The project of Kaliningrad nuclear power plant, if of much greater capacity than conceivable needs of the oblast, will necessarily influence plans and feasibility of the nuclear power plants intended and/or planned in the Baltic Sea region. Complexity

of the nuclear situation in the region is greatly enhanced by diverging concepts and imaginations about the nuclear-for-electricity as energy generation technology. In the region, there are countries that do not intend to have nuclear electricity capacity (Denmark), or that want to get rid of it (Germany). But there are also those that firmly rely on nuclear electricity generation (Finland), or those that seem to agree to

it because of its climate action preferences (Sweden). At the same time, there are those that signal their intention of building one or two nuclear power plants (Poland), or those that want to return to their nuclear generation past (Lithuania).

The situation is complex also because the former Soviet electricity system that used

to embrace all the former Soviet Union count­ries (including now firmly again independent Baltic states of Lithuania, Latvia and Estonia), as well as Poland as a part of former com­munist bloc, still operate in the Baltic states. That makes for a awkward situation when an important part of the European Union (the Baltic states), potentially an indispensible connection north-south from Scandinavia to the European mainland in Poland, cannot contribute to making of the common electri­city system of the EU. Conversely, if they fi­nally switch over to the European electricity standard, they will make the Kaliningrad ob­last an electricity island within the EU, much as it stands in all other areas. A possibility of the Kaliningrad region switching to the EU’s electricity standard together with other three Baltic states would naturally reverse the logic and would separate – in electricity terms – the Kaliningrad oblast from the Russia mainland.

Fig 1. Planned Kaliningrad NPP capacity versus total electricity consumption of

the Kaliningrad oblast and the Baltic states (TWh/year)

Source: Own calculations, data on total electricity consumption from the World Factbook, 2013-14.

Here is where the local nuclear power plant plays a huge role. Its capacity greater than the needs of the local Kaliningrad market means that the Russian authorities play on the logical assumption of either the Baltic states remaining firmly in the post-Soviet electricity system, or the Kaliningrad oblast joining the EU standard. If the capacity is to be greater than the needs of Kaliningrad and Lithuania combined, as intended in the first project, than its feasibility may rely on export oppor­tunities to the EU standard neighbours, mainly Poland, perhaps Sweden, or even Germany.

This seems possible only if Kaliningrad oblast switches to EU electricity standard.

The Kaliningrad nuclear power plant project

The Russian Federation is planning a significant strengthening of their nuclear sector as a way to increase its share in electricity production. According to the adopted plans, by 2030 the nuclear share will grow to about 25-30% of the global electricity production and then to 45-50% after the next two decades1. The aim is to achieve three objectives that seem crucial for the Russian economy. The first is to make available a significant amount of gas for exports. Approximately 70% of Russian annual gas production is consumed by the domestic market2. The second reason, most obvious, is to secure increasing energy needs in next two or three decades. Last but not least is to make Russian nuclear technology more competitive on the international market. In order to meet the above tasks, the process of lifetime exten­sion of existing reactors is in progress. More than 35 new reactors are under construction, or planned3. With exception of the most advanced investments, the future of the suggested, new nuclear power plants is uncertain.

In the context of ambitious Moscow plans, the Baltic Nuclear Power Plant (NPP) (Kaliningrad) has got a very special status. The first proposal to erect a new nuclear power plant in the Kaliningrad province has been announced by InterRAO UES in 2008. The construction agreement with the Kaliningrad authority was signed in April 2008 and the future installation located in the town of Neman near the Lithua­nian border4. The initial plans assumed building a twin AES-92 plant with two VVER-1000 reactors5. It was supposed to be the first nuclear installation in Russian Federation with its output destined for export. Energy needs of Kaliningrad were of secondary importance. The energy security of the town is currently guaranteed by its thermal power plant (Kalinin­gradskaya Thermal Power Plant 2 – 875MWe)6.

The nuclear power plant is expected to be the first case in the history of nuclear industry of Russian Federation to have the anticipated foreign equity share (albeit no more than 49%)7. Part of the main plant modules is to be developed in cooperation with foreign industry. The contract signed in February 2012 by the Alstom-Atomenergomash (AAEM) company provides, among the other things, that Alstom would deliver steam turbines ARABELLE and moisture separator re-heaters, power generators and other auxiliary equipment. The contract is estimated at 875 million euro8.

According to a more recent project, the new nuclear power plant would be based on the larger and more modern AES-2006 design with two pressurized water reactors (PWR) VVER- 12009. Each VVER-1200(V491) reactor has the thermal capacity of 3200MWth and electrical capacity of 1170MWe gross. The design is the common project of OKB ”Gidropress” and “Atomenergoproekt” with the scientific supervision of Kurchatov Institute from Moscow10.

The Russian VVER-1000/1200 family are equi­valent of the Western PWR reactors (genera­tion III and III+). VVER-1200(V-491) based on AES-2006 design, are classified as generation III+ with an expected service life of 60 years. It would probably be the most modern project of the Russian nuclear industry until the beginning of the next decade. As many as 17 of similar VVER-1200 reactors are expected to be commissioned in other locations in the Russian Federation by 202011. It’s also an export success. The identical project is planned in Turkey (Akkuyu nuclear power plant). The Turkey-Russia agreement of May 2010 provides for the construction of four VVER-1200 reactors around 2020-23. The total electrical capacity of the Akkuyu will be about 4800MWe12. The contract value is about 20 billion dollars.

The doubts about nuclear safety raised in con­nection with the Kaliningrad nuclear power plant investment, can be referred to all the latest-generation reactors. There might be problems, as in case of all III/III+ generation projects, with the reliability of the most important modules in assumed long-standing service life13. The VVER-1200 reactors are based on many-year-experience with operating of earlier generations of VVER family. There are about 50 VVER-440 and VVER-1000 operating units in Russian Federation and abroad. They are more reliable in comparison to other Soviet designs (RBMK reactors in particular). According to the official information, the VVER-1200 reactors that are currently under construction contain extensive passive and active safety systems with the increased share of the passive one. It comprises, inter alia, a passive heat removal system and a passive reactor scram system, as well as a passive hydrogen removal system and a secondary system of passive heat removal via steam generators14. In the opinion of the Russian specialists, the concept of the safety system is comparable to the western designs of PWR reactors of the III and III+ generation.

The preparatory work of the project in Kaliningrad has begun in February 201015. The first elements of concrete were poured two years later. According to the plan, the first reactor should be in commercial service by 2017. The cost of the project is estimated at 6-8 billion euro.

Due to the electricity exports objectives of the project, there are several conditions to be fulfilled, before it gets operational. The first one was to attract foreign investors and loans to finance the project. The second one was to attract the real interest for future foreign customers. Only a small part of planned output (2300MWe) may be consumed by energy needs of Kaliningrad. The long-term contracts from foreign partners are necessary to ensure the economic side of the investment. Last but not least, there are grid connection requirements. The Russian enclave has got a limited capacity transmission line with Lithuania and no connec­tion to Poland. This situation makes a future export of electricity impossible, unless funda­mentally changed. Project of such a big nuclear power plant in the Kaliningrad Province, if not fully connected of to the EU grid system, is not really arguable in economic terms.

In the course of last five years none of the conditions mentioned above was fulfilled.

There is no long-term contract for future supplies of electricity, although the proposal

has aroused some interest. The project seems to be in direct contradiction with energy strategies of neighbouring countries, all of which are very much interested in raising their energy independence ratio.

