Иркутск
Улан-Удэ

Благовещенск
Чита
Якутск

Биробиджан
Владивосток
Хабаровск

Магадан
Южно-Сахалинск

Анадырь
Петропавловск-
Камчатский
Москва

Local warming

Favorable investment climate will enable Chukotka to grow its GRP by RUB 500 m a year

Starting a business in the Arctic region is as challenging as tending to a garden: just like plants, a business needs perfect, greenhouse-like conditions and thorough care. To that end, Fund for the Development of Economics and Direct Investments was established in Chukotka two years ago with the support of the regional government. Olga Plotnikova, head of the fund, spoke to EastRussia about managing the investment climate and supporting budding businesses.

Local warming

- Your fund is, in essence, the first non-government organization for business development in the history of Chukotka Autonomous Okrug. What are your priorities?

- The first goal, set by the regional government, was to attract more investments and residents to the Beringovsky PDA (priority development area). Our organization helps businesses that wish to become part of the PDA and the Free port of Vladivostok (FPV) to file their applications properly. Residence in these areas provides a wide range of advantages, including tax benefits. Applications are considered by Far East Development Corporation. The status of a resident can be granted to a company that can guarantee business investments of at least RUB 500,000 over the course of three years. By the end of 2016, with the support of the local government, we had managed to attract to the region twelve new investment projects in different areas. Today, the number of projects is much higher, largely because our functions have expanded considerably.

- In what way?

- Our fund provides assistance not only in becoming a resident of the PDA or the FPV, but also in identifying the optimal strategy for business project implementation. Depending on the specifics of the enterprise, our team helps businesses to find available types of state support, file applications for grants, benefits and subsidies, draw up a business plan – all free of charge. The fund also helps entrepreneurs to find coinvestors or other available sources of financing, e.g. commercial loans.

In February 2017, our organization got the status of a Regional Guarantee Organization. It was a huge step forward, as now the fund can act as a guarantor for agreements on loans, leases and bank guarantees. Without the burden of a pledge, many small and medium businesses can finally afford lending as a financing source. The fund guarantees to repay up to 70% of the loan for the debtor at an annual interest rate of merely 0.5%.

There is more. In June 2017, the fund was accredited by SME Development Corporation, and we now offer a brand new type of service called Sogarantiya (Co-guarantee), which provides guarantees on behalf of our fund together with the corporation.

There are some limitations, as the service does not provide guarantees for some types of business activities, such as production of excisable goods, trade and reselling goods, gambling businesses and construction of real estate for sale. Other types of activities, including manufacturing, transportation or utilities, are fully supported by SME Development Corporation , Fund for the Development of Chukotka and the legal regime of the PDA and the FPV.

Our guarantees are especially valuable for companies seeking to invest in equipment upgrade or other capital expenditures. The fact that the largest credit organizations in the region, e.g. Asian-Pacific Bank, Sberbank, Russian Agricultural Bank, SME Bank and others, are ready to provide loans for small and medium businesses on favorable terms is also a great plus.

- Earlier, you have mentioned grants and benefits as a form of direct support from the state. Are there any similar forms of support for start-ups?

- Definitely; the state does support fledgling businesses. Any small business can apply for a grant for its development, as long as the company operates in a sphere that is socially significant for the region for no longer than 18 months. At this point, we have helped nine such organizations to apply for state support. With three of them operating in the agricultural domain, two have already received grants.

Our fund also cooperates with many independent organizations willing to support smaller businesses. For example, our team assisted in building a greenhouse complex in the village of Vayegi in the Anadyrsky District by helping the project initiator to acquire financial support from the Kupol foundation. The first crop from the new greenhouses will find its way to the shops and groceries of Pevek as early as this winter.



- How successful are the PDA and the FPV in Chukotka? How many new residents have you managed to attract?

- To date, there are 23 projects successfully operating within the Beringovsky PDA in such spheres of economy as coal and gold mining, alternative energy, solid waste disposal, drinking water treatment, fish and meat processing, energy industry, communications, gas supply and additional education for children. With total investments reaching RUB 15.5 bn, these projects are expected to generate 1,200 jobs.

Recently, Far East Development Corporation has approved three more applications, and three more companies will become residents of the PDA. One of them will provide transportation services, another will produce diet food and dairy for children, while the last one will be involved in household hazardous waste disposal. They will attract total investments of RUB 16.6 m and generate jobs for 49 people.

There are two other residents operating within the Free port of Vladivostok, with RUB 10.2 m invested. One of these companies will be treating and producing bottled water, and the other is the greenhouse complex I have mentioned earlier.

- Which projects have you chosen to present at the Eastern Economic Forum?

The first project is developing the tin stockworks of the Pyrkakay Mine. This open-pit mine is located in the northern part of Chukotka not far from Pevek, which is now a part of the FPV. The project envisions three stages: design, materials delivery and construction of a processing plant. The estimated CAPEX of the project is RUB 18.2 bn over the 29-year life cycle.

The other project that we will present to investors is aimed at supporting the ongoing development of an oil and gas field by, among other things, building a pipeline and a refinery. While the licensee is already extracting gas and supplying it to Anadyr, the project still needs additional funding of an estimated RUB 5.5 bn. Its expected life cycle of 30 years can be further extended through follow-up exploration.

- What are the fund’s goals for the following year?

- Over the course of less than two years, our team, supported by the government of Chukotka Autonomous Okrug, has managed to establish a structure of key areas of responsibility that correspond to the centers of economic growth in the region. Our key near-term goal is to further improve the “single window” system for investors while also expanding the geography of our services and funding sources.

- What are your expectations regarding the social and economic development of Chukotka in the coming years?

- Our region has an immense potential for growth. The most promising sectors of our economy include extraction of precious metals and hydrocarbons, agriculture development, construction of greenhouse complexes, fish and meat processing in accordance with international standards, and, of course, tourism.

Tourism has been universally proven to produce the largest multiplier effect on the regional economy, giving a boost to all adjacent industries as it grows. Promoting tourism in Chukotka will require resolving the issue of transport accessibility in the Far East, which will in turn require joint and consistent efforts of the local and the federal governments. Based on a moderately pessimistic forecast, focusing on these growth areas will enable our GRP to increase by RUB 500 m every year.