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Sakhalin in 2016: a pause for the "economic miracle"?

Rostislav Turovsky on the development of the eastern regions of Russia

Sakhalin in 2016: a pause for the "economic miracle"?
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Rostislav Turovsky

Doctor of Political Sciences, Professor of HSE, Scientific Editor East Russia
Special project TORA and Free Port
The Sakhalin Oblast turned out to be in a very controversial position following the results of 2016. Being still dependent on its fuel and energy complex, the region tried to increase traditional raw materials production, but the decline in prices on the world market painfully hit the region, leading to a sharp decline in its revenues. Attempts to diversify the regional economy and the spread of preferential financial and economic regimes in Sakhalin were made very actively and with the support of the federal authorities. However, while they remained at the initial stage. In the final analysis, the region retains the status of the economically most prosperous region of the Far East, but is deprived of super-profits of the last few years, which, incidentally, are not particularly necessary and useful for it.

Not without a negative

At this stage, one cannot say that the Sakhalin fuel and energy complex is experiencing rapid growth. During the year, there was no certainty even about the growth in oil and gas production, but a small increase was still obtained. Liquefied natural gas (LNG) exports grew in a similar way, although supplies decreased in some months. To date, the Sakhalin fuel and energy complex has reached its natural limits of growth on the existing raw material base, and the demand for its products in the world market has also hit its ceiling. In value terms, this means a decline in income. Therefore, the industrial growth achieved at the end of the year by 6,6% does not inspire much optimism in the case of Sakhalin. By the way, the Sakhalin agro-industrial complex achieved more noticeable successes, which generously supported the new governor Oleg Kozhemyako with finances. In agriculture, there was an increase of 11%, but, of course, the role of agriculture in the Sakhalin economy is very small. The need for new breakthrough projects in the region has grown, but if all of them are being implemented, then slowly. In the meantime, the region is experiencing a significant investment decline (by 18,9% in January-September 2016). Similarly, the volume of construction work is falling (more than 20%).

Negative trends affect the social sphere of the region. An unpleasant signal was the decline in real money income of the population, amounting to 6,9% (for January-November 2016). In the same extent, the turnover of retail trade fell by 4,6%. Therefore, it is not necessary to speak about sustainable prosperity of the Sakhaliners, and their overwhelming majority is in no way connected with the fuel and energy sector, which is an isolated segment in both the economy and the map of the region.

Undoubtedly, Sakhalin remains a rich region, and the volumes of its revenues are still high. It is also natural for the region to be included in the twenty most successful regions of the country in terms of the effectiveness of regional authorities. According to the results of 2016, the region accumulated in its budget 156 billion rubles, yielding only to Yakutia in the Far East, and took first place in its own income (150,6 billion rubles). Nevertheless, Sakhalin's revenues fell very sharply - by more than 30%. The main problem arose with income from income tax, decreased by 43,3%, that is, almost twice. Growth in other income (for example, a good increase in income tax on 10,6%) could not change this situation (because of the structural features of the regional budget, the profit tax amounted to 57,8% of budget revenues, and only 15,4% for income tax).

The federal center, referring to Sakhalin as a prosperous region, of course, does not compensate for these losses by transfers. They are already just over 3% of regional revenues, and their volume fell by 21,4% last year. Sakhalin does not receive subsidies for equalizing budgetary security (being the only donor region in the Far East), and the government does not hurry up the flow of subsidies (on the contrary, there are less than 40%). The center, as you know, insists that Sakhalin itself finances those projects that formally have a federal status. This is the policy of the center aimed at "dekulakization" of the region, which began to receive oil and gas super-incomes.

