A lot of money and problems: gave the business the Crimean accession to Russia

Photo: Alexander Ryumin / TASS

From the date of the referendum on joining of Crimea to Russia it has been exactly three years. RBC figured out how transition under the new jurisdiction affected the economy of the Peninsula, its infrastructure and the local business

Half a trillion for Crimea

For three years the Federal government has spent on the Crimea not less than 470 billion rubles, RBC calculated on the basis of the data about execution of the Federal budget and budgets of Crimea and Sevastopol. This is 1.6 times greater than the gross regional product of the Peninsula according to the data for 2015 (286 billion). In terms of sanctions, chronic underfunding of the Peninsula from 1990-ies and the reluctance of private business to invest in new Russian region, it is the state shouldered the burden of support and development of the Crimea.

Estimate of 470 billion rubles. the sum of the volume of Federal transfers to the budgets of Crimea and Sevastopol in 2014-2016 (see infographic) and the funds allocated for the Federal target program (FTSP) socially-economic development of the Peninsula over the past two years (funding for the Federal program started in 2015). Part of the money for the Federal program comes to the budgets of the Republic of Crimea and Sevastopol in the form of subsidies for the implementation of the program (that is included with intergovernmental transfers), and that an adjustment was made to avoid double-counting. For example, last year on the Crimean Federal program was directed from the Federal budget 111,7 billion rubles, of which 20.8 billion rubles allocated budget of the Crimea, to the materials of the Ministry of Finance of the Republic.

In November 2016, a government resolution was again increased the total amount of financing FTSP: the budget for the program, calculated until 2020, increased to 769,5 billion rubles (681 billion specified in the approval of the Federal program in August 2014). Changes were introduced in the program five times. In 2017, the Federal budget will allocate for FTP 164,8 billion. the Program provides for the achievement of certain targets in key areas: development of energy complex, engineering infrastructure, communications and water supply of the Peninsula, transport and industrial complex, social sphere and tourism cluster. All the Federal program provides for the creation of more than 600 projects till 2020.

The incident closed

At the end of 2015 the delay in the disbursement of funds on the Federal program led to a public scandal, which, however, was relatively quickly suppressed. Then the head of the Crimea Sergey Aksenov said that under the 2015 Federal target program for development of Crimea “is still not transferred a single penny”. “The first pancake (with the financing of the program of development of Crimea), that is, was lumpy,” confessed Deputy Prime Minister Dmitry Kozak in February 2016. The reason was “lack of effective planning of budget expenditures, first of all, regional authorities”, said Deputy Prime Minister. But after that incident about the problems with FTP are no longer heard in early 2016, a special Directorate for the management of the Crimean Federal program, the level of utilization of funds allocated under the program of the Crimean budget last year was almost 99% (a year earlier only 27%), and a representative of Kozak said that “all is well”.

In 2017, starts the active phase of construction works on objects of the Federal program, told me in February, Deputy economic development Minister of Russia Sergey Nazarov. According to him, funds for the implementation of the Federal program this year is of the order of 64.5 billion rubles has already been transferred to the Crimea and Sevastopol (intergovernmental transfers). The remaining funds — about 100 billion rubles will be distributed through the Federal structure. They plan to build 58 of infrastructural facilities in Sevastopol and 257 facilities in the Crimea. The objectives of the programme in 2017, in particular, require the completion of the cable across the Kerch Strait and two high-voltage transmission lines, as well as the continued construction of the Kerch bridge. In addition, this year work continues on the development of the airport of Simferopol, objects of Artek, rail and road approaches to the bridge across the Kerch Strait.

In addition to financing the Federal target program of Crimea receives subsidies from the Federal budget, being one of the most heavily subsidized regions of Russia (see infographic). The revenues of the Republic by 67% consist of non-repayable receipts from the Federal centre: in 2017, they amount to 105 billion rubles (the same as in the year of the annexation of Crimea), and another 20.7 billion RUB will get the budget of Sevastopol. But the Minister of Finance of the Republic of Crimea Irina Kiviko explains that more than half of Federal transfers for 2017 — it is just a Federal program subsidies in the narrow sense no increase, and own revenues of the Republic will grow. “If we talk about subsidies from the Federal budget, we have been 37.6 billion RUB in 2016, the same amount we have this year laid — growth grants no. Subsidies of 64.3 billion rubles in 2017. But they 54.6 billion rubles of the Federal target program for the development of the Peninsula. It is known, has its term until 2020, and needs to solve those problems that we cannot solve at the expense of the Republic”, — said the Minister in an interview with RBC.

The construction of the Kerch bridge

Photo: Alexey Pavlicek / TASS

Transport construction

This year we will complete a number of major infrastructure projects designed to improve the communication between Russia and Crimea. And by the summer of 2018 it is planned to put into operation the new terminal of the Simferopol airport passenger traffic in 2016 rose 3.6%, to 5.2 million people, and continues to grow.

