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The Far East: Resource Frontier or Driver of Growth?
3 June 2021
Preferential regimes had a significant impact on business development

Over the last 7.5 years, the Far East has been developing as a business project, which includes business planning principles, investor attraction and cooperation principles – much like any business would operate. <…> Over 2,600 investment projects under preferential regimes. Over RUB 5.5 trillion of committed investment, with over RUB 1.5 trillion already invested. The measures we struggled so much to get approved for the Far East are unprecedented. The Russian Federation does not have any other preferential regime that would be comparable to this one. Among other things, it covers social taxes, which is very important for entrepreneurs. We get criticized for this. However, thousands of jobs – over 60 thousand – have been created. Social taxes account for 7.6% instead of 30% as everywhere else — Alexey Chekunkov, Minister for the Development of the Russian Far East and Arctic.

This is a significant growth point for SIBUR. <…> We are building a gas chemical plant, which is the country’s biggest and one of the world’s biggest, with a capacity of 2.7 million tonnes of polymers. This project is being implemented through close industrial cooperation and a true partnership. <…> Generally, polymer production growth has been exceeding the GDP by 1–1.5% annually over the last 30–35 years. <…> We have brought various specialists, process operators, engineers, and construction experts from 10 different regions of the Russian Federation — Mikhail Karisalov, Chairman of the Management Board, Chief Executive Officer, SIBUR .

Better quality of life in the region

As for the Far East, it is not just a frontier or a driver. This is a region that is important for the development of the Russian Federation as a whole. Recently, a lot has been done in terms of social aspect. If earlier 31 thousand people left this region annually, now we are down to 20 thousand — Svetlana Orlova, Auditor of Accounts Chamber of the Russian Federation .

We have a programme to support the locations with large projects. The town of Svobodny boasts a natural gas cluster. The town of Tsiolkovsky has a spaceport. The town of Skovorodino has a methanol plant. Some of those large projects are already paying taxes, which we are using to upgrade the social infrastructure in those communities ahead of schedule. <…> It is done to help those facilities with workforce and to take the quality of life to a whole new level — Vasily Orlov, Governor of Amur Region.

The region’s industrial facilities use cutting-edge technologies

We will be the first ones in the world to use unmanned vehicles. We will be using about 80 unmanned dump trucks with a capacity of 350 tonnes. <…> We will have fully automated drilling units – they will not have to be operated by people. We will also use the world’s largest semi-automated excavators — Oleg Novachuk, Chairman of the Board of Directors, GDK Baimskaya.

As of today, our facility will be getting over 3 million tonnes of feedstock from the Amur <…> Gas Processing Plant. Gazprom set up this largest ethane processing operation. We are developing this resource. This is a unique facility in our country. We mostly look up to the countries of the Persian Gulf – they focus on this light feedstock. Ethane is a precious feedstock that is now used as a fuel alternative. Such a large project for processing ethane and light gases is one of a kind both in Russia and globally, unfortunately — Mikhail Karisalov, Chairman of the Management Board, Chief Executive Officer, SIBUR .

All facilities that operate on Sakhalin keep track of their emissions. <…> These operations are global energy leaders. They increase their efficiency though reducing their energy consumption, which means they reduce their carbon footprint — Valery Limarenko, Governor of Sakhalin Region.

Feedstock as a product of primary processing accounts for a significant share in the economy of the Far East

We have a whole pool – a triplet – of projects in gas chemicals and gas processing. <…> These projects are worth over USD 20 billion total. Besides, you already know about the construction of the Vostochny Cosmodrome and the second line of the Baikal–Amur Mainline. Thanks to all of that we can actually declare an investment of RUB 2 trillion. On our part, we must do our absolute best in gas chemicals and get to secondary and tertiary processing in order to make sure these operations stay in our region — Vasily Orlov, Governor of Amur Region.

Underdeveloped infrastructure

There is an overall lack of border control points. <…> Traffic jams at border crossing points did not go anywhere. If we want to take our turnover with China up to USD 200 billion, <…> we need to use vehicles. Vehicles take roads at least. If you divide 200 billion by the average cost of a truck (USD 30 thousand), you will get 2 million vehicles. We have been unable to cope with 20 thousand vehicles. We need to understand that one needs blood vessels for the blood to run — Sergey Kolesnikov, President of TechnoNIKOL Corporation.

There is no infrastructure for large operations. <…> It is hard to find a site in Primorye that would have gas supply, electricity, and transport accessibility. The main problem is infrastructure, infrastructure, and infrastructure. If it were in place, I am confident that both Korean and Russian investors would have invested — Sergey Kolesnikov, President of TechnoNIKOL Corporation.

