An interview with Governor Alexander Khloponin of the Krasnoyarsk territory

Krasnoyarsk Governor Alexander Khloponin argues in favor of a strategic role for the state in partnership with big business, and the South Korean “corporate development” model, proposing this as a foundation for large-scale investment in developing Siberia and the Russian Far East.

Governor Alexander Khloponin of the Krasnoyarsk territory, one of the leaders of the United Russia party, positions himself as a representative of the “new right” within United Russia. Khloponin, with a background in the private sector, now argues in favor of a strategic role for the state in partnership with big business, and the South Korean “corporate development” model, proposing this as a foundation for large-scale investment in developing Siberia and the Russian Far East (RFE). In this interview, Khloponin discusses his vision of that model and current political processes in Russia.

Question: The United Russia party’s recent congress was reminiscent of a pompous Soviet-era event. And your speech outlined a grandiose plan for developing Siberia and the RFE.

Alexander Khloponin: I don’t entirely agree with that description. Party leader Boris Gryzlov’s speech included a strategy for Russia’s progress from a stabilization policy to a policy of development – a strategy of making economic policy more active. And my speech concerned techniques for realizing that strategy via additional development of Siberia and the RFE.

Why is this important? We now have some fast-growing partners to the south: the South-East Asian market, with economic growth rates we can only dream about. And with substantial population growth rates. Both forms of growth require substantial resources. And those resources are only present on the territory of Russia. So unless we restructure our policies on Siberia and the RFE, we’ll face a great many risks – risks to our economic sovereignty, and eventually to our territorial integrity. That’s because we are witnessing the opposite picture in Siberia and the RFE now: declining investment volumes, economic stagnation, depopulation, the lack of a quality migration policy.

According to our calculations, large companies currently have around 22 major investment projects for eastern Russia; but these are being held back, not implemented, due to various red-tape barriers and underdeveloped infrastructure.

And the model we propose wasn’t invented in the Krasnoyarsk territory. It’s a model used by many countries in South-East Asia. It’s a model involving partnership between the private sector and the state, known as the corporate development model. The principle is as follows: the state is responsible for infrastructure and administrative decisions, while the private sector is responsible for commercial investment. What’s more, a pilot project in the Lower Trans-Angara area has shown that for every ruble invested by the state there can be three to six rubles invested by private companies.

Let’s say the private sector is prepared to invest $90 billion in Siberia and the RFE over 10-15 years. That would contribute at least $150 billion to GDP. To service a private investment package like that, we would need $20-30 billion of state investment in infrastructure. Russia can afford to spend $2-3 billion a year on eliminating the risk of losing the eastern part of the country and producing a dramatic increase in the GDP of Siberia and the RFE.

Question: The state can afford to invest now, thanks to favorable energy export prices – but there’s always the possibility that three or four years down the line, the state might no longer be able to fulfill its investment commitments.

Alexander Khloponin: But it’s not as if the state would be investing in thin air here, or burying its money in the ground. The state would get a return on its investment – tax revenue and job creation making a real contribution to the federal budget. This is a fairly high-quality and profitable form of investment.

Question: Back in the 1980s, there was the concept of “long-term projects” – a euphemism for what was essentially a similar situation: some major projects had been launched in the 1970s, but the state simply couldn’t afford to complete them once oil export revenues dropped in the 1980s.

Alexander Khloponin: On the other hand, all of Siberia – including the Kransnoyarsk territory – experienced a boom in the 1970s. And that’s what is keeping the Russian state afloat today, in effect. Russia is living on the investments made in the 1970s. All the oil-fields currently in production were developed and launched in the 1970s. The metals enterprises now contributing federal budget revenues were created on the wave of industrialization in the 1970s. The second phase of development for Norilsk Nickel – 1972, construction of the Nadezhdinsk plant, the Kransnoyarsk hydro-electric power station, the Sayano-Shushensk hydro-electric power station. And Russia is living on those investments now.

Question: So the reasoning goes like this: as long as raw materials prices stay high, that’s the time for Siberia and state investment.

Alexander Khloponin: Russia has always developed its territory from left to right, from west to east. Each new push to the east has been a reaction to particular challenges and threats. Now we are facing challenges involving the need to find new sources of economi growth, and threats due to the underdevelopment of eastern Russia. All the state needs to do is perform its regulatory functions and determine strategy. As you know, pipeline infrastructure is the state’s responsibility. And private companies won’t be developing any fields until they’re certain about pipeline routes. It cannot be otherwise.

Question: Whenever I hear talk of partnership between the state and the private sector, I always recall the Moscow-St. Petersburg high-speed rail link, which ended up as nothing but a hole in the ground and a pile of debts. And quite a few other people would have the same reaction.

Alexander Khloponin: The projects for state-private partnership must not be designed by state officials. The state should not decide all on its own where it will invest and what kind of infrastructure it will build. High-quality projects for state-private partnership are always based on the interests of the private sector.

