Jiamusi

Hulin HARBIN

Jii

CHINA million tons of containers

l. Khanka

HEILONGJIANG MUDANJIANG million tons 1 Pogranichny of caro Suifenhe Grodekovo 1 Poltavka CHANGCHUN JILIN 15 million tons of containers 3 million tons of rain Hunchun 3 JILIN 5 Slavyanka 6 Zarubino Vostochny Tumangang Khasan

NORTH Rajin Sea of Japan KOREA Belt and Road: Russia’s Transport Corridors Role and Participation in

The Komsomolsk The competitiveness in practice New principles ASEZ was expanded in What attracts foreign business for fishing industry Krai in the Far East of Russia EAST RUSSIA #6 | MAY 2017 ECONOMIC AGENDA

The Presidium of the ASEZ will be created Electronic Support System First coal shipments to State Council will meet on Russky Island in 2018 for Investment Projects China started by the during the EEF has begun its work Colmar Company Helium logistics center Khabarovsk Airport will be created in Soybean isolate Modern fish farm will be adopted new long-term the Nadezhdinskaya factory will open in the built in the Nikolayevsk tariffs ASEZ Belogorsk ASEZ ASEZ

Cellulose, soya,

logistics and

infrastructure The is becoming more and more attractive as a travel destination for tourists

Yakutsk Petropavlovsk - Kamchatsky RUSSIAN FEDERATION

Yuzhno - Birobidzhan Sakhalinsk Khabarovsk

The Outcome of Negotiations between Ulaanbaatar MONGOLIA Vladivostok

Ministry for the Development of the Far East China of Russia and Chinese investors Investment Passport: JAPAN Beijing DPRK Tokyo Pyongyang Official bulletin of the Ministry for Development of Russian Far East. This bulletin was prepared by the Far East Investment and Export Agency, an autonomous non-commercial organization. Seoul Distributed based on subscription. When using materials, reference to the source is required. REPUBLIC OF KOREA 6–7 September6–7 September 2017 2017

2 MAY 2017 EVENTS CONTINENTAL SCALE Russian President Vladimir Putin Participated in the Belt and Road International Forum in Beijing

port and trade routes leading to Europe and southern parts of the Far East region through Central Asia and Russia, and a marine passage, under the same name, which is going to open a way to the southern Pacific through Southeast Asia, and to the Far East Region and southern Europe through the Indian Ocean. The main strategic goal is to stimulate the economic de- velopment of the western regions of China. The idea of economical globalization was declared and promoted by the Chinese side at the forum. Against this background, the One Zone — One Route initiative becomes one of the key elements of economic globalization on the Eurasian continent and, according to its creators’ vision, should contribute to the enhancement of the international economic order. The main pur- pose of the One Zone — One Way is, according to Chinese media, the «alignment of political The first international top-level forum on and China signed the declaration on coupling frameworks, uniting of transport infrastructure, the topic of collaboration as part of the «Silk of the Eurasian Economic Union with the One aggregating of the transport infrastructures, Road Economical Zone» (also known as «One Zone — One Route initiative and proceeded to liberalization of trade, cooperation and inter- Zone — One Route») initiative recently con- negotiate the practical details of this coop- connection of financial spheres, and establish- cluded in Beijing. Among the 1000 key par- eration. The international meeting in Beijing ing spiritual ties between both nations». This is, ticipants were leaders of 29 governments and has shown that the coupling of the Chinese no doubt, a noble goal. If accomplished, it will countries, official representatives of dozens of initiative with the EurAsEC could materialize cause great shifts in the political and economic other states, IMF and World Bank directors, and as soon as the roles were determined and as- map of the world. Both China and Russia believe many other businessmen and financial experts. signed to all the participants of the process. that integration is the path of the future. On the Judging by the results of this meeting, forums As it stands, as of today, the Chinese initia- other hand, protectionism and ambition for per- like this one have a good chance of eventually tive is being represented as a multilateral strat- sonal or institutional leadership might create becoming a regular occurrence. egy on the massive geographical and econom- some hard-to-avoid obstacles on the way to The way that opening of the Forum was ic territory of Eurasia. The economic development. organized, demonstrated Beijing’s intentions One Zone — One Route ini- Many important initia- to present Russia as the first major partner tiative has a clear practical Russia named tives have already been set within the framework of the Chinese initia- perspective. An investment into motion. The Chinese tive. The Russian President’s opening address, and financial infrastructure the first major project and the EurAsEC delivered just after the speech of the Presi- was created in China. It in- partner program, initiated by Rus- dent of the People’s Republic of China Xi Jin- cludes the Silk Road Foun- sia, and Kazakhstan, ping, emphasized Russia’s significance in the dation, the Asian Infrastruc- of the will create a stable environ- fulfillment of China’s plans. ture Investment Bank (AIIB), initiative ment suitable for effective China and Russia, as it was declared in the and some other powerful fi- cooperation. Other coun- Chinese capital, today are playing the role of nancial institutions. Finan- tries involved in the process a ballasting system, one that is stabilizing the cial potential of the project, according to the bring new opportunities for establishing infra- ship of economic cooperation in Eurasia. In announcement, will increase by $14.5 billion structure and logistics routes and free trade that regard, let us recall that in 2015 Russia after the Forum. In addition, commercial banks zones. This way, goods and services will be able of China are planning to grant special loans to- to circulate without any hindrance, anywhere Author: Alexander ISAEV, leading research taling $55.1 billion to support practical coop- from Lisbon to Vladivostok, which is quite a officer, Deputy Head of the Russian-Chinese eration among different countries. huge area, from the geographical point of view. Relationships Study & Forecasting Center Experts highlight the two main directions The first practical steps are rather prom- of the Institute of Far Eastern Studies of of this initiative. The Silk Road Economical ising. China is implementing, or actively ne- Russian Academy of Science. zone consists of two parts: land-based trans- gotiating 54 joint projects with Kazakhstan.

3 EASTERN RUSSIA ECONOMIC AGENDA

$3 trillion is the volume of mutual trade reached in four years between China and countries along the Silk Road

Other SCO countries and European states are gistics center in Kaluga Oblast dispatched its geographical proximity to China. According to getting involved in the integration process- first container train to the Chinese Port Da- the Head of the Ministry Alexander Galushka, es. New transport routes connecting Europe lian through the Zabaikalsk–Manchuria bor- it is necessary to build the Poltavka–Dunin and China are already being used for mutual der crossing. Starting May 4, these shipments Bridge in addition to the two bridges that are exchange of goods. For example, Xinhua re- became regular: once every fortnight. currently being built, the Blagoveshchensk– ports that more than a thousand freight trains Transcontinental and east-to-west routes Heihe and Nizhneleninskoye–Tongjiang. with Chinese goods have arrived from China are being formed at the same time. There are There is one more huge project that sim- to Europe since the beginning of the year. In several of them. According to the officials, the ply cannot be ignored in this context. We are percentage terms, this is roughly 160% more first trial railroad cargo transit from China to talking about the «Meridian» automobile than the previous year’s results. These statis- Europe through Lithuania is expected to be road, which is designed to establish a con- tics cover all the existing accomplished in May–June nection between China and Eastern Europe. ground transport routes. of this year. The train will Part of it is going to pass through Russia as Moreover, the trains re- The Poltavka– pass through Kazakhstan, well. The Asian Infrastructure Investment turn back to China load- Russia, Belarus and the Bank is currently discussing the opportuni- ed with new cargo: Span- Dunin cross- Lithuanian border station ty of financing this project. In essence, this is ish wine, Polish milk, Be- border bridge Sheshtokai, to get to Po- a transcontinental initiative. According to Ro- larusian butter, German land and Europe. Twen- sAutoDor, the 8,445 km of the «Meridian» will cars and other goods. Why is a promising ty more freight trains are go through China, Kazakhstan, Russia, Belar- is this form of cooperation infrastructural scheduled to pass through us to the EU. It is worth mentioning that its so attractive for China? We the new route by the end Russian section will stretch about 2,000 km. should turn to the statis- asset of 2017. If the financial issues are settled successfully, tics again to understand Multi-modal contain- the construction of this 4-band road could be this. Since the first launch of the One Zone — er shipping is being experimentally carried finished by 2020. One Route initiative, the volume of trade be- out from Western Europe via Latvia, Belarus, Undoubtedly, such a complicated, intense tween China and other states connected to Russia, Kazakhstan to the city of Kashgar, Chi- and complex collaboration in the transport the Silk Road Project has exceeded $3 trillion. na. The route passes through Riga, which is sphere will make all the concerned parties During this time, the amount of Chinese in- approximately 7,400 kilometers away from reconsider the effectiveness of their project vestments into these countries reached more Kashgar, and it will take 14 days to reach the management processes. This is another prob- than $50 billion, and 56 zones of trade and destination. lem that needs to be solved. economic cooperation were created there. Modern transport and logistics strate- The Silk Road Economic Belt strategy is What about Russian–Chinese interactions gies might be really surprising sometimes. still being developed. Contrary to EurAsEC, within the framework of One Zone — One The transport corridor was opened for freight this initiative is not an integration project yet. Route initiative? delivery from North-Eastern China to South- However, it has all the potential to become If anything, the current economic coop- ern China though the territory of Russian Far one. It is never easy to take the first step on eration between Russia and China tends to East (Primorye‑1 and Primorye‑2 ITCs). Due to an unknown road. However, good care might be the most intensive in the transportation an extreme loading on Port Dalian, this route help any small seed grow into a mighty tree. sector. This statement is actively supported turned out to be cost-efficient for Chinese by the practical actions of both states: new producers, and is likely to be developed in the routes and infrastructure for logistic passag- future. The new route has once again high- es are being built in both eastern and west- lighted the necessity of infrastructural devel- ern regions of Russia. opment of the Russian Far East. Recently, the former USSR’s largest ver- The Russian Ministry for Development of satile logistic operator, Russian Railroads Russian Far East truly believes that infrastruc- (RZD) Logistics JSC, started shipping to Chi- ture is the main stumbling block in the explo- na on a regular basis. On April 5, the RZD’s lo- ration of advantages associated with Russia’s

4 MAY 2017 EVENTS

CELLULOSE, SOYA, LOGISTICS AND INFRASTRUCTURE

Alexander Galushka, Minister of the Development of the Russian Far East, met with a number of Chinese business representatives during his trip to Beijing.

