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Far East lead to profitability
Why unprecedented tax breaks for the region are so beneficial for Russia
On December 29, 2014, Russian President Vladimir Putin signed the law "On territories of advanced socio-economic development" (later this name was shortened to three letters - TOP), in fact, giving the start of a new economic reality in the Far East. Earlier, up to this point in the history of modern Russia, the state did not provide special conditions for the development of any of its territories, guided by the rule "One country - a single legal space." The rules of the game were common to everyone.
Of course, various preferential regimes for investors, not the least of which are special economic zones (SEZ), were in Russia before. But not so broad and attractive preferences for investors, which were first received by the residents of the TOP, and then by another preferential regime, the Free Port of Vladivostok (FPV).
What is the reason for such a favorable attitude of the authorities towards the Far East? Probably, a whole complex of reasons plays a role here. Firstly, the eastern territories of the country were and remain the main storehouses of Russia: the main mineral resources are concentrated here, from rare metals to all so necessary oil and gas. The main volume of marine biological resources is caught in the eastern seas, the Far Eastern forests provide most of the country's timber. A colossal volume of exports to the countries of the Asia-Pacific region goes through the Far Eastern ports.
The proximity of the most developed economies in the world is the second factor of the extreme importance of the Far East for Russia. This is its window to key countries with advanced technologies and huge markets. Attracting investments from there is a difficult task, and it cannot be solved without granting preferences to foreign investors. Finally, it is also important that in the post-Soviet period, the Far East faced an outflow of population: the harsh climatic conditions and the remoteness of these territories from the center of the country become the reasons for the move. Retaining local residents by giving them the opportunity to improve their lives without leaving the Far East through the general development of the economy, through benefits for small and medium-sized entrepreneurs, large businesses, through the creation of new jobs, is the most important goal of Russian state policy.
That is why Vladimir Putin in 2013 declared that "the rise of Siberia and the Far East is a national priority for the entire XXI century." The locomotives of transformations in the economy of the Far East, clusters that attract and accumulate investments and technologies, are the TOP, the free port of Vladivostok and a special administrative region (SAR) on Russky Island.
Residents of preferential treatment received zero tax on profits, property and land for the first five years; zero import and export customs duties; concessional lending; preferential rental rates; facilitated regime of state and municipal control; reduced rates of insurance premiums; zero value added tax on imports for processing. And most importantly, the state has undertaken to create the infrastructure in the TOP necessary for the implementation of investment projects.
A number of institutions were created to implement state policy in the Far East. The Russian government has a deputy chairman in charge of the Far East direction, in the structure of departments - the Ministry for the Development of the Far East. A number of "development institutions" are subordinate to him, the key role among which is played by the "Corporation for the Development of the Far East" (KRDV). In fact, this is a “single window” for investors and a management company that exercises all state powers in the ASEZ, FPV and SAR.
HOW THE “SINGLE WINDOW” WORKS
The mission of the KRDV is the formation of competitive territories and favorable conditions for business development in the Far East, its goals are to ensure the unconditional implementation of projects of residents of the ASEZ and FPV and to create in the territories of advanced development of infrastructure necessary for effective competition for investment and human capital. The company's head offices operate in Vladivostok and Moscow; in the regions of the Far Eastern Federal District there are representative offices of the management company.
The KRDV operates in a “single window” mode and creates all conditions for entrepreneurs to work comfortably and enjoy all the benefits and preferences intended for them. Work is actively underway to expand the list of services provided to investors, to develop and implement new mechanisms to support business. Despite the constant increase in the number of applications for obtaining the status of a resident of the TOP and FPV, the specialists of JSC "KRDV" consider and make a decision on each business project in less than 15 days.
Accepting a project for support, the corporation includes it within the perimeter of activities and many other development institutions: the Fund for the Development of the Far East and the Baikal Region, the Agency for Human Capital Development, the Agency for Attracting Investments and Export Support. So the investor gets the widest opportunities to solve any of his problems.
