25 July 2022

New Industrial Development Policy to Be Discussed at EEF 2022

Ministry for the Development of the Russian Far East and The Russian Far East and Arctic Development Corporation (FEDC) organized a roundtable on the development of industry in the Far Eastern Federal District. The discussion was held as part of preparations for the dedicated session at the 7th Eastern Economic Forum. EEF 2022 will take place on 5–8 September in Vladivostok. The Forum's operator is the Roscongress Foundation.

Anatoly Bobrakov, Deputy Minister of the Russian Federation for the Development of the Far East and the Arctic and chairman of the roundtable noted that the main economic sectors of the Far East (mining, manufacturing, transport, and logistics) account for 43% of the gross regional product.

“More than 2,700 projects are currently being implemented in the Far East with state support. The total amount of investment is RUB 6.6 trillion, of which RUB 2.5 trillion have actually been invested. Amid unprecedented sanctions, it is important to note that investors carry on, they do not give up on the declared projects. However, they face multiple risks caused by companies from unfriendly countries, when those refuse to supply equipment and components necessary for the implementation of projects or refuse to install and maintain the equipment. It is necessary to create conditions so that the equipment and components would be produced locally in the Russian Federation, including through joint ventures with companies from friendly countries that own technology and know-how. I am confident that we can ensure the technological sovereignty of the Russian Federation, provide both our traditional and new industries with technology,” said Anatoly Bobrakov. He added that the results of the meeting will be integrated into sessions of the Eastern Economic Forum. 

While inviting the participants to the discussion Darya Kiryanova, Deputy General Director for Economic Development of FEDC and moderator of the round table noted: “What is happening in Russia right now is perceived as a stress on the one hand, but on the other hand is viewed as an opportunity. Domestic industry is facing a challenge to localize production within the country. It is necessary to understand what needs to be ‘reinvented’ and what can be ‘reused’ by changing supply chains. Therefore, during our meeting we would like to collect the main issues and problems faced by industrial companies and form a package of proposals and necessary changes in the state policy for further integration into our sessions at the EEF.”

Mikhail Kuznetsov, director of the Eastern State Planning Centre (Vostokgosplan), described the current situation in the industrial sectors of the Far East and the Arctic: “From 2017 to 2021, the growth rate of the manufacturing industry in the Far East outpaced the national average. Metallurgy, transport engineering, and the chemical industries were among the leaders. In 2022, amid growing sanctions pressure, many Russian enterprises faced a shortage of spare parts, chemical components, as well as disrupted supplies channels for finished products. At the same time, the Far Eastern Federal District has the potential of untapped natural resources, growth in transport engineering and cargo transit. This can become the basis for the development of import substitution in the country. However, the product transformation of enterprises requires all available funding, as well as time for technical re-equipment and personnel training.”

According to the head of Vostokgosplan, the most promising enterprises that potentially can help overcome the problem of import substitution are operating in the chemical and machine-building industries. According to the forecasts of the development institution, industrial production in the Far East will grow at a faster pace than the Russian average, and by 2025 this indicator may exceed 15%.

Alexander Didenko, General Director of Metallenergo, Nikolay Radko, Acting General Director of Rusolovo, and Alexander Patlach, Design Director of Bystrinsk Ore Mining Company, also shared their views on what needs to be improved to strengthen support measures for manufacturing enterprises in the Far East. The speakers noted the importance of creating a tin cluster in the Far East and including it in the list of industrial priorities. Additionally, they spoke about revising the terms for transferring land from one category to another for the implementation of industrial projects within an ASEZ.

For example, the Bystrinsky Mining Company (the subsoil user and operator of the Kumroch project) plans to create a modern high-tech gold mining and processing plant from scratch in Kamchatka Territory by 2026. The project worth RUB 20 billion will be implemented as an ASEZ resident.

“Not a single Russian territory can boast such diverse and effective measures to support investors as those in place in the Far East. This is very important when implementing a project," says Alexander Patlach.

The company is currently preparing the relevant documentation and expects to start the advanced development of the Kumroch deposit by the end of the year. The necessary machinery and equipment in the amount of more than 50 units has already been purchased, the investor has prioritized Russian producers, Chinese equipment has been purchased to cover some required positions.

