Pathfinders of SEZ

There has been a special economic zone (SEZ) created in Russia named “Sovetskaya Gavan”, and another SEZ project is on the way for Murmansk region. It’s sad enough, but Sovetskaya Gavan is expected to be closed due to the lack of residents while the Murmansk region SEZ project may be cancelled, before it started taking its shape. Yet, the situation can changed in the next few months.

Sovetskaya Gavan SEZ outlook

The Sovetskaya Gavan SEZ was established in 2010 in the Khabarovsk Territory. Its area encompasses 290 hectares (with an option to expand to 450 ha). Investors of such industrial economic zones enjoy tax incentives: zero tax rates on property, land, transportation tax. Foreign goods (equipment, raw materials, components and construction materials) are imported and used without payment of customs duties and VAT. Tax holidays granted by the regional authorities can last 5 or 10 years. The SEZ residents are guaranteed constant tax breaks during the entire period of the SEZ existence.

Nevertheless, the zone failed to entice investors, residents, which brings into question its future. According to the Minister of Economic Development and the Khabarovsk Territory Viktor Kalashnikov, it is due to poor management by the federal agencies. JSC "SEZ" still delays the layout design, a plan of the SEZ territory facilities construction, the list of infrastructure projects. This hampers to conclude agreements with investors on their activities. Besides, the development of railroads to the SEZ depends on the timely elaboration of these documents.

For more effective handling of these processes the regional authorities should establish companies that would be managing the economic zones. The regional government had sent the appropriate proposals to the federal government.

"Last year, there were some amendments to the Federal Law (№ 116-FZ) that enable the establishment of regional management companies with the share of private investments in its authorized capital. Foreign companies, experienced in management of such areas, are coming in with the SEZ projects, as well as some private companies - residents of the zones. But the mechanism for the creation of regional SEZ still has to be finalized. Several territories - Pskov and Tomsk regions have started to move in this direction, including Khabarovsk Territory," said Viktor Kalashnikov.  

At first stage, it is expected to begin with the development of most prepared in terms of its infrastructure the territory at Cape Maria in the south part of SEZ. Two Russian companies bidding for placing their business in the area have submitted their applications to the Russian Ministry of Economic. LLC Sovetsko-Gavansky Sea Commercial Port (a subsidiary of Moscow-headquartered Petropavlovsk-Chernaya Metallurgia Ltd.) has announced plans to build an iron ore terminal with a capacity of 7.1 million tons a year. LLC Seaport New Sovetskaya Gavan (a subsidiary of Moscow company Rosagrosnab) intends to build export grain terminal of annual capacity of 2.5 million tons, a fish processing plant (55,000 tons / year) and a container terminal that would be able to handle 280,000 TEUs. Both companies will start cargo handling in 2015, to reach projected throughput by 2019. Total exports of the facilities in 2025 will reach 13 million tons a year.

The second phase it is scheduled to develop the site at Cape Muravyov, which is located in the northern part of the Gulf of Sovetskaya Gavan. There are several Russian and foreign companies that would be willing to join: JSC Far Eastern Manufacturing & Stevedoring Company (a unit of Moscow-based Transkhimeksport) with a project to build a grain terminal to export 4 million tons a year, as well as LLC Terminal (JSC Rostopprom, Moscow), which is set to construct a specialized coal terminal of capacity of 10 million tons per year.

Viktor Kalashnikov said that creation of shipyards and dockyards is essential condition for the development of the SEZ. So, the regional government is trying to encourage foreign investors. In particular, since July 2011, the local authorities have been in talks with Hanaro Shipbuilding Co., Ltd. to prompt the South Korean company to buy into Russian Far East Ship Repair Corp. based in the bay of Kuriksha.

Deputy Minister of Transportation Viktor Olersky believes the Sovetskaya Gavan special economic zone has prospects but for its successful development it is urgent to increase the capacity of the railway that could guarantee an acceptable volume of traffic, interesting to investors.

"I think we have now a chancer for some development. With the opening in November of Kuznetsovsky tunnel 20 million tons are added to existing capacity, which will serve as an additional argument for investors... there is some interest, because all the good places have been snapped up, and traffic at the ports is constantly growing," the official said.

He mentioned a major foreign investor, willing to build in this area a terminal – the South Korean steel group Posco, whose representatives have already inquired at the Russian Transportation Ministry about the available possibilities.

The North needs transit cargo

The Russian Ministry of Economic Development doubts the feasibility of the Murmansk region SEZ project as the regional government has done nothing for creation of the appropriate infrastructure. Without the infrastructure, no investor will ever come in on the project.

According to a source in the regional government, the local authorities have their own truth saying the creation of Special Economic Zone would reduce tax payments to the already deficit-ridden regional budget, and at the same time the government will have to invest heavily in the infrastructure development. Murmansk does not transship transit cargoes, and there are no incentives for ordinary exporters / importers, and especially for coastal shipping. It might be of some interest only for fish processing plants. The companies can get tax benefits, including those related to port activity, and without the SEZ schemes.

JSC Murmansk Sea Fishing Port has told PortNews the company is set to come in the Special Economic Zone. However, to date, the company says, the SEZ boundaries have not been yet clearly defined, the land and property assets inventory have not been completed either.
There are currently at least 80 owners of property operating withing the boundaries of projected SEZ, on the territory of Murmansk Sea Fishing Port, of them three operators have already informed the stevedore they would not join the port area, and six owners are still weighing up the project.

Viktor Olersky believes there is no sense in the current environment of the Special Economic Zone regime in Murmansk, but, the situation may change after successful implementation the project of the Murmansk transportation hub. "There will be no advantages in the SEZ, which might be of interest for future stevedores, until the most important thing is done – the construction of access roads and other infrastructure,” the official commented the situation at an icebreaker keel laying at Vyborg Shipyard. “That’s what we’re doing in the framework of the Murmansk Transportation Node project. Now, we’ve been finalizing the designing and I think that next year a big construction is going to start, which will focus primarily on rail access lines. Maybe, the progress in this direction will push investors to become residents of the zone. We'll see in the next few months."

Thus, the projects for creation of industrial special economic zones in Russia turned out to be slightly ahead of time - the benefits itself will encourage no one without the sufficient freight flow, which, in turn, requires available infrastructure and the guaranteed railroads capacity to deliver cargoes to the ports. Meanwhile, the investors will not ever opt in the SEZ projects until there are no such guarantees.

Vitaly Chernov.