Economy of the White Sea watershed area 6 page

350

150

1995 1996 1997 1998 1999

Figure 7.19. Foreign investments in the White Sea region during the period 1995-1999.

The greatest investment went to the Komi Republic and Vologda Oblast, followed by the Murmansk and Arkhangelsk Oblasts. The Republic of Karelia is less successful in this sense. However, the sequence of per capita investment is somewhat different (Tables 7.37 and 7.38). The leading positions in this respect belong to regions with oil and gas reserves.

7.6 IDENTIFICATION OF SOCIO-ECONOMIC INDICES AND INTEGRATION OF THE RELEVANT DATA INTO A DATABASE

The main parameter for any region in the economic context is the GRP. The data on the dynamics of the GRP were obtained for the 1991-2001 period (further data are obtained from quarterly indices of major sectors - their accuracy is rather low). Commonly used indices include simple and complex parameters. Simple indices show individual activities (e.g., industrial development, living standards, and en- vironmental situations) (Figures 7.21 and 7.22), reflecting the variations in various

25000

20000

15000

10000

5000

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Figure 7.20. Investment into fixed capital (billions of rubles).

From Socio-economical development ... (2003).

Murmansk Oblast

Republic of Karelia

Arkhangelsk Oblast

Vologda Oblast

Komi Republic

Table 7.37. Relative investments into the fixed capital (in % of the previous year).

From Socio-economical development ... (2003).

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

economic activities (Chuprov, 1959; Gourman and Ryumina, 2003; Litovka and Fjodorov, 2003; Rates and Proportions .. ., 2003). Complex indices describe the integral role of several indices. They demonstrate both the main macro-economic level of development of the region and the threshold of the economic safety of the region. Evaluation of environmental issues by means of complex indices is hardly ever used. One of the formulae used to define a complex index is as follows:

U = Ui ,

where

U K Pi

i = i Npi

(7.1)

Table 7.38. Per capita investments into fixed capital (in current prices; thousand rubles, but in rubles for the 1998-2002 period).

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Another integral index includes macro-economic parameters of the region:

n

Ku=

i=1

Ki (Pi- Npi )

n

Ki

i=1

(7.2)

Here, i is the index of an individual parameter; n is the total number of individual parameters; Kiis a weight coefficient of the consequent ith-individual parameter; Piis the factual ith-individual parameter; and Npi is the value of the ith-individual parameter for the year in consideration.

To characterize the interactions between industrial development and environ- mental issues, we suggest using both simple and complex indices. The following index can be considered for estimating the ecological situation with regard to the GRP dynamics:

Iecol = Ipol /(IGRP- IEF ) (7.3)

100

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

Figure 7.21. Dynamics of the major environmental indices in comparison with the GRP of the Republic of Karelia - the year 1990 is taken as a benchmark (i.e., 100%).

From Druzhinin (2000).

170

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

Figure 7.22. Dynamics of the index U (eq. (7.1)) reflecting the effect of the development of the Karelian economy (through GRP) on the environment under different values of weighted coefficients: Ke= 1, Kw0 - the effect on the atmosphere only; Ke = 0, Kw = 1 - the effect on water only; Ke = 0.5, Kw = 0.5 - the net effect.

where Ipol is the index (a logarithmic derivative) of pollution (waste water volumes, air pollution, etc.); IGRP is the index of GRP increase/decrease; and IEFis the index of investment into environmental management (cumulative investment can also be considered as IEF ).

The suggested index also has some drawbacks as it ignores investment into production development or the fact that they can be used to advance existing tech- nologies and adopt new ones. Two factors characterizing environment pollution levels can be considered (i.e., investment into production development IID and investment into environment protection IEF ).

Ipol = bIID + xIEF (7.4)

Parameters b and x characterize the environmental effectiveness of investment, and can be estimated by the data from the preceding period (Bessonov, 2002; Bessonov and Tsukhlo, 2002).

The list of parameters under consideration may include different indices of industrial production that affect the environment (the pulp-and-paper industry, metallurgy, agriculture, etc.), index of investments into environment protection, volumes of industrial water consumption, waste water, index of atmospheric pollution, etc. The ratio of the rate of integral pollution change (or sum of its different types taken with proper weights) to the GRP rate of change (or sum of different branches taken with proper weights) can also be employed as a complex index. Historical socio-economic data and socio-economic indices help reveal the tendencies and trends in the impact of different types of industrial activities on the White Sea ecosystem (Cropper, 2000; Druzhinin, 2000; Hohn, 2000).

