Prepared by Alexander Gordienko
BISNIS Representative
Nizhny Novgorod, Russia
October 1998

The Republic of Bashkortostan is located in the Southern part of the Urals along the line of Europe and Asia. Its area is 143,600 sq. m. As of January 1, 1995 the population of Bashkortostan was 4.097 million people. The capital is Ufa is with a population of 1.1 million residents. The republic has 54 administrative areas ("rayons") and 21 cities. Other large cities include Sterlitamak (256,000 inhabitants), Salavat (155,000), Nefetekamsk (123,000), Oktyabrsky (108,000). Representatives of 70 nations and ethnicities live in the Republic of Bashkortostan, including Russians (39.3 percent), Tatars (28.4 percent) and Bashkirs (21.9 percent). The urban population constitutes 65 percent of the total.

The Republic of Bashkortostan is a sovereign state under the jurisdiction of the Russian Federation. The President of the Republic of Bashkortostan is the head of state. The Republic has a Parliament, Kurultay of the Republic of Bashkortostan, which consists of two Houses - the House of Representatives and the Legislative House. The Cabinet of Ministers of the Republic of Bashkortostan represents the Government.

Natural Resources

The main natural assets are oil and gas. Overall, approximately 250 oil and 10 gas deposits have been explored in Bashkortostan. In addition, the republic has substantial reserves of ferrous and non-ferrous ore, coal, woods, phosphorites, dolomites, gypsum, building rocks. Other natural resources include gold, silver, cobalt and other rare metals.

Industry

Bashkortostan ranks second after the Sverdlov region by industrial potential in the Urals economic area. It produces 2.6 percent of the Russian Domestic Product. It ranks 6th (3.6 percent) throughout Russia by industrial output. According to the Russian Statistics Committee, the Republic's industry accounts for 39.1 percent of the regional domestic product and 45 percent of the Republic's revenues.

The major industry sectors are oil production and oil processing, production and processing of coal, chemical/petrochemical sector, machine-building/metal-working, ferrous/non-ferrous metallurgy. Other industries encompass energy generation, the food sector, light industry, lumber/wood-working, pharmaceutical sector and building materials. The Republic's industry primarily specializes in the production of raw materials and semi-finished products for further processing in other Russian regions. Bashkortostan produces 100 percent of the synthetic fat spirits produces throughout Russia, over 60 percent of calcined soda, 27 percent of rubber, 24 percent of caustic soda, 23 percent of polyethylene, 24 percent of light bulbs, 18 percent of metal-cutting machine-tools, 20 percent of automobile gasoline, diesel fuel, fuel oil etc. The available refinery capacity allows the processing of up to 50 million tons of crude oil and production in excess of 300 petrochemicals.

The local oil and petrochemical sector is represented by such companies as Ishimbay oil refinery, Novaya Ufa oil refinery, Salavatnefteorgsintez oil refinery, Ufaneftekhim chemical company, Salavat petrochemical company, Sterlitamak Rubber Plant, Sterlitamak Chemical Plant and some others. The chemical/petrochemical sector is comprised of organic synthesis production, production of synthetic resin, plastic, rubber, varnish, paint and some other chemicals. It is mostly concentrated in the Ufa and Sterlitamak-Salavat industrial nodes. The republic annually produces 1.1 million tons of coal, around 17 million tons of oil, over 400 million cubic m. of natural gas, 250,000 tons of fertilizers, 116,000 tons of polyethylene.

A good number of machine-building companies specialize in manufacturing production equipment for the oil, gas, chemical and petrochemical sectors. Bashkortostan also has suppliers of automobile parts and components for VAZ and KamAz as well as manufacturers of dump trucks and utility trucks for carriage of concrete.

The food sector is comprised of 120 companies of 15 sub-sectors, including three spirits and liquor distilleries.

Bashkortostan has considerable lumber resources (6.3 million hectares). Forests mainly grow in the Northern and Eastern part of the Republic and cover more than 40 percent of its territory. Lumber serves for the production of building materials, veneer, matches, furniture, storage containers. The chemical treatment of lumber is an underdeveloped industry in the region. In excess of 70 percent of wood products are shipped to other Russian areas.

