MEDVEDEV EYES FAR EASTERN REVIVAL

Dmitry Medvedev, Russia’s leading presidential candidate, believes the social and economic problems of the Russian Far East can be solved eventually, as the government currently has sufficient financial resources. Touring Khabarovsk on February 7, he conceded that the Far East regions still faced serious infrastructure limitations (Interfax, February 7).

Regional Development Minister Dmitry Kozak told Medvedev that the Russian Far East was yet to fully use its economic potential, adding that its annual GDP was estimated at 942 billion rubles ($38.3 billion). Although the Far East accounts for 40% of Russia’s total territory, only 8.7 million people live there, while 107 million in China’s northern regions, Kozak said (Interfax, February 7).

During his Far Eastern tour, Medvedev was told that a major project, the Eastern Siberia Pacific Oil pipeline (ESPO), faced significant delays. Nikolai Tokarev, head of Russia’s pipeline monopoly Transneft announced that the first stage of ESPO is unlikely to be completed before the fourth quarter of 2009. The first stage of the pipeline is currently 46% ready, while the original schedule was to have 67% completed by now. The pipeline is 87% ready in Irkutsk region, while in Yakutiya the number is just 18%.

In November 2007, Transneft first suggested delaying the launch of the ESPO first stage. Cost estimates of the projects also went up from $11.2 billion in late 2006 to $12.5 billion in August 2007.

Tokarev reported that the delay was caused by the extremely harsh natural conditions, as well as the decision to move the pipeline away from Lake Baikal. Some contractors also proved unable to honor their obligations. Tokarev also argued the government was slow to approve the plan for the pipeline’s final point at Kazmino Bay, adding that actual construction there would take no less than 20 months once approval is granted (Interfax, February 7).

In July 2007, Transneft announced it had built the 1,000th kilometer of the ESPO pipeline near Neryungri in Yakutiya. Semyon Vainshtok, former Transneft head, announced that a total of 160 billion rubles ($6.5 billion) had been disbursed so far. He pledged to build the 2,694-kilometer pipeline in its entirety by the end of 2008. Therefore, Tokarev’s statement came to indicate that Vainshtok’s earlier pronouncements were detached from reality.

Subsequently, Medvedev strongly criticized the Industry and Energy Ministry for being slow to approve the Kazmino Bay plan. The ESPO is a project of crucial importance for the Far East, while approval delays look “miserable,” he said. In response, Deputy Industry and Energy Minister Anatoly Yanovsky pledged to tackle all bureaucratic hurdles in two months (Interfax, February 7).

During the meeting in Khabarovsk, Medvedev also ordered state-run energy giants to finish talks regarding the Sakhalin-Khabarovsk gas pipeline project in order to start gas supplies to Vladivostok by 2011. In response, Gazprom deputy CEO Alexander Ananenkov complained that Rosneft, which owns the Sakhalin-Komsomolsk-on-Amur section of the pipeline, has been slow to accept Gazprom’s proposal to join the project (Interfax, February 7).

In the wake of his trip to the Far East, Medvedev ordered the Industry and Energy Ministry and Transneft to clearly explain reasons behind the ESPO project delays. He also ordered Industry and Energy Minister Viktor Khristenko and Transneft CEO Tokarev to finish construction of the ESPO first stage in 2008, as it was originally planned. Medvedev also stated that Gazprom CEO Alexei Miller and Rosneft CEO Sergei Bogdanchikov would be personally responsible for building the Sakhalin-Khabarovsk gas pipeline by no later than 2011 (Interfax, February 8)

Despite the pipeline controversies, the Eastern region of Yakutiya has still pledged to boost its hydrocarbon potential. Yakutiya plans to pump 35 billion cubic meters (bcm) of gas by 2016, and 12 million tons of oil by 2020, according to the head of the Yakutiya regional administration, Vyacheslav Shtyrov. Yakutiya’s potential oil reserves may prove as high as 2 billion tons, he added. By 2020, Yakutiya also aims to raise its GDP by 2.8 times and increase average income of the residents by 3.6 times, he said (Interfax, Itar-Tass, RIA-Novosti, February 6).

Medvedev also attended the launch of the Svetlinsky (Vilyui-3) hydropower station in Yakutiya. He said that the new facility would allow stable electricity supplies to Yakutiya’s diamond mines and emerging oil and gas sector (Interfax, February 7). The construction of Vilyui-3 was started back in 1979, while the final stage of the project was funded by the diamond giant Alrosa.

Medvedev ordered Russia’s Unified Energy Systems (UES) to conduct a major China-oriented project to develop regional power capacities. UES chief Anatoly Chubais urged Medvedev to spend $18 billion to double the existing capacities up to 60 billion kWh/year, aiming to supply electricity to China. Chubais also promised that the project would serve to create “tens of thousand” jobs in the region (Interfax, February 7).

UES has long advocated electricity exports to China, arguing that it would require construction of five new hydropower plants, including three in Chita region. However, even Russian government officials, notably the Industry and Trade Ministry, voiced skepticism about UES plans, arguing that it was far from certain that the price tag – $18 billion – could prove attractive for investors. Starting in February 1, 2007, China refused to import Russian electricity, arguing that the Russian price was nearly twice as high as Chinese domestic prices.

Yet despite pipeline and electricity export setbacks, local officials hailed Medvedev’s initiatives. Medvedev’s trip to the Far East will give regional development a much needed boost, according to Oleg Safonov, presidential envoy to the Far East. Over the next six years, the government will spend about 570 billion rubles to develop transportation and energy infrastructure, he said (Interfax, February 7).

Medvedev’s tour was apparently patterned after similar trips by outgoing Russian President Vladimir Putin. In early 2007, Putin also toured Russia’s Far East and pledged sizable government funding. Subsequently, Russian officials indicated that the federal government could allocate up to 600 billion rubles ($24.4 billion) to fund development projects in Eastern Siberia and the Far East by 2013, and 9 trillion rubles ($366 billion) by 2025. However, the pipeline controversies seem to indicate that at least some ambitious plans will take longer than previously expected.