At present, the trends and
opportunities for energy cooperation
and interacton in the Russian Far East with the NEA countries can
be viewed as part of Russia's general economic and political
strategy of shifting its geopolitical direction eastwards.
Until the mid-1980s, the
main commodity flows from the territory of the former Soviet
Union were mainly oriented towards the countries of Western and
Eastern Europe, while trade and economic relations with the APR
countries lagged behind.
Russia has a
strategic
problem in the APR, a problem of consolidation in the Northeast
Asian subregion, and in the Asia-Pacific region as a whole. The
interests of Russia as an Euro-Asian power, undoubtedly, face not
only the West, but also the East. The APR's growing importance in
the global economy will lead to an increase in the RFE's
significance.
One positive concrete
example of the RFE's internal geopolitical shift towards the APR
is the 1996 Federal Program for the Social and Economic
Development of the Russian Far East (hereafter referred to as the
Program). The Program consolidates Russia's strategic interests
and long-term priorities with regard to its eastern regions.
Although the Program has faced obstacles in its implementation,
it is a political and institutional recognition of the Russian
Far East's importance as a region that has affected the country's
eastward geopolitical shift.
I.2. Energy
Geopolitics.
Russia as a whole has a powerful industrial and
energy resource
potential. However, the last few years have seen a marked
deterioration in the expansion and maintenance of energy reserves
in the traditional energy-producing regions of Russia, especially
in West Siberia, where, for a long time, investments in
prospecting and production had been made. For example, 20 years
ago, average crude oil reserves, calculated per deposit, amounted
to about 50 to 53 million tonnes, the average daily extraction of
oil from one well was 29 tonnes; in 1996 the average reserves
were only 1.5 million tones, and daily production was 10 to 12
tonnes.
The details indicated
above are necessary for understanding the geostrategic meaning of
the Russian Far East's energy potential, for the necessity of
increasing exploration, and for reassessing its role in the 21st
century. At present, the amount of potential oil resources
explored in the Russian Far East is less than 2.5%, for natural
gas - about 10%, for coal - less than 2%. Of these, the average
recoverable oil reserves calculated per deposit, for example, in
the northeastern areas of the Sakhalin shelf, exceed 32 million
tonnes.
Immense reserves of diverse energy resources
are
concentrated in the Russian Far East's vast territory. In the
region there are not only traditional - commercial energy
resources - coal, oil, natural gas, hydropower - but also a wide
range of non-traditional energy sources (tidal, geothermal, wind,
solar, etc.). The general amount of potential oil resources is
estimated to be 29 billion tonnes, for natural gas - 23 trillion
m3, for coal 2.2 to 3.5 trillion tonnes. Geological exploration
of these potential resources remains low. The discovered reserves
of solely commercial energy resources in the RFE amount to almost
23 billion tonnes of coal equivalent (tce), of which over 4
billion tce represents actual transportable crude oil and natural
gas resources. The probable output from the RFE's rivers is
estimated to be 1008.2 billion kWh annually.
The RFE's known energy
reserves are sufficient to provide for the production of primary
and transformed energy resources, vastly exceeding the region's
maximum internal energy consumption by tens or hundreds of times
(Table 9).
Table
9.
Reserves/Consumption* Ratio for the Russian Far East
Coal
Oil
Natural
Gas
Hydro
Total
830
35
785
90
380
*- consumption as of
1990.
Source: Data from ERI
II.2. Supporting
infrastructure availability.
The RFE's vast
territory and uneven economic development has
resulted in the formation of several local types of general-purpose
infrastructure in the region. In the more-developed southern
districts there is a fairly developed general-purpose
infrastructure consisting of railroad networks (the Trans-Siberian
and Baikal-Amur railways), seaports, roads, and communications
that have unused potential. On the other hand, most of the RFE's
prospective energy reserves are concentrated in the remote and
less-developed northern districts, as well as the shelf zones of
the Far Eastern and Arctic seas, which lack adequate
infrastructure and developed transport links with concentrations
of industrial districts, population and external markets.
