20 Jun 2022

Deputy PM Yury Trutnev: Year-round Northern Sea Route navigation possible in 2024, then then momentum needs to be kept up

 

ST. PETERSBURG. June 15 (Interfax) - The battle for the Arctic is intensifying under the new geopolitical conditions as various countries increasingly assert their economic, military, and political interests there. Arctic regions make up a significant portion of the territory of Russia, and it is therefore not surprising that several sessions at the St. Petersburg International Economic Forum (SPIEF) are dedicated to the Arctic or touch on the problems of the region every year.

Russian Deputy Prime Minister and Presidential Representative to the Far East Yury Trutnev, who oversees Arctic development projects, told Interfax in an interview in the run-up to SPIEF about the consequences of terminating multinational partnerships in the Arctic, the president's instructions on the Northern Sea Route (NSR), and tax and benefits ideas for the Arctic and Far East regions.

Question: SPIEF has been an excellent opportunity to announce expansion of international cooperation in the past. Are there still grounds to talk about Russia's cooperation in the Arctic under the current conditions?

Answer: There are always temporary and constant factors, and this just needs to be remembered. Regarding the Arctic, the constant factors are obvious to everyone. First of all, the Northern Sea Route goes along Russia's Arctic seas and is 30% shorter than the route through the Suez Canal. The volume of global shipping grows year upon year, and the need for international logistic corridors arises. Can Russia afford not to develop a second route from Europe to Asia in this context? Clearly, it cannot, and not a single month should be lost in this process, no matter what passing considerations might get in the way. There should be another, second route.

The second factor is climate. Scientists have long agreed that the state of the poles, both Arctic and Antarctic, determines the climate on planet Earth: the level of water in the ocean, natural phenomena, weather, and lots of other things depend on the poles. Does humanity have the right not to care for the Arctic and the Antarctic? No, that's impossible. It seems to me that the current difficulties only underline how important it is for us to study and solve planetary problems together. We should all maintain the stability of life on the planet. Russia, under the leadership of our president, has exhibited the highest degree of responsibility for conserving the climate, cleaning up the Arctic zone, which we have been doing very actively, and conserving rare animal species and the biosphere in general. We are very meticulous about all of this.

And thirdly, two-thirds of the global Arctic coast is Russian territory. The international community will be unable to cooperate in the Arctic without the Russian Federation. So, I'm optimistic about the situation. Just like all Russians, I read the news and watch what's happening. I am very surprised by the attitude of many countries. But I very much hope that the world will come through this streak of instability soon enough and cooperation will resume in a majority of areas. The Arctic is an obvious priority of international cooperation, and it will facilitate rapprochement between states.

Q.: Is it possible the time has come for Russia to attempt to make a breakthrough in the Arctic?

A.: Undoubtedly. Everyone will draw conclusions based on the current situation, approaches and views will change, and certain points will require a national egoism of sorts. The richest natural resources of the Arctic are located on the coast, the territory of the Arctic shelf. It's absolutely clear that Russia will more actively use the richest natural resources of the Arctic for economic growth. There are also unique hydrocarbon reserves here, especially on the shelf, as well as solid minerals and rare metals. New infrastructure and new investment projects are already shaping the immediate future of the Russian North. We know where our interests lie here.

The Russian Federation is motivated at the same time by the principle of sustainable use of natural resources, with the priority being prudent economic activity. Our country is forming a distinct vision of care for the environment in the North and very solicitously preserving rare animal species and the biosphere. We have, for example, far stricter regulations for the protection of rare animal species than most Arctic countries: whales, polar bears, and so on. A lot of what is acceptable in Canada, Norway, Japan, and other countries is prohibited in Russia.

Q.: Russia's chairmanship of the Artic Council began more than a year ago with great hope for new subjects for international partnership. Now those hopes aren't destined to be...

A.: Unfortunately, the Arctic Council, in essence, isn't working right now, inasmuch as our neighbors and colleagues have withdrawn from it. This decision is absolutely unfounded, a more political than logical action. Once again, I hope that this ill-conceived decision is temporary and everything will return to normal in the end.

