Russia to spend US$235 million on upgrading Far East airports
Move is designed to promote repopulation of the region, but a low-reward outlook means the network will remain unattractive for foreign investors
Russia has allotted some US$235 million to reconstruct airport infrastructure in its Far East region between now and 2020. The move is aimed at arresting further depopulation in an area that accounts for more than a third of the country’s territory but just 5% of its people.
The announcement was made at the end of December by Transport Minister Maxim Sokolov, who said money from the federal budget would go towards improvements at the air hubs of Khabarovsk, Yakutsk, Ekimchan, Magadan and others. Analysts are downbeat on the minister’s appeal to foreign investors, but say the upgrades will have an important impact locally.
Russia’s Far East is a huge territory with a low population and extreme weather conditions, making development costly: distances covered and the volume of infrastructure needed are high, but the numbers of people likely to use it are low. A lack of manpower also impacts on the region’s ability to exploit its abundant natural resources.
In 2018, almost US$38 million will be allocated to the developing Far East airports, and US$97 million will be spent on the network in 2019. In 2020, more than $100 million will be invested. The reconstruction will affect about 40 airports. The Russian government believes that, thanks to these measures, transport mobility in the Far East will increase by one and a half times, recovering to levels last seen in 2012.
In recent years, the number of air passengers traveling to and from the Far East has steadily increased. In 2016, growth was 5.8%; in 2017, it was twice as much. In the first 11 months of 2017, the airports of the Far East serviced more than 8.5 million passengers, which is 11.7% more than in the same period in 2016.
“Of the 229 Russian airports, this region has 82,” Alexander Galushka, who is Minister for the Development of the Russian Far East, told Asia Times. “Meanwhile, the wear and tear on airport infrastructure is at the 80% mark.”
The region suffered from significant depopulation and infrastructure decay during the 1990s.
“In the 1990s, airlines got rid of their responsibilities for maintenance of aerodrome infrastructure, and concentrated exclusively on transportation of passengers, so the assets fell into disrepair,” Anna Bardal, a transport economics specialist at the Far East branch of the Institute of Economic Studies, told Asia Times. “The planned actions are extremely necessary and long overdue to move toward modernizing air transport infrastructure in the Far East.”
In 1990, there were 470 airfields and landing strips in the Far East; but this number has dropped to about 100 today. Less than half (49%) of Far East airfields now have concrete runways. The remaining airstrips use cleared ground for runways, which makes them inoperable during the off-season.
It would be too much to expect foreign investors to take part in the reconstruction of local airports, Bardal said, but some air hubs may be attractive.
“Given the lack of commercial attractiveness for most Far Eastern airports located in remote northern regions with low population densities, the use of investor funds for their reconstruction within the framework of public-private partnership is not possible,” Bardal said. “Attractive for foreign investors, in my opinion, would not be airports of regional and local networks, where passenger traffic is low, but hubs of federal and international importance: Khabarovsk, Vladivostok, Yakutsk and others.”
Financial consultant Maxim Krivelevich agrees that Far Eastern airports may struggle to attract investor interest.
“Investments are made in order to obtain profits or increase capital. Therefore, investments go to where the balance of risk and profitability is best. In our case, airports are a dull investment target for foreigners because while their money would be very welcome, they would get few opportunities for returns. So there is no risk-return incentive. While the risks are quite low, there are also no benefits,” Krivelevich told Asia Times.
Krivelevich suggested that foreign companies can only participate in reconstruction as construction contractors. He also added that it was more interesting for foreign investors to invest in Far Eastern ports, where there are greater prospects for profits.
“In the Far East, foreigners can invest in ports and get a new channel for the movement of goods from the north of China, or for coal from Russia to neighboring states. In this regard, taking on a low-cost, highly regulated industry is not so interesting,” the expert said.