Vladimir Iliykhin: “Kamchatka Experiences Stability”
The Governor of Kamchatka speaks about the economy and construction infrastructure
– Vladimir Ivanovich, the Far Eastern constituent entities traditionally strike their primary balance at the regular Eastern Economic Forum in September. Can you give us some estimates
– Starting with figures, Kamchatka is implementing and preparing than 315 investment projects totaling RUB 550 bn. In aggregate, they will bring the region up to a new growth stage in key economic sectors, including logistics, fisheries, agriculture, soil development, and tourism. What’s important is that the funds that the region’s economy will get in the next few years result from our daily focused efforts to attract investors and improve our investment climate. We plan to sign 13 agreement at the fourth Eastern Economic Forum. Six of them are investor agreements with PJSC NOVATEK to build the LPG transshipment terminal, Kamchatsky LLC to construct a vegetable farm, LLC Golubaya Laguna to develop a tourist entertainment center, and TSTDOM LLC to put up a business center. There are two more joint projects with the Gold of Kamchatka Group to construct the Baranievsky Mining and Processing Plant and upgrade the Ametistovy MPP.
– Do you believe that the situation in Kamchatka is improving?
– I do. Kamchatka lacked many things, which we have available now. Why were people leaving the region during the last few decades? They were looking for a better life for themselves. The authorities have always made efforts to improve the situation. These efforts seem to start producing some results now. We set up the key priorities a few years ago – children, housing, and roads. We have delivered the results. We managed to build 300 km of road in the regions, which have never had any roads, and began to develop regional towns. We are building houses. We were among the first Russia’s regions to settle the problem of available kindergartens. A new children’s daycare center for 260 kids was commissioned in Petropavlovsk-Kamchatsky on September 1. We delivered a new children’s library last year. Petropavlovsk-Kamchatsky has never had the Civil Registry Office and used some temporary premises instead, now we launched a very beautiful Office and young couples can plant a whole park around it.
– Does this have any effect on demography?
– Demography is an issue, the average age in Kamchatka was 29.5 in 1986 and is past 40 today. In 2013, I met with the best school graduates, a group of 14 teens. Eleven of them wanted to leave to the “continent” seeking for a better future because here life is “dull and has no connection to the internet.” In 2017, we showed the first demographic growth in 17 years. It’s really a very small growth, only 543 people from migration; the outflow was declining recently but it stayed. Now the balance became positive. It is a very important psychological achievement. In 2015, we passed another milestone, with the birth rate exceeding the death rate. I believe this is the result of some of our efforts. It is too early to talk about a comfortable life in Kamchatka but the quality of life is slowly improving. Certainly, there are too many skeptical people. But I travel across the region a lot and see that people do not feel abandoned anymore when stability comes. Some can call it stagnation. I believe that stability happens when people can be unalarmed about their future. Most residents of Kamchatka feel that kind of stability. I think this is the main bottom line of our work during the past period.
– Do you believe that Kamchatka has settled all social issues?
– We do our best to settle the gaps from the Soviet time. We lack infrastructure, for example, Petropavlovsk-Kamchatsky has 200,000 residents and only one swimming pool. When I took office in 2011, I promised that we will focus on social issues. I keep my word. When we get any extra funds, we immediately spend a portion on social security and infrastructure. We have been seeking federal funding to build a regional hospital for four years now. On this matter, the president issued two orders and the prime minister issued one. Finally, the federal government invested RUB 4.2 bn for the first construction phase. We have received the funds for this year and will do more work than planned. Last year, we put up an out-patient health center with a rehabilitation facility, which is unique in the Far East. The renovation of the Spartak stadium and the Puppet Theater have always been our priorities.
Still, the construction projects face all kinds of challenges; companies have to dump prices to win government contracts for building social facilities. When they launch a construction, they come to realize that we have special seismic requirements and there are “northern extras” to be included in payroll. They terminate contracts, and we have to start all over again.
The domestic companies are unwilling to take part in such tenders. They know too well about high seismic requirements. Still, we can find some good solutions.
– What about the internet connection which you “lack” according to young people?
– Kamchatka is 98% covered with the internet connection. Rostelekom supplied fiber optic cable and we covered the southern and central regions, from Bolsheretsk to Milkovo to Petropavlovsk-Kamchatsky to the neighboring villages. Still, there are 30 villages in the north with 20,000 residents across the area of 300,000 square kilometers – the former Koryaksky region – they are not covered by the internet communications. People are unwilling to leave their small villages, some of them have only 50 residents, although we offer them such an option. They say they don’t want to leave and only ask to send them transport to send children to school and doctors once in a while. I proposed to lay the cable further to Chukotka across the northern Kamchatka. The experts say its cheaper to follow the sea route. The government promised to enhance the satellite group for Kamchatka. Hopefully, some solution will come up next year.
