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"We work with our projects with our sleeves rolled up"

Alexander Kondrashin, General Director of the Agency for Attraction of Investments of the Republic of Sakha (Yakutia), talks about how development institutions "got sick" from the coronavirus and continue their active life under the new rules.

Being a classic investment agency that deals only with territorial marketing and resource provision of projects - for example, the selection of a land plot - is not enough, says Alexander Kondrashin, Director General of the Agency for Attracting Investments of the Republic of Sakha (Yakutia). The challenge is to make a project based on the principle of deep involvement in all its subtleties.

"We work with our projects with our sleeves rolled up"
Photo: InvestYakutia
Special project Yakutsk Initiative

- Alexander, the past 2020 was marked by a pandemic, quarantine and closed borders. How did your agency survive it? Did you manage to save already started projects?

- Of course, we will remember the coronavirus year with an unkind word for a long time. During the pandemic, the portfolio of investment projects that we support has significantly decreased. Mostly, projects of small and medium-sized businesses were suspended, which did not have a significant margin of safety. Let's be honest with ourselves: when a company’s revenue falls for many months, and sometimes tends to zero, it’s hard to talk about new investments.

Nevertheless, the situation is now gradually stabilizing. And we see that, despite all the difficulties, many projects were able to survive, which are very important for the further diversification of the economy of Yakutia. The most significant among them are the timber industry complex based on LPK Almas, the medium-tonnage complex for the production of liquefied natural gas of the LLC LNG company and tourist and hotel projects that will allow us to create and develop the industry of mass inbound tourism in the republic. All of these business ventures are alive, active, and doing well in 2020. Moreover, the timber industry project has been highly appreciated by two strategic investors and is preparing to enter the implementation phase. For the production of liquefied natural gas, work has already begun on preparing the land plot for construction, de facto, the company has begun to act proactively and has already begun its implementation, despite the fact that the project has not yet passed commercial closure. 

- Who are the investors?

- I have no right to name all of them. Let me just say that these are domestic companies. Over the past year, we have focused as much as possible on the domestic market, with the exception of the negotiation process with Chinese investors on the creation of a large-scale mining and metallurgical plant in the south of Yakutia and the study and conclusion of export and investment contracts with Chinese and Mongolian investors for the supply of LNG.

- Why not?

- It's simple. The borders are closed. Traveling abroad for meetings and negotiations is not possible. And in our work the principle "money - by mail" does not work. When looking for investors, personal contacts and face-to-face communication remain the main focus, which helps to clarify all the nuances and gain mutual trust. Until the phase of mass vaccination, and with it the lifting of restrictions, is passed, international work is unlikely to return to its previous form.

- Some high-ranking officials say that Yakutia now does not particularly need to attract foreign investors ...

- This is not true. We are very interested in investing from abroad. However, reality has to be taken into account. In 2018 and 2019, we held a number of major events to promote investment projects, including in Japan, Korea, China and several European countries. Negotiations were quite active - but during the pandemic, almost all of these processes stopped. For example, a representative of the Indian investor, Medanta, managed to arrive in Yakutsk shortly before the start of quarantine, conducted a deep analysis of the market, determined the parameters of his project and chose a building for it, and held negotiations with all responsible departments.

It was about investing 5-10 million dollars in the construction of a small medical center that would allow for early detection of cancer. The need for such medical care in the region is quite high. Great and high-quality work has been done. We were confident that the project would be successful. The company is already working in the post-Soviet space, they have a medical center in Uzbekistan. But, during the pandemic, further steps on the project were postponed to a later date. So far, everything is paused. We are always in touch with our foreign investors and look forward to their return. At the same time, work with many promising projects with the participation of domestic companies is now in an active phase.

- Can you tell us more about them?

- Of course. This is our daily work, and, to be honest, we are proud of it, especially due to the accumulated experience and the multitude of new products that we have implemented in our country, and which then often become replicated practices among our colleagues. Firstly, we are no longer a classic investment agency that deals only with territorial marketing and resource provision of projects - for example, the selection of a land plot - as most development institutions do. Our task is to make a project on the principle of deep involvement in all its subtleties, we came to this approach in the course of our evolution and synthesis of the accumulated experience.

Our approach is to "dig deep", to solve problematic issues in key projects, even if they are not spelled out in our job descriptions. We both develop projects and organize key negotiations on them, and often prepare information on them for investors, and develop cluster strategies for the development of entire sectors of the economy. We realized that we should not work as a PR agency or a consulting company, but as an investment bank - to select the most promising projects, concentrate maximum efforts on their implementation and actively remove various suspensive circumstances in them on the way to commercial and financial closure. InvestYakutia works with its projects, rolling up its sleeves.

The project closest to implementation today is the construction of a timber processing complex. It will attract 3 billion rubles and create more than 400 jobs. The complex will be located in the village of Vitim, closer to the border with the Irkutsk region.

