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The customs duty free zone regime effectivein the territory of the Special Economic Zone in Kaliningrad Oblast hasprovided stimuli particularly for further development of foreign trade relatedsectors of the region’s economy. In order to ensure its further growth it is imperativeto put in place an adequate infrastructure, including modern banking andinsurance systems, warehouses facilities, so that the flows of goods that movecurrently through other countries are drawn in to Kaliningrad oblast, thusbringing in Russian and foreign investors;

e)аTown planning programs in KaliningradOblast.

Given the fact that Kaliningrad Oblast is anunevenly populated enclave, with productive forces centered around certaintowns (localities and communities), it is necessary to develop an integratedtown-planning concept for the region as a whole and its individual parts, withelements of consolidated designs.

9.аImproving performance of themanufacturing sector as the primary building block in the oblast’s economic system.

To this end, priority should be given to thefollowing vectors:

• Introduction of modern technologies, upgrade and creation of new,export-oriented and import-substituting, processing capacities;
• further development of the mechanical engineering(machine-building) industry and production of competitiveproducts;
• further development of the pulp and paper and furniture-makingindustries;
• further development of light industry by upgrading the machinery,introducing modern technologies developed by the world leading firms, expandingand renewing the range of its products offered to the marketplace;
• revival of amber producing industry. As it is underfunded, thestate unitary enterprise Kaliningradski YantarnyKombinat is not able to qualitatively upgrade itsproduction facilities and introduce new technologies. Successful restoration ofthe industry and effective operation of the world’s unique natural reserves of amberwould guarantee the region a steady flow of revenues in hardcurrency;
• further development of fishing and seafood processing industrythrough restoration of the existing fleet of fishing vessels, thus making itpossible to better use the rich waters of the Baltic Sea, to preserve access tobiological resources in the fishing territories of foreign states, tosubstantially increase delivery of fish and other seafood products to theRussian and international markets, to utilize the existing capacities offish-processing enterprises, ship-building and auxiliary companies, to preventthe industry from losing its cadres and scientific potential.

2. Main Goals,Objectives, Dates and Stages of the Program

The main goal of the Program is to createconditions for stable social and economic development of Kaliningrad oblastbased on a balanced industrial policy, to raise the population’s living standards to a levelcomparable to that in neighboring states.

Translating this goal into reality requiresthat the following objectives be achieved:

a) to ensure Russia’s geostrategic interests in theBaltic region (42 projects worth 61.9 bn rubles, i.e. 66.6 percent of the totalProgram budget), including:

• to develop Kaliningrad as Russia’s major transportation hub bymodernizing its transport infrastructure (14 projects worth RUR 14.7 bn, i.e.15.8 percent);
• to ensure stable energy supply in the oblast by renovating existingand commissioning new sources of energy (19 projects worth RUR 43.8 bn, i.e.47.1 percent);
• to improve the environment, to attain statutory environmentalindicators (9 projects worth RUR 3.4 bn, i.e. 3.7 percent);
• to establish partnerships with the Baltic states and European Unionnations;

b) federal-level objectives (59 projectsworth RUR 16.3 bn, i.e. 17.5 percent), including:

• to create conditions for sustainable social and economicdevelopment of the region, to increase gross regional product 3.5 times by2010;
• to transform the region’s economic structure in order todevelop export potential (32 projects worth RUR 9.2 bn, i.e. 9.8percent);
• to improve the mechanism of the Free (Special) Economic Zone and tointegrate it into the world economic space, to create an effective system ofadministering the Free (Special) Economic Zone (13 projects worth RUR 0.3 bn,i.e. 0.3 percent);
• to improve the quality of life and to attain a level of householdincomes comparable to the that in neighboring states;
• to develop the telecoms infrastructure (4 projects worth RUR 4.4bn, i.e. 4.8 percent);
• to develop the tourism and recreation sector (10 projects worth RUR2.4 bn, i.e. 2.6 percent);

c) regional-level objectives requiring statesupport (48 projects worth RUR 14.8 bn, i.e. 15.9 percent),including:

• to achieve integrated development of agriculture, to supplypopulation with essential foodstuffs by replacing outdated machinery andadopting state-of-the-art technologies in all sectors of agriculturalproduction (4 projects worth RUR 3.3. bn, i.e. 3.5 percent);
• to develop fisheries (3 projects worth RUR 0.4 bn, i.e. 0.5percent);
• to develop sectors of the social sphere (41 projects worth RUR 11.1bn, i.e. 11.9 percent).

As the program unfolds conditions will becreated in the oblast to improve the investment climate. The most importantones are the development of the transportion and telecoms systems, the tourismand recreation infrastructure, attainment of stable electricity supply, andimprovement of the environment.

A high-speed freight and passenger sea lineKaliningrad –Leningrad oblast ports will be instituted, a deep-water port complex inBaltiysk and a container terminal in the Kalingrad trade sea port will be builtto improve the functioning of the oblast’s transport complex.

To improve the investment climateKaliningrad oblast needs to be connected to the European automobile roadnetworks, primarily the Via Baltica transportation corridor along the Balticsea coast (Berlin –Gdansk – Baltic states– St. Petersburg– Scandinavia), andthe telecoms infrastructure should be developed. The set of activities designedto turn Kaliningrad into a major transportion and telecoms hub connecting notonly Russia and Europe but also the Baltic nations, includes:

• construction of a fiber-optical line between Kaliningrad and St.Petersburg;
• implementation of an area digital network based on optical fiberlinks;
• upgrading of the telephone network (introduction of digitaltechnologies, implementation of a new cable link, upgrading of localexchanges);
• construction of a retransmission station (outside Kaliningrad) toincrease the number of transmission channels and to provide reliablebroadcasting of local programs and retransmission of central Russiabroadcasts.

