Grischenkov
Alexandr Vladimirovitch
Karelian Acting Minister of Economic Development
Born in 1964, higher education.
Professional record:
- Since 1987 - Finance Ministry of the Karelian Autonomous Soviet Socialist Republic.
- Since 1990 - State Taxation Authority in Karelia Republic.
- Since 1993 - Director of the State Taxation Authority in Karelia Republic.
- Since 2002 - Counsellor of the Governor of Karelia Republic on economic issues.
- Since January 2003 - Karelian Acting Minister of Economic Development.
Awarded by Honourary Diploma of Karelia Republic.
REPUBLIC OF KARELIA
TABLE OF CONTENTS
Karelia Republic is part of the Northwest Federal District of the Russian Federation, and a land border of Russia with Finland, a member of the European Union, stretches for over 700 km across Karelia. Karelia is located on important transport routes connecting industrially developed Russian regions with the ice-free port of Murmansk and, via Finland, with Europe. The White Sea – Baltic Canal runs through Karelia to connect the Baltic Sea and the White Sea. The maximum length of the Republic from the north to the south is 660 km, and from the west to the east it makes 424 km. The climate in Karelia is much milder than in the Russian regions located at the same latitude. This is accounted for by the closeness of the Baltic and White Seas and impact of the Gulf Stream. By and large, the local climate combines features of the continental and maritime climates. Winter is moderately cold with the January temperature averaging at –6 to –13oC, and spring is long. Summer is moderately warm, rainy with the July average temperature at +13 to +17oC.
KEY NATURAL RESOURCES
The natural resource potential of the Republic is rather wide and diversified. The leading positions belong to forest, mineral resources, water resources and recreation resources.
Over 49% of the Republic’s total area are covered by forest. The total stock of forest resources amounts to 910,000,000 m3. The mature and over-mature forest has 47% (425,000,000 m3) of the total stock. The most valuable conifers prevail in the structure of the forest – the make up 89,2% of the mature and over-mature forest.
Practically 25 of the Republic’s territory are covered by water. The largest rivers are Vodla (400 km), Vyg, Kovda, Kem’, Suna, Shuja. The overall length of the water grid is roughly 83,000 km. In Karelia, there are over 60,000 lakes and 27,000 rivers. The largest lakes are Ladoga (17,700 km2) and Onego (9,900 km2). While describing the water resources of the Republic, one cannot ignore an outstanding feature of Karelia, which is a site for trout breeding. The Lakes of Karelia are characterised by good environmental situation, which presumes high quality of the fish products. But the main thing is the temperature regime optimal for trout growing and available in Karelia. Researchers from the Northern Fisheries Research Institute designed methods for trout growing. Currently, trout-breeding is becoming a dynamically growing sector in the Republic’s economy. In the last 8 years, commercial trout-breeding grew 6,5, times to reach 2,000 tons. Meanwhile, the potential of the region is estimated at 15,000 tons, which is comparable with the production output in Finland. In the view the trout-breeding does not need big capital investments and the costs actually pay back in 2 years this resource is definitely interesting to investors.
Over 50 mineral resources have been recorded in Karelia in over 400 sits and ore-fields. The mineral resources of Karelia encompass 238 explored deposits, 25 kinds of hard minerals with registered state balance reserves, 378 peat deposits, 11 sites of economic-purposed and drinkable underground water and 2 sites of mineral water, 10 officially recognised and over 30 registered monuments of geology. The primary mineral resources are iron ore, titan, vanadium, molybdenum, precious metals, diamonds, mica, construction materials (granite, diabase, marble), ceramic material (pegmatite, spar), apatite-carbonate ore, and alkaline amphibole-asbestos.
The reserve of tourist and recreation resources is really inexhaustible. Over 4,000 sites and monuments of culture, history and nature are registered in Karelia Republic. Karelia is one of the most famous Russian regions in the international tourism thanks to unique architectural, cultural and historical locations on Kizhi Island, Valaam Island and Solovetsky Islands situated on the border with Karelia and cited in the UNESCO’s World Heritage List. In the tourist sector, 70 companies operate to serve some 300,000 tourists per year. At a time, 4,000 tourists can be accommodated in 56 hotels and 28 campings in Karelia. About 200,000 tourists visit Karelia by motor-ships annually. The aggregate gross income from in-coming tourism in Karelia adds up to about 2 billion rubles. In the last three years, approximately 12 million US dollars have been privately invested in the development of the tourism infrastructure.
Railways. The length of t he railways in Karelia is over 2,700 km. The railway connection of the Republic with other Russian regions is carried out on St-Petersburg – Murmansk Railway. The development of the Karelian railways, well-managed operations of the railway transport influences the economic situation in Karelia and development of cross-border areas. Four units of Oktiabrskaya Railway operate in Karelia – Petrozavodsk Unit, Volkhovstroi Unit, Leningrad Unit, and Murmansk Unit. In 2002, the Railway transported 12,940,000 tons of cargo, which is by 2,4% higher than in 2001.
