Back to analytics

Newsletter for the South Korea businesses and investors (Issue 3, 2014)

New territories for advanced development proposed for the Russian Far East.

The Ministry for the Development of the Russian Far East has presented plans to create new development zones in the region. The draft law On Priority Socio-economic Development Zones and Other Measures of State Support for Far Eastern Regions, published on the Ministry’s legal information portal at the beginning of April 2014, outlines the possibility creating these special zones in nine constituent entities of the Russian Federation, composing the Far Eastern Federal District:

  • Sakha Republic
  • Primorsky Krai
  • Khabarovsk Krai
  • Kamchatka Krai
  • Amur Oblast
  • Magadan Oblast
  • Sakhalin Oblast
  • Jewish Autonomous Oblast
  • Chukotka Autonomous Okrug

The Ministry's approach in designating Priority Socio-economic Development Zones (PSeDZ) is to create aggregations of a variety of enterprises, including a wide range of providers of equipment, components, and professional and maintenance services throughout Russia.

Under the proposed legislation, the establishment of a PSeDZ will be financed at expense of the federal budget, regional budgets of the Far East, and local budgets.

A special legal regime will be applied to business activities in PSeDZs, such as:

  • a special land use regime
  • preferential lease fees
  • tax benefits and insurance allowances
  • a special state control (surveillance) regime, as well as control on municipal level
  • infrastructure connections on preferential terms
  • public services delivery
  • the application of customs procedure under a Free Customs Zone
  • the application of technical and sanitary regulations of leading OECD countries
  • the possibility to employ qualified foreign personnel under accelerated and preferential procedures

If this draft law is enacted, the PSeDZ residents will enjoy the incentives on income tax, property tax, and VAT, as well as insurance premiums reduced to 7.6%.

An explanatory note to the draft law points out the main differences between a PSeDZ and special economic zones (SEZs), which are established in accordance with the Federal Law On Special Economic Zones in the Russian Federation:

  1. The draft law on PSeDZs provides for an unprecedented set of legal and fiscal incentives and preferences, and is aimed especially at solving issues affecting the priority socio-economic development of Russia’s Far Eastern regions, such as specific nature of their economic-geographic conditions, socio-economic development, and international competition in the Asian-Pacific markets.
  2. The draft law applies only to the Russian Far East.
  3. The procedures to establish a PSeDZ are significantly different from those of an SEZ.
  4. The special legal regimes for business activities in a PSeDZ are intended to create a business-oriented, barrier-free atmosphere for its residents, including a wide range of financial incentives, the capacity to apply other technical and sanitation-and-epidemical regulations to support exports, and incentives to attract key personnel to the region.
  5. Unlike the SEZ model, the PSeDZ includes zoning to ensure the full spectrum of its life-sustaining activity in an integrated system, including, for example, entertainment zones for recreation and tourism, residential zones, and industrial zones.
  6. The draft law provides a more comprehensive developmental approach, compared to that of the SEZ, and features various measures of state support for PSeDZ residents and to the development of the Russian Far East generally.

Industrial zone to be established in Amur Oblast

In April 2014, Alexey Ulyukaev, the Minister of Economic Development of Russia, and Oleg Kozhmyako, the Governor of Amur Oblast, announced the decision to designate a Special Economic Zone (SEZ) in the vicinity of the prospective highway bridge across Amur River in Blagoveshchensk.

Plans include a high-tech industrial complex with developed transport and logistics infrastructure on the site, which will be focused on the advanced conversion of agricultural products and timber for export. Semi-knockdown assembly facilities and innovative manufacturing productions also will be developed on the premises.

The SEZ will have tax incentives and free custom preferences: exemptions from VAT, customs, income tax, property and transport taxes, as well as from infrastructure connecting payments.

China Development Bank to invest in projects in the Russian Far East

Recent conversations between Alexander Galushka, Minister for Development of the Russian Far East, and Zhijie Zeng, President of the China Development Bank, confirmed the readiness of the China Development Bank to invest US$ 5 billion in projects in the Russian Far East.

These investment priorities were agreed:

  • Priority Socio-economic Development Zones in Russian Far East
  • infrastructure development
  • implementation of long-term investment projects in the Russian Far East

During the meeting of the co-chairs of the Russian-Chinese committee for preparation of regular meetings between the Dmitry Rogozin, Deputy Prime Minister of Russia, and Wang Yang, Vice Premier of China, on 17-18 April 2014, the Chinese party was presented with a set of investment initiatives by the Ministry for the Development of the Russian Far East, such as draft provisions on the designation and regulation of PSeDZs in the Russian Far East.

The representatives of People's Republic of China showed great interest in infrastructure investments in the PSeDZs. The parties agreed to hold the detailed discussion in a roundtable meeting with Chinese investors at the end of June 2014 during the Russian-Chinese Expo in Harbin.

Deputy Prime Minister orders acceleration of Vladivostok auto parts SEZ

Russian Deputy Prime Minister Yuri Trutnev has instructed the relevant ministries to accelerate the designation of a Special Economic Zone in Vladivostok for automotive components production.

The new deadline is 27 May 2014 (moved from 15 June 2014) for the Ministry of Economic Development, the Primorsky Krai Administration, and other specialized ministries to complete the required approval process for the industrial zone where Sollers – Far East, the holding company of newly established development zone, will be operating.

According to Vladimir Miklushevsky, Governor of Primorsky Krai, the creation of the SEZ will help to increase vehicle assembly up to 30%, and also to improve the export of auto parts.

The total financing package is estimated at a total of RUB 27 billion: RUB 20.5 billion from private investors, RUB 6.5 billion from the federal budget, and RUB 300 million from the regional budget.

South Korean investors to invest US$ 17.6 billion in Buryatia "Smart City" construction

On 25 April 2014, the Government of Republic of Buryatia and Korean company KL FAS Ltd. signed the Memorandum of Understanding on investments in a residential park construction project for 10 thousand apartments and necessary infrastructure.

The project will construct the 30-hectare "Smart City," which will feature high technologies and advanced social infrastructure (such as educational and medical facilities, administrative agencies, entertainment centers, and parking zones) to be build over the next ten years.

The industrial site over 4 km of Spirzavodsk track was allotted for the construction of a residential complex. Rukost LLC was founded to act as the project operator and to receive funds for the construction.

Ministry of Agriculture in Stavropol Krai to extend government support for reclamation complex and improvement of irrigation infrastructure

In April 2014, Alexander Martychev, Minister of Agriculture of Stavropol Krai, welcomed a delegation from South Korea for talks regarding cooperation in reclamation and irrigation.

In Stavropol, several joint projects are currently being executed: "Development of intensive plant production and soy processing in Stavropol Krai (Avangard)" and " Development of intensive plant production in Stavropol Krai (IrriCo)". For purposes of further implementation, state support for the Stavropol Krai program "Agriculture Development", was approved by Decree of the Stavropol Krai Government N 536-p, dated 28 December 2012.

Kemerovo Oblast Administration promotes cooperation with South Korean investors

In April 2014, the Governor of Kemerovo Oblast and Hong Seung Pyo, President of the Korean natural resources development company KOEURA, signed the agreement for US$ 200 million investments in development of three Kuzbas gold fields.

During this event, the plans for the cooperative establishment of the Center for Resource Development Promotion of Siberia and the Far East were publicized, as well as strategies to attract investments by South Korean companies. For instance, Kemerovo Oblast intends to engage South Korean companies of various industry sectors, such as Hyundai Corporation, POSCO, Daewoo International and electric power companies, which operate power grid projects on the Korean Peninsula, as partners in joint projects.