Ferrous and non-ferrous metallurgy is one of the oldest sectors in Bashkortostan. Non-ferrous metallurgy is represented (up to 90 percent) by Beloretsk Metallurgical Plant. Producers of ferrous metals are located in the Urals economic area of the Republic. The annual production of steel is 200,000 tons.

Agribusiness

The agricultural land amounts to 7.4 million hectares (51.6 percent of the total land), 4.8 million hectares are plowed fields, 672,000 hectares are hayfields, 1.8 million hectares are pastures. The agribusiness accounts for 4.2 percent of the Russian agricultural produce (4th place among Russian regions). In 1995 the share of grains in the produce was 19.8 percent, meat - 25.7 percent (pork, beef, poultry, mutton, horse meat), milk - 21.6 percent, sugar beet roots - 11.3 percent, eggs - 8.3 percent, vegetables - 2.4 percent, potatoes - 0.6 percent, sunflower seeds - 1.0 percent, wool - 0.2 percent, honey - 0.1 percent, berries - 0.1 percent. The average yield of grains is 20 -21 centners per hectare. (1 centner equals 100 kg). The annual production of grains is 3.5 million tons. The annual production of honey is 25,000 centners. Internal waters total 160,000 hectares, 650 hectares of which is utilized for fish-breeding.

Food and Food-Processing Sector

Up to 80 percent of food products consumed by the local population is produced within Bashkortostan. The product line of local food-processing companies encompasses meat, milk/dairy products, eggs, bread/confectionery, alcoholic beverages and soft drinks, fish, sugar etc.
The Government of the Republic of Bashkortostan maintains price control over food staples.

Energy

As of 1994, 471 thermal electric plants operated in Bashkortostan with a capacity of 5 million kWt. Every year 25 billion kWt/hour of electric power is produced in the Republic. The largest energy supplier is Bashkirenergo which generates 98.3 of the electric power in the Republic. It works in conjunction with other Russian regional electric power systems and is part of the Russian United Energy System grid.

Transport

Western and Northern Russian areas are connected to the Urals and Siberia via rail which traverses the Bashkir territory.
At the end of 1995 the overall length of railroads for common applications was 1,518 km. In addition, there are 1, 370 km of railroads which are used by local companies and organizations for their operational needs. In 1995 the majority of freight and passengers were carried by rail.

The overall length of highways for common use is 24,309 km, 20,793 km of which are hard-topped roads. The most important highways are Ufa - Sterlitamak, Ufa - Beloretsk, Ufa - Birsk - Yanaul, Sterlitamak - Rayevka - Belebey - Tuymazy - Bugulma.

The key waterways are the Belaya and Ufa rivers. The total length of waterways is 954 km.

Bashkortostan is connected to 70 Russian cities via air. The Republic's air carrier, Bashkir Air Lines, transports 1.0 million passengers and 5,000 tons of cargo annually. There is a direct flight from Moscow to Ufa.

Oil and gas is supplied to refineries and petrochemical companies via pipelines. It is also pumped to Siberia and Kazakhstan, the Orenburg region, Samara region, Tatarstan, Central Russia and further. In 1995 the overall length of pipelines throughout Bashkortostan was 3,750 km.

Education, Research and Development

There are 11 higher educational institutions (institutes, universities, academies) in the Republic of Bashkortostan. They train students in 169 specialties. All higher educational institutions have post-graduate studies.

Fundamental research in various branches of science is conducted by the Oil Processing Research Institute, Oil Production Efficiency Research Institute, Petrochemistry and Catalysis Research Institute, Energy Resources Transportation Research Institute and some others.

Foreign Trade

In 1996 the foreign trade turnover raised by 10 percent compared to 1995 and totaled US$ 2.6 billion. Exports were worth US$ 2.224 billion. In 1995 Bashkortostan exported goods in the amount of US$ 1.889. In 1997 the foreign trade turnover amounted to US$2.5 billion, 83 percent of which was exports. The key exportable products are oil and oil products (75 percent), petrochemicals (12 percent), machine-building products (3.1 percent), non-ferrous metal products (1-1.5 percent). The major Bashkir exporters include the oil company Bashneft, oil refineries Ufaneftekhim, Novoil, Salavatnefteorgsintez and the Ufa oil refinery. The main exporters in the machine-building sector is Kumertau Aircraft-Building Plant, Ufa Machine-Building Plant. The Beloretsk Metallurgical Plant is the leading company in exporting non-ferrous metal products.