Basically, the following scheme is suggested for the application of the above indices for scenarios of future development of the White Sea Basin. All scenarios

yield an estimated growth/decline in the GRP. Data from the past are to be used to analyze the behavior of the industry index (II) vs. GRP index (GRPI). Values of the II corresponding to the planned GRPI are to be determined. The next step is to analyze the combination of the II with the corresponding environmental index to estimate the value with regard to the planned GRPI. This will yield an integral estimate of the environmental impact expressed in terms compatible with the numerical model.

A simple approach to evaluating possible changes in the loads on the White Sea ecosystem (WSL) is suggested. We postulate that any increase/decrease of the GRP will be accompanied by similar changes in investments into environmentally risky industries (see Figure 7.11). Hence, it would lead to corresponding changes in the WSL unless proper measures of environment protection are undertaken, namely modernization of the technologies used in industries and in agriculture, installation of water treatment plants in all enterprises generating waste water, etc. We can then approximate probable changes in the load of nutrients as a function of both varia- tions of the GRP and funding of environment protection measures (EF):

WSAs

(GRP)s

(EF )s

7.5

WSAb = (GRP)b - (EF )b ( )

In eq. (7.5) subscripts s and b are the estimates from scenarios and basic values characterizing the current state of parameters under consideration, respectively.

More interesting results can be gained using the approach based on the produc- tion functions expressed as rates. The same two factors are considered in this case:

Ipol = o:IGRP + {3IEF (7.6)

The parameters o: and {3 characterize the environmental efficiency of the factors. A production increase by 1% leads to changes in pollution volumes by o:%, and a 1% increase in environmental funding leads to a {3% reduction in pollution. Having estimated the parameters o: and {3 from some retrospective data, one can formulate various hypotheses on the distribution of investments to achieve a certain level of reduction in pollution.

If slight or no changes occur in the EF, one can expect that changes in the load on the sea ecosystem would be proportional to changes in the GRP. This approx- imation gives a so-called upper estimate of probable WSL changes. Obviously, such an estimate is quite rough and it would be reasonable to use a combination of complex indices corresponding to industries that represent environmental risks. Nonetheless, taking into account the current level of our knowledge on biochemical processes in natural waters (hence, the accuracy of the ecological model based on this knowledge), and uncertainties in the determination of probable financing of environ- ment protection/management activities in the near future, such an approach can be considered as a good compromise between the accuracy of the problems description and human efforts.

7.7 IDENTIFICATION AND SUBSTANTIATION OF THE MOST PROBABLE SCENARIOS FOR INDUSTRIAL DEVELOPMENT IN THE WHITE SEA BASIN

7.7.1 Background

In addition to a wealth of international and national factors, there are a number of factors at the regional level that will shape the future development of the Murmansk and Arkhangelsk Oblasts and Karelia. The commitment to, and interest in, economic reforms and strategic development of industries as well as the infrastruc- ture of the regional governing body in the White Sea Basin has varied greatly. In all these regions efforts have been undertaken to develop their most important economic sectors, improve the existing infrastructure of transport, reduce and optimize the impact on the environment and, finally, improve the well-being of people. All regions are striving for the influx of foreign investments. However, the regions have not succeeded very well in attracting foreign businesses and financing, both in absolute and relative terms. In general, only oil and gas operations in the Timan-Pechora region have attracted foreign investment, but they proved to be very small in comparison with other oil and gas-rich parts of Russia, leaving alone many countries outside the former USSR with similar natural resources (Doctrine .. ., 2001; Stulberg, 2002).

The pursued commitment to a somewhat autonomous development of the regions encompassed by the White Sea Basin will also influence their future economic development. The Komi Republic is determined to develop its industries and infrastructure following dedicated regional strategies and relying on fund-raising resources. Other regions are likely to follow this example in the future. Of course, the degree of depletion of regionally raised budgets due to covering all sorts of expen- ditures (e.g., salaries for the public sector, energy, health, education, and public transport) also determines how actively the White Sea Basin regions can develop their economies without assistance from the Federal Center. At present, there is a chronic shortage of funds allocated to these basic financial responsibilities of regional governments. In many spheres, the regions are being involved in close co- operation (e.g., in promoting the implementation of transportation corridors between north-west Russia and the Nordic countries). In other cases, such as export harbors for regional products, there is clear rivalry and conflicting interest. As the total population of the White Sea Basin was only about 4.5 million at the end of 1998, the area is very sparsely populated, with the average population density of only 3 inhabitants per km2. The overall population within the White Sea Basin peaked in the late 1980s. Today, these regions are facing a real demographic cata- strophe. The population of these four regions fell by 10-20% during the 1991-2002 period. The largest absolute and relative decline has occurred in the Murmansk

Oblast.