The latest news from Kaliningrad indicate a possible change in the schedule of the project’s implementation. This could mean, at least, a significant delay of the works, if not abandoning of the project altogether. A possible scenarios assumes that the VVER- 1200 reactors could be replaced by a smaller design, thus better corresponding to the real energy needs of the region itself, and less relying on the external markets.16

Poland still uncertain

In Poland, until now with no nuclear generated electricity, in November 2008 the government took decision to explore possibilities for building two nuclear power plants that should be operational by 2023-24. It therefore created a special purpose company, that is a consortium of mostly state owned electricity utility companies PGE, Tauron and Enea, together with the KGHM, a copper mining conglomerate. So far, the three possible locations were all considered at the Baltic  Sea shore in either Gąski,  Choczewo, and/or Żarnowiec, as seen from the West to the East.

However, the Polish public opinion remains divided on the issue. On one side, the nuclear generated electricity could enhance the country energy security, so far – for electricity generation – largely (by 90%) based on coal and lignite. It would also significantly contribute to lowering the country’s CO2 emissions, thus contributing to the EU’s driven climate change action. Yet, when things got to local, things turned bad. In a local referendum in Gąski (February 2012), an overwhelming majority of 95% of 50% turnout voted against any new nuclear power plant built in vicinity. Although, there was no public awareness campaign before, and the local population was not familiarized with the benefits of such an option, still the results were considered straightforward in saying ‘no’.

In politics, two parliamentary left wing parties, Ruch Palikota and SLD, with one fringe right wing party Solidarity Poland, are all against, while all major mainstream parties of both the government and the opposition are favourable for building a nuclear electricity generating capacity in Poland. In short, over three quarters

of the current parliament is in favour of the nuclear power plants in the country.

Fig 2. Polish parliament split on nuclear electricity generation, 2013

Source: own analysis of party platforms. Those bolded are against, or rather against nuclear power plants;

L = left; R = right; C = centre; (-) and (–) = against nuclear; (+) and (++) = for nuclear; (-/+) = split.

It plays a role, that Poland is in fact currently surrounded by the nuclear producing countries: Germany, Czech Republic, Ukraine, Belarus, and Sweden with Finland across the Baltics. There are several well known exceptions to that picture that do and will play a role. Germany has announced its Energiewende, the energy transition that presupposes also closing their nuclear power plants by 2022. Lithuania used to be a strong player on the local market thanks to its Ignalina nuclear power plant, but this was closed at the end of 2009 as a part of their accession deal with the EU, the installations there considered not secure enough. The Kaliningrad oblast, although Russian territory, does not produce nuclear based electricity for now. And Denmark, again across the Baltics, has decided already in 1985 not to produce nuclear energy at all. Even if it imports electricity from Sweden and Germany, thus partially imports the nuclear derived elec-tricity, it was able to successfully exert pressure on the Swedish public opinion. Consequently, the Swedes closed two Barsebäck units, what ultimately happened in 1999 and 2005 respec­tively.17 Finns apparently managed to solve the nuclear waste problem, and seem to pro­ceed to the final stage with their European Pressurized Reactor (EPR) at Olkiluoto 3. The EPR there, although much delayed now (from 2008), is expected to go operational in 2016, with almost tripled costs of now estimated 8.5 bn EUR18. This, along with the French Flamanville project and the British one, could contribute to the possible implementation of the European nuclear energy design EPR.

Lithuania going for and hesitating

An interesting project, from the point of view of the Baltic Sea nuclear situation is the

Lithuanian concept of Visaginas, the new nuclear power plant. It has been construed as one not only to replace the closed Ignalina, but also to provide a backbone to the long needed and awaited north-south connection from the Scandinavian Finland and Sweden, via the three Baltic States of Estonia, Latvia and Lithuania, to Poland in the south. The region suffered long from incompatible inheritance of the Soviet times when it was largely connected east-west, to the USSR as a pole and source of energy and dependence. The Visaginas project started in 2007 with participation of companies from Lithuania, Estonia, Latvia and Poland, which subsequently withdrew in 2011. The main technology provider, and strategic investor would be Hitachi GE, which should start to build a single 1350 MWe Advanced Boiling Water Reactor in 2015, intended to be opera­tional as of 2021. It is estimated to cost almost 5 bn EUR. Still, the project has been over-shadowed by the national referendum in Lithuania, which in October 2012 proved negative sentiment by a large margin of almost 65%.

Although non-binding, the referendum might indicate problems with the project at a later stage.19

The Visaginas has been planned to be the cornerstone of the new Baltic Energy Market Interconnector Plan (BEMIP), which is intended to link Poland with Finland and Sweden, via the three Baltic States. It gets support of the European Union which funds seve­ral of its parts: LitPolLink (Lithuania-Poland), Estlink-1 and Estlink-2 (Estonia-Finland), NordBalt (Lithuania-Sweden). The links as the interconnectors should effectively reverse the situation when, now, Lithuania, Latvia and Estonia are still parts of the Russian controlled IPS/UPS electricity system. With the three Baltics states connected to the European Network of Transmission System Operators (ENTSO), the Kaliningrad oblast would get isolated from the mainland Russia. Apparently, the Russians recognize this situation and Rosatom proposed to build a link between Poland and Kaliningrad that would effectively forge the Kaliningrad electricity system with that of the EU. This prospect would eventually facilitate greatly any Kaliningrad nuclear generated electricity exports to the EU, either Poland, or Lithuania, or even all the eastern and southern Baltic states.20

Eventually, Poland would add one or two of its own nuclear power plants, if the government’s plans are going to materialize. The decision on the technology, the reactors and design, has not been taken, however. With the Swedish 10 nuclear reactors, and their public opinion strongly backing them as a viable strategy for climate action, the Baltic Sea nuclear prospects seem a bit diversified. But there are interesting patterns emerging where the Kaliningrad nuclear power stations or the Polish nuclear power plants may play important roles. Particularly, if we take into account the Germans going the Danish road to abandoning the nuclear electricity generation, with their Energiewende. This way, the west of the Baltics would be free from nuclear energy capacity, while there would be strong production sites in the north, south and east of it.

The situation in the north and east of the Baltic Sea seems clear: both the Swedes and

especially the Finns are seemed prone to rely heavily on nuclear for their electricity

generation. Their capacities are construed. Specifically, the Finnish seem to generate

electricity from nuclear fission – based their cooperative concept of ownership of the nuclear capacities – for domestic purposes, and not really intended for serious exportation.

Sweden nuclear, but…

The current status of Sweden’s nuclear industry is a result of the decades of develop­ment, beginning with the top secret nuclear weapon program for advanced nuclear

industry. As far as today more than 40 percent of Swedish electric power comes from ten nuclear reactors at three nuclear power plants. Four of them entered commercial

service in the 1970s (Oskarshamn 1,2 and Ringhals 1,2) and six began to operate in 1980’s. As mentioned, the Barsebäck nuclear power plants were ultimately closed in 2005.

Interestingly, for more than 30 recent years, the Swedish nuclear power plants have under­gone consistent process of expanding nuclear capacity as well as their operational lifetimes. In case of the Ringhals nuclear power plant it has meant an increase of about 337 MWe21 to 450 MWe by 2012.22  This action, despite the closure of the Barsebäck has allowed to maintain the st­rong position of nuclear energy in the Swedish electricity mix and to add about 1050MWe to the ten working reactors by the end of 2008.23 Further investments of this kind are planned.

