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Intangible capital has been used to set up a corporation in the Central Ural

Intangible capital has been used to set up a corporation in the Central Ural

18.10.2010 — Analysis

Last year, investment in the economy of the Sverdlovsk region fell by a third. Governor Aleksandr Misharin set a task for the region: to reverse this negative trend in 2010. And with this goal, last summer the Central Ural Development Corporation was registered, which is supposed to attract potential investors and prepare production sites for them. Experts claim that in the next five years its only Russian investor will be the public budget. But, as this columnist for RusBusinessNews explains, the Sverdlovsk region cannot count on state money. 

Regional authorities claimed that the founders of the joint-stock company at its initial stage would be the government of the Sverdlovsk region and the state corporation Vneshekonombank, which would together contribute a total of 7.5 billion rubles to its charter capital. Two-thirds of this sum is supposed to come from the regional budget, which meanwhile has not allocated funds to cover these costs. Therefore, experts suggest it is unlikely the corporation will ever get any real cash from the region, and it will be forced to make do with blocks of shares from a few companies. Some of those companies have already been named: the State Unitary Enterprise Gazovye Seti and the public corporation Russky Magny. In the future, there are plans to increase the corporation's charter capital to 20 billion rubles by issuing additional shares.

The organizers intend the corporation to develop business projects in the agriculture, forestry, and construction industries, as well as to build technology parks and prepare production sites. The finished business will be sold to investors. The Ministry of Economy for the Sverdlovsk region suggests that the costs to set up a specific project should not exceed 2% of its total value. Money received by the corporation will be invested in the preparation of new business projects. Officials hope by this method to attract up to a trillion rubles to the region.

According to Sergei Filippov, the director of the Central Ural Development Corporation, a provisional list of attractive investment projects is still being drawn up. But it is certain that the corporation will take part in the construction of the 200,000-sq. meter Ural Exhibition Center. This facility, which will be similar to the Messe Stuttgart trade fair center, is being designed by specialists from the German firm, Wulf & Partner. The first phase of the center, at a cost of 2.5 billion rubles, should be ready by May of 2011.

The public budget cannot allocate this type of money, and there are no private investors to be found for love or money. Experts are highly cautious about the plans for the development corporation. Mikhail Khorkov, the head of the research division of the Ural Chamber of Real Estate, thinks it is unrealistic to expect the exhibition center to be built by June 1 of next year. He argues there isn't a single player in Ekaterinburg with enough money to make this happen. Only a major developer or a private company in conjunction with the state could become an investor. In any case, the investor's participation would depend on the project's attractiveness. "In order to answer that question," says Mikhail Khorkov, "you'd need to conduct a detailed study and so far I haven't seen one."

Aleksandr Metsger, the investment director of CJSC Upravlyayushchaya Kompaniya, thinks the state will be the corporation's only investor in the next five years, anyway. "Private business won't come along until it's convinced that the new corporation is functional. It still has to prove that it can identify and implement finished projects. But what we often see happening is that the money gets spent and reports are written up, but there is still no result in terms of new businesses."

Realistically, only Vneshekonombank would be in a position to allocate real cash to the Central Ural Development Corporation. But the bank's press office told RusBusinessNews, "Vneshekonombank is not considering any contributions to the corporation's charter capital at this time."

Experts are convinced that investment in the Russian economy will steadily decline in the next few years. The federal government has announced an increase in the national debt from 11% to 20% of the gross domestic product, and private business is too indebted to take on any new projects. The changing situation has already been felt in the regions. Not only the Central Ural Development Corporation, but other projects as well cannot find financing.

Valery Turlaev, the deputy minister of industry for the Sverdlovsk region, told RusBusinessNews that the regional government is currently seeking a loan for the Russky Magny company. A construction project for a magnesium plant is being financed only by the Swiss Minmet Financing Company, and not at the level that the authorities would like. They so far have not been able to find a strategic investor.

Experts are not surprised. So far officials have only been busy composing programs to increase the investment appeal of the Sverdlovsk region, and, of course, attracting investors with these programs is impossible. In 2009, investment decreased by 35%. The government needs to remove the administrative barriers that it has created, retrain officials, and change the psychology of private business owners, who prefer to stick close to state power when making deals.

Vladimir Terletsky

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