A Focus on the Islands
The Sakhalin Region is developing at a faster rate than any other regions in the Far East
“Sakhalin and the Kuril Islands are not at the edge of the earth. In fact, the reality is much the opposite: Russia truly begins in these regions,” Oleg Kozhemyako, the head of the Region, stated recently. And the statistics is there to defend him.
Sakhalin is among the top Russian regions in terms of attracting investment. If investments in fixed capital per capita are considered, this area has received several times more than other members of the Far East Federal District. When compared to all Russian regions, Sakhalin is ranked 5th for funds generated.
In 2014, the volume of investments in fixed assets amounted to 210.3 billion rubles, or 116.3 of the amount in 2013: 71 percent of this belongs to oil and gas production; 15 percent, to the infrastructure sector; 5 percent, to other sectors of the economy; 4 percent, to the social sphere; and 6 percent, to other industries. By the beginning of 2014, the economy of the Sakhalin Region had already generated 45.8 billion dollars in foreign investment. This is about 10 percent of all investments in Russia combined, and comparable even to the types of numbers Moscow sees. The countries investing most actively include the Netherlands, Japan, the Bahamas, and India. The Nether-lands holds the top position for most money invested, with 59 percent of all funds coming from them. The accumulated capital of the region can be broken down as 29 percent from direct investments by foreign-owned companies and 71 percent coming from other types of investments, such as borrowings obtained from foreign banks in the form of various types of loans.
Last year, the Sakhalin-1 Project was put successfully into effect. The Berkut oil rig began operations in the Arkutun-Dagi oil field, and the Northern Tip of the Chayvo Field was also put into commercial operation. This will create an increase in future oil production and compensate for its decline in other operational oil fields managed by projects in the region.
Projects that involve liquefied natural gas (which has become Sakhalin’s most valued export) are currently at the design stage of development. These include the construction of a plant that is part of the Sakhalin-2 Project and the new Far East LNG project. In addition, RusHydro is launching a major investment project on the island for construction of the Sakhalin State District Power Station-2.
“We always welcome investors that are interested in the island regions,” Kozhemyako points out. “We really strive to create favorable business conditions in Sakhalin and the Kuril Islands. We have a system of tax relief in place, provide state guarantees, and ensure direct budgetary participation from the region.”
The Sakhalin Region has seen the establishment of an effective system of state support for those looking to invest. Today, the number of priority investment projects in the region includes eight projects with a total capital expenditure volume of 17.3 billion rubles. The expected amount of tax revenues to be generated from the project will top 25.4 billion rubles by 2025, along with the creation of 1.8 thousand new jobs. Out of these eight projects, three have already been put into operation, and one is at the very first stages of operation.
Over the next five years, priority government support will be given to projects aimed at import substitution, reducing Russian dependency on imported products and developing the market for nonoil exports.
Diversification of the economy has become a crucial goal for investment policies developed by region-al authorities. Regional governments have recently been focusing more on developing the fishing and fish processing industry (which also attract their fair share of foreign investment, particularly from Japan), the timber industry, and the agricultural industry.
Milk for Export
The primary objectives for improving agriculture in the Sakhalin Region are to attract investors and have Sakhalin and the Kuril Islands locally produce at least 55 percent of their food sup-ply in the next two to three years. In the future, the region plans to export portions of this food supply as food production begins to exceed local demand. China is the most likely partner for such an endeavor, where every year the demand for food is increasing.
“In a relatively short period of time, we will be able to provide our own poultry and increase egg production. Vegetable production in greenhouses can also certainly be increased, as we have greenhouses that are excellently equipped. We currently have two acres of farmable space, but the plan is to add an additional seven acres more. We also have 10,000 pigs, but our goal is to establish two farms with 50,000 each. We are also planning to build three dairy mega-farms, a grain elevator, combined feed production lines, and new processing facilities for agricultural products. In these and other relevant areas, we have already developed partnerships with companies that have a wealth of experience in the industry. Of course, we also strive to create conditions for investors who have experience and knowledge in the most up-to-date agricultural technology. We have plans to allow for them to buy back part of their investment, and then later we can purchase the remainder that we invest-ed for bringing the project into effect,” Kozhemyako anticipates.
The region also has a State Indus-try Program in effect until 2020. It pro-vides about 50 kinds of state support for agricultural producers. As a result, today, Sakhalin is the leader in the far East Federal Regions for aver-age milk yield per cow (5,285 kg), the rate of milk production growth (105.3 percent), egg-laying qualities of hens (327 units), and the number of cattle (102.0 percent) and pigs (103.2 per-cent) in all farming categories.
These all are parts of the region’s success story owing to the strength of public-private partnerships (for example, with PJSC Krasnogorskaya Zaimka and Mercy Agro) and development of traditional enterprises with 100 percent state ownership (State Farm “Greenhouse”). In addition, the state’s agricultural development program is focused not only on developing large enterprises but also on improving production on smaller farms with up to 30,000 employees. The region is full of opportunities for active involvement in the turnover of land for agricultural purposes and development of the area’s industrial and social resources. There are also agro-industrial areas with land and infrastructure already established. There are 29 projects aimed at import substitution and self-sustainment of the Sakhalin Region in effect until 2020, and 22 of them are major priority investment projects.
To Reach a Million
“Sakhalin’s fishing industry and agri-cultural complexes were once some of the best in the country, and our goal is to give new impetus to their development,” Kozhemyako stated.