Motor roads. Motor roads are an important element of the infrastructure and provide for transport connections of the population, industry and farming of Karelia.
The road sector of the Republic includes a road works complex with motor roads of total length at 13,530 km. As of January 1, 2002, the network of common-use roads is estimated at 7,786 km, of which federal highway Cola (St-Petersburg – Murmansk) is 769 km (federal property) and local roads are 7,051 km (Republican property). All these roads have 667 different bridges of the total length at 16,274 running meters.
Airports. Karelia Republic possesses Besovets Airport, which has an international status. In addition, in the Republic there are 3 airports, 2 airdromes and 3 landing grounds for aircraft of Lesavia detachment. After completion of the construction of Besovets Airport Complex in accordance with international standards, aircraft of all types will be able to land there.
The population rate of Karelia as of January 1, 2002 was 756,400 people. The average density is 4,2 persons per km2. The economically active population is 395,000 people, or 51,9%. The age scheme of the population is as follows: 63,2% belong to the working-age population, 18,2% are under the working-age, 18,6% are above the working age. The population of the largest cities: Petrozavodsk – 285,300 people, Kondopoga - 36,500 people, Segezha – 33,400 people, Kostomuksha – 32,300 people.
The key priorities of economic development for the forthcoming years are reflected in the Concept for Socio-Economic Development of Karelia Republic for the Years 1999-2002-2010.
The economic development of Karelia is associated with the developing a most rich natural-resource potential of the Republic and Karelia’s good geographic location. In the recent years, the Republic’s economy has been developing at a good speed, and the most important economic figures have had positive dynamics. According to the rating of the Russian regions done by the Russian Economic Development and Commerce Ministry, Karelia moved from the 51th position in 1998 to the 28th position in 2000 and up to the 20th place in 2002.
The existing structure of the economy has a clear industrial orientation based on industry.
Foreign economic activity
The foreign economic activity takes a leading place in the socio-economic life of the Republic. About 57% of the value of the manufactured production is exported. Karelian companies implement foreign commerce operations with 89 countries worldwide. The geography of the foreign economic activity is prevailed by European countries. Their share in the foreign commerce balance of the Republic equals to about 76%. The proportion of the trade with Asian countries makes up 14%, with American countries – 6%.
The commodity structure of the export is dominated by pulp and paper products and timber. Besides, other large exports of the Republic are aluminum, iron-ore pellets, craft paper, fish, sea products. The main importer-countries are Finland (32% of the total export), Germany (7%), the Netherlands (7%), Great Britain. The estimated value of imported products in 2002 amounted to 148,400,000 US dollars, which exceeded the figures of 2002 by 4,4%, or 6,300,000 US dollars. The biggest imports were machine building products (37%), paper, cardboard and products of them (22%), oil and chemistry products (20%).
INVESTMENT CAPACITY
The most significant factors that ensure investment attractiveness of Karelia Republic are as follows:
- rich natural resources: forest, minerals, water, which create opportunities for deep processing of raw resources;
- relatively low production expenses, including transportation (in comparison with production expenses in EU’s countries), which allows investors to have certain benefits from participation in manufacturing cooperation and placement of enterprises on the Karelian territory with further exporting to EU’s countries;
- cross-border location of the Republic that helps most fully use opportunities of relatively low transportation expenses in barter with markets of European countries, and prioritised obtaining resources from European Programmes in the environmental sector, technical assistance, personnel training;
- rich historical and cultural heritage in combination with unique northern nature allow to implement the large recreational potential;
- favourable transport location when land routes connecting Finland and the Russian European North and motor roads connecting the Central Russia and Murmansk Region run through Karelia;
- unique water system, which provides access to five seas of Europe and Asia and, therefore, gives Karelia an opportunity to realise its transit capacity;
- availability of qualified workforce and research potential;
- organisational support of investment projects from the side of the Republic’s executive authorities;
- Karelia is traditionally attributed to regions with moderate investment risk.
In 2002, the Karelian Government announced attracting investment s and further improving of the investment climate as its key priority in the economic policy. Investments in the fixed capital keep a growing tendency. Over 2002, the total investments in companies and organisations of Karelia added up 10,9 billion rubles.
Foreign investments obtained by companies and organisations amounted to (with taking into account ruble investments evaluated in US dollars) 14,600,000 US dollars. Foreign investments in the last year were appropriated basically into timber, wood-working and pulp and paper industries (46%), trade (25,7%) and food industry (8,4%), health care, sports and social care (4,7%). Investments came primarily from Cyprus, Norway, Sweden, Estonia, Finland, the USA, Belize.