Russian experts predict further continuation of this decline. The expected demo- graphic changes reside largely in the economic difficulties of the majority of northern mining and forestry industrial complexes. These industrial centers might have to

radically cut their activities and reduce their staff in the coming five to ten years. There are several large industrial complexes in north-western Russia that are vitally important for the local population. Such industrial centers are, for example, Sever- odvinsk, Kotlas, Nadvoitsy, Kostamuksha, Monchegorsk, Pechenga, Pechora and Vorkuta. These cities/settlements are presently being affected by a mass outflow of their qualified labor force, and there are great difficulties in the supply of food, medicine, fuel, etc. to these regions. Yet, the development of enterprises in 1999 through to 2002 required skilled staff. The only possible solution to this problem would be a much more accelerated implementation of innovation processes. However, high oil prices keep the ruble exchange rate too high to promote invest- ment into the region.

There are also other worrying demographic trends. The deteriorating economic situation in north-western Russia in the 1990s and the ensuing health problems of the population are reflected in the dynamics of average life expectancy. In 1989-1990, the average life expectancy in the region of the White Sea Basin was at the same level as in the Russian Federation as a whole (i.e., 69.4 years). In the 1990s, however, the average life expectancy in the region of the White Sea Basin fell to 64.6 years (i.e., below the Russian average). The life expectancy of the male population in some parts of the White Sea area has fallen so drastically that it hardly exceeds 50 years.

The regions of the White Sea Basin have a wealth of natural resources, including forests, minerals, hydrocarbons, and fish. The use of forest resources provides the main basis for short-term economic growth in the Arkhangelsk Oblast and the Republic of Karelia, while the exploitation of non-hydrocarbon mineral resources supports short-term economic development in the Murmansk Oblast. In the medium and long-term, minerals as well as oil and gas exploitation promise to be significant contributors to regional welfare, in addition to revenues provided by the forestry industries. These three sectors will also be the main interest of foreign companies and foreign economic relations in the region of the White Sea Basin. Focused on the national and regional markets, other sectors of the regional economy are less profit- able and attract low investment, especially foreign.

During previous years, it has frequently been declared that the region of the White Sea Basin would recover and even prosper economically through exploitation of their vast natural resources. However, numerous examples from many other parts of the world where, for example, oil and gas deposits are exploited by domestic and foreign companies show that the benefit from these operations does not necessarily come to the areas in which the natural resources are actually located. The same phenomenon can already be observed in the White Sea area. In the timber trade between north-western Russia and western countries, there are many actors involved from outside of the regions. Western companies importing timber from north-west Russia benefit from buying raw materials at a competitive price, and then the timber is processed into mechanical and chemical forest industry products, the production of which is economically more beneficial than sales of round timber. Although western companies purchasing round timber from north-west Russia bring new revenues to these regions, the problem is that there is a large number of middlemen and organizations from other parts of Russia, often Moscow, which

control harvesting and sales in regions such as Karelia. For example, it has been estimated that some 60% of the total delivered cost of timber exported from European Russia to Finland is linked with some sort of financial corruption (Ivanov, 1999; Druzhinin, 2003).

The future economic development of the White Sea region depends strongly on who controls and benefits from the use of natural resources in these territories. The central factors here are the division of ownership of natural resources between the Russian Federation and satellite regions, elimination of corruption in business, and effective collection of taxes into regional budgets from natural resource exploitation. The division of ownership, and exploitation rights to natural resources between the White Sea region and the Russian Federation, and real life implementation of the regulations governing this division is also pivotally important. According to Russian legislation, the so-called surface natural resources, like forests, water, soils, etc., are in practice owned and controlled by the regions of the Federation and the Russian Federation Ministry of Natural Resources (but the control will soon be taken over by the Federation exclusively). The principles of ownership and exploitation of minerals and hydrocarbons are defined by the Law on Subsurface Resources. For the development of oil and gas resources, which is of special interest to the White Sea and Barents Sea regions, some additional legislation has been prepared and will soon pass through the Douma (Russian Parliament). The most important laws are the Oil and Gas Act and the Act on Production Sharing Agreements (PSAs). The PSA Act provides the basis for a number of large oil and gas projects and is therefore extremely important (although given the deplorable experience with its implementa- tion in the 1990s, it may undergo substantial changes significantly reducing the benefits to investors).