If you need land - please, the KRDV has a fund of land plots in the TOP, and residents of the free port of Vladivostok are provided with land plots for rent without bidding. Bring communications down - just tell me which ones. Financial question? There are many programs for concessional lending, including from the Far East Development Fund. Do you need foreign partners? Their selection can be done by the Investment Promotion Agency. Does the future enterprise, which the resident is preparing for commissioning, need personnel? The Agency for the Development of Human Capital will help to select them or to include in the educational programs of universities the training of the necessary specialists.
And even if an investor has problems that can be solved only in court, he has someone to turn to with claims - one of the tasks of the KRDV is to protect the rights of investors and represent them in litigation. At the end of 2018, the KRDV is a participant in 129 courts in defense of residents, 76 of them are still pending.
KRDV is a complex and high-tech structure: it is different and would not be able to manage about 1500 projects and hundreds of processes. According to the results of surveys of residents, 55–56% assess the work of the KRDV as excellent, the average score of the corporation's assessment is 4,4.
This whole system works for a common result: the emergence of new enterprises in the Far East, the creation of a new economic reality in which the potentially richest region of Russia will become the most profitable and richest.
ATTENTION - TO EVERY INVESTOR
The intermediate results of the Corporation's activities for the development of the Far East can be summed up by listing just a few numbers. But if you think about how much work and energy of people is behind each of them, the achievements cease to seem modest.
For example, over the four years of operation of the ASEZ and FPV regimes, more than 367 billion rubles of private investments have actually been invested. This is more than three average annual budgets of such a rather large Far Eastern region as the Khabarovsk Territory, or more than 30 budgets of the Jewish Autonomous Region. In other words, thanks to the privileges provided, investors throughout the Far East have invested in new production as much as the executive authorities of the JAO have not invested in budget spending in 30 years. Is this not the result?
Over the years of work in the ASEZ and FPV, 181 new projects have already been implemented. 181 new enterprises have appeared, although their scales differ by an order of magnitude. 20 thousand new jobs have appeared. It turns out that employees of enterprises of new preferential regimes, if you put them together, you can populate an entire small town. This is how the entire Far East should gradually become: filled with new technologies, populated by people receiving good salaries for interesting work.
And then - only more. Agreements for investment of more than 332 trillion rubles have already been concluded with 2,3 residents of the TOP. To imagine the scale of this amount, it is enough to recall the size of the Russian budget. The entire country earns and spends from the state treasury about 15-17 trillion rubles a year. A fifth of the revenues of the entire state will be invested by investors in TOP projects in the Far East. These funds can be used to build two gas pipelines "Power of Siberia", which is rightfully called the Russian "project of the century", and a little more will remain.
A total of 1108 projects have been registered in FPV, the declared investments are 599,2 billion rubles. In total, all projects announced for implementation by residents of the ASEZ and FPV will create more than 119 thousand modern jobs.
A very important question - who exactly is hiding behind these thousands of projects in the ASEZ and FPV? Who are the investors who believed in the new economic conditions and signed up for the implementation of projects in the Far East? In fact, it turns out that the pool of companies here is as wide as possible: hundreds of projects from small and medium-sized businesses, dozens of projects from major corporations - leaders of the national economy, almost a hundred projects from companies with foreign participation.
Here are just a few examples from among those enterprises that have already been built and launched in the preferential regimes of the Far East. Last year, the largest pig-breeding complex RusAgro-Primorye, built by one of the largest domestic agricultural holdings, RusAgro, started working in the Mikhailovsky TOR in the Primorsky Territory. The volume of investments, according to the plan, will exceed 21 billion rubles, 1,5 thousand new jobs will be created. This is a large enterprise that not only significantly changes the market for the production of fresh meat in the Far East, but also has serious export ambitions.
For comparison - a compact factory for the production of double-glazed windows "Teply Krai", built in the TOP "Industrial Park" Kangalassy "in Yakutia. “Only” 35 million rubles will be invested here, 12 jobs will be created, and nevertheless this enterprise is the same full-fledged user of all the preferences and benefits that the priority development territory regime guarantees it.