According to the beginning of March 2017, according to a posting on the airport website, “completed the installation of the metal façade of the forecourt”. In total to date, installed about 1.9 thousand tons of metal structures from the planned volume of 5.7 thousand tonnes the New terminal, whose construction began in the spring of 2016, will be able to serve up to 6.5 million people a year.

In April 2016, the “international airport Simferopol” with two operating terminals was signed with the authorities of the Crimea the investment contract for construction of airport the new passenger terminal with an area of 78 thousand sq. m. Cost of its construction was estimated at 32 billion rubles In August 2016 Crimean RNCB Bank in the framework of the syndicated loan was allocated for the construction of a new terminal 14 billion to 2031. Under the investment agreement on construction of a new terminal at Simferopol airport has changed the structure of the owners: the owner of an effective shares of 20% in the airport of Simferopol became the Bank “Russia” Yuri Kovalchuk. His partner Oleg Zhestkov reduced effective stake in the company to 31%.

Their joint company “Akkord-invest” was mentioned by “Kommersant” as a potential investor in the Sevastopol airport Belbek. But later, the media reported another investor — engineering company “Integral”, intending to invest in the development of the airport about 1,5 billion RUB Its owner Vladimir Zaritsky — Colonel-General, former chief of missile troops and artillery of Armed forces of Russia, March 14, confirmed RBC that his company is an investor. He also said that currently the project documentation is prepared, the date of the start of construction is still unknown. “Integral” is registered in Simferopol in February 2015, the main activity — construction of buildings and structures. The firm has the status of a micro-enterprise, i.e. in accordance with the Russian legislation the maximum number of employees may not exceed 15 people. 99% of the share capital belongs to the structure of AIP Zaritsky, another 1% — at Igor Kukhta.

How to provide energy

After the blackouts of 2015 in the Crimea due to the cessation of supply of electricity from Ukraine to Russia by may 2016, started all four leg of the power bridge to the Crimea. Now, taking into account own generation of Crimea, backed by the power of 1260 MW — enough for the Peninsula.

Russia also is building two large power plants in Crimea with a total capacity of 940 MW, the construction is “Technopromexport” — a subsidiary of Rostec. The first stage of the two thermal power plants was expected to start by the fall of 2017. But these deadlines are not met, most likely, the TPP will end in mid-2018, told reporters the General Director of “Rostec” Sergey Chemezov at the end of 2016 (quoted by “Interfax”).

“Technopromexport” have any problems with the equipment for power plants. Back in the spring of 2015, the company bought four gas turbines for the Crimean TPP the Russian plant “Siemens gas turbine technology”, which is 65% owned by the German Siemens, wrote “Vedomosti”, citing its sources. As a result, Siemens risked to violate the sanctions the supply of such goods to the Crimea by European companies is prohibited. The representative of “Technopromexport” said the turbines need for new power plants in Taman (Krasnodar Krai), not in Crimea.

Photo: Alexander Ryumin / TASS

9 February 2017 Vice-Premier Dmitry Kozak told reporters that with the construction of power plants in Crimea, there are difficulties — there are problems with the delivery of equipment, in particular, it is not clear whether Siemens to supply turbines. Now the complexity of trying to resolve, the negotiations, the details he can disclose, as it is a commercial secret, said Kozak.

In the fall of 2016 “Technopromexport” have decided not to build thermal power plants in Taman and put the turbines up for sale. Now rostec is expected before the end of the year to buy the turbines for the Crimean power plants in Iran, about it Chemezov said in late February. We are talking about turbines Iranian company Mapna, they are almost similar to those purchased at the Russian plant of Siemens, told RBC Federal official.

In December 2016 was launched pipeline from the Krasnodar Krai to the Crimea with a capacity of 2 billion cubic meters of gas. The pipeline was built to supply gas to two thermal power plant under construction.

Problems local business

“The main specificity of” business in Crimea — a move from one jurisdiction to another, said Vice President of “Business Russia” Andrey Nazarov: companies have to spend time and money to adapt to Russian law and taxation. But that’s not the only problem.

In Crimea come through public procurement, however, together with the financing on the Peninsula have risen and competition, says Nazarov. Local companies though, and had the opportunity to participate in a large number of tenders, but among their rivals, more experienced companies with mainland Russia. However, outside of the company win tenders at most of the Crimean, he said. Local businesses need to step it up, he is on equal footing with Federal, says the Commissioner for the protection of the rights of entrepreneurs in Crimea Svetlana Luzhetskaya.

