the decree of the Sakha government, a series of activities aimed at establishing Sakha Diamond Shanghai Company Ltd. are being undertaken. The company will be marketing Yakutia’s diamonds in the People’s Republic of China.

Oil and gas

Sakha is one of Russia’s largest oil and gas bearing provinces. The share of the fuel industry in the total industrial production amounts to 11.3 percent. Some 29 oil, natural gas, and condensate fields are discovered in Yakutia. Explored gas reserves total 2.3 trillion cubic meters; recoverable oil reserves are 300 million tons.

The sector is expected to expand in the next few years as a number of large projects are implemented. These industrial ventures include the export-oriented East Siberia oil delivery project, the exploration of the Chayandinskoye Oil and Gas Condensate field, and starting up an oil processing facilities in western Yakutia.

The volume of natural gas extraction in 2005 was 1 565 million cu. m., production of gas condensate – 83 800 tons. Three deposits are currently being developed: the Srednevilyuysky and the Mastakhsky gas condensate sites and the Srednebotuobisky gas condensate site. The primary volume of extraction was performed by Yakutgazprom (over 85 percent), the other 15 percent was accomplished by ALROSA Gas JSC. ALROSA company recently took control over Sakhaneftegaz JSC, the Yakut oil and gas producing company (former possession of Yukos). Currently, ALROSA holds 50.4 percent of the company’s stock. According to Alexander Nichiporuk, President of ALROSA, his company intends to suspend exploitation of two subterranean diamond mines of Aikhal and Udachny, and focus on coal mining and oil & gas extraction.

Coal

Yakutia is ranked first in the Russian Federation for the volume of coal reserves and accounts for over 40 percent of the country’s total. Some 99 percent of explored coal deposits are of highly valuable types. A total of 48 coal deposits are currently registered in Sakha. The volume of the reserves totals 9.8 billion tons. Yakutia is a reliable supplier of high-quality power coal for the other regions of the Russian Far East. Due to its geographic position, Yakutia has good potential for exporting coking coal to the Pacific Rim countries.

Yakutia currently produces approximately 11 million tons of coal a year. The primary coalfields are South Yakutiyan, Ziryansk, Lensk, and Tungusskiy. One of the most prospective coalfields is the Elga field with its deposits of high-quality coking coal. The leading share in the republic’s coal industry belongs to Yakutugol JSC - one of the main suppliers of coal products outside the republic and a large exporter of coal to the Pacific Rim countries. Approximately 8.282 million tons of coal is sent outside the republic (75 percent of the total production of coal), including foreign export of 5.286 million tons.

Other mining sectors

The republic has large reserves of silver and polymetals. Investment projects for the development of a number of large silver-complex ore deposits are currently being designed. The republic possesses the largest tin reserves in Russia – approximately 50 percent of the country’s total. Explored and probable antimony reserves in the republic make over 90 percent of Russia’s total. The extensive raw mineral base of Yakutia is reflected in the activity of the large Sarylakhskoye and Sentachanskoye gold-antimony deposits, as well as by the small Maltanskoye, Kimovskoye, and Tanskoye gold-antimony deposits with low-grade associated antimony.

Timber

The region has considerable timber resources. Forests cover 46 percent of the republic’s territory. Some 426 timber and wood processing companies currently operate in Yakutia. The largest enterprises in the sector are Almaz JSC, Almazi Anabara JSC, Tabaginskaya Timber company JSC, ALROSA-Lesprom JSC, Almazlesprom JSC, Aldanzolotoles JSC, Belkachinsky Lespromkhoz Ltd., and Mass JSC. These companies intend to increase the processing component of the industry. The sector is a major importer of equipment and machinery produced by German, Australian, and Finnish firms.

Food processing

The share of the food industry in the republic’s industrial production is 2.1 percent. The primary areas of focus are dairy, meat, and fish products of various levels of processing, as well as alcoholic beverages and soft drinks. The largest companies in the sector are Yakutia Faic, Yakutskhlebokombinat SUE, and Yakutsk GorMolokozavod JSC.

In 2005, a new brewery began operation in Yakutsk. It was constructed by the Yakutiya Financial & Agricultural Cooperative. In 2007, it reach its projected capacity of one million decaliters.

Foreign trade and investment

During the last four years, the export structure of Sakha (Yakutia) Republic did not undergo any significant changes. It was as follows: diamonds – 67 percent, processed diamonds – 17.3 percent, and coal – 15.3 percent. As to the structure of import, equipment and machinery made up 41.4 percent, and rubber & rubber products accounted for 23.2 percent of the total.

Export sales were distributed between foreign counterparts as follows: Great Britain – 38.9 percent, Belgium – 23.3 percent, Israel – 11.8 percent, Japan – 9.7 percent, and the United States – 5.1 percent. The largest import volume fell to the United States (22.6 percent), Japan (18.6 percent), and Finland (11 percent).

The Sakha Republic is traditionally ranked second in the Russian Far East for the amount of international investments attracted.

Sakha’s government plans to support and promote foreign investment activities in the region. In the end of 2004, it has signed a Memorandum of Understanding with the Korea Resources Corporation – one the largest South Korean state companies engaged in the importation of mineral resources. The memorandum will be effective during the next three years and will contribute to increasing Korean investment in exploring Yakutia’s mineral resources.