As a result, the huge surplus, which Sakhalin allocated for a long time against the background of other Russian regions, is a thing of the past. Moreover, the region finished the year with a budget deficit, perhaps not accurately predicting the size of budget revenues and leaving as a result of a "minus". Expenditures of the regional budget had to be reduced (by about a quarter), but not as much as incomes, resulting in a deficit in the budget. Attention is drawn to the multiple reduction in spending on agriculture, which in 2015, the regional government sent a large part of the additional revenues. However, this article is still not in the main budget. Among the "large" articles, the decrease in housing and communal services financing is evident - by 27,6%. But in this case, one can also look at the problem from the other side: the old expenses on this sphere were very large, and, probably, the reduction of expenses should be understood as bringing them to a certain standard. At the same time, to the road economy, the regional authorities, on the contrary, reacted with an emphasis and directed to it 23,4% more funds than in the previous year.

In the context of spending cuts, the regional authorities as a whole tried to preserve and in some ways even expand their social obligations, which was reasonable both to strengthen the image of Oleg Kozhemyako and in connection with pre-election goals. The region began to spend more funds on health care (by 13,8%) and social policy (by 15,5%), while spending on education fell slightly (by 2,1%). Thus, the main "victims" of budgetary savings were housing and communal services and the agro-industrial complex, and in addition, the authorities cut spending on themselves, which can be considered quite justified (spending on general government issues fell by 13,2%). Sakhalin remains a "happy" region with no government debt. The situation with the municipal debt is not so bad: it amounted to 2,4 billion rubles and decreased by 14,2% at the end of the year.

Bet on points of development

In the context of achieving a certain "ceiling" by the region, the question of new mechanisms for ensuring economic growth becomes topical. Sakhalin finally achieved the creation of two medium-sized TOPs on its territory, which, at the same time, are not connected with the fuel and energy complex and are oriented toward creating incentives for the southern part of the island, where the bulk of the population lives. TOP "Yuzhnaya" is oriented to the development of the agro-industrial complex, its anchor investors are the companies "Green Agro-Sakhalin", "Mercy Invest Group", "Sovkhoz Zarechnoye" and "Teplichny" state farm. It is planned that 6,3 billion rubles will be invested in the projects of this TOR, and the region relies on private investments (she herself intends to finance this TOR by less than 1,5 billion rubles).

The second project, the Mountainous Air Transmission Task Force, envisages the development of tourism, since its key object is the alpine ski base of the same name in Yuzhno-Sakhalinsk (plus less important objects such as the Sinegorsk Mineral Water Sanatorium and the reserve on Moneron Island). However, the Sakhalin Oblast authorities succeeded in including a new airport terminal complex at Yuzhno-Sakhalinsk Airport in this TOR, and this significantly changes the situation. In fact, the declared rate for the development of tourism became the basis for raising funds in order to modernize the main airport of Sakhalin. It is not surprising that the regional budget intends to invest about 10 billion rubles in this TOR (private investments are comparable to the TGP “Yuzhnaya” and make up more than 6 billion rubles).

The development of infrastructure, one way or another connected with the tourist attractiveness of Sakhalin, has become an important new trend and in connection with the expansion of the free port regime. The authorities of Sakhalin, where there are many small ports on the island, have ample opportunities to offer a port for the application of the new regime there. Almost all Sakhalin ports figured on the level of ideas in the lists. In various proportions, the projects of revitalizing the Sakhalin ports combine the interests of the fuel and energy complex, tourism and the fishing industry. And it is not surprising that the first to be on the list was located near the Yuzhno-Sakhalinsk Korsakov, where plans were announced for the construction of a sea passenger terminal capable of taking cruise ships.

In Korsakov, the economically more important plan for the creation of a fishing cluster is also indicated, considering that so far it has been more often said about the creation of such a cluster in Primorsky Krai, while Sakhalin, against the background of other regions (eg, Kamchatka), does not show much success now Development of the fishing industry. Of course, the regional authorities, having personal experience in this area, intend to fight for improving the competitive advantages of their region. In particular, O. Kozhemyako is making efforts to activate coastal fishing, important for local fishermen, insisting on reducing administrative barriers and simplifying procedures. By the way, a small fish cluster with the participation of Chinese capital is supposed to be created in the Kholmsky district (it assumes both fish processing and ship repair).

