Oil Report

UPDATE 4-Russia to spend $1 trillion on infrastructure

(Adds Putin comments)

SOCHI, Russia, Sept 21 (Reuters) - Russian President Vladimir Putin said on Friday private investors, including foreigners, would have a major role in a $1 trillion programme planned to modernise Russian industry and infrastructure.

Speaking earlier at an investment forum in Russia’s southern city of Sochi, acting First Deputy Prime Minister Sergei Ivanov said Russia aimed to invest $1 trillion in infrastructure over the next 10 years.

In his speech to the forum, Putin said his administration was working to encourage private investment.

“We expect that private investors will play an increasingly noticeable and leading role in the large-scale modernisation of the economy.”

“We will use the most modern and effective development instruments and financial mechanisms (to develop Russia’s regions.) And at the same time we are taking into account that ... there will also be activity from private investors, both domestic and foreign.”

Putin says he will step down when his second term ends in 2008, but he is expected to retain political influence. Analysts say the next president will be a Putin loyalist who is unlikely to deviate from current economic strategy.

Acting Finance Minister Alexei Kudrin said earlier the state would contribute about 20 percent of investment in Russia’s fast-growing economy, with private business supplying the bulk.

Ivanov, speaking at an investment forum in the Black Sea resort of Sochi, said state investment in the economy would equal 3.8 percent of gross domestic product in the next two years and rise to 4.5 percent by 2015.

“We are prepared to give investors additional tools that will guarantee a high level of returns in infrastructure investment,” Ivanov said.

“We are broadening competition. We aim to guarantee liberal access to monopolised sectors of the economy by strengthening free market regulatory methods,” he added, without specifying which sectors.

He said: “In those areas where maintaining monopolies is economically justified -- and I emphasise the word economically -- we are prepared to privatise the maximum number of structures within the service and maintenance sectors.”

Ivanov said Russia should pass long-awaited legislation governing foreign investment in strategic areas of the economy by the end of this year. The lower house of parliament passed the draft at a first reading last week.

The legislation defines 39 business areas where national security is affected and requires foreign investors seeking a controlling interest in such a business to undergo an approvals process.

Kudrin, also speaking at the forum, said capital investment in Russia would total $370 billion in 2010, compared with $168 billion in 2006. Priority government ‘national projects’ have been a key driver of capital investment in Russia of late.

Ivanov told the forum Russia would invest 170 billion roubles ($6.8 billion) next year in the state power grid company, FSK, plus another 120 billion roubles ($4.8 billion) in federal state atomic energy agency Rosenergoatom.

Russia also planned to build 4,000 kilometres (2,500 miles) of new roads annually by 2010 and to invest 11 trillion roubles ($437.9 billion) in its rail network by 2030.

Investment in the country’s airport network would reach $30 billion by 2020, Ivanov said.

All of Russia’s government ministers are working in an acting capacity pending a reshuffle of the cabinet after Prime Minister Viktor Zubkov’s appointment last week.