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REPORTING TATARSTAN
21 st December 1997


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A GATEWAY TO THE EAST

Independence enables Tatarstan to carve a future as a market economy
"Now our people own their country's riches"

It is little more than five years ago that the people of Tatarstan voted for the constitution which established their new republic. Since then Tatarstan has emerged from under the yoke of communism to become one of the leading newly independent states (NIS) of the former Soviet Union.

A treaty negotiated with the Russian Federation in 1994 gave Tatarstan unprecedented autonomy. "The treaty played a very important role in the process of stabilization of the political and economic situation in Tatarstan," says the republic's president, Mintimer Shaimiev. "We have reached a higher level of economic independence and foreign economic activity.

"For the first time ever our people have become the true owners of their country's riches. We have taken over all the property of Tatarstan, including mineral resources. Thanks to the treaty, we've been able to conduct privatization our own way."

It was the first time Russia had granted independence to one of its former regions. "After the treaty with Tatarstan, Russia had to develop a new federal system, and similar agreements with other regions followed," says Mr Shaimiev.

He believes the treaty was good not only for Tatarstan, but for Russia as well. "Why? Because since Russia is striving to become a democratic society, there is only one way of development for her ЎЦ the one off federalism."

The 60-year-old president, who describes himself as "a great centrist", was born in the village of Anyakovo in the Aktanysh region of Tatarstan. From 1969 to 1983 he was Minister of Irrigation and Water Resources of the Tatar Autonomous Soviet Socialist Republic (TASSR), before being made Deputy Chairman and then Chairman of the Council of Ministers. From 1990 to 1991 he was chairman of the Supreme Soviet of the TASSR before becoming president of the republic. He was elected to a second term in March last year.

Mr. Shaimiev has adopted a tough stance to' drive forward Tatarstan's business, agricultural and industrial sectors and to give this republic of less than four million people a sense of national pride and purpose. However, he says there is the ever-present danger of Tatarstan slipping back into a Unitarian state.

"There are many forces in Russia striving to make that happen. It is fueled by the proof of, our successful economic development in comparison with other regions of Russia. I explained to President Yeltsin that should Russia ever breach the treaty with Tatarstan, it would become clear to everyone that all other agreements were unreliable as well."

Mr. Shaimiev, who established with Mr.Yeltsin a joint commission to prepare a new treaty for 1999 and beyond, says: "We in Tatarstan will keep raising the issue of further decentralization of Russia's economy.

"We have proven by our actions that we can take responsibilities and are capable of handling matters on our own. If Tatarstan has to refer to Russia, it would only be concerning certain crucial strategic matters. That is a normal course of development. The important thing is that we would not impair Russia's integrity."

Tatarstan's Prime Minister, Farid Mukhametshin, emphasizes that the republic has sovereign authority with regard to foreign economic policy, which has enabled it to open trade offices in the US, Europe, Asia and Australia.

"When we adopted the new constitution, we announced that we were going to support the new legal framework with a market economy. We were the first in Russia to announce private rights to all kinds of ownership, including private ownership of the land. At the time that was still unheard of in Russia. We recently fulfilled the first stage of a privatization campaign, the so-called process of de-nationalization."

Tatarstan has signed various bilateral economic agreements with former Soviet republics such as the Ukraine, Belarus, Kazakhstan, Kyrgizstan, Tajikistan and Georgia. The presidential adviser on international affairs, Timour Akoulov, says the republic can play a stabilizing role in regional affairs as the economy grows. The republic's relationship with Chechnya is a case in point.

"We will permit Chechnya to set up representation in Tatarstan in order to stabilize the situation. We welcome Chechen citizens in Tatarstan. We give them access to higher education and provide medical treatment," says Mr Akoulov.

"Tatarstan now has a significant number of rights. Even if a second treaty is signed, I think the number of rights concerning foreign affairs will stay the same. We won't aspire to have embassies to have wider diplomatic rights. We can apply any time to the Russian Federation and act through it. We are not revolutionaries, we are evolutionaries. We want Tatarstan to be the initiator of increased international relationships."


Foreign investment pours into oil and industrial development

Closer links with rest of world

One of the least-known of the regions of the former Soviet Union, Tatarstan is in the top ten emerging economies among the dozens of newly independent states.

