Development Challenges for a Single-Industry Mining Town in the Russian Arctic: The Case of Kirovsk, Murmansk Region

This article was originally published by the Center for Security Studies on 14 September 2015.

Abstract:

Arctic single-industry towns are settlements of a special type, due to the influence of the specific economic, geographic, natural and climatic factors that shape them. From a socio-economic development perspective, single-industry towns face higher development risks associated with the “boom–bust” nature of their economies and the corresponding social problems. How is the situation developing now? What measures is Russia taking on the federal and regional levels to support single-industry towns and what are local governments doing themselves? How do local communities in single industry towns react to the measures and how do they try to cope with the development challenges they face? This article briefly discusses these questions, taking the town of Kirovsk in the Murmansk region as an example.

Kirovsk: A Single-Industry Town

Single-industry towns in the Russian Arctic exist as a legacy of the large-scale exploitation of natural resources in the north during the Soviet period (1930s–1980s). One of them is the town of Kirovsk, which was founded in the beginning of the 1930s, following the decision of the Soviet government to develop the rich deposits of apatite-nepheline ores discovered nearby in the 1920s.“Apatit” became the town-forming enterprise, which in 1929 started extracting apatite-nepheline ores and since 1931 processing them at an enrichment plant for the production of apatite and nepheline concentrates. The concentrates then are delivered to central Russia to produce mineral fertilizers and other products.

During the entire Soviet period (up to 1992) the Apatit state enterprise controlled industrial production as well as most of the town’s social sphere. Generally, the area’s social infrastructure units—housing and communal services, retail trade and catering, health care, sport, and culture—functioned as subdivisions of the enterprise. In 1993 the enterprise was transformed into the Apatit Joint Stock Company. The 1990s were a period of deep crises for the company since production fell to barely more than a quarter of its previous level. In 2002 the company was merged into the PhosAgro group of companies—a Russian vertically integrated holding company and one of the world’s leading producers of phosphate-based fertilizers. ¹ Today 100 percent of Apetit stocks are owned by the PhosAgro holding. In 2012 the Apatit company, having four open and underground mines and two processing plants, produced more than 90 percent of the town’s total industrial production and employed 32 percent of the workforce (6,400 individuals of the town’s 20,000 working age population). The total number of the company’s employees that time was 11,600 people (Riabova & Didyk 2014), but the situation has changed considerably since then. The town of Kirovsk is the administrative center of the municipality with the same name, having the legal status of an “urban district.” The territory of the urban district is 3,600 km2 (2.5 percent of the territory of the Murmansk region), where besides the town there are two rural settlements—Titan and Koashva.² By the beginning of 2014, the population of the municipality was 29,900 people,³ including those living in the town of Kirovsk (pop. 27,700), and in the settlements (pop. 2,200 people) (Municipalities of the Murmansk region, 2014). The Apatit company, in addition to its crucial role for the Kirovsk municipality, historically was the townforming enterprise for the neighboring city of Apatity.

The latter obtained city status in 1968 mainly because of the fast growth of the population due to the construction of the second apatite-nepheline beneficiation plant (ANOF-2) and the development of the construction base for the further expansion of the Apatit company’s production facilities. Today the population of the city of Apatity is 57,800 people. Even though it is not recognized as a single-industry town, a significant part of its workforce (5,600 people, or about 24 percent of those employed) work in Kirovsk, mainly at the mining enterprises of the Apatit company and the North-Western Phosphorous Company Ltd. (NWPC).

NWPC: A New Company in Town

NWPC began operations in 2005 as a mining company in Kirovsk municipality and its establishment weakened the almost monopolistic position of the Apatit company on the local labor market. NWPC was founded as a subsidiary company of the joint stock company Acron, a large fertilizer manufacturer and consumer of apatite concentrate in Russia. Acron previously purchased concentrate from Apatit and, due to the monopolistic position of the latter on the Russian market, disagreed with Apatit over the price for the concentrate. Acron created NWFC to ensure its own source of the raw material at lower prices. In October 2006, NWPC won a competition to acquire the state mining license to develop two new deposits of apatite-nepheline ore. The sites are known as Olenyi ruchei and Partamchorr.

