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© RIA Novosti. Vladimir Fedorenko

A Far East ‘oprichnina’

by Anna Arutunyan at 23/04/2012 21:36

A new state-run development company may get unprecedented powers to invest in natural resources on nearly two-thirds of Russia’s territory – spawning warnings that Vladimir Putin’s government is creating a new “oprichnina.”

The state corporation to develop eastern Siberia and the Far East will have direct access to land and natural resources in 16 Russian regions (comprising 60 percent of the country), bypassing laws on natural resources, forestry, land distribution, and even labor, Kommersant reported Friday, citing a leaked copy of the bill.

In a reflection of the corporation’s powers, government sources cited by the paper are already dubbing it “a state within a state.”

“In essence, a parallel government is being formed that will be [controlled] by [President-elect Vladimir] Putin personally,” Rostislav Turovsky, a regions expert and the vice president of the Center for Political Technologies, told The Moscow News. “This will limit the powers of [outgoing President Dmitry] Medvedev as prime minister, with Putin taking control of economic decisions when he becomes president. The country will be split into two parts, just like under Ivan the Terrible, with the zemschina and the oprichnina. One part will be run by Medvedev, and the other by this state corporation.”

The draft of the federal law, suggested in January by then-Emergency Situations Minister Sergei Shoigu and developed on orders from Putin, was submitted this week to the Energy Ministry, the Natural Resource Ministry, and the Ministry of Trade and Industry.

Putin’s press secretary, Dmitry Peskov, could neither confirm nor deny that the bill had been drafted. “No such decision was made,” he told The Moscow News. “There are no such plans. This issue is still being developed.”

According to Kommersant, the corporation will be granted the right to allot licenses to mine for natural resources such as gold – something that is currently only authorized by the federal and regional governments. The entity will be subordinate directly to the president, while other state agencies will not be able to interfere in its decisions, Kommersant writes, citing the bill.

To facilitate the ventures, the body would get 500 billion rubles ($17 billion) worth of stakes in energy, resource and infrastructure companies like RusHydro, Russian Railways, diamond company Alrosa, the Inter RAO energy holding, and the Leninsky Riverboat company. The corporation would also receive unprecedented oversight in the decisions of major state monopolies like Gazprom and Transneft, Kommersant reported.

With its headquarters in Vladivostok, the corporation would get significant tax breaks – such as a zero percent profit tax – as well as rights to develop projects on lands owned by other entities.

Federal funds would subsidize travel and living expenses for Russians and foreigners employed in the corporation’s projects. Funding could come from the $90 billion National Well-Being Fund, Vedomosti reported in March.

Putin pledged to revive the Far East and set up a state development corporation as part of his re-election campaign platform. He also named the Far East as one of five key priority areas for the Russian economy in a speech to the Duma earlier this month.

Shoigu was initially indicated as a possible head of the new entity, but in March, First Deputy Prime Minister Igor Shuvalov was named as the likeliest candidate for the job.

“Whoever heads this corporation will control massive resources, and if Shuvalov heads it, he will be at least as powerful as a deputy prime minister, so Shuvalov would be a logical choice,” said Turovsky of the Center of Political Technologies. “Whoever heads this corporation could also be seen as a possible candidate to eventually replace Medvedev as prime minister.”

Medvedev will assume Putin’s current post as prime minister under a pact the two made public last fall, but speculation is increasing that Medvedev may not hold on to the prime minister’s seat for long.

Putin, who will be inaugurated on May 7, will be able to appoint the corporation’s general director and supervisory council, giving him significant leeway in ensuring which projects get infrastructural preference.

While the state company was being created in order to manage state resources more efficiently, one of the main challenges is how it will work with regional governments, an expert involved in planning the entity says.

“In my view, this is the most difficult issue that we have yet to resolve,” Mikhail Tersky, a professor at the Far East Federal University, which has close ties with Primorye region governor Vladimir Miklushevsky, said in an email.

“Projects in the Far East (new bridges, roads) are costly rather than profitable,” he said. “But the state company will be launching projects to generate income, and it will make significant demands on the regional government. As a result, there are certain organizational and financial problems for the administration.”

Tersky, who was involved in drafting the original idea of the state corporation in January, said the company would seek both state and private funding both for its own projects and for those of the regional government.

Other experts were positive about the initiative, saying it would speed up development of metals deposits within the next 10 years.

“A key question is about the balance of power between the center and the regions,” Dinnur Galikhanov, senior metals and mining analyst at Aton, told The Moscow News. “It is possible that regional authorities won’t be able to influence the project. I think no one wants this, so there will still be a lot of consultations on this issue.”

Roland Nash, a partner at Verno Capital, said that the idea of a state corporation in the Far East was just one of “a lot of ideas being floated around” in government ministries as Putin looks to form his new administration.

“If it happens, it’s a very big deal,” Nash told The Moscow News. “The Far East is a major problem, and since 2008 the government has been looking for ways to stimulate growth. The key question is implementation, on which the government has a patchy record.”

Analysts argue that because the bill has yet to be submitted to the Duma, it is too soon to tell whether some of its controversial points will even make it into the final draft.

“Much of this could yet raise a lot of debate,” Turovsky said. “It could still be a matter of political bargaining.”

The bill will open up a slew of investment opportunities to develop billions of dollars worth of natural resource deposits, such as gold deposits in the Sukhoi Log site in the Irkutsk region, iron deposits and undeveloped oil fields in the Krasnoyarsk region, and coal in the Tuva republic.

Turovsky added that the move was likely geared to promote the investment opportunities ahead of the Asia-Pacific Economic Cooperation summit, to be held in Vladivostok in September.

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