Another problem of the Crimean business after accession to Russia — registration of Ukrainian employees, says the head of the local company of catering, who wished to remain anonymous. Crimea — a resort area in the summer here usually come to work with the residents of Eastern and Central Ukraine, he recalls. Now they have to spend a lot of time and money for patents, they often pay a higher personal income tax (for non-residents, it is no 13 and 30%), because of this, local businesses have to raise visitors salary. However, to offset these costs helps the Crimean free economic zone (FEZ), says the interlocutor of RBC.

Expensive money and seizure of assets

Another question that complain most of the local entrepreneurs, the value of money, which reaches 20% per annum. Due to the risk to fall under Western sanctions on the Peninsula there are large Russian banks, there are only three credit institutions — MCB, GenBank and cbrr. Local credit institutions less resources, choosing the clients they approach more closely, says Nazarov, that credit conditions are worse. Banks may require a credit history, but where to take it, indignant in conversation with the RBC local entrepreneur, history of Ukraine they do not want to check. The head of the Crimean branch of the company working in many Russian regions, remembers that she wanted to take the credit on the Peninsula under a local project, but it was “very difficult” — the company from the loans in the Crimea refused, as it allow the scope to borrow in other regions. A similar story was told of another Crimean businessman involved in construction in 2016, his firm was negotiating the loan at MCB, but Bank officials “demanded all new and new documents, despite good credit history” business. “Why do they need the documents to my personal estate, if the loan is taken on the firm secured by its real estate?” — he is perplexed. After three months of failed negotiations, the entrepreneur was able to take the credit in one of the Moscow banks, he says.

The press service of the MCB told RBC that the level of approved applications for small business loans in the Bank is 80%, in 2016 the volume of credit portfolio of legal entities in RNCB has doubled, and since the beginning of 2017 — a further 30% and currently stands at 21 billion rubles According to the Bank representative, the average rate on loans to small and medium businesses to 14.5%, the Bank takes into account financial results and credit history of the business until 2014.

Lending rates — “current” issue, recognizes Crimean business Ombudsman Luzhetskaya, although the availability of financial support, according to its statistics, complaining only 6% of entrepreneurs. However, between the rates in the Crimea and the rest of Russia is a radical difference, although the presence of banks on the Peninsula and is limited, she points out. The share of credit institutions in the investments in fixed capital in the Crimea is just 2.6%, according to strategy of socio-economic development of Crimea until 2030, mostly the investments are made at the expense of own means of the enterprises and the budget. “Problems of Bank lending to small businesses, in turn, caused a high growth of the black credit market. According to businessmen, today it is easier to borrow from a private organization than to pester banks, trying to get a legitimate loan,” — said in the report of the Crimean Ombudsman for 2015.

Entrepreneurs complain about the arbitrary arrests of assets related to a legal conflict after the annexation of Crimea. In Ukraine, the Crimean company could take out a loan and even return it, but still be subject to seizure at the initiative of the Federal bailiffs ‘ service, told the Chairman of the Public chamber of the Crimea Grigory Ioffe. Collateral requirements for many loans formally, the Crimean is still Ukrainian banks or collectors. The authority for the removal of arrests are on the Federal level, reminds Luzhetskaya: entrepreneurs need to collect all the old documents, translate them from Ukrainian, to transfer the bailiffs, so they sent them to Moscow, and wait for a response, she said.

The Peninsula in the shadow

In Crimea, a traditionally high share of the shadow economy. According to the latest available data from Rosstat (third quarter 2016), Russia’s average share of the informal sector at 22.3%, and in the Crimea by 37.1% (in Sevastopol — 28,4%). The transition into the white economy is going, but slowly, the many convenient to be in a gray area, to pay wages in envelopes is a “legacy” of the Ukrainian jurisdiction, says Nazarov. How has the informal sector compared to the Ukrainian, at times, difficult to tell — estimation methodology of informal employment in the Ukrainian and Russian statistics are not comparable, says employee Cristata.

Local authorities are working on the legalization of the shadow sector, on the ground of a special Commission, which identify businesses that pay illegal wages, says RBC, the Minister of Finance of Crimea Irina Kiviko. In addition, traditionally in the summer season many rent homes for rent to avoid paying personal income tax, — the Crimean authorities have come out with a legislative initiative on patent quarterstaff that people could buy the patent for two or three months, when they work, and the budget — to get the money, said the Minister.

During the Ukraine was easier situation with the document, authorities have adjusted to the EU requirements for Association with the EU, remember two Crimean entrepreneur. The number of required documents has increased, admits another source, but one of the reasons is the size of the informal sector in the Ukrainian times: for example, if the company had to collect ten documents, de facto it was enough to prepare two or three. In Russia, “if told to do 15 documents, you do 15,” said the interlocutor of RBC. SP workflow, on the contrary, has decreased, however, the legal person complain about the growth reporting, recognizes Luzhetskaya.