In 2007 construction began on the mine and processing plant at the Olenyi ruchei deposit and they opened in 2012. Today NWPC employs about 2,000 workers, more than half of whom live in the city of Apatity. NWPC’s implementation of the new mining project provoked serious conflicts among several interested parties. First was the conflict between the Apatit company and the new NWPC, since they became direct competitors in producing and supplying apatite concentrate in Russia. Moreover, the new competitor started using ore deposits, which Apatit considered its own future reserves. Second, launching the mine and the new ore processing factory caused conflict with environmental NGOs since the deposits and the processing plant were located in close proximity to the Khibiny National park, which the Kirovsk municipality planned to establish in 2015 on its territory. In spite of the conflicts, the new mining project had the active support of the Murmansk region government which liked the large investments (around 1 billion USD) in the region and expectations for generating additional tax revenues for the regional budget. Likewise, the project promised to provide benefits to the Kirovsk municipality: additional jobs for the locals and the possibility of reviving the formerly depressed rural settlement of Koashva, situated in the vicinity of the newly developed deposits (Riabova & Didyk 2014).

Despite the appearance of the new large mining enterprise in the municipality, the Apatit company’s dominant role as the town-forming enterprise for Kirovsk remained. As the owner of a large part of the social infrastructure during the Soviet period and given its crucial role in making social policy at the local level, Apatit used to behave as a socially responsible company not only towards its employees, but for the relevant local communities. ⁴ Even though strategic decisions were taken in the holding’s headquarters, which were located outside of the region, the company’s operational decision making, including for social policies, was locally based and the top managerial staff had strong personal attachments to the local community (ibid).

In general, up to April 2013, the situation in the Kirovsk municipality remained quite stable, with promising prospects for future development. This optimism was clearly reflected in the area’s two interrelated strategic planning documents, the “Comprehensive investment plan for modernizing the monotown of Kirovsk” (CIP 2010) and the “Strategy for the socio-economic development of the Kirovsk municipality through 2020” (Strategy 2011). Preparation of the strategic documents was mainly shaped by the policy measures taken by the Russian government in response to the global financial and economic crisis of 2008–2009. These measures included efforts to stabilize the situation in mono-profile settlements, and envisioned financial support for investment projects. One of the requirements to obtain such federal support was preparing Comprehensive Investment Plans (CIP) for the settlements’ development in the long term (10 years), according to methodological recommendations suggested by the Russian Ministry of Regional Development (Minregion of Russia). In the Murmansk region, due to the active position of the regional government, all eight mono-profile municipalities, which were included in the official list of such municipalities,⁵ prepared CIPs.

The CIP of Kirovsk municipality was presented in Moscow, but did not win any financial support ⁶ probably because of the stable position of the town-forming Apatit company at that time. The main target indicators, which were fixed in the strategic plans, and the estimated actual results by 2015, are presented in the table below. The data demonstrate that in 2010–2011 the local government planned to overcome the previous trend of population decline and already by 2015 to reach a healthy growth rate of 10 percent. Moreover, in both strategic planning documents the municipality’s population was anticipated to reach 35,400 people by 2020. The main factor stimulating such growth was planned to become diversification of the economy, with an emphasis on developing the tourist industry. Indeed, Kirovsk is well situated for developing tourism related to winter sports and hiking. Thanks to the nearby Khibiny Mountains, Kirovsk is a well-known alpine skiing resort in Russia and abroad. However, although most of the investment projects planned in the 2010 CIP have not been realized yet, one of the key among them was recently completed successfully: construction of modern multi-person gondola and chair lifts with the related ski service infrastructure. The investment project was realized through a public-private partnership with the participation of the regional government, the Apatit company and the Kirovsk municipality. Nevertheless, the positive example of the project’s completion could not ensure the achievement of the planned development objectives. The main reason was the dramatic change in the situation of the town-forming company Apatit.

Troubles for Kirovsk

Beginning in April 2013 Apatit’s main owner, the holding PhosAgro and its managing company Phosagro AG, forced the company to implement a new, deep-restructuring program aimed at reducing operational costs and raising labor productivity.⁷ The restructuring anticipated the dismissal of more than 2,000 employees in 2013 and 3,000 in 2014. Most of the laid-off staff were moved out of the company into outsourced companies or simply retired. As a result, the total number of the company’s employees dropped from 11,600 in 2012 to 7,1008 by the beginning of 2015.

