Priority development territories: first year of operation of a new economic zones law in Russia

A year ago the law “On the territories of priority social and economic development” entered into force, and recently authorities have reported on the first launched enterprises and 442 billion rubles of investments declared. Partner of YUST Law Firm Anna Kotova-Smolenskaya discussed with Pravo.ru whether the law proved to be an effective mechanism for attracting investments compared to the law “On special economic zones”, and its influence on the economy of Far East and the country as a whole. Anna Kotova-Smolenskaya, who also represents the interests of potential investments in PDAs, gave the following assessment of the first year of the law’s operation: “In general, I have a positive attitude towards the law, as its ideology is that the parties – the investor, the Ministry for Development of Russian Far East and the management company (appointed by state and responsible for infrastructure development of the PDA and interactions with investors) – are not bound by a large amount of regulations and conditions. The managing company is entitled to establish regulations in the territory of priority development based on the interests of a specific investor or a pool of investors. These regulations are more beneficial than those of the Special economic zones, where the law establishes stricter conditions for the investors.”
At the same time, despite the optimism and bold predictions given by government officials, the first year of the law’s operation demonstrated that it is far from perfect. “The law contains some poor wording, which is very vague and can be interpreted in different ways. This concerns first of all the issues of preferential taxation, construction of infrastructure and land relations. We discovered it while working on the project of a certain investor that wishes to execute it in one of the PDAs”- Anna Kotova-Smolenskaya explains. “And if the provisions of law can be interpreted ambiguously, it makes the situation unclear and leads to concerns among the investors. The issue is large-scale projects, and if there is an element of uncertainty, the investor prefers not taking risks”.
The Ministry for Development of Russian Far East is already preparing a set of amendments to the law that may already be brought in before the State Duma this year. “In the session of the working group under the Ministry for Development of Russian Far East we suggested our amendments to the law based on our work experience with potential investors of PDAs, and they became part of the set of amendments the Ministry is currently preparing” – Anna Kotova-Smolenskaya confirms work progress on amending the law.
However, even in its current form and only after a year of operation the law has been recognized as a rather effective legal mechanism for attracting investments and development of certain territories. Initially, it was supposed to be applied solely in the territory of the Far East in the first three years, and only after that its effect should reach other regions in case of successful practice. However, the geography of PDAs is expanding even now – first of all, PDAs are created as a mechanism for development of single-industry cities. At the end of last year the government assigned the status of PDA to the cities of Yugra (Kemerovo region), Naberezhnye Chelny (Tatarstan), Gulkovo (Rostov region) and Usolye (Irkutsk region). In March 2016 seven more cities from six regions were added to this list – from Karelia to Zabaikalsky region. Besides, the Special economic zone in Kaliningrad region is to be transformed into a PDA.

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