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Where are foreign investments going?
From tomatoes to oil: what projects in the Far East actually turned out to be attractive for foreign business
The state strategy for the development of the Russian Far East is based on the desire for economic integration of the region with the largest economies of the Asia-Pacific region. The efforts made simultaneously mean stimulating the export activities of existing enterprises and creating competitive conditions for attracting foreign business. Today, this work begins to bear fruit.
New economic regimes in the Far East - the territory of advanced development and the Free Port of Vladivostok - allow the business to significantly optimize the economic model when working in the Far East. In addition to the widely used benefits to optimize the profit tax and property tax, these regimes have, for example, such a benefit as the optimization of social payments for the wage fund. Residents pay insurance contributions in the amount of 7,6% instead of 30%, which gives tangible savings, especially for projects in which highly skilled and highly paid staff are employed. In general, the attractiveness of the territories of advanced development is determined by three main elements. The first is tax benefits. The second is the availability of infrastructure. The third component is a special management system for such territories. Minvostokrazvitiya defines the main principle of this system: "The investor is always right".
What is interesting, to claim such support, having received the status of a resident of the Free Port or TOP, can companies from small to large. The minimum "threshold" of investments is 500 thousand rubles for the TOR and 5 million rubles for the Free Port. In this case, you can apply for benefits as new companies starting a business from scratch, and existing enterprises investing in technological modernization or expansion of production. Practice shows that small and medium-sized businesses are really starting to enjoy benefits: among the existing residents there are companies that employ only 10-15 people.
Today, the Agency of the Far East for Investment Promotion (IPA) has developed investment development strategies for all 9 subjects of the Far East, and in the portfolio of well-developed investment projects there are more than 400 projects structured in terms of investment and industries. Many of them may be of interest to foreign companies and are already offered to them at various venues. Significant expectations for the IPA are related to the creation of country investment platforms. One such - the Russian-Japanese platform - starts work this year, the Japanese Bank for International Cooperation, JBIC, is partnering with the Japanese side. It is planned to create similar investment platforms with China, India and the Republic of Korea.
Data of the Agency of the Far East on attracting investments
SIGNIFICANT PROJECTS OF INTERNATIONAL COOPERATION
The largest international project in the Russian Far East today is the development of oil and gas fields on the Sakhalin shelf. The Sakhalin-1 project involves companies from the United States, Japan and India; in the project "Sakhalin-2" - companies from the US and Japan. The share of Chinese business is in the Sakhalin-3 project. The extracted raw materials are sent for export, as well as for processing to the domestic market. At the same time, today, thanks to state measures to support business in the Far East, new, in many respects significant projects of international cooperation are starting on the territory.
So, in the active stage today is a project to create by Indian investors coal mining enterprise in Kamchatka. Interest in the Krutogorovsky coal deposit in the region was shown by the holding TATA Group. TATA Power intends to produce coal for export in Kamchatka, including to provide fuel for its own generating assets.
Investments in the project are estimated at 560 million dollars. The volume of project financing by Sberbank is estimated at about 400 million dollars, with funding to begin as early as 2018. The condition for the entry of Indian business into the project was the system of preferences that provide investors in the Far East with new development tools, in particular, the possibility of obtaining preferences for TOP and the necessary infrastructure. According to the project, after reaching full capacity, the field will produce up to 10 million tons of coal ready for sale per year.
This is not the only new project of Indian business in the Far East. Today there is a dynamic preparation for the launch of the diamond-mining enterprise in Vladivostok, the largest Indian holding company KGK. The investor received the status of a resident of the Free Port of Vladivostok, the necessary equipment has already been delivered to the facility, and after the launch, the investor will be offered the services of the Eurasian Diamond Center - a specially created infrastructure for the storage and customs processing (export) of valuable goods, including diamonds.
Cooperation with investors from Japan is also developing dynamically. One of the brightest projects with the participation of a large Japanese consortium is the reconstruction and development of the international airport in Khabarovsk. The consortium includes Sojitz Corporation, Japan Airport Terminal Co., the investment fund of the Ministry of Land, Infrastructure and Transport of Japan JOIN. The capacity of the new airport will be up to 3 million passengers a year. The total cost of the project is about 70 million dollars.
In the interests of investors, a number of unprecedented decisions have already been adopted, and in particular, the FAS approval of the values of long-term tariffs for the infrastructure facility. Also work is underway to include the city of Khabarovsk in the economic zone of the Free Port. After the adoption of the law, investors will be able to take advantage of all the tax benefits that this regime gives, and the airport itself will fall into the zone of operation of the simplified visa regime for foreign citizens.
In this regard, it should be noted that every third of the projects signed in December last year during the official visit of Russian President V.V. Putin to Japan, geographically belongs to the Far East. In total, these are 27 projects, including 10 projects in the field of extraction of resources, 15 projects for the development of industry, 1 project in the field of urban planning and 1 project in the field of medicine and health. At the same time, most industrial projects are focused on exporting products.
Within the framework of the new mechanisms for the development of the Far East, projects involving investors from the Republic of Korea are also being launched. This country is today the largest exporter of fish and seafood from the Russian Far East. Therefore, it is not surprising that Korean investments come to the fishing industry.
So, in Kamchatka, Korea Traiding & Industries Co. invests about 7 million dollars in the construction of fish processing complex with the capacity of 10 thousand tons of products in the TOP. The project itself ("415 City", implemented on parity terms with the Russian partner) has already received the preferences of the resident of the territory of advanced development, in 2017 the investor plans to begin construction of the quay wall, and the whole complex should be put into operation by the year 2020. The export orientation of the created production is supposed.
