ULYANOVSK OFFICIALS STRESS WESTERN INVESTMENT TO

UNCLAS SECTION 01 OF 02 MOSCOW 000946 SENSITIVE SIPDIS E.O. 12958: N/A TAGS: PREL PGOV KDEM ECON EINV PINR RS SUBJECT: ULYANOVSK OFFICIALS STRESS WESTERN INVESTMENT TO VISITING CODEL ROGERS ¶1. (SBU) Summary. Congressman Michael J. Rogers (R-MI) and Ambassador Beyrle traveled to the Ulyanovsk region on April 9 for a better understanding of how the economic crisis is affecting regional economies beyond Moscow's beltway. The Ulyanovsk administration used the visit to tout its successes in bringing foreign investment to the region, highlighting Mars factories to produce chocolates and pet food, an SAB-Miller brewery, and a new, federally approved customs-free zone around one of the city's three airports. Tours of the giant Aviastar plant, which is building the middle-range passenger/cargo Tu-204 aircraft and built the AN-124 Ruslan, the world's largest production cargo hauler, and the privately-held Volga-Dnepr air heavy-lift company, demonstrated the region's high hopes to expand Soviet-era aircraft manufacturing capacity. Administration officials acknowledged that the region faces the daunting challenges of managing growing unemployment and falling salaries. End Summary. ¶2. (SBU) The Ulyanovsk regional administration used the visit of the Ambassador and Congressman Rogers to emphasize its commitment to drawing in Western investment, not only as a part of its anti-crisis program, but also as a means to prepare the region for post-crisis growth. Minister for Industry Vildan Vinnurov acknowledged the benefits of competition and the region's need to make itself attractive to investors. On one hand, that means providing incentives for investors, such as the tax breaks and other benefits offered to woo Mars to Ulyanovsk. According to Vinnurov, this involves improving the transportation infrastructure and access to markets. In this regard, Deputy Chairman of the Regional Government Vladimir Kozin emphasized not only the 2010 completion of the twenty-year project to build a second bridge over the Volga (an engineering marvel and second longest in Europe) as a means to relieve the hour-long wait and heavy traffic over the Soviet-era 2-lane bridge, but also a key link in the federal program for improvement of the road transportation corridor between Nizhniy Novgorod and Samara. The region also boasts plans for improving the rail network and won a federal competition for a tariff-free port zone based at the city's Eastern Airport. Perhaps most important, the regional administration has the imagination to see a booming industrial zone built on the black earth fields around the airport and is investing in the infrastructure to make those dreams come true -- despite the shadow of the present economic crisis. An Important Partner for the U.S. -------------- ¶3. (SBU) The professionalism and efficiency of the Volga-Dnepr company, centered in Ulyanovsk, but with offices worldwide, offered evidence of a regional company that "gets it" when it comes to the competitive global market of international air transport. The company's comparative advantage comes from the unsurpassed lift capacity of the firm's 10 AN-124s (providing special services to move oversized cargoes for GE, Boeing, LUKoil, and many other firms) as well as other transport aircraft. Company President Alexey Isaikin also told the delegation about his plans for expanding Volga-Dnepr over the coming years, moving into cargo transport markets with new Boeing aircraft and an idea of building the AN-124 fleet by buying 40 new aircraft (Aviastar, the manufacturer, has indicated that it will take a significantly larger order to re-open the line). He discussed the role that Volga-Dnepr plays in supporting U.S. military efforts in Iraq and Afghanistan under contract through the Air Mobility Command; the firm undertakes an average of 40 AN-124 missions per month and more than 300 missions with their IL-76 transport aircraft. (The number of missions varies widely based on AMC's needs and requirements.) Isaikin's team seemed confident that the company would continue to see increased demand for its services and was largely unconcerned that revenues from the U.S. military operations could one day diminish or even cease as the conflict wanes, believing that civilian demand would grow to fill the gap. ¶4. (SBU) Volga-Dnepr's future depends far more on the fate of the Aviastar factory, particularly its need to replace or upgrade existing "Ruslan" AN-124s and expand its fleet. Isaikin said that his firm would order 40 new Ruslans from Aviastar, if production of that model was resumed at the plant. However, without government support and secure contracts for more aircraft, the Volga-Dnepr team have concerns that their plans for a modernized version of the aircraft might not be realized. Currently, Aviastar is keeping its head above water producing the TU-204 (building about one to two planes per month) and doing maintenance work MOSCOW 00000946 002 OF 002 on several models of aircraft, including the AN-124. A Firm Hand -------------- ¶5. (SBU) In his presentation, First Deputy Governor Kozin gave credit for Ulyanovsk's success in attracting investment (claiming that the region took first place in the Volga area) to the "wise and far-sighted" team around Governor Sergey Morozov. Morozov, with his roots in the Ministry of Internal Affairs, appears to be a "law and order" administrator, yet with a pragmatic plan for furthering economic development. Indicative of the former aspect, his administration has imposed a curfew on youth under 16 between 10 p.m. and 6 a.m. and implemented a ban on sale of spirit alcohol after eight in the evening. For the latter, he has taken a no-nonsense approach to the economic crisis, forming eight separate committees to deal with a host of issues from garnering new investment to insuring social stability. He has spent considerable time in Moscow recently, negotiating for greater federal support for the region and, to that end, demonstrating his commitment to Prime Minister Putin and the federal administration. (Indeed, he was in Moscow during the delegation's visit, precluding a meeting with Representative Rogers). Typical of his efforts to gain Moscow's favor, a regional contact told us that Morozov had backed a "Day of South Ossetia" in February that feted the "ambassador" from the separatist region and hosted several cultural acts to show his support for Moscow's newest protectorates and the decision to recognize the Georgian regions as independent states. ¶6. (SBU) Morozov appears to be a man of contradictions. He took special care to support civil society development during his first years in office and has directed that his top administrators learn to speak at least some English (although our host joked that this had yet to be realized). At the same time, he has strengthened control over the regional media, according to a regional source, and carefully manages the political process in the region. That tendency toward micro-management was evident even in the planning of the visit, as the administration insisted on approving even the list of Open World alumni for a meet-and-greet with the Ambassador and Congressman. Indeed, the visit was arranged carefully to focus attention on the positive developments in the regional economy with little discussion about the increasing problems of unemployment (or underemployment) and falling salaries. Comment -------------- ¶7. (SBU) The delegation's trip to Ulyanovsk underscored the importance of U.S. and other foreign investment, outside of the sometimes scandalous happenings in the more lucrative and politically important energy and resource extraction sectors. Ulyanovsk, lacking the natural resources to support those types of industries, has focused on attracting industry and technology -- with some success. The care in which the administration managed the trip suggests that there is certainly more going on in the region, both economically and politically, beyond the quick glimpse that the Ambassador's and Congressman's daytrip provided, some of which will be discussed SEPTEL. End Comment. ¶8. (U) Representative Rogers cleared on this message. BEYRLE