This downsizing led the Russian Federation special governmental commission to include Kirovsk in the list of single- industry towns with the most difficult socio-economic situation in 2013. This decision was confirmed in 2014 when Kirovsk was included in the first category of the new official list of Russian mono-profile municipalities, i.e. the municipalities with the most difficult socio-economic situations (Decree 2014). Moreover, during the last decade, the company has been transferring all its social objects (the sport complex, palace of culture etc.) to the Kirovsk municipality. As a result, the burden on the municipal budget increased substantially. Over the last decade, the decision making process in regard to the company’s activities, including its social policies, was concentrated outside the Kirovsk municipality. Gradually the top managerial staff of the company was replaced by newcomers from outside the community. These personnel changes obviously led to the weakening of the company’s previous commitment to social responsibility (Koivurova 2015). The company’s change in behavior, in turn, seriously undermines opportunities and prospects for sustainable development within the local community.

The latest unexpected event, which also would have negative consequences for the development of Kirovsk municipality if it is implemented, is the decision to close the Khibiny Technical College. This decision was made in the beginning of 2015 by leaders of the National Mineral Resources University (“Gorny”, St. Petersburg), since the college for the last few years functioned as the university’s branch. The rector has already issued orders to stop admitting students for the 2015–2016 academic year.

The college is the oldest institution providing vocational education in Murmansk region; it was founded in 1931 as a mining-chemical college. More than 700 students are currently studying there in eight specialties. The loss of such an important educational institution, in addition to the recent closure of the Kirovsk branch of Kostroma University, unavoidably will hamper development prospects in the municipality.

The unfavorable changes in Apatit company policy and the town’s social sphere9 obviously generate anxiety among local people. In response, some residents began to collect signatures in support of a letter asking President Putin to prevent the closure of Khibiny Technical College. Such examples of actions taken by the local community are rather exceptional. Usually, due to weakly developed local civil society institutions, public participation in the urban development process, both at the stage of planning and implementation is low.

Sustainability Challenges

Given the current situation, the single-industry town of Kirovsk faces the following sustainability challenges, which demand responses:

1) The demographic challenge. The demographic situation is the main integrated indicator of viability for any community. Despite the fact that achieving population growth was among the main targets in the Kirovsk municipality strategic development plans, the negative trend of population reduction due to both natural losses and migration continues. Taking into account that both major factors driving such losses—emigration outflows and a high mortality rate—are now beyond the control of the local authorities (in particular, health care services), most probably the trend will continue.

2) The challenge of future economic development. The crucial role of the mining industry for the economy of the municipality in the foreseeable future will be preserved. Such is the admission in all long term plans for municipal development, even as they emphasize the need for diversifying the local economy. Such diversification, with the development of the tourist industry as the main method for achieving this end, has to be promoted even more actively under current conditions when the town-forming mining company is rationalizing its operations and cutting personnel. The growing problems of unemployment can be addressed only by means of economic diversification.

3) The local social sphere development challenge. The social sphere, including education, housing, communal services, health care, sports, and culture, is a key determinant for the local people’s quality of life. Most of these services are under the direct control of the local government. Such direct control means that, despite the chronic shortage of available resources (first of all financial), developing the sphere has to be the highest priority for the local government.

4) The environmental challenge. The unique natural landscape and other environmental assets are an essential resource for the Kirovsk municipality, taking into account its ambitions to develop its tourist industry. The progress of the Khibiny National Park project, which is planned to be realized in 2015 (after a long period of preparation) is an important step toward protecting the environment and establishing a tourist industry. The large-scale mining activities on the territory of the municipality inevitably have a harmful environmental impact. A permanent search for compromise decisions addressing the tradeoffs between the interests of mining development and environmental protection require the participation of the local government and community to cope with the challenge.

Obviously these challenges cover only part of those faced by the local community in real life. Some of them are defined by external factors, which the local community cannot respond to adequately by itself and independently to achieve sustainability. Most important among them is the economic policy of the town-forming mining company. The company’s interest to enhance its own economic efficiency leads to negative social consequences under the conditions of a single-industry town.

In the case of the Kirovsk municipality, the capacities of the local government and community to withstand the negative consequences are not enough, particularly in light of the worsening socio-economic situation. At the same time, the local government can more actively take advantage of such internal development resources as strengthening the solidarity of the local community, increasing public involvement and participation in local governance decision making, and boosting efficient partnership between the public and private sectors.

