22 April 2004 03:22
A Siberian Governor Hunts Big Money
KRASNOYARSK -- He cozies up to big business, dreams up huge state-sponsored projects and blames small business for
encouraging corruption among government officials.
For all that, Alexander Khloponin, the former head of Norilsk Nickel and governor of the sprawling Krasnoyarsk region
in Western Siberia, is also seen as a young economic reformer, liberalizing utility tariffs and wooing investment.
For those hoping to do business in the regions, Krasnoyarsk presents a cross-section of opportunities and problems.
Like Russia as a whole, it is politically stable -- but that stability hinges on just one man. And though it is rich in
resources, that wealth has been "captured" by entrenched Russian big business.
At a lavish investment forum in the regional capital last weekend, Khloponin's government highlighted its
geographical and geological assets, which, taken on their own, do little to create an investor-friendly environment.
For a region 10 times bigger than Britain and spanning a seventh of Russia, it is only natural to believe that
investors are interested first of all in resources. The Krasnoyarsk region contains almost all of Russia's platinum
reserves, two-thirds of its nickel deposits, a third of its copper and a quarter of its coal. Norilsk Nickel, the
world's No. 1 producer of platinum and palladium, has its base here. The rushing Yenisei River powers several
electricity stations.
But the region's superlative potential has led the government to concentrate on large-scale projects whose
business sense is not always clear.
Khloponin, 39, talks of making the capital's Yemelyanovo Airport an international hub, even though
Krasnoyarsk's much larger neighbor Novosibirsk has been working on the same idea for years.
The region already produces a surplus of electricity, but expecting increased demand -- as has happened in China --
the government is betting on more stations. It is pushing to finish construction on the Boguchansk hydroelectric plant,
a project that was all but abandoned during Soviet times and will cost up to $2 billion to complete.
The Boguchansk project has been stalled due to disagreements between its controlling owner Unified Energy Systems and
blocking shareholder Basic Element.
Khloponin's key idea is to create a so-called "Development Corporation" -- a pool of public and
private money aimed at stimulating investments into the region's infrastructure.
The government plans to allocate $35 million for the charter capital, with another $70 million to $80 million coming
from private investors. The board would then invite companies to apply for tenders.
An independent managing company would choose the projects, though the regional authorities, in their presentations at
the investment forum, seemed suspiciously confident they would be able to set the priorities and "determine the
main goals of the corporation."
Companies that have reportedly shown interest in joining the corporation include Basic Element, Norilsk Nickel, MDM,
UES and Vneshtorgbank.
Big Boys Gather
All this points to a trend in the governor's economic thinking. The "governor oligarch," as the Moscow
press has dubbed him, has drawn on his roots at Norilsk Nickel to attract other large financial-industrial holdings,
apparently with some success. Every holding operating in the region -- with the exception of Yukos -- has promised to
pay taxes in the region instead of funneling them out to domestic tax havens.
But the region has a long way to go in luring smaller guys. According to Khloponin himself, it is No. 63 among the 89
regions by the ratio of small businesses to population. A World Bank study of Russian economic concentration published
earlier this month found that Krasnoyarsk is "captured" by a "federal financial-industrial group,"
which implies Oleg Deripaska's Basic Element because of its heavy presence in the region.
The government does not appear to be addressing the issue; at the investment forum, small business was hardly
mentioned in panel discussions.
A week before the conference, Khloponin himself said in an interview with Expert magazine that small businesses
"live in the shadow economy not because the administration somehow stifles them, but because they are used to it.
.. They keep singing the same tune about bureaucrats and corruption. And who encourages this corruption? The small and
medium-sized businesses themselves."
But some experts question whether the Development Corporation might not itself feed corruption.
In an environment with weak institutions, like Russia, public-private partnerships of the sort Khloponin is proposing
"end up as hotbeds of corruption and are not effective in attracting real investment," said Christof Rhl,
chief economist at the World Bank's Moscow office.
"If you have the public sector distributing private sector money ... you end up having the same people getting
the procurements as the ones who give them out in the first place."