We presented this investment project at the Eastern Economic Forum back in 2019. It involves the harvesting and processing of commercial timber. In Vitim, where it is planned to launch the complex, mainly larch grows, the sales market for which is quite specific, the project has a complex logistics scheme. We have attracted two large strategic investors to it and expect to make it a new resident of the Yakutia ASEZ this year. 

- There is information that Yakutia is negotiating this with Segezha Group. It's true?

- Yes, this is one of the strategic investors interested in the project.

Now about the second project. This is a liquefied natural gas (LNG) plant in the village of Nizhny Bestyakh. It is designed for the annual output of 530 thousand tons of gas and about 90 jobs. In its entirety, in three phases, it will cost about 11,6 billion rubles. Already today, LNG from Yakutia is regularly exported to Mongolia by rail. We attracted strategic and financial investors to the project, who completed design and survey work, ordered design estimates and are preparing a site for construction. Also, two export and investment contracts were signed with Mongolia and China. At the moment, the transportation of LNG through the territory of China by rail is prohibited; at the border crossing, it is unloaded and delivered by road. This is not a simple logistic scheme, but it has already been tested and confirms the viability of this original project.

Under the leadership of A.S. Nikolaev The Government of Yakutia is now launching an alternative gasification program, the Ministry of Industry and the Ministry of Housing and Communal Services of Yakutia will begin the transfer of boiler houses to LNG, starting with a pilot project in the village of Kachikatsy, then the transfer of agricultural machinery to "blue fuel" will be launched, then, after the success of the pilots, the Agency will structure tenders for the transfer of boiler houses on LNG under concession agreements.

- That is, even if there is no export, the plant will survive?

- According to the Ministry of Industry of Yakutia, the prospective volume of the domestic LNG market in Yakutia is more than 100 thousand tons. This is 20 percent of the design capacity of a medium-sized plant. This is not so much - but still much better than depending only on whether the importers' tanks have arrived or not. Moreover, given that the first stage of the plant will produce up to 90 thousand tons of LNG per year, from the point of view of financing organizations, the domestic market plays a much larger role than the external one. If at least one of the project queues is tied to almost guaranteed sales, then it will be easier for them to decide to finance the project.

“But tourist projects always depend on whether the guests have arrived or not. How do you plan to attract investments in this business, in the construction of hotels? Timing is not the easiest.

- A lot has been done in this direction in 2020. The process of configuring a new industry is underway, and we are also involved in it. Participated in the national ecotourism competition and received the status of a finalist. In addition, two hotel projects are being developed in the center of Yakutsk. In the first case, the working structure provides for the participation of a strategic investor, in the other - a financial one.

- There was information that Cosmos Group is participating in one of the projects.

- At the beginning of the pandemic, we could not get into their investment program, since it was suspended. Now we have a chance to enter their 2021 investment program with a project to build a three-star hotel in Yakutsk. Construction of the second hotel (project of AEB Capital, a subsidiary of Almazergienbank) will be financed with borrowed funds. We cannot yet name all the investors in the media.

And a little more about our plans in the field of tourism. In 2020, the Yakutia team achieved the status of finalists of the national ecotourism competition, included the Lena tourist and recreational cluster project in the National Program of Social and Economic Development of the Far East. Among the projects of the Lena shopping and entertainment complex is the project of modernization of the international terminal of the Yakutsk airport. It plays a key role in ensuring transport accessibility of the republic for tourists. An agreement on financing its reconstruction was concluded in 2019 with VEB and FRDV. Recently, this agreement was confirmed by VEB, design estimates will be developed in 2021. Anticipating your question, I explain: the modernization will be carried out by JSC "Airport Yakutsk" on borrowed funds without attracting a strategic investor.

We also developed a project for the reconstruction, expansion and renewal of the equipment of the Tekhtyur ski complex, a project for the construction of additional facilities for the Orto Doydu tourist complex and the creation of a year-round accommodation facility in the Batamai area opposite the Lena Pillars observation deck. The latter is necessary for a new logistics hub to appear in the republic. Now tourists from Yakutsk get to the neighboring area by car, from there they sail to the Lena Pillars by boat. It is not very convenient, rather expensive and time consuming. There is a lot of fuss and transfers. It is necessary to move the logistics hub to the Batamay area, which is located opposite the Lena Pillars, with the expectation that in 2023 a paved road will reach the nearest village.

Also, together with our main operator of the tourist route, Lenaturflot, we have worked out the possibility of switching to the use of modern ekranoplan vessels. They allow you to get to the Lena Pillars from Yakutsk in just one hour. But this pleasure is quite expensive, the project costs 1,1 billion rubles. To implement such a project, a large capital grant is needed, about 800 million rubles, and we think that it should be federal. Perhaps this will be the last effort that is needed to make inbound tourism to Yakutia not hypothetically profitable, but a full-fledged branch of the economy with a significant contribution to GRP and a disproportionately high contribution to employment on the Yakutsk - Lena Pillars axis.