– Do you see any economic effects from the policy of declaring the Far East the “top priority of the 21st century” aimed at providing investment benefits?
– The benefits of the ASEZ and Vladivostok free port are evident. Kamchatka leads in the number of the ASEZ residents and Vladivostok Free Port ranks second in the Far East by this number. Tax benefits mean that the region’s coffer will receive less than due over the first few years but we are not looking for quick wins. We will eventually receive taxes and jobs but some time after. The benefits show in some other areas. We have almost doubled the revenue part of the budget from RUB 10 bn to RUB 22 bn. Kamchatka’s budget totaled RUB 75 bn last year compared with RUB 20–30 bn a few years ago. We managed to reinvigorate the fisheries industry. We changed the focus of supply flows with 70–75% of fish, which was previously delivered to the foreign markets, now selling in the domestic ones. The companies operated to export their catch but we invested RUB 20 bn to develop onshore processing. All top fisheries are committed to transparent operations as they are the main precondition to obtaining benefits. Tax revenue from the industry went up to RUB 6.5 bn. In 2017, Kamchatka capped the record by catching 1.2 mn tons of bioresources. We will bottom line performance later but this year is sure to beat the previous record.
– Do other industries catch up with this growth rate?
– The mining sector accounted for only a slight GDP portion. Today, it reaches 15–16% in total. I believe that mining is feasible in Kamchatka. The region built three large-scale sophisticated MPPs during the last few years and launched the Ozernovsky MPP. Hopefully, we will reach 10–18 tons of gold per year in 2022 and today we produce 6.5 tons. The estimated gold resource is 1 thousand tons of hardrock gold. We are committed to keeping a very important balance of protecting unique Kamchatka’s nature and developing new gold and non-gold deposits. The latter include the Krutogorovskoye coal mine, which will be developed in partnership with India’s TATA Power.
– When do you plan to launch this project?
– It was suspended for many years because it is very challenging in terms of logistics. There is a road through Shanuch to this field. But there are problems with the sea access, which is 80 km away. We do not have a single berthing facility along Kamchatka’s shore at the Sea of Okhotsk. There is a very intense falling tide up to half a kilometer. The key issue today is how to ship the coal. It’s up to the investor to decide whether or not to build a motor road or railroad into the sea at the required depth. We need coal to heat central Kamchatka.
– Historically, the region has imported both fuel and food. How do you deal with this issue now?
– Firstly, the regional government has reacquired the animal feed mill and it produces chicken and pig food. It meets the local market demand and we plan to produce our own flour from imported grain. Unfortunately, Kamchatka is unable to grow grain for industrial purposes although farmers are experimenting in this area. Secondly, we launched several large-scale dairy plants to bring down the consumption of dry milk. Thirdly, we have met the local demand for chilled pork and seek the same performance in terms of beef. The northern part of the peninsula continues to depend on imports as it is unprofitable to launch domestic production there. Our goal is to ensure prompt supplies. For this purpose, we will operate the Palana winter road, air, and sea freight.
– The project to renovate the Petropavlovsk-Kamchatsky airport is subject to the electronic visa rules applicable to the Far East. Will this affect the tourist flow?
– For decades, Kamchatka has been popular with stable flows of foreign hunters and fisher who come here to win trophies. I doubt that they need such an electronic visa. But this is important for our Asian partners. I have been long focusing on the travel business to meet the demands of the Asia Pacific region. They have their specific requirements related to food, accommodation, and languages. Positive changes will come with the mass flow. We strongly support direct charter flights from Korea, China, and Japan along with regular flights. Foreign companies are willing to join to operate with very large flows. But we have no facilities to accommodate them in Kamchatka.
– Are you going to build new hotels?
– Two large hotels are being built in the city’s center. But they are intended for upmarket customers. We have only 4,500 rooms to accommodate travelers. It’s too few. We need at least 10,000 more. Seasonal changes were important. Hotels were closed in September and operated only four months a year. That prevented the growth of the hospitality industry, which had no investment margin. Things are changing now. Tourist flows have returned to the city even in winter and in April, which used to be a low season for tourism. We have to reinvigorate the travel infrastructure. Getting back to the airport matter, the Airports of Regions is the ASEZ resident. We launched the project in July and the work is in full swing now.
– According to the national investment rating, Kamchatka ranks 32nd in the 36-position list. You are seeking to move up to the 25th line. How do you see the business community’s sentiment?
– Doing business in the Far East has always been a challenge. We know the needs and sore points of businesses. This is a common controversy when businesses say they are being oppressed and authorities complain that the business regulation is too loose. We have to find the happy medium. The more there is freedom, the better for business but business must be responsible to the society and people. We made much effort to support small and medium businesses over the recent years. Kamchatka has 19,000 SMEs. What’s important is that entrepreneurs love and respect Kamchatka and seek to support it. They are committed to dealing with regional problems.