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Monday, October 24, 2016

From VEF forward contracts trillion rubles

On Friday in Vladivostok with the participation of Vladimir Putin opened a second East economic forum. To the surprise of many, the economic performance of Primorye in the context of a General crisis look very advantageous, and this year among the guests of the forum the Japanese and the Koreans significantly pushed the traditional guests from China. However, the goals of the WEF is much more ambitious.

The WEF has yet to travel the path to becoming one of the main venues for the annual meetings of the business in the Asia-Pacific region, and many on this path will depend on how successful the implementation of the largest Russian projects in the far East. But the prospects are encouraging.

Review of megaprojects

“In General, Russian exports last year, according to the FTS, fell by 31%, but in the far East recorded a decline of just 2.2%”

The main outcome of the largest business forums is always a statement of the amount of investment contracts signed during their meeting. According to the results of the WEF in 2016 it is expected to conclude agreements for a total amount of about one trillion rubles. This is significantly less than a year ago, when the expected amount of the agreements was estimated at 1.3 trillion rubles, but in the end reached the figure of 1.8 trillion. However, a nearly twofold difference in favor of the first forum is hardly a measure of success. First of all, because more than half of the total value signed in the first VEF agreements had only three project, the construction of the Amur gas processing plant (at the time it was estimated at 790,6 billion rubles), construction of a coal marine terminal “Port Vera” in Primorsky Krai ($10 billion, or about 670 billion rubles at the then exchange rate) and the development of the solntsevsky coal deposits on Sakhalin (68 billion rubles). These contracts are the result of big preliminary work, and it would be naive to expect that such megaprojects in the far East will appear each year.

However, without major initiatives of the WEF in 2016 will remain. In particular, the forum will be signed the agreement between National chemical group, the Korean Hyundai Engineering & Construction and Japanese Mitsui Corporation on the construction of enterprises manufacturing mineral fertilizers by Finding. This is a project with a difficult fate: originally the plant was planned to Commission in 2017, and positioned it as the world’s largest in its industry. In the future, the commissioning date was postponed to 2019, and the designed capacity in 2021. The total investment in its creation at the beginning of the year was estimated at 400 billion rubles.

By and large efficiency large business forums should be judged by how many signed contracts in the end turned into real investment projects. This is evidenced by the whole experience of similar Russian sites – too much paper “construction of the century” and frankly inflated initiatives they spawned (especially “famous” for these investment forum in Sochi, which takes place every year in late September).

From this point of view, the first while the WEF can be considered very successful event, at least if we consider the fate of the far Eastern above-mentioned three mega-projects. The start of construction of the Amur gas processing plant, which by 2021 should build Gazprom and SIBUR, in October last year gave personally to President Vladimir Putin. In February, the leadership of the future enterprise said that this year the volume of works is estimated at 15 billion rubles (including construction of railway infrastructure, cargo port on the river see). Due to the works on localization of production and optimization of technological schemes of the initiators of the project managed to save about 100 billion rubles.

The main event in the construction of the terminal “Port Vera” in Vladivostok, which implements the company “RT-Global resources” (“a daughter” GK “rostec”), received the positive conclusion of state expertise. It is expected that the launch of the first phase a throughput capacity of 10 million tons per year will occur in 2018. The terminal will be in demand primarily in connection with the annual increase in the volume of transshipment of coal in the far East in the direction of the markets in the Asia-Pacific region.

Finally, during the development of the solntsevsky coal Deposit, which is, OOO “Eastern mining company”, this year it is planned to produce at least 3.5 million tons of coal, in recent years the Sakhalin miners have repeatedly updated monthly records of production. In the process of implementing the agreements signed at the WEF-2015, it is planned to increase production to 10 million tons of coal a year to upgrade coal miner port to the shipments of 10-12 million tons and to construct a conveyor line length of about 28 km to transport coal between the port and the Solntsevo section. The WEF 2016 project East coal company represented by a new agreement signed on 2 September with the Japanese “Sajic Corporation, which intends to invest in port facilities to service large ships of type “Panamax”, that will expand export opportunities for Sakhalin coal to Japanese and Korean markets.

