02 September 2015

    After two years of working in the Far East, Trutnev has come to a paradoxical conclusion. On the one hand, there are very few Russian creditors and businessmen that appreciate the potential of the Eastern Territories. On the other hand, there are a lot of projects there: the Vice-Prime Minister’s team has counted more than 200 already. The State has a Federal Target Program (FTP) and Far East Development Fund. But for such a number of projects no amount of money is sufficient, and that is why Trutnev has created advanced development territories (ADT). The region determines an area of business development and advocates it at a Federal Government level. ADT investors receive privileges and a single point of contact with the State. Now three of such ADTs have been approved and the other six are in the pipeline.

    “We are choosing neither businesses, nor regions”

    — On Thursday Eastern Economic Forum opens, at which you promised to present more than 200 investment projects. How much investments are expected?

    — I am even afraid to voice the numbers that have to be mentioned. For only the core ADT projects and investment projects, which we support with the Federal Targeted Program, adds up to about 470 billion rubles. About the same amount of investments is for the mentioned 200 projects. These are big numbers, but I think we should not fall under the spell of the numbers, we should do everything to make it a reality.

    We have already prepared nine ADTs. Three of them have already been sent to the Government for approval, for others the documents are submitted to the Government. Naturally, all of them are funded. What is ADT? First of all, it is a single point for businesses to communicate with the State. It is in one instance, the managing company should receive land, all the needed permits and tax privileges. We also have to fine-tune this process. That’s why we will not probably be hurrying up with the creation of the next ADTs. This year there will be about three–five of them, but not 20.

    — According to what principle will regions be selected for ADT?

    — We are choosing neither businesses, nor regions. If a region is ready – please, apply to the commission, state your case and if everything is in complete order, we’ll promote it further.

    — Is there any interest from foreigners?

    — In the majority of ADTs cases – six out of nine, there are foreign investments. They are mainly related to construction material production. Investors obviously think there will be a lot of constructions in the Far East, I also hope so. That’s why we are talking about asphalt, construction components, cement production.

    There are more complicated tasks related to providing market financing for big infrastructure projects. This is not usually asked from the budget, but still to create a structure, projects in this configuration in which they can attract market financing. This applies primarily to the “Primorye 1 and 2” corridors (for cargo transit from North-Eastern provinces of PRC to Vladivostok and Nakhodka ports), there is also Vladivostok belt road. All this we’ll be dealing with in coming years.

    — “Primorye 1 and 2” are presented as the continuation of the Silk Road. It is not clear at all in what extent it will profit China, and the construction will be done by us. 

    — The Silk Road is an idea rather than a program in which it is written that the road is from here up to here. Undoubtedly, our near-border infrastructure may be considered as a part of general work of Eurasian integration. We have such interests now. We need corridors, more so, we are sure, that it is in demand from our Chinese neighbour.

    — The other Project – the Free Port of Vladivostok. What it will be specialised in?

    — The development of port infrastructure, services practically throughout the supply chain. This program includes 15 municipalities. Along all the chain of ports a scope is included into the Free Port of Vladivostok, there is an interest in this work, and companies are in preparation. We have to finish the work of creating a regulatory framework and to set up a managing company. And I am sure this year a locomotive with the name “Free Port of Vladivostok” will be travelling.

    — Who is ready to become residents?

    — Practically all companies connected to port services.

    — Only Russian?

    — Russian so far. We have to say honestly that the most part of entrepreneurs don’t understand very well what is happening in the Far East. I am meeting a lot of people, and in fact nobody distinguishes the mechanism of investment program support from ADTs. It is probably partly our fault; we are working quicker, than explaining.

    How is the Far East financed?

    Advanced Development Territories

    In March 2013 the Ministry for Development of the Russian Far East made a proposal of tax privileges for so called Advanced Development Territories (ADT). In December 2014 the State Duma approved the status of such territories with a special law.

