Urals Cities And Towns Drop Out Of Power Vertical Permafrost

09.02.2010 — Analysis

The Committee for Innovative Development of the Sverdlovsk Union of Industrialists and Entrepreneurs has assessed the competitiveness of Urals monocities. The situation in many of them, fine just yesterday, remains very tense. According to Serghey Khoronko, the Deputy Mayor of Krasnoturyinsk, the production at the factories has fallen by 20% to 40%, whilst unemployment has grown from 1.5% to 5.7% The number of unemployed workers may still grow as the raw material base of the Bogoslovsky mine is waning and the proprietor of the enterprise does not have the money needed for deep exploration. The exploration must be done before 2013, according to Mr Khoronko, otherwise the plant will be on the verge of shutdown.

Rais Garifullin, the Director General of OJSC Metallist Kachkanar Mining Equipment Repair Plant, says that with the amount of orders falling by 50% the enterprise lost the capacity to invest in modernization of production facilities. It is becoming difficult to keep specialists from leaving the enterprise; according to the Metallist's manager even entertainment industry which the company is developing in this monocity does not help. There is nothing else that director can try to get the employees interested as he himself does not understand how the production will develop in the future. The conditions of running business in Russia are getting harder - the price for the raw material (scrap metal) has grown from 6.5 to 10 thousand roubles per ton in the last month, electricity has gone up in price by 80% since 2006.

Anatoliy Sysoyev, the Deputy Chairman of the Sverdlovsk Union of Industrialists and Entrepreneurs, openly calls the Russian Government's policy of raising energy prices during the crisis stupid. It is possible to save on electricity and gas but today this is not the most important problem of the domestic industry. Russians have to construct the enterprises using entirely different principles. In a foreign country a plant making 250 thousand tons of aluminium would employ 500 people which would live in a town with population of three thousand. In Russia it takes a town of 50 thousand to provide for functioning of a production facility of the same capacity. The difference can be explained by different work organization, most of operations involved in servicing an enterprise abroad are outsourced. Proprietors of Russian factories fear to offer scopes of work to third parties through the concern that contractual obligations would not be fulfilled. As a result with the reduction of production volumes or a closure of a factory the Russian Government faces the need to relocate a far greater number of people than governments of developed countries.

Russians being unreliable and dishonest business partners is a very serious problem which sometimes affects economic indicators of enterprises. Anatoliy Sysoyev claims that factory managers often order products without taking logistics into account. According to the expert this is dictated, most likely, by personal interests of the manager - in Russia this is called "otkat" (a backhander, a kick-back), i.e. the director of the buyer company gets part of the income of the supplier company back into his pocket. A number of entrepreneurs have for a long time been suggesting that this type of fraud should be treated the same as corruption since kick-backs just make Russian industry less and less competitive.

The problems of monocities, experts reckon, are worse in a paternalist society. Mr Sysoyev thinks that people must be forced to think, the feeling of being responsible for their factory and place where they live must be fostered. This can not be done by words alone; land should be given away to people living in monocities, they must be helped with the construction of their housing. The Weltanschauung of people living on their own land is fundamentally different from the psyche of proletarians.

The activities of municipal authorities, however, do not help the establishment of the proprietor class at all. According to Alexey Garshin, the First Deputy Mayor of Kachkanar, the city coffers only get refilled by the tax on land and personal income tax. Naturally, nobody is going to give away the land to citizens for free. Moreover, land tax rates are constantly on the increase which makes the general business climate worse in both a given city and in the country as a whole.

The lack of money in the budget makes working on projects for the development of small business meaningless. Vladimir Voronov, the Deputy Mayor of Kamensk-Uralsky, said that the city administration initiated the development of 112 business-projects worth the total of 80 million roubles but the sources of funding are unknown, which means there are none. No leader of a municipality has any illusion to get this funded by the federal budget. According to Yevgheniy Animitsa, a Professor at the Urals University of Economics, the struggle of Russian cities for the 10 billion roubles allocated by the federal Government for their salvation may turn out to be a banal affray with the use of the tried and tested weapon called otkat.

Experts link the decline of monocities to the depletion of deposits discovered during the reign of the reformer Tsar Peter the Great. The future fate of many economic mainstays can already be clearly seen. The problems of monocities will not be solved by either 2015 or 2020; developed countries spent decades doing this and it took vast amounts of investments. Russia does not have this kind of resources whilst the Government doesn't seem to have any plans for giving municipalities financial independence. In any case there were no statements made regarding the need to review the centralised tax structure and the ideology of building a vertically integrated state.

The complex situation Russia found itself in does not give us an option to say that everything will be all right tomorrow, according to Mikhail Fyodorov, the Chairman of the Committee for Innovative Development of the Economy of the Union of Industrialists and Entrepreneurs. The country with the "frozen" society and inoperative power vertical is not capable to withstand challenges of the current time.

Vladimir Terletski