A promising project involving a new to 30,000 tons of soybean protein yearly. self-contained pulp and paper mill in Around $120 million is required to suc- Amursk, was discussed with cessfully implement the project. According the President of China Chengtong Holdings to Zhen Xiangchiao, Chairman of Board of Group Zhu Biching. The Chinese side is in- Directors of the Agricultural Holding, «the terested in this project, which is going to re- final decision on the creation of a new quire more than $1 billion of investments, company to enter the ASEZ will be made in but will also create 1,500 new jobs. the end of May». According to the President of China The implementation of international Chengtong Holdings Group Zhu Biching, the transport passage projects Primorye-1 and factory will produce several types of cellu- Primorye-2 was one of the main topics on lose required for paper and cardboard pro- the Beijing agenda. duction. The goods will be exported to Chi- The Primorsky Krai government is cur- na. The investor is planning to take advan- rently working on creating a seamless pas- tage of ASEZ incentives to optimize its proj- sage for Chinese cargo. As per the Vladivo- Head of the Ministry for Development ect costs. stok Free Port law, the TC checkpoints are of Russian Far East Alexander According to Alexan- now operating round-the- Galushka and President of Joybay der Galushka, the Rus- clock, the check routine Agricultural Holding Limited Zhen sian government will as- The price of the is simplified and the car- Xiangchiao sist the investor in every go can be declared digi- step of the process. Any PPM investment tally. According to Alexan- leading Chinese transport company (own- issues that arise will be project in der Galushka, a joint Chi- ing 46 sea ports in 18 countries all over the resolved, including those nese-Russian regulation world) is a potential investor in the TC infra- concerning the supply of Amursk is over company might be creat- structure of Primorsky Krai. resources for the project $1 billion ed in order to manage the Alexander Galushka noted that «current- and manufactured goods TC. Ministry for Develop- ly, we have more than 20 investment proj- logistics. ment of Russian Far East is ects that are mostly sponsored by Chinese fi- Another company, ready to initiate the sign- nanciers and waiting to be implemented as Joybay Agricultural Holding Limited, ex- ing of a corresponding inter-governmental part of the new development mechanisms of pressed interest in becoming a resident of agreement with the National Development the Russian Far East. Both the ASEZ initiative the Amur–Khingan ASEZ in the Jewish Au- and Reform Commission of China. and the Vladivostok Free Port Program are tonomous Oblast during a meeting with The head of the Ministry for Develop- involved here. «We hope that the Chinese the Minister of Development of the Rus- ment of Russian Far East also met with the businessmen will soon be able to tell their sian Far East. The company is going to ini- Vice President of the China Merchants Port local partners about the Russian Far East as tiate a high-level soybean processing proj- Holdings Company Hu Jianghwa, who also a fruitful area for further investment and co- ect. This plant will be able to produce up expressed interest in developing the TC. This operation».

5 EASTERN RUSSIA ECONOMIC AGENDA

NEWS FROM THE RUSSIAN FAR EAST

THE PRESIDIUM OF THE STATE ly-owned subsidiary of Khabarovsk Airport, ment Fund of the Ministry of Land, Infrastruc- COUNCIL WILL MEET DURING THE EEF dedicated to building a new terminal). The tar- ture, Transport and Tourism of Japan JOIN. A State Council presidium meeting will iffs were set for the years 2019–2023. Accord- be held during the 3rd EEF. The forum is go- ing to the Khabarovsk Airport chairman of the METROPOLY HOLDINGS LIMITED ing to be hosted by Vladivostok in Septem- board of directors Konstantin Basuyk, this is a INTERESTED IN CREATING FAR EAST ber of this year. The first workgroup meet- unprecedented decision. «The consortium of FUNDS ing has recently been presided over by Igor Japanese investors laid down the main con- Metropoly Holdings Limited is leading Levitin, Secretary of the State Council. The dition for their participation in the project: a consortium of Asian investors that are in- main topic of the discussion was prepara- long-term tariffs had to be established, even terested in implementing investment proj- tions for the event. before the actual launch. Due to this unprece- ects in the Russian Far East. With this goal Vyacheslav Shport, Governor of Khabarovsk dented decision, all the conditions have been in mind, they joined forces with Russian Far Krai, is the head of the State Council presidium successfully met by now. The new tariffs will East Development Fund (FEDF) to create two workgroup. Alexander Krutikov, Deputy Minis- be the main source of investment returns. The new direct investment funds for mining and ter of Development of the Russian Far East, is pay-back period is about 10 years for this ter- infrastructure projects (Future Generations the head of an editorial group preparing the minal», explained Konstantin Basyuk. Funds, FGF). Real estate and travel projects workgroup’s report. The construction of a new Khabarovsk Air- have also been set into motion. The participants of the meeting noted that port passenger terminal for local flights will Each fund will invest up to $10 billion the Far East had always been an outstanding re- begin in the summer of 2017. Currently, the over 10 years. The first tranche in 2017 will gion of Russia, with its own way of development. project is going through a government evalu- be $1 billion from each fund. The Asian con- It requires a management system that will fully ation process. The estimated capacity for the sortium will attract from 80 to 95% of the embrace the main goal of accelerating the de- new airport is approx. 3 million passengers funds’ capital. FEDF will function as a spe- velopment of the eastern territories of Russia. annually. The amount of investments into the cial partner, to create a portfolio of potential project totals 4.2 billion rubles. projects and provide support for government KHABAROVSK AIRPORT IMPLEMENTED Some of the Japanese investors in the interactions. LONG-TERM TARIFFS ON BEHALF OF consortium are Sojitz Corporation (trade com- Chairman of Metropoly Holdings Lim- THE INVESTORS pany providing financial support from the ited Keng Lam Yang highly appreciated the The Federal Anti-Monopoly Service Japanese side), Japan Airport Terminal Co. perspectives of collaborative development of Russia set the long-term tariffs for the (JATCO, the biggest airport operator in Japan, during a meeting with RF Presidential Envoy Khabarovsk International Airport JSC (a ful- owner of the Tokyo Haneda Airport), Invest- for the Far East Yuri Trutnev. «We have just

Khabarovsk Airport renovation project model

6 MAY 2017 EVENTS

returned from Vladivostok, and we can clear- ly see that the region is developing in the right way, to attract Asian tourists and inves- tors. Investing in the Russian Far East is our long-term strategic priority. The perspectives of a joined implementation of large-scale and important projects, in collaboration with a trustworthy partner like the FEDF are in- valuable. Participation of a government in- stitution like this one, will make the project more comfortable for foreign investors», said the Chairman of Metropoly Holdings. Yuri Trutnev also noted that the projects being implemented as part of these funds, will receive full support from the govern- ment. A special Russian–Chinese inter-gov- ernmental commission on cross-border co- operation between the Russian Far East and northeastern regions of China will also as- sist investors with any issues that may arise. erations, architecture, design and engineer- ing, technical tests, research and analysis, ASEZ WILL BE CREATED ON RUSSKY rent and lease operations, travel agency ac- The Komsomolsk ASEZ retains its ISLAND IN 2018 tivities and any other operations in the trav- specialization in aircraft engineering According to the report made on the fi- el sphere. and shipbuilding. Photo: assembly nalizing session by Alexander Galushka, Min- These changes made the implementa- workshop at KnAAPO in Komsomolsk- ister of Development of the Russian Far East, tion of the Parus Industrial Park Company’s on-Amur an ASEZ will be created in 2018 on Russky project possible as well. The investor is go- Island. The Minister mentioned 8 organiza- ing to create modular workshops for hi-tech tions that are ready to implement their proj- factories that specialize on boat and plane ects in the zone by investing 50 billion ru- building, manufacturing tools for oil devel- bles. Among others, these include the Nu- opment and processing, and creating power clear Medicine Center, Engineering Center of efficient devices and equipment. the Far East Ship Repairing Facility, new ho- tels and tourism facilities. LAUNCH OF THE AUTOMATED FAR EAST INVESTMENT PROJECT SUPPORT KOMSOMOLSK ASEZ WAS EXPANDED SYSTEM IN KHABAROVSK KRAI The investors managing the projects in The Russian government adopted a reg- the Russian Far East now have access to an ulation on expanding the Komsomolsk ASEZ unique computerized service. The automated in Khabarovsk Krai. The boundaries of ASEZ investment project support system allows us- investors8 include land plots located on the territo- ing some services online, as well as submit- supported the idea ry of two municipalities. The first one is the ting documents over the Internet to the Min- of creating an ASEZ Holdomi Ski Resort. The investors are going istry for Development of Russian Far East. on Russky Island to improve the winter infrastructure, while Each investor gets their own account in building an aquatic health complex and a the system. Representatives of federal gov- 5-star hotel. Moreover, a number of projects ernment bodies also get one. in the food sector are scheduled for the new «I myself have a copy of the program, so I territories. As for now, we can name 3 proj- can see online at which stage each project is ects: poultry meat processing, egg and dairy at. If there is any local hindrance, I am able to production facilities. react to the situation on the federal scale», On behalf of the investors, some new ac- said Alexander Galushka, Minister of Devel- tivities were included in the list of business opment of the Russian Far East. operations that require a special legal re- About 600 Far East investment projects gime. The list now includes real estate op- have already been registered in the system.

