Tatarstan follows the right way

"Oil of Russia" talks to Mintimer Shaimiev, President of the Republic of Tatarstan

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The Republic of Tatarstan is one of the most developed regions in Russia, and has recently demonstrated stable economic growth. It was established as a Russian autonomous republic in 1920.

Geographical location: the Republic of Tatarstan is situated in the east of the Eastern-European plain along the midstream of the Volga. Area: 67,836 sq km. Stretches for 290 km from north to south and for 460 km from west to east. Population:

3,774,000 comprising over 70 ethnic groups of which Tatar and Russian ones are the largest. Official languages: Russian and Tatar. Capital city: Kazan (population 1.076,000), was founded in 1005. Distance from Moscow to Kazan - 797 km. Main industrial centers: Kazan, Naberezhniye Chelny, Zelenodolsk, Nizhnekamsk, Almetyevsk, Chistopol, Bugulma. Economy: the Republic is in the center of the interregional transport communications system of European Russia. Oil and gas trunk pipelines cross the territory of Tatarstan. As far as natural resources are concerned, Tatarstan is rich in crude oil. On the territory of Tatarstan there is part of the Volga-Urals oil and gas province which includes such oil fields as Romashkinskoye, Novo-Yelokhovskoye, Pervomaiskoye, Bondyuzhskoye. The bulk of hydrocarbon reserves are dispersed over small and medium-sized fields. These reserves are to last for an estimated 30-40 years. The main oil producer JSCTatneft is a joint stock company organised under the laws of Russia and Tatarstan. It was privatised in 1994. Substantially alI of its production and operations are in Tatarstan. The Company is the fourth largest oil producer in Russia with stable annual production of approximately 170 million barrels. As of January 1,1999, ся Tatneft's total proven reserves of crude oil were approximately 892 million tons (6,353 million barrels). Also occurring in Tatarstan are brown coal, oil shale, limestone, dolomite, building sand, gypsum and clay resources. Main sectors of the economy: the oil and gas, chemical, petrochemical, engineering, automotive, light, food industries, and agriculture. Arable lands take up more than 4.5 million hectares.

The development of enormous oil and gas reserves has changed the face of the republic beyond recognition and added dramatically to its importance for the country's economy. How do Tatarstan's relationships with the Federal center develop in the context of oil production?

Over the 50 years since the commercial development of its oil resources began, Tatarstan has produced over 2.6 billion tons of crude oil. Oil production has indeed changed the face of the Republic noticeably. New towns - Almetyevsk, Leninogorsk, Aznakayevo, Nurlat -have appeared. Tatarstan's southeast, once an out-of-the-way province, is now crisscrossed with motor and railroads, and airports have been built there. Oil has given birth to an industry new to the republic, petrochemistry, in the scale of which we are now among the world's leaders. JSC Nizhnekamskneftekhim's products -various ethylene-, propylene- and gasoline-based materials - have gained recognition far outside Russia. This company produces annually up to 10 million tires, or almost a half of Russia's total. The products of Kazan's Orgsintez and Kirov Synthetic Rubber plants sell like hot cakes. Tatarstan's oil has stimulated the progress of the entire former Soviet Union as well as of our own republic. In his time, N. Baibakov, People's Commissar (and then Minister) of the Oil Industry and later Chairman of the State Planning Committee, admitted while in Almetyevsk on a visit that "a half of the Soviet Union has been built thanks to the development of Tatarstan's oil fields." Paradoxically, Tatarstan's oilmen, who had set oil recovery records, often had to beg for subsidies. Many oil companies were artificially made unprofitable and eked out a miserable existence. Until as late as 1991, the oil industry was under rock-bottom-price contract with the central government. It is not surprising therefore that the Tatneft association grabbed at the earliest opportunity to come under the jurisdiction of Tatarstan. The treaty on the delimitation of powers and spheres of competence between Tatarstan and the Russian Federation was supplemented with an "oil agreement." Its signing was followed by annual negotiations on export quotas. At first we were allowed to keep a million tons of oil, then our share grew to 3 and 5 million tons. We had to drive home the fact that we had the right to dispose of at least a trickle of the oil rivers we were pumping out of our republic's subsoil. If, at the time when we produced up to 100 million tons of oil a year, we had had even a fraction of the powers we received thanks to the democratization of Russia's public life, many of the socioeconomic problems facing us now would have been solved long ago.

