28 September 2006, the government Murmansk region held a meeting where discussed issues relating to the investment policy of Murmansk region.

Governor of the Murmansk region Yuri A. Evdokimov, first deputy head of the Department of Economic Development of the Murmansk region Sergey A. Semenov attended the meeting. Victor B. Gorbunov, head of the division of investment policies and development programs made a report on the regional target program «Development of the investment activity in the Murmansk region for 2008-2010» the Department of Economic Development of the Murmansk region. As the «NORTH Industrial magazine» review in details the region's investment policy we offer the presented report.

Despite strong growth in investment in the economy of the Murmansk region and external well being in this matter the Department of Economic Development of the Murmansk region is concerned about the situation of investment activity in the region. Let us turn to the all-Russian figures ranking regions in terms of investment activity or as is now commonly called the investment climate area. 

Investment Climate in the region to assess the two components: investment potential and investment risks. Investment potential - quantitative characteristics taking into account the main macroeconomic indicators, the saturation of production factors (natural resources, labor, fixed assets, infrastructure, etc.), consumer demand and more. Investment potential of the region consists of eight private capacities. Investment risk is a qualitative characteristic, which depends on the political, social, economic, environmental, criminal situation. Its value indicates the probability of loss of investments and income from them.

Currently, Murmansk region (based on data from the analytical center «Expert») is the only secondary position among the subjects of the Russian Federation to the rank of the investment attractiveness (ZV1, which means lower potential - moderate risk), and the trend over the past four years is clearly a negative direction. Worst performance: labor (56-th) and tourism (70-th) capacity, the legislature (52-th) and environmental (79-th) risks. In this series should provide a legislative risk because remaining indicators are objective. The legal regulation of investment activity is one of the major factors affecting the investment activity in the regions. According to various expert estimates the proportion of components in the structure of investment risk in Russia on average is about 30% with an interval of fluctuations of 2-10% to 60-70% in different regions. These are first and foremost the adoption of the laws of Murmansk Region on State Support for investment providing incentives in the implementation of investment projects, engineering and construction of transport infrastructure due to budgetary constraints, etc.

Problems in the investment activities of small and medium-sized businesses differ from similar problems of big business. If the first group with a significant number of ideas and innovations no means and opportunities to develop projects, find investors, the loan funds. The second group is mainly lack of motivation to expand production dominated by a tendency to optimize the costs and administrative barriers impede on harmonization of the withdrawal of land, project, energy, etc.

In addition to the problems of both groups can be a real lack of support from public authorities, which is reflected in the lack of investor preferences in the form of tax incentives, development of site infrastructure facilities, centralized investment funds, guarantees of investment budgets. Lack of mechanisms for regional public policy on information support of investment projects, finding investors, promotion of projects and pre-tests and examinations.

On the other hand it should be noted the low investment activity of big business, the lack of increased production and job creation, low capitalization of the region, comprising the financial and industrial holdings as well as the reorganization of certain towns in the structural units without legal personality. That reduces their autonomy and provides a mechanism for reducing the tax revenues to the regional budget.

Low capitalization companies involves, on the one hand, underestimating the real value of these businesses, prevents the fund from the market IPO and on the other hand reduces the flow of taxes into the budget.

It should be taken into account and changes in the medium term, the structure of investment.

By type of activity the bulk of investment flows to be in the commodity sector and mining and on sources of funding is a replacement of its own investment funds to attract in particular credit and institutional investors. Thus, to the fore the issue for investment loans and guarantees of their return and the place owners and joint owners of the investors come from a range of investment instruments, like stocks, bonds, loans earmarked for further development of infrastructure investment activities in the region.

The objectives of the investment policy of the Murmansk Region Government are:

• attraction of investments in the Murmansk region in the volume needed to ensure the expanded reproduction and growth of GDP; 

• Increase the number of jobs; 

• increasing the capitalization of the Murmansk Region; 

• accelerated upgrade and renovation of fixed assets; 

• implementation of new technologies in the production of goods and services; 

• development of a competitive environment. 

The solution of the problems and the achievement of these goals is possible in the framework of the regional target program «Development of the investment activity in the Murmansk region», which is currently in the coordination of the Government of Murmansk region. Today, there are enough bids from investors and financial instruments for the implementation of investment and innovation projects for small and medium-sized businesses. However, there is no mechanism of competitive selection of projects and a source of co-financing the development of feasibility studies, project preparation with local schemes and exploring.

For these purposes, as part of the regional investment program is proposed to establish an operator in the form of information and expertise center selected by competition, which will form the Bank investment projects, requiring the support of the Government of the Murmansk region. And the budget for next year will provide funds for co-financing development projects and feasibility studies for small and medium-sized businesses.