7 EASTERN RUSSIA ECONOMIC AGENDA NEWS FROM RESIDENTS OF ADVANCED SPECIAL ECONOMIC ZONES AND THE VLADIVOSTOK FREE PORT

BIGGEST HELIUM LOGISTICS CENTER WILL BE CREATED IN THE NADEZHDINSKAYA ASEZ The Gazprom Gazenergoset Helium Company (resident of the Nadezhdinskaya ASEZ and a subsidiary of Gazprom Gazener- goset JSC) signed an agreement on the im- plementation of an investment project in the Nadezhdinskaya ASEZ. A modern helium lo- gistics center, occupying 16 hectares, will be SOYBEAN ISOLATE FACTORY WILL BE billion built as part of the project. The amount of OPENED IN THE BELOGORSK ASEZ investments into the project totals 5.1 bil- A unique for Russia soybean isolate fac- 5,1 rubles lion rubles. tory will be opened soon in the Belogorsk This facility will process the liquid heli- ASEZ (). Currently the plant is to be invested in creating um containers from the Amur Gas Processing functioning in test output mode and more a helium logistics center Plant (GPP), send them to the port, and load than 11,000 tons of final product have been in Primorsky Krai them onto ships for urgent delivery. The lo- processed already. Everything going accord- gistics center is scheduled to open in 2021 ing to plan. (the Amur GPP will start functioning at the same time). The center will be composed of a KGK WILL OPEN A BUSINESS UNIT IN production block complex dedicated to pro- VLADIVOSTOK IN SEPTEMBER cessing the cryogenic iso-containers and a The RF Presidential Envoy for the Far helium liquefaction unit. East Yuri Trutnev reported that the KGK Cor- This will become one of the biggest heli- poration from India (resident of the Vladivo- um logistics centers in the world. stok Free Port) had delivered the equipment required to establish a diamond-cutting fac- tory. The factory is scheduled to open in Sep- tember 2017. The amount of investments into the proj- ect totals approximately 500 million rubles. This continuous production cycle factory will be able to process up to 9,000 carats worth of rough diamonds provided by the ALRO- SA Company. The Indian investor will use the services of the Eurasian Diamond Center (EDC), which was opened earlier in the Vlad- ivostok Free Port. EDC will assist KGK with logistics, insurance for valuable cargos and provide support for the lapidary production processes.

POLYPROPYLENE PIPE FACTORY OPENS IN USSURIYSK The KB Plast Company (resident of the Vladivostok Free Port) has recently opened the only polypropylene pipe factory in the Russian Far East. The new factory is situated in Ussuriysk, Primorsky Krai. It can produce up to 20 tons of manu- factured goods monthly. The manufacturing Helium Logistics Center Project in the Nadezhdinskaya ASEZ

8 MAY 2017 EVENTS

process is fully automated, and all the goods are tested according to all the currently ap- plicable standards. The resident started to implement the project in the 4th quarter of 2016 by organiz- ing a pipeline system production facility. The plant occupies an area of 500 square meters and is producing pipes that can be used for hot and cold water supply or central heating. The amount of investments into the project totals 7 million rubles. The goods are already being exported to 14 regions of Russia.

THE FISH PROCESSING FACTORY ON NERPA BAY IN THE SOUTH OF THE PRIMORSKY KRAI WILL BE MODERNIZED The company Slavyanka Fish Process- ing Factory (resident of the Vladivostok Free Port) is going to renovate the its fish process- signed a one-year contract for the delivery of ing factory situated in on 240,000 tons of premium coking coal from the coast of Nerpa Bay in the Slavyansky Gulf. the coal-preparation plant Inaglinskaya-1. Fishing, fish processing and seafood storage The agreement was reached after a number will be continued after the renovation. The of pilot energy carrier parties had been suc- factory is designed to produce up to 15,000 cessfully delivered. tons of products annually. The amount of in- vestments into the project totals 7.5 million FREE PORT RESIDENT TO BUILD A rubles. The project will be officially launched METALWARE FACTORY thousand in the 3rd quarter of 2017. A resident of the Free Port, the Primstroi- tel Company, is going to build a metalware tons FREE PORT INVESTOR TO CREATE factory in Vladivostok. About 500 million ru- 240 of coal will be supplied A HARBOR VESSELS MANAGEMENT bles will be invested into the construction CENTER IN NAKHODKA and establishment of the factory. The produc- to China by the Southern The Astafiev Terminal Company has been tion is scheduled to start in the year 2022. Yakutia ASEZ annually given a Vladivostok Free Port resident status Currently, there are no local metalware facto- recently. It is going to implement an invest- ries in the Far East and Primorsky regions, so ment project involving the creation of the most metal goods are imported from China, Harbor Vessels Management Center in Na- Taiwan and other regions of Russia. khodka. This center will coordinate the As- tafiev Terminal handling complex’s opera- MODERN FISH FARM WILL BE BUILT IN tions, both strategically and on-the-spot. In THE NIKOLAYEVSK ASEZ addition to the main workload in Nakhod- One of the biggest establishments in ka, the Center will also manage the sea and Khabarovsk Krai fisheries sector, the Vostoch- rail transport interaction at Astafiev Cape and noye Fish Factory, has plans to modernize the Nakhodka-Export stations. production cycle and build a new plant in the The amount of investments into the proj- Nikolayevsk ASEZ. About 500 million rubles ect totals 490 million rubles. will be invested into the renovation of the million A new barge, specially built for the imple- fish processing plant in the village of Inno- mentation of the investment project docked kentyevka in Nikolayevsky Region. The com- rubles at Nakhodka Port on the 19th of May. The pany has previously made the same invest- 500 barge was built at a Chinese shipyard and ment into the modernization of the fish pro- is the amount of can carry up to 10,000 tons of bulk cargo. cessing shop: utility networks were replaced; investment into the large a modern cooling complex, caviar shop, and fish processing plant in the FIRST COAL SHIPMENTS TO CHINA finished-product output lines were equipped. STARTED BY THE COLMAR COMPANY The new investments will be spent on the Nikolayevsk ASEZ Colmar Coal Mining Company (resident construction of quay walls, commissioning of of the Southern Yakutia ASEZ) and the Chi- waste processing facilities, creation of treat- nese smelting corporation Baowu Steel ment facilities, etc.

9 EASTERN RUSSIA ECONOMIC AGENDA THE COMPETITIVENESS IN PRACTICE

The current state strategy on the development of the Russian Far East is based on the idea of integration with the largest economies of Asia-Pacific Region. On the one hand, the export of products manufactured in the Far East to APR countries is being stimulated. On the other hand, commercially viable conditions for foreign business are systematically being formed in the Far East. This work has begun to pay off.

The principal approach of the Russian Free Port of Vladivostok provide business- Minvostokrazvitiya is creating commercial- es with opportunities to considerably opti- ly viable conditions for investments and mize an economic model when working in business. According to the Minister of the the Far East. Apart from widely employed Russian Federation for Development of the benefits aimed at the optimization ofin- Far East Alexander Galushka, in practice, come and property taxes, these regimes this means that «income tax, for example, provide, for example, the benefit of the op- should be no more than 11%, like in Ko- timization of welfare payments from the 400projects rea, and insurance fees should be no more payroll. Residents pay insurance fees of 7.6 than 10%, like in Japan. The time needed percent instead of 30, which provides for are proposed to investors to acquire permission to begin construc- considerable savings, especially in projects by the Far East Investment tion should be no more than 26 days, as requiring highly skilled and well-paid per- and Export Agency in the USA, and customs formalities should sonnel. Overall, the attractiveness of Ad- be similar to those in Singapore. This is vanced Special Economic Zones is driven what competitiveness is in practice.» by three main factors. Firstly, tax remis- New economic regimes in the Far East, sions. Secondly, the availability of infra- Advanced Special Economic Zones and the structure. The third element is a special management system for such territories. That is how Minvostokrazvitiya defines the key principle of the system: «The investor is always right.» Notably, any company, either big or small, is illegible to receive such support after receiving the status of resident of the Free Port or an ASEZ. The minimum invest- ment threshold is 500 thousand rubles for ASEZs and five million rubles for the Free Port. For this purpose, both companies be- ginning their business from scratch and existing enterprises investing in techno- logical modernization and expanding their production are eligible to receive bene- fits. If past experience is any guide, small and medium-size business is actually be- ginning to profit from the benefits: among current residents, there are companies with just 10–15 people in employment. The Far East Investment and Export The signing of the agreement on the development of Krutogorovsky coal deposit Agency (IEA) has strategies of investment In Kamchatka between TATA Power, the Ministry for the Development of the Far East of development ready for all nine constituent Russia and the Government of the Kamchatka Territory entities in the Far East and there are more

