English language Web site on current affairs in the biggest russian region
Topics
01:48 | Aug 16 | 2011

There are Tools but no Opportunities

Issues of interaction between the state and businesses are always at the center of careful attention of any modern democratic society. Moreover, in recent years a trend for the intensification of cooperation between businesses and authorities is observed worldwide.

A special form of public-private partnership (PPP) was used during the global crisis in all world leading countries. Among others, various branches of the economy and some strategic enterprises in the Sakha Republic (Yakutia) were provided with state support at both federal and regional levels. These allowed not to slow down the implementation of projects on transportation, energy, mining and mineral processing and significantly improved almost all the macroeconomic indicators of the region.

Deficit does not exempt from obligations

At first glance, there is a great set of tools to attract investments to Russia, each of them can be used (and to some extent is used) by the state and businesses to implement investment projects.

For example, except for federal programs, private equity funds and special economic zones, the Investment Fund of the Russian Federation was created in 2005 as a major instrument of public-private partnership. Financing of the Investment Fund was carried out using the oil excess profits and savings (due to early repayment) on the costs of the public external debt. The funds were sent to co-finance investment projects, the results of which were eventually to pass to the state, to pay the state share in charter capitals, as well to provide state guarantees.

However, as a consequence of the global financial crisis, starting in 2009 budget allocation of the RF Investment Fund is formed by the Russian Finance Ministry only on the basis of commitments on investment projects that are already being implemented. Practically, there was a “freeze” of the resources of the Investment Fund. And this is the most critical issue for all Eastern regions of Russia at present: how to ensure the state obligations under PPP projects of national importance, due to the shortage of budgetary funds?

In our opinion, solving this problem is the most urgent for the PPP institutions and is particularly critical for the accelerated exploitation of the vast resources and overall socio-economic development of the Far East. The first step is to ensure rapid development of infrastructure under the PPP principles. Objectively, we are at a lower starting position against other regions of Russia, not to mention our closest foreign neighbours. Therefore, the Strategy-2025 offers special tax, fiscal, tariff and price policies on the territory of the Far East.

In general, there is no need to prove vital national importance of this problem.

What the Investment Fund does not allow

Let us consider this problem by the example of the “Integrated Development of South Yakutia” project, the largest PPP project to create a new industrial area in the Far Eastern Federal District.

The main parameters and key figures of the project are: over 400 billion rubles of total investments, including state contribution of more than 100 billion rubles.

The state should ensure construction of infrastructure facilities, in particular, two roads (total length 150 km), five railway lines (270 km), the scheme of power distribution of the Cancun HPS and power supply of industrial facilities (about 1200 km of overhead lines and seven substations), project documentation development for Elkon Mining and Metallurgical Integrated Works and Cancun HPS, as well as the construction of the Cancun HPS dam.

Businesses develop Seligdar apatite deposit, build Inaglinsky coal complex, Taiga and Tarynnahsky iron mining and benefication complexes that are part of the South Yakutsk Mining and Metallurgical Association, Cancun HPS, Elkon Mining and Metallurgical Integrated Works, Yakutsk Gas Production Center.

As a result, a 2.5 times GDP growth is ensured in Yakutia, creating thousands of jobs and providing a substantial budget system replenishment. It creates great synergy for the neighbouring regions of the Far Eastern Federal District.

What do we have today?

The state has fulfilled its obligations to finance the first phase of the project – the development of design documentation for the infrastructure (over 7 billion rubles).

In 2011 the design works of the infrastructure facilities are being completed, business objects are being designed, over 23 billion rubles has already been invested in the project, including more than 16 billion rubles of private investment (the cost of licenses for subsoil use inclusive).

It is necessary to initiate the advanced building of infrastructure starting the next year of 2012.

The problem is that the current sources of financing and the regulation system of the Investment Fund of the Russian Federation do not allow to do this, i.e. commencing on the alleged investment project of critical national importance.

Things to be done

The Far East Development Fund and the Private Equity Fund created by Vnesh­EkonomBank on behalf of Prime Minister Vladimir Putin should give a powerful impetus to the development.

We expect that the Far East Development Fund would be able to attract extra non-budgetary investment for infrastructure projects. In the future the Fund may settle accounts with private investors who built the infrastructure for their money using additional revenues from these projects. A similar mechanism has been in success operation in other countries.

The coordinated promotion of the following areas needs to be initiated as quickly as possible. First of all, it is necessary to fully support, finalize and adopt following the established procedures the changes in the regulatory system, proposed by the center of the PPP, State Corp. “VneshEkonomBank”, to specify the rules and the prospects of the development institutions of the Far Eastern regions.

Secondly, to enact a law that will ensure implementation of the Strategy of Development of the Far East and the Baikal region until 2025.

The development of the Far East in its economic and political significance is no less important than the development of the North Caucasus Federal District which is actively (and rightly) maintained at the highest level today.

We consider it fundamentally important. The adoption of long overdue changes to the regulatory system of PPP cannot be postponed, it is necessary to ensure their rapid passage. The development of the region is impossible without state participation as it is equally impossible without private business partnership.

I am confident that by combining the efforts of state representatives of federal and regional levels, business representatives interested in the priority development of infrastructure in the North-East of Russia we will be able to address the challenges that hinder the development of the PPP in Russia today. 

Gennady Alekseev, First Deputy Chairman of the Government of the Sakha Republic (Yakutia)