It is hardly surprising that a league table charting the progress of these regions has developed. Since the collapse of communism, interest in this vast land mass has intensified as multinationals pour in billions of dollars to exploit the rich natural resources.

Tatarstan is one of the four regions which have attracted more than two-thirds of total foreign investment in Russia, estimated at between $5 billion to $8 billion; the others are Moscow City, Moscow Oblast and St.Petersburg.

The major attraction in the case of Tatarstan is oil - the republic is the fourth largest oil producer in the Russian Federation. But there are other reasons for a high degree of interest from Western investors, including a highly developed industrial sector and historical and geographical links with Europe.

Says President Mintimer Shaimiev. "Situated in the European part of Russia, we naturally share much in common - historically established contacts in many areas, a common economic space, monetary system, transport communications, customs and so on."

Britain is one of the biggest investors in Tatarstan. In the first half of last year, the UK invested $45 million - way ahead of the next biggest investor, Germany, with $15 million.

Tatarstan's Minister of Economy, Damir Bikbov, says the republic expects its volume of foreign investment to total $2 billion this year. "Our gross domestic product makes up about $11 billion," he adds to emphasize the scale of interest.

As the Tatarstan authorities accumulate experience in marshaling their resources, the republic's economic structure is taking on a firmer and more distinct form. Among the more important components are the energy, mechanical engineering, aircraft, automobile, chemical and petrochemical industries, agricultural and construction sectors.

Industrial production grew by 2 per cent in 1995, rose by 3.2 per cent in 1996 and this year is expected to reach 4.3 per cent. Mr. Bikbov forecasts a 5.9 per cent growth rate next year.

Crude oil reserves are estimated at more than one billion tones and every tonne of crude oil is accompanied by 40 cubic meters of natural gas.

Tatarstan had to buy in about a fifth of its energy needs. Now the state electricity producer, Tatenergo, has excess capacity which could be exported.

The Government has had remarkable success in privatizing state-owned enterprises. Today, more than 80 per cent of 18,000 companies in Tatarstan are privately-owned. Mr. Bikbov says there are about 45 joint ventures between Tatarstan and a dozen other countries, including the US, Malaysia, France, Germany, Finland and Britain.

" In the past Tatarstan managed just two per cent of state property located on the territory of the republic. After signing the treaty with Russia, Tatarstan recovered the right to manage about 95 per cent of its own territory. As Tatarstan is the owner of its property, privatization has been conducted according to Tatar laws" he stresses.

One of the most important tasks in the republic's economic reforms is the conversion of the military-industrial complexes which historically have formed so important a part of the industrial base.

A special program has been formulated to advance the high-tech branches of the defense industry, which can produce consumer and other goods competitively.

"Some of these enterprises have already been privatized," says Mr. Bikbov. "The Kazan motor-building plant, which used to produce engines for both civil and military planes, has become a share-holding company. The Kazan helicopter plant has been privatized and the optical-mechanical plant has become a share-holding company. All these were once large enterprises of the military complex.

"We plan to begin selling shares of these enterprises on foreign stock exchanges, giving foreigners the ability to buy parts of them. We won't sell the majority of the shares, but it doesn't prevent foreigners from investing capital and earning returns."

Both the Kazan aircraft plant, which produces Tu-214 airliners, and the Zeiendolsk shipbuilding enterprise, are due for future privatization. Tatarstan is self-sufficient in food production, with a strong agricultural sector. More than 700 individual farms have been established in recent years.

"Any person who privatized a plot of land is quite free now to either stay in associations or to work independently," says Mr. Bikbov.

"The reform of the agricultural sector is the most difficult task facing us today. Since 1917 land here was never considered a means of security. Today we use, understand and respect such terms as 'cost of the land' and 'market price of the land'.

"We should reject the old form of collective farms (of which there are still many) and develop the agricultural sector with the help of independent farmers. By implementing these agricultural reforms we are creating a new infrastructure.

"This year we are setting up a grain exchange. As soon as we create the infrastructure for this exchange we hope that the mechanisms of the market economy will start working.

"We are trying to change the system and set up a market-type economy to raise the productivity of the agricultural sector to die level of that of the industrial sector."


ENERGY Major oil producer is set for listing on New York Stock Exchange

New refinery will raise prospects

Tatarstan sits in the center of the Volga-Urals gas and oil region, and its substantial chemical and petrochemical sector makes up about 28 per cent of the republic's total industrial production.