Export accent

In addition to signing agreements, major business forums always have a wide discussion programme, experts note that the first WEF has already had a noticeable impact on the agenda of the economic policy of Russia in the far East. The managing partner of FLC (Financial and organizational consulting)” Moses Furdik said that over the past year there has been a marked advancement in several sectors of the theme of the first VEF, especially for tourism and agriculture, and export support, actively discussed on the forum a year ago, generally formed in one of the priority projects at the Federal level. “To some extent, this topic is pushed earlier dominated the agenda of import substitution, which can be assessed as clearly positive trend,” – said formic.

The results of last year showed that the far East was significantly more resistant to the pressure of the economic crisis on exporters than other regions of the country. Overall Russian exports last year, according to the Federal customs service, in terms of value fell by 31%, while in the far East customs authorities have recorded a reduction of only 2.2%, and the number of profitable exports have experienced some growth. In particular, the export of fish and seafood from the Far East grew in volume by 4.4% and in value by 1.2% (respectively 1.2 million tons and $ 2.2 billion). Increased volume by 9% (to 1.7 million cubic meters) and the export of processed timber products, which went primarily to China.

The most important government decisions in terms of stimulating far Eastern exports was adopted almost simultaneously with the first VEF. 2 September last year, the Russian government signed a decree on establishing an Agency for the Far East to attract investment and support exports, and then in October, entered into force the law on the Free port of Vladivostok, covering 15 municipalities of the Primorsky territory for a period of 70 years. “I think we have managed to develop successful and competitive formula free port, using its historical experience and the best international practices, so the government should consider distributing free port on the other hub ports in the Far East”, – said in his speech at the WEF-2015 Vladimir Putin.

On the proposal of the President immediately responded to the Governor of Khabarovsk territory Vyacheslav Shport, stating the readiness of the region to create a similar regime for its ports (obviously knowing that the neighboring region gets too serious advantage in the fight for the investor). In this sense it can be argued that already the first WEF has implemented one of the main objectives of such events – be an incentive for competition between regions. “Most of the far Eastern regions are trying to present the most advantageous on the forum, his main initiative – the result was a competition, which significantly increased the quality of preparation of investment projects”, – stressed Furdik.

In addition, in his opinion, the WEF has become clear “point of entry” for many foreign investors because on this site within a few days, you can get a General idea about the investment potential of the Far East, to hear the views of key figures and establish required business contacts.

The forum for growth

However, the WEF is still quite a young event, so a clear definition of its format and positioning in a number of similar events in the future. This is evidenced by at least a part of the foreign delegations of the first and second forums: a year ago among the foreign guests was dominated by the Chinese, now the majority of the representatives of Japan and South Korea.

Certain questions among the forum participants there are to the composition of the key speakers on the topics of the discussions. For example, according to the General Director of Agency InfraNews Alexey Bezborodov, the development of transport-logistic complex (one of the key segments of the economy of the Far East) are presented in the forum program full enough, but not always representative for the participants: “the Participants and the moderator of the discussion on the free port – pilots and shipping agents. On the subject, which are all transportation management of ports and industry, the moderator speaks smoothly, but about the work of the stevedoring industry never learned. It says only that the approach to the organization of the forum – bureaucratic”.

“Of course, the forum is necessary to strengthen institutional component – this applies to logistics and accommodation, and cultural and entertainment programs – agrees Furdik. – In addition, it is desirable to reduce repeated duplication of the same speakers at different events.”

But only through these measures, the expert believes, it is impossible to make the next breakthrough in the development of VEF – its significance and content will be determined primarily by the place of Russia in the Asia-Pacific region: “the WEF could become a truly momentous event in the region only in the case when in the Russian far East will receive extensive and real development projects in non-oil sectors – logistics, tourism, agriculture, chemistry, engineering, information technology, and so on. Only in this case there will be numerous and influential foreign and Federal players, as the development of raw material base – is the lot of a narrow circle of companies. In principle, a number of steps in this direction have already been done, but it is unlikely that large-scale results will appear earlier than through five-seven years.”


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