The main problems of the business in the Crimea is stable conveyance of property ownership and contracts for the lease of land under Russian law, and the procedure for placing non-stationary trade objects, says Luzhetskaya. Business early work in the Russian Crimea are faced with land problems due to the lack of inventories and master plans, says the head of the branch of the Russian company, “Even if a piece of land was, it was not clear what future plans for its use. Suddenly there the road will be built.” The transaction for the land was accompanied by difficulties due to contradictions in the laws of the two countries, but now they are under Russian law, said Nazarov from “Business Russia”. Problems can arise with the transfer of land from one category to another, but that the specifics of any Russian region, in the Crimea, this problem although present, but “within reason”, he adds. Now, almost all municipalities have already adopted the procedure of transfer of land, but there were also those who did not, says Luzhetskaya.

A large part of the business in the Crimea is now running “quietly”, although all the problems in a relatively short period of time it is impossible to solve, says Nazarov. Not to say that after joining of Russia to work has become easier or more difficult — “somewhere less, somewhere added”, says a local entrepreneur. Has become more bureaucratic, there was difficulty with the Ukrainian staff, but now I understand how to open a business, he says. In Ukrainian times “had to go and meet officials and police officers, but if you have already met, it was possible to do everything”, says the interlocutor of RBC.

As far as helping the FEZ

In 2015 in the Crimea and Sevastopol is the free economic zone. A potential resident must submit investment Declaration: representatives of small and medium businesses must commit to invest in the production of 3 million rubles in the first three years, for other companies the amount of investment is 30 million rubles to get to FEZ is easy, but it takes time, says the head of one of the residents of the zone. The collection of documents takes about six months, says the head of another.

In return, the participants receive benefits. Residents do not pay tax on profit of organizations to the Federal budget (with 2017 the size of the Federal part amounts to 3%), and the budget of the region pay at the reduced rate of 2% in the first three years, from the fourth to the eighth year 6 and 13.5% from the ninth year (standard rate is 17%). Companies are exempted from property tax and land tax, they apply reduced rates of insurance contributions — a total of 7.6 instead of 30%. BMS contributes to the whitewashing business, this format helps “more comfortable feel” when working with IRS, recognizes the resident zone. Benefits, in his estimation, save about 1-1. 5% of revenue, and this amount feels.

Now the list of residents — more than 800 organizations, from individual entrepreneurs to the wine factory “Massandra”, is accountable to the Office of the President of Russia. The declared volume of investments for projects of FEZ is 80 billion rubles, said the head of the Crimea Sergey Aksenov. The FEZ could be extended to the entire Peninsula, to businessmen from Crimea and Sevastopol automatically become a resident, believes Nazarov from “Business Russia”, the participants of the SEZ are obviously more favorable terms. Theoretically, become a resident but bureaucracy and stringent financial obligations are often afraid of entrepreneurs, especially small business, he says.

Tourist prospects

According to the Ministry of resorts and tourism of Crimea, the number of tourists to the region in 2016 has increased compared to the year 2015 by 21.2%, to 5.57 million. But interviewed by RBC, the participants of the market consider what to repeat last year’s success in 2017 will not work because of competition with foreign resorts. “In the best case, the flow stabiliziruemost on the figures of last year in the worst — will fall by 10-15% percent. European markets this year pulled some of the demand in many segments. For example, we see a huge outflow of the sports segment in Bulgaria,” — said General Director of RBC Group Upro Tamara Black (develops a network of hotels in the Crimea). According to the Vice-President of the Federation of restaurateurs and hoteliers Vadim Prasov, the accommodation facilities in the Crimea are to “reduce appetite” to avoid “nedozagruzki”.

However, there are positive trends. If, immediately after the annexation of the region to Russia the bulk of tourist arrivals were state employees and had a rest there at the expense of the state, in 2016 there were many people who came at their own expense and willing to spend more money on the resort, says Prasov. In this segment of public sector is helping the market in the offseason and allows many objects are not closed, and to operate year-round, adds Black.
The interlocutors RBC agreed that the tourism potential of the Crimea is quite high, but the region will need about five years to “reach the level of European destinations”. As noted by Black, the main problems are a pronounced seasonality, logistics, and the lack of quality infrastructure and trained personnel.

As reported by RBC representative of the Ministry of resorts and tourism of Crimea Anna Nerezine, beginning of the year 136,5 thousand tourists rested in the Crimea, which is about 1% more than last year. In her opinion, the number of tourists in the coming summer season will be influenced by the opening of Turkey and the possible opening of Egypt, and the accessibility of the region from the mainland Russia. Last summer season, Kerch ferry and the airport has worked “at the limit of their abilities,” says Nerezine, and to talk about further significant growth in tourist arrivals is impossible “has not yet commissioned the bridge and the new airport”. On the other hand, the demand for vacation in Crimea among Ukrainians who “missed the Peninsula,” she added.

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