10 MAY 2017 FACTS AND OPINIONS

than 400 elaborated projects classified by the investor will be offered to use the Eur- investment volume and industries. Many of FOREIGN asian Diamond Center, a specialized infra- them may interest foreign companies and INVESTMENTS structure for the storage and custom clear- are already being presented to them at ance (export) of valuable freight, including various platforms. IEA’s substantial inspi- AT THE FAR EAST diamonds. rations are associated with the creation of Cooperation with Japanese investors country-wide investment platforms. One of (Investments is being developed just as extensively. them, the Russian-Japanese platform, be- declared under One of the most significant projects with gins its work this year. The Japanese part- new support the involvement of the Japanese consor- ner is the Japanese Bank for Internation- mechanisms) tium is the reconstruction and develop- al Cooperation, JBIC. They plan to create a ment of the Khabarovsk International Air- similar investment project in cooperation port. The consortium includes Sojitz Cor- with China, India, and South Korea. poration, Japan Airport Terminal Co., as NUMBER OF PROJECTS well as the Japanese Ministry of Land, In- FLAGSHIP PROJECTS FOR Free port of Vladivostok frastructure, Transport and Tourism’s JOIN INTENTIONAL COOPERATION Investment Fund. The new airport capacity The largest international project in the Total: 21 will amount to three millions passengers a Russian Far East so far is exploring oil de- year. The total cost of the project is around 3 1 1 posits on the Sakhalin Shelf. Sakhalin‑1 11 3 1 $70 million. involves companies from the USA, Japan, Some unprecedented decisions have and India, and US and Japanese companies been made; in particular, the long-term participate in Sakhalin‑2. Chinese business rates for infrastructural assets have been 1 – joint project has a share in Sakhalin‑3 project. The raw (USA, Mexico, UK) approved by the Federal Anti-Monop- product they extract is exported, as well oly Service. The process of including as processed on the internal market. Along VOLUME OF INVESTMENTS Khabarovsk in the Free Port of Vladivo- with that, thanks to state business support million RUB stok’s economic regime is also underway. measures in the Far East, new internation- (Free port of Vladivostok) Upon adopting the corresponding law, in- al projects are being launched that may be Total: 70 034 vestors will be able to profit from all the called flagship in many regards. tax benefits provided by this regime, while 62 273 497 140 For example, a coal mining enterprise 4 825 1 891 175 the airport will be included in the zone of project in Kamchatka is actively being de- curtailed visa regime for foreign citizens. veloped by Indian investors. TATA Group In this regard, it is worth mentioning that every third project signed during the Holding has shown interest in the Kruto- 234 – joint projects gorovsky coal deposit. TATA Power intends (USA, Mexico, UK) official visit of the Russian President Vladi- to mine coal in Kamchatka for export, to mir Putin to Japan pertains to the Far East- supply their own generation assets with NUMBER OF PROJECTS ern region. There are 27 projects in total, fuel, among other purposes. Advanced Special Economic Zones including 10 in natural resources mining, Investments in the project are estimat- Total: 22 15 projects on industrial development, one ed at $560 million. The project investment urban construction and one medicine and 2 2 of Sberbank is estimated at about $400 12 1 2 health-care project. Specifically, most in- million. Moreover, this financing will be- dustrial projects are oriented towards the gin as early as 2018. The conditions for en- export of goods.

FOREIGN RESIDENTS FOREIGN 1 1 try of an Indian company into this project 1 Some of the projects launched using included a system of preferences provided the new development mechanisms involve to investors in the Russian Far East by the investors from South Korea. This country is new development instruments, in particu- currently the largest importer of fish and lar, the opportunity to obtain ASEZ benefits VOLUME OF INVESTMENTS seafood from the Russian Far East. It is and the necessary infrastructure. According million RUB (ASEZ) then of no surprise that Korean investment to the project, at full capacity the produc- Total: 177 649 is flowing into the fishing industry. tion of commercial coal at the deposit will For example, in Kamchatka, Korea Trad- 2 372 1 240 reach up to 10 million tons a year. 154 888 1 878 10 648 ing & Industries Co. is investing $7 million It is not the only new project with the in the construction of a fish processing involvement of Indian business in the Far complex with a capacity of 10 thousand 77 46 East. A diamond enterprise in Vladivostok 6500 tons in the ASEZ. The project under the is being actively prepared for launch by name of City 415 is being implemented on KGK Holding from India. The investor has par with a Russian partner and has already received the Free Port resident status. All received the benefits of a resident of the the necessary equipment has been deliv- Advanced Special Economic Zone. In 2017, ered to the facility. And after the launch, the investor is planning to begin building

11 EASTERN RUSSIA ECONOMIC AGENDA

the landing pier, while the whole complex eration industry from expensive imported is due to be launched by 2020. The prod- TARGET fuel, are being implemented and provide ucts they produce are supposed to be ex- PARAMETERS investors with the commercial result they port oriented. expect. It is no joke that, due to the worn- Overall, Korean investors are currently out state of equipment and fuel shipping implementing six projects on the territory INCOME TAX issues, the net cost of power generation at % of the Far East. The total investment vol- some load centers reaches $2 per 1 kWh. ume amounts to around $70 million. In ad- Russian authorities are ready to maintain dition, a company from South Korea has re- 0% the level of subsides until the projects be- In the first 5 years, cently proclaimed its intentions to partici- then 10% gin to pay off. This enables an investor to pate in the construction of the Kamchatka «sum up» the project economy and receive regional hospital. The investment volume 14 18 29 their economic outcome. 11 17 27 will then reach around $200 million. Thirdly, IEA proposes that investors, in- cluding foreign ones, invest in retail net- LOCAL MARKET OPPORTUNITIES FOR works and logistics. 2017 is significant in FOREIGN INVESTORS many regards, as a hypermarket of the ma- The Russian Far East’s market is quite INSURANCE FEES jor construction and household retail net- % small. Nevertheless, it provides for the im- TAXES work, Leroy Merlin, opened in Khabarovsk. plementation of cost-efficient projects According to analytics, the investment re- in various fields. Such projects based ei- quirement of this industry amounts to $1.1 ther on import substitution or technolog- 7,6% billion. Fourthly, the market of developing ical modernization may provide investors high technologies, e. g. the deep process- with a guaranteed and stable profit, even 13 15 37 ing of local raw produce, is prospective in 10 14 18 in small scale production. The success of the Far East. The investment requirement such projects depends heavily upon the is this market is over $3 billion. What is in- level of technologies an investor introduc- teresting in this regard is the experience es. This is why projects in this sphere inter- of Korean Gideon Systech’s cooperation PERMISSION TO BEGIN est oversea partners. with the Russian City Transport Company: CONSTRUCTION For example, one of the first projects days upon receiving residency status in the Free implemented in the Advanced Special Eco- Port of Vladivostok, they began investing nomic Zone, the Japanese greenhouse com- over $30 million into the development of plex JGC Evergreen, is oriented towards the a smart payment system for city transport local market. The greenhouses built in the 25 in Vladivostok. Khabarovsk ASEZ are growing tomatoes 28 197 274 26 89 249 and cucumbers for the local market. The EXTREME CONDITIONS PROVIDE investor has chosen a successful market- BUSINESS PROFIT ing strategy: the price of produce is low- Another factor creating perspective er than Chinese imports, while the quality opportunities for foreign investors in the is better. As a result, the only competition GRID CONNECTION Far East is the local climate. The season- greenhouses have are with local agricul- days al inland climate conditions in Yakutia and tural enterprises. specific conditions in coastal areas in Ka- The Far East Agency for Investment mchatka, enable them to test new tech- and Export is currently systematizing the nologies meant for many countries, in the needs of Russia’s internal market and pro- 28 Arctic and Antarctic. This is not something poses industry-specific projects to inves- 31 105 145 new. For instance, the airport is 18 60 137 tors. customarily used by aviation industry lead- Firstly, this is urban infrastructure. The ers to test their technologies in extreme investment potential of the renovation of cold conditions. the rundown utility infrastructure in the The experience of Japanese power en- major cities of the Far East is estimated to CUSTOMS CLEARANCE gineers is also notable: thanks to support amount to nearly $1 billion. The projects’ days by the Japanese state organization, NEDO, economy is based upon rate regulation, in modern hi‑tech wind-driven power gen-

which case the Far East has already experi- PROCEDURES ADMINISTRATIVE eration complexes have been built in Ka- enced a long-term fixation of rates in order mchatka. Work in Kamchatka was a great to ensure a return on investments. 2 challenge for Komaihaltec engineers. Tech- 6 8 21 Secondly, this is local power gener- 6 8 11 nologies that allow for equipment «surviv- ation. This process is already underway. al» up to 40 °C were developed specifical- Projects on power efficiency, as well as ly for this project. The severe climate re-

those intended to unhook the local gen- the Far East of development instruments for under the new provided and conditions Terms * quirements applied to everything: steel-