To further expand the regime of the free port on Sakhalin, different ports were offered, but, judging by everything, two of them are more likely. A special bet is made on the small and remote from the main centers of Poronaisk in the central part of the island, which goes to the Sea of ​​Okhotsk, and not to the Tatar Strait. The advantage of Poronaisk, due to its geographical location, is the availability of an open border crossing point. In addition, it is located closer to the oil and gas fields in the north of the island. Therefore, in Poronaisk it is planned to place an oil loading terminal, as well as a logistics center. The project is not cheap and is now estimated at 20 billion rubles. Another version of the free port is Nevelsk in the south of the island, where you can create a fishing port and a corresponding cluster.

But if the rate is placed on Korsakov as a center for tourism and fishing, and for Poronaisk as a port working in the interests of the fuel and energy sector, Nevelsk may not receive new impulses for development. However, his new specialization can be the construction of ships for the fishing industry: local company "Nevelsky Shiprepair", which aspires to receive support from the Corporation for Development of the Sakhalin Region, is counting on this very much. Indeed, the provision of investment quotas to fishermen is intended to stimulate shipbuilding, and Sakhalin does not have such an advanced industrial base for this as other regions. Nevertheless, the decision to use the potential of Nevelsk looks quite logical. In addition, the ports in the less prosperous central part of the western coast of the island - Shakhtersk (for the interests of the coal business) and Alexandrovsk-Sakhalinsky - also appeared among the candidates for the status of a free port.

In the center of special attention are the Kurile Islands, where the development model, however, has not yet been determined. The project of creating a TOP on the Kuriles was postponed. More attention is now being paid to joint Russian-Japanese economic activities in the Kuriles - negotiations were going on at the highest level, and Russia, as is known, began to rely very much on cooperation with Japan with 2016. A concrete model of cooperation, presumably assuming some kind of status for a special economic regime in the Kuril Islands, remained undeveloped, which temporarily "hung up" the whole situation. However, a decision has been made to remove the status of the border zone from the islands, which will facilitate the travel of the Japanese.

Meanwhile, the regional authorities have to make efforts to solve current social and infrastructural problems in the Kuriles. As you know, the main financial burden in the implementation of the Kuril FTP is on the regional budget. The regional leadership managed to successfully use the presidential "straight line" to pay attention to the problems of the fish processing plant "Ostrovnoy" in Shikotan and, in particular, to delay wages. After that, the federal center began to pay more attention to the specific problems of enterprises and settlements in the Kuril Islands. Among these problems remains a high level of corruption: an important event, along with the investigation of violations on the "Island", was the arrest of the mayor of South Kurilsk V. Solomko, accused of abuse of authority. Therefore, in addition to the economy, it is still necessary to deal with the running administrative situation in the Kuriles.

If we talk about the resource base of the Kuril Islands, then here we can note the gradual growth of small gold and silver mining, which on the island of Urup is handled by the company "Kurilgeo" - a subsidiary of the Swiss Solway. However, in general, the Kurile Islands will still depend heavily on state aid. Cooperation with Japan is unlikely to become a "manna heavenly" for the islands, although some local joint projects (for example, in the same fishing industry) can contribute to their own development.

Hydrocarbon base

However, the basis of the Sakhalin economy is still the fuel and energy complex. In the conditions of low world prices for energy resources and complicated relations with foreign partners, many issues were not solved last year. In particular, there were hopes for cooperation with Japan in the construction of a new LNG plant, Rosneft. However, questions not only about the supply of raw materials, but even about the construction site (Khabarovsk Territory remains an alternative option) remain unresolved. With greater confidence, we can talk about the creation of the third phase of the existing LNG plant Gazprom and Shell, but the investment decision in 2016 has not been accepted, putting it off at 2017. At the same time, all the forks on the use of gas from the Sakhalin project -1 "- the construction of its plant (which Rosneft has long been seeking), or the supply of competitors to the plant in connection with the expansion of its facilities. But relations between Gazprom and Rosneft did not improve. On the contrary, Gazprom is trying to challenge the Supreme Court's order to grant Rosneft access to the free capacities of the Trans-Sakhalin gas pipeline.