- You are talking about projects that relate to very different areas. And what is common in the principled approach to their implementation?

- Diversification. We strive to use all available economic instruments for a balanced diversification of the Yakutia economy. We have a lot of such instruments, and synergistic effects appear at their junction.

For Yakutia, it is now important to use both classical investment mechanisms and mechanisms of public-private partnership (PPP). For example, when we transfer boiler houses to gas fuel through a concession, this creates a permanent load for an LNG plant - a private investment project.

I agree with the assessments of colleagues from the Ministry for the Development of the Russian Far East that it is investments within the framework of PPP that will soon become the engine for the development of the Far East and the Arctic. Yakutia already has a fairly large portfolio of PPP transactions. Including the agreement on the construction of a bridge across the Lena River - one of the largest projects not only in the Far East, but throughout Russia.

At the end of 2019, together with the team of the Ministry for the Development of the Russian Far East, we were able to bring a capital grant to the republic through the mechanisms of a single subsidy. In the Polyarnaya Zvezda project, out of 1,8 billion costs, the capital grant is 360 million rubles from the Ministry for the Development of the Russian Far East and 40 million from Yakutia. This proves that the capital grant mechanism has a fairly high quality multiplier. But there are other fundraising methods that you need to see, know and use. Our goal is to use every possible tool.

- How do you calculate the possible risks in the implementation of projects and the economic effect of their implementation?

- For PPP projects, we primarily focus on attracting the best, highest quality operators. In our country, for example, the center for children's recreation and health improvement is made by a company with competencies in this area, the National operator of children's recreation. The center for active aging will be made by the best operator of such objects in Russia, the Opeka group of companies. The first Supercampus of secondary vocational education in Russia will be made so that the operator is a subsidiary of Worldskills Russia. We are actively communicating with the Trust Fund for Future Generations of Yakutia, which is implementing the project for the Park of Future Generations, to attract there an anchor strong educational investor who could use this space most effectively. That is, we want to have the best operators everywhere and in everything. When there is no strong operator in the project, the object can be built, but it does not have an operator concept and it is not known how this space will be used, who will be in charge there, how everything will work. Figuratively speaking, "if this thing is a Rolls-Royce, then it should be driven by a driver who knows how to do it." We value our projects no less, if not more, than the owners of such cars with their supercars.

Of course, any project is a business. The investor must have a clear and justified interest in it. The operator undertakes to manage this or that object for many years, often with its subsequent purchase into ownership. For example, one of our investors, the National Children's Rest Operator, manages many facilities in Russia. They actually build for themselves, because in the future they plan to work there.

I will add that there are a number of projects in the field of innovation infrastructure that are already of great interest. Our agency helps relevant development institutions to attract anchor residents. We are talking, in particular, about the creative cluster in Yakutsk. In December 2020, we signed an agreement with Synergy Corporation to create an animation department on the basis of the creative cluster, and Synergy will also create a College of Digital Technologies in Yakutsk, such negotiations are underway with our Ministry of Education. The need for these specialties is quite tangible for the development of the digital economy in Yakutsk.

We plan to launch in the near future a project for the construction of an active longevity center, in which the Opeka Group of Companies is going to act as an investor, and a secondary vocational education campus, which will be the first in our country to work according to WorldSkills standards. This project will also allow us to free up 11 buildings of secondary vocational education institutions in Yakutsk and thus help eliminate the second shift in schools. We will be able to create a new level secondary vocational education system. One of the best, possibly the best in the country.

There are also more modest, but wonderful projects. For example, a new resident of the Yakutia ASEZ - the Tusku company, which produces semi-finished products from mammoth ivory. This is our most active exporter, whom we support. The project, worth 11 million rubles, is a workshop for storing and processing tusk products.

- In one of your previous interviews you said that you would build an "conveyor belt for investors." Were you able to get it up and running?

- Yes. And I am very happy about that. Moreover, our experience was positively assessed both at the regional and federal levels. We have proven in practice that a development institution must have a full range of competencies in the development and promotion of projects. Provide them with commercial and financial closure, receive all available benefits. I think it would be logical to use, adapt and apply our experience when forming a new development institution. By the way, colleagues from other regions often turn to us for advice on this topic.

Typically, there is a very strong shortage of staff in the field, and one employee must perform several different functions at once. It is difficult to find qualified specialists for this. Teams should be formed and trained directly where they will work. We need to invest in the education of specialists from the regions. We have taught our employees a lot. Each of them is able to analyze investment projects, work with financial models, hold presentations, speak in front of an audience and answer difficult questions, self-actualize through participation in projects that are significant for our republic, our country.

- And you yourself - were you able to realize yourself? Do you like your business?

- Of course. I have a “dream job,” and the further it goes, the more. Previously, there was only hope "to leave your mark on the ground." And now I clearly see both footprints on the ground and the trajectory for the further way forward, we bring more and more supported projects to the realization, we are actively looking for new ones, we invite you to cooperation!

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