Development of Siberia between the Yenesei and Lena Wouldn't Benefit Moscow or Investors Foreign or Domestic, Verkhoturov Says

Paul Goble

            Staunton, Oct. 27 – Many like to talk about “Siberianization” and “the mastering of Siberia,” Dmitry Verkhoturov says; but most do so without considering the real costs involved in doing so and thus overstate what one or another project will cost and what it will bring in return.

            To compensate for the overly optimistic projections of such people, the Siberian economist says, it is worth considering the development of just one portion of Siberia, the lands between the Yenisei and Lena rivers, the site ofc enormous natural wealth and almost no infrastructure (sibmix.com/?doc=23297).

            If one calculates the costs involved of developing the resources and then transporting them out for foreign sale, one can easily see, Verkhoturov says, that “under prevailing conditions,” development of that region “will not benefit investors either domestic who are currently suffering under huge debts and losses or foreign ones either.    

            There are indeed enormous deposits of natural resources in that region, he continues, including potash salts, iron, copper, coal and other minerals as well. But for these to be economically viable, mines must developed with populations brought in and housed to support them and transportation infrastructure created where none now exists.

            The transportation infrastructure that will have to be built includes the construction of a railway and connecting roads (about 4.8 trillion rubles), a pipeline costing 1.6 trillion ruble with annual operating costs only adding to those totals. Building mining and population infrastructure will require another 5.6 trillion rubles.

            Moreover, Verkhoturov says, those estimates are likely low given the extreme conditions of the Evenk region; and so assessments of cost must begin at 15 trillion rubles and will likely to much higher, and the maintenance of both the mine, human and transportation infrastructure will add trillions more.

            Assuming price stability, lack of sales restrictions, and low inflation, Verkhoturov says, the mining industry from that region would be about 900 billion rubles a year, leading the paying off of the investment cost in 16.6 years. But if prices fall as China is pressing to take place, it would take 46.8 years for the project to recover investment costs.

            The problems these costs imposed are exacerbated by the difficulties of finding the necessary capital. If Moscow borrowed the 15 trillion, it would have to pay three billion a year in interest alone, something that by itself would make the project anything but profitable for the foreseeable future.s

            Foreign investors would like face similar challenges and thus would make demands for the kind of side payments that would make such a development even more unprofitable, the Siberian economist says, adding that what he has described for one region of Siberia would be multiplied many times for the entire space to be developed.