Alexander Didenko, General Director of Metallenergo touched upon the programmes of preferential leasing and Industrial Mortgage. The latter is being launched by the Ministry of Industry and Trade, Ministry of Finance, and Ministry of Economic Development together with heads of several regions. Mr. Didenko said: “We are waiting, because we have both capacities and resources, which we would like to purchase, but there is not enough working capital. Therefore, we would like to get additional support measures to minimize the regulatory time for consideration of applications.”

More detailed information about the relevant support measures for entrepreneurs who want to quickly organize a manufacturing business, was delivered by Nikolai Elantsev, Head of Monitoring and Coordination of Regional Industrial Infrastructure Development of the Department of Regional Industrial Policy and Project Management of the Ministry of Industry and Trade of the Russian Federation.

Maxim Nikiforov, Deputy General Director of Baikalengineering shared the peculiarities of localization of engine and propeller production at Komsomolsk ASEZ and raised the issue of the state commission.

Issues of financing and obtaining bank guarantees were also touched upon by other speakers. Thus, Alexander Korneichuk, General Director of NSRZ proposed to consider the possibility of 0% VAT for the shipbuilding industry. President of the Union of Industrialists and Entrepreneurs of the Republic of Buryatia, General Director of Ulan-Ude Instrument-Making Production Association Vladimir Luchnikov noted the importance of subsidizing interest rates and financial support measures, plus suggested to consider the possibility of establishing a guarantee fund for Far Eastern industrial enterprises. The company is reinvigorating an innovation cluster in Buryatia, including all industrial enterprises of the region, and is focused on the production of import-substituting goods in medicine, aviation, instrument manufacturing, and railway trains.

Sergey Yarutin, General Director of the Association of Import Substituting Enterprises, focused on possible directions of import substitution and ways of parallel imports.

At the end of the discussion, Denis Nevzorov, Director of the Department for International Cooperation and Technological Development of the Far East and the Arctic at the Ministry for the Development of the Russian Far East, informed the audience about the current mechanisms for supporting both existing and planned enterprises. For example, the speaker called the territories of advanced social and economic development the most interesting for the implementation of industrial projects. Among the successful examples were the projects of the Zvezda Shipbuilding Complex and Arnika in the Primorye Territory, Sibur, as well as the gas processing and gas chemical plants in the Amur Region. Baikal aircraft production in the Republic of Buryatia is being prepared for implementation. Industrial parks and technoparks are being created in Khabarovsk, Primorye Territory, Yakutia, and Chukotka Autonomous District.

“An investor in an ASEZ is granted tax, infrastructure, land, and construction preferences. Moreover, this regime allows for different mechanisms of state support not only from the Ministry for the Development of the Russian Far East, but also from the Ministry of Industry and Trade, the Ministry of Construction, and the Ministry of Economic Development. Since May 2022 the Ministry of Economic Development launched subsidies from the federal budget to Russian credit organizations for reimbursement of soft loans. In addition, anti-crisis measures were taken to replenish working capital. The size of the subsidy is equal to half of the key rate of the Bank of Russia +2% per annum. RUB 8 billion in the Far Eastern Federal District and RUB 1.4 billion in the Arctic have been allocated at a subsidized rate. Banks received and reviewed applications for RUB 6 billion for the implementation of 12 projects with the only requirement for the borrower: to register the project in the Far Eastern Federal District or the Arctic. Besides, 124 enterprises are included into the list of backbone enterprises, including those in the areas of aviation and shipbuilding. At the same time, since this year the mechanism of the industry development fund has been functioning. If earlier industry subsidies from the budget of the regions was 30 to 70, now it is 10 to 90,” commented Denis Nevzorov.

In addition to the existing ASEZs, Free Port of Vladivostok, Arctic Zone, and Kuril Islands preferential regimes, there is also the current SITC on Russky Island, with tax preferences, labour quotas, and the competition-free provision of land plots.

In conclusion, Daria Kiryanova, Deputy Director General for Economic Development of FEDC, emphasized: “Whatever the status of your company, whether you use the existing preferential regimes or not, the Ministry for the Development of the Far East and the Arctic together with FEDC are ready to help you implement projects, as we are extremely interested in ensuring that companies and their capacities work effectively.”

The discussion brought together about 50 representatives of industrial enterprises, business associations, regional authorities and development institutions, experts, as well as residents of the Far Eastern preferential regime territories. They voiced the most important proposals for further elaboration and inclusion in the industry session of the EEF 2022.

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