Sweden has one of the most advanced pro­grams of nuclear waste management. The Swedish Nuclear Waste Fund is administrated by the Swedish Radiation Safety Authority and will cover costs associated with the decommis­sioning of nuclear reactors and waste storage. The fund is financed from the fees of nuclear power operators.

According to the plans of the Swedish Nuclear Fuel and Waste Management Company, SKB, the ultimate repository for used fuel from Swedish NPP will be located in Söderviken, close to the Forsmark Nuclear Power Plant. The repository will be placed at the depth of approximately 500 m in geologically stable granite bedrock. The beginning of the construction is planned for 2019 and the investment will be completed about 2025. The repository will be in use until about 2070 and at that time it will have 60 km of tunnels and about 4 square kilometers of underground storage surface. Its total capacity is expected at 12000 tons and it will be able to store as many as 6000 iron, copper-cast canisters containing used fuel.24 The canisters will be stored in the holes bored in the tunnel floor. Each canister will be surrounded by bentonite clay to isolate it form the bedrock and to absorb water. That is to help to stop a corrosion process of the copper canister. In case of leakage or other damage of a canister the clay insulators of the granite bedrock would delay radioactive materials from reaching the surface.25

This kind of storage is known as the KBS method. The technology should isolate radio­active material from people and living nature for at least 100 thousand years. Given the time-span of the storage project, the speed of corrosion of the copper containers seems to be a crucial safety problem. The bentonite clay as well as the repository environment are both intended to help to stop the corrosion process of copper, but there are still controversies over the safety issues of the technology. The newest report of the Swedish Radiation Safety Authority indicated that the corrosion had occurred on the surface of the copper elements during the last tests. The issue would require further research to solve the contro­versy.26 In the last three decades Sweden went through ambivalent nuclear ”phase out” policy. The US Three Mile Island catastrophe of 1979 was the reason for the Swedes to organize a referendum about future of the Swedish nuclear energy. In 1980 a majority of Swedes voted for not developing the next generation of nuclear power plants after having ended lives of those plants already operational or under-construction. Conse-quently, the Swedish parliament took a decision to close all twelve nuclear power plant by 2010. For economical reasons and under a strong pressure from industry and labor unions, the Swedish political elite has not made a serious attempt to implement this decision and the 2010 target was subse-quently abandoned.27 In 2010, in spite of resistance from the political opposition and ecological movements, the Swedish govern­ment adopted a new plan of replacement of all ten nuclear reactors by new ones, and passed it through the parliament. The plan is strictly limited and assumes replacements only. The number of reactors is not allowed to exceed ten, and all of them must be built at the same site of as currently existing nuclear plants.28

According to the plan, the first new nuclear reactor would be required after 2025.

Today, it is difficult to foresee future of nuclear energy in Sweden. Still, taking into account the public opinion shift in favor of continuing of the nuclear power program and ambitious government’s plans, atom seems to be an important part of the Swedish climate policy. Together with renewable energy sources, nuclear plants will contribute towards environ-mental goals and will help to impose further limits on the fossils fuel share in the Swedish energy mix.

Finland firmly nuclear

The nuclear industry in Finland is providing nearly 30% of the electricity. The first genera­tions of nuclear power plants, like in Sweden, were completed from 1977 to 1980. All four nuclear power reactors built at the time, are currently in use. Unlike Sweden, Finland has not developed its own nuclear technology capacity. Olkiluoto 1 and 2 are based on the Swedish technology, and Loviisa 1 and 2 on the Russian one. In spite of this, an average lifetime capacity factor is one of the highest in the world – over 85%. Moreover, as in the case of the Swedish nuclear power plants, the nominal capacity of the Finnish reactors have been uprated ever since they were built. In case of the Olkiluoto, the nominal capacity of each reactor has increased from 658 MWe to 880 MWe.29

The decision about the future of the nuclear industry in Finland has been taken in 2002. For economical reasons, in May 2002 the Finnish parliament approved a proposition to build fifth nuclear reactor.30 According to the ini­tial investment plan, developed together with French Areva (EPR reactor EPR reactor, 1600 MWe), it should have been in commercial service in 2013. Unfortunately, due to the sophistication of the project, serious technical problems and delays have been encountered. The budget exceeded more than twice by now, and today its commercial operation is planned for 2016.31

All these problems have not stopped the Finnish intentions to further expand its nuclear power industry. Of two new projects, the first one – Olkiluoto 4 – is intended to be one of the modern western designs, whi­le the other one – Hanhikivi 1 NPP, led by the new consortium in the nuclear power industry: Fennovoima Oy – would most likely get partnered with the Rusatom Overseas to develop the AES-2006 design based on the VVER-1200 reactor.32 In July 2010 the Finnish parliament approved construction of the new reactors.

Finland’s nuclear waste management program was initiated in 1983, and is in general similar to the Swedish one. The key player is Posiva Oi, company responsible for the final disposal of spent nuclear fuel. The company is owned by two Finnish nuclear power plants operators: TVO – 60% and Fortum – 40%.33 The final repository and waste encapsulation plant will be placed at Olkiluoto up to 450 meters underground in the stable bedrock. Disposal will be based on the Swedish SKB-3 concept with the copper canister and bentonite clay as the second barrier.34 The planned capacity of the deposit is 9000 tons and will allow to dispose of all spent fuel from the four existing reactors as well as the new Olkiluoto 3 and 4 units. The future of the spent fuel from Hanhikivi 1 nuclear power plant is still unclear.35

The cost connected with the final disposal and decommissioning of nuclear power plants will be covered by the state owned Nuclear Waste Management Fund. The fund is financed from the charges on the generated electricity which amounts to about 10% of the total electricity production cost. According the Ministry of Employment and Economy, at the end of 2012 the Fund has amassed about 2.16 billion Euro.36 This amount of money seems sufficient to cover all the costs of management of current nuclear waste stockpile as well as decommissi­oning of the existing power plants.

In Finland the nuclear energy is perceived as a reliable and safe source of electric power. The Finnish public is among the strongest supporters of the nuclear energy in Europe. Successful finishing of Olkiluoto3 and the two planned projects will extend a nuclear horizon far beyond 2050 and will root nuclear power deeply in the Finnish climate and energy stra­tegy. The future of nuclear energy in Finland seems to be stable and certain.

Conclusion

To sum up, the nuclear electricity generation on the south and east side of the Baltic Sea remains mixed. There are several reasons for that, with perhaps the most important one being social and political uncertainty about the projects and their public perceptions among nations and locally. External developments, with Fukushima disaster, German Energiewende, and pressures from the non governmental organizations, which in many cases do not recognize nuclear electricity generation as beneficial for climate action and they still press for the development of renewable resources.

The other very important reason is an apparent competition between three major concepts: Kaliningrad power station, Visaginas project in Lithuania and Poland’s plan for two major power plants, all of them intended to be nuclear and located in the north of the country. It seems either – or. With serious inroads of the renewable resources into the electricity mixes and consumption needs, there seem not to be place for more than one project regionally.

Moreover, their business chances are interlinked – any increased possibility of advancing and implementing of one of them does and will indeed influence chances of financing and building the others. Clearly, capacity of the projects to raise money and loans are inter-linked as all investors and banks would naturally look into the externalities of each project.

Finally, neither of them have yet crossed their respective points of no return. While the Kaliningrad project seemed most advanced, it got stilled. The Visaginas has been clouded by the Lithuanian public opinion referendum. And the Polish plans are still far from being stable.

