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Russia: Businesses to fund Caucasus effort
by Staff Writers
Vladivostok, Russia (UPI) Dec 18, 2012

disclaimer: image is for illustration purposes only

Russia says it is counting on businesses to pour billions of dollars in social and development funding into the terrorism-plagued North Caucasus region.

North Caucasus Presidential Envoy Alexander Khloponin said in Vladivostok Sunday that energy, tourism and other businesses will be expected to supply 90 percent of the funding for a 13-year, $80.9 billion development program in the troubled region, RIA Novosti reported.

The Russian government last week approved the spending but said only that most of it would be "off-budget" while direct government development funding to Chechnya, Ingushetia and other unstable North Caucasus areas was actually far less than requested by regional officials.

Where the off-budget funds would come from was unclear until Sunday, when Khloponin said it would be supplied by such businesses as the oil company Rosneft, which is majority-owned by the state, foreign firms and private investors seeking to exploit the economically depressed region's tourism potential and natural resources.

"Big business will engage in the implementation of the state program," Khloponin said in an interview with a local Russian Far East broadcaster. "But this will not be budget money. This will be investment by large companies."

About $7.5 billion is being targeted in direct funding through 2020.

Instead, Khloponin cited plans for Russia's largest privately owned oil company, Lukoil, to build a $140 million industrial park in Budyonnovsk as an example of how the state will try to alleviate poverty and high unemployment in the North Caucasus, which is cited as a prime motivator of terrorism.

"Another project is a refinery in Grozny (Chechnya), which Rosneft will build. There are also other projects that do not require state support measures. These are the projects of large corporations," he said.

Meanwhile, direct state funding from oil revenues meant to help finance a North Caucasus tourism cluster has been almost completely cut due to the economic downturn, an unnamed source told the Russian online newspaper

Economic development experts cited by the website expressed skepticism that businesses will be attracted to region in large enough numbers to provide the 460,000 jobs the Kremlin projects will be created there, despite its tourist resorts and reserves of tungsten, molybdenum, copper, lead, zinc, titanium, oil and gas.

Alexander Idrisov, managing partner of Strategy Partners private equity and management firm, said it was unrealistic to believe the North Caucasus would be "wonderfully transformed" into an investment magnet.

"The Caucasus need to do something," he added. "If you do not set ambitious goals, you cannot do anything. But how realistic these goals are, I cannot say."

Aghvan Mikaelian, chief executive officer of the FinExpertiza economic consulting group, said the region has an image problem that is likely to hinder a private-sector transformation into a tourism Mecca.

"There is a security issue," he said. "For example, in Egypt, things are rough, but every year, millions of tourists go there. To change the situation with the image of the Caucasus will take time."

Investment can be attracted, Mikaelian said, "but (only) if there is public money, which reduces the risk."


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