The Karelian Government designed a programme called Investment Policy of the Karelian Government for 2003-2006, the implementation of which includes a string of measures aiming at better investment attractiveness of the Republic.
Steps have been taken to encourage direct investments in the Republic’s economy. Negotiations with Stora Enso Oy (Finland) as regards the construction of a woodworking plant in the Ladoga Area have been resumed. The construction of the first workshop capable to manufacture 100,000 m3 of sawn timber per year was commenced in August 2002 in the village of Impilahti of Pitkäranta District. It is planned to complete the construction in July 2003, the amount of investments will reach 8,600,000 euros. Negotiations were started with IKEA Concern (Sweden) to build a furniture panel plant and a furniture factory in Karelia. The investments at the first stage may reach 12-15 million euros. In addition to this, negotiations were carried out other large investors interested in the Republic.
In 2002, dozens of investments projects run in Karelia. Among others, the largest ones were Oktiabrskya Railway reconstruction and electrification, construction of Petrozavodsk – Kondopoga gas pipeline, construction of the Martial Waters health resort, reconstruction of the Medvezhjegorsky Lesprokhoz Saw-Mill LLC, expansion of the production capacity and construction of a laminated board production line at the Karelia-Euroimpex DSP LLC, on-going reconstruction at the Segezha Pulp and Paper Mill LLC and Kondopoga LLC.
TAXATION LAWS IN FORCE FOR INVESTORS. BASIC NORMS FOR INVESTING OPERATIONS
Laws of the Russian Federation
1. Investment Operations in the Russian Federation Implemented in the Form of Capital Investments (with alterations from January 2, 2000). Federal law ¹ 39-ÔÇ of 25.02.99.
2. Investment operations in the RSFSR (with amendments from January 10, 2003), Putting into Operations of the RSFSR Investment Operations Law (with alterations from February 25, 1999). Federal law ¹ 1488-1 of 26.06.91.
3. Investment Funds. Federal law ¹ 156-ÔÇ of 29.11.01.
Laws of Karelia Republic
1. Investment Operations in Karelia Republic (with alterations from 05.07.02). Law of Karelia Republic ¹ 289-ÇÐÊ of 14.04.98.
2. Development Budget of Karelia Republic (with amendments and alterations from 23.10.01). Law of Karelia Republic ¹ 397-ÇÐÊ of 22.02.00.
3. Approval of the Manner of the Use of the Development Budget of Karelia Republic (with alterations from 16.04.02). Decree of the Chairperson of the Karelian Government ¹ 169-Ï of 26.06.00.
4. Financing of Innovation and Investment Operations from the Development and Reconstruction Fund of Karelia Republic. Decree of the Karelian Government ¹ 270-Ï of 27.12.01.
5. Financing of Innovation and Investment Operations… (with alterations and amendments from 23.08.01). Decree of the Karelian Government ¹ 78-Ï of 07.05.01.
6. Manner of Appropriations from the Republican Budget for Financing of Successful Investment Project Tenders. Decree of the Karelian Government ¹ 52-Ï of 16.04.02.
7. Tender for Obtaining Investments to Finance Socially Important Sites from the Republican Bond Loan of Karelia Republic (with amendments from 14.05.01). Decree of the Karelian Government ¹ 233-Ï of 10.08.00.
8. Manner of Investment Tax Crediting as regards Payments to the Republican Budget of Karelia Republic. Instruction of the Karelian Finance Ministry ¹ 29 of 31.01.00.
9. Amendments to the Manner of Tendering for Obtaining Investments to Finance Socially Important Sites from the Republican Bond Loan of Karelia Republic. Decree of the Karelian Government ¹ 83-Ï of 14.05.01.
10. Approval of the List of Investment Projects Funded from the Republican Budget. Decree of the Karelian Government ¹ 268-Ï of 25.12.01.
11. Manner of Appropriations from the Republican Budget for Financing of Successful Investment Project Tenders (with alterationa and amendments from 04.10.02). Decree of the Karelian Government ¹ 52-Ï of 16.04.02.
12. Approval of the Manner for Calculation and Control of Estimated and Factual Investment Payback Periods in Implementation of Investment Projects. Decree of the Karelian Government ¹ 168-Ï of 26.06.00.
Pursuant to the Investment Operations Law of Karelia Republic ¹ 289-ÇÐÊ of 14.04.98 (with alterations from 05.07.02), investors are rendered state support in the form of:
- ensuring stability of investing conditions and protection of investors’ interests in the investment projects implemented in Karelia Republic.
- ensuring investment favour to investors implementing investment projects in compliance with the Investment Agreement with the Krelian Government (an authorised executive authority – Karelian Economic Development Ministry).