Interestingly, the European Union does not play any important role in these cases. As only natural with energy projects, especially of this magnitude of investment needs, the na­tional authorities are the key players. Even if the case of local cooperation across and along the Baltics would normally call for somewhat closer cooperation on the issue, this is not the case. The European Commission might get in­terested in the issues, especially with its inter­est for the single energy market, but it has not been noted as an important player among the parties here. Its role is marked in pressing for making of the north-south energy and tran­sportation connectivity, but not on the choice of ways of electricity production. While this being national prerogative, Brussels would still seem only a natural point of meeting and coor­dinating of regional plans, a helping hand to be.

List of References:

1. Nuclear Power in Russia, World Nuclear Association,

http://world-nuclear.org/info/Country-Profiles/ Countries-O-S/Russia–Nuclear-Power/#.

UkseEb7wFRA (accessed: 27.09.2013).

2. Statistical Review of World Energy 2013, BP June 2013,

http://www.bp.com/content/dam/bp/pdf/ statistical- review/statistical_review_of_world_ energy_2013.pdf (accessed: 22.09.2013).

3. Nuclear Power in Russia, World Nuclear Association,

http://world-nuclear.org/info/Country-Profiles/ Countries-O-S/Russia–Nuclear-Power/#. UkseEb7wFRA (accessed: 27.09.2013).

4. Kaliningrad plan for Baltic States market, “World Nuclear News”, 17 April 2008, http://www.world-nuclear-news.org/NNKaliningrad_plan_for_Baltic_States_market_ 1704086.html (accessed: 30.09.2013).
5. Ibidem.
6. Kaliningradskaya Thermal Power Plant 2, JSC INTER RAO — Electric Power Plants website, http://irao-generation.com/en/stations/kalinigradg/ (accessed: 30.09.2013).
7. Baltic NPP Project, Rosatom website, http://www.rosatom.ru/en/investmentstrategy/ projects/ (accessed: 27.09.2013).
8. Russian joint venture of State Corporation Rosatom and Alstom will supply the turbine island to the Baltic nuclear power plant, Alstom, 2 February 2012,

http://www.alstom.com/Global/Group/Resources/Documents/Investors%20document/Regulated%20 Information/Russian%20joint%20venture%20of%20 State%20Corporation%20Rosatom%20and%20 Alstom%20will%20supply%20the%20turbine%20island%20to%20the%20Baltic%20nuclear%20power%20 plant.pdf (accessed: 27.09.2013).

9. Baltic nuclear plant brought forward, “World Nuclear News”, 27 August 2008

http://www.world-nuclear-news.org/NN_Baltic_ nuclear_plant_brought_forward_2708083.html (accessed: 27.09.2013).

10. IAEA Status report 108 – VVER-1200 (V-491) (VVER- 1200 (V-491)), International Atomic Energy Agency (IAEA), 2011,

http://www.iaea.org/NuclearPower/Downloadable/ aris/2013/36.VVER-1200(V-491).pdf (accessed: 30.09.2013).

11. Mark J. Harper, Advanced Reactor Technology Development for Near Term Deployment, Nuclear Energy Management School Tokai Mura, Japan June 2012,

http://www.iaea.org/nuclearenergy/ nuclearknowledge/schools/NEM-school/2012/Japan/ PDFs/week1/5-1_HARPER_Current_LWR_Technology_ NEMSchool.pdf (accessed: 29.09.2013).

12. Akkuyu NPP JSC website

http://www.akkunpp.com/index.php?lang=en (accessed: 29.09.2013).

13. Jozef Mišák, Evolution of safety assessment appro-aches for Gen III systems and implications for future systems, INPRO Dialogue Forum on Nuclear Energy Innovations 1-4 February 2010, IAEA, Vienna http://www.iaea.org/INPRO/1st_Dialogue_Forum/ 22-Misak.pdf (accessed: 29.09.2013).

14. Status and perspectives of VVER nuclear power plants, Meeting of the TWG-LWR IAEA, Vienna, Austria, 26 -28 July 2011, http://www.iaea.org/NuclearPower/Downloads/ Technology/meetings/2011-Jul-26-28-TWG-LWR-HWR/Session-I/21.TWG-LWR-Russia.pdf (accessed: 29.09.2013).

15. Baltic site works, “World Nuclear News”, 27 August 2010,

http://www.world-nuclear-news.org/NN_Baltic_ site_works_2708101.html (accessed: 19.09.2013).

16. Grid concerns for Baltic project, “World Nuclear News”, 11 June 2013,

http://www.world-nuclear-news.org/NN_Grid_ concerns_for_Baltic_project_1106131.html (accessed: 19.09.2013).

17. Barsebäck nuclear power plant own website:

http://www.barsebackkraft.se/index.sp?ItemID=1291 (accessed: 25.08.2013).

18. Sonja van Renssen, New nuclear power in Europe – will Finland show the way?, “European Energy Review”, EER Monthly, February 2013.

19. Results of the referendum from the Central Electoral Commission of Lithuania,

http://www.vrk.lt/2012_seimo_rinkimai/output_ en/referendumas/referendumas.html

(accessed: 13.09.2013).

20. Nuclear Power in Lithuania, World Nuclear Association,

http://world-nuclear.org/info/Country-Profiles/ Countries-G-N/Lithuania/#.UkiVbdK-1vI (accessed: 1.09.2013).

21. Own calculations, data on the Ringhals NPP reactors from PRISM – Power Reactor Information System, IAEA, 30 September 2013, http://www.iaea.org/PRIS/CountryStatistics/CountryDetails.aspx?current=SE

(accessed: 01.10.2013).

22. Nuclear Power in Sweden, World Nuclear Association

http://www.world-nuclear.org/info/Country- Profiles/Countries-O-S/Sweden/#.Ukqqwr7wFRA (accessed: 15.09.2013).

23. Ibidem.

24. A repository for nuclear fuel in 1.9 billion year old bedrock, SKB – The Swedish Nuclear Fuel and Waste Management Company, 4 April, 2010,

http://www.skb.se/Templates/Standard____28848. aspx (accessed: 30.09.2013).

25. Harold Feiveson, Zia Mian, M.V. Ramana and Frank von Hippel, Managing Spent Fuel from Nuclear Power Reactors, Experience and Lessons from Around the World, International Panel on Fissile Materials (IPFM), p. 78 92, September 2011,

http://fissilematerials.org/library/rr10.pdf (accessed: 30.09.2013).

26. Barbro Plogander, Sweden’s Planned Nuclear Waste Storage Faces Problems, The Epoch Times, 12 February 2013,

http://www.theepochtimes.com/n2/world/ swedens-planned-nuclear-waste-storage-faces-problems-346787.html (accessed: 25.09.2013).

See also: Nuclear Waste State-of-the-Art Report 2013 – Final repository application under review: supplementary information and alternative futures, Swedish National Council for Nuclear Waste, Stock-holm 2013,

http://www.karnavfallsradet.se/sites/default/files/ sou_2013_11_eng_vers.pdf (accessed: 01.10.2013).

27. Johan Bergenas, Nuclear power in Sweden, The Stimson Center, 15 April 2011,

http://www.stimson.org/spotlight/nuclear-power-in-sweden/ (accessed: 15.09.2013).

28. Sweden to replace existing nuclear plants with new ones, “BBC News”, 18 June 2010, http://www.bbc.co.uk/news/10347187 (accessed: 05.09.2013).

