Far East still too far

Russian President Vladimir Putin has slammed recently the government for poor control of the country’s Far East development. Disagreements between ministries and agencies over the region management, investment projects options, funding sources, business preferences frustrate plans of investors willing to invest in transport infrastructure.

State thoughts

A recent meeting of the State Council of Russia focused on the development of the Far East and Trans-Baikalia. Russian President Vladimir Putin told the upper house of Russia’s parliament that the creation of the Ministry of Far East Development failed to live up to expectations.

"The Ministry for the development of the Far East has not yet met the expectations. For example, the FTPs, which are being implemented in the eastern territories, only on 13 November this year, were transferred from the Ministry of Regional Development to Ministry of Fare East Development. As a result, there is a blurring of responsibilities and work failures. We have to create a control system that would be exactly consistent with the aims of speedy recovery of the eastern territories of Russia," Putin said.

He also expressed his willingness to get back to the idea of creation of a state-owned corporation for the development of the Far East. "...we have no right to consider the Far Eastern regions just as a mere supplier of raw materials. We need to ensure its modern, sustainable development, and in general we need new, more effective approaches to the implementation of our programs, to planning and management. We need to get rid of the situation when the problem-solving process is unacceptably slow, when the allocated considerable financial and material resources are dispersed, when the approved plans are often remain on paper," Putin added. He emphasized that governors play a special role in achieving the objectives of the region development. "The responsibility of the heads of regions and regional management teams should be increased many times," Russian President said.

Noteworthy, Prime Minister and ex-president of Russia Dmitry Medvedev, had repeatedly stated the need for the state to pull out from the capital of the state-owned companies, as well as the possibility of privatization of several joint-stock corporations and even to liquidate them, that is the issue is not to strengthen, but to reduce the influence of the state on the economy.

Not by oil alone

Be that as it may, the main interest of real investors in the Far East is, in one way or another, in the raw materials sector. The interest in the region is related mainly to its proximity to the markets of the Asia-Pacific Region (APR), which becomes a key region for the delivery of Russian raw materials - mainly crude oil, coal, gas and grain.

It’s all clear with crude oil. With the launch of the second phase of the Eastern Siberia-Pacific Ocean (ESPO) pipeline from the oil pumping station Skovorodino to Kozmino export oil port (ESPO-2), scheduled for December 2012, the commodity will be supplied entirely through the pipeline. In Kozmino after dredging performed by Rosmorport in November 2012, the second pier has been commissioned. This can increase the terminal's capacity to 30 million tons a year. Crude oil from Sakhalin projects is exported via terminals in DeKastri and Prigorodnoye (Prigorodnoye is also handling LNG exports).

Dead-end track

As for other goods, its delivery to the Far East ports depends largely on the low capacity of railways and high tariffs. As Vladimir Putin told the State Council, shippers have already ordered for delivery more than 100 mln tons of cargo through the Baykal-Amur Mainline (BAM), while its capacity is only 16 million tons.  

In November 2012 the government approved the investment program of Russian Railways (RZD), as we wrote earlier in more detail. Yet, fundamental questions about the tariff policy and funding remain open.

The issue of railway capacity is also related to the effectiveness of special economic zones. Thus, the Port Special Economic Zone (SEZ) Sovetskaya Gavan has not its residents and there is no cense in preferences if one can not deliver the required volumes of cargo.

"We understand clearly that the special conditions can give results if the region will create a modern transport and energy infrastructure,” Governor of the Amur Region Oleg Kozhemyako told the State Council meeting. “We just have to build a second track of Trans Siberian Railway with higher speed characteristics. This will increase and make it more accessible not only passenger but also transit traffic from the Asia-Pacific region to Europe. The railroad will have to cut considerably the delivery time, develop container shipping. To utilize the natural resource potential the country needs to build a second electrified branch of BAM and meridional branch lines, allowing development of natural resources adjacent to railways."

Minister on the Far East Development Victor Ishayev believes the ideology of the regional development should rests on the scheme of advance infrastructure development by the state and private entities investing in means of production.

We understand that the federal budget will need to inject in FTP at least RUB 100 billion a year, with payments from funds. This program requires a passport, and that is also the life demands ... We are talking about all other investments to reach 600-800 billion rubles. In this case, we can achieve the desired development. Here is what we seek, and it is quite the real thing," said Ishayev.

Meanwhile, the businesses have been creating the "means of production", without waiting for the state. The fact that all major transportation companies are bidding for the state-owned stake in Port Vanino, the project of integrated development of transportation hub “Vostochny-Nakhodka”, the projects of upgrade of marine terminals proves that investors are still interested in the Far East as we wrote earlier.

The question is, whether the state will have time to do its part? Anyhow, Vladimir Putin has authorized the government to prepare a program for the development of the Far East not later then the first quarter of 2012.

Vitaly Chernov.