Russia Sees Billions Spent on Crimea as Putin Pushes Treaty

Photographer: Viktor Drachev/AFP via Getty Images

People wave Russian flags as they watch Russian President Vladimir Putin deliver a speech on a screen in Sevastopol yesterday. Close

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Photographer: Viktor Drachev/AFP via Getty Images

People wave Russian flags as they watch Russian President Vladimir Putin deliver a speech on a screen in Sevastopol yesterday.

Russian lawmakers are preparing to ratify a treaty this week to annex Crimea, hailing as a victory the return of the Black Sea peninsula that may require billions of dollars even as the national economy comes under strain.

Parliament plans to finish all legal procedures to accept the breakaway region into Russia this week, Sergei Mironov, leader of the Just Russia party, told reporters today in Moscow.

President Vladimir Putin, facing the weakest economic outlook in four years and forecasts of surging capital outflows, is defying Western threats of sanctions and pressing ahead with plans to absorb Crimea, a predominantly Russian-speaking region that houses the Black Sea Fleet. Putin blamed the West for forcing him into a corner and vowed to protect those of Russian heritage from Ukrainian nationalists. Crimea will need billions of dollars of investment in infrastructure, according to Russia’s Economy Ministry.

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“Crimea’s whole history in the past 23 years is the history of the agonizing wait for reunion,” lower house Speaker Sergei Naryshkin said at a meeting with Crimean lawmakers in Moscow, referring to the 1991 collapse of the Soviet Union, which left Crimea a part of Ukraine. “It’s a crucial event in global history, it’s a reversal in the battle of good and evil, white and black.”

Crimean Spending

Russian businesses are showing interest in investing in Crimea after the region broke away from Ukraine, easing the burden on the federal budget, Deputy Economy Minister Alexei Likhachev said today at an investment forum in Tokyo. The ministry’s press service confirmed his comments, earlier reported by the state-run RIA Novosti news service.

Spending on Crimea will probably reach $5 billion, including about $2.8 billion for transportation infrastructure and $1 billion for reconstruction of recreational facilities, Likhachev said, without specifying the period.

Fiscal deficits for Crimea and its port city of Sevastopol are estimated at about 55 billion rubles ($1.5 billion) this year and will be covered in their entirety from Russia’s budget, Finance Minister Anton Siluanov said in an interview today broadcast on state television.

Even before the protests in Kiev turned deadly last month, Russian Deputy Economy Minister Andrey Klepach said capital outflows were increasing and may reach $35 billion in the first quarter, more than half of the $63 billion for all of 2013.

Western Sanctions

The Ukrainian crisis prompted the European Union and the U.S. to impose sanctions against Russia, whose economy started to slow even before the standoff with the West, the worst since the Cold War. Russia’s gross domestic product expanded 1.3 percent last year after 3.4 percent growth in 2012.

The ruble is the worst performer this year except the Argentine peso among 24 emerging-market currencies tracked by Bloomberg, depreciating about 8.6 percent against the dollar. Russia’s currency strengthened 0.7 percent to 35.9700 as of 6:18 p.m. in Moscow.

Crimea’s accession will cost Russia at least $3 billion a year, including $2 billion to replace funds from Ukraine’s budget and raise wages and pensions to the Russian level. A further $1.5 billion to $2 billion will be needed for infrastructure upgrades, Vladimir Osakovskiy, chief economist for Russia and the Commonwealth of Independent States at Bank of America Corp. in Moscow, said March 18 by e-mail.

‘Without Delay’

Putin told Labor Minister Maxim Topilin today to even out the levels of pensions in Russia and Crimea “without delay,” according to a transcript of his remarks at a government meeting.

Russia already plans to spend at least 50 billion rubles to build a bridge across the Strait of Kerch to connect the peninsula to Russia’s mainland, Transport Minister Maxim Sokolov told reporters March 5.

Russia is also considering building an underwater tunnel in addition to the bridge, which will be able to carry cars and trains, Sokolov said at a meeting with Putin today.

Gas export monopoly OAO Gazprom asked Crimea’s leadership about developing oil and natural gas resources, and several Russian companies have proposed projects, including power generation at the peninsula, RIA Novosti said yesterday, citing Crimea’s First Deputy Prime Minister Rustam Temirgaliev.

Russia’s constitutional court reviewed the annexation treaty Putin signed yesterday and declared it legal, Interfax reported, citing court Chairman Valery Zorkin. The president today submitted the accord to the State Duma, the lower house of parliament.

Lawmakers will vote on approving the treaty and changes to the constitution to allowing Crimea and Sevastopol to be added as Russian regions in a special session tomorrow, Mironov said. The upper chamber plans to ratify the treaty by the end of this week, Speaker Valentina Matviyenko said yesterday, according to the senate’s website.

To contact the reporters on this story: Olga Tanas in Moscow at otanas@bloomberg.net; Anna Andrianova in Moscow at aandrianova@bloomberg.net

To contact the editors responsible for this story: Balazs Penz at bpenz@bloomberg.net Paul Abelsky, Torrey Clark

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