The most important importing firms are from Great Britain, Panama, Germany, Ireland, Latvia, Switzerland, Finland, Cyprus, Sweden, China, and Italy.

In 1996 US$ 426 million worth of products were imported in the Republic of Bashkortostan. In 1997 imports totaled US$ 346.2 million. Goods with the highest percentage of imports are: machines/equipment/vehicles (45 percent); chemicals (13.4 percent); foods (9.9 percent); metals (10.1 percent). The major exporters are from such countries as Italy, Germany, Turkey, Hungary, Finland, Japan, France and the USA.

Three hundred twenty-three joint ventures have been registered in Bashkortostan, 174 of which have been actively operating in the Republic. They include 22 American companies which entered in joint venture partnership with local companies or established their representative offices in the Republic. JV partners represent 54 countries, including Germany, Austria, the USA, Canada, Turkey, Bulgaria and Poland. Joint Ventures produce such goods as petrochemicals, construction materials, home appliances, floor coverings, fur clothing, knitwear, food, sport shoes and some others. In 1997 the production output of joint ventures and 100 % -owned foreign companies accounted for 0.5 percent of the Republic's domestic product, 1 percent of the retail trade and over 7 percent of the wholesale trade. They also exported US$ 5 million worth of products and imported goods in the amount of US$ 10 million.

Foreign Investments

According to the Bashkir Ministry of Foreign Relations and Commerce, in 1997 direct foreign investments totaled US$20.6 million. Some sectors that occurred in include: light industry (US$726,400); food industry (US$7,199,900); transport (US$1,200); the building sector (US$975); communications (US$295,300). The most significant investment came from British investors - US$8.2 million. In addition, the local companies borrowed loans of US$111.8 million.

Tax breaks and Benefits for Foreign Investors and Companies with Foreign Investments

Over the past 2-3 years the Republic of Bashkortostan adopted a number of laws which provide incentives to foreign investors. They include:

- Law # 130 On Foreign Investment Activities in the Republic of Bashkortostan.(12/15/97)

Under this law, companies with foreign investments exceeding 30 percent of their charter capital and with revenues exceeding 70 percent of overall sales are entitled to:

1. Exemption from the profit tax payable to the budget of Bashkortostan within 2 years from the registration date;
1.1 Reduction of the profit tax rate payable to the Republic's budget by 25 and 50 percent during the 3rd and 4th years respectively from the registration date;

The said companies with foreign investments operating in top priority industry sectors are entitled to:

2. Exemption from the profit tax payable to the budget of Bashkortostan within 3 years from the registration date;
2.1 Reduction of the profit tax rate payable to the Republic's budget by 25 and 50 percent during the 4th and 5th years from the registration date;
2.2 After 5 years from the registration date companies with foreign investments pay the profit tax in full.

The aforementioned companies with foreign investments will be exempted from the property tax paid to the republic's budget within 3 years from the registration date. From the 4th year on the property tax will be paid in full.

Decree of the President of the Republic of Bashkortostan On Establishment of the Economic Favorable Treatment Zone Aguidel (06/04/96)

Profit tax payments to the republican budget of companies which operate in the territory of Bashkortostan and invest in resident enterprises in the favorable treatment economic zone Aguidel will be reduced by the amount of capital investments. Local enterprises which receive investments will be exempt from the profit tax paid to the republican budget. Resident enterprises of the favorable treatment economic zone Aguidel will be exempted from the property tax, the road user tax, the vehicle purchase tax, vehicle owner tax and some others. Resident enterprises may be accorded a tax amnesty. Goods which were produced in the zone Aguidel will be exempted from export customs duties except customs dues. Goods which are imported to the zone Aguidel will be exempted from import customs duties except customs dues.