12 MAY 2017 FACTS AND OPINIONS

work, constructions, and particular quali- a Japanese technology of vegetable farm- ties of the architecture of the power supply TARGET ing in the permafrost with some updates scheme. However, thanks to the implemen- PARAMETERS accounting for local climatic conditions. tation of this project, the Japanese compa- It was the first time such equipment was ny has discovered its road to a new market: used in frost conditions up to 60 °C. It is wind-driven power generation in the Arc- NATURAL GAS worth mentioning that the equipment op- tic. The technology they developed in Ka- dollars per cubic meter eration is monitored by the Japanese party mchatka is a competitive offering that can 24/7: enormous bulks of telemetry probing be applied both in Russia and anywhere are transferred on-line to Japan, where the in the North. Moreover, the Japanese party exact settings are chosen for the equip- is willing to update its technology so that 0,09 ment (heating, ventilation, irrigation). The it could be used under even more severe first «wintering» of the greenhouse has 0,19 0,34 0,6 0,19 0,34 0,37 brought impressive outcomes: the equip- ment has passed all the climatic tests, the greenhouse produces crops that are in sta- ble demand, as all the produce is absorbed PROCESS WATER by the local market. dollars per cubic meter Today, thanks to state support for the advanced development of the Far East, similar projects on the development of new technologies, as well as on the cre- 0,27 ation of testing grounds for existing

0,69 2,04 3,43 equipment, will multiply. The territory of 0,35 1,23 2,09 Yakutia is especially prospective in this regard, as it provides the opportunity for

The complex of wind generation of Japanese UTILITIES PRICE climate testing grounds to be created in Komaihaltec in Kamchatka the midst of a fully developed infrastruc- ELECTRIC POWER ture: railway and automobile roads, and cents per kWh conditions. For this purpose, it intends to Yakutsk City with its solid R&D base. Even implement another wind power generation now, among potential residents of the project in Tiksi village on the coast of the Kangalassy Industrial Park ASEZ are for- Arctic ocean. 6 eign companies who are contemplating One more example is the greenhouse the possibility of building testing grounds complex of Sayuri Company, built in the Ya- 9,96 10,5 19,27 for their products. 9 10 14,5 kutsk suburban area with the involvement of the Japanese investor, Hokkaido Corpo- ration. Project initiators have introduced

The greenhouse complex LLC «Sayuri» in the Republic of (Yakutia)

13 EASTERN RUSSIA ECONOMIC AGENDA

TOURISM BEGINS WITH THE PRIMORYE Growth of the tourist flow in the region will ensure the development of the industry in the entire Far East

Korea — in 2016 about 46,500 tourists came Volume of inbound Volume of internal Number of rooms in Volume of extra-budgetary During the third Pacific Tourism tourist flow tourist flow accommodation investments in the objects from there; North Korea — last year 17,500 Forum on May 18–21 in Vladivostok, (thousand people) (thousand people) facilities, thousand of tourist infrastructure tourists visited Primorye; Japan — in 2016, just units (million rubles) industry experts discussed prospects 3887 under 9,000 Japanese people visited Primorye. 640 3520 43004500 623 28,9 for the development of cross-border According to official data provided by the 570 2570 28,5 3090 routes in the international tourist Department, the entry flows indicate growth 28 markets of Northeast Asia. Since last in the first quarter of 2017: The increase in year, the event has acquired an all- the number of guests from China during this period amounted to 36%; from the Republic Russia status, and was supported Krai Primorsky of Korea — 73%. 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 by the Ministry of Culture and the forecast forecast forecast forecast forecast forecast forecast forecast – As we see, Primorsky Krai holds a prom- 1031 Federal Tourism Agency. inent place in the development of inbound 593 545 755 tourism to Russia. Therefore, we face major 37 38 519 6,7 6,7 36 5,3 Particular attention was paid to the issue of challenges in creating the image of Primo- 509 increasing inflows to Primorye. Thus, according rye in the tourist market of different coun- to the Tourism Department of Primorsky Krai, tries: «We are currently busy with develop- Khabarovsk Krai Khabarovsk 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 the total tourist flow to the region in 2016 ex- ing a single tourist product, the Eastern Ring forecast forecast forecast forecast forecast forecast forecast forecast ceeded three million people. That is a 45% in- of Russia, which will unite 12 territories of 1267 crease, and it exceeds that of 2015 by 1 mil- the Far East and , including Primorsky 23,1 208 1,9 182 195 1,8 1,8 lion. From other countries, over the same peri- Krai, in one trip. In addition, the tourist in- 19,6 866 16,6 od, 570,000 tourists entered Primorye, among frastructure of the region, as well as the ser- 384 which 420,000 people were guests from China. vice, invariably need improvement», the dep-

Top ranks, in terms of the number of incom- uty head of the Federal Agency for Tourism, Krai Kamchatka 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 ing tourists, were occupied by the Republic of Aleksey Konyushkov, noted during the forum. forecast forecast forecast forecast forecast forecast forecast forecast

14 MAY 2017 PRACTICE

BROADEN HORIZONS rye. As wasVolume explained of inbound by ChineseVolume experts, of internal VolumeNumber of of inbound rooms in VolumeVolume of ofextra-budgetary internal Number of rooms in Volume of extra-budgetary tourist flow tourist flow accommodationtourist flow investmentstourist inflow the objects accommodation investments in the objects Despite the favorable data provided by much attention(thousand should people) be paid (thousandto the devel people)- (thousandfacilities, thousandpeople) of(thousand tourist infrastructure people) facilities, thousand of tourist infrastructure the administration of Primorye, at the ses- opment of the Chinese–Mongolian–Russian units (million rubles) units (million rubles) 3887 3887 sions devoted to the discussion of coopera- economic corridor. 640 3520 640 352043004500 43004500 623 623 28,9 28,9 tion in the sphere of tourism with the PRC, 570 570 2570 28,5 2570 28,5 the Republic of Korea and Japan, it was not- ESTABLISH CONTACT 3090 3090 28 28 ed that the authorities and businesses need The experts are sure that sport inbound to continue working to create a favorable im- tourism could be a «gold mine» for Primo- age of the country and the Krai in the market rye. This opportunity will appear in the re- Primorsky Krai Primorsky Krai Primorsky 2016 2017 2018 2016 2017 2018 201620162017201720182018 201620162017201720182018 2016 2017 2018 2016 2017 2018 of tourist products of foreign countries. gion, if the sportsforecast organizationsforecast of theforecast regionforecast forecastforecast forecastforecast forecastforecastforecastforecast forecast forecast forecast forecast The issue of awareness, as emphasized will interact more actively with the countries 1031 1031 by the participants of the event, is especial- concerned. 593 593 545 545 755 755 ly important: Many residents of neighboring «If we are talking37 38 about the 519sports event 376,7 386,7 519 6,7 6,7 36 365,3 5,3 countries perceive Russia as a distant north- tourism, the tourism of fans and sportsmen, 509 509 ern neighbor and do not realize that Vladivo- the main problem in this area is the isola- stok is only two hours away from them. tion of our individual sports organizations Khabarovsk Krai Khabarovsk Krai Khabarovsk 2016 2017 2018 2016 2017 2018 201620162017201720182018 201620162017201720182018 2016 2017 2018 2016 2017 2018 The potential for the development of that hold championshipsforecast forecast and tournaments»,forecast forecast forecastforecast forecastforecast forecastforecastforecastforecast forecast forecast forecast forecast tourist relations between the Far East of Rus- said Galina Gomelevskaya, Ph.D., director of 1267 1267 sia and South Korea was discussed during VSUES. «However, in23,1 addition to the most 208fa- 23,11,9 208 1,9 195 1,8 1,8 195 1,8 1,8 the forum, from the standpoint of the upcom- mous sporting 19,6events (PrimRing,182 Annual In- 19,6 182866 866 16,6 16,6 ing 2018 Winter Olympics, which will be held ternational rally raid on aquabikes and oth- 384 384 in South Korean Pyeongchang. «Vladivostok ers), we could advertise a large number of

can take on the advantageous position of the other Krai sportingKamchatka events to tourists». Krai Kamchatka 2016 2017 2018 2016 2017 2018 201620162017201720182018 201620162017201720182018 2016 2017 2018 2016 2017 2018 main transit point for the guests who travel «We are readyforecast toforecast become intermediariesforecast forecast forecastforecast forecastforecast forecastforecastforecastforecast forecast forecast forecast forecast to the Olympics», said Olga Gurevich, execu- between the sports organizations of Primorye tive director of the Primorsky Regional Union and the tourists from foreign countries», said of the Tourism Industry, chairman of the re- Konstantin SHESTAKOV, director of the region- major Italian cruise operator, announced nine gional Public Expert Council for Tourism De- al tourism department. «This applies to abso- calls of the Costa Victoria and Costa NeoRo- velopment. A large number of tourists will lutely all the sports organizations, many of mantica cruise ships. pass through the Vladivostok International which are ‘stewing in their own juice’ today». In 2016, as Konstantin SHESTAKOV not- Airport. Our tour companies will have the op- ed, the emphasis was placed on the promo- portunity to get the transit tourists interest- CRUISE CAPITAL OF RUSSIA tion of cruise tourism. Important agreements ed, with short two and three day programs in The current year will be a landmark one were reached by the Governor of Primorsky Primorye. in the development of cruise tourism. For- Krai with the Governor of Gangwon-do Prov- Industry experts from China are enthusi- eign liners will call at a port of Vladivostok ince. In addition, the port of Vladivostok will astically considering the possibility of further 14 times (last year such vessels visited the be visited by three cruise liners, with tourists development of tourist relations with Primo- city only 6 times). In particular, Costa Group, a from the Republic of Korea, chartered by the world-famous tourist operator Lotte Tour. In addition, direct negotiations were held with one of the largest cruise companies, Royal Caribbean International. Tourists visiting Primorye, within the framework of cruise tours, are offered a program that includes sightseeing tours around Vladivostok, visits to the Mariinsky Theatre, Primorsky Art Gallery and the Ar- senyev Regional Museum, trips to Vladivo- stok Fortress, and shopping. As explained by Konstantin SHESTAKOV, the program was formed in cooperation with partners from China and Japan. «Together we discussed what should be done so that passengers of cruise liners, visiting Vladivostok, could feel comfortable here».