On the one hand, the efficiency of such international mechanisms is relative, considering that this council doesn't make policy decisions. However, it has allowed Arctic nations, while sovereign, to consult on activities and has helped to solve common problems using a set of tools convenient for everyone. The need for bodies such as the Arctic Council is obvious - it's the ability to come to agreements on things jointly. The problems of such a large and important region of our planet cannot be solved individually.

Q.: The president held a big meeting on the Arctic in April, after which fairly sparse minutes of instructions were published. What key areas of Arctic development were specified at the meeting?

A.: I didn't get the impression that the minutes were sparse at the end of the meeting. To the contrary, this is a very rigorous document. Concrete goals are set in it with tight deadlines that will impact the country's entire economy.

For example, it's necessary to compile a plan for the development of the Northern Sea Route in one month, with all the details - icebreakers, satellites, Emergency Situations Ministry bases, railroads, ports, and everything else. Overall investments total up to 2 trillion rubles annually. And that means the detailed and difficult work of many people, long stages of talks with the Ministry of Finance, the Transport Ministry, companies.

Support for investment projects is a separate block. Time has told that it was the right decision to allocate four categories of economic activities in the Arctic for which preferential conditions were created. As a result, we have gotten an effect that we weren't even expecting: the influx of new residents in the Arctic exceeds the influx of residents in the preferential zones of the Far East, where we also came up with new benefits from scratch, by approximately 20%. There are 461 projects active here today, more than 166 billion rubles have already been invested, and we can hope that by the time the primary projects are implemented, overall investments will cross the threshold of 1.3 trillion rubles. That isn't a bad number. The volume of investments in the Far East is now already over 2.5 trillion rubles, but we started support and stimulation for business there six years earlier.

Economic development has been and remains a main task, of course, but an important direction is creating comfortable conditions for people's lives. This is written into the minutes separately. Among short-term goals resulting from the meeting: creating social amenities, renovating cities, raising standards of living. We are obligated to fulfill this instruction. An Arctic program to build schools, hospitals, develop public transport, and other issues at the instruction of the president should be put together in the shortest period. Every federal ministry and agency should give individual attention to both the Far East and the Arctic. But having a separate program intended for the social sphere, which is reliant on the opinions of residents, that's an additional flexible mechanism, which will allow additionally solving issues important to people.

Further, there is Northern Delivery, which is very important for the Arctic regions. It has been carried out exclusively by governors and the heads of municipalities, inasmuch as it's vital for them. But a dangerous bell tolled last year - seafaring vessels didn't make it to Arctic ports on time with Northern Delivery goods. Threats emerged with the supply of food, medicine, and other necessary cargo for the cities and towns of the North. The government was forced to resolve the problem manually. Conclusions have been drawn, and we don't intend to step on the rake a second time. This year, we will do our best to ensure that the Northern Delivery is completed on time and without problems.

And as early as next year, I hope, it will be regulated by the special law On Northern Delivery. This law should designate the priority of passage of Northern Delivery cargo and financing mechanisms and allow for the correction of many shortcomings, including in the organization of state procurement.

It's already clear that we need to create a single operator that will deal with all of the Northern Delivery. Most likely, we won't go through the creation of a new state-owned enterprise; instead we'll try to determine a private company for this role in order to organize everything to the max initially in market conditions. Correctly organizing the Northern Delivery will substantially affect prices for northerners and thus improve people's standard of living of people.

Q.: And nonetheless the meeting on the Arctic was to a large degree dedicated to the development of the Northern Sea Route. It was said that the volume of traffic along the NSR will exceed 200 million tonnes by 2030, and growth in cargo traffic was confirmed at up to 80 million tonnes in 2024. What sources will be used to form these cargo flows?

A.: The Northern Sea Route requires the most serious and largescale approach. First of all from the standpoint of competition, because thus far, the volume of traffic along the NSR is less than 3% of the Suez Canal. There are several reasons, with the initial one being the climate. Yes, in recent years, warming has slightly widened the temporary navigation corridor along the Northern Sea Route, but this period is limited so far, meaning that we need as many icebreakers as possible, which only Russia can build so far.