In total, today Korean investors are implementing 6 projects in the Far East. The total investment of these projects is about 70 million. In addition, a company from the Republic of Korea intends to take part in the construction of the Kamchatka Regional Hospital. The investment will be about 200 million dollars.
POSSIBILITIES OF THE LOCAL MARKET FOR FOREIGN INVESTORS
The domestic market of the Russian Far East is quite small. Nevertheless, it allows developing economically effective projects in different sectors. Such projects, based either on import substitution or on technological modernization, can give the investor a guaranteed and stable profitability, even if the production itself will not be of a large scale. The success of such projects largely depends on the level of technology with which the investor comes. That is why projects in this sphere are of interest among foreign partners.
So, it was the domestic market that focused on one of their first projects implemented in the territory of the advanced development, the Japanese greenhouse complex JGC Evergreen. The greenhouses built in the Khabarovsk TOR produce tomatoes and cucumbers for the domestic market. The investor chose a successful marketing strategy: the cost of the product is lower than that of Chinese imports, and the quality is higher. As a result, greenhouses only have to compete with the seasonal output of local farms.
The Investment Promotion Agency today systematizes the needs of the Russian domestic market and offers investors projects by industry.
First, it is the urban infrastructure. The potential volume of investments in the renewal of worn-out infrastructure of housing and public utilities in the largest cities of the Far East is estimated at almost 1 billion. The economy of projects is based on tariff regulation, while in the Far East there is already experience of fixing tariffs for a long period to ensure return on investment.
Secondly, it is local energy. This process is already underway - projects on energy efficiency, as well as on reducing the dependence of local generation on expensive imported fuel, are already being implemented and are giving investors the expected commercial result. It’s no joke to say that due to the deterioration of equipment and problems with fuel logistics at individual power plants, the cost of electricity generation reaches 2 dollars per 1 kWh. The Russian authorities are ready to preserve the existing amounts of subsidies for the payback period of projects, which allows the investor to “put down” the project's economy and get his economic result.
Thirdly, the IPA offers investors, including foreign ones, to invest in the development of trade networks and logistics. 2017 has become a significant year in many ways - the hypermarket of Leroy Merlin, a large retail chain of household goods, has opened in Khabarovsk. The investment capacity of the industry, according to analysts of the IPA, today is over 1,1 billion dollars. Fourth, the market for the creation and development of high technologies in the Far East, for example, for the deep processing of local raw materials, is promising. The investment capacity of this market is over 3 billion dollars. In this regard, the experience of the Korean company Gideon Sistek together with the Russian City Transport Company is interesting: investors, having received the status of a resident of the Free Port of Vladivostok, invest more than 30 million dollars in the development of a smart payment system for urban transport in the capital of Primorye.
EXTREME CONDITIONS - BENEFITS FOR BUSINESS
Another interesting opportunity, which opens the Russian Far East for foreign investors, is the local climate. The conditions of the sharply continental climate of Yakutia or the specific conditions of the coastal regions of Kamchatka is an opportunity to develop and test new technologies that will then find application in many countries, in the Arctic and Antarctic. This is not a new story - for example, the Yakutsk airport is traditionally used by the leaders of the world aircraft industry for testing and approbation of technologies in extreme cold conditions.
The experience of Japanese power engineers is interesting: thanks to the support of the Japanese state organization NEDO, modern high-tech wind power generation complexes were built in Kamchatka. For engineers at Komaihaltec, working in Kamchatka was a real challenge. Technologies that allow the equipment to "survive" at temperatures up to minus 40 degrees Celsius, were specially developed for this project. The increased climatic requirements have touched all: both metal constructions, and a construct, and features of construction of the power scheme of delivery of the electric power. But thanks to the implementation of the project, the Japanese company, in fact, opened its way to a new market - the wind power generation market in the Arctic. Technology developed in Kamchatka is a competitive offer that can now be applied not only in Russia, but also in other northern countries. Moreover, the Japanese side is interested in finalizing its technology for even more severe conditions and, for this purpose, intends to implement another wind power generation project - this time in the village of Tiksi (Yakutia), on the coast of the Arctic Ocean.
Another example is the hothouse complex of Sayuri, built in the suburbs of Yakutsk with the participation of the Japanese investor Hokkaido Corporation. The initiators of the project brought to the permafrost the Japanese technology of growing vegetables, further refining it taking into account local climatic conditions. This was the first experience of using equipment in the conditions of frost, reaching up to minus 60 degrees Celsius. It should be noted that the operation of the equipment is monitored around the clock by the Japanese side: massive volumes of telemetry in the online mode are broadcast to Japan, and the Japanese side makes decisions about the exact settings of the equipment (heating, ventilation, watering). The first "wintering" of the greenhouse produced an impressive result: the equipment passed all the climatic tests, the hothouse yields, the harvest is stable demand - all the products produced are consumed by the local market.
Today, thanks to state support for the advanced development of the Far East, similar projects for the development of new technologies, as well as the creation of testing grounds for existing equipment, will multiply. Especially promising in this regard is the territory of Yakutia, because the ranges for climate testing can be formed where there is already a full-fledged infrastructure: the railway, the highway, the city of Yakutsk with a high scientific base, etc. Already, among the potential residents of the TOP "Industrial Park" Kangalassy "there are foreign companies that are considering the possibility of building test sites for their products.
Published in the bulletin Economy of the Far East