Starting August 1, citizens from 18 countries will be able to visit the Vladivostok Free Port using the benefits of e-visas

15 EASTERN RUSSIA ECONOMIC AGENDA

NEW PRINCIPLES FOR FISHING INDUSTRY In the Far East, more than three million tons of aquatic bioresources and over two million tons of fish products are produced annually. However, the current figures are far from the potential employment prospects. The industry has its growth points.

Over the past year, decisions were made at ment quotas and special regimes offered plants in Kamchatka amounted to approxi- the country level that will change the face of by the ASEZ and the Vladivostok Free Port, mately 1.5 billion rubles. Now 10 investment the fishing industry in the near future. For ex- designed to greatly facilitate the implemen- projects, with an amount of investment of ample, last year a federal law was adopted to tation of investment projects, providing res- almost 11 billion rubles, are being imple- introduce quotas for the extraction of aquatic idents with a number of preferences offered mented in the peninsula. Among the larg- bioresources for investment purposes. That is, in tax and customs legislation. est projects are the construction of a new the opportunity to catch fish will be provided, According to the information provided complex of fish processing plants in Tymlat, in exchange for obligations — entrepreneurs by the Ministry of the Development of Far with the investment amount exceeding 2 will have to build either a fishing fleet in -do East, 7 projects in the field of fish process- billion rubles. The Lenin Collective Farm is mestic shipyards or fish processing, plants in ing, within the framework of the ASEZ, are implementing a project for the construc- coastal regions. For this purpose, it is planned already being imple- tion of new production to allocate 20% of the total allowable catch. mented in the Far East, buildings of the coast- In the Far East, that is about 500,000 tons of and 9 projects within As incentives al factory in Petropav- aquatic biological resources. the framework of the should serve the lovsk-Kamchatsky. And At the beginning of this year, the prin- Vladivostok Free Port. the City 415 Company, ciple of granting investment ratio to inves- The total amount of in- investment quotas together with a Korean tors was agreed upon, which will now be vestments into the proj- and special regimes business plans to create assigned to users for 15, and not 10 years as ects exceeds 12 billion a complex for high-level before. The long planning horizon and prior- rubles. offered by the ASEZ fish processing. itization of economically and socially signif- Among the regions and the Vladivostok The regional au- icant areas should help the industry reach a of the Far East, Kam- thorities consider pro- different level of development. chatka Krai is the lead- Free Port cessing as strategically er in the implementa- important areas, and DEVELOPING OF COASTAL tion of processing industries. Since 2008, try to support entrepreneurs. In addition PROCESSING 17 modern factories have been established to federal supportive measures, Kamchat- The processing will be intensively devel- here. Just in 2016, private investments into ka has been providing regional subsidies oped. As incentives should serve the invest- the reconstruction and construction of new since last year to recover part of the cost of

16 MAY 2017 PRACTICE

the first installment under leasing agree- not above 70 million rubles. Breakthrough idea, related to engage- ments; it also increased the amount of However, even without the above mea- ment of maximum water area for household compensation for leasing payments and sures, the regions entered on the path to- production purposes, was voiced by the Dep- interest on investment loans. wards fleet renewal. Owing to the invest- uty Chairman of the Government, Authorized The Khabarovsk Krai is also aiming at ment project of one of the Kamchatka’s Representative of the President for the Far developing coastal processing. Here, for oldest fishing companies, the Lenin Collec- East Federal Region Yury Trutnev. First of all, example, within the framework of the Ni- tive Farm, the region became foremost in his initiative stipulated a declarative order, kolayevsk ASEZ, two modern plants will be the construction of the fishing fleet. This in relation to aquaculture areas, including placed into operation: one on shore of the company is number one in the construction their further placement for sale by auction. Sakhalin Bay and the second in the village of the latest fishing vessels in Russian ship- Secondly, suggested the formation of of Innokentevka. yards. This project envisages increase Ka- single window interactive service for both Major fish processing projects are also mchatka’s fleet by three new very modern international and domestic market partic- being implemented in Primorsky Krai and the .

INVESTMENTS GO TO SHIPBUILDING Shipbuilding is another attractive area for investors. Today, 90% of the fishing fleet in Russia consists of ships that were built more than 20 years ago. According to the information provided by the Ministry of Industry and Trade of Russia, the need for fishing organizations in the Far Eastern Re- gion for the period until 2030 is estimated at 147 ships. Meanwhile, in recent years, no large-scale fishing ships have been built at Russian shipyards. How- ever, the investment rates, vessels, total amount of ipants. This means that fishing water area together with the facili- Potential of which cost approximately will be marked with a dimensional desig- tated tax and customs re- 4.5 billion rubles. The first nated grid. Thus, the business owners will be gimes, should fundamen- aquaculture vessel will come off the able to select an area online. The application tally change this vector. production in the docks in June of this year, automatically goes to the Federal Agency for “We are monitoring the the second one — in No- Fisheries will approve borders of the fishing development of mecha- Far East is more vember. area and place it up for e-auction, via the In- nisms for the allocation of than 1 million tons ternet service of the Far East Development so-called investment rates, THE PROCLAMATION Fund. that is, already in the near annually ORDER FOR The idea of interactive mapping of future, this can increase AQUACULTURE the areas was supported by Russian Pres- the capacity utilization, As it was evaluated by the ident Vladimir Putin. Draft certificates of not only of shipbuilding plants, but equip- Far Eastern scientists, more than 2 million the Government of the Russian Federation ment suppliers as well. At the same time, hectares of the Russian seacoast of Sea of Ja- have already been developed, and will en- the cooperation with fishermen is already pan and southern part of Sea of Okhotsk are sure this model’s implementation by the underway. Thus, the Khabarovsk Shipbuild- suitable for aquacultural purposes. However, end of the year. List of potential investors ing Plant signed an agreement on the in- the area of cultivated lands today accounts for new aquaculture companies in the Far tent to build a series of crab vessels”, said for less than 20,000 hectares. The poten- East of Russia was already finalized (250 Sergey Ivashkin, Deputy Prime Minister and tial of growing aquaculture products in the companies from Russia, Asia-Pacific Region, Minister of Industry and Transport of the Far East is more than 1 million tons of Europe, USA, etc.), cooperation was es- Khabarovsk Krai. products annually, nevertheless tablished with trade offices in Another measure, a recycling grant, is the current realization less Russia, Asia-Pacific Region aimed at the reanimation of shipbuilding. than one percent of this countries, North America In early May, the Government of Russia amount. Annual fish pro- and Europe. Potential approved a mechanism for the reimburse- duction more than 3 investors were provid- ment of expenditures for the acquisition of million tons, resulting ed with suggestions new vessels, used to replace those being in total production of on the arrangement handed over for recycling. The subsidy for 6 thousand tons of of aquaculture sec- the acquisition (construction) of a new fish- aquaculture products. tors in the Far East, ing vessel or a technical fleet is 10% of its This situation shall be with the help of the value (excluding the value added tax), but drastically changed. new Internet service.

17 EASTERN RUSSIA ECONOMIC AGENDA

INFRASTRUCTURE Chinese communications Currently, International Transport Corridors (ITC) Primorye-1 and Primorye-2 ensure mainly import–export operations between Russia and China. Nevertheless, transit activities, including those originating from the northern-east of China to the central regions of our country increased since the beginning of the year. Further, their increase will be encouraged by optimal logistics and simplification of the border crossing process.