What is the gist of the republic's fuel-and-energy complex development strategy today?

We have always paid special attention to the development of oil production. As a result, we went a long way toward carrying out the task we had set ourselves: changing over from the strategy of oil production stabilization to that of its growth. In November 2000, the total crude oil production reached 2,209,350 tons in comparison to 2,198,312 tons in 1999. During 11 months of 2000 Tatarstan oil industry produced 24.928,880 tons of crude oil in comparison to 24,085,106 tons in 1999. We expect in 2000 Tatarstan oil industry produced over 26.5 million tons as against 26.3 million tons in 1999 - not much of a growth but quite an achievement considering the odds we struggled against. The establishment of independent oil companies and the assignment of fields to them changed the oil production situation in the republic entirely. Today there are 27 oil companies, each seeking to introduce new technology and new principles of work organization as part of the effort to stand normal market competition. This is not to be underestimated. All these companies (without JSC Tatneft) accounted for 10% of the republic's total oil output, but in the near future they may produce up to eight million tons among them. Fifteen new oil fields are now under development, and taking into account the existing ones, previously shut down for reason of unprofitableness, the number of producing fields now amounts to 30. New jobs have been created, and new technologies are being introduced. This has largely been made possible by a number of legislative acts - in particular, by the Decree on Measures to Increase Oil Production in the Republic of Tatarstan, signed in 1997. We did not ignore investors, either. The Oil and Gas Act of the Republic of Tatarstan provides for granting oil companies the right of subsoil use on the condition of product sharing between the Republican Government and investors, foreign ones included. The practice of levying any taxes, including excise duties and other compulsory payments that go to the republican budget (except the profit tax and subsoil use extraction charges), has been replaced by that of sharing oil output on contract terms in accordance with the Republican Product Sharing Agreements Act. Tax concessions for oil recovery from low-yielding wells have also been formalized in our republic. This is due to the fact that Russia's taxation system has made many of those wells unprofitable. Thanks to tax breaks, these wells continue producing, oilmen keep their jobs and make a steady living, and the republic's budget receives income taxes. Such an approach may also prove useful for other regions of Russia, I think.

Tatarstan's industrial facilities privatization scheme is known to have been different from that of the rest of the Russian Federation where it led to a serious economic recession in the regions and the country in general. What price, in your opinion, has Russia paid for its reformers' mistakes and is there a way to correct them?

Time alone will tell. In Tatarstan, we have opted for minimizing the expenses and maximizing the advantages of radical economic reforms. Whatever people think about market reforms, many have realized that these reforms open the door to self-realization and freedom. Mistakes have been made, of course. The most serious mistake was leaving Russian producers to their own resources. Considering our republic's potential, we, for our part, came to the conclusion, back in 1992, that Tatarstan could dispense with the "shock therapy" and embark on an independent course of reforms. According to our projections, we could catch up with the "locomotive of reforms," set in motion by the Federal Government, in three to four years. As a matter of fact, we have moved faster and further. The Government of Tatarstan opted for the following priorities: support for the petrochemical and oil industries and for the agriculture-industrial complex. Hadn't we then unilaterally reduced the prices of electricity and thermal energy supplied to the oil and petrochemical industries, Russia would have lost its foreign rubber markets. We have managed to keep them for the country. And mind you, keeping a foothold on Western markets is a matter of life or death today. In the same way, we have saved polyethylene production and sales markets. Most our companies are adapting themselves to the market and finding their niches in it. Our potentialities are limited, of course, and we cannot provide support for all of them. However, the fact that we have not abandoned the practice of government regulation has enabled us to help our commodity producers attain steadier performance indices than those shown by their counterparts in other regions. Such well-known companies as JSC Kazanorgsintez, Nizhnekamskneftekhim, Kazan Helicopter Plant, Teplokontrol, Tatkhimfarmpreparaty, Melita and others are doing quite well on today's highly competitive market. In a word, giving support to domestic commodity producers is not a departure from the policy of reforms. The sorry plight the economy is now in comes from the reformers' inconsistency. Russia has wasted a lot of time, I am sure, by failing to support its commodity producers from the very start. Unless we provide normal conditions for them, we shall never ride out the current crisis. There is no denying that Russia's industry is now livening up to some extent which, however, can hardly be attributed to a well-thought-out production revival program. Let us not harbor any illusions about that. Russia's industry is livening up owing to a sharp decline in imports rather than to the manufacturing of competitive products.