The petrochemical industry has shown the fastest development since the Sixties, principally because of the availability of local oil and gas.

Oil is the main attraction for foreign investment in Tatarstan and the republic's Tatneft oil company is the first Russian corporate to launch international bonds.

Such is the popularity of Tatneft, the fourth largest oil producer in the Russian Federation, that it is set to obtain a listing on the New York Stock Exchange. The company launched the first public international fixed rate bond in October with a $300 million Eurobond.

Tatneft first came to the international equity markets last year with unlisted shares at a price of around $45. Since then, the strength of investor interest has pushed their value up to around $168. This has pushed the market capitalization of Tatneft up from $240 million to over $3 billion, transforming it from a second-tier illiquid stock into one of the larger first tier shares.

The Eurobond issue was heavily oversubscribed, showing the current level of demand for credits in this part of the world. Tatneft is now the third largest Russian company in terms of capitalization. According to a Price Waterhouse audit, the company earned 2,243 billion rubles in pre-tax profits last year, as against 2,219 billion rubles in 1995. 'Last year it produced 23.7 million tonnes of oil, most of which was exported.

The state owns 30.8 per cent of the holding, a labor collective 28 per cent, foreign investors 17.6 per cent, Tatar investment fund TAIF 5 per cent and the remainder is held by other Russian investors.

Tatneft's $300 million 9 per cent five-year Euro offering, launched via its Irish financing vehicle, Tatneft Finance, was lead managed by Dresdner Kleinwort Benson.

Extraction of oil began in 1943 and from the late Sixties to the late Seventies Tatarstan was the major oil producer in the former USSR. The republic is still Russia's fourth largest oil producer, and Tatneft and its joint ventures produce virtually all of it. Estimated oil reserves are between 0.8 and 0.9 billion tonnes.

The company, which has dozens of production units in towns and cities across the republic, is undergoing a radical restructuring which will reduce the number of employees from 75,000 to 40,000.

Tatneft is also contemplating the launch of two stock companies at new oil fields Mallyaneft and Druzhbaneft. It also plans to build new refineries to reduce its dependence on the Ukrainian Kremenchug oil refinery.

Work has already begun on Tatarstan's first oil refinery. The new plant at Nizhnekamsk, scheduled to come on stream in three years, will have an annual throughput of 7 million tonnes of oil. Purchases of equipment for the undertaking have been covered by a $115 million facility from US Citibank guaranteed by the US Eximbank.

Tatarstan is pinning great hopes on the new plant. The republic, which produces nearly 25 million tones of oil per year, manufactures only diesel with a high content of sulfur and a negligible amount of A-76 petrol for the Tatneft company. For all other types of fuel, Tatarstan relies on imports.

Earlier this year a new joint venture, Ideloil, was created with partners from Britain, Russia and Tatneft to extract highly viscous oil in the east of the republic. The British oil company Aminex has a 35 per cent share, Ideloil, which plans to extract about 2.5 million tones a year, is the sixth oil enterprise to be set up with foreign companies in the republic.

Several foreign investors have shown interest in the Nizhnekamsk developments. The American Chevron corporation has voiced its readiness to act as a strategic investor in Nizhnekamskneftekhim (NKNK), the largest petrochemical company in the region (and in Europe).

ABB, the international engineering company, has won an order valued at more than $100 million to modernize plant at NKNK. The company is undertaking a project to reduce the sulfur content of its kerosene and gas oil products in line with environmental standards.

ABB's hydrotreating technology provides a cost-effective way to meet both existing and future environmental regulations through staged investments. The project will be financed in part through a loan guarantee from the Export-Import Bank of the US under the Oil and Gas Framework Agreement (OGFA) between the governments of Russia and the United States.

Rinat Galiev, director general of Nizhnekamskneftekhim, says the new plant, which will yield 67 per cent purity later to be increased to 85 per cent - will be completed by the year 2000.

The company also produces synthetic rubber and other petroleum derivatives. "From the very beginning, our priorities were in rubber production and petrochemicals. The refinery was built in order to supply the republic with fuel," says Mr. Galiev.

"We have also set ourselves the task of further refining products such as polypropylene and polyethylene. Our main aim is to refine petrochemical products to their final phase, and that's why we invest great sums of money here.

