Russia is setting up a state corporation to promote economic growth in its Asian regions. The would-be corporation will be tasked to create infrastructure and back investment projects. Analysts say it will be a kind of “state in a state” subordinate directly to the president. They hail the strategy towards developing Russia’s Siberian and Far Eastern territories but say it will not be very easy to implement it. More to it, few of the existing state corporations have proved their efficiency.
The idea of such a state corporation was voiced more than two months ago. The then Emergencies Minister, Sergei Shoigu, submitted to Prime Minister Vladimir Putin his proposals to set up a state corporation that would be vested with both coordination and managerial functions, including allocation of resources on large-scale infrastructure projects in Siberia and the Far East.
According to experts, initiating the idea of a state corporation, Putin was guided by considerations of better use of budgetary funds allocated to encourage economic development in East Siberian and Far Eastern regions. Over almost twenty years of its existence, the current federal development program for these regions has brought about almost no results: people go on fleeing these territories.
The country’s ministry of economic development has shaped this initiative into a bill quoted by the Friday issue of the Kommersant newspaper. Under a draft law on the development of East Siberia and Far East, sixteen Russian regions, accounting for about 60 percent of the entire Russian territory, will be exempt from federal laws on natural resources, on forests, on land, on urban development, on labour, and on citizenship. Thus, the state corporation will be authorized to allocate federal mining licenses at its own discretion.
The would-be state corporation will regulate the implementation of investment projects in the republics of Altai, Buryatia, Sakha (Yakutia), Tyva, Khakassia, the Transbaikal, Kamchatka, Krasnoyarsk, Primorsky, Khabarovsk, and Altai Territories, in the Amur, Irkutsk, Magadan, and Sakhalin regions, in the Jewish autonomous region, and in the Chukchi autonomous area.
Among its competences there will be the construction of infrastructure needed for the implementation of top-priority investment projects in these regions. “Business is interested in this region but its development is hampered by the lack of infrastructure,” the Vedomosti newspaper cites an anonymous federal government official.
The new state structure that will be headquartered in Vladivostok will enjoy most favourable conditions, such as a special procedure of obtaining mineral and forest resources management licenses, simplified regulation of urban development and land relations. Russian citizens, who will be willing to take part in projects, will be granted state support (free tickets to the places of their future jobs, lump-sum allowances to organize their everyday lives at new places, compensations of tenancy charges within the labour contract but no longer than for one year), while foreigners will enjoy a simplified employment, registration and citizenship obtaining procedures.
A separate bill is to be passed to amend the current federal laws to give priority to the law on the development of Siberia and the Far East. Thus, having a corresponding resolution of the government, the state corporation will not have to take part in any auctions or tenders envisaged by the current laws to be granted the right to use natural and forest resources on land plots allocated for the implementation of investment projects.
Meanwhile, the territories covered by the bill are very rich in various resources. Thus, Russia’s biggest gold mine, the Sukhoi Log, is located in the Irkutsk region. All key players in the sector have showed interest in this mine, which is still unallotted. The Krasnoyarsk Territory has big iron ore deposits, the Udorongskoye and Nizhneangarskoye, and an oil field, the Lodochnoye. There are coal deposits in Tyva.
Apart from that, the state corporation and its projects will be exempt from tax laws and will be granted large-scale tax preferences.
Moreover, the bill has it that neither federal nor regional authorities may interfere in the work of the state corporation. It is the Audit Chamber only that is authorized to check it “in line with the established procedure.” As a matter of fact, the would-be state corporation will be subordinate directly to the Russian president, who will be entitled to appoint and dismiss its supervisory board and director general.
So far, according to Kommersant sources, it is not known who will be the head of this “state in a state,” already dubbed as the new Far Eastern republic.
It is expected that the life term of the new mega corporation will be 25 years but its projects are to be much shorter. The state corporation will be obliged to withdraw from the capital of participants in its projects within five years, and within two years – from their real estate. After the corporation is wound up, its assets will go back to the state.
As of yet, there are no exact figures concerning overall expenditures of the corporation but obviously they will be colossal, the Vedomosti cites a government official. “The current sum of all investment projects in Siberia and the Far East stands about two trillion roubles, a much bigger sum will be needed,” he said.
It is planned that the state corporation will use private investments to implement its projects. The state will not stand aside either. As a property contribution, the ministry of economic development proposed to hand over to the corporation all proceeds from the management of the National Welfare Fund (2.6 trillion roubles as of March 1, 2012) within ten years. The fund was set up in 2008 to co-finance people’s voluntary pension savings and to make up a deficit of the Pension Fund. In 2011, the return on the fund’s investments was 2.67 percent, or as many as 48.2 billion roubles returned to the budget.
Experts are positive about the idea of the state corporation, although with some reservations.
Politically, Russia’s Siberian and Far Eastern regions are drifting away from European Russia towards Asia Pacific countries, the newspaper cites Alexei Skopin, professor of the Higher School of Economics. These territories are in the focus of interests of a number of countries. “Here are Japan’s claims on the Kuril Islands, as well as China’s peaceful expansion, United States’ questions about Chukotka and Kamchatka, with their rich oil reserves,” he said.
So, in his words, a common transport infrastructure is needed to keep these territories in the geopolitical sense. From the point of view of economics, proper transport infrastructure is needed to meet growing demands for raw materials in the Asia Pacific region.
“Strategically, the idea is very timely,” Skopin said. “But the implementation format is not that right: the years of the existence of state companies have proved their inefficiency, so nothing better can be expected from another such company.”
According to Yevgeny Gavrilenkov, the chief economist of Troika Dialog, few of state corporations have proved efficient since 2006-2007, although in general they are coping with their tasks. A new state corporation is “a step of the last hope,” the Nezavisimaya Gazeta daily quotes him as saying.
The state corporation, whatever vast administrative resource it might have, will hardly be able to solve all problems of the region, said Yakov Dubenetsky, a senior research fellow with the Institute of Economic Forecasting of the Russian Academy of Sciences. “The key question is whether it will be able to attract private capital to the East Siberian and Far Eastern regions. For these ends, both Russian and foreign businesses will need affordable loans and tax privileges,” he stressed.
MOSCOW, April 20