Prepared in the manner and supported by the Government of Murmansk area projects will be offered to institutional investors or funded through financial instruments such as bonds, securities, etc.

Major investment projects with priority to the development of the region's economy, involving the creation of new jobs and included in the Program of socio-economic development of the Murmansk region will receive tax incentives and informational support to the Government of the Murmansk region.

Developing a regional program «Development of the investment activity in the Murmansk region» should be fully consistent with the Strategy and Program of socio-economic development of the Murmansk region in the medium term, which is also adjusted in accordance with new requirements and conditions.

Using programming task is the main instrument of the Government of Murmansk Region in economic policy with proper identification of problems, planning and resource security. So, as a result of the implementation of socio-economic development of the Murmansk region in 2004-2005, 187 projects were funded from various sources of worth over 17 billion rubles. And a real improvement in the indicators of social conditions in the area is proof correctly assumed targets.

Of course, today the major investment project area, and north-western region of Russia, is the project of development of the Shtokman gas field and build liquefied natural gas in Teriberka. As a result of this project Murmansk region will receive not only jobs and an additional budget revenues but also a source of energy in the form of natural gas, which can replace over time, more expensive fuel oil and coal as well as the necessary momentum to energy development on the Kola Peninsula. In addition, this project will lead the development of port infrastructure and cargo handling.

General scheme of development of the Murmansk transport hub port, which was currently under way in the harmonization of the Russian Federation provided for the development of the port of Murmansk in the following areas:

• upgrading of existing facilities, with a slight increase in the volume of transshipment cargo
• the development of port facilities on the western shore of the Kola Bay.

Here to existing base for the drilling operations to be built:

• a set of trans-shipment of coal to 15 million tons per year (project implementing JSC «Kuzbassrazrezugol» and its management company «Transservice»)

• facility for handling oil and petroleum products to 25 million tons per year (project implementing JSC «Corporation «Synthesis»)

• container terminal for handling general cargo and containers up to 3 million tons per year. 

The main problem of implementing these projects is the construction of the railway station Murmashi-2 to the station Lavna worth about 16 billion rubles.

However, when linking the project participants JSC «Corporation« Sintez Petroleum », JSC «Kuzbassrazrezugol» and holding «Siberian Business Union» is possible to use a concession agreement with RAO «Russian Railways» and funding from the Government of Russia Investment Fund as proposed by Minister of Transport E. Levitin during his visit to Murmansk in October 2005. It is to create public-private partnership for the benefit of all its participants. Thus, the proposed use of investment instruments MEDT Russia.

In addition, after the amendments to the Federal Law «On special economic zones in the Russian Federation» the Murmansk region Government will be presented with a draft of port special economic zone. Which apart from the site «Lavna» implies inclusion of the territory of the Murmansk commercial port and Murmansk fishing port to the construction of container terminal, solving the problems of fish and the introduction of the latest technology for handling cargo at the port of Murmansk to all types of vessels up to 200 thousand tons including a bareboat charter and transit of goods according to transport routes.

Port special economic zone in the port of Murmansk is designed to stimulate the development of ports and port services competitive with other ports in the Barents region.

Given the strategic advantages of the transport component, the geographical position of the Murmansk port and the potential for development, creation of port special economic zones will create prerequisites for the development of the Northern Sea Route as well as to allow reallocation of flows of goods and capital in the interests of the Russian Federation.

The free port of Murmansk should be a key element in the domestic transport system to create a worthy competition ports of Norway and Finland with Russia joining the WTO. It will be an effective joint work example of government and business to develop infrastructure projects and the formation of high-tech image of the Russian economy.

However, despite the large investment projects the Government of the Murmansk region will continue to pay attention to the development of small businesses, which has recently taken a strong position in the economy and the budget of the region. Especially since this is the main base of the economy where jobs are created.

In accordance with the RSC «The development of investment activity in the Murmansk region», it is assumed that small and medium businesses, innovation actors (institutions, centers, laboratories), unable to obtain full package of documents that are members of the investment project will apply competition to develop the project through the regional budget. Criteria for selecting proposals for the competition are the documents submitted with the Strategy and Program of socio-economic development of the Murmansk region as well as create new jobs and wages.

Small and medium enterprises engaged in investment projects in the social-oriented businesses (agriculture, housing and communal services, housing) can rely on subsidies, the reduction of lending rates and guarantees of the regional budget.

The meeting was attended by Olga Shmatova

UNPUBLISHED ARTICLES