State Development Plans In The Russian Far East & Russian Arctic
Russian Far East Special Economic Zones / Vladivostok / Tourism Development / Regional Cruise Line & Airline / Northern Sea Route / Clean Energy / Population / Property Development
Alexei Chekunkov, Minister for the Development of the Russian Far East and the Arctic held an interview with Russia’s Izvestia newspaper at the St. Petersburg International Economic Form (SPIEF) on Saturday. Russia Briefing brings you the translated English version of this important discussion, which describes various developments and incentives that will affect business opportunities in North-East Asia including with Japan, South Korea, and China. The original interview in Russian can be found here.
Alexei Chekunkov, Russia’s Minister for the Development of the Russian Far East and Arctic
The Russian Far East Development Programme
Izvestia: In September last year, Prime Minister Mikhail Mishustin approved a program for the development of the Far East? What has been done to implement it?
Chekunkov: The National Program for the Development of the Far East until 2024 and for the long term until 2035 is the main business plan for the development of the region, which combines the tasks of all departments, federal executive authorities, and business. It includes 804 events, of which 600 are social. We have done a lot to digitize this plan and in the next month we will complete the creation of a situational center, with the help of which it will be possible to track and manage the implementation of each event in all 11 regions of the Far Eastern Federal District.
Status of Vladivostok
Izvestia: How did the transfer of the Far Eastern capital to Vladivostok change the life of the city? Is it now the capital, how attractive is it for tourists and locals?
Chekunkov: I publicly said that a good capital of the Russian Federation would come out of Vladivostok. But the capital of the Far Eastern Federal District from Vladivostok, of course, turned out to be completely natural. The name of the city stands for “Own the East”. Its history, demography, economy, infrastructure are the real attributes of the capital. Nevertheless, I would like to see an even faster development of the city. And the recent change of the mayor of Vladivostok to the young, dynamic Konstantin Shestakov, who was previously engaged in the development of tourism in the city, inspires me with optimism. The results of his work are impressive. In five years, he managed to increase the flow of tourists from South Korea to Vladivostok six times – from 50,000 to 300,000 each year. I hope Vladivostok will now sparkle with new colors.
Russian Far East Special Economic Zones
(Editor’s Note: TOP in the Russian Far East are the regional equivalent of Special Economic Zones (SEZ)
Izvestia: How do the Territories of Advanced Development (TOP) feel now in the Far East? Are there any consequences of the pandemic, did it somehow affect the investment climate in the regions?
Chekunkov: We have 23 TOP, and in total there are almost 500 residents working there. Some projects are huge, multi-billion dollar investments. For example, the creation of a gas chemical cluster in the Amur Region, the development of the Baimskaya ore zone in Chukotka and the Udokan copper deposit in Transbaikalia. Obviously, the TOP regime was in great demand by investors, so we will continue to increase the attraction of investments to them.
The pandemic did not affect the TOP, the projects worked rhythmically. We helped to obtain permits for the import of labor where it was needed. In particular, tens of thousands of people were imported for the Amur cluster, during a pandemic, in compliance with all precautions recommended by Rospotrebnadzor. The construction did not stop. The Far East has gone through the pandemic in a collected manner.
Russian Far East Tourism Development
Izvestia: Have new growth points appeared in the region? If so, what is it?
Chekunkov: The most relevant growth point is tourism. When outbound tourism closed, citizens poured into domestic destinations. But overnight, new hotels did not appear, new flights were not opened. This leads to inflation of tourism services. We are fighting this, but the market is the market. Business is now showing interest in this area. New large projects appear, such as Three Volcanoes in Kamchatka, for example. Whole tourist clusters will create high quality recreation for Russians for generations to come. I think this is the most interesting, truly new growth point that has emerged.
Far East Russia Cruise Line, Regional Airline
Izvestia: Are there any very fresh projects that are currently planned to be launched?
Chekunkov: One company – we not yet ready to announce which company it is – came to us with the initiative to organize a cruise line on the Sakhalin-Kuril-Kamchatka route. It will put under the Russian flag new ships of medium and small format that have already been at sea for some time. In the absence of our own Russian cruise line, we are losing a very important component of ocean tourism that we need. Having a national cruise line will be a major breakthrough.
Also, the unified Far Eastern airline is taking off this year. The decision to base it on the existing Aurora airline is correct: it is easier to take over regional airlines than to create a new one from scratch. We are working to increase the volume of subsidies for interregional and intraregional transportation. Passengers should soon feel the effect of this important new mechanism, a tool for developing the economy.
Izvestia: Recently you flew to Kamchatka, to the Valley of Geysers. And there you also called the development of small aircraft one of the support measures. Which companies will do this?
Chekunkov: Local business. A company has already been organized in Kamchatka to start transporting people by light-engine aircraft. This is a fundamentally new approach to organizing tourism in the region. To fly by plane is faster and three times cheaper than by helicopter. Instead of flying across Kamchatka in expensive Mi-8 helicopters, people will be transported by airplanes to the nearest landing site to a specific tourist site. For example, if we talk about the Valley of Geysers, this is the village of Milkovo, where there is a runway. There, tourists can visit the tourism center and cafe, take a break. From there they can cover the last 15–20% of the way to their ultimate destination by helicopter. 20% of the way to fly on the Mi-8 is much cheaper than the whole.