The main export-import flows between for Transportation and Road Infrastructure northern-eastern provinces of PRC and of Primorsky Krai, this spring, the contrac- Asia-Pacific Region currently go through tors started on the construction of the sec- ports of Chinese Province of Liaoning (Da- ond section of the motorway, the length of lian, Yingkou, etc). Total turnover is estimat- which is approximately 25 km. It will go from ed at 7–10 million tons per annum, howev- Artem to the village of Tsarevka, bypassing er, there is still potential of further growth. Shtykovo, , and clus- Even bigger turnover — approximately 250– ters, thus ensuring high-speed transit to the 300 million tons falls on internal transits be- town of . Overall, the distance tween the northern-east of the PRC and its from Vladivostok to Bolshoy Kamen will be central and southern regions. However, rail- reduced by 22 km. Investments into con- way throughput capacity reserves in Chi- struction of the new road are estimated at 21 na are limited. Transportation of cargos via billion rubles. These include 18.7 billion of Primorsky Krai has become an attractive al- ed steady growth since the beginning of the federal investments, with the balance com- ternative to Chinese internal transit routes. year: in the 1st quarter, volumes of trans- ing from investments of the regional budget. The use of this route will reduce the length ports exceeded 2,000 TEU. According to the Head of the Internation- of surface transits by 200–500 km for Chi- This direction has arranged circular al Relations Department of the Far East Rail- nese forwarders, thus reducing transporta- routes, so that as of today, Chinese ves- road Igor Melnikov, further growth of region- tion costs by 10–40%. sel owners provide their ships specially for al transit potential is being considered, and The Far East Railway has already noted these transportations. When a container will involve the development of another, movements, due to the arrangement of Chi- truck comes back to the Russian port with more southern ITC, the Primorye-2. It gives nese transit via ITC Primorye-1, connecting empty containers, it immediately gets loaded access to Sea of Japan and the Province of Ji- via the border crossing Suifenhe-Grodeko- with full ones, said Petr Silin, Director of the lin, via the border crossing points Makhalino, vo (Pogranichny) Heilongjiang province with Far East Office of the TransContainer PJSC. Kraskino and Zarubino, Slavyansk and Nakhodka (Vostochny) and Vladivostok ports. In addition to the railway, connection ports. According to the Chinese forwarders, The amount, forwarded by transit via border transits can be ensured with automobile local manufacturers greatly need the Primor- crossing point Grodekovo in 2016, reached transport as well. The development of ITC ye-2 ITC. Thus, annual traffic volumes of sim- almost 3,200. TEU (containers in 20-foot Primorye-1 presumes the construction of ple bottle mineral water from the Province equivalent), being 10 times more, in compar- the fast motorway Vladivostok-Nahodka-Vo- of Jilin to the Republic of Korea are estimat- ison with 2015. Transits have demonstrat- stochny Port. According to the Department ed at 56,000 TEU. In order to arrange transit to Zarubino A TEST FREIGHT DELIVERY VIA ITC PRIMORYE-2 (Trinity Bay) a shipping route to the South- WAS PERFORMED ern Korean Pusan has been introduced, with In April, the FESCO Logistics Group, in coop- According to Leonid Petukhov, General Director a capacity to deliver up to 6,000 TEU per eration with the Far East Investment Attraction of the Investment Promotion Agency, the test de- month. And according to Vyacheslav Burin, and Export Development Agency, arranged a test livery considered all the peculiarities of this route. General Director of the Seaport in Trinity Bay freight delivery from China to Korea via the Pri- The conducted state experiment allowed to reveal, LLC, even now, the capacity of the terminal morye-2 ITC. The travel time was 7 days, includ- in test mode, all ITC operational defects, impacting can allow increasing of cargo turnover via ing 5 for transportation over Chinese territory on freight customs clearance, procedural process- transport corridor several fold. to the border crossing point Chunchun, border es timelines, and costs, including for those freights As on today, freight flow via the railway crossing, transportation over Russian territory to coming via border crossing points. The results of this crossing point Makhalino (Kamyshovaya) is Zarubino Port, port procedures and ship loading study will serve as the basis for the development of arranged in one direction only — from Russia took one more 1 day, and other day was needed actions, aimed at resolving these problems, so that by to China (January–April 2017 traffic volume for ferry delivery of the container from Zarubi- project launch date, the transport corridor will oper- exceeded 1 million tons). Cargoes, exported no to Pusan. ate work like clockwork, said Leonid Petukhov. to the Celestial Empire, include coal, iron ore, and sawed timber. Although it might include

18 MAY 2017 PRACTICE

Jiamusi

Hulin HARBIN

Jii Lesozavodsk

CHINA million tons of containers

l. Khanka

HEILONGJIANG MUDANJIANG million tons 1 Pogranichny of caro Suifenhe Grodekovo 1 RUSSIA Poltavka CHANGCHUN JILIN 15 million tons USSURIYSK of containers

1st stage 2nd stage 3rd stage (2016–19) (2020–30) (2030+) 3 Investments million Infrastructure projects billion rub. tons of rain Expansion of checkpoints Pogranichny, 1 4 VLADIVOSTOK Poltavka and Grodekovo Kraskino Hunchun 3 Reconstruction of the road “State border – 6 2 Pogranichny – Ussuriysk” (~ 110 km) JILIN 5 Slavyanka Construction of a new road “Vladivostok – 3 Nakhodka – Vostochny” (~ 145 km) 120 Nakhodka 6 Expansion of container terminals Zarubino Vostochny 4 in ports of Primorsky Krai 15 Tumangang Khasan Construction of the allocated roads and 5 the road “State border - Zarubino” (~ 70 km) 75 NORTH Rajin Sea of Construction of container and grain Japan 6 terminals in Zarubino 95 KOREA

Concept of the development of the International Transport Corridors Primorye-1 and Primorye-2 other cargos also, like fish products. Accord- infrastructure and resumes transits in the easily cross the port border on the way to ing to the representatives of the Vladivostok end of 2013, after the rehabilitation of the their destination place, where they under- affiliate of RZD Logistics JSC noted, 160,000 infrastructure. go customs clearance. This rule will first of tons of Russian seafood were delivered in Initiatives of repre- apply to transit contain- 2016 to the PRC via the automobile cross- sentatives of railway er cargos, going out- ing point Kraskino–Hunchun, but local mar- companies, related to 15 million tons side the customs ter- ket requirements are much bigger, and for transit development via ritory of Eurasian Eco- that reason, the railway crossing point ca- Makhalino were also of container nomic Union. Goods de- pacities shall also be engaged. Currently, the supported by the RF Min- livery terms will be sig- Kraskino–Hunchun crossing point is operat- istry of Transportation freight may be nificantly reduced. It ed at limit capacities, although the Federal and Primorye munici- transported will take no more than Target Program «State Border of the Russian pal bodies. Joint devel- 13 hours for the freight Federation for 2012–2021» calls for the ar- opment of correspond- via the ITC to pass the Primorye-1 rangement of a new crossing point, having ing document package is corridor, and no more throughput capacity of 250 cars per day (ver- ongoing. Ministry for Far by 2030 than 4–5 hours through sus the existing point, which is able to daily East Development has the Primorye-2 corridor, process 52 trucks and 48 tourist buses). also prepared a draft RF Government regu- according to Pavel Volkov, State Secretary, Expansion of the freight list, giving ac- lation that will be able to facilitate the pro- Deputy Head of the Ministry for Far East De- cess to Makhalino transit, is also hampered cedure of transit freight delivery from PRC velopment. with existing regulations. This is connect- to Russia. One of the expected innovations The office repeatedly stressed that both ed with the fact that in the years 2004– will be to transfer all customs arrival-relat- automobile and railway transport should 2013, the Kamyshovaya border crossing ed operations to the ports, which is quite play key roles in the sea-based ITC. Poten- area was not used, while its owner Zolo- relevant for the Primorye-2 ITC, as far as the tial volume of cargo to be delivered via toye Zveno OJSC did not propose including distance between Makhalino crossing point the transport corridor is quite serious — the crossing point into corresponding RF and the Zarubino terminal is just 64 km. 23 million tons of crops (wheat, soya, rice) regulations on expanding the list of deliv- Goods, delivered in Russia for further tran- and 15 million tons of container freight by ered freight. In 2011, RZD OJSC bought the sit arrangement via Primorye sea ports, will 2030.

19 EASTERN RUSSIA ECONOMIC AGENDA

INVESTMENT PASSPORT: Amur Oblast Anadyr Highlights

Area of Amur Oblast: 361,900 sq. km Population: 801,700 people Magadan

GRP: 276.9 billion rubles Yakutsk Petropavlovsk - Kamchatsky GRP per capita: 343,000 rubles RUSSIAN Amur FEDERATION Oblast Capital investment: 128–483 million rubles. Yuzhno - As of 2016 Birobidzhan Sakhalinsk Blagoveshchensk Khabarovsk

Ulaanbaatar MONGOLIA Vladivostok Workforce: 412,800 people. As of June 2016 China JAPAN

Beijing DPRK Tokyo Pyongyang Seoul PERSPECTIVE BRANCHES OF THE ECONOMY REPUBLIC OF KOREA Petrochemicals Electric power Mining Core capabilities: Core capabilities: Core capabilities: Developed oil&gas transportation Water resources at ~3.3 GW Rich raw-material base worth a system. Half generated electricity is total of over $319 billion: Production projects for basic raw materials consumed outside the region. Coal — 3.7 billion tons ($148.7 able to be used for further processing Current export supplies at ~3.5B kWh Lignite billion); stages. resources enabling construction of 5–8 GW Iron ore — 580 million tons ($52.2 billion); High export potential, due to the coaling stations for supply to China. Gold — 381 tons ($15.2 billion); advantageous geographical location: Integrated gas chemical projects requiring Copper — 0.5 million tons ($3.3 billion); proximity to China's border, railway ~0.5 GW power. Nickel — 0.3 million tons ($3.1 billion). connection to Nakhodka Port (2,135 km).

Investment activity: Investment activity: Investment activity: 4 investment projects with cumulative 3 investment projects with cumulative 4 investment projects with cumulative investments of over 205 billion rubles investment of 155 billion rubles investments of 114 billion rubles

Tourism Agriculture Logistics

Core capabilities: Core capabilities: Core capabilities: Simplified visa requirements and 1.6 million ha of land for growing The region has a long border with close proximity to China, favor green crop products, 0.9 million ha China. Investors are interested in tourism (the region being 3rd in Chinese hayfields and pastures. border crossing upgrades and the creation tourists visiting Russia). Annual exports of 2.7 million tons of meat, of bridge crossings with associated Relatively low human impact on the region's 87 million tons of oil-bearing and 32 million infrastructure. environment provides opportunities for the tons of grain crops to China totaling more Favorable location at the intersection of development of ecotourism. than $100 billion. trade routes. Natural diversity facilitates developing Low satiation rate of the local market. Several federal roads and railways (TransSib, adventure travel. Potential partnerships with local companies. BAM, mini-BAM, Amur Highway, Amur- Yakutsk Mainline)

Investment activity: Investment activity: Investment activity: 4 investment projects with cumulative 6 investment projects with cumulative 5 investment projects with cumulative investments of 22.4 billion rubles investments of 13 billion rubles. investments of 25 billion rubles.