    ADT is a part of a regional territory, in which there are privileges for investors into new enterprises. For ADT residents there are privileges on land, rent, and property tax. In addition, they have privileges with connection to infrastructure and free customs zone treatment (import of goods and technology without custom duties and VAT).

    FTP of the Far East Development

    Starting in 2015 there is a Federal Target Program for the Far East and Baikal Region development till 2025. The total amount of its funding in 2014 was 3,566 trillion rubles, with 536 billion rubles coming from the federal budget. The Program should form 16 ADTs. There are 42 billion rubles dedicated to the budget for development of these territories until 2018.

    The Far East Development Fund

    The Far East Development Fund was created in 2011. 15.5 billion rubles were allocated into this fund. The main task of the Fund is to attract investments into new projects of this region.

    The biggest projects approved by the Fund are the construction of the rail road bridge Nizhneleninskoye-Tuntsyan in the Jewish Autonomous Province, the development of gold mining in the Kamchatka Region, waste recovery project. The total amount of financing for these projects from the Fund is 4.8 billion rubles, private investors will invest 23 billion rubles.

    A total of 10 projects are under consideration by the Fund for the total amount of 18 billion rubles. (financing from the Fund).

    “We have problems not only with the cosmodrome, but also with hotels and oceanarium”

    — Presidential aide Andrei Belousov has recently said that it was time to begin saving money in the budget. Are there efforts made on your level to find alternatives to government funding?

    — The use of budget money should be minimized. We started work on the development of the Far East with the dedicated figure of 42 billion rubles for the next three years. It’s not a small amount of money, but if we keep in mind that we are talking about one third of Russia’s territory, then it is not a lot of money for three years. Nevertheless, they were absolutely necessary in order to create a catalyst to start up economic processes to construct the correct envelope, to form the proper tools. This is a triggering mechanism. But without an animator, without the involvement of private investment, development is absolutely impossible. It seems to me that you don’t have the right to stand with and outstretched hand asking for money from other sources if your project is not constructed. Therefore, everything that we build, we build primarily based on large-scale attraction of private investment.

    — The Far East Development Fund: Is it possible to move it from under control of the VEB to the control of the Ministry for the Development of the Russian Far East?

    — In my opinion it does not matter where the Far East development Fund is, under the VEB or under the Ministry. We considered both options, because we had to quickly launch the Fund – it was a matter of public image, if we arrived and the Fund still was not operational, then the question arises: but how do we operate ourselves?
    That’s why I said to the Fund management: “Colleagues, you have the Forum ahead in 2015. Firstly, you have to get the projects that have already been approved for funding out in the Forum. Secondly, before the end of the year you should send half of the capital to the Far East. If this is accomplished, we will shake hands and continue moving forward together. If it is not, then we need to change the management of the Far East Development Fund and take some surgical measures.” But I think we’ll do without it. We already had three projects under consideration at the Government commission: gold mining at Kamchatka, waste recovery at Sakhalin and the bridge across the Amur river. The decision is made, now the council of the Fund should take place.

    — When will the Vostochny Cosmodrome be finished and why is the process hindered?

    — The whole construction industry of the Far East must be changed. We have problems not only with the Cosmodrome but also with hotels and the oceanarium. As is the case with most of the big construction projects in the Far East. The market is deformed, if not to say destroyed. Much of the credit for this belongs to the previous management of Spetsstroy. For some reason, most of the work they carried out, the competition was killed, no companies, no market. And how this organisation performed was in newspapers.

    The industry should be restored, created. We have now started a lot of work of creating infrastructure for ADTs. But who will do the construction? It’s absolutely unacceptable for us to start this process, and to have something similar to what happened to the facilities I mentioned: that construction is stopped and money is stolen. It’s impossible to accept.

    Then there is the question: whom can we rely on, how to create a competitive market of construction organisations, so that people were really working, there were competition for higher efficiency, responsibility, for better quality. Therefore, I have already spoken to the Minister of Construction; it is not only mine but our common task to revive the construction market. And then, probably, there will be answers to the questions related to the Vostochny Cosmodrome and to all other questions. It’s one of the most neglected industries in the Far East.