Yury Korgunyuk, an analyst at the Indem think tank, said that "considering [Russia's] level of corruption,
it will be yet another trough, an excuse to steal."
"Only big players can compete for budget funds," he added. "A 'normal' business will always
find itself on the margins."
Siberian Twilight
Not everybody agrees with this grim assessment.
Dmitry Zhuk, a vice president of Renaissance Capital Asset Management who attended the investment forum, said the
corporation is worth a try.
Nikolai Petrov, an expert on the regions at the Carnegie Moscow Center, pointed out that Khloponin possesses the
management skills to pull it off.
Petrov also said the regional authorities' concern with infrastructure is justified. Much of the region has no
paved roads. For industries like timber, transport costs can suck up all profitability.
Even his critics say that Khloponin has the region's interest in mind. Fixed capital investments grew 16.4
percent last year, against 12.9 percent in Russia as a whole; average monthly wages rose 17.8 percent to 7,270 rubles
($250), against just under 6,000 rubles for the country. Krasnoyarsk is among Russia's top dozen regions in income
per capita.
On a local level, the authorities have pursued liberalization, raising utility tariffs and forcing 90 percent of
households to pay up in 2003, against 40 percent in previous years. That has raised utility companies' revenue 58
percent last year and made the sector more attractive to investment. To aid the poor, the government spent 1.7 billion
rubles on targeted subsidies to 310,000 families.
The region has also passed a raft of investment laws, including one that gives businesses tax breaks in proportion to
the amount invested.
The capital's downtown, with its share of cafes and clubs, is booming in comparison to many other provincial
towns of similar size. One visitor said Krasnoyarsk was "far grayer" when he came six years ago.
Even the region's 3 million inhabitants seem freer.
During the March presidential elections, Krasnoyarsk had the lowest turnout of all 89 regions -- 51 percent -- and
the fourth-lowest vote for President Vladimir Putin.
At a Khloponin-sponsored dinner during the investment forum, a comic openly lampooned the president, imitating the
president's soft voice and characteristic pauses: "The final count gave me 100 percent of your vote. We are
currently working on lowering that to a more acceptable 105 percent."
Khloponin, whose term expires in 2007, a year before the next presidential election, does not hide his ambitions. The
United Russia member has said in the past that he sees his future not in the tundra but in Moscow.
In the guessing game of who would be named prime minister in February, Khloponin's name was mentioned by some
observers, while others said he is too independent for Putin.
Beyond the Soil
One reason people in Krasnoyarsk -- and Khloponin -- can afford to feel free is that the region is a net donor to the
federal budget and is not dependent on handouts from Moscow.
Nothing gets the governor as worked up as talking about "the extra 8 billion rubles in taxes the federal budget
ate up instead of allowing us to build up infrastructure."
Khloponin has said he wants the federal government to designate special "growth regions" as recognized
"locomotives" of the economy and to let them keep much of their revenues for reinvestment.
But even if his proposal succeeded, Khloponin would have a hard time showing that Krasnoyarsk is a
"locomotive," experts said.
"The fact that nickel deposits just happen to be there does not mean that Krasnoyarsk is an ideal place for
regional development," Petrov said.
The regions that would get any privileges would be "regions near the capital, where there are brains, people and
social infrastructures -- not regions with huge natural resources."
Businessmen like Deripaska complained of a lack of human resources in Siberia, noting that "for most big
projects we have to bring in managers from other regions like Moscow."
Renaissance's Zhuk estimates that for every nine portfolio investors at the conference, he saw only one direct
investor who was ready to roll up his sleeves and start a new project.
One of a handful that did show up was a U.S. Energy Department subsidized partnership of American defense firm
Raytheon and U.S. construction company Fluor.
Robert Jagger, director of threat reduction operations at Raytheon, said the venture is building a power plant in
Sosnovoborsk to replace an existing reactor that produced weapons-grade plutonium.
Khloponin will now have to ensure that foreign direct investment does not just pour in for threat reduction.
.TX-..**********************************************
[The Moscow Times] |
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