"Anyone can produce petrol and diesel fuel. But just a few companies produce petrochemical products and synthetic rubber. For some of these products, we are the only enterprise in Russia and Europe which produces them."

Mr Galiev says the company is interested in "serious partners" but stresses that it is able to run on its own. He admits to a certain skepticism towards foreign interest: "The main aim of foreign producers is to get these, cheap raw materials. We are quite aware of it and that's why we are rather careful towards foreigners."

In April a Malaysian group, Petra Khyra Investments, agreed an option to acquire a 51 per cent stake in the plant for $150 million, to go with existing schemes as diverse as real estate, gaming, telecommunications and helicopters. Petra has strong political backing in Tatarstan.

Between 35 to 40 per cent of Nizhnekamskneftkhim's total production is exported, much of it to Russian federal states, although Mr Galiev says that sales inside the country are sometimes more profitable.

Meanwhile, Tatarstan's President Mintimer Shaimiev and Murtaza Rakhirnov, President of Bashkortostan, have signed a treaty of friendship and cooperation for the next ten years. Tatarstan has also reached agreement with Iraq to launch a joint venture to prospect and develop Iraq's oil deposits and Tatneft will provide a $50 million credit to Iraq.

Next June an international congress on new high technologies in the gas, oil, power engineering and communications industries will be held in the capital, Kazan.

The organising committee has been finalized, in compliance with a decree issued by President Shaimiev, who will head it himself. The president of the International and Russian Academy of Technological Sciences, Vladimir Alfeyev, and Prime Minister Farid Mukhametshin, have been appointed his deputies. The congress will include a commercial exhibition of the latest techniques and technologies in the participating sectors.

On the road to higher production

Tatarstan is one of the most industrialized of the republics of the Russian Federation. Its industrial base is also among the most successful in the former Soviet Union, Last year production grew by 3.2 per cent, and this year it is expected to grow by 4.3 per cent, according to the Minister of Economy, Damir Bikbov.

Leading the industrial sector are aircraft, automobile and instrument manufacturers, while other large sectors include chemicals and petrochemicals, machinery and equipment, and construction enterprises. Many of the 18,000 companies in Tatarstan are now either privately-owned, joint stock companies or involved in joint ventures with foreign partners.

Manufacturing contributes 68 to 70 per cent of gross domestic product (GDP), and employs nearly half a million people, and construction a further 145,000. There is a strong scientific base to the economy, with numerous scientific institutions including the renowned Tatarstan Academy of Science in Kazan.

Among the modern aircraft built in Tatarstan are the IL-62 and Tu-214 commercial airliners, and the highly-rated MI-17 helicopter. Tatarstan has signed agreements with other republics to cooperate on the production and leasing of aircraft.

Many of Russia's new rich are fascinated by flying and are likely to become avid buyers of light aircraft. It is estimated that 8,000 private aircraft will be needed over the next 15 years.

Though Russian firms have many innovative general aviation designs, finding the money to produce and sell aircraft on the world market is another matter. Opportunities for investment are described by Mr Bikbov as "quite significant".

Last year, US General Motors kicked off a joint-venture to assemble Chevrolet Blazer off-road vehicles in Yelabuga, in the north of the republic. The venture uses Brazilian-made car kits while seeking to increase the amount of locally-produced components. GM has a 25 per cent stake in the joint venture - dubbed Yelaz-GM - which has a 45,000-vehicle capacity.

Last month the Government gave initial approval to the creation of a free economic zone in Yelabuga. The zone, which will exist for fifty years, will entail a special concessionaire regime for business and a duty-free area.

The biggest industrial conglomerate in Tatarstan is Kamsky Motor Works (Kamaz) whose heavy-duty trucks are used for more than 80 percent of long-distance haulage in Russia. The company, however, has faced huge financial problems since suffering a disastrous fire three years ago.

Ivan Kostin, the newly-appointed general director and chairman of the board of management, says: "The most important thing for us in the coming months is the restructuring of the debts we incurred after the fire. Kamaz needs a certain amount of money to fulfill all the contracts. We now produce just the minimum number of automobiles to allow us to survive."

The chance of raising $300 million through the sale of 32 per cent of the shares fell through because Kamaz was unable to become profitable soon enough.

"Our priority is to make the enterprise profitable," Mr. Kostin says. "I'm sure that it will be by the end of 1998."