    “We periodically discuss these questions with Rosneft’s management

    — You have the East-Siberian petrochemical company project (FEPCO, the Far Eastern oil refinery plant of Rosneft). Rosneft originally hoped to have money from the National Wealth Fund (NWF)…

    — My personal opinion is very simple. I think it is possible to use money from NWF for the development of the country’s economy, but there should be 100 % guarantees on repayment. That’s why all the projects must be well prepared. But in this case the criterion is: is it possible to attract other funding sources? That is, if a project is prepared in such a way that it is possible to at least receive loans from banks, or money from NWF, then it is a subject for discussion. If it’s only coming from budget or money from NWF then it is not finalised. Projects should be prepared more carefully and thoroughly and then it should be able to attract money from the market. At the same time the possibilities from our neighbours, Asia-pacific countries, are in this regard fundamental as there is a lot of money there. And there is a demand to invest them: money is not only privilege, here it is available, but money should be invested to avoid devaluation.

    — There is the Gazprom project that is constructing the Amur Gas Refining Plant together with Sibur. Do I understand correctly, that it is the first ADT project of such a scale, or are there bigger projects? 

    — FEPCO is bigger but it is not introduced as a project.

    — And is there money for FEPCO from the Federal Program on the Far East?

    — For us at the moment the limiting factor is rather creating a management system than money – it is the first thing. The second: We have a competitive process. When we first started, we were under the hypnosis of general statements of the banks, which were saying that there was nothing to invest in the Far East. But then we started to work and came through with about 400 investment proposals and saw that there were a lot of projects here. That’s why we have changed our position, we are not following investors and don’t say: “Dear sirs, is there anything we can do for you, so that you construct a project quickly?” We say: “Colleagues, we have enough respectable people who want us to support their investment projects in the Far East. As soon as you are ready, come to us. If you are not ready, keep on working, we have things to occupy ourselves with.”

    — What tax privileges could FEPCO get in ADT?

    — The same as any other project – privileges on profit tax, property tax, land tax.

    — Do I understand correctly, that it is only the plant, or is it also resource bases like oil fields in adjacent areas that are subject to these privileges?

    — It is a subject for discussion. It is important to us that a project starts operating. If people come and say: “We are ready, then we’ll start discussion, what is included in the envelope of ADT, what territory is needed, it’s already a subject for discussion. But not vice versa. We discuss such issues with Rosneft periodically. We told them directly: it will be a ADT project. There are technological issues that the company has to resolve before making decision about realising the project.

    The Free Port of Vladivostok

    In 2014 the Federal Law “On advanced socioeconomic development territories” was adopted, foreseeing the creation of special territories with simplified business conditions. Each zone will be managed by a special management company, that has to construct infrastructure, provide legal, accounting, customs and other services. For the first three years such territories could be located only in the Far East. One of them will be the Free Port of Vladivostok. In July 2015 a law was signed giving special status to the port; it will come into force in October.

    What will the Port look like?

    The territory of the Free Port will combine 13 municipalities from Zarubino port in the South of the Primorsky Territory to the port of Vladivostok. The territory will have a free customs zone status, it will be single tax, a visa regime and other privileges will be provided. As expected, such measures will allow to reduce transport cost in the Asia-Pacific region and to start the realisation of international transport corridors “Primorye 1” and “Primorye 2” (from Northern China to Pacific ports of the Russian Primorye). The creation of the Free Port may also give a push to creating the shortest ground transportation route from Asia to Europe via the Trans-Siberian Railway and shortest shipping route to Europe through Northern Sea Route. The authors of the initiative hope that due to the Free Port the Gross Domestic Product of the Primorye District will grow by 2.2 times till 2025 (up to 1.4 trillion rubles), and by 3.4 times to 2034 (up to 2.1 trillion rubles).

    “I am not already a Minister for Natural Resources, and for quite some time.”