20 MAY 2017 PROJECTS

INVESTMENT IN UPCOMING SECTORS

Industry Investment, billion rubles Jobs, thousand people Quantity of projects

Petrochemicals 205 3,0 4 Electric power 155 1,5 3

Mining 114 2,4 5

Engineering 25 0,5 5

Logistics 25 0,2 5

Tourism 22 1,1 4

Agriculture 13 0,9 6

Forestry 1 0,1 3 PERSPECTIVE BRANCHES OF THE ECONOMY Total 560 9,7 35 Engineering Distance from major transport hubs Core capabilities: Distance and flight time to the nearest cities* Engineering product exports to China. Potential establishment of Harbin, China — 508 km (1 h flight) JVs with China. Beijing, China — 1,444 km (2 h flight) The Vostochny Cosmodrome as a large local Shanghai, China — 2,178 km (2 h flight) consumer of engineering products. Changchun, China — 731 km (1 h flight) Demand for products and automotive Tokyo, Japan — 1,849 km (2.5 h flight) components by mining and agricultural Seoul, South Korea — 1,414 km (2 h flight) enterprises. Vladivostok — 863 km (1.3 h flight) Moscow — 5,614 km (7 h flight) Novosibirsk — 3,001 km (4 h flight) Investment activity: Krasnoyarsk — 2,371 km (3 hour flight) 5 investment projects with cumulative

investments of 25 billion rubles *given aircraft speed of 850 km/h, Forestry Contacts

Core capabilities: Timber resources at ~2 billion cubic Valery Dubrovsky, meters Investment Department Director, Dense local woodlands (estimated at Far East Investment and Export Agency 64%). +7 (965) 314-09-18 Substantial potential to increase in forest [email protected]. exploitation (wood harvesting at 0.8 million cubic meters with rated wood cutting at Pavel Puzanov, 17.5 million cubic meters). Director of the Amur Region Investment Agency Resources available to new investors at 10 +7 (909) 894-67-98 million cubic meters [email protected]

Investment activity: Potential project implementation with investments amounting to over 1 billion rubles

21 EASTERN RUSSIA ECONOMIC AGENDA

FAR EAST INVESTMENT SHOWCASE

This section contains samples of investment projects implemented in the Far East. For more information on participation in these or other projects in the region, please contact the Far East Investment and Export Agency.

CONSTRUCTING A CELLULOSE COMBINE IN KHABAROVSK KRAI

REGION: Khabarovsk Krai INDUSTRY: Cellulose&paper INVESTMENT VOLUME: 80 billion rubles EBITDA: 40–50% IRR: 12.9% PROJECT DESCRIPTION: BSKP cellulose production out of softwood (for further use as cardboard package, napkins, paper). Competitive differentiators: • access to cheap and fine raw materials (in comparison to foreign competitors); • cheaper logistics up to pivotal Asian markets (North China, Shanghai, South-East Asia) against competitors from more western Russia (benefit up to 12% in costs).

CONSTRUCTION CONSTRUCTION OF CONSTRUCTION OF OF PIG FARMING A GREENHOUSE COM- A PROFESSIONAL GOLF COMPLEXES PLEX IN YAKUTSK CITY COURSE

REGION: Primorsky Krai REGION: Republic of Sakha (Yakutia) REGION: Primorsky Krai SECTOR: Animal breeding SECTOR: Agriculture SECTOR: tourism, entertainment VOLUME OF INVESTMENTS: 15.8 bil- VOLUME OF INVESTMENTS: 1.3 bil- VOLUME OF INVESTMENTS: 2.7 bil- lion rubles. lion rubles. lion rubles. NPV: 4 billion rubles (for 10 years) EBITDA: 67% EBITDA: – IRR: 25% IRR: 25.8% IRR: 24% PROJECT DESCRIPTION: construction of PROJECT DESCRIPTION: construction of a PROJECT DESCRIPTION: construction pig farming complexes with a capacity of 79 greenhouse complex for vegetable farming with of a professional 18-hole golf course with a thousand tons of pork on a live weight basis per the deployment of a heating and power center, 30-room club house, a restaurant and guest year, a feed-stuff production complex with a ca- office, warehouse and auxiliary facilities covering cottages. Modern architecture, a beautiful pacity of 240 thousand tons per year, an eleva- an area of 8.2 hectares. The greenhouse will be landscape and all the necessary facilities tor with a capacity of 120 thousand tons, a 125 complete with equipment, and engineering-tech- will attract both golf professionals and am- bearings per hour slaughterhouse, a salvage nological systems providing for continuous pro- ateurs. department and an motor transport enterprise. duction with minimum hand labor.

22 MAY 2017 PROJECTS

NAKHODKA FERTILIZER PLANT

REGION: Primorsky Territory INDUSTRY: Chemical utilization of natural gas INVESTMENT VOLUME: $6.3 billion EBITDA: $1.2–1.3 billion IRR: ~20% PROJECT DESCRIPTION: plant design capacity: 1.1 million tons of ammo- nia, 2 million tons of carbamide, and 1 million tons of methanol annually. The plant should reach design capacity in the year 2022. Project initiator: National Chemical Group CJSC. The plant is to use the natural gas supplied via the gas pipeline enabling to export Russian gas to Asia. National Chemical Group CJSC and Gazprom Mezhregiongas LLC have signed a 20-year raw material supply contract.

METHANOL PLANT IN NIZHNY BESTYAKH

REGION: Republic of Sakha (Yakutia) INDUSTRY: Chemical utilization of natural gas INVESTMENT VOLUME: $1.6 billion. EBITDA: $220–230 million IRR: 15% PROJECT DESCRIPTION: The design capacity of the plant: 1.7 million tons of methanol per year. METHANOL Local natural gas is due to be used as raw PRODUCTION material. Project initiator: Yakutsk Fuel and IN SKOVORODINO Energy Company, part of the Summa Group. Finished products are due for shipment by rail. REGION: Skovorodino, Amur Oblast INDUSTRY: Petrochemicals INVESTMENT VOLUME: ~$600 million EBITDA: ~$150–200 million. RAILWAY IRR: ~20% COMPONENT PROJECT DESCRIPTION: establishment of gas chemical production on PLANT the existing railway junction in Skovorodino, Amur Oblast with methanol capacity of up to REGION: Khabarovsk Krai 1.2 million tons. INDUSTRY: Engineering project with direct access to the largest Pow- INVESTMENT VOLUME: er of Siberia pipeline (between gas fields in 10 billion rubles. East Siberia and China) providing stable sup- EBITDA: 40% plies of up to 1 billion cubic meters of natu- IRR: 15% ral gas annually. PROJECT DESCRIPTION: constructing a The project has superior logistics and infra- component and spare part plant in Komso- structure: rail lines, existing railhead, and ca- molsk-on-Amur; creating an R&D center; con- pacitive business. structing a locomotive assembly plant

23 EASTERN RUSSIA ECONOMIC AGENDA CONTACTS

MINISTRY FOR DEVELOPMENT OF THE RUSSIAN FAR EAST МИНИСТЕРСТВО РОССИЙСКОЙ ФЕДЕРАЦИИ ПО РАЗВИТИЮ ДАЛЬНЕГО ВОСТОКА +7 (495) 531-06-45 [email protected] www.minvr.ru

FAR EAST INVESTMENT AND EXPORT AGENCY АГЕНТСТВО ДАЛЬНЕГО ВОСТОКА ПО ПРИВЛЕЧЕНИЮ ИНВЕСТИЦИЙ И ПОДДЕРЖКЕ ЭКСПОРТА +7 (495) 540 41-63 [email protected] www.investvostok.ru

CORPORATION FOR DEVELOPMENT OF THE RUSSIAN FAR EAST КОРПОРАЦИЯ РАЗВИТИЯ ДАЛЬНЕГО ВОСТОККА +7 (800) 707-55-58 [email protected] www.erdc.ru

FAR EAST DEVELOPMENT FUND ФОНД РАЗВИТИЯ ДАЛЬНЕГО ВОСТОКА +7 (495) 540-47-37 [email protected] www.fondvostok.ru

AGENCY FOR THE DEVELOPMENT OF HUMAN CAPITAL IN THE FAR EAST АГЕНТСТВО ПО РАЗВИТИЮ ЧЕЛОВЕЧЕСКОГО КАПИТАЛА НА ДАЛЬНЕМ ВОСТОКЕ +7 (495) 123-47-27 [email protected] www.hcfe.ru

Official Bulletin of the Ministry for development of the Russian Far East. This document was prepared by The Far East Investment and Export Agency, an autonomous non-commercial organization. All published information is relevant as of May 24, 2017. Distributed by email subscription. When using materials, reference to the source is required. Published photos provided by: TASS, ROSCONGRESS, administrations of subjects of the far Eastern Federal district, Kremlin.ru, Shutterstock.

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