Russia - Industry

Russia has a range of mining and extractive industries. These include coal, oil, and gas extraction as well as the chemicals and metals industries. Russian enterprises take part in all forms of machine building from rolling mills to high-performance aircraft and space vehicles. Russian enterprises are involved in shipbuilding, manufacturing of road and rail transportation equipment, communications equipment, agricultural machinery, tractors, and construction equipment. Russian firms produce electric power generating and transmitting equipment, medical and scientific instruments, consumer durables, textiles, foodstuffs, processed food products, and handicrafts.

Russia is a leading producer and exporter of minerals, gold, and all major fuels. Oil and gas exports continue to be the main source of hard currency . Russia has vast reserves of oil, gas, and timber. Siberia and the Russian Far East are particularly rich in natural resources. However, most deposits of resources are located in remote areas with challenging climate conditions.

The most important export sector is energy. Russia is the world leader in natural gas production, third in oil, and fourth in coal. Gazprom, the large natural gas monopoly, inherited from the former USSR a massive network of production and distribution facilities that was built over a period of decades. The energy industry is significant also in its intricate ties with political elites. Energy monopolies are thus able to enjoy special privileges such as subsidies of various kinds. However, much of the physical infrastructure is in a state of disrepair. Gazprom will require billions of dollars to upgrade its physical systems. Declining energy prices hit Russia hard in the mid-1990s. The rebound in energy prices in the late 1990s was a great benefit to Russia's foreign trade account.

The oil sector has undergone substantial liberalization and now is primarily restructured and privately held. The oil industry, unlike gas and electricity, was broken up into a dozen companies as it was privatized. Oil prices have therefore moved very quickly toward world prices. Oil export tariffs were phased out entirely in July 1996. Simultaneously, however, oil production excise taxes were increased.

Russia has an estimated 49 to 55 billion barrels of oil in proven reserves, but aging equipment and poorly developed fields are making it difficult to develop these reserves. The depletion of existing oilfields, deterioration in transport infrastructure, and an acute shortage of investment—aggravated by the country's August 1998 financial crisis—may lead to further declines in oil production unless these trends can be reversed.

Natural gas is the predominant fuel in Russia, accounting for nearly half of the country's domestic consumption. With 1.7 quadrillion cubic feet (TCF) in proven gas reserves, Russia has more than enough for itself, allowing it to export significant amounts of gas. In fact, Russia is the world's largest gas exporter. Europe is a major consumer. Although the country's natural gas production has dipped only slightly (8 percent from 1992 to 1999) during the transition to democracy, low investment has raised concerns about future production levels. Gas production in the established West Siberian fields that account for 76 percent of Russian gas output is declining. At the same time, the planned development of new fields continues to be delayed as a result of lack of investment resources.