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A Tale Of Two Business Incubators In Russia's Pskov Oblast

By the end of July, there was still no water, electricity, or proper roads at the Moglino industrial park, despite promises that the special economic zone would have all the necessary infrastructure in place.
By the end of July, there was still no water, electricity, or proper roads at the Moglino industrial park, despite promises that the special economic zone would have all the necessary infrastructure in place.

PSKOV, Russia -- At the end of May, Pskov Oblast Governor Andrei Turchak laid the ceremonial cornerstones of the first two factories at his region's much-ballyhooed special economic zone (OEZ) in the village of Moglino.

It was an event long in the making. Moglino was first designated an OEZ in 2012. The federal government contributed 2.8 billion rubles ($43 million) and the regional authorities pitched in about 470 million rubles ($7 million). The governor promised the project would bring 50 billion rubles of investment into the region and would create at least 4,000 new jobs. By 2016, Turchak said, all the necessary infrastructure would be in place and partners would be ready to move in.

But clouds were already looming over the project when the May ground-breaking ceremony was held. In a scathing report issued less than a month earlier, to mark the 10th anniversary of the OEZ concept, the Audit Chamber concluded that the 33 designated OEZs had failed to contribute significantly to the economy.

Although envisioned as business incubators that could kick-start Russia's transition away from a commodities-based economy, they have shown meager results.

With more than 186 billion rubles spent over 10 years, the projects created just 18,177 jobs -- more than $150,000 per job. Tax and customs revenues from all the zones over 10 years have amounted to just 40 billion rubles.

"What kind of effectiveness is that?" Audit Chamber head Tatyana Golikova said at the presentation of the report.

Rumors were already in the air that at least some of the OEZs would be liquidated. No one knows for sure what Moglino's fate might be, but it stood out prominently in a chart in the Audit Chamber report that showed it had so far created just four new jobs. The good news for Moglino is that four of the projects have so far failed to create even one.

On June 9, President Vladimir Putin ordered the government to shut down the "10 least-effective" OEZs and to hand over control of the remaining ones to local authorities. The federal government, it appears, is washing its hands of the concept.

"As far as I know, no one is mentioning Moglino" among the 10 OEZs to be closed down, Pskov Oblast business ombudsman Arkady Murylyov told RFE/RL. "So there is no risk to investors at this moment."

Bridge To Europe

Pskov Oblast is in northwestern Russia. Like neighboring Novgorod Oblast, the region has stronger democratic and mercantilist roots than the rest of Russia. It was even part of the Hanseatic League in the 14th century and was seen as a bridge to the rest of Europe. Now, however, although Moglino is less than 50 kilometers from the border with Estonia, it seems a world away from its tech-savvy and innovative neighbor.

By the end of July, it was difficult to find the cornerstones that Turchov christened. Bulldozers and dump trucks moved listlessly around the 200-hectare site. There was no water, no electricity, and no proper roads. The building that one day should be the customs terminal is an empty shell with wind blowing through its glassless windows.

A guard at the unfinished utilities substation pointed toward some stones and said, "There they are." The granite blocks were pushed off into some bushes shortly after Turchov left because they were in the workers' way.

Moglino has five official resident companies, and a sixth is in the negotiating process -- although one of Turchov's cornerstones belongs to that unconsummated project. The other one belongs to the Finnish firm Nor-Maali Industries -- the only company that has begun building a factory at Moglino.

"We have a meeting with them at the site every day at 8 a.m.," Moglino Managing Director Olga Torbich said.

Makeshift Solution

Four of the Moglino client firms are registered in the basement of a residential building in the city of Pskov. A plain blue mailbox attached to the door lists the names of the region's would-be future job creators.

Torbich explains that this makeshift solution was necessary because there are no mailing addresses at the 4-year-old project.

Although Moglino's management insists that construction on the four remaining factories will begin by the end of the year, Torbich concedes that investors, particularly foreign investors, are wary of the situation in Russia generally and the status of the OEZs in particular.

Olga Torbich
Olga Torbich

A part-Danish company called TETRA Electric froze its nearly ready project in 2014 after Russia annexed the Ukrainian region of Crimea and fomented a military conflict in eastern Ukraine. A part-German firm called ProTim Pskov that planned to begin construction in September has shown signs of concern since the Audit Chamber report, she said.

Daniil Verkhozin, ProTim Pskov general director, told RFE/RL the same thing. "We definitely started a dialogue with Moglino's management the very same day," he said.

"They assured us that the situation hadn't changed and we are inclined to believe them. But we will have another meeting on this topic at the end of August."

He said the company would not begin construction until all of the necessary infrastructure -- "not only for the beginning of construction, but for the future work of the factory" -- is in place. Just in case, he said, the company has scouted out several other locations in Pskov Oblast.

Torbich blames the government for creating the uncertainty that is now complicating her work. "The government is just consuming itself," she said. "What kind of atmosphere are they creating for investors?"

Igor Savitsky
Igor Savitsky

Igor Savitsky, a local entrepreneur and a member of the regional legislature, has been skeptical of the project from the beginning and still doubts that any factory will ever be opened at Moglino. The site, he said, was a poor choice from the beginning, since prevailing winds will carry the pollution from the project directly into the city of Pskov.

"And perhaps you have noticed that at rush hour there are already traffic jams in that direction," he added. "Can you imagine what an additional 4,000 workers would mean?"

Bogged Down In Bureaucracy

Savitsky, however, is not an entirely disinterested observer. He is a co-owner of a company called NPN, which owns a share of an industrial zone on the northwestern edge of Pskov. He says that zone of old Soviet-era factories already has water, electricity, roads, railroads, and other infrastructure that is now being built from scratch at Moglino.

"I had talks with the managers of the project," he said. "I said, 'Guys, why are you starting all this from scratch?' They told me that if they work with me, the government won't give [them] the money."

So Savitsky has been developing his own technology park in parallel with Moglino. He renovated an office building at the site and opened a business center there with a cafeteria. Then he began renovating the industrial space and leasing it out bit-by-bit.

He now has 60 tenants and about 1,000 people work at the once-derelict factory that has been redubbed the Zubchatka industrial park. Three of his clients, he says, were attracted to the region by Moglino's advertisements.

"Three of them are here while they are waiting for Moglino to be built," he said.

There are already 1,000 people employed at the privately owned Zubchatka industrial park across town.
There are already 1,000 people employed at the privately owned Zubchatka industrial park across town.

Moglino's Torbich has a grudging respect for Savitsky, saying that he has achieved better results because he is free from bureaucracy.

"He is the boss of his own money," she said, "of his own ideas. So making decisions goes much more quickly."

When Savitsky began construction work, the Moglino managers had just entered into correspondence with relevant state corporations and agencies. It took a year before the technical parameters of Moglino were approved. Another year passed while the plans were drawn up, and it took six months to arrange tenders for the work. Construction only began in mid-2015.

Pskov authorities recently asked Moscow for an additional 1.5 billion rubles for Moglino, but were refused. Moscow said the project must be completed with the money that has already been sent, Torbich says.

For now, as the government prepares its list of "ineffective OEZs" for closure, the bulldozers continue to rumble at Moglino. And the grass continues to grow around the ceremonial cornerstones pushed to the side of the road.

RFE/RL correspondent Robert Coalson contributed to this report from Prague.