MOSCOW PROMISES HUGE FUNDS TO DEVELOP FAR EAST, BUT EXISTING PROJECTS SLOW TO MATERIALIZE

The Russian government plans to allocate up to 600 billion rubles ($23.6 billion) to fund development projects in Eastern Siberia and Far East by 2013, Kamil Iskhakov, presidential envoy in the Far East, told the Far Eastern International Economic Forum on September 18. Total investments in the region could reach 9 trillion rubles ($354 billion) by 2025, he told Forum participants.

Russian President Vladimir Putin and Duma Speaker Boris Gryzlov, head of the United Russia party, both sent greetings to the Forum, held in Khabarovsk September 18-19, but declined to attend.

However, the Forum’s host, Khabarovsk regional governor Viktor Ishayev, sounded less optimistic. China, Japan, and South Korea still remain regional economic leaders, he noted, while Russia’s Eastern Siberia and Far East, along with North Korea and Mongolia, are becoming increasingly marginalized.

Ishayev complained about low incomes in Eastern Siberia and the Far East, which are some 12% below Russia’s average. He suggested that Moscow should allow Far Eastern regions to retain a larger share of corporate profit taxes and VAT. He also urged the government to prioritize exports of finished petrochemical products, not oil and gas, or the region risks becoming a raw-materials supplier to the region’s more advanced economies (Interfax, RIA-Novosti, September 18-19).

Simultaneously, yet another Kremlin official came up with a similar suggestion. Eastern Siberia and the Far East should prioritize construction of petrochemical and gas-processing centers, Anatoly Kvashnin, presidential envoy in Siberia, told a gas conference in Novosibirsk on September 18. He suggested joint state and private investments in these projects, adding that the authorities would welcome foreign investments as well (Interfax, September 18).

Inevitably, Russia’s state-run oil giant supported suggestions from government officials to develop petrochemical production in the region. By 2012, Rosneft plans to build the first stage of the Eastern refinery — with an annual capacity of 10 million tons — in Primor region, near Cape Yelizarov, Rosneft vice-president Alexander Sapronov told the Khabarovsk Forum. He said the second stage of the Eastern refinery, part of the East Siberia-Pacific pipeline project, would also have a capacity of 10 million tons per year (Interfax, RIA-Novosti, September 18).

Other Russian business executives also suggested major export-oriented projects. Dmitry Selyutin, Unified Energy Systems (UES) representative in Eastern Siberia and the Far East, told the Khabarovsk Forum that plans for electricity exports to China would require construction of five new hydropower plants, including three in Chita region, at a total cost of $10-12 billion. He also complained about high electricity tariffs in the region and suggested that the federal government should subsidize the levies.

Furthermore, Leonid Drachevsky, UES deputy board chairman, told a press conference in Beijing on September 18 that Russia remains determined to implement an electricity-export project to China in 2008. The project envisages exports of 60 billion mW per year to China, he said, adding that Russia would be prepared to export electricity to North and South Korea as well (Interfax, September 18).

However, even Russian government officials, notably from the Industry and Trade Ministry, voiced skepticism about the UES plans. “It is far from certain that plans to export electricity to China at a total cost of up to $18 billion could prove attractive for investors,” according to Denis Askinadze, head of the ministry’s tariff regulation department (Interfax, September 18).

UES supplied about 800 million kWh of electricity to China last year and planned to supply 1.4 billion kWh in 2007. In November 2006, UES and the Chinese State Grid Corporation clinched a deal to raise annual exports of electricity from Russia to China to 3.6-4.3 billion kWh/year in 2008-2010, 18 billion kWh in 2010-2015, and to 60 billion kWh eventually.

But earlier this year, UES suffered a setback in its drive to increase exports to China. As of February 1, China refused to import Russian electricity, arguing that the Russian price was nearly twice as high as Chinese domestic prices. Therefore, UES now risks loosing government support, which is needed for building new hydropower plants in the Far East.

Yet another major infrastructure project, the Yakutiya Railway, has also been subject to delays. By mid-September, construction of the Tommot-Kerdem line had been halted due to a lack of funding, and workers’ salaries were unpaid for three months. By August 1, the contractors reportedly had carried out 4.6 billion rubles worth of work, but been paid only 1.1 billion (Interfax, September 18).

While the federal government and Russian Railways (RZD) disbursed their planned contributions, 550 million ($22 million) and 680 million ($27 million), respectively, Yakutiya’s local government, the main project investor, failed to disburse 4 billion ($157 million). Yakutiya authorities planned to sell coal assets for some 40 billion rubles, but the privatization auction has been delayed until October 5. The construction of the Tommot-Kerdem line was estimated to cost 15 billion rubles ($591 million); the Yakutiya government was supposed to invest 9 billion ($354 million), the federal government 2 billion ($79 million), and RZD 4 billion ($157 million).

Russia began building the 820-kilometer-long Yakutsk-Tommot-Berkakit railway between Yakutsk and the BAM line in the early 1990s. It was originally due to be completed by 1998; now completion is tentatively expected in 2008. But if a relatively small project like Yakutiya Railway can be plagued by delays and financial woes, Iskhakov’s multi-billion-ruble vision for the Far East may take many decades to materialize.