KEY FINDINGS
The development of modern infrastructure increases the investment appeal of the regions and the quality of life in the Far East
"First infrastructure, then investment projects. ... We have reached a good pace of construction in the Far East recently. ... This year we will finish the first stage [of the Eastern Landfill – Ed.] and are actively entering the second stage, we have no doubts that we will implement it, the project is vital. At different times, everyone understood that the East is needed. The Trans-Siberian Railway, BAM in Soviet times, then it was said that BAM was not needed. Today, the capacity is often insufficient. The world is changing so fast. You have to keep up. ... It is necessary to create capacity reserves so that investment projects come to us", said Oleg Belozerov, CEO, Chairman of the Board of Russian Railways.
"We [major companies implementing major projects in the Far East – Ed.] are basically changing the economic geography. The Far East will look completely different. We need to change economic geography maps all over the world. Plus, this is a crazy impetus for regional development. We are just at the construction stage now. ... Around 30 thousand workers are being built, we have 3.6 billion rubles a year in personal income. Of course, for the region, for the municipalities, crazy support. We build housing, new cultural and architectural dominants appear, i.e., life returns", said Alexey Kozlov, SIBUR board member, managing director of OOO SIBUR.
Preferential regimes and volumes of state support in the Far East should be maintained
"Without state support, including the SRE mechanism, it would be difficult for us to expect good results in the future. With these support measures in place, we are already designing the second phase to bring our ore mass production up to 40 million tonnes soon, at the good grade we have. We are also developing the social sphere, naturally, in our village of Novaya Chara. We are investing a lot of money to fight covid. We are building recreational facilities, cultural facilities, and so on", said Valery Kazikaev, Chairman of the Board of Directors of Udokan Copper LLC.
"For a subsoil user, it is obvious that the priority is the place where the minerals are located. It is a technical issue, but for the Far East, it is a crucial one. ... For the Far East, the priority is the issue of synchronizing infrastructure construction and project implementation. You can't build a factory and then pull the network out to it in six months. It won't work. We have a serious field, the amount of investment to build a factory and start the development is 250 billion rubles, we have already invested more than 50 billion. ... Without the support of the state, it is impossible to implement such projects", said Dmitry Govorov, vice president for government relations and strategic communications at Russian Copper Company, JSC.
PROBLEMS
Lack of production capacity in the Far East, long lead times for projects, high cost of construction materials
"The Far East is developing extremely rapidly, we can see this in the shortage of production capacity. ... We had to concentrate and even start actively restoring old production facilities. ... Features of the project [the Eastern Polygon, – Ed.]: the second stage is being implemented for nine years, it already seems to us today that even for such a large infrastructure the time frame should be reduced, we should try to implement projects in 4 to 5 years from the moment of design, when the procedure, money, and technology are clear", said Oleg Belozerov, General Director and Chairman of the Board of Russian Railways.
“The Black Swan is the change in the cost of rolled steel, the cost of building materials. In the last six months, we have seen an increase of about 30 to 40%. This will affect the cost of the project. As of today, we have approved these documents by the board of directors. The cost was 720 billion rubles, now it will be 777 billion rubles [the price of the second stage of the modernization of the Eastern Polygon – Ed]” said Oleg Belozerov, General Director and Chairman of the Board of Russian Railways.
The level of social development does not match the potential of the areas, so people keep leaving
"Today it is obvious to us as long-term investors who are coming to Nakhodka and who have to attract qualified personnel for new enterprises and residents that the level of social development of the city does not correspond to its economic potential, so people, unfortunately, keep leaving it", said Nikolay Sabitov, General Director of JSC Khimproekt.
SOLUTIONS
Development of a variety of financial instruments
"There are always two problems during the implementation of an investment project: time and cost. When there is no infrastructure, it inevitably becomes part of the project, which leads to a longer timeline and a more expensive project. Projects in the Far East are special in that they are often implemented in the middle of nowhere. ... Today, we are discussing many things with the regions, including PPP, concessions, now NWPC [agreement on protection and promotion of capital investments – Ed]. All the leading banks have the Far East as an absolute priority. It poses challenges to the banking community not only in terms of the standard lineup, i.e., financing, but also in terms of what should be inside the financing, like banking support, digital technologies, control over the targeted use of funds, putting the bank-client interaction to a new level", said Oleg Melnikov, Executive Vice President and Head of Contracts Banking Support Department at Gazprombank (Joint Stock Company).
Developing comprehensive territorial development plans and creating the primary conditions for living in the Far East
"We have taken the initiative to draw up a comprehensive development plan for Nakhodka. Its purpose is to attract federal investments to the city to develop healthcare, education, culture, sports, urban environment. ... The federal government and the regional government support us in this matter and, of course, the mayor. He sees in this comprehensive plan a strong impetus for the development of Nakhodka's social environment. It was essential for us that the city residents had an opportunity to influence which facilities will be included in the comprehensive plan", said Nikolay Sabitov, CEO of JSC Khimproekt.
"First and foremost, we need to resettle people in quality housing. People need to be fed, treated, protected, and educated. That is our main mission as the government of the Khabarovsk Territory. That is why we are launching smaller projects, although they are not small at all, but large. This is the AgroHub project, 3 thousand hectares for farmers. ... This is the 'Far Eastman House', the construction of prefabricated houses in an industrial way, up to a thousand per year, which we will start next year", Mikhail Degtyarev, Acting Governor of Khabarovsk Territory, said.
Backbone infrastructure development attracts new investors
"The connection of new consumers is a barometer of the economy. For the Far East, we are seeing constant demand and the connection of new large consumers. In 2020, there was a slight increase in the Far East, despite the fall across Russia. This year, supply has increased by more than 6% by 2020, which says that businesses are starting to develop and consume. In five years, we built large networks. They were standing underutilized. It was a problem for us. Now the Power of Siberia gas pipeline and the Amur Gas Chemical Plant are connected to these grids. ... More and more applications are coming to us today. Some "stars" create the infrastructure, and other big "stars" light it up. In the absence of grids, their plans have been delayed in terms of timing", Alexey Molsky, Deputy CEO for Investment, Capital Construction, and Sales of Services at Rosseti, PJSC.
Read more in the Roscongress Foundation Information and Analytical System roscongress.org
