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Focus on South Korea (Issue 3, 2017)

Ministry for the Development of the Russian Far East reports 2016 results

On 18 May 2017, at its board meeting in Moscow, the Ministry for the Development of the Russian Far East presented its report On the Results of the Activities of the Ministry for the Development of the Russian Far East in 2016 and Tasks for 2017. The report described the effectiveness of the Advanced Special Economic Zones (ASEZs) in the Far East, as well as state support of significant projects to attract investors to the Free Port of Vladivostok.

The key results of the Ministry's work in 2016 are:

  • RUB 1.67 trillion of new investments in the Far East;
  • a more than a 500% increase in the number of investment projects, from 117 to 605;
  • 31 new enterprises backed by RUB 14 billion in investments and creating 1,400 new jobs;
  • a declarative procedure for Far Eastern investors outside of the ASEZs and the Free Port of Vladivostok to obtaining tax benefits for investments of more than RUB 50 million over three years or more than RUB 500 million over five years; and
  •  the promotion of development of the Far East in 20 of the 27 priority state programs of the Russian Federation, supported by RUB 642.2 billion in funding in 2017-2030 and RUB 691.6 billion in state funding of five development programs by state-owned companies.

The main goals for 2017 include:

  • Use new development tools to attract more than RUB 1.5 trillion of investment in the Russian Far East.
  • Introduce 85 new enterprises in the Far East, with investments exceeding RUB 110 billion.
  • Enact new federal laws to accelerate the development of the Far Eastern Federal District and to provide preferential treatment to residents of ASEZs and Free Port of Vladivostok.

The proposed legislation would:

  • Apply a zero-percent value added tax on air transportation services to the Far East.
  • Expand the terms of the preferential tax period for income tax for ASEZ residents implementing large investment projects.
  • Introduce a special single-tax regime for residents of the Free Port of Vladivostok.
  • Establish a new procedure for granting land to residents of the Free Port of Vladivostok.
  • Compensate investors for tax liability from projects to create infrastructure.

Far Eastern development has also been supported by a special system of regional development institutions, such as the Far East Development Corporation, the Far East Agency for Human Capital Development, and Far East Investment and Export Agency. 

The Far East Investment and Export Agency searches for and attracts investors to the Far East by offering them new opportunities for development. Currently, the Agency is preparing more than RUB 1 trillion in prospective investment projects. For example:

  • a joint venture with the International Bank of Japan, and the Development Fund of the Far East, which will begin work in Vladivostok this summer to attract Japanese investors;
  • a permanent representative office in China to expand the portfolio of projects involving Chinese capital from US$ 3 billion to US$ 6 billion; and
  • similar joint investment initiatives with the Republic of Korea.

South Korea and Russia plan to expand Korean investment in the Russian Far East

During their meeting in Moscow on 23 May 2017, Song Yong Gil, the Special Envoy of the President of the Republic of Korea, and Alexander Galushka, the Minister for the Development of the Russian Far East, discussed the special contributions by the Republic of Korea to the development of the Far East region. Korean investors are currently implementing six projects in the Far East, with a total investment of about US$ 70 million, in priority areas such as fishing, aquaculture, fishing fleet shipbuilding, and agriculture.

Song Yong Gil said that the new President of the Republic of Korea, Moon Jae-In, has a special interest in economic cooperation with Russia and believes that a strategic partnership must be established between the two countries.

Mr. Song also announced that Korean investors intend to invest an estimated RUB 11 billion in the construction of the Kamchatka Regional Hospital. This would be the first time that Korea has participated in a health care project in the Russian Far East.

Minister Galushka said that a plan of priority steps for the development of Russian-Korean investment cooperation in the Far East had already been prepared. This will support Korean participation in a portfolio of projects in agriculture and port infrastructure, totaling US$ 7.5 billion, announced in April 2017.

On 23 June 2017, the Eastern Economic Forum will conduct its “exit session” dedicated to bilateral investment projects in the Far East. The Korea International Trade Association will participate in the event. This will be followed, on 26 June 2017, by the 11th meeting of the Russian-Korean Committee on the Far East and Siberia, which was established within the framework of the Russian-Korean Joint Commission for Economic and Scientific and Technical Cooperation. Both events will take place in Seoul.

President Putin meets with the Special Envoy of the President of the Republic of Korea

On 24 May 2017, President Vladimir Putin met with the Special Envoy of the President of the Republic of Korea, Song Yong Gil, in the Kremlin.

They discussed the details of upcoming visit by the new Korean president, Moon Jae-In, to Russia, and the principles and goals of President Moon’s new administration.

President Putin confirmed that he is ready to work together with South Korea to strengthen and expand bilateral cooperation in different areas and to coordinate efforts between the two countries to address current issues on the international agenda.

Investment projects to be selected for the Third Eastern Economic Forum

The Third Eastern Economic Forum will take place on 6-7 September 2017 in Vladivostok, It will be a major platform for international communication about the priority development of the Russian Far East and its integration with the economy of the Asia-Pacific region.

