In Russia's Oil-Rich Bashkortostan, Site Of The Upcoming BRI
UFA, Russia --In a large restaurant overlooking a snowy Soviet-era horseracing track, a noisy birthday party for a young girl is under way. Outside, it's the harsh Russian winter. Inside, the guests are feasting on traditional dishes ofBashkortostan, a federal “subject” of Russiaof which Ufa is the capital. Some still have their coats on as they glance between the slices of horsemeat on their plates and the horses being trained on the frozen track of the Akbuzat Hippodrome beyond the windows.
At one table, a local government official is enjoying kumys, the fermented mare's milk that is the traditional drink of the Bashkirs. As a gaggle of children crowd around a clown, he smiles. Kids are everywhere. “The president ofBashkortostan,Rustem Khamitov, likes to stress that we live in a young republic. The regions within Russia with a large Muslim population like Daghestan and Chechnya tend to have some of the highest birthrates in the Russian Federation,” he muses. But Bashkortostan, also known as Bashkiria, has another thing going for it: oil.
Since Soviet times, oil has been the economic mainstay of this region on the edge of Siberia. An official with Bashneft, the republic's biggest petroleum company, estimates that 20 percent of Bashkortostan’s revenues come from Bashneft in taxes.
Russia is keen to promote Ufa, which will host the upcoming BRICS summit, as an investments destination, and it has much to offer in that regard. (The BRIC nations are Brazil, Russia, India, China and South Africa.) But the one threat to realizing Bashkortostan's full potential is terrorism, which is linked to rising Muslim extremism.
Potential For Development
A few years ago, the growth potential for Bashneft – the company produced 15.4 million tons of oil in 2012 -- attracted Russian billionaire tycoon Vladimir Yevtushenkov, whose holding company AFK Sistema OAO (MCX:AFKS) now owns the majority of Bashneft shares.
Bashneft is expanding, upgrading its refineries and venturing outside Bashkortostan, with the exploration of an oil bloc in Iraq acquired last year. In September, Reuters reported that Bashneft, one of the few oil companies in Russia to remain outside the control of the government, was considering a listing on the London stock exchange.
In June, Moody's Investors Service upgraded the credit rating of Bashkortostan from Ba1 to Baa3, meaning it now considers its bonds to be investment-grade, not junk. The region's growing importance is reflected in the international airlines flying to it: Turkish Airlines, Fly Dubai and Air Arabia have joined a host of regional carriers and Russia’s Aeroflot in servicing Ufa.
These developments are a positive for President Rustem Khamitov, an engineer who was appointed by Russia in 2010 to succeed the first president of post-Soviet Bashkiria, Murtaza Rakhimov, who fell out of favor in Moscow and was apparently forced to step down. Khamitov has chosen a technocratic and moderately reformist course, with a focus on foreign investment that has helped attract Western businesses to Ufa, including an Ikea furniture outlet and a Baskin-Robbins ice cream store -- though the unit of Dunkin Brands Group Inc. (NASDAQ:DNKN) may find that frozen treats are a tough sell in a city where the average daytime temperature is -10 degrees Celsius (around 13 degrees Fahrenheit) in December, and just above freezing for the year.