News review of the events on the NSR
#1 February 2020

1. Investors receive preferences in the Arctic

The Russian government has approved a legislative package on the development of the Arctic, which provides benefits for investment projects in the Arctic zone.

Russian Prime Minister Mikhail Mishustin underlined, the bills should create favorable conditions for attracting investments into the Arctic that are necessary for developing unique fields and, accordingly, for accelerating the development of the Northern Sea Route and creating new jobs.

According to the document, any company or entrepreneur will be able to obtain resident status, giving a number of tax benefits and non-tax preferences if they are:

– registered in the Arctic regions;

– ready to implement a new investment project;

– ready to launch a new type of economic activity;

– invest at least 10 million rubles in any territory of the Arctic zone.

An extension of the preferential tax regime is provided to stimulate oil production on the shelf: the rate will be 5% and will last 15 years.

As a result, according to the Ministry of Energy, at least 5 projects with investments of 1.77 trillion rubles will be launched.

The key success factor for existing projects in the Arctic for the LNG and gas-chemical projects that do not yet exist is the zero rate of tax on the mineral extraction for 12 years.

Therefore, it is proposed to extend such a benefit to the entire Arctic. According to the Ministry of Energy, these preferences will allow launching 3 projects with investments of 2.9 trillion rubles. To accelerate the development of oil and gas production in the eastern Arctic, (the return on these investments is now below zero), it is planned to create a new, fifth category of production fields in view of the windfall profits tax. This implies a mineral extraction tax of 0% for the first 12 years, and a gradual full-time mineral extraction tax will be achieved from the 13th year to the 17th year. As a result, it will be possible to launch 3 new large oil fields with investments of about 10 trillion rubles.

But the draft of bills provides support not only for mining projects. In particular, their adoption will support the construction of ports, industrial enterprises and so on. A zero income tax rate for 10 years is provided for such projects.

In addition, the drafts provide for the reduction to zero of VAT on services for the sea transportation of export goods and their icebreaking support, which should stimulate the use and development of the Northern Sea Route.

A number of non-tax preferences are also provided. Among them is the possibility of creating residents in certain sections by analogy with the territories of advanced development and the free port of Vladivostok, a free customs zone and a 24-hours operation of checkpoints.

It is also about providing investors with land in a simplified manner, reducing the time and limiting checks on investors, protecting their interests in court.

2. New transport corridor in the Arctic

The Russian government is considering the idea of creating a new waterway in the Arctic wider than the Northern Sea Route. It is assumed that the concept of the Northern Sea Transport Corridor will be introduced.

The new waterway, as planned, should cover almost all ports of the Russian North, unlike the Northern Sea Route. The NSR water area includes a zone strictly from the Kara Gate to Cape Dezhnev in the Bering Strait, that is why Arkhangelsk and Murmansk are not included in the list of ports of the Northern Sea Route, however they are located in the Russian Arctic zone and are the main transshipment points.

Creation of the Northern Sea Transport Corridor can be aimed at solving large-scale tasks. In particular, it is about creating a single instrument of control over the entire Arctic coast of Russia. This applies to the integrated work on the infrastructure of the Arctic ports, the development of an icebreaker fleet for the entire Arctic water area, and the creation of a network of railways and highways in all regions of the Russian Arctic and much more.

The choice of only one part of the territory and work only with it leads to disunity of actions and, as a consequence, to a decrease in efficiency. Moreover, Rosatom plans to develop the Arctic container line and arrange transit traffic, and the integrated development of the northern coast of Russia is vital, including the creation of port hubs, so that all cargo does not pass by Russia.

3. The turning point for Northern Sea Route: large transport and logistics hub in Sakhalin

The authorities of the Sakhalin Region of Russia signed a cooperation agreement with the logistics holding “Delo” and the Northern Sea Route infrastructure operator “Atomenergoprom”.

It refers to the creation of a large transport and logistics hub in the region, designed to become a turning point for the main Russian Arctic waterway.

The main idea of the project is the management of cargo flows coming along the NSR and intended for the countries of the Asia-Pacific region. In order for Sakhalin to be able to accept large-capacity sea vessels from Northern Europe, it is necessary to redesign thoroughly the island port infrastructure.

As part of the agreement, it is planned to carry out a complex of dredging works in the Korsakov port, to extend a sea pier, and to build modern cargo and refrigeration terminals in the port. The possibility of creating a modern transshipment port in the Makarovskiy district is also being considered.

In addition, in order to create a transport and logistics hub in Sakhalin, it is necessary that the region be included in the feasibility study for the development of the Northern Sea Route, calculated before 2025.

In this case, it will become possible to build a large transport hub for transshipment millions tons of cargo. This means that the remote region of Russia will receive large investments, jobs, federal benefits and tax revenues to its budget.

The Government of the Sakhalin region is in necessary negotiations with the Federal Ministry for the Development of the Russian Far East.

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