Low level of localization

Localization, or the so-called clusterization, is among the things that definitely worry us. It is not developing at all. <…> Basically, we are registering a good employment level (if compared to other facilities). Employees enjoy good income levels. However, localization does not exceed 1%. <…> Despite all Government decrees and plans, this process is stagnating. We have prepared sites (Komsomolsk is among them) for investors to enter and launch new operations. However, there is no guaranteed demand — Mikhail Degtyarev, Acting Governor of Khabarovsk Territory.

Ensuring stable conditions for business

Recently, the State Duma reviewed amendments to the Federal Laws ‘On Advanced Development Territories’ and ‘On the Free Port of Vladivostok’. We are transitioning from the principle ‘one can do whatever is allowed’ to the principle ‘one can do whatever is not prohibited’. <…> Entrepreneurs do not bear the risk of interpretation, whether their benefits are legitimate or not — Alexey Chekunkov, Minister for the Development of the Russian Far East and Arctic.

<…> Law 223 needs to be amended, while we need to transition to long-term contracts for at least seven years. This will help investors with a planning horizon. Same refers to the Baikal–Amur Mainline. Khabarovsk Territory accounts for 30% of the Mainline, with its terminal points – ports of Vanino and Sovetskaya Gavan – located in the same region. Russian Railways and those in charge of the second line and its electrification do not plan for localization or local suppliers. <…> If Russian Railways and its contractors turn to local suppliers, it will give a significant boost to local development — Mikhail Degtyarev, Acting Governor of Khabarovsk Territory.

More efforts to attract and retain local residents

We will both support businesses and build lots of new housing. <…> It can be housing for rent at unique rates that include regional subsidies. Together with DOM.RF Group, we have taken monthly rental rate for a two-room apartment down to RUB 6 thousand – any salary can handle this. Naturally, there is also the Far Eastern Mortgage. However, our construction volumes will help us make real estate prices in the Far East rise slower than on average across the country — Alexey Chekunkov, Minister for the Development of the Russian Far East and Arctic.

Let’s make an additional incentive for Far Eastern investors and regions. When investors approach us and sign their first agreements, we should immediately estimate how many jobs they plan to create and what professions they will need. This will help <…> Far Eastern regions order government sponsored training for qualified personnel for specific investment projects. Most importantly, investors will have to guarantee these jobs will be created. They will also assume an obligation that the young folks, who will get this government sponsored training under a three-lateral agreement, will have a guaranteed job with these investors — Irina Yarovaya, Deputy Chairman of the State Duma of the Federal Assembly of the Russian Federation .

VEB.RF focuses on projects that aim to improve the quality of life for Far East residents now. They cover public transportation, housing, urban environment, and tourism. <…> They include a lot of things that may have a great effect for local residents in the Far East without enormous investment — Artem Dovlatov, Deputy Chairman, Member of the Management Board, VEB.RF.

Developing the region’s infrastructure

The Far East is a key region in the so-called new North policy. The Republic of Korea will accelerate economic cooperation through the action plan created for the Nine Bridges 2.0 initiative. <…> This action plan includes new aspects, such as innovations, investments, culture, and tourism. <…> We will do our absolute best to launch the construction of a Korean-style industrial park, which will serve as a platform for Korean companies entering the Far Eastern market and accelerate the development of the Far East — Kwon Goohoon, Chairman of the Presidential Committee on Northern Economic Cooperation, Republic of Korea.

We expect a construction boom in the Far East. The demand is huge. It is heated. The prices for real estate developers are very attractive. However, there are no construction materials. <…> We are getting ready for construction of residential areas and industrial sites, as well as production of construction materials — Mikhail Degtyarev, Acting Governor of Khabarovsk Territory.

Developing high-technology operations

Mining is a high-tech industry. I would like to mention high-tech processing operations, like the one in Kyshtym that makes copper foil. This foil is used in lithium-ion batteries and microplates. <…> This is not a large facility, with an annual capacity of only 1,200 tonnes. However, 30% of it is used domestically. <…> I believe we need to shape the demand, develop domestic operations of lithium-ion batteries, for example. It will help develop high-tech industries and launch facilities in the Far East — Dmitry Govorov, Vice President for Government Relations and Strategic Communications, Russian Copper Company.

Improving the environment will translate into a more attractive region for investors

The other day, the State Duma adopted the Law ‘On the Carbon Footprint’. <…> About the same time, we submitted our law on the experiment on Sakhalin <…> to the Government. <…> We are pioneers. What are our objectives? Carbon neutrality as early as in 2025, while the world’s leading countries aim for 2050. <…> Together with Gazprom, we are working towards switching from coal and diesel fuel to natural gas in all our boiler houses. Together with other investors, VEB.RF and with Rosatom’s participation, we want to switch to electrical transport <…> and gas-fuelled transport for long distances — Valery Limarenko, Governor of Sakhalin Region.