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. Last Updated: 07/27/2016

Conference Promises Investors a Better Deal

IRKUTSK, Eastern Siberia - Foreign companies will enjoy an improved business climate in Russia next year, including lower taxes, more foreign banks and clearer laws, senior officials told a conference Monday.

Andrei Shapovalyants, first deputy economics minister, told foreign and Russian business executives at a conference on foreign investment in Siberia and the Far East that the government would consider giving a tax break for profits reinvested into Russian businesses.

He also said another priority was lowering value-added tax for consumer goods production. Shapovalyants did not say by how much VAT, currently 20 percent, would be lowered.

The Irkutsk conference is the first of eleven such regional meetings to be held throughout Russia" that were agreed at the April Group of Seven meeting in Tokyo.

Shapovalyants said that the government would also introduce changes to the legal system to boost the confidence and security of foreign investors.

"The creation of a favorable investment climate is a major priority of the Russian government", he said. "We will pursue a real investment policy".

He said that the annual potential for foreign investment in Russia was $30 billion to $50 billion, about 30 times the level achieved this year.

One problem however is the high level of inter-enterprise debt which Shapovalyants put at 14 trillion rubles ($11. 7 billion).

In a separate speech, Fuel and Energy Minister Yury Shafranik acknowledged that Russia has failed so far to attract most of the big foreign oil firms because of poor legislation in the industry.

But, he said, "taking into account that the fuel and energy complex was completely closed for foreign investors, and there was no legislation in this field, much has been done in two years. "He predicted that Russian oil production this year would end at 355 million tons, down from 570 million tons in 1987. Russian reserves can sustain an annual production level of 400 million tons "if we have the financial and material resources" to do so. Gas production, however, should remain stable at about 600 million cubic meters for 15 years.

On the banking front, Yelena Chekmaryova, an official at the Russian Central Bank, said that it is likely there would be more opportunities for foreign banks to open branch offices in Russia next year.

Under Central Bank guidelines, foreign banks are now limited to 12 percent of the total authorized capital of all banks in Russia. Chekomaryova said that the number of foreign banks who have already been issued with licenses would take this proportion to 10 percent. But she said the percentage would probably be increased.

In other remarks in his speech, Shapovalyants said the government would also change the current shape of privatization by reevaluating government assets to be privatized.

The valuation of Russian assets to be privatized has been a controversial issue since privatization began. Workers are currently allowed to buy into privatized companies at prices based on book values of January 1992 which do not take into account the 100-fold increase in prices since then.