    — There are foreign investors, for example, Exxon. They have legal proceedings on taxes with Russia…

    — I am not involved in negotiations with Exxon. As far as my position is concerned, I think that this company, as other foreign companies, working in Russia under Production-Sharing Agreement (PSA), penetrated the Russian market under very favourable conditions. As people who honour their promises, we continue to maintain the same policy and keep the same tax conditions. I think that on the other side people also must appreciate and should understand that they were just lucky, that they got these conditions very long ago and in a convenient form. We know how costs were assigned in PSA… It’s not desirable to return to these issues, but they do exist.

    — There is an idea to extend existing PSAs, for example to build the third extension of Liquefied Natural Gas Plant of “Sakhalin-2” and to include Yuzhno-Kirinskoye gas field. What’s your attitude to it?

    — I am not the Minister for Natural Resources, and have not been for quite some time, that’s why I can only give my opinion. And it is very simple: There is a taxation system in Russia. It is valid for all citizens. There are privileges that we make for some important areas. As far as oil production is concerned, it is not a low-profit business. It very comfortably exists in the current taxation system and to backtrack to PSA conditions would be strange. It would certainly mean losses for the Russian budget.

    — The development of the Arctic shelf is considered a strategic task. However, due to situation with oil prices and sanctions the oil industry has frozen their projects on the shelf. In current economic conditions should we continue developing the shelf?

    — As soon as we say that market processes are regulated by market conditions, then everything fits together. There are investors for developing the shelf and then it should be developed. If there are no investors, we may consider in this case some preferential conditions, support, but nothing more.

    — But if investors are private companies and they very much want to go there?

    — I think that Russian private companies could participate in this activity, if it will be profitable for them at current oil prices.

    — The contract with Exxon for Khabarovsk region gasification from “Sakhalin-1” gas field terminates in 2025. Where will you get gas from for the region?

    — As far as gas supply for Khabarovsk region is concerned, I think this problem should be solved in negotiations with the company in the framework of PSA. The agreement is extremely preferential, companies have got very favourable regime for working in the Russian territory, they paid nothing, initial costs were compensated. That’s why they must keep the regime of good will relative to the country, to the population, to think about a need to supply gas to people of Khabarovsk Region at normal prices. Seeing as we are not talking about volumes that will influence company’s operation. And, in my opinion, there are no other gas consumers.

    — Rosneft wants to buy from Gazprom a minimum of 2.5 billion cubic meters of Sakhalin gas for the “Dalnevostochny LNG” plant at domestic prices. And Gazprom replies that gas is of interest for the needs of neighbouring regions. How, in your opinion, could this dispute be resolved?

    — Concerning the problems of Gazprom gas for the realisation of the FEPCO project, I think it is one of the factors slowing down the start of the project. I hope the companies will come to an agreement.

    Far Eastern Federal District (FEFD) in numbers

    FEFD was ranked fourth in the country in terms of employment in 2013 (3.3 million employed)
    0.2 million people counted as unemployed in FEFD in the same year (6th place in the country)
    28.9 thousand rubles per month as average income per capita in 2013
    3rd place in the country by the number of personal cars per 1,000 of population in 2013. This number was higher only in the North-Western and Ural Federal Districts
    22.4 sq. m. the general average leaving area per capita
    1st place in the country in crimes per 100,000 of population
    814.5 billion rubles of investment into main capital
    6.6 % inflation of consumer prices for the year
    By 31 % the price of a consumer basket of goods was higher than average for Russia. IN FEFD it was 14.02 thousand rubles

    Source: Rosstat (on the results of 2013)

    “We are grateful to those who help us, and there are many of them”

    — There is currently personnel reshuffling happening at state owned companies: Vladimir Yakunin has left, for example. Would you like to take one of the acting managers and company leaders to the Far East?