On the other hand, a unique chance to size up our industry has now presented itself. It is high time we stop relying largely on raw material exports. I am convinced that we should sort out our priorities and decide on the lines of commodities that might prove competitive on the world market.

I would like to say that the economic situation in Tatarstan is shaping up better than expected. Industrial production has been rising steadily over the past six years. At a preliminary estimate, its growth rate constituted about 5% in 2000.

Quite a few people in Russia think that Tatarstan often flouts Russian law. How would you comment on Kazan's special relationships with the Federal center?

Allegations of breaking Russian law can be made against us only by those who do not know that Tatarstan observes to the letter the Treaty on the Delimitation of Spheres of Competence and the Mutual Delegation of Powers Between the Government Agencies of the Russian Federation and the Government Agencies of the Republic of Tatarstan, signed on February 15, 1994, and the Budget Agreement signed by the governments of the Russian Federation and of Republic of Tatarstan. The later agreement allows Tatarstan to keep part of the Federal taxes revenue for funding Federal programs, institutions and organizations which are under the jurisdiction of the Russian Federation. Besides, substantial funds are allocated to law enforcement agencies, agriculture and forestry for carrying out measures subject to financing from the Federal budget. Therefore, all talk about Tatarstan failing to abide by Russian law holds no water. This is rather the case of a nonstandard form of mutual settlements between the two budgets.

Are you saying that the generally accepted rules of fund distribution do not suit you?

That's right. Neither do these rules suit the leaders of the other donor regions. I am convinced that the amount of deductions to the Federal treasury should be set for five to ten years to come. It should have a specific numerical expression not subject to change. Knowing that the rules of the game will remain unchanged, the regions might take radical steps to increase tax levies. We shall have an incentive to work harder because more funds will be available locally. The Federal treasury will also get added revenues. And what is the situation now? Donor regions are compelled to beg for money along with the subsidized ones. This is abnormal. The amounts of the transfer should be recorded in the budget and communicated to the regions, territories and republics. In the meantime, the economic situation is not getting any better. Neither does it pay to improve it, considering that the Federal center will always step in to help anyway. But what sense does it make for Tatarstan, St. Petersburg or, say, Nizhni Novgorod to maintain steadily depressive regions?

So why not change the relationships between the Federal center and the provinces? I suggest that the former should give the latter so much money for their basic needs and leave it to them to earn whatever extra funds they might require to attain higher living standards. I agree that the subsidized regions have to be pulled up: they, too, are inhabited by Russian citizens who deserve a better life. This, however, is not to be done at the donor regions' expense. Having gained certain rights, we have shouldered tremendous responsibilities at the same time. When we adopted the Declaration of State Sovereignty, I said frankly: "We have grown up. And now we have to wise up." I repeat: we have assumed responsibility for the destiny of millions of our people. Previously, the RP Federal center was responsible for everything, mistakes included, and this made life easier for us.