Moscow lures East Asian investors by ‘exclusive preferences’

The Russian authorities held the Eastern Economic Forum (EEF) in Vladivostok on September 3-5 in an apparent attempt to invite East Asian investors into the country’s vast Far Eastern regions.

President says infrastructure and economic development in the Far East is Russia's top priority

President says infrastructure and economic development in the Far East is Russia’s top priority

Russia’s top officials came to the EEF to encourage Asian financial inflows into the country’s Far East.

On September 4, President Vladimir Putin told the EEF that Russia offers potential partners “exclusive opportunities and preferences,” including tax breaks and state support of infrastructure development projects. These preferences are offered in a number of Russia’s Far Eastern regions, including Primorie, Khabarovsk, Yakutiya, Amur, Chukotka and Kamchatka regions.

Residents of Vladivostok free port are eligible to benefit from a larger number of preferences, Putin said. Russia aims at creating a major transportation and industrial hub around Vladivostok to serve the entire Asia-Pacific, he said.

Last July, the Russian authorities revised the country’s legislative provisions so as to give Vladivostok a free port status for 70 years. The laws granted Vladivostok new port privileges such as free customs zones and simplified visa regime, as well as profit and property tax breaks. A free port (porto franco) status envisages relaxed customs regulations and less strict customs controls for transshipment.

The Russian authorities also pledged to develop transportation infrastructure to serve the increased transcontinental freight shipments. Putin told the EEF that Russia aimed to spend 500 billion rubles ($7.4 billion) before 2017 to upgrade the Trans-Siberian and BAM railways so as to funnel more freight between Asia and Europe.

In the past, officials in Moscow repeatedly promised to take action so as to increase railway freight via the Trans-Siberian and BAM routes. However, these promises have entailed limited results so far.

The Kremlin also prioritized energy projects as major drivers of the country’s drift towards East Asia. Russia’s state-run oil giant, Rosneft, plans to invest 1.3 trillion rubles ($19.2 billion) in the Far East, according to Putin.

During the EEF, Rosneft announced a deal to sell a 15 percent stake in Russia’s Vangkorneft oil company to India’s ONGC Videsh Ltd. for $1.275 billion. In contrast, potential Chinese investors remained slow to acquire a 10 percent interest in Vangkorneft.

Rosneft also became involved in multilateral Asian energy projects. During the EEF, Rosneft and Japan Drilling agreed to cooperate in developing Vietnam’s Nam Con Son off-shore deposits.

Meanwhile, Rosneft apparently remained focused on energy partnerships with Chinese counterparts. In early September, Rosneft said the company signed preliminary agreements with Chinese energy businesses totaling about $30 billion, including China’s acquisition of 49 percent interest in Russia’s VSNK and Tyumenneftegaz that control Rusky and Yurubcheno-Tokhomsky deposits.

Russian gas giant Gazprom appeared equally keen to develop energy partnerships with Chinese businesses. On September 3, Gazprom and China National Petroleum Corp (CNPC) signed a MOU on gas supplies from Russia’s Far East to China.

On September 1, Gazprom head Alexey Miller pledged to finalize the Eastern pipeline route from Siberia to China by 2018.

On May 21, 2014, Gazprom and CNPC signed a deal on gas supplies to China via the so called Western route. The $400-billion deal envisages Russia to supply China with 38 billion cubic meters (bcm) of gas annually from 2018 for 30 years via the Eastern route. Gas supplies are expected to start between 2019 and 2021.

The Russian natural gas monopoly was also keen to develop energy partnerships with other East Asian market players. On September 4, Gazprom head Miller had meetings with executives of Mitsubishi, Mitsui and KOGAS to discuss cooperation in the gas sector, notably Sakhalin projects.

The Kremlin voiced hopes that Russia could play a larger economic role in Asia. Russia’s huge natural resources can expedite economic growth in Asia-Pacific, Putin told the EEF.

Putin’s promises to support infrastructure regional development projects were backed up by earlier government programs. In recent years, the Russian authorities pledged significant investment to finance the economic development of the Far East, up to 10 trillion rubles ($148 billion) by 2025.

During the Eastern Economic Forum, Russian and foreign businesses signed deals totaling some 1.2 trillion rubles ($17.7 billion). However, before the EEF there were expectations that this number could have reached 4 trillion rubles ($59 billion).

The forum came as the latest sign of Moscow’s economic drift eastward. However, it remains to be seen whether all deals signed during the EEF could materialize as originally planned.

Sergei Blagov is a Moscow-based independent journalist and researcher. In the past three decades, he has been covering Asian affairs from Moscow, Russia, as well as Hanoi, Vietnam and Vientiane, Laos. He is the author of non-fiction books on Vietnam, and a contributor of a handbook for reporters.

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