    — First, as far as state service is concerned and jobs in state owned companies, you should not have an attitude that it is something eternal, as a kind of indulgence now and forever. Second, I am sure that renewal, fresh blood always improve efficiency. It’s absolutely normal. A person who really does a big job in a state owned company, in government structures, if it is qualified person, then he will have no problem at all in finding a new job.

    And I have a lot of respect for Vladimir Ivanovich (Yakunin). In spite of the fact that we had complicated business relations, you know, we collided on the issues of efficiency and modernisation of BAM and Transsib. But in general I have a good attitude to him.

    And those, I have dealings with, are split into two categories. Because I’ve spent 20 years of my life on tatami mats, those in my area of visibility are black and white: split into friends and foes. We are grateful to those who help us, and there are many of them and we try to support them, if possible. There are also people, who don’t want to support us. For reasons we can only guess, because nobody says that they are against national priority. In regard to such people, sometimes I regret that duels are forbidden.

    Vice Prime Minister with tatami
    Yury Trutnev, from August 31, 2013 — Deputy Prime Minister – Presidential Envoy to the Far Eastern Federal District.

    Early years
    Born in 1956 in Perm, in a family of oil workers. Graduated in 1978 from Perm Polytechnic Institute as mining engineer. He started carrier in the Perm Oil Industry Research and Design Institute as a junior scientist. In 1981 he moved to Perm City Party Committee, later to the regional Komsomol Committee, heading the sports committee. In 1988 he set up Contact cooperative company dealing with sport equipment supply and headed regional cooperative union. In 1990 he headed EKS Limited company ( import and sales of food products), and six years later – E.K.S. International JSC, incorporating companies of EKS group.

    Beginning of political carrier
    Trutnev came into politics in 1994, becoming a deputy of Perm city Duma and heading a regional committee on economic policy. Two years later he was elected as mayor of Perm with 61 % of votes in the first round and beating acting mayor Vladimir Fil. In 2000 he was elected as Governor of the Perm Oblast with 51.48 % of the votes, beating acting Head of the Oblast Gennady Igumnov, whom he supported in the regional elections of 1996. Being the Governor he initiated a merger of Perm Oblast and Komi-Permyak autonomous region. At the appropriate referendum in December 2003 for the merger into a single subject of the Russian Federation the majority of population voted for the merger, according to Central Electoral Commission.

    Work at the Ministry for Natural resources
    In March 2004 Trutnev was appointed the Minister for Natural Resources in the Government of Mikhail Fradkov. In this position he insisted that foreign companies were banned from developing strategically important fields in Russia, and the right to make a list of such fields was assigned to his Ministry. The appropriate item was incorporated into the law “On natural resources”. He also suggested giving rights for gold mining to individuals and suggested to put the allowed forest cutting level at world level.

    In 2006 the Ministry revoked the positive conclusion of State ecological expertise on work of companies carrying out the “Sakhalin-2” project. As reported by RIA Novosti, Trutnev himself stated that the project operator Sakhalin Energy company rejects cooperation with Rosprirodnadzor and tries to put pressure on the Russian side through mass media and diplomatic channels. Via his initiative complex checks were carried out on Sakhalin Energy’s work, during which a lot of violations of environment protection laws were disclosed, due to which, according to Deputy Minister Oleg Mitvol, the project was stopped.

    Subsequent career 
    Since August 2007, he has been a member of United Russia Party.
    In September 2007, the Fradkov Government resigned and Trutnev became Acting Minister. In May 2008 he was appointed Minister for Natural Resources and Ecology in the Viktor Zubkov Government.
    In May 2012 he became President Vladimir Putin’s Aid.

    Income and Personal life
    According to official declaration Trutnev’s personal income was 179.6 million rubles. Only Deputy Prime Minister Alexander Khloponin and Minister for Open Government Affairs Mikhail Abyzo have higher income in the Сabinet of Ministers.
    He is married with five children.

    Hobbies: car racing and Kyokushin karate. In August he was appointed a Chief Referee of the World Championship, that will take place from 3rd to 4th October in the Khabarovsk region with participation of 266 fighters from 44 countries.