Vladivostok - Russia's Pacific capital

By bne IntelliNews July 26, 2010

bne -

Both literally and figuratively, Vladivostok is as far from Moscow as it's possible to get.

The economic decline of Vladivostok was turning this far eastern port into a political powder keg, which ignited in February 2009 when thousands of people took to the streets to denounce President Dmitry Medvedev and Prime Minister Vladimir Putin in the largest display of public discontentment in Russia in years. The issue that sparked the demonstration was an increase in car import duties, as locals have a nice business in buying and reselling used Japanese cars. The Kremlin's response was swift and brutal: it sent in the Omon special police force to quash the protests before they could gain momentum.

Having nearly wrecked the local economy with its car duties, the Kremlin moved to quickly rectify matters by making Vladivostok the biggest recipient of regional development funds after the 2014 Olympic host city Sochi. The city has since become a giant construction site, but critics say the region is turning into a case study of how not to do it.

Fleeting memories

During the past 20 years, Vladivostok has been dying. Once the city was the capital of Russia's Pacific Ocean fleet. However, in recent years only a few large ships and submarines remain of the once-proud group. Thanks to reductions in the navy, officer uniforms and sailors' caps have disappeared from the streets. All the large defence factories in the city have lost their customers and closed. At the same time, the largest fishing companies have collapsed.

With most of the elite already gone, the once intellectually vibrant Vladivostok has turned into an ordinary provincial city where uncouth and boorish traders dealing in used Japanese cars now set the tone, a business that has been transformed from a criminal smuggling operation to a legal and online import business. A buyer can now purchase his car online through Japanese car auctions that will arrive in two weeks, already cleared through customs and the state inspection service.

The car business has propped up the local economy in the way that selling cigarettes on street corners helps pensioners survive. One in three people in the Primorskaya region make their living connected to the car business - buying, delivering, registering, repairing and shipping half a million cars a year to other parts of the country. This is on a par with Russia's biggest car plant Avtovaz, which produces 600,000 cars a year. It's no wonder the locals nearly rioted when the state raised the duties.

The explosion of anger caught the Kremlin by surprise, but the centre has since taken steps to get to grips with the problem. "After raising the import duties for importing used foreign cars and largely destroying this business in the Far East, the government made a strange gesture. Prime Minister Putin personally ordered the leadership of the Sollers automobile company to 'move production to Vladivostok!' The government apparently thinks that the entrepreneurs who lost their business importing used cars will now become workers at the assembly plant," says Stephen Aris, one of the authors of a Russian Analytical Digest report called "The Russian Far East."

Within six months, Sollers disassembled some of its equipment in the central part of Russia and, just as during the war years, moved the factories to the east. In Vladivostok, this equipment was reassembled in the former Dalzavod plant in the centre of the city.

The Kremlin also had the federal authorities quickly rewrite the federal programme for the Economic and Social Development of the Far East, extending it to 2013 and naming it as the host of the Asian-Pacific Economic Cooperation (Apec) Summit in 2012. A budget of RUB426bn ($138bn) was set aside for investment - nearly nine-times the region's own revenues. "The city has never seen so much money," says Aris.

Bulldozers are flattening hills and ripping out trees in forests just beyond city limits to make way for new highways. Dump trucks are pouring a dam into the sea in order to build a 4-kilometre bridge across the bay, which will ultimately shorten drive times to the airport. At the airport itself, workers are building new terminals for passengers and a new runway to handle the most modern planes.

In the very centre of Vladivostok above the main street, the framework for a new bridge, which will cross the Golden Horn Bay, is taking shape. It will be 1,388 metres long. The bridge creeping toward Russky Island is even more ambitious, with a length of 3,100 metres. The central part will soar above the strait at a height of 1,104 metres - the longest cable-stayed bridge in the world and the first time Russian firms have built bridges over the sea.

But the wall of money hasn't had much affect yet. Typically, few local businesses have been able to win these federal construction contracts and the main impact has been a trickle down from the jobs created and supplies purchased (though paradoxically, this money has not helped create an impressive number of jobs for the locals either). "According to the current system in Russia, most of the contractors for big construction projects are distributed either without auctions or in competitions in which all potential competitors have dropped out before the winner is announced," writes Aris. "Only construction companies with close ties to Governor Sergei Darkin were able to benefit."

For example, the contract for the bridge to Russky Island went to a local company that had never built a bridge before after Japanese, South Korean, and Chinese firms who might have submitted bids said the completion deadlines and conditions of work were unrealistic. Even the builders actually doing the work are low-cost immigrant workers, not locals.

Among the other projects are: a giant station to process raw sewage that used to be dumped into the sea; 60 km of pipes to bring fresh water to the city; new roads to the airport; bridges; an opera and ballet theatre; and a new federal university. Energy too is targeted. In December 2009, Putin participated in the opening ceremony for the new RUB60bn ($1.9bn) Kozmino port near Nakhodka at the end of the East Siberia-Pacific Ocean oil pipeline and watched the first tanker fill with oil. The pipes are now in place from the East Siberian oilfields to Skovorodino (Amur Oblast), and then the oil is carried by rail to the port. In April, the port finished its first phase of construction and reached a capacity of 15m tonnes per year. When the second stage is complete, it will have a capacity of 30m tonnes a year.

Perhaps the craziest project is the Far Eastern Federal University, which will be located on Russky Island. It all smacks of Soviet pomposity, where the state took on "engineering battles" to build grandiose white elephants in the middle of nowhere. Currently, there is nothing on the island except a few old forts left over from the two wars the region fought against Japan in the last century. There is no water, sewer system, roads or electricity. There is also no university, but the government has gone ahead with the construction of the bridge anyway and the plan is there will be one of the best universities in the country at the end of the bridge by the time construction work is finished. Prime Minister Putin came to the construction site to see with his own eyes that the roads were poured out and the pylons were standing.

Many locals aren't impressed. "Why not build a 'gaming zone' with entertainment here?" some local businessmen have suggested, Aris relates. "No" answered a government bureaucrat who hopes to improve the overall image of the country. "We will build the best university in the world on this land!"

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