II.3. Domestic
demand conditions.
Domestic demand conditions for energy have so
far exerted a
restraining influence on the establishment of comparative
advantages in the production of energy resources.
The RFE's enormous
territory, uneven industrial development, and location of key
industrial centers in various localities separated by large
undeveloped spaces, have hindered the creation of integrated
fuel-and-power
systems like those in Siberia and European-Russia. The small
concentrations of energy consumers (particularly in the vast
northern and north-eastern districts) have resulted in the
development of relatively small (with some exceptions) energy
supply industries. The relatively low demand for homes, which has
been decreasing recently, has restricted the RFE power industry's
potential economy of scales effect, which is traditionally high
in the energy sector.
Proceeding from
the most
optimistic assessment of internal energy consumption dynamics, it
is not possible to rely on the creation of powerful fuel-and-energy
projects on the basis of the Elginskii hard coal deposit, the
Western and Central Iakutiia hydrocarbon deposits, the eastern
and Arctic shelves (including the Sakhalin offshore projects),
the Uchur hydro-power plants, the powerful thermal power plants
in Sakhalin, and the Tugur tidal power plant. However, even
taking into account the grave infrastructure restrictions, these
projects are, on the whole, commercially viable due to economies
of scale.
II.4. Competitive conditions inside the
region.
The region's
internal competitive conditions are an
important determinant since a strict competitive environment
stimulates and promotes the development of comparative advantages.
At present, there
is
competition in all branches of the energy sector in Russia and
the RFE, although there are substantial differences and
variations. In terms of operation, strict competitive conditions
are present in the oil, and oil-refining sectors, and somewhat
less in the coal industry. In the electric power industry a
natural monopoly is in force (although not recognized by
legislation). However, at the strategic decision-making level,
competition in the electric power industry has an influence on
the structure of potential investments.
In terms of internal
competitive conditions in the RFE's energy sector, it is
important to single out one more competitive aspect that results
from the Russian Federation's peculiar political and
administrative structure. The Russian Far East is an economic
zone which has no special administration system, but there are
legislative, executive and financial systems which exist at the
regional level in the Federation which are included in the Far
East.
In a pragmatic
sense,
regional development aims to maximize the territory's value,
increase the region's budget revenues, and secure employment for
the population. Thus, the Far Eastern territories are seeking to
develop their own energy resource production projects to generate
revenues and create employment. Strategically, the regional
authorities are compelled to compete strictly for the
distribution of resources in favor of their own territory's
energy projects, using, together with the concerned energy
companies' managers, a diverse set of influential measures in
order to distinguish and enhance the comparative advantages of
their own projects. In the RFE, the "regional element"
behind the internal competitive background is, at present, quite
strong and influential.
Russia is
performing a fundamental transition from a
centralized social-political model to the principles of a
democratic state. Russia has adopted a new Constitution that
proclaims the citizens' rights and freedoms and guarantees
diversity in the forms of property, including private property.
Although the institutional transformations still face a number of
problems aggravated by the country's economic crisis, the
attributes of a democratic state and principles of a market
economy are being firmly established in Russia.
The role of
institutional factors in the establishment of comparative
advantages is varied. Here, the peculiarities of the Russian tax
system as applied to the mineral resources sector, including the
mineral fuels sector are an institutional advantage. This issue
deals with the "Production Sharing Legislation (PSL) Regime",
which was completed in March 1999. The PSL Regime in Russia
extends the system of civil relations to the use of mineral
resources. The government and investors act as equal partners:
they establish a contractual relationship and create a pattern of
production sharing which satisfies the two parties. The PSL
Regime is distinct from the existing administrative system for
mineral resource use. For the RFE, the specific nature of the
"Production Sharing Legislation Regime" is essential;
its flexibility allows the government to regulate the boundaries
of the effective use of energy resource deposits, turning complex,
remote deposits into profitable development. This is a valuable
advantage of the PSL Regime in comparison with a strict fiscally
oriented taxation system.
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