January 2022, Vol. 249, No. 1
Features
Worrying About Moving More Swiftly than Usual
By Gordon Feller, P&GJ Contributor
In January 2020, Russia’s government approved a number of acts concerned with rendering new economic benefits and subsidies to businesses or investors willing to engage in projects in the country’s High North.
The national government’s Ministry of Finance (Minfin), the Ministry of Energy (Minenergo) and the Ministry for the Development of the Russian Far East (Minvostokrazvitya) jointly prepared the adopted proposals.
Taken together, this initiative aims to provide a foundation for Russia’s Arctic Strategy, which is based on several government documents:
- Federal Law on a Special Economic Regime of the Arctic
- Foundations of State Policy of the Russian Federation in the Arctic Until 2035
- Strategy on the Development of the Arctic Zone Until 2035
- Foundations of State Policy in the Arctic
This legal framework covers Murmansk Oblast, Chukotka, Yamalo-Nenets Autonomous Okrug and Nenets Autonomous Okrug, as well as portions of five other federal subjects — Arkhangelsk Oblast, Sakha Republic (Yakutia), Krasnoyarsk Krai, the Republic of Karelia and the Republic of Komi.
To attract foreign investors’ capital into the Arctic territories, Russia has outlined four main types of projects that will receive a program of benefits from the central government:
- Extract hydrocarbons offshore, on Russia’s continental shelf, with a severance tax (imposed on the removal of natural resources) set at 5% for oil and 1% for natural gas over the next 15 years, starting from the inception of industrial extraction. It is also rumored that the Russian state might be willing to provide additional benefits for “surveys, assessments and exploration for hydrocarbons” in this region.
- Extract hydrocarbons on the continent, with an emphasis on liquefied natural gas (LNG) and gas chemistry (gazokhimiya). New investors are expecting the promise of a severance tax of 0% in the next 12 years upon starting industrial extraction.
- Produce LNG (as well as other projects related to the gazokhimiya industry). Investors will have to pay the severance tax in full only after 17 years of industrial production.
- For other projects, the potential benefits largely depend on what’s being extracted, and the project’s scope. Aside from non-hydrocarbon-related investments (including minerals), this type includes infrastructure projects (such as seaports and pipelines).
Alexander Kozlov, who heads the Ministry for Development of the Russian Far East and Arctic, said the key idea behind the proposed investment benefits is based on Moscow’s determination to break the post-1991 trend in the region.
Specifically, he argued that the Arctic zone, whose actual share of Russian gross domestic product (GDP) is close to 10% and receives 10% of total foreign direct investment, suffers from chronic underpopulation, containing less than 1.5% of the total Russian population.
Furthermore, he argued that all major components of the Human Development Index, including education, healthcare, employment and economic wellbeing, are lower in the High North than the Russian average.
As a result, he said, “for the past 15 years, the local population has decreased by 0.3 million.” Sergey Veller, the president of the Union of Manufacturers and Entrepreneurs of Murmansk Oblast, expressed similar concern and argued that the only way to stop further depopulation of the Russian Arctic is to increase its attractiveness through new economic opportunities and job creation.
These and other concerns are all reflected in the above-mentioned government planning documents. The main expectations pinned to the initiative are premised on the prospect of creating more than 21 new, large, regional mega-projects (including the Indiga Port in the Nenets Autonomous Okrug), exploring large deposits of platinum and other metals in Krasnoyarsk Krai and Murmansk Oblast, and creating a full-cycle lumber/timber-producing complex in Arkhangelsk Oblast.
These and hundreds of smaller commercial initiatives, to become fully operable within the next 15 years, are expected to result in the creation of 200,000 additional jobs in the region and “make the Arctic attractive to Russian youth and young specialists.”
That said, it is important to underscore that Russia’s main economic interests in the Arctic region actually boil down to just two elements.
First is production of LNG, which, “in the upcoming 15 years, could turn Russia into one of the largest players on the global LNG market.” This will be achieved primarily through Yamal LNG (located in Sabetta, on the Yamal Peninsula) and Arctic LNG 2 (in the Gyda Peninsula).
Second, Russia is making huge investments in the so-called Northern Sea Route, intended not only to give Russia access to Arctic natural resources, but also to provide a maritime corridor for Chinese goods traveling to the European Union. Russia intends to solidify its role as the main transportation artery between the two – both on land and by sea.
It has been argued that a subsidized mortgage program (with a 2% annual rate) should be created to aid all who are willing to move to the Arctic region. Additionally, Minvostokrazvitya proposed creating a new state corporation, “Rosshelf.”
It would be tasked with the leadership role for both exploration and extraction of hydrocarbons in the High North and in the Far East. Accordingly, this state-owned company would be given exclusive rights to “represent Russia’s interests” and to “exploit [Russian] resources and grant the right to participate in projects [to] private investors.”
Two important inferences can be drawn from these Russian Arctic developments. For the first time, three powerful institutions, with one of them directly responsible for the region, jointly drafted an initiative of this scope and ambition.
The Arctic Strategy has outlined Russia’s most important national interests in the High North. Aside from its economic aspects, this Strategy clearly points to a necessity to defend Russian sovereignty and territorial integrity in this remote but resource-rich region.
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