29. Nuclear power plant units Olkiluoto 1 and Olkiluoto 2, Teollisuuden Voima Oy (TVO), January 2008,

http://www.tvo.fi/uploads/File/nuclear-power-plant-units.pdf (accessed: 30.09.2013). See also: OLKILUOTO-1, PRISM – Power Reactor Information System, IAEA, 30 September 2013,

http://www.iaea.org/PRIS/CountryStatistics/ ReactorDetails.aspx?current=159 (accessed: 01.10.2013).

30. Finland opts for new nuclear reactor, “BBC News”, 24 May 2002

http://news.bbc.co.uk/2/hi/europe/2006191.stm (accessed: 01.10.2013).

31. Dome in place at Flamanville EPR, “World Nuclear News”, 16 July 2013,

http://www.world-nuclear-news.org/NN-Dome_in_ place_at_Flamanville_EPR-1607134.html (accessed: 26.09.2013).

32. Hanhikivi contract by year end, “World Nuclear News”, 3 September 2013

http://www.world-nuclear-news.org/NN-Hanhikivi_ contract_by_year_end-0309137.html (accessed: 26.09.2013).

33. Posiva Oy, Posiva Oy website, http://www.posiva.fi/en/posiva (accessed: 28.09.2013) .

34. The Principles for Final Disposal, Posiva Oy website, http://www.posiva.fi/en/final_disposal/the_ principles_for_final_disposal/ (accessed: 28.09.2013).

35. No room at the repository, “World Nuclear News”, 9 march 2012,

http://www.world-nuclear-news.org/WR-No_ room_at_the_repository-0903127.html (accessed: 28.09.2013).

36. Finnish waste fund continues to grow, “World Nuclear News”, 26 March 2013,

http://www.world-nuclear-news.org/wr-finnish_ waste_fund_continues_to_grow-2603134.html (accessed: 22.09.2013).

Source: BSR Policy Briefing 4/2013, Centrum Balticum, www.centrumbalticum.org

The article discusses changes in the industry of the Kaliningrad region of the Russian Federation since the beginning of the 1990s that occurred under the influence of the FEZ/SEZ. Its implementation, in turn, was primarily due to the changed geopolitical and geo-economic situation in the region. The main result of these changes was the restructuring of the regional industry, which caused import-substituting industries to play a major role (including those that previously either did not exist or were poorly developed). On April 1, 2016, customs concessions of the SEZ will no longer be valid (while tax breaks will be preserved until 2031). This fact together with Russia’s accession to the WTO makes the continued existence of the SEZ mainly in the mode of import substitution difficult, if not impossible. In this regard, this paper discusses the prospects for further development of the industry of the Kaliningrad region under the changed and changing conditions.

Key words: Kaliningrad region, industry, manufacturing, free/special economic zone (FEZ/SEZ).

By the end of the 1980s the level of the industrial development of the Kaliningrad region was slightly below the national average (in 1989 the region accounted for 0.6% of the population of the RSFSR, but its share in the total Russian industrial output was lower – 0.55%) [1, P. 121].

In the structure of industry three sectors played the key role – mechanical engineering, fishing and pulp and paper industry (Table 1).

Table 1

Industrial structure in the Kaliningrad region in 1989, % of the total

Source: [1, P. 119].

The share of the Kaliningrad region accounted for 10% of the food fish production in Russia, 11% of the cellulose production and 3% of the paper production (1992) [1, P. 121]. In mechanical engineering, the main role was played by companies related to the fishing industry (production of instruments, equipment, construction of small fishing vessels, ship repair), military shipbuilding, electronics and electrical engineering, railway coach manufacturing.

Industry in the region had a high degree of participation in the national division of labour and at the same time was heavily dependent on external supplies of raw materials, fuel and energy and the stability of the industrial relations.

In addition to the general problems of the Russian industry in transition, two interrelated factors substantially affected the further development of the Kaliningrad industry:

The conversion of the Kaliningrad region into an exclave of the sovereign Russia, separated from it by territories of foreign countries (not the union republics, as before);

The creation of the free economic zone (FEZ) in 1991 and of the special economic zone (SEZ) in 1996. The zones were largely seen as mechanisms of compensation for the isolated geographical location of the region.

The collapse of the Soviet Union and the transformation of the region into an exclave of Russia led to the complex and costly transport links with the main part of the Russian Federation, disintegration of production chains, which included Kaliningrad enterprises (especially mechanical engineering) within the division of labour in the Soviet Union, breaking of the economic ties with Lithuania, Latvia and Belarus, that were established during the Soviet period, complicating conditions of the pulp and paper industry, located 1500 kilometres away from sources of raw materials in the North of Russia. The former branch structure of the region’s economy because of its spatial isolation from the main territory ceased to comply with the changed economic conditions to a greater extent than in other regions of Russia.

The fish production sector, which formed the basis for the Kaliningrad region industry, was additionally negatively affected by the termination of state subsidies and the rise in the cost of fuel (which previously formed more than half of the cost of production). This led to the decrease of ocean fishing, sale of vessels and a sharp decline in production volumes.

The FEZ/SEZ regime impacted the industry in the Kaliningrad region in 1992-1998 in two ways.

On the one hand, following the adoption in 1996 of the law on special economic zones in the region, there began to appear new import-substituting enterprises (for example, in May 1997, was commissioned the first phase of the “Avtotor” company’s factory to assemble Korean cars KIA). On the other hand, duty-free imports further contributed to the decline in industrial production (primarily in the food industry and in the production of consumer goods), that did not withstand foreign competition.

Ultimately, the decline in industrial production in the Kaliningrad region in 1992-1998 proved to be more profound than in the whole of Russia. Industrial production in 1998 decreased by 6 times compared to 1990 (Fig. 1).

Figure 1. Dynamics of the industrial production, % of 1990.

Percent, Russian Federation, Kaliningrad region

Compiled based on: [2, p. 396; P. 396; 3].

The region’s economy was deindustrialized. The available production capacities were taken out of the production and skilled workers would change professions or became unemployed. The greatest damage was incurred by the industry sectors mainly in the domestic (regional and nationwide) market (machinery, local food processing, building materials industry, consumer goods industry). The good bargain compared to them had those sectors that benefited from a sharp increase in domestic prices of their products (electricity, fuel industry), increased export of products (pulp and paper industry and to some extent the fishing industry) due to the regime of the FEZ/SEZ and the general liberalization of foreign trade or used a combination of both factors (oil industry). In these industries, the decline in production was less than the industry average.

As a result, in current prices, the share of the fuel and energy sector in the industrial structure of the Kaliningrad region has increased considerably due to rising prices for fuel and electricity (from 3.5% in 1990 to 30.6% in 1998) with a sharp drop in the share of industries of the “upper floors” (the final stages of manufacturing) – particularly machinery, consumer goods industry and building materials industry (Table 2).

Table 2

Changes in the structure of the industrial production of the Kaliningrad region, 1990-1998, % of the total industrial production

Compiled based on: [4, P. 15].

Since 1999, the economy of the Kaliningrad region, as well as throughout Russia, gradually began to emerge from the crisis. Production growth was particularly strong in industry, where since 2000 it has been significantly higher than the average Russian indicators (Table 3).

Table 3

Dynamics of indices of the industrial production in the Kaliningrad region and the Russian Federation as a whole, 2000-2007, (% of previous year)

Compiled based on: [3, 5].