In a couple of years, we expect that new Russian K-62 helicopters, manufactured by the Arsenyevsky aviation company, will enter the market. They will be cheaper, quieter, more environmentally friendly. This combination, with an intermediate transfer point, will radically facilitate logistics and reduce the cost of tourist holidays.
Russia’s K-62 helicopter
Izvestia: How much cheaper can a Far East Russia vacation be?
Chekunkov: Today, a subsidized tour from Petropavlovsk-Kamchatsky to the Valley of Geysers costs 45 thousand rubles. (US$620) After the creation of a new logistic scheme – this will happen not earlier than in a year – the cost can be reduced by more than half.
The Northern Sea Route
Izvestia: A local company of the Russian Arctic has said it will create a shipping transport enterprise to provide sea transportation services within Arctic waters. This is an investment project worth over 800 million rubles (US$10 million). Will the project be able to meet the needs for the transportation of large-tonnage cargo?
Chekunkov: There are over 100 resident companies in the Russian Arctic. The creation of new Arctic shipping lines is perhaps the number one priority, to create opportunities for businesses there. Two large ice-class tankers have already embarked on the line, which make it possible to implement the projects that are currently moving in the Arctic.
The Northern Sea Route and the Northern Arctic shipping route will be conquered, the ice will be both literally and figuratively broken when our new icebreakers start their voyage. In particular, the icebreaker “Leader”, which is now being built at the Zvezda shipyard. It will provide year-round shipping in the Arctic and will be a revolution in global transport logistics. Such icebreakers can be followed by a convoy of ships. They can move at a speed of up to 12 knots on ice 2 m thick. Accordingly, we will reduce, if not completely eliminate, the speed lag during ice guidance. The Northern Sea Route is shorter and faster in open water, but it is expensive and difficult to navigate the ice. We hope that thanks to the new icebreakers, the Northern Sea Route will finally be able to provide competitive conditions.
Izvestia: What other tasks do the regions face in terms of economic development? What is being done to attract more investors?
Chekunkov: Our ministry is responsible for the Russian Far East and Russian Arctic – 56% of our national territory. We have started important new projects. One of the important is to keep up with the technological race. The world is undergoing a restructuring of technologies in terms of the consumption of hydrocarbons. In this area, the Russian Far East and the Arctic has an advantageous position, since there is a lot of sun and wind – we can easily develop renewable energy, and the Arctic has rich reserves of metals used in electric batteries.
Business has already felt this and is developing the appropriate lines and products. Both liquefied natural gas and environmentally friendly energy sources are involved, which replace dirty ones. We are already switching to liquefied gas and shipping. It is also an environmentally friendly fuel. We have already installed a floating nuclear power plant.
I look to the future with great optimism, we need to properly ride this wave. We proactively motivate businesses and create special conditions for these technologies to be implemented. An innovative scientific and technological center has been created on Russky Island (Vladivostok) – the Far Eastern Technological Valley, which will accumulate all the best technologies for development.
Clean Energy Tariffs
Izvestia: If you manage to use alternative energy sources on a large scale, will there be an opportunity to reduce consumption tariffs for Russian consumers?
Chekunkov: In this matter, we need to be honest: now the tariffs for energy from hydropower, that is, from the dirtiest fuel, are already among the lowest in the world. That is, we will not be able to go down significantly below them.
Population Dynamics & Property Development Incentives
Izvestia: Over the past 30 years, the population of the region has decreased by almost one and a half times. What are you doing to remedy this situation?
Chekunkov: We inherited this problem from the Soviet Union. Previously, many enterprises were built in the Far East for military purposes, and the Arctic was also a defense line. But when the structure of the economy changed dramatically, a huge number of people were simply left out of work, and they left the region. But over the past six years, the migration outflow has decreased by three times. In 2013, 45,000 migrated away from the Russian Far East, but in 2018, less than 15,000 left the region.
What are we doing? Firstly, job creation – there are 2,600 investment projects – the result of the new state policy for the advanced development of the Far East, and these created more than 200,000 new jobs.
We also have a Regional preferential mortgage at 2%, so it is very important now to build housing. It is also necessary to reduce cost as well as increasing comfort. Combined with concessional financing, mortgages, and rentals, we can give people the most comfortable life for a very reasonable price. For example, young specialists will be able to live in rented housing – under the rental subsidy program, which is now being developed by mortgage lenders DOM.RF together with the regions, a standard mortgage on a two-bedroom apartment will cost 6,000 rubles (US$83) a month.
By 2024, the volume of housing construction should be increased 1.6 times – up to 3.3 million square meters each year. We will carry out this plan. At SPIEF this week we signed an agreement of intent to build 2.5 million sq. meters for five years in the Far East regions under the Far Eastern Quarters program. This is a new proposal that should meet demand and reduce housing prices.
Izvestia: Have you already agreed with the developers?
Chekunkov: We have a very active PIK group, which sells more than half of this amount. But in general, the program is open to all developers.
Russia Briefing is written by Dezan Shira & Associates. The firm has 28 offices throughout Eurasia, including China, Russia, India, and the ASEAN nations, assisting foreign investors into the Eurasian region. Please contact Maria Kotova at firstname.lastname@example.org for Russian investment advisory or assistance with market intelligence, legal, tax and compliance issues throughout Asia.