Russia Mulls Far Eastern Economic Revival

Russia’s top officials have insisted the country’s plans to develop its Far Eastern regions remain unaffected by the presidential transition. Ahead of the Kremlin changeover, the authorities reiterated pledges to develop the Russian Far East, apparently aiming to turn these remote regions into a link between Europe and the booming Asia-Pacific. On April 11, Prime Minister and President-elect Vladimir Putin stated that in the next 10-15 years Russia’s Far East and Eastern Siberia must achieve higher growth rates than the country’s GDP growth. He described the development of these regions as “the most important geopolitical task” for Russia (RIA Novosti, April 11).

Apparently bearing geopolitical considerations in mind, the Kremlin advocated stronger transportation ties between European Russia and the country’s eastern regions. On April 26, Putin suggested prioritizing the development of railways in Siberia and the Far East, notably including the Trans-Siberian Railway as well as the Baikal-Amur Railway (BAM) and related port infrastructure. Putin estimated that BAM freight turnover could triple by 2020 from its current level of 12 million tons/year (Interfax, ITAR-Tass, RIA Novosti, April 28).

Incidentally, during the 1970s, the BAM was intended to back up the Trans-Siberian railroad in the event of a military confrontation with China. Now, Russian officials apparently view transportation infrastructure as a means to develop trade and economic ties with eastern neighbors, including China.

On April 28, first Deputy Prime Minister Igor Shuvalov said Russia and China planned to create a joint investment fund totaling some $4 billion. The new entity would be funding joint projects, including the development of Russia’s Far East and Siberia, according to Shuvalov (RIA Novosti, April 28).

Shuvalov also said that the planned state corporation tasked to develop Russia’s Far East and Siberia could be created as a subsidiary of the state-run Vnesheconombank (VEB). The corporation would prioritize energy and transportation infrastructure projects, according to Shuvalov. He also said programs to develop Far Eastern regions would require up to 2 trillion rubles ($68 billion) by 2020 (RIA Novosti, April 28).

In November 2011, the VEB created a subsidiary – Far East and Baikal Region Development Fund. The new entity pledged to disburse some 70 billion rubles ($2.4 billion) in banking loans by 2015 (RIA Novosti, April 28).

In January 2012, the Emergency Situations Minister Sergei Shoigu urged Putin to create a state corporation to develop Russia’s Far East and Siberia. However, shortly afterwards Shoigu was removed from a position that allowed him to take part in the implementation of his idea. He retired from his ministerial post and was appointed governor of the Moscow region.

Incidentally, another top official in charge of the development of Russia’s Far East and Siberia, Regional Development Minister Viktor Basargin, was removed from his post. On April 28, Basargin retired as minister and was appointed acting governor of Perm region.

The Kremlin has been urging faster growth of Russia’s Far Eastern regions for quite some time. In 2007, Russia’s federal government pledged to allocate up to 600 billion rubles ($20.4 billion) to fund development projects in Eastern Siberia and the Far East by 2013, and 9 trillion rubles ($307 billion) by 2025. Officials also indicated plans to raise the gross regional product by 12 times in 2020 by building four refineries and petrochemical plants, four gas-chemical plants, as well as a 10-million-ton/year steel plant in Yakutiya, aluminum plants and a nuclear power plant.

Ahead of the presidential transition, officials kept promising increased investment in regional development projects. On April 15, the presidential envoy to the Far Eastern regions Viktor Ishayev suggested adopting the regional development blueprint until 2050. He estimated that programs to develop Far Eastern regions would require up to 3.3 trillion rubles ($112 billion) in the next decade (RIA Novosti, April 15).

Russian officials continued to prioritize energy-related plans. Ishayev said the development of Far Eastern oil and gas would require up to 1.156 trillion rubles ($39 billion) with a focus on Kovykta and Chayandinskoe gas deposits. The investment of 675 billion rubles ($23 billion) in gas pipelines would allow increased exports to China and Korea. He also suggested building a second rail line of the BAM at an estimated cost of 500 billion rubles ($17 billion) so as to increase the line capacity up to 100 million tons/year by 2050.

Ishayev conceded that Chinese investments amounted to a mere one percent of total foreign investments in Russia’s Far Eastern regions, and urged to increase investment cooperation with China (RIA Novosti, April 15).

But Russian officials also voiced a preference for balanced economic ties with major East Asian economies. On April 21, during a visit to Japan, Ishayev urged Japanese businesses to invest in major projects in Russia’s Far East and Siberia, including development of oil, gas and coal deposits, as well as transportation infrastructure (RIA Novosti, April 21).

Russian officials have pledged to pursue high-profile projects of political significance, including those designed to prepare for the APEC meeting in Vladivostok. In 2007, the Kremlin pledged to spend nearly $4 billion in government funding to build a resort area on Russky Island, off the Pacific port of Vladivostok, to host the APEC 2012 summit. On April 15, Ishayev hailed the large-scale projects in Vladivostok a success. On April 28, construction workers installed a final section of the flagship project, the bridge linking Russky Island and the mainland (RIA Novosti, April 15, 28).

Therefore, Russian government officials continue to insist their ambitious goals to develop Far Eastern regions remain firmly on track, although it remains to be seen whether these plans will prove economically viable.