In 2007, the volume of the industrial production in the Kaliningrad region exceeded the level of 2000 by nearly 3.6 times (on average in Russia by almost 1.5 times) (current prices) (based on [3]). In 2000-2012 the share of the Kaliningrad region of the industrial production of the Russian Federation increased from 0.3% to 0.96%, which was 1.75 times higher than in the late 1980s [1, 6, 7].

The following factors contributed to the rapid industrial growth:

• The development of import substitution industries due to the regime of the free customs zone[1]and tax benefits[2];

• The devaluation of the Ruble in 1999-2000;

• Increased demand on the Russian domestic market, associated with the growth of incomes of the enterprises and the public;

• Increased attention to the area of the Federal Center, which was one of the most important factors in attracting investment to the region from other regions of Russia (mainly from Moscow and Saint Petersburg);

• Proximity to foreign sources of raw materials, components and semi-finished products.

A characteristic feature of the industrial growth, as noted above, was import substituting. This was reflected in production of goods using foreign raw materials, semi-finished products and components for the national market. This is evidenced by the increase in the export of goods produced in the SEZ in the Kaliningrad region to the rest of Russia from 0.42 billion Dollars in 2000 to 6.5 billion Dollars in 2008 [9].

At the same time the largest share in the total export of production into other regions of Russia accounted for cars, canned meat, TV-sets, canned fish, self-propelled vehicles and cranes, frozen fish, carpets and floor coverings [10, P. 21].

The SEZ regime contributed to the emergence of new industries in the region operating on the national market. There appeared whole new industries that did not previously exist (e.g., car manufacturing, production of TV-sets and other consumer electronics, etc.). Sectors that had previously been represented relatively weakly, significantly increased (furniture and meat-packing industry). For a number of new industrial products the Kaliningrad region became recognizable and even evolved into one of the leaders in the Russian Federation. At the same time, it continued to occupy a prominent place for the production of some of the traditional industrial products (food fish production (including canned fish), fish and seafood, pulp and paper, vodka and beverage products, and others).

Before the crisis in 2009 about 75% of all Russian TV-sets were produced in the Kaliningrad region [11]. Other types of home appliances included vacuum cleaners (84% of Russia’s total volume in 2006 [12 P. 14]), microwave ovens, DVD-players, etc. The main plant for the production of TV-sets – the Kaliningrad “Telebalt” LLC – at that time was the largest engineering company in the region in terms of the volume of production. The largest manufacturer of vacuum cleaners was “Radioimport-R” LLC (Kaliningrad). In 2003 in Chernyakhovsk the Moscow holding “Polar” opened the plant “Televolna” LLC with the annual total capacity up to 2.5 million units of equipment (TV-sets, washing machines, vacuum cleaners, microwave ovens).

JSC “Avtotor” (Kaliningrad), founded in 1997, that collected Korean cars KIA, in 1999 additionally began to assemble German cars BMW, and in 2004 – American cars by General Motors. In 2008, the company brought the car production to 108.5 thousand cars, thus becoming the largest manufacturer of foreign cars in Russia [13].

In Gusev in 2007 the Russian corporation General Satellite (now – GS Group) for the first time in our country hosted in leased premises domestic production of receivers for receiving satellite and terrestrial television. Later Gusev was chosen by the company for the creation of an innovation cluster “Technopolis Gusev” (from August 2012 – “Technopolis GS»).

About a hundred of small and medium-sized enterprises for the production of furniture were created in the region. They would supply their production to more than 40 cities of Russia, as well as for export to the CIS, the European Union (Germany, France, UK, Belgium, Denmark, Austria), Israel and the US. They accounted for about 6% of the sales of furniture in Russia [14].

There were about 160 meat processing plants (mainly operating on imported raw materials). For the production of canned meat the Kaliningrad region ranked first in Russia (22.6% of all Russian canned meat in 2006) [15].

However, import-substituting industries, working on imported raw materials and components, were heavily dependent on the stability of supplies from abroad, and on the volume of demand on the national market, which is the main focus of their production.

Despite a significant decline compared to the beginning of the 1990s, the fishing industry maintained its national significance.

At the same time, the pulp and paper industry found itself in a difficult situation. Due to the remoteness of the raw material base (North-West of Russia), it could thrive only based on export. However, the demand for pulp in the world market is very volatile and could not guarantee stable operation. In addition, the companies used environmentally hazardous obsolete technologies for chlorine bleaching of pulp and had no effective treatment facilities contrary to Russia’s obligations on protection of the marine environment of the Baltic Sea in the framework of the Helsinki Convention. As a result, in 2004, the former pulp-and-paper combine TsBK-1 was stopped in Kaliningrad (JSC “Darita”), in 2007 – the former pulp-and-paper plant TsBZ-2 (Closed joint stock corporation “Cepruss”) in Kaliningrad.

Increased production of certain types of industrial products was also caused by exports. For example, JSC “Baltic Shipyard “Yantar”” (Kaliningrad), that previously had been building almost exclusively warships, set up production of civilian ships for customers from Germany, the Netherlands, Norway. JSC “Baltkran” (Kaliningrad) exported cranes into Finland, Denmark, Norway, Germany, the Netherlands, France, Spain, Italy, China, Japan and other countries. Sewing enterprises of Kaliningrad and Sovetsk were working on give-and-take raw materials. The Kaliningrad ZAO “Cepruss” exported pulp. However, the export potential of the Kaliningrad industry has not been used to the full.

In the oil industry in July 2004, “LUKOIL-Kaliningradmorneft” LLC started oil production at Kravtsovskoye field (D-6), located on the Baltic Sea shelf. Field commissioning allowed to increase oil production in the Kaliningrad region in 2004-2007 by 1.76 times (from 0.83 to 1.45 million tonnes) [16, P. 77].

The higher-than-anticipated growth of production of the goods with advanced processing contributed to positive changes in the industrial structure. For example, the share of mechanical engineering in the structure of industrial production (at current prices) increased during 1999-2004 by more than 2.3 times, and it once again ranked first among industries [17, P. 2; 18, P. 131].

The transition from the SEZ in 1996 to the SEZ in 2006 almost coincided with another radical change in the geopolitical and geo-economic situation of the Kaliningrad region – extension of the European Union on 1 May 2004. Following the accession of Poland and Lithuania, the region became a kind of the Russian “island” within this integration group. The EU enlargement worsened conditions for the supply of the Kaliningrad production into other regions of Russia and thereby complicated the import-substituting economy of the exclave. After the accession of Lithuania to the EU on 1 May 2004 the cargo transit got more expensive by 1.3-1.5 times due to the phytosanitary and veterinary control, as well as due to other paid services, imposed by the Lithuanian side [19, P. 26]. The special agreement with the European Commission (EU Commission) and Lithuania, that was suggested by Russia, which would guarantee the stability of the regime and the conditions of transit and eliminate any possibility of their deterioration in the long term, has never been achieved.

In 2008-2009 the Kaliningrad region, like the rest of Russia, felt the effects of the global economic crisis.

The economic recession in the Kaliningrad region turned out to be more profound than the Russian average. In the industry and the manufacturing sector the recession was somewhat smaller (Table 4).

Table 4

The dynamics of the industry production in the Kaliningrad region and the Russian Federation as a whole, 2008-2009 (% to the previous year)

Compiled based on: [3, 5].

First of all, the crisis has led to a sharp decline in new import-substituting industries, which are the engine of the economic growth.