Also, for the unimpeded passage of vessels and a reduction in insurance commissions, as well as to ensure safety and reliability, stable communications are required along the length of the entire route, along with accurate meteorological support, rescue and assistance points, bunkering, and if we want to develop the Northern Sea Route as not only a transit route, but in the interests of the country, as well, then railways are needed that will approach ports, airports and much more are needed. This is big, complex work that is important for developing the Arctic. Currently, a large team of specialists from various agencies and companies is jointly preparing a long-term program to increase traffic along the NSR by 2030, where transit will play a role of no small importance.

The starting point for boosting traffic along the NSR is a forecast prepared with a clear link to specific investment projects and legally binding documents. For example, cargo traffic in the waters of the NSR totaled 34.9 million tonnes last year with a target of 31 million tonnes.

In terms of the immediate prospects, the figure of 80 million tonnes for cargo traffic [along the NSR] in 2024 is confirmed by agreements between Rosatom, the operator of the Northern Sea Route, and companies. The four key carriers are Novatek, Rosneft, Norilsk Nickel and Severnaya Zvezda. Given that the obligations are set, the companies understand the full level of responsibility, and the government also has no doubts about achieving the designated goals.

Q.: However, companies drafted projects under completely different economic conditions. Sanctions now limit them across the board. Are companies asking for additional benefits and help from the government under these conditions so that projects don't get put off and aren't halted?

A.: In terms of tax breaks for largescale projects in the Arctic, we have selected practically all possible standbys. It's still possible to experiment with something a little, as with the decision to collect social insurance from enterprises not from the moment of registering as a resident, but to push back these benefits until the launch of a project into operation. But there are no longer options for relaxing the tax climate, because the state's budget should be replenished, and companies, as economic entities, are obligated to bear a portion of the overall costs. Therefore the next steps, more than likely, will be less hackneyed than simply lowering taxes. For example, selective relaxation of administrative pressure is in the works, and there is potential here to protect individual sections of business, particularly in the initial stage. So, there are a lot of complaints from investors that inspectors start checks on them virtually from the moment of announcing plans to build. That is to say, there's still no cash flow, there's almost no workers on site, and inspectors are already right there. We'll come out with an initiative to ban interference from supervisory agencies during the investment cycle, let nobody bug business at the beginning of a project other than those agencies that oversee safety provisions protecting people's lives during construction work.

An old idea is also being discussed that earlier just couldn't make headway, but under the current conditions could be extremely timely. Russia doesn't currently have a lot of countries with which it has active economic relations, and all these countries are located in the East. So let's do what we've talked about for a long time - open preferential cross-border territories.

This to a considerable degree concerns business operations in the Far East. But there's also something to offer the populations of the Far East and the Arctic, for example, introducing land amnesty. There are disputed territories everywhere: someone built a home, someone is farming, someone has launched a business on land. And people are told here that the land isn't zoned for that or isn't the right category. Land always makes people work. In fact, a temporary period can be determined for such an amnesty, setting it back a year, for example, but on the whole, land amnesty could be good support for households.

Q.: How do you assess the pace of construction and preparation of infrastructure on the Northern Sea Route so that this logistics route can truly be year-round as soon as 2024?

A.: Above all, there is the question of the Northern Sea Route's safety. It is necessary to lay out each infrastructure block based on area and timeframe. In order to individually monitor and require fulfillment of obligations for the deployment of satellites, railroads, and ports. Everything is formalized precisely thus in the president's instructions. I'll say honestly, the level of preparation of infrastructure for opening up the Northern Sea Route today leaves much to be desired.

It's clear that each of these areas costs not even hundreds of millions of rubles, but a thousand times more, and decisions of such a level are made either by the head of the government or by the president. A lot of time is needed to search for funds and develop projects. All this difficult work is being carried out, not a single area has been suspended, but it would be good to speed up the dynamics.

There are also areas that raise no doubts, particularly the construction of icebreakers. Yes, within this process, certain difficulties exist, but critical decisions have been made: four icebreakers are being built, preliminary approval has been received for another four, that they will be built on non-budget funds. These will be not nuclear-powered icebreakers, but icebreakers fueled by LNG, which will enhance the Artic fleet. Construction also continues on high ice class Arc7 transport vessels.

On the whole, I think that Russia has the ability to reach year-round shipping operations on the Northern Sea Route in 2024. Even if this is caravanning year round to start with, when one icebreaker accompanies a caravan of transport vessels. But in doing so, we'll make a start, and then we just need to not lose pace.