Not everything is clear and with the pace of implementation of the Sakhalin-3 project, which is of great importance for Gazprom. It is assumed that the arrangement of the Yuzhno-Kirinskoye field will begin in 2017, and commissioning will take place at 2021. At the same time, certainty will also be needed about the use of this gas.

Against this backdrop, an initiative was launched to build methanol production (the region agreed on this issue with Mitsubishi), on which part of the produced natural gas can go. In the meantime, the local project of a small LNG plant for the gasification of southern territories (Kholmsk, Nevelsk, and others) has been implemented at the expense of the resources of the nearby Aniva deposit. This project is handled by the Development Corporation of the Sakhalin Oblast, it also has Japanese capital represented by JGC.

Rosneft, for its part, invites new foreign partners to the Sakhalin projects, including Indonesian state-owned company Pertamina. The Memorandum of Understanding between the two companies involves cooperation in the operation of the North Chayvo oil field, and the Indonesian side may receive up to 20% of the participation in this project. At the same time, Rosneft is forced to optimize its resources: this was evidenced by its refusal from the license for the Astrakhanovskoye field, which the company considered unpromising.

Thus, in the Sakhalin Fuel and Energy Complex there are prospects for expanding gas production and LNG production, as well as the preservation or increase in oil production. But, as the results of the past year showed, everything very much depends on the state of the world market, since Sakhalin has demonstrated a very high degree of vulnerability to fluctuations in the prices of oil and LNG.

Perhaps the diversification of the commodity sector of the Sakhalin economy will contribute to the development of coal production, which is now a special rate. In this sector, both the regional authorities (represented by the Sakhalin Region Development Corporation) and the Eastern Mining Company have become more active. The main focus is on the Solntsevo field, from which you need to build an 28-kilometer conveyor to the port in Shakhtersk. The state, represented by both the federal government and the region, is demonstrating its readiness to finance the infrastructure component of this project. If successful, coal mining on Sakhalin can grow by several times and reach 10 million tons per year by 2022. The rate on the Solntsevo deposit is also important because old deposits, on the contrary, have accumulated problems. In particular, the unprofitable mine “Udarnovskaya” in the Uglegorsk region turned out to be the epicenter of social tension, once the pride of Sakhalin and the only existing mine on the island. Now she is undergoing bankruptcy proceedings, and her team faced delays in wages.

A more ambitious project to build an energy bridge in Japan remains unlikely. Memorandum on the creation of an interconnected power system, "Energy ring", signed in March last year, representatives of Russia ("Rosseti"), China (China State Grid Corporation), South Korea (Korea Electric Power Corporation) and Japan (Softbank Group). This project is supported by the Ministry of Regional Development. Sakhalin could become a key element of the energy bridge by supplying electricity to Japan from its existing and future power plants. However, the actual electricity producer - RusHydro does not consider this project to be economically justified. And from the side of Japan, he does not have any serious support.

Vertical setting

The influence of its leadership at the federal level remains an important resource of the Sakhalin Oblast. In particular, it made it possible to solve important questions about the creation of the TOP. The link between O. Kozhemyako and federal structures is strengthening. Thus, the Sakhalin governor entered the board of directors of RAO ES of the East, becoming the only representative of the governor's corps in this body. The resources of the Sakhalin Region Development Corporation and the Fund for the Development of the Far East and the Baikal Region were combined. Sakhalin with its resources ensured the growth of the fund's capitalization, but at the same time the corporation came under its management, i.e. in fact - under the control of the Ministry for the Development of the Far East. In addition, Oleg Kozhemyako at the federal level continues to take an active position in relation to the fishing industry. We have already noted his growing interest in coastal fisheries, driven by the desire to revitalize local private businesses in this area. Oleg Kozhemyako raised the issue of supporting small-scale fishing at his meeting with Vladimir Putin.