In 2009, the production of TV-sets declined by more than 70%; of microwave ovens by 80%, digital laser players – more than 80%, vacuum cleaners – more than 85%. The number of employed in the TV cluster of the Kaliningrad region by the end of the first quarter of 2009 decreased from 12 to 2.5 thousand people [11]. “Avtotor” in 2009 although remained the largest producer of foreign cars in Russia, but the production of cars in 2007-2009 decreased from 106.7 to 60.3 thousand cars [20]. Production in the furniture industry in the region by the summer of 2009 had decreased by about half compared to the previous year; about 8% of jobs were cut [14].

The curtailment of the pulp and paper industry continued. In May 2009 the “Neman Pulp and Paper Mill” LLC was declared bankrupt.

At the same time, commissioning of new enterprises in the period of 2008-2009 continued. For example, in 2008 in Chernyakhovsk the “Arvi NPK” LLC, which is part of the Lithuanian group of companies ARVI, launched the only plant in Russia, engaged in production of complex mineral fertilizers using the unique American technology of steam granulation; a high-tech fish-canning complex “Roskon” LLC was opened in Pionersky. In 2009, the Russian Corporation “General Satellite” (now – “GS Group”) launched the project “Area of scientific and technological development – Technopolis Gusev” and opened two plants – JSC NPO “TsTS” (production of digital set-top boxes for the reception of terrestrial and satellite television) and “Prankor” LLC (production of cases of TV set-top boxes and satellite dishes). In the same year, the corporation “Soyuz” has commissioned a plant for processing of edible oil in Kaliningrad and “Hipp” LLC, owned by the German company Hipp Gmbh&Co, opened a production facility for the production of baby food in Mamonovo.

The economic growth in the Kaliningrad region, as well as throughout Russia, resumed in 2010. However, already in 2012, the growth rate slowed down and this slowdown continued in 2013. In the industry in 2013 there was even a small decline in production compared to the previous year (Table 5).

Table 5

The dynamics of the industry production in the Kaliningrad region and the Russian Federation as a whole, 2010-2013 (% to the previous year)

Compiled based on: [3, 5].

Manufacturing remained the economic growth driver in the post-crisis period. Production of transport vehicles (automotive and shipbuilding industries) (production growth by almost 5 times) had the largest growth rate. Its share in the structure of the volume of shipped goods of own production, work and services by own means for the manufacturing industry for 2009-2013 increased from 30.4 to 57.1%. Due to the commissioning of the plant for the production of mineral fertilizers and the facility for production of polyethyleneterephthalate (PET), the volume of shipped goods of chemical production in the period of 2009-2012 increased by nearly 7 times. Its share in shipments of manufacturing industries for the period of 2009-2013 increased from 0.8 to 2.5% [21, P.89-90; 22 P, 19].

The resumption of the economic growth was based both on the post-crisis recovery of production at existing facilities, and the commissioning of new enterprises encouraged by the preferential conditions envisaged under the SEZ. For example, the following facilities were put into operation in industry in 2010-2014:

• “House-Building Plant “White key”” LLC (Gusev) – production of cottages of individual planning (2010);
• “The Fifth Element” LLC (Belkin, Krasnoznamensky District) – production of ceramic bricks and blocks (2010);
• “Group of companies “Atlantis””(near Ladushkin) – processing of fish and seafood (2010);
• “AMEKO-Kaliningrad” LLC (Mamonovo) – production of baby food (2010);
• “Food products” LLC (Gusev) – production of canned meat (2010);
• “Alko-Nafta” CJSC (Pregolsky) – the largest plant for the production of polyethyleneterephthalate (PET) in Russia and Eastern Europe with a nominal capacity of 220 thousand tonnes per year (2011);
• “The first cardboard factory” (Gusev) – production of corrugated packaging (2011);
• “National Product” LLC (Pravdinsk) – production of prepared and preserved products of meat and poultry meat, meat by-products and blood of animals (2011);
• “GS Nanotech” (Gusev) – production of complex hybrid microcircuits using the technology “System in Package” and “Flip Chip” and modern crystals from the advanced chips from the world’s leading producers (2012);
• Company “Avtotor” (Alexander Kosmodemyansky) – the complete production cycle of KIA Sorento cars (2013);
• “Siberian Delicacy Kaliningrad” LLC (Kotelnikovo, Zelenograd district) – production of meat products, including semi-finished products and sausage products (2013);
• “Kaliningrad delicacy” LLC (Kaliningrad) – production of meat and sausage products (2013);
• “BaltAgroKorm” LLC (Dobrovolsk, Krasnoznamensky District) – production of compound animal feed (2013);
• “Wallpaper factory “Prima Italiana”” LLC (Kamenka, Zelenograd district) – production of wallpaper (2013);
• “Infamed-K” LLC (Bagrationovsk) – production of the antiseptic “Miramistin” and eye drops “Okomistin” on its base (2014);
• “Technoservice” LLC (to the west of the village of Novoye Lugovoe, Guryev urban district) – production of gas silicate blocks (2014).

“Avtotor” in 2012 increased its car production up to 265 thousand cars [23]. In October 2013 the company started the construction of full-profile cluster of automobile industries. It is planned to build 5 automobile plants of the full cycle with the capacity not less than 250 thousand cars per year (up to 20% will be used for export) and 16 plants for the production of automotive components, which will be used not only for own production, but also for other Russian and foreign markets [24, 25].

As of 1 January 2014, the register of the SEZ residents in the Kaliningrad region included 89 organizations. The volume of their stated investments was 73.6 billion Rubles. The average number of employees of resident enterprises at the stage of entering the full capacity production is estimated to amount to more than 15 thousand people [26].

At the same time, curtailment of the pulp and paper industry continued. In 2010, the “Soviet pulp-and-paper plant” JSC was declared bankrupt. Back in 2008 it had suffered from a serious fire and ceased pulp production. By 2014, the firm had almost ceased to exist [27]. The Neman pulp-and-paper combine periodically stops its operation, having ceased its production in some seasons in the period of 2012-2014.

The basis for the industries in the Kaliningrad region is currently manufacturing, which accounts for 22.2% of gross value added generated by all types of economic activities, and 11.3% of the value of fixed assets. In 2013, in the manufacturing sector there were employed 65 thousand people (20.6% of all employed in the economy of the Kaliningrad region) [21, P. 20, 36].

Most industrial enterprises are small. Only the “Avtotor” CJSC and the “Baltic Shipyard “Amber”” JSC have more than 3,000 employees. “Vichunai-Rus” LLC, “Milk” JSC, “Kaliningrad containerboard mill” JSC and “Food products” LLC have from 1000 to 1500 employees [28].

The manufacturing sector is dominated by food production and production of transport vehicles and equipment. They account for more than 3/4 of the volume of shipped goods of own production, work and services by own means for the manufacturing industry, 57.5% of the value of fixed assets of large and medium-sized enterprises and organizations of manufacturing industries and more than 45% of the average number of employees in factories and organizations in the manufacturing sector (Table 6).

Table 6

Structure of the manufacturing sector of the Kaliningrad region in 2013, % of the total

Compiled based on: [22, P. 20, 28, 30].

The industry in the Kaliningrad region remains mainly import-substituting, based on the use of the SEZ benefits (primarily customs benefits) and continues to work for the national market. The majority of import-substituting industries are characterized by a very low share of value added. In 2010, the share of value added in the production of automotive products accounted for only 5.8%, the production of electronic industry – 14.8%, food industry in its part designated for export outside of the region – 13-15% [29]. Innovation of the import-substituting enterprises, as well as Kaliningrad’s economy as a whole, is low. In 2013, the proportion of organizations engaged in technological innovation in the total number of organizations in the Kaliningrad region amounted to only 3.8%, which is almost 2.5 times lower than even extremely low national average (8.9%) [30].