Companies with state participation also benefit from TOP and FPV preferences. Thus, the most ambitious project in the Far Eastern ASEZ today is the construction of the Amur gas processing plant in the Svobodny ASEZ. The initiator, Gazprom Pererabotka Blagoveshchensk, is building a high-tech center for natural gas processing here, which will be the largest in terms of capacity in the country. The volume of investments for the project is almost 1 trillion rubles.
Another company with state participation, Rosneft, is investing in the creation of the largest shipbuilding enterprise in the Bolshoi Kamen ASEZ (Primorsky Territory). The volume of investments in the project exceeds 150 billion rubles. The company intends not only to build a modern shipyard, but also to significantly load it with orders for the production of vessels necessary for the development of offshore oil and gas fields and marine transportation of hydrocarbons.
Preferential regimes increase the attractiveness of the Far East, including for foreign investors. 83 residents of the TOP and FPV implement their projects with the involvement of foreign capital (which is about 6% of the total). The declared investments from these investors amount to 217,7 billion rubles (or 7,5% of the total investment portfolio). Companies from China, Japan and South Korea show the greatest interest in working in the Far East. Investors are investing in manufacturing, agriculture, construction and services.
Speaking in general about the dynamics of investments in ASEZ and FPV, we can conclude that both Russian and foreign business have a fairly good idea of the economic potential of the eastern borders of our country. Due to its advantageous economic and geographical location, the Far Eastern Federal District is not only the richest territory in terms of resources, but also an important part of the transport corridor between Asia and Europe, where there are 29 seaports, the largest railways. The availability of such resources forms a powerful basis for the implementation of investment projects, both large and small. The creation of new businesses is a tangible result of entrepreneurial activity and an important indicator of the performance of a management company.
NECESSARY INFRASTRUCTURE FOR EVERY RESIDENT
Tax breaks are an important aspect for a business, but not the only one among the principal motives for making an investment decision. One of the significant restrictions for the creation of new industries was and remains the infrastructure issue - from obtaining a suitable land plot and ending with the supply of all the necessary communications. The cost and reliability of the required infrastructure is an issue that directly affects the main indicators of the business plan. And for most investors, a detailed study of the project begins with the task of selecting a site and equipping it with a reliable infrastructure.
With regard to investment projects in the Far East, there is again a "pleasant surprise" for entrepreneurs. The legislation on priority development territories and the mandate of the KRDV as a management company allow to individually solve the issues of providing new enterprises with both land and infrastructure. Unlike analogues in other regions of the country (special economic zones, industrial parks, etc.) in the Far East, the most client-oriented approach is possible, in which the KRDV has the ability to design and build exactly the infrastructure that the investor needs.
These services are in high demand by businesses. So, KRDV has provided land plots to the residents of the PDA for the implementation of projects with a total area of more than 17,2 thousand hectares. The provision of residents with the necessary infrastructure (namely, roads, water supply and sewerage facilities, gas, electricity and heat supply) has been going on since 2016. During this time, at the expense of the federal and regional budgets, 73 facilities were built and commissioned, 87 are under construction, 45 more facilities are being designed. The terms of construction are coordinated with the investor's business plan - this allows to synchronize the stages of construction of infrastructure and facilities of residents.
Among the sites of priority development areas in the Far East, there are also those that are designed according to the principle of industrial parks. Examples include TOP "Nadezhdinskaya" in the Primorsky Territory or "Rakitnoye" in the Khabarovsk Territory. KRDV designs and builds infrastructure immediately in the interests of a group of investors, providing the entire site with energy resources, water, road infrastructure. The advantages of such a solution are obvious: a potential investor does not have to wait for the infrastructure, it has already been built and is operational. Already now there are understandable volumes of "reserves" for energy, water, heat in relation to certain sites in the TOP, and with specific dates of readiness. Based on this information, a business can choose the most suitable site and apply for an investment project.