The event will highlight promising Russian and foreign investment projects. Selection of these projects is now underway, with applications being accepted until 1 July 2017; and the best of them to be announced five days later.

Priority will be given to the best-planned projects of great regional importance that will promote socio-economic development, and that also have the support of federal, regional, and municipal authorities. The selection will also consider the percentage of funds already committed to each project, in relation to the entire volume of investments.

Information about the selected projects will be available to the Forum participants and through the federal mass media.

Single-tax law proposed for residents of the Free Port of Vladivostok

The Government of the Russian Federation is currently discussing a bill, proposed by the Ministry for the Development of the Russian Far East, to introduce a single tax for residents of the Free Port of Vladivostok. This measure is aimed at increasing the investment attractiveness in the region.

The proposed legislation would amend Part One and Part Two of the Tax Code of the Russian Federation. The drafters propose to combine the corporate property tax and corporate profit tax into a single tax for investors who carry out large investment projects in high-priority high-tech sectors in the Far East. The minimum volume of capital investments would be at least RUB 500 million, which must be realized within ten years from the introduction of the single tax regime. To qualify for the single-tax benefits, at least 50% of the products delivered by the investor should be for export; and the income from the main activity of the project should be at least 70% of the total.

Two new investment funds for the Russian Far East to begin in 2017

During a recent meeting, Plenipotentiary Representative of the President in the Far Eastern Federal District, Yury Trutnev, and the Chairman of the Board of Directors of Metropoli Holdings, Keng Lam Ang, discussed plans for two new direct investment funds for the Russian Far East, to support projects in mining, infrastructure, real estate, and tourism.

Each fund will have up to US$ $ 10 billion, and will operate for about ten years. The Asian Consortium, headed by Metropoli Holdings, is expected to attract 80% to 95% of the capital. The Far East Development Fund, as a special partner, will prepare a portfolio of potential projects.

Keng Lam Ang noted that investments in the Russian Far East are a long-term strategic priority for Asian investors, and the participation of a state institution such as the Far East Development Fund in implementing the projects creates additional comfort for foreign investors.

Government Resolution amends the selection methodology for the Far East and the Baikal region

Government Resolution No. 503 of 28 April 2017, On Amendments to the Methodology for Selection of Investment Projects to be Implemented in the Territories of the Far East and the Baikal Region, established an additional criterion for the selection of investment projects. Now the amount of state support, both in the form of budget investments and in the form of subsidies, should not exceed 30% of the declared private investments for the implementation of the project.

The updated methodology also contains provisions by which the Government of Russia sets the maximum amount of state support to the investor, and introduces monitoring of the implementation of investment projects.
Experts believe that these changes will make the selection of investment projects more efficient.

Russian investment in the Asian Energy Ring projected to be US$ 30 billion

On 18 April 2017, an international conference on Integration of Energy Systems in the Euro-Asian area: the Prospects for the Development of the Global Energy Association and the Creation of the Economic Belt of the Silk Road took place in Moscow. At the conference the First Deputy Minister for the Development of the Russian Far East, Alexander Osipov, said that the volume of investment in the creation of the Russian part of the Asian Energy Ring with Japan, Korea, and China is estimated at US$ 30 billion. At the same time, according to experts, the annual revenue of the investing companies could amount to between US$ 3 billion and US$ 7 billion.

In September 2016, during the Second Eastern Economic Forum, President Vladimir Putin announced Russian support for an energy super ring, and proposed an intergovernmental working group to implement this project more rapidly and dynamically. He also stressed that Russia is ready to give partners a competitive long-term price for electricity in the Asia-Pacific region.

First Korean Investor Day scheduled for 28 June 2017

The first Korean Investor Day, organized by Far East Investment and Export Agency, will be held in Khabarovsk on 28 June 2017. This is expected to be an annual event.

The program includes a series of negotiations with representatives of leading South Korean companies on the implementation of major investment projects in the Far East.

According to the Minister for the Development of the Russian Far East, Alexander Galushka, Korean Investor Day will address the problems of foreign investors working in the Far East. He also said that the event will be visited by Plenipotentiary Representative of the President of Russia in the Far East, Yuri Trutnev.

Korean company to participate in a hotel project in Kamchatka

Representatives of the Korean company Dongha Co. Ltd, recently visited Kamchatka to meet with Vladimir Ilyukhin, the Governor of the Kamchatka Territory. They announced that their company would participate in the construction of a hotel complex in Petropavlovsk-Kamchatsky. The construction of this complex is under the investment and development regime of the Free Port of Vladivostok.

The hotel complex will be the largest in the territory, occupying 4,000 square meters in the central part of the capital. According to the Korean partners, the Kamchatka region has unique tourist opportunities, with growing numbers of tourists from Japan, China, and Korea every year.

The company has been cooperating with the region for about 15 years, with positive experiences in the joint implementation of projects in the fishing industry.
Currently, there are nine companies that are official residents of the Free Port of Vladivostok and active in Kamchatka, with investment projects totaling RUB 3.2 billion.