Russia

How The Rest Of Russia Will Pay For Crimea

Though denied by Putin, there is evidence emerging that investment projects elsewhere in Russia are being held up in order to divert funds to projects in newly annexed Crimea.

In Murmansk
In Murmansk
Yulia Gallyamova, Anatoly Dzhumailo and Kirill Melnikov

MOSCOW — Russian President Vladimir Putin declared publicly last week that investment in recently annexed Crimea would not come at the expense of other government projects. Still, it appears that reducing investment in other regions cannot be avoided. Cuts have been proposed in transportation investment in the Murmansk region in Northern Russian, with the money saved to be used to develop Black Sea ports in Russia and Crimea.

Earlier this month, Vice Premier Arkady Dvorkovich held a meeting regarding the necessary investments in Crimea, which would largely consist of extending railroads to the Black Sea ports. During the meeting, Dvorkovich conceded that at least 31.5 billion rubles ($870 million) would have to be cut from other federal programs in order to pay for the Black Sea infrastructure projects.

Last Thursday, Putin announced that the expenses for infrastructure projects in Crimea would come from the government’s reserves, adding: “We don’t have to cut anything from other programs.”

Earlier, the finance ministry had said that the government surplus would be 240 billion rubles ($6.7 billion) in 2014 and 80 billion rubles ($2.2 billion) in 2015. Not including the infrastructure projects, the subsidized programs in Crimea this year are estimated to cost around 100 billion rubles ($2.8 billion).

Dvorkovich’s spokesperson was not available for comment, nor were representatives from the Ministry of Finance or Transportation. Sources who were present at the meeting with Dvorkovich say that taking funds from the Murmansk transportation projects for the Black Sea ports was not discussed, and don’t know why the discussion was included in the official minutes.

Olympian in scale

The infrastructure project in Murmansk is supposed to include the construction of two ports — one for coal and one for oil — as well as new railroad lines. The entire project is expected to cost about $3.7 billion, about half of which should come from the federal budget. The project was supposed to start in 2008, but was held up because of the lack of private investors. Eventually private partners were found for the two port terminals, and the government signed a contract with a construction company to build the roads.

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Murmansk port — Photo: Martin Lie

A well-placed source told Kommersant that in the official minutes of the meeting with Dvorkovich it was suggested that the contract be cancelled and the advanced project recalled.

Two of the private companies involved declined to comment. Rosneft, which has a 15% stake in the project, confirmed that the government is discussing reducing the amount of investment in Murmansk’s transportation infrastructure. That source underlined the importance of the project for Rosneft, saying: “We are not a logistics company, we need certain services.”

Another source representing the company contracted to build the roads for the Murmansk infrastructure project considered it was too early to talk about a freeze in the program, saying that the minutes of a meeting are not enough to break a formal government contract — and if the contract were to be broken, the government would be taken to court. The company said it would not comment on the government decisions, but said it had already started work.

Mikhail Burmistrov, the head of the Infoline-Analitika agency, says that it will be impossible for the government to avoid reviewing and changing its budget. Crimea requires a massive amount of infrastructure investment, and is just as important to the government as were the preparations for the Sochi Olympics.

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-Analysis-

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