Everything that can be done is being done to reduce overheads and raise money. Property which the company owns in the city and does not require is being sold. "We will reduce expenses greatly by doing this, but many problems still remain," Mr. Kostin says.

There is no doubt that Kamaz vehicles are in demand, particularly in South East Asia. "Our trucks are well-known in Vietnam and China, and they are becoming more attractive for Malaysia, Thailand and New Zealand. We need to act very quickly in order to raise money while these countries are developing."

For many years, Kamaz has produced a range of trucks with a load capacity from 7 to 13 tones but it is not uncommon for these trucks to be heavily overloaded in the countries in which they are used. Now the company produces a 20-tonne truck, which Mr. Kostin says is "cheap and safe".

Nearly ten million tyres are made in Tatarstan annually, more than anywhere else among the former states of the Soviet Union.

More than 40 per cent of all the tyres in the Russian Federation are produced by Nizhnekamskshina, including more than 90 different types for cars, trucks, tractors and other vehicles. About two-thirds are radials, and this will increase as more than a dozen new types of tyre are introduced over the next three years.

The first plant was built in 1971 to produce tyres for Russian-made Avtovaz vehicles. The second was built in 1980 to supply tyres mainly to Kamaz, the Tatarstan vehicle manufacturers.

Radik Iliasov, Nizhnekamskshina's general director, says the company is replacing outdated equipment with new machinery made in Russia, Bulgaria and the Czech Republic. Although Nizhnekamskshina produces tyres which are adapted to Russia's specific conditions, he says the quality as good as produced by European manufacturers.

There are an estimated 300,000 foreign-made cars on Russian roads, around 200,000 of them second-hand. "There are a lot of foreign cars in Russia now, and we try to meet the demand for tyres for these vehicles." says Mr.Iliasov.

If all the car-manufacturing joint ventures get off the ground, between 300,000 and 600,000 newly-assembled cars could be on the market annually by the year 2000.

Nizhnekamskshina makes tyres for most of the well-known Russian-made cars, such as the Moscow-built Zil, for army trucks, for the Kamaz mini-car, the OKA, and several more in other states. The capacity of the two plants in the city of Nizhnekamsk is 13 million tyres, although the volume fell to 7.5 million in 1994. It is now picking up, with volume increasing in 1995 by 5 per cent and last year by 8 per cent.

Mr Iliasov says that by the year 2000, production should be up to 10.2 million. "Our tires have certain specifications. The rubber is different and the material which protects the tire is different. Foreign companies produce tyres for good roads, although 86 per cent of our tires have European certificates."

He says the company is not afraid of competition. Most of its sources of raw materials are located in Tatarstan, while main competitors are the tyre plant in Dnepropetrovsk, Ukraine, a plant in Belorussia and the Russian plant in Yaroslavl.

"Now we are working on a metal-cord tire for trucks," he says. "Here in Russia we use a lot of foreign buses and our tires suit them and that's why it's a very important product. As Kamaz is going to produce trucks according to international standards, the demand for these tires will grow.

"They will also produce a new kind of bus which will use metal-cord tires, which are better than the Russian-made tires which used textiles. The use of this metal-cord means the reduction of material expenses.

"I think they will be good enough to export, because foreign manufacturers have been producing such tires for a long time. In comparison, we are a little behind foreign producers, but we do export to the republics of the former Soviet Union, to China, Cuba, Pakistan and to several Middle Eastern countries. Ten per cent of our products were exported last year."

Mr. Iliasov says his company is trying to increase exports. A major drawback is the fact that payments are commonly made with other goods. "Barter is the most common form of payment in Russia today," he says. "We can't survive on bartering alone. We need capital, and increasing exports is the best way to get capital.

"There is a great demand for tires, but our prices are too high, they are not competitive enough. The price of raw material is also high, and so is the level of prices set by the market, which doesn't let us export a lot."

The company, which has 14,000 employees, made $49 million profit last year and this year it is estimated profits will rise to $51 million. It became a joint stock company in 1994, with the state holding 35 per cent of the shares and five per cent owned by a British investment company.


INDUSTRY A Tatar distiller is putting its products on the export list

Designer vodka to tap new markets

Vodka is to Russians what Guinness is to the Irish. It is a symbol of national pride which has found fame worldwide.

