THE MINERAL INDUSTRY OF RUSSIA By Richard M. Levine Russia, which extends over 11 time zones, is the largest budget (Novikov and Sazonov, 2000). According to Russian country in land area in the world and occupies more than 75% analysts, if a reevaluation were to occur on the basis of market of the territory of the former Soviet Union (FSU). Accordingly, economy costs of production, then actual reserves would it possesses a significant percentage of the world’s mineral diminish by 30% to 70% for ferrous and nonferrous metal resources. Russia, which was a major mineral producer, reserves. Such a reassessment, however, would provide the accounted for a large percentage of the FSU’s production of a country with a realistic base for knowing which deposits could range of mineral products, which included aluminum, bauxite, be economically developed and be competitive on world cobalt, coal, diamond, mica, natural gas, nickel, oil, platinum- markets (Novikov and Yastrzhembskiy, 1999; Novikov and group metals (PGM), tin, and many other metals, industrial Sazonov, 2000). minerals, and mineral fuels. Mineral consumption in Russia has fallen drastically since the The mineral industry was of great importance to the Russian dissolution of the Soviet Union because of the general downturn economy. Enterprises considered to be part of the mineral/raw in economic activity and the sharp fall in defense industry material contributed more than 70% of the budget revenues production, which was a major consumer of a range of metals. derived from exports (Malyshev, 2000). Low domestic demand coupled with worn out plant and The most significant regions of the country for metal mining equipment affected the quantity and quality of output were East Siberia (cobalt, copper, lead, nickel, columbium, (Malyshev, 2000; Yatskevich, 2000). Faced with the downturn PGM, tungsten, and zinc), the Kola Peninsula (cobalt, copper, in domestic consumption, Russia had become a large exporter nickel, columbium, rare-earth metals, and tantalum), North of minerals to world markets. It was exporting a large Caucasus (copper, lead, molybdenum, tungsten, and zinc), the percentage of its production of nonferrous and precious metals Russian Far East (gold, lead, silver, tin, tungsten, and zinc), and and oil and gas. In cases where Russia was still exporting the Urals (bauxite, cobalt, copper, lead, nickel, and zinc minerals to other FSU countries, it was, at times, incurring (Novikov and Yastrzhembskiy, 1999). heavy debt from nonpayment as was the case with natural gas Most Russian crude oil and natural gas production came from shipments. Until economic activity in Russia significantly large deposits in West Siberia. Coal production was mainly increases, Russia’s mineral industries will continue to try to from East Siberia and West Siberia. Raw materials mined for export a major share of their output to world markets. mineral fertilizers were produced primarily on the Kola Lack of funding had caused a deterioration of fixed capital Peninsula (phosphate raw material) and in the Urals (potash). stock at mining enterprises. At the majority of mining Russia possesses one of the world’s largest mineral raw enterprises, production indicators decreased sharply. During the material bases. According to assessments of analysts from the stages of mining and processing ore, between 30% and 50% of Russian Federation Ministry of the Economy’s Department of reserves calculated as being in the ground were being lost. the Economics of Metallurgy, reserves are sufficient at the 1995 Also, owing to a lack of processing facilities, many ores and to 2000 levels of extraction to supply existing enterprises that concentrates, particularly for lead and zinc, were being exported mine iron ore for 15 to 20 years and longer and mining for processing with the loss of valuable byproduct metals, which nonferrous metals for 10 to 30 years. included bismuth, cadmium, gold, and silver (Yatskevich, A large percentage of Russia’s reserves, however, are in 2000). For the past decade, there had been practically no remote northern and eastern regions of the country that have replacement of mining machinery, and about 80% of mining severe climates, lack transport, and are far away from major machinery in operation has been near the end of its operable life population and industrial centers. Enterprises built during the and in need of replacement (Malyshev, 2000). Soviet era in such areas, which included those mining tin and According to a report by the Foreign Investment Promotion tungsten, had sharply curtailed operations. Efforts to develop Center of the Russian Ministry of the Economy, Russia’s new large deposits of nonferrous metals in such eastern regions economic development was characterized