Private companies and citizens ought to act as the state’s clients. And the state should establish the preconditions for development, or invite the private sector to establish them. For example, private companies have investment plans that would involve building ports. Because the problems with resources in Siberia and the RFE is that the markets for them are 4,000 kilometers away in either direction. And the state could participate in such projects not by investing public funds, but by offering preferences or tax breaks for companies that engage in processing rather than just transporting raw materials. The point here is that there’s no problem with transporting the raw materials themselves. From the standpoint of transport costs, raw materials are less vulnerable. In nickel exports, for example, transport costs make up no more than 5% of overall production costs. That makes it more profitable to export nickel in its unprocessed form than to make and export alloys.

Question: So maybe we shouldn’t process resources in eastern Russia, if that is less profitable, but do the processing closer to where the markets are?

Alexander Khloponin: No. On the contrary, raw materials should serve as a foundation for obtaining the investment capital that will be reinvested in processing. In my view, Siberia and the RFE have two main export items. The first is raw materials; the second is high-tech industry. In other words, revenues from raw materials exports should be reinvested in processing and developing modern technology in the energy and transport fields, and then these technologies could be sold at very high prices.

Question: And this obviously wouldn’t be possible without state investment. Everyone’s focusing on that these days. For instance, you and Mikhail Khodorkovsky supposedly view the situation from entirely different perspectives. But his proposals are exactly the same: private-state partnership, investment here, investment there. Though his figures are even larger.

Alexander Khloponin: Let’s not confuse two things here. I’m saying that we need to define the parameters of the Stabilization Fund and the risks associated with a drop in export prices. Everything else should proceed in the form of investing in infrastructure projects, not in the form of handing out social guarantees, benefits, and wages.

Question: Let’s get back to your party congress. United Russia has been called the ruling party, or the Kremlin’s party – but now the discussion seems to be about establishing a de facto one-party system. Speakers at the congress were saying openly that this would be no bad thing, and pointing to the example of Japan and its Liberal Democratic Party. Do you also think that a one-party model offers good prospects for development goals?

Alexander Khloponin: No, it’s the wrong model. But we’re in the process of establishing both civil society and our political system. Looking at our state as it is now, it’s rather like a centaur – with the human half facing forward into the 21st Century, wanting to live in a democracy and have a certain range of liberties, while the other half is a 20th Century animal demanding benefits and guarantees from the state. Eventually, once we complete the transformation from centaur to human, the model will work rather differently. Now, let’s look at the party. United Russia’s problem is that many of its leading figures were first elected as regional leaders, for example, or appointed to senior state office, before they ever joined the party. The structure ought to be different.

That is why the question of making a transition to a completely new system was raised at the party congress. For example, let’s say the Krasnoyarsk territory votes for its regional legislature, and the United Russia party wins the election. Then United Russia would nominate a candidate for governor of the Krasnoyarsk territory. And if the Communist Party wins the election, the Communists would nominate a governor candidate. Then a party would be able to hold the government and the bureaucracy accountable.

Question: But surely a strong party should be a party that wins an election and goes on to appoint one of its members as governor, rather than just “nominating” or “suggesting” a candidate.

Alexander Khloponin: I agree entirely. Eventually, the party should appoint rather than nominate. What we have at the moment is a transitional construct.

Question: In that context, I can’t resist asking another question. You were elected governor of Krasnoyarsk as a result of a captivating election campaign. So is it more comfortable to be an elected governor or an appointed governor?

Alexander Khloponin: For the time being, I fully support regional leaders being essentially appointed, and I think it’s right. This is because citizens are largely apolitical, especially young people, and we lack civic institutions that might defend their positions actively. As a result, regional leaders become hostages to the minority of the electorate that votes in every election and attends demostrations. And in that construct, no matter how right-wing you are as a governor, within two year you have to change course and essentially drag your region backwards, because the people who want that are those who are sure to vote.

Question: In terms of your centaur theory, how do you think the Year 2008 Problem should be solved?

Alexander Khloponin: Ideally, I think there should be a parliamentary election, and the winning party in that election should nominate a presidential candidate.

Question: And everyone already knows which party will win.

Alexander Khloponin: Why do you say that?! Listen, United Russia has never collected more than 32% of the vote in the Krasnoyarsk territory. And we have the Union of Right Forces, which is fairly active in Krasnoyarsk, and the LDPR, and the Communist Party, and Yabloko.

Question: Realistically, though, we do know that United Russia will be the winning party in 2007. So will it nominate a presidential candidate?

Alexander Khloponin: No. We’re not ready for that, I’m afraid. That’s the ideal scenario. I’m saying that it’s feasible if there are civic institutions in place and the people can formulate their demands. In a competitive political environment, the people need to formulate what they want from political parties. We are unable to do this at present. That’s why the agendas of our parties are so vague, and the parties are so weak.

Question: So how should we solve the Year 2008 Problem, given this situation?

Alexander Khloponin: I’ve already said how I’d like to see it solved. It seems to me that no task is more important than establishing civil society and enabling the people to play an active role in politics and the economy. That’s because we have a historical record of using the following formula: we hate the authorities, and we don’t want to participate in governing the state ourselves, so it’s better for us to hire a tsar. There’s the existing motivation. Unless we change it, we’ll be watching a series of successors for the rest of our lives.