The clear, potent drink is inextricably bound up with the Russian pysche, used at every celebration and commiseration. Russia produced 4.41 million litters of vodka in the first six months of this year, up 6.9 per cent on the same period last year. Alcohol's share of the overall volume of the retail trade increased by 5.5 per cent in the first nine months of this year.

There are many distillers and bottles of vodka, some of which have achieved that ultimate accolade - international recognition. Now a distiller in the Republic of Tatarstan is aiming to put his brand of vodka on the international map.

Valeri Savkin, general manager of the Kazan Vodka Plant, says: "We are ready to sell our products abroad, as both the vodka and design are good."

The distillery, based in the capital Kazan, has been making vodka since 1973. The recent installation of new equipment will double capacity to 12,000 bottles per hour.

The new equipment cost Kazan Vodka $200,000, which was on credit. "It was very difficult for us to pay such a large amount all at once," says Mr. Savkin. "Then we will reconstruct our old lines and extend and build a new shop to produce souvenir bottles. We are also going to up an apiary, because we use honey for some of our liquors."

Kazan Vodka is the leader in the local market. "Maintaining high quality is our number one priority," says Mr. Savkin. "There are a lot of competing vodka plants and they struggle to maintain levels of quality.

"We produce vodka with only first-rate wheat which is grown in Tatarstan. Our vodka is produced from highly distilled spirit - we don't produce vodka from potato spirit."

The company produces several varieties of liquor drinks, but the vodka which is their pride and joy is the award-winning 'Old Kazan'.

Vodka drinking is a custom which - as many Westerners to Russia may have noticed - can sometimes have dire consequences, although there has been a concerted attempt to help heavy drinkers.

"The most important thing is that when you drink our vodka, you don't get a handover the next morning", claims Mr.Savkin.

Kazan Vodka is sold across the Russian Federation, from Moscow to Vladivostock. Mr.Savkin says there will be some serious marketing research to evaluate the foreign market before Old Kazan reaches British supermarket shelves, and he is anxious to find a foreign partner with marketing expertise. But he adds: "By the beginning of next year we should be able to introduce our products to Europe."

The most important factor in developing a foreign market is pricing and Mr. Savkin says he would be able to sell their vodka at just $2 a bottle (transport costs, wholesalers' and retailers' profit, import duties and taxes would obviously bring this figure into line with other brands sold in Europe).

"We would gain a tremendous market share. For us it would mean a higher turnover and more profits."


INDUSTRY Tatarstan's manufacturing strength relies on a strong scientiffic base

Firms seek to raise exports

Tatarstan's formidable industrial enterprises are founded on solid scientific research, giving their products an edge in the competitive global market.

One such company is the Kazan Compressor Plant (KCP), which became a share-holding firm in 1990, the first joint-stock company in the republic.

Company president Obrahim Khisamejev declares: "All the plants in the republics of the former Soviet Union use our compressors."

Indeed, KCP compressors are used in virtually all sectors of industry and agriculture in some form or other, and are sold all over the world.

"We are the only enterprise in the world which produce cooling compressors where air is used in the refrigerant. American companies have purchased such compressors," says Mr. Khisamejev. "And we were one of the first plants in the world which produced compressors for helium pressure."

Backed by research, KCP has also developed a new type of rotor compressor which is produced in a Tashkent plant.

KCP was heavily in debt when Mr. Khisamejev took the helm less than two years ago, but he persuaded the state to delay payment of some debts. "We are going to pay all the debts in 1999," he says. Turnover has more than tripled since he arrived.

With the help of a Moscow bank, KCP is to issue Eurobonds. Production is on course to be increased fivefold over the next four years. "We are able to survive because we have great intellectual potential," Mr. Khisamejev says.

KCP has held discussions with several foreign companies with a view to setting up a joint venture, specializing in pumps for the gas industry. But Mr.Khisamejev says there must be a gain for KCP - a 'win-win' situation - otherwise any deal would be one-sided.

"We have good equipment and specialists for this kind of production, so we can easily do it ourselves. On the other hand, if we want to set up a joint venture, our partners will gain a Russian market share. What we really want is to enter the Russian market with a new product."

Orgsintez, one of the largest chemical companies in the Russian Federation and one of the most profitable in Tatarstan, is also expanding production.

The company is building a new plant for the production of polypropylene, and another facility for making ethylene will be completed by 1999.