Decree of the President of the Republic of Bashkortostan On Establishment of the Favorable Treatment Economic Zone Kumertau (10/09/96)

If resident companies increase sales by 10 percent in one year after the registration, they will be given a 2 year VAT exemption paid to the republican and local budget. The profit of credit organizations generated by lending loans to resident enterprises at an interest rate not higher than 1/3 of that set by the National Bank of Bashkortostan will not be taxable to the republican budget within the maturity term provided the loan is used for capital investments. Profit tax payments to the republican budget of companies which operate in the territory of Bashkortostan and invest in resident enterprises of the zone Kumertau will be reduced by the amount of capital investments. The stated sum should not decrease the actual tax payment calculated without tax benefits by more than 50 percent. Resident enterprises will be 10 - 100 percent exempted from the profit tax paid to the republican budget. Small-sized businesses which make investments in priority business areas will pay 50 percent taxes paid to the republican budget. The road user tax paid to the republican budget will be decreased by 10 - 100 percent. Companies will entirely be free of the property, vehicle purchase, vehicle owner tax and a few other taxes. Regardless of ownership forms, a 50 percent lease discount will be given to all companies. A tax amnesty may be granted to resident companies. Goods which are made in the economic zone Kumertau and exported to other countries will be free of tax duties (except customs dues). Products imported to the economic zone Kumertau from other countries will be exempt from import customs duties (except customs dues).

- Resolution of the Presidium of the Ufa City Council (04/16/97) On Incentives to Attract Foreign Investments in enterprises and projects of Ufa.

In addition to benefits under the current legislation, companies with foreign investors' equity shares or wholly owned by foreign investors which implement investment projects in Ufa will enjoy the following benefits:
1. If investments exceed US$5 million, land, real estate, equipment lease will be reduced by 70 percent within 1-5 years. Investors will be exempt from city taxes.
2. If investments range from US$2 million to US$5 million, land, real estate, equipment lease will be lessened by 50 percent within 1-3 years. Investors will be free of city taxes.
3. If investments range from US$0.1 million to US$2 million, land, real estate, equipment lease will be reduced by 30 percent within 1-3 years. Investors will be free of city taxes.

Key Contacts:

1. Ministry of Foreign Relations and Commerce, Republic of Bashkortostan
450101 Bashkortostan, Ufa
ul. Tukayeva 46
Tel: (3472) 50-68-80, 50-68-83
Fax: (3472) 50-68-70

2. Chamber of Commerce and Industry, Republic of Bashkortostan
450008 Bashkortostan, Ufa
Ul. Tsuryupy 13
Tel: (3472) 53-24-02, 52-53-27

3. Department of Foreign Economic Relations, Ufa City Administration
450098 Ufa Prospekt Oktyabrya 120
Tel: (3472)31-83-38, 33-52-31

4. President Hotel, Ufa
Republic of Bashkortostan
450092 Ufa, ul. Avrory 2
Tel: (3472) 53-63-43, 53-60-47,
53-64-71, 53-64-55, 53-64-39
Fax: (3472) 53-60-47, 53-02-22

5. Novaya Ufa oil refinery (NOVOIL)
Bashkortostan, 450037, Ufa
Tel: (3472) 35-82-50
Fax: (3472) 35-83-10

6. Salavatnefteorgsintez oil refinery
453200, Bashkortostan, Salavat-6
Tel: (34763) 4-78-99, 4-42-07
Fax: (095) 220-78-31

7. Gazprom
Bashkir branch Bashtransgaz
450054, Bashkortostan, Ufa
ul. Zorge 59
Tel: (3472) 37-05-60, 37-18-00,
37-20-88, 37-34-72
Fax: (3472) 37-56-40

8. Bashneft oil company
450008, Bashkortostan,Ufa
Tel: (3472) 22-96-82, 23-46-86
Fax: (3472) 23-19-26

9. Ufaneftekhim petrochemical company
450045, Bashkortostan, Ufa
Tel: (3472) 42-47-14
Fax: (3472) 43-22-22

This report is provided courtesy of the Business Information Service for the Newly Independent States (BISNIS)