Development of the tourism and recreationsector can become an effective tool in restructuring the oblast’s economy and canhelp:

• boost the demand of domestic and foreign consumers for all types oftourism products and services;
• preserve and rationally use the rich cultural and natural heritageof the oblast.

Energy supply is of tremendous importancefor the functioning of the oblast’s economy. Construction of a base energy source – a Kaliningrad heat-power plantTEC-2 is planned (the first 450 MWt unit to be commissioned in 2005) to resolvethe problem. It is also necessary to consider construction of a second unit ofthe TEC-2, and of a second gas pipeline with underground gasstorage.

The environment is another factordetermining the oblast’s investment attraction. To improve the environment and to attainthe prescribed status of its components it is necessary:

• to commission waste disposal plants, to modernize the sewage andwater supply networks;
• to adopt environmentally safe technologies inindustry;
• to build an industrial and household waste recovery site and awaste recycling plant;
• to adopt gas and local fuels at power generating plans and boilerinstallations.

The priority industries that ensure theoblast’scompetitiveness and strategic advantages are the amber industry, fisheries andthe agro-industrial complex.

At a time when Kaliningrad oblast accountsfor some 90 percent of the world market of unprocessed amber and only a fewpercent of processed amber, it is the main task of the amber industry torestructure its production processes, to coordinate flows of raw material,financial and other inputs.

Modernization of the fleet, as a means ofdeveloping the fisheries sector, will help extend the scale of fishing andcreate a favorable environment for related industries. The main task here is toensure effective use of financial leasing.

To improve agriculture measures should betaken to maintain land reclamation systems to prevent complete degradation oflands, to develop the instruments of the finance and credit system, tomodernize agriculture by replacing outdated machinery and adoptingstate-of-the-art technologies in all sectors to achieve higher productivity oflands and cattle breeding.

One of the program’s main tasks is to improve thepopulation’s qualityof life which is characterized not so much by income and cost of living as byhousing conditions, the environment, the functioning of the publictransportation system, personal safety, etc. The program defines specific tasksof bringing income into line with the minimal consumer budget rather than thesubsistence minimum.

Projects and activities have been includedin the program based on the following criteria:

investment projects:

• significance of a project from the perspective of the RussianFederation and Kaliningrad oblast with regard to its ability to consolidateinter-regional ties and cooperation with the EC countries, export potential,development of import-substituting industries, improvement of the industrystructure;
• the magnitude of the budget effect for the federal and oblastbudgets;
• the commercial effect, the debt repayment period;
• the presence of a project team;

- non-commercial activities:

• how acute is the problem to be resolved by a givenmeasure;
• whether the prescribed social indices of the population’s living standards can beachieved.

The Program will be implemented in 2002-2010in two stages: Stage 1 – 2002-2005, Stage 2 – 2006-2010.

The Program will start with activitiesrequired to resolve the most pressing economic and social problems:

• implementation of a set of priority investment projectscharacterized by high commercial and budget effectiveness;
• creation of a foundation for implementing strategic activities todevelop cooperation with EU countries (energy, transport, telecomsinfrastructures);
• reform of export-oriented amber businesses and fisheries that usedto form the oblast’sbudget;
• formation of the oblast’s investment potential to renewits economic growth;
• implementation of new mechanisms to finance investment projects andactivities by combining own and investor funds, and support from the federaland oblast budgets.

Investment and social activities thatconsolidate positive economic and social results achieved during Stage 1 of theProgram will continue into 2006-2010. By using the balance of funds availableto organizations after the preceding stage of the Program Kaliningrad oblastwill acquire an additional instrument for implementing the rest of theprojects.

In conjunction with the Program, it will benecessary to formulate new laws and review a number of oblast laws, normativeacts and methodology documents now in effect, to organize information andanalysis support in order to monitor parameters of the oblast’s social and economic development,to ensure management of the Program.

Para 33 of the Procedure for the Developmentand Implementation of Federal Task Programs and Inter-state Task Programs inwhich the Russian Federation is a participant, and which was approved by theRussian Government Resolution No. 594 of 26 June 1995 On the Implementation of the Federal Law On Supplies of Productsfor Federal State Needs, provides for annual review oftarget indicators and costs of programmed activities, the mechanism of theProgram’simplementation, and the implementers.

3. ProgramActivities

It is envisaged that the program will beimplemented in a number of interrelated complexes within which similaractivities involving various Program participants will be coordinated andfunded.

The main criterion is the targeted nature ofall investment projects and activities enunciated in the Program. Based on thiscriterion, investment projects will be grouped in accordance with the maintasks of Kaliningrad oblast’s social and economic development.

60 investment projects and 89 non-commercialactivities are to be implemented under the Program until 2010.

The Program activities will be subject tostate environmental and town-planning assessment in line with effectivelegislation.

The list of Program projects and activities,their scope and sources of funding is contained in Annexes 1 and 2. Informationon other federal and regional programs in Kaliningrad oblast is in Appendix3.

Implementers of program activities andequipment suppliers will be selected through a tender in accordance with theFederal Law On Tenders for Orders to Supply Goods,Perform Works and Provide Services for State Needs.

The program also includes activitiesdesigned to improve the mechanisms of instituting a Free (Special) EconomicZone in Kaliningrad oblast, these are contained in Annex 4. Measures to improvethe regulatory and legal framework will create conditions for installing afavorable taxation and customs regimes, an attractive investment and businessclimate, and for resolving infrastructure and environmental problems inKaliningrad oblast.

The Program provides, among other things,for adoption of a number of regulations and laws at the federal and regionallevels, formulation of a new version of the Federal Law On the Free (Special) Economic Zone in Kaliningradoblast, and proposals on amendments and additions inother federal laws.

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