Cablegate: Eur/Rus Director Kyle Scott Visit to Vladivostok

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1. During his visit to Vladivostok on October 2, Primorye
Region authorities gave EUR/RUS Director Kyle Scott an economic
overview of the region, pointing out: the continuous youth
out-migration; complicated transportation routes between the
RFE, Primorye in particular, and the USA; and "non-favorable
U.S. visa regulations" for non-Vladivostok residents. Scott
also discussed the impact that the 2012 Asia-Pacific Economic
Cooperation Summit (APEC -2012) is expected to have on the
Primorye Region: new large projects and construction, on one
hand, while, on the other, possible cuts in social programs from
the local budget in order to finance APEC-2012 construction.
End Summary.

Big Investments, Big Projects

2. Oleg Shcheka, Head of Foreign Economic Relations and Tourism
Department, at the Primorye Regional Administration briefed
Director Scott about the Asia-Pacific Economic Cooperation
(APEC) Summit preparations and the various development projects
associated with the Summit. He mentioned major billion-dollar
projects with Vladivostok airport renovation, the construction
of two bridges and preparations for construction on Russkiy

3. Shcheka also pointed out that the Russian Far East (RFE),
and particularly the Primorye Region, now have the highest level
of Federal support funds in their history. In fact, he said the
Far East is getting more attention now than at any time from
Moscow, including during the Czarist and Soviet days. Gas
pipeline and ESPO oil pipeline construction are under
construction. Gazprom, Rosneft, and Transneft are all
investing capital in the RFE. Up to 2 trillion Rubles will be
invested into RFE economy by 2013 and an extra 1 trillion Rubles
will be invested by 2020. Shcheka stated that in total USD 100
billion will be spent for the RFE development. These tremendous
Russian investments are evidence of serious Federal interest to
this part of Russia and a welcoming sign for foreign business,
he said.

--------------------------------------------- -----
Trade Profile, Business Opportunities
--------------------------------------------- -----

4. Describing the region's trade and investment patterns,
Shcheka noted that currently Primorye's main trading partners
are China (39% of total turnover in 2008), Japan (34%), and the
Republic of Korea (10.5%), while the USA had only 3.7% of total
turnover in 2008. Shcheka mentioned that only adventurers
invest their money without a good deal of care; smart investors,
such as South Korean businessmen, account for their risk and
profit in advance. He added that the Japanese Mitsui Company
made wind speed tests before constructing wind power facilities
in Russkiy Island in partnership with RusHydro. Nevertheless,
Shcheka emphasized that all sectors of Primorye economy are
attractive for investors: agriculture, marine cargo
transportation, telecommunications, energy sector, tourist

5. The main obstacle for foreign business presence is an
absence of direct air routes between Russia and the USA. Strict
visa interview demands and less flexibility in Russian-U.S.
relations work in favor of dynamic development of the Russian
relations with China and ROK. Businessmen look toward the
region's Asian neighbors for future business because visa
regulations in these countries are easier than the U.S. The
lack of good transportation links between the RFE and the US are
another issue that focus business attention away from the U.S.

--------------------------------------------- -------------
Socio-Economic Difficulties and Challenges
--------------------------------------------- -------------

6. During Scott's call on Viktor Gorchakov, Primorye Kray
Legislative Assembly Chairman, Gorchakov said that economic
strategies and initiatives of the 1990s never succeeded.
Proposals made by local politicians and economists for further
regional development as Russia's front along the Pacific Rim
economy and Russia's point for Pacific integration did not work
out due to a lack of support from Moscow. After numerous
attempts to attract Moscow's attention to Primorye's problems,
the federal center finally heard Primorye. Moscow's and
Primorye's points of view began to synchronize and ended with
the APEC-2012 idea, offered by a local economic expert in 2006.

VLADIVOSTO 00000103 002.2 OF 002

7. Speaking about social-economic issues in Primorye, Gorchakov
stated that the local defense industry is in ruins and
conversion plans were unsuccessful. Primorye, moreover, still
has a lot to do to improve the quality of medical treatment, to
improve the quality of housing and utilities, and to find means
to keep its youth in Primorye, for example through giving
apartments for young families. On the other side of the ledger:
despite continuous migration out of the region (mainly youth),
retired senior officers have begun to stay in Primorye, whereas
earlier most of them were moving out of Primorye at the end of
their Army/ Navy service. Gorchakov pointed out that "even
though Russia is a democratic country, we still look for Moscow
prior to doing anything." Regarding political unrest, and the
popular movement TIGR (Comradeship of Initiative Citizens of
Russia), Gorchakov noted that Primorye is largely "stable" but
he wryly added that "there is always an opposition."

8. Touching on APEC-2012, Gorchakov mentioned that several
construction projects will be implemented through Federal and
Regional co-financing. This co-financing approach is a threat
to the Region's budget and may result in regional social program
reductions. Moscow's primary objective is readiness for the
event even at the expense of social spending, whereas the main
goal for Regional deputies will be to protect social programs
for the next several years. Nevertheless, the Regional
administration will be tempted to ignore social spending in
order to promote a better image in Moscow's eyes. Governor
Darkin wants to show the Federal center that the Region will
fulfill its obligations in the APEC construction plan. Since
Primorye is one of numerous subsidiary regions in Russia, local
revenues are limited and Moscow subsidizes around 30% of the
Regional budget.


9. As was clear in the discussion with Gorchakov, It appears
that some political leaders already recognize that APEC-2012 may
be a double edged sword having a negative impact on the people
of Primorye region if some important social programs (such as
drug-prevention) are cut. It is true that Regional deputies may
not resist the governor's desire to show Moscow that APEC
preparations are more important than social spending. End

© Scoop Media

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