by its raw materials as near the Baikal-Amur railroad were not progressing. export orientation, excessive import reliance, a high income and Metallurgical enterprises in developed regions, such as the Kola consumption differentiation in the population, and low levels of Peninsula, the North Caucasus, and the Urals, were operating on investment and monetization. Russia’s existing advantages rapidly depleting resource bases and had raw material shortages (highly educated and technically/scientifically trained labor (Yatskevich, 2000). force, relatively low labor costs, rich natural resources, etc.) Russian analysts stated that because mining enterprises were were not used to the full extent (Foreign Investment Promotion now working under market-economy conditions, the criteria for Center of the Ministry of Economy of the Russian Federation, determining reserves must be reevaluated. Previously, reserves [1999], Russian economy—Probable parameters of were evaluated under conditions in which the state-set prices socioeconomic development for the year 2000 and the period resulted in low energy, transport, and equipment costs. This till 2002, accessed October 4, 1999, at URL http://www.fipc.ru/ was combined with the state distributing profits among fipctest/reviews/2000.html). enterprises and making capital investments from the state With very few exceptions, Russia’s metal mining and THE MINERAL INDUSTRY OF RUSSIA—1999 35.1 metallurgical sector had significantly reduced production levels the year, and real disposable income dropped by 28% in the compared with those of the Soviet period. According to fourth quarter of 1998 relative to the same period in 1997 Russia’s Minister of Natural Resources, mine output levels in (World Bank Group, September 2000, Russian Federation— 1999 in comparison with those of 1990 had decreased by Country brief, accessed November 6, 2000, at URL between 20% to 30% for bauxite, cobalt, copper, and iron ore, http://wbln0018.worldbank.org/ECA/eca.nsf/ by 50% for zinc; and by 75% or more for lead, molybdenum, 4980307d4e471bd8852567d10014313b/ and tin. During this period mining of columbium and tantalum e2e05bddb7ee295f852567ef00789073?OpenDocument). ores ceased. Metal production in 1999 in comparison with 1990 The recession of 1998 was initially expected to worsen in levels had fallen by 22.2% for refined copper, 15.4% for lead 1999. According to a World Bank analysis, however, the large including secondary, 27.3% for magnesium and magnesium devaluation of the ruble, the rise in oil export prices by an alloys, 30.2% for nickel, 78.5% for tin, and 43.8% for titanium average of 40%, and the insulation from the financial sector sponge (Yatskevich, 2000). crisis provided by barter and other noncash settlements led to a Russia’s fuel-energy complex (TEK) remained a mainstay of much better recovery than expected. Still, despite a $30 billion the economy with the TEK’s share of industrial production trade surplus in 1999, Central Bank reserves barely grew, increasing to 26.6% in 1999 from 24% in 1990. Russia was the evidencing that exporters preferred to keep their assets abroad. world’s largest exporter of natural gas and the world’s second The country’s financial reserves were $12.5 billion at yearend largest exporter of crude oil and products (U.S. Energy 1999; of that, currency reserves were $8.5 billion, and gold was Information Administration, February 2000, Russia—Oil, $4 billion (World Bank Group, September 2000, Russian Country Analysis Briefs, accessed November 15, 2000, at URL Federation—Country brief, accessed November 6, 2000, at http://www..eia.doe.gov/emeu/cabs/russia.html). Enterprises of URL http://wbln0018.worldbank.org/ECA/eca.nsf/ the TEK provided more than 40% of all tax revenues to the 4980307d4e471bd8852567d10014313b/ national budget. In 1999, the TEK accounted for 42.4% of the e2e05bddb7ee295f852567ef00789073?OpenDocument). total volume of exports (Kransyaskiy and Shchadov, 2000). Russia’s debt-servicing problem remained, and investment Since the breakup of the Soviet Union, mining of fertilizer activity had not been restored. A restoration of domestic raw materials had been sharply reduced owing to the decline in demand, which was still very weak, was considered to be demand in domestic agriculture. A large percentage of the essential for achieving steady economic growth (Foreign fertilizer raw materials that was being mined was exported. In Investment Promotion Center of the Ministry of Economy of the 1999, plans called for delivering 4 million metric tons (Mt) of Russian Federation, [1999], Russian economy—Probable fertilizer in terms of nutrient content to domestic agriculture, but parameters of socioeconomic development for the year 2000 only 1.2 Mt was actually supplied.