Under Russia’s institutional conditions, with a high level of power centralization, the critical role for achieving sustainability goals at the local level, especially for single-industry municipalities, lies with state support from both federal and regional governments. However, taking into account the current economic crisis, chances to win significant state support for single-industry towns are low. Therefore, perhaps the only realistic way to develop the Kirovsk municipality is to mobilize all internal resources and capacities to soften, at least, the negative impact of unfavorable socio-economic trends on the local community.

1. For more information, see external pagehttps://www.phosagro.com/about/call_made

2. Both settlements were founded to support Apatit’s operation:Titan in the 1930s as agricultural settlement to supply food to the enterprise and citizens of Kirovsk; Koashva at the end of the 1970s as a mining settlement connected to the construction and operation of one of the Apatit enterprise’s open pit mines.

3. By the beginning of the 1990s, the population in Kirovsk exceeded 40,000 people, with a permanent declining trend in subsequent years.

4. There are a lot of examples of socially responsible behavior by the Apatit company toward local communities, including improving urban infrustructure and realizing socially significant projects in the spheres of health care, education, and culture.

5. The official list of mono-profile municipalities of the RF had been annually approved by Minregion of Russia since 2009 in accordance with Ministry criteria. The latest version of it –as of July 26, 2013—contained 342 localities. In 2014 the function of policy formation toward single-industry municipalities was moved to the RF Ministry of Economic Development. The latter suggested new criteria for official recognition of single-industry status to be eligible for federal support measures (Decree of the Government of 29.06.2014 No. 709) and developed the corresponding new list of mono-profile municipalities with three categories of such municipalities, depending on the risks they face in socio-economic development (Decree 2014).

6. In 2010 financial support from the federal budget was provided to two single-industry towns from Murmansk region—Kovdor and Revda. In total during 2010–2011, federal financial support was provided to 50 single industry municipalities, out of them three are located in the Russian Arctic.

7. Actually the company introduced some reorganization measures designating internal service subdivisions as separate companies in 2007 and 2011.

8. The data are from annotated part of the Forecast (2014).

9. Beside the events in the educational sphere described here, there a lot of complains about the poor organization of medical services (after the reform of the municipal health care system in 2012, when it was transferred to the purview of the regional government, which merged the Kirovsk and Apatity hospitals), and housing and communal services (especially problems with organizing housing repairs).

References

CIP 2010. Comprehensive investment plan for modernizing the monotown of Kirovsk. Available at : external pagehttp://minec.govmurman.ru/files/4_3.doc#_Toc260749594call_made [Accessed 03.04.2015] (In Russian) Decree 2014.

Decree of the Government of the Russian Federation of 29.07.2014. No. 1398-r. Available at external pagehttp://pravo.gov.ru/proxy/ips/?docbody=&nd=102356578&intelsearch=%F0%E0%F1%EF%EE%F0%FF%E6%E5%ED%E8%E5+%EF%F0%E0%E2%E8%F2%E5%EB%FC%F1%F2%E2%E0+%D0%D4+%EE%F2+29.07.2014+%B9+1398-%F0call_made[Accessed 17.03.2015] (In Russian)

Forecast 2014. Forecast of socio-economic development of the Kirovsk municipality for the period of 2015–2017. Available at: external pagehttp://kirovsk.ru/files/npa/adm/2014/1417/prognoz_2015_2017.pdfcall_made [Accessed 17.03.2015] (In Russian)

Municipalities of the Murmansk Region. 2014. Statistical yearbook. Murmanskstat—Territorial body of the Federal Service of State Statistics in Murmansk Region, Murmansk, 2014.—186 p. (In Russian)

Koivurova, T., Buanes, A, Riabova, L., Didyk, V., Ejdemo, T., Poelzer, G., Taavo, P. 2015. “Social license to operate”: a relevant term in northern European mining? (In press)

 
Riabova, L. and Didyk, V. “Social License to Operate for Mining Companies in the Russian Arctic: Two Cases in the Murmansk Region.” Arctic yearbook 2014. Available at: external pagehttp://www.arcticyearbook.com/index.php/briefing-notes2014/120-social-license-to-operate-for-mining-companies-in-the-russian-arctic-two-cases-in-the-murmansk-regioncall_made[Accessed 02.04.2015]

Strategy 2011. “Strategy of socio-economic development of the Kirovsk municipality up to year of 2020” Available at external pagehttp://kirovsk.ru/files/npa/sovet/2011/85/strateg_2020.pdfcall_made [Accessed 03.04.2015] (In Russian)