Russia Spends More Oil Cash to Prolong Economic Boom

"But Loginova suggests, the country would earn immense returns from creating a super-agency or ministry that would oversee the transportation ministry – which she suggests has been especially neglectful about planning – the customs service, and the economic development ministry.

Were that to happen, even for a short time, she argues, it would be possible for Moscow to take five steps that would put the country on track to becoming a transit power in its own right between Europe and Asia rather than simply an exporter of raw materials to both."
-- Russia’s Transport System Failing to Fulfill Strategic Tasks, September 26, 2007


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Russia Spends More Oil Cash to Prolong Economic Boom

By Maria Levitov
September 21, 2007 (Update2)
Source

Sept. 21 (Bloomberg) -- Russia's government will invest more of its oil wealth directly into the economy, mainly in infrastructure, as it seeks to maintain the longest expansion since the fall of the Soviet Union.

Budget-funded investment will rise to at least 900 billion rubles ($36 billion) next year, acting First Deputy Prime Minister Sergei Ivanov said at an investment conference in the Black Sea resort of Sochi today. State investment will climb to 3.8 percent of gross domestic product ``in the coming years,'' Ivanov said, without providing more detail.

``Russia more than ever before is using oil and gas revenue for financing projects,'' acting Finance Minister Alexei Kudrin said at the forum. Budget revenue from oil and gas taxes now equals 5 percent to 6 percent of GDP, versus 2.5 percent a few years ago, Kudrin said.

The economy will probably expand 7.5 percent this year, more than the 6.5 percent originally forecast, as surging oil prices translates into record revenue, acting Economy Minister German Gref said yesterday. The economy, the world's 10th biggest, expanded 6.7 percent in 2006, the eighth-straight year of growth.

Budget and non-budget spending on infrastructure will reach $1 trillion between now and 2020, Gref said. So-called state monopolies including OAO Gazprom, OAO Unified Energy System and OAO Russian Railways all plan to spend tens of billions of dollars in the coming decade to upgrade Soviet-era equipment and increase capacity.

Power, Transport

``Developing power and transportation infrastructure is a key factor for the economic development of Russia,'' Ivanov said today. Economic growth will average ``no less than 6 percent'' a year through 2010, he said

The Federal Grid Co. will get 170 billion rubles next year, nuclear power plant manager Rosenergoatom will receive 120 billion rubles and hydroelectric dam operator RusHydro will be allotted 75 billion rubles, Ivanov said.

Russia's foreign currency reserves have surged 35-fold in the last decade to $420 billion, exceeding all other countries except China and Japan. The government also created the Stabilization Fund for windfall oil revenue that now holds 3.41 trillion rubles.

The government plans to invest 400 billion rubles in the sparsely populated Far East alone in the next five years, on roads, rail links and other infrastructure. This spending is part of a drive by the world's biggest energy supplier to develop areas outside of Moscow and St. Petersburg, and diversify the economy away from oil and gas.

To contact the reporter on this story: Maria Levitov in Sochi via Moscow bureau at mlevitov@bloomberg.net
Last Updated: September 21, 2007 05:33 EDT