A characteristic feature of the import-substituting industry, established under the SEZ, is its “fragility”, dependence on the world situation and the state of the national market. In addition, the enclave economy to a greater extent than in other regions of Russia depends on the relations between Russia and the EU, which has been illustrated by the sanctions and counter-sanctions in connection with the events in Ukraine. Medium- and long-term prospects of most kinds of the industrial economic activity in the WTO and termination of the transitional regime regarding the SEZ in 2016 are considered to be negative (with the exception of mining and generation, transmission and distribution of electricity, gas and water) [31].

The changing geopolitical and economic conditions also require new strategies of the development of the Kaliningrad industry. Previous import-substituting industries based on duty-free import of raw materials and components will lose their benefits on April 1, 2016. However, companies will receive financial support in accordance with the Order of the Government of the Russian Federation #1275 dated November 29, 2014 [32], but it will only soften the consequences of the abolition of customs privileges, but will not get them back together with related economic mechanisms. It seems that in this new situation the Kaliningrad industry should move towards increasing the share of products with high added value, improve the quality and competitiveness of products, and introduce innovative products and new technologies. At the same time, small and medium-sized enterprises could act as subcontractors of leading industrial companies in the region, at least partially replacing foreign supplies. The transition to the innovative development of the industry in the region will require greater integration of science (in particular, the science and technology park “Factory” [33], established in the Immanuel Kant Baltic Federal University) and production, creation of new industrial parks and development of mechanisms for technology transfer both within the region and from other regions of Russia and from abroad.

It is necessary to encourage exports of industrial products, even more so that in connection with the fall of the Russian Ruble the Russian production including the Kaliningrad production has become more competitive in foreign markets in terms of price. For this purpose, in particular, it is necessary to bring production in compliance with international standards and provide certification for compliance with these standards.

The Kaliningrad region could become one of the Russian pilot regions of the so-called “third industrial revolution”, involving the introduction of advanced technologies, such as additive technologies, or technologies layered synthesis. For this purpose it is necessary to consider establishment of the Center for technological competence of additive technologies on the basis of one of the Kaliningrad enterprises with participation of Kaliningrad (and from other regions) universities and research centers.

Some steps in these directions have already been made. The Concept of Industrial Policy of the Kaliningrad region was approved on August 27, 2014 [7]. The following economic activities were identified as top-priority:

1. Production of food products, beverages and tobacco;
2. Chemical production (including pharmaceutical production);
3. Production of other non-metallic mineral products (construction materials, composite materials and products thereof);
4. Production of electrical, electronic and optical equipment (including production of TV devices and other consumer electronics);
5. Production of transport vehicles and equipment (automobile construction, shipbuilding and ship repair);
6. Other production (production of furniture, jewelry, items made of amber or with the content of amber).

The following main instruments of industrial policy are envisaged in the Concept of Industrial Policy:

1.         Programs for development of priority industrial clusters, industrial production chains;

2.         Formation of industrial zones and industrial parks in the Kaliningrad region;

3.         Support of priority investment projects;

4.         Reimbursement for exhibition and promotional activities;

5.         Subsidies for a part of the interest rates on loans, including those involved in infrastructure projects;

6.         Subsidies for certification and registration of trademarks;

7.         Subsidies for connection to the electric power system and energy supply devices;

8.         Subsidies for equipment leasing;

9.         Subsidies for training of production personnel;

10.       Subsidies for production (sale) of goods, work and services for the creation and development of the infrastructure of industrial and research parks;

11.       Organization of the exhibition and presentation activities to promote industrial products;

12.       Creation of trade missions in the Russian Federation and abroad;

13.       Creation of business incubators and research parks;

14.       Training of specialists;

15.       Implementation of the migration policy;

16.       Involvement of non-governmental organizations (associations) of industrialists and entrepreneurs of the Kaliningrad region in the implementation of industrial policy.

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25. “Avtotor Holding” LLC became a nominee of the “Development prize” in the North-Western Federal District // Expert online. 25 April 2014. URL: http://expert.ru/2014/04/25/nominantom-premii-razvitiya-po-severo-zapadnomu-federalnomu-okrugu-stal-proekt-ooo-avtotor-holding/ (Accessed: 17.03.2015).
26. Investments // Government of the Kaliningrad region. URL: https://gov39.ru/ekonomy/investicii.php (Accessed: 17.03.2015).
27. Seregin Maxim. The Soviet pulp-and-paper plant died, forget about it. // Russian West. 04.04.2014. URL: http://ruwest.ru/blog/?page=post&blog=max&post_id=349 (Accessed: 17.03.2015).
28. Data of the regional office of the Federal State Statistics Service in the Kaliningrad region.
29. Project of the state-run programme of the Russian Federation “Social and economic development of the Kaliningrad region”. P. 19 // Information agency «BigElectricPowerNews» URL:

http://www.bigpowernews.ru/photos/0/0_4fLrlvQkJiY14LUBoEKxcXv61Xk3neBM.doc (Accessed: 17.03.2015).

1. Federal State Statistics Service. Central statistic database. URL: http://www.gks.ru/dbscripts/cbsd/dbinet.cgi?pl=9420108 (Accessed 17.03.2015).
2. Zhdanov V.P., Krasnyansky I.Yu., Paletskaya T.M. Assessment of the development of the types of economic activities in the Kaliningrad region in the WTO and termination of the transition period regarding the FEZ in 2016: Analytical reviews of the Russian Institute of Strategic Research. – M.: RISR, 2013. – #1(36). P. 13-36.
3. Order of the Government of the Russian Federation dated November 29, 2014, #1275 “On provision of other interbudget transfers from the federal budget to the budget of the Kaliningrad region to ensure support of juridical entities operating in the Kaliningrad region, and residents of the Special Economic Zone in the Kaliningrad region” // Rossijskaya gazeta. 3 December 2014. URL: http://www.rg.ru/2014/12/03/oez-site-dok.html (Accessed: 17.03.2015).
4. Science and technology park “Factory” // Immanuel Kant Baltic Federal University. URL: http://www.kantiana.ru/innopark/(Accessed: 17.03.2015).

Yury Mikhailovich Zverev  – Candidate of Geographical Sciences, Associate Professor, Head of the Department of Geography, Nature and Spatial Development, Immanuel Kant Baltic Federal University, Kaliningrad.

[1] Enshrined in the Federal Law FZ-13 “On the Special Economic Zone in the Kaliningrad Region” (1996) and extended by ten years till April 1, 2016, by the new Federal Law FZ-16 “On the Special Economic Zone in the Kaliningrad region and on amendments to some legislative acts of the Russian Federation”(2006).

[2] Set for the SEZ residents who started the implementation of investment projects with total capital investment of at least 150 million Rubles within a period not exceeding three years (since 2006 under the Federal Law FZ-16). Tax incentives contributed to the appearance of major investors in the region. At the beginning of November 2007, there were 47 residents of the SEZ with the declared sum investment of nearly 26 billion Rubles [8]. These are large industrial, construction and transport companies. The largest implemented investment project at that time was carried out by “Sodrujestvo Soya” CJSC near Svetly. It was the commissioning of one of Russia’s largest oil-extraction plants (processing of imported soybeans), combined with the marine terminal (2007).