At first sight, the ancient city of Kazan, the capital of Tatarstan, looks anything but the centre of one of Russia’s main oil-producing regions.

There are few brash new skyscrapers to block the views of the historic Kremlin fortress. The glitzy casinos, strip joints and night clubs that populate the centres of some other Russian oil capitals are thin on the ground. The streets are not dominated by the expensive black limousines beloved of local business oligarchs elsewhere.

Instead, the roads are well-surfaced, the parks neatly kept and the municipal bus fleet bears all the signs of a recent overhaul. The new building that dominates the central Kazan skyline is not a hotel or an office block but a mosque, the biggest in Russia – opened in 2005 during festivities to mark Kazan’s 1,000th anniversary. And all around the city are new housing blocks, with flats not for millionaires, but for the city’s workers and their families.

Mintimer Shaimiev, the veteran Tatarstan president, is so proud that these housing schemes have now delivered new homes to more than 50,000 families that he has staged a special exhibition in Kazan’s newly-constructed race course.

“I have always acted like a good landlord,” says Mr Shaimiev, describing his economic policies during a recent meeting with foreign academics and journalists. His crucial decision was to keep control of Tatarstan’s key oil, gas and chemicals industries in state hands and out the reach of business oligarchs. At the same time, he encouraged private investment in other sectors, including from foreign companies.

The result is a mixed economy in which the state, in the form of the regional government, plays a big role, based on its control of the oil, gas and chemicals that contribute about 20 per cent of economic output and 30 per cent of local taxes.

Mr Shaimiev’s critics say too much economic power is in the hands of a few officials and their business associates. His supporters point to the fact that Tatarstan stabilised its economy after the collapse of communism faster than many other regions, and its success in investing public money effectively. Government officials concede that private entrepreneurs need more encouragement and have set a target of 30 per cent for the share of small and medium-sized enterprises in the economy by 2010. It was 19 per cent last year.

Mr Shaimiev, who has ruled Tatarstan since the collapse of the Soviet Union, attaches particular importance to stability because he knows how close the region came to chaos in the early 1990s. He and other leaders took the republic on the road towards independence before pulling back and negotiating an autonomy agreement with Moscow.

Today, those times are a distant memory. The Muslim Tatars, who form over half the 4m population, mostly live in peace with their ethnic Russian and other neighbours.

Growing prosperity helps to keep such tensions under control. According to federal Russian data, local monthly salaries average 10,500 roubles, or about 80 per cent of the national level. This puts Tatarstan well above the average of neighbouring regions in the Volga basin, just behind the richest, Samara, another oil and gas producer.

But, despite Tatarstan’s efforts to spread the benefits of its oil and gas revenues, income disparities remain wide. Energy sector workers earn an average of 30,000 roubles monthly, while more than 1m people survive at subsistence levels in peasant households.

Mr Safiullin says that the answer lies in growth, modernisation and diversification. The region’s economy grew by more than 6 per cent last year and by 9 per cent in the first half of 2007, due to high energy prices. The republic is trying to maximise its earnings from natural resources by adding value – while oil output is set to remain stable at about 30m tonnes a year, a doubling in the capacity of the petrochemicals industry is planned. Tatneft, the state-controlled oil group, and its partners are building a $3bn complex in the city of Nizhnekamsk.

Meanwhile, the region is renovating its motor industry, with the giant Kamaz truck factory at its centre. Kamaz’s annual output is well short of its Soviet era peak of more than 120,000 but it is now rising steadily, with 55,000 vehicles planned for 2007. Elsewhere, Severstal Auto, the motor arm, of the Severstal steel group, is investing €150m in car assembly in a joint project with Italy’s Fiat.

The regional authorities also have high hopes for their aerospace industry, with its core in the federal state-controlled Kazan Aircraft Production Organisation, a producer of civilian and military jets.