The Sakhalin Region’s fishing industry has traditionally been the core sector of the area’s economy. This branch occupies the number two spot after the oil and gas industry in the GRP and value of exports. The aver-age annual catch of WBR is 650–730 thousand tons, and its full potential is 1 million tons.
Artificial reproduction of Pacific salmon is developed in the Sakhalin Region at a significantly higher rate than in Russia’s other regions. There are currently 41 salmon hatcheries in the region. Total production capacity for juveniles is more than 930 million units per year. The natural potential of inland water bodies of the Sakhalin Region, coupled with the seas and open waters of the Pacific Ocean, where various stages of a salmon’s life cycle take place, have significantly increased the output of artificial salmon breeding to 1 million tons.
The recent introduction of food sanctions has placed a greater importance on increasing food production to ensure food security. This means that private investors plan to con-struct another 17 hatcheries in nine municipalities in the region before 2020. Their total capacity is expect-ed to reach 350 million juvenile chum salmon alone. It should also be noted that in recent years, private hatcheries have been focusing mostly on chum salmon reproduction, which gives a guaranteed return when compared to pink salmon. With a conservative estimate of chum return at 2.5 percent, it is expected that the construction of these 17 new hatcheries will increase the output of chum salmon to 37,000 tons per year.
In addition, there are opportunities to construct new hatcheries on 25 more rivers in the region. With an aver-age capacity of hatcheries on these rivers at 15 million juvenile chum, this will increase the total output by another 375 million units per year. This has the potential to produce an additional 28,000 tons of the fish annually.
In light of statistics that combines the plans of private investors and con-crete data on the suitability of hatchery construction projects on certain rivers, we are proud to discuss the possibility of building another 42 plants. Their tentative total output is estimated at 725 million juveniles. With such efficient and large-scale reproduction of chum salmon, it has the potential to have a commercial output of up to 65 thousand tons annually. Given that we have already reached our goal of 35 thousand tons of chum salmon, we can confidently expect to eventually reach a sustainable harvest of 100 thousand tons annually.
The region has plans to address a number of pressing issues involving administrative barriers to the industry, including modernizing the fishing fleet, establishing processes for process-ing fish waste, developing advanced aquaculture, and developing the Affordable Fish program, whose initial positive results were applauded by federal officials.
“We support the Sakhalin Afford-able Fish program. It has a great significance for local communities, and the Deputy Prime Minister of the Russian Presidential Envoy in the Far East Federal District Yury Trutnev has already begun preparations for a roll-out of the program in other regions of the country. I believe that it will produce an undoubtedly positive effect on the area,” Ilya Shestakov, head of the Federal Agency for Fisheries, stat-ed recently.
A Taste of Mountain Air
The Sakhalin Region is a wonderful destination for vacationers seeking out its beautiful natural features and a favorable geostrategic position when considering tourism in the Asia-Pacific Region. This area contains more than 1,000 cultural and historical monuments, numerous natural features, more than 50 thousand rivers, 7,000 lakes, 39 active volcanoes, mineral springs, and a unique aquatic environment well suited for diving.
“The new development program for Sakhalin must, of course, be based on what the area has to offer the tourism industry,” Kozhemyako announced. “We have our work cut out for us, especially with our work on developing and improving ski resorts. In the Far East, these are our most significant projects for the tourism industry. Once in the city, you can take the gondola up the mountain, and in 15 minutes, you’re already ski-ing! This convenient method of transportation can’t be found anywhere else in the region except in Yuzhno-Sakhalinsk.”
Currently, there is a number of projects for developing tourism infra-structure in the Sakhalin Region, most of which will be put into effect in the medium term on the basis of public-private partnerships with marinas, including Korsakovskaya, Nevelskaya, the Moneron Islands, and Iturup. STC Mountain Air, the largest ski resort in the Far East, will become the core of the region’s tourism industry. It will consist of four dedicated, adjacent tourist areas connected by roads and cable cars and ski slopes constructed according to the designs of the world’s top ski resorts. There are also plans at the STC center to construct a biathlon center, a water sports complex, a mini-North Poll, and a golf course and country club.
The ski slopes will reach 74.5 km in combined length, with up to 17 lifts. GRP is expected to increase by about 25.538 billion rubles as a result of the project. It is also slated to create 754 new jobs. 44 billion rubles in revenue is expected to be generated, and the anticipated number of visitors to the complex is estimated at four million annually. The total amount of investment required will total around 16 billion rubles, so the projects founders naturally have the right to believe that STC Mountain Air will not just be the best ski resort in the Far Eastern Federal District but will also be on an equal footing with similar facilities in the Asia-Pacific Region.
The Sakhalin Region Government’s policy is aimed at ensuring a high level of comfort and convenience for those interested in pursuing business ventures in the region. At least 17 investment sites are being planned for the area for private business initiatives, six of which already have residents.
“We hope that Mountain Air will receive priority development area status by September. By doing so, the site will receive huge tax incentives for businesses, and it will be possible to get funds from the federal budget to build basic infrastructure and attract investors,” Anton Zaytsev, the Minister of Sport, Tourism, and Youth Policy of Sakhalin, stated recently. “We are building first and foremost to benefit our population, but as transport logistics continues to develop (most notably air traffic with the Far Eastern cities of Khabarovsk, Vladivostok, and the Asia-Pacific Region), the complex will be able to shift focus and make our neighbors more of a priority.”