Company president Nail Jusupov says Orgsintez has several joint ventures with "well-known companies", and has been the recipient of investments worth between $15 to $20 million a year.

Orgsintez is also active in agriculture - for the benefit of its employees. The company produces potatoes, raises livestock and produces sausages, bread, flour and yogurt. "We are quite self-sufficient," says Mr.Jusupov.

Maintaining exports, which are currently between 25 and 30 per cent of total output, is a priority. "I know this market, and the competition is very intense," he says.

"We are continuing to work with old partners, who know us very well. We understand which technology is worth developing and which is not. But we need to conduct market research on export opportunities before we decide whether it will be profitable to invest in some new products, for example polymer packages. We were the first in Russia to start producing them. Now we understand that demand is huge and the capacity has to be doubled."

He hopes to create a joint business plan and investment program with Union Carbide, for example, who are also competitors.

"We have joint ventures with several large, well-known companies. For example, we are working with Tetro Laval. We have the technology and can compete with foreign companies. The fact is we have no money, but this is only temporary.

"In agriculture, for example, we used to import grain and other products, but today we grow sufficient amounts of agricultural produce and the quality of our produce is much better than that of foreign countries."


INDUSTRY Slum clearance, a new metro and a modernised airport for city

Kazan gets a new look

One sign of the increasing prosperity of Tatarstan is the slum clearance program, which has boosted the construction industry. The capital, Kazan, is getting a facelift - including a new underground railway and a modernised airport.

Kazan's mayor, Kamil Iskhakov, is planning the reconstruction of the historical center of the capital, and one trillion rubles a year is being spent on demolition and building new homes.

"The face of the capital will be changed greatly," says Mr. Iskhakov. "Recently we finished the reconstruction of the ballet and opera theater, and the central square of the city. Soon we will begin reconstruction of the Kazan Hotel, the airport and the railway station. We will also finish the reconstruction of the children's theater and the state museum."

Despite the lack of local funds, the Government has allocated around 58 billion rubles for the underground railway. Construction experts reckon that by the year 2000, one trillion roubles will be needed to finalize the project, which is due for completion in 2004.

Plans for Kazan International Airport include modernization of the passenger and freight terminals, and a new area with a shopping mall and restaurant which will generate new income. Airport director Azat Hakimullin says: "Kazan has a strategic position. It will become the bridge between Europe and Asia. This will allow us to be much more competitive and we hope we will attract new airlines from Europe. We want Kazan airport to be a hub in Russia, just like Frankfurt airport in Europe."

Another major infrastructure project is the modernization of the historic port of Kazan, the largest on the Volga River. Backed by the European Union, the aim is to turn the port into a transport hub serving a regional market of 80 million people.

One of the newer state-owned companies is Stroiplast, which makes window and door units in the capital. Company director Fanus Shakurov says growth has been rapid.

"There is a special program for the clearance of slums which began last year. About 3,500 families were moved out of the slums last year, and 2,130 of those families will live in buildings with our window and door units," he says.

Last year, when Stroiplast began manufacturing, it produced 31,000 sq. meters of windows and interior doors. In the first half of this year it produced 20,000 sq metres. "The capacity of the plant is 250,000 sq. meters a year. We may reach this figure when we are better known," adds Mr Shakurov. "If we achieve project capacity, our plant will produce half of all the window and door units our republic needs.

"We have already penetrated the Russian market. We have a representative office in Moscow and we are working on opening offices in other cities. In the coming years we hope our products will be distributed to most if not all the regions of Russia we will be able to compete with similar German products."

Kamgesenergostroy, a joint stock company which has been responsible for the construction of power stations, factories and major plants in Tatarstan and other republics, is also involved in slum clearance.

Director general Victor Eitsov says: "We started cooperating with private investors on the construction of shops and private houses. We have also won a tender to build a power station in Viborg which will supply electricity to Finland. And we have started building cottages in the suburbs of Moscow.

"We have great intentions, because our capacity is not fully utilized. We would like to work beyond the bounds of Tatarstan, because the financing in Tatarstan is not great.

"We would like to create a joint venture. We need investment to produce our own construction materials which meet European standards."

Irek Galeiev, director general of construction company Chelnygostroy, would also like to find partners to work outside of Tatarstan. His company was responsible for the construction of most of the houses, schools and hospitals in Tatarstan's second largest city, Naberezhny Chelny.