However, the process of forming a regional management elite turned out to be very difficult and dragged on. Oleg Kozhemyako's desire to form his own team with minimal reliance on local elites is evident. This leads to a continuing flow of managers to Sakhalin from the Amur Region, where the current governor previously worked. Vera Shcherbina was approved as head of the regional government, who worked with Oleg Kozhemyako not only in the Amur region, but also in the Koryak Autonomous Okrug. The Ministry of Finance was headed by A. Kharchenko, who held the post of Deputy Minister of Finance of the Amur Region. The Minister of Culture A. Samarin moved from the Amur Region to Sakhalin to a similar post. Probably, the social block of the regional government will be headed by Y. Ryabinina, who also worked in the Amur Region, instead of the departed N. Starseva. Moreover, it is not only the Amur Region that has become a "forge of personnel" for Sakhalin: D. Zaitsev, who previously headed the administration of Petropavlovsk-Kamchatsky, was appointed the new minister of housing and communal services. At the same time, Oleg Kozhemyako demonstrates a tough style in relation to "his" ministers. For example, complaints about the situation with the transport accessibility of the Kuril Islands were the reason for the resignation of Minister of Transport and Roads V. Degtyarev.

The policy of building the power vertical is clearly manifested in Oleg Kozhemyako's relations with local self-government. In the regional center, the speaker of the city duma was replaced, where the place of the resigned S. Dmitriev was taken by E. Stolyarova, a native of the Tomarinsky district, who has worked in the city council only since 2014. In connection with corruption cases, some city deputies were arrested. Chapters were replaced in a number of economically important centers - Korsakov, Kholmsk, etc. Moreover, the new head of the Kholmsk administration, A. Sukhomesov, previously worked in the Amur region as head of the Zeysky district. In Korsakov, the governor "appointed" the deputy minister of the fuel and energy complex and housing and communal services A. Rudakov. At the center of the anti-corruption campaign was the former senator Zh. Ivanova (together with her husband), whom Oleg Kozhemyako had replaced by that time with the influential representative of the federal elite D. Mezentsev. Thus, the process of changing elites in the Sakhalin Oblast after the scandalous departure of Governor Alexander Khoroshavin continued, and Oleg Kozhemyako's problem remains to build equal and trusting relationships with local elites. Under these conditions, the governor preferred to rely on more loyal "outside" cadres.

However, the Duma elections, on the contrary, did not lead to noticeable changes in the elites. In the Sakhalin District, the current deputy from United Russia, G. Karlov, was successfully elected, and no active attempts were made to replace him. Voting on party lists showed a decline in support for the Communist Party, which, on the contrary, increased its electoral rating in the last elections. In the district, the most prominent figure in the regional organization of the Communist Party of the Russian Federation S. Ivanova, who took second place after G. Karlov, lost the elections. As usual, the turnout in Sakhalin was very low - only 37,1%. The second place, as is typical for the entire Far East, was taken by the Liberal Democratic Party, which won a solid 20% of the vote. The Communist Party, despite the activity of S. Ivanova, managed to gain only 15,4%, which is worse than the previous results. "Fair Russia" performed very poorly. Voting for United Russia (45,4%) was, of course, inferior to the national average, but for Sakhalin it indicated an increase in confidence in the authorities and a decrease in protest moods, thereby continuing the trend set by the earlier election of Oleg Kozhemyako to the governor's post.

Thus, despite the sharp decline in budget revenues caused by the unfavorable situation on world markets, Sakhalin remained among the most successful regions of the country. Its prospects depend both on the implementation of new projects in the fuel and energy complex and on the success of special economic regimes that are beginning to be created in the region. In the very near future, the region probably does not expect any new take-off, but the launch of new raw materials and an improved investment climate make it possible to count on a favorable medium-term outlook. At the same time, however, the region will have to pursue a prudent financial policy, given the reduction in revenues.
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