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Experts: Tax benefits in Arctic regions are attractive for big companies

TASS
February 19/ 08:14

Moscow. New tax benefits for investors in the Arctic are aimed mostly at big mining companies. Benefits for new investors will favor development of small and medium businesses in the Arctic and improvement of infrastructures, experts and representatives of the Arctic regions told TASS.

Earlier, Russian legislators supported amendments to the Tax Code, introducing benefits for investors in new projects in the Arctic. Quite many preferences would be offered to mining companies. The suggested changes offer a residential status to Arctic businesses, investing at least 10 million rubles ($156,000) in new projects. The status means certain tax and non-tax preferences, including optional free customs zones, easier formalities to obtain land, limited inspections, and protection at court.
Big investments

The amendments offer to lower to 5% the tax on extraction of mineral resources for 15 years for offshore production of oil, and to lower to 0% the tax for LNG and gas chemistry for 12 years, as well as for new East Arctic oil provinces from the 13th to the 17th year. "The bill is aimed at big taxpayers. (…) The measures will surely attract investments in the Arctic zone, and first of all in the mining sector," Yakutia’s Ministers of Economy Maya Danilova told TASS.

She mentioned a few projects in the region, which could be interesting for major investors: development of the Ruchey Tirekhtyakh deposit, production of tin concentrate for further processing, a project to develop the world's largest deposit of rare earth metals, Tomtor in the Olenek district, where estimated recoverable resources make 154 million tons of ore, and some others.
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Many regions say their further economic growth is impossible without big projects. For example, Vorkuta (the Komi Region) focuses on new coal production facilities. "This way, the locals will have jobs, we shall attract new qualified staff, will have bigger tax payments, develop new fields, will promote public-private partnership," the city’s official Svetlana Chicherina said.
Big businesses make the first step, small and medium - follow suit

The surveyed experts agree small and medium businesses will follow big companies, which will be attracted to the Arctic by the new benefits. "In the climate conditions and the narrow market in the North it very complicated to develop small businesses," an expert of the Business Russia non-governmental organization, Viktor Zubarev, told TASS. "Big corporates are locomotives there - any big project is a trigger for many, first of all service, small companies."

He mentioned a coal-production project, which includes building a town for workers, electricity power plants, port facilities, and an airport, which can serve long-haul aircraft. "A few hundred people will live there, thus attracting small businesses: suppliers of local food products, or service companies," he said.

Deputy speaker of the Nenets Autonomous Region’s legislative body, Matvey Chuprov, stressed the bill lacked information on communities of the North’s low-numbered indigenous peoples, "that are not commercial organizations, but they work in traditional sectors, and the minimum of 10 million rubles could be affordable, thus the communities could enjoy the benefits."
The importance of infrastructures

Benefits only cannot attract investors to the Arctic, the Murmansk Region’s Minister of Economic Development Tatyana Russkova told TASS.

"The biggest problem which hinders the Arctic’s development is the lacking infrastructure," expert Sergei Khrushchev said.
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Karelia’s legislator Maxim Vorobyov shares this opinion. "The problem of bad roads, too few passengers on local railroads and a deficit of aviation routes are the problems, which Karelia faces," he said. "Support for road construction and tax benefits for accompanying production of raw materials could attract new businesses to the North."

Investors in the Arctic regions will have to abide by strict ecological standards, Business Russia’s expert said. "Any project in the Arctic should mind the ecology balance," he continued. "Thus, businesses may use there only up-to-date technologies with the minimal impact on the environment."

Another problem investors may face is a lack of land, the Murmansk Region’s minister said. "I would say the biggest problem which stops investors is a limited number of acceptable plots of land. Most plots in the region are taken by the Defense Ministry, by forests or they are of unacceptable classification (agricultural lands)," she told TASS.

Promising sectors

At the same time, the Arctic benefits could favor development of promising sectors, which have not received much support. "In transport, mining and its processing, in processing of oil and gas, in shipbuilding and services, in the energy and tourism," the Murmansk Region’s representative said.

The Business Russia organization’s expert also sees certain potential in development of the Arctic tourism. "Presently, only a few can afford it," he said. "In order to attract more tourists to the North’s not only big cities, the regions should work on infrastructures. Those are not just hotels or entertainment programs, but first of all air routes, high-quality services and reasonable pricing. As far as I know, the Arctic regions have been working in that direction: they apply for pilot programs to modernize energy systems or receive grants to develop tourism projects.".

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