The company is now building individual and family homes. Mr Galeiev adds: "We need to change the direction of our activity, and we have already made some steps in a new direction. Our main problems are old equipment, payment delays, and energy and transport are very expensive, which influences the price of our production."


BANKING Keeping the finance sector free of Moscow's influence is a priority

Adjusting to autonomy

The banking system in Tatarstan is still trying to adjust to the rapid changes that have occurred in the past six years.

The influx of foreign capital and Tatarstan's exceptional freedom from the influence of Moscow has resulted in some astonishing gains for some banks, and the disappearance of others.

The 133-year-old National Bank of the Republic of Tatarstan is an inseparable part of the Russian Federation's central banking system but since the 1994 treaty between Russia and Tatarstan it is able to act independently.

"We are a structural part of the central bank of the Russian Federation, and it is the only bank with which we have signed a special agreement," says its chairman, Yevgeny Bogachev.

"At the same time, we are the national bank of Tatarstan. For instance, we are able to modify the interest rate by ourselves, and we are able to settle questions connected with employees of the bank."

Mr.Bogachev says Tatarstan contributes about 13 per cent to the Russian budget, which he describes as a small sum of money compared with some regions.

"Our republic is one of the ten most profitable regions. Others don't transfer any money at all to the federal budget and even take grants," he says.

The number of commercial banks has been reduced from around 40 to 31 and Mr Bogachev says banks with "risky policies" have been deprived of their licenses. "Our first task is to make our banks larger and we are planning to merge some banks. Money should be centralised into a few large banks."

Mr Bogachev is keen to keep the influence of Moscow to a minimum. An overriding policy is to limit penetration of Tatarstan's local banking system by banks from Moscow or from elsewhere outside the republic. "Our neighbors have 20 to 30 branches of Moscow banks; we have just three," he says.

One bank which has made remarkable progress since it was launched virtually from scratch in the early 1990s is the Devon Credit Bank. It has now risen to second place in terms of profitability.

Zufar Nasybullm, the bank's president, says Devon Credit was formed because the oil giant Tatneft was dissatisfied with the operations of Tatpromstroibank, a Tatar bank now under financial rescue.

"Tatneft was served by Tatpromstroibank, which began to earn money not linked to Tatneft," says Mr. Nasybullin. "There are about 105 enterprises in Tatneft and each of them had its own account in Tatpromstroibank. They were not satisfied with the work of Tatpromstroibank because the bank used their money for its own profit."

Mr Nasybullin, a former financial director of the oil company, describes Tatneft as "a kind of mini-state, a unique company - even for Russia".

Tatneft became a joint stock company and Mr.Nasybullin was asked to set up a bank. "The fund of the bank at the beginning comprised only one hundred million rubles. It's now 100 billion rubles. We have an authorised capital of 226 billion rubles and all the companies serving Tatneft are the main object of financing - about half a trillion rubles' worth.

Devon Credit has ten branches, and one in neighboring Chuvashia. Mr.Nasybullin says the bank's main aim is to serve the south-east region of the republic.

"All our branches are created to serve Tatneft. The strength of Devon Credit is in its branches and the system of authoritative management." The bank has a $100 million credit agreement with the Dresdner Bank and about

$90 million from the US Eximbank.

Meanwhile, the Export-Import Bank (Eximbank) of the United States is to cooperate in a joint banking venture with the republic. The US bank's president, James Harmon, and Tatarstan's president Mintimer Shaimiev, have signed a memorandum on establishing a Regional Bank for Development in Kazan.

The new bank will promote Tatarstan's economic progress and channel financial resources from outside the region. It will help non-governmental crediting bodies and government agencies to obtain export credits from international financial organizations for Tatarstan-based companies.

The bank is to re-credit borrowers in Tatarstan, with the solvency and project reliability to be determined by credit analysis based on international standards. The bank will borrow from Eximbank, which will evaluate the overall amount of projects proposed for financing.

The Tatar Government is to hold no more than half the shares in the joint enterprise, which will be managed by independent financiers regularly accountable to the Government, and to the other shareholders, local and foreign banks, transitional companies and private depositors.

It is apparently the first agreement by a US federal bank to establish a regional development bank in the Russian Federation.

Produced for The Sunday Telegraph by PM Communications