Such infrastructure facilities are built primarily with the expectation of large-scale attraction of private investment. Statistics show the real demand for such a support measure. According to the most rough estimates, today the ratio of budget investments to private investments is 1 to 20. This means that all public investments in infrastructure will fully pay off as new enterprises generate new budget revenues.
Separately, it should be noted how exactly KRDV conducts the simultaneous construction of a number of objects in several regions of the Far East. After all, these are different objects, often atypical, which are implemented in completely different conditions (climatic, transport, etc.), with close attention from the regulatory authorities, because the construction is carried out at budget expense. The answer to these challenges is open competitive procedures with the most stringent criteria for participants in the competitions. So, according to the largest Russian trade portal "Fabrikant", which conducts annual research of the e-procurement market, JSC "KRDV" has been recognized as the leader of electronic trading for the third year and is awarded the title of "Buyer of the Year".
“The decision to work on the electronic trading platform was made from the very beginning of the management company,” says Denis Tikhonov, General Director of the Far East Development Corporation. - Solving one of the main tasks - the creation of infrastructure for the residents of the TOP, we conduct competitive procurement procedures and invite enterprises capable of quickly and efficiently performing design, construction and installation work. Due to the clear functionality and user-friendly interface, electronic bidding allows you to attract a large number of potential suppliers to participate in procurement and strictly follow the procurement legislation. "
THE FAR EAST IS EXPANDING ... TO THE WEST!
On November 3, 2018, Russian President Vladimir Putin signed a decree on the inclusion in the Far Eastern Federal District of two regions that previously belonged to the Siberian Federal District. These regions are the Republic of Buryatia and the Trans-Baikal Territory. Many experts noted that this decision is aimed primarily at enabling the two Trans-Baikal constituent entities of the Federation to fully use in practice those new instruments of economic development that have already proven their effectiveness in the Far East. These are areas of advanced development, and state infrastructure support for investment projects, and the "Far Eastern hectare", and social development of centers of economic growth, and many other measures.
Since the publication of the presidential decree, both in Buryatia and in the Trans-Baikal Territory, intensive work has been launched to integrate regions into the Far Eastern Federal District and to launch advanced development measures. To organize a full-scale presence in Transbaikalia and Buryatia, together with regional authorities, the Corporation for the Development of the Far East is creating its representative offices in Chita and Ulan-Ude. KRDV employees help all interested entrepreneurs to prepare their investment projects for implementation under preferential regimes.
“We understand what to talk about with investors, what projects can be relied on to give an impetus to the development of the region,” says Denis Tikhonov, General Director of KRDV JSC. “Together with the subjects, we are creating subsidiaries following the example of those already existing in the Far Eastern Federal District, which will work with entrepreneurs on the spot.”
Priority development areas in the new Far Eastern regions will be created by separate decrees of the Government of the Russian Federation. The relevant documents are already being approved. So, it is assumed that the Buryatia ASEZ will soon be created within the boundaries of the land plots of the Selenginsky, Kyakhtinsky and Kabansky regions of the republic. The first anchor projects will be the construction of a greenhouse complex in Gusinoozersk, a poultry enterprise in Selenginsk, the production of 3-layer cardboard in Selenginsk, and the creation of the Naushka customs and logistics terminal in the Kyakhtinsky district. The volume of investments for anchor projects alone will exceed 25 billion rubles.
As for the Trans-Baikal Territory, proposals for the creation of a TOP at six sites are presented here. The regional authorities and the KRDV are developing 18 anchor projects with a total investment of 378 billion rubles. These are projects for the development of coal and gold deposits, timber processing, agriculture, transport and logistics, food production.
As soon as the priority development areas in Buryatia and Transbaikalia are legally established, the Far East Development Corporation will open a full range of services for interested businesses, including online filing of applications for resident status, assistance in the selection of land plots, infrastructure support and much more. The KRDV is confident that the new ASEZ will develop very dynamically, because before our eyes there is the experience of neighboring Far Eastern regions, where all participants have already gone from initial applications to operating enterprises operating in conditions of comfortable regulation.