Also of prime importance is the judicious exploitation of natural resources. Today, the actual application of principles of sustainable use of natural resources remains at a very basic level in Russia. These principles require that exploitation aspects related to the economic, environmental, and social activities are taken into account and considered as a single legislation package . In forestry, this means the application of sustainable forest management principles, in fishing a strict compli- ance with the total allowable catch quotas, etc. (Granberg, 2000; Stulberg and Vvedenskiy, 2000).

Amelioration of the transportation and communication infrastructure is a pre- requisite for the long-aspired economic recovery in north-western Russia. Accord- ingly, a large number of investment projects intended to meet these needs are presently in various research and planning phases. The regional governing bodies have prioritized the aforementioned infrastructure projects. However, the economic decline that lasted through the entire 1990s has made it very difficult to allocate financial resources to such ambitious projects. In simple terms, the potential of the economic development in these regions could not be realized without major improve- ments in the infrastructure, but at the same time, the infrastructure-oriented projects could not be financed until economic recovery was attained.

The White Sea regions still rely on heavy industry. Some 25-30% of the employ- ment in the four White Sea Basin-associated regions is provided by industry.

Forestry industries account for 40-50% of the industrial production in the Arkhan- gelsk Oblast and the Republic of Karelia. Mining and metallurgy constitutes over 40% of the industrial production in the Murmansk Oblast and about 20% in the Republic of Karelia.

Today, the industrial structure of the region of the White Sea Basin is antiquated compared with the situation inherent in its western neighbors and even some parts of the Russian Federation. There are huge problems faced by industry in north-western Russia. Raw materials are now lacking due to excessive transportation costs. Elec- tricity supply is no longer as unproblematic as in the former Soviet Union, due to rising prices and decomissioning of outdated power generation facilities.

Numerous international financial institutions have gained valuable experience from analyzing various regional projects in north-western Russia. Take the risk management issue: Russian businessmen are not necessarily familiar with such concepts as feasibility studies and cash flows.

The future of the heavy industry-oriented economic structure of the White Sea Basin region will also, to a large extent, determine future anthropogenic changes to the environment in the region. Hopefully, the predicted demographic decline will mitigate or even substantially reduce anthropogenic forcing. However, there are several major threats and risks to the regional environment, mainly nature- impairing forestry practices, as well as the impending exploration for oil and gas fields and in Arctic areas.

The implementation of infrastructure-related plans can also produce negative environmental impacts. Air pollution around large industrial plants, radioactive waste storage, and the poor state of municipal drinking water have reached critical levels in many parts of the White Sea Basin region. Obviously, international co-operation in these areas is highly recommended.

7.7.2 The outlook for future industrial developments in the White Sea Basin region

The Murmansk Oblast is the most developed region within the White Sea Basin, but its growth is rooted in the intensification of extraction of underground resources, construction of new nuclear power facilities, development of marine port facilities, and intensification of the processing of fish products. The latter depends solely on the economic policy of the Russian authorities at various levels (Doctrine .. ., 2001; Uzyakov, 2002). Furthermore, shelf economic activities will give a powerful impetus to the development of the oblast (construction of pipelines, growing public income and regional budget, development of port facilities, and raw material processing). The planned western Siberia-Murmansk oil pipeline (with a carrying capacity of 80-120 million tons), which will increase oil transportation through the Murmansk port (the pipeline will run around the White Sea either via Belomorsk or via the sea south of Mezenskiy Bay) is a highly promising innovation. The development of the Arkhangelsk Oblast is thought to proceed through further growth of such industries as fuel/energy, timber processing, machine building, and diamond mining. Russian business is already investing in diamond

mining, and the exploitation of diamond quarries may commence in the near future. Mining in the Timan-Pechora region has potential for gradual growth. The degree to which timber will be processed depends on the national economic policy, since it now encourages the export of raw timber. Changes in the relevant legislation may render the investments in deep processing more attractive. Development of machine building largely depends on the state policy regarding military industries and support to civil shipbuilding. There also exists some conditions fairly favorable for the development of marine port facilities in the oblast (i.e., the marine cruising and railway transportation from Scandinavia can increase, and the associated infrastruc- ture for the Timan-Pechora region will need to be developed) (Doctrine .. ., 2001; Matrusov 1995).

Date: 2016-03-03; view: 636