Ensuring stability of investing conditions and protection of investors’ rights provided by Laws of the Russian Federation and Karelia Republic includes the following:
- ceeping in force of conditions for investing and implementation of investment projects until their entire completion in cases of adoption of regulatory and other norms of Karelia Republic, the provisions of which restrict investors’ rights, worsen the set conditions for investing ensured by prior contracts and agreements. The said norm does not cover cases when the laws of Karelia Republic enter alterations in the standards (norms, rules) concerning safe conduct of works, protection of mineral resources, environment and people’s health for the purpose, among others, of complying them with similar standards (norms, rules) adopted and recognised in the international practice;
- ensuring tax advantages in payments to the Republican budget and Territorial Road Fund of Karelia Republic to insurers of commercial risks of investment projects run in Karelia Republic in compliance with the tax laws, provided that separate accounting in operations (earnings and expenses) related to insuring commercial risks of investment projects is done.
Investment favours are granted to investors and banks regardless to the organisational form and form of ownership to encourage attraction of investments to the prioritised areas of the Republic’s economic development and if they run investment projects endorsed with the Karelian Government (authorised executive authority – Karelian Economic Development Ministry) in Karelia Republic.
Investment favours stipulates the following measures:
- ensuring tax advantages to investors and banks as regards regional taxes and those federal taxes paid to the Republican budget, in compliance with the tax laws and solely in cases and manner stated by the federal laws, provided that separate accounting in operations (earnings and expenses) related to running investment projects is done;
- ensuring state guarantees backed up by assets of the Guarantee Security Fund of Karelia Republic in the manner specified by the Karelian Government;
- leg-up of investors’ petitions and requests to the federal authorities of the Russian Federation responsible for regulating pricing services of natural monopolies, to banks and other credit organisations as regards granting investment favours to investors;
- assistance and running by Karelia Republic’s state authorities of the legal body organisation procedure and implementation of investment projects;
- crediting (budget crediting) from the Development Budget of Karelia Republic for endorsed investment projects selected through tenders and on payback, fixed-date, chargeable and privileged terms;
- investment tax crediting of investors.
Investment favours are fixed for an investor on the base of an Investment Agreement with the Karelian Government (Karelian Economic Development Ministry).
The terms and manner of investment favours implementation are common for all investors regardless to the organisational and ownership form or privileges and guarantees provided by other documents, or other regimes of their operations. Effect of such cannot be ceased due to granting investment favours as provided by the current Law.
Pursuant to the laws of the Russian Federation and Karelia Republic, the local self-governments in Karelia may grant guarantee and privileges for regional taxes payable to the budgets of the local self-governments, and for local taxes and dues.
Investment project selection criteria for defining opportunities of granting investment favours are as follows:
- investing into industrial manufacturing and agricultural businesses of the Republic;
- growth of job opportunities;
- aggregate annual amount of the value added tax due to the Republican budget of Karelia Republic and local budgets upon expiration of the term of tax privileges in comparison with the aggregate annual amount of provided tax privileges before the expiration of the latter ones (budget efficiency);
- increase in income tax payments and to extra-budgetary funds pending the implementation of an investment project.
Prioritised areas for investing into the Republic’s economy to obtain investment favours are as follows:
- manufacturing of products having no foreign analogues, provided that they are protected by domestic patents or similar foreign deeds;
- manufacturing of export commodities by non-raw material sectors and demanded at foreign markets at the level of best world’s specimens;
- deep wood-working, production of construction building materials, stone-working;
- food production;
- development of transport infrastructure;
- tourism development;
- improving environmental situation in the Republic.
The manner of granting investment favours is as follows:
An Investor seeking investment favours is to forward the following documents to the Karelian Economic Development Ministry:
- application for the state support;
- notarially attested copies of the Charter;
- an investment project demonstrating profitability and its social effect on the economy of the Republic, city (district);
- conclusions of mandatory examinations stipulated by the Russian Federation’s laws in force;
- estimate of investment payback both on the base of tax privileges and without such in accordance with the manner of estimation of the payback period for an investment project;
- conclusion by local self-government authorities as regards feasibility of granting investment favours for the implementation of an investment project;
- commitment to run a separate accounting of earnings and expenses for each investment project;
- balance sheet with all appendices for a previous year and last reporting period with a note of the Regional Authority of the Russian Federal Tax Ministry. In case of forming a new legal body for the purpose of the implementation of an investment project, book-keeping accounting is not provided;
- certificate of the Inspection of the Regional Authority of the Russian Federal Tax Ministry stating no arrears in taxes or dues to the republican and local budgets.
Karelian Economic Development Ministry,
Investment Projects Management Department
phone: +7 (8142) 76-96-86
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