Commercial News Update—Southern Russia and Lower Volga

April 28, 2007

Prepared by Olga Kutuzova, BISNIS Representative for Southern Russia/Lower Volga

This Monthly News Update provides news briefs on the major economic and social developments in April 2007 in the Lower Volga and South of Russia: Krasnodar Krai, Stavropol Krai, Volgograd Oblast, Rostov Oblast, Astrakhan Oblast, Samara Oblast, Saratov Oblast and Ulyanovsk Oblast.

1. Ulyanovsk Oblast

Modernization Program for Heavy Transport Planes

Ulyanovsk enterprise "Aviastar-SP" has started a modernization program for heavy transport planes An-124-100. As a result of the modernization, the carrying capacity of these planes will be increased from 120 to 150 tons. Also cargo cabin floor will be strengthened and planes will be supplied with the advanced onboard equipment, including new devices for prevention of dangerous rapprochement with the ground. Total price of Аn-124-100 plane after modernization will become around $10 million.

Source: United Volga

2. Rostov Oblast

1) First High-Speed Paid Tunnel Will Be Constructed in Rostov-on-Don

This year Rostov-on-Don City Administration will held competition on designing and construction of an underground high-speed tunnel (length – 2.5 km, contract price - $300 million (7.5 billion rubles)). The administration of Rostov claims that this underground highway can be constructed in 7-8 years; its capacity will reach 60 thousand cars per day.

Private investors are invited to participate in the tunnel construction. Local authorities are so sure in attractiveness of this project that they refused to apply for co-financing to Investment Fund of the Russian Federation. Thus city administration can become the main contractor of construction. On a tentative estimation, the time of recovery of outlay of the project is 25 years. Calculations were made based on planned payment for travel via tunnel - $ 0.8 (20 rubles) for cars, $ 1 (25 rubles) - for trucks.

Source: Regions.ru

2) Fund of Direct Investments Is Created in Southern Federal District

The National Agency of Direct Investments (Rostov-on-Don) is finishing procedures for creation of the Fund of Direct Investments for the South of Russia. Founders of the National Agency of Direct Investments are: Chamber of Commerce and Industry of the Russian Federation, State Organization «Higher School of Economy», and the non-profit partnership «Center of Legal and Investment Programs». The basic direction of activity of agency is assistance to Russian regions in formation of a favorable investment climate and attraction of investments.

Foundation capital of the Fund is $100 million, in the future it can be increased up to $200-300 million. The largest banks have also participated in Fund creation, in particular, Foreign Trade and Investment Bank, Gazprombank, «Uralsib» and MDM-bank.

Source: "Interfax"

3) Private Investments Are Invited for Development of Water-Power Engineering in the South of Russia

In the Southern Federal District the tariff for electric power is 1.37 rubles ($ 0.05) for KW/hour, which is above the country average. According to forecasts, by 2008 growth of tariffs in district will reach 12.9 % ($ 0.06 per KW/hour). Principal causes of this growth are necessity of electric power re-location from the central region, expensive power production inside Southern Federal District and significant power network restrictions. This situation demands construction of economic kinds of power stations, including hydrostations.

Now one of the largest investors in this field is “HydroOGK”, subsidiary of Russian Open Society «United Energy Systems". In the past “HydroOGK” has invested about 5 billion rubles ($ 0.2 billion) into completion, reconstruction and construction of new water-power electric stations in the region (Zelenchukskaya Hydroelectric power station, and construction of small hydrostations).

In 2007 the company planned to spend about 10 billion rubles ($0.4 billion) for development of water-power engineering in the South of Russia. It is intended to implement these projects with attraction of private investors.

Also Federal program «Development of the South of Russia» will direct additional 3 billion rubles ($100 million) from Federal budget for financing of water-power engineering up to 2011.

Source: "ITAR-TASS"

3. Stavropol Krai

Incomes of tourism during creation of the Kavminvody special economic zone (SEZ) by 2009 will increase to 5 billion rubles ($ 0.2 billion).

Total amount of infrastructure financing for the tourist-recreational SEZ in Stavropol Krai from federal budget will reach 2.54 billion rubles ($95 million) by 2016.

In the first three years Stavropol Krai budget will allocate for this purpose 240 million rubles ($9 million), budgets of seven municipalities - 277 million rubles ($11 million), from other sources - 1139 million rubles ($43 million). Federal budget provides for the starting 3-year period 738 million rubles ($28 million).

By 2009 tourism revenue will increase to 5 billion rubles ($ 0.2 billion), the number of tourists will reach 1 million 500 thousand people in 2010 and up to 2.8 million people by 2026. The period of repayment for budgetary funds invested in infrastructure is from three to five years.

The Ministry of Economic Development and Trade of Stavropol Krai is responsible for coordination of actions concerning creation and functioning of special economic zone. Municipalities had also appointed government officials and departments for economic zone activities. Stavropol Krai Ministry of property together with municipalities works on registration of the land plots under investment platforms in special economic zone and prepares cadastral roster. Ministry of economic development and trade of Stavropol Territory prepares local legislation changes regarding confirmation of given tax privileges to SEZ residents - total tax deduction under the property tax within 5 years from the moment of property registration, and reduction on 4 points under the profit tax.

In 2007 local government together with Federal Agency on special economic zones management will prepare zoning documentation for SEZ territory; its architectural concept, depending on local conditions, landscapes and geology; development and management concept and master plan.

Source: IA REGNUM

4. Krasnodar Krai

1) Krasnodar Will Receive 10 Million Euro Loan

EBRD President Jean Lemierre visited Krasnodar after his trip to Sochi, where airport reconstruction project was discussed. The purpose of the Krasnodar visit became the creation of new jobs as well as bank participation in city infrastructure development and modernization of housing construction enterprises. Negotiations about the conditions of a 10-million euro EBRD loan for re-equipment of city transportation system were held. As a result Krasnodar should receive 50 new trams and trolleybuses. The contract with the bank is signed, but conditions of credit are still being discussed. EBRD representatives have also expressed an interest in opening of the representative office in Krasnodar which will become first in the South of Russia.

Source: The Best City – Krasnodar

2) Krasnodar Krai Is Ready to Start 2 Regional Special Economic Zones (SEZ) of Industrial Type

According to local government decisions, "East Industrial Zone of Krasnodar City " and "Kirpili" zone in Korenovskiy region will be provided with all necessary infrastructural communications and transport logistics system, so expenses for business accommodation and manufacturing in these zones will be much less.

For the East Industrial SEZ it is necessary to secure about 400 hectares in the east suburbs of Krasnodar. The project also includes relocation of 77 industrial enterprises out of the city center. Total cost of this relocation is calculated within the frames of $ 200 - $ 230 million (5.5 - 6 billion rubles); zone will be created in stages, and at the first stage will be used from 60 to 70 hectares of its territory.

Source: ИА "Interfax-south"

3) Strategic Aims for Krasnodar Krai Economic Development – Agriculture and Mining

Alexander Tkachev, Krasnodar Krai Governor, has officially announced strategic directions for economic development of the region.

In agriculture the first aim is to achieve grain productivity of 5 tons per hectare, rice – 6.5 tons per hectare, total grain crops - 9 million tons, including 1 million tons of rice.

The second aim is dynamic rise of animal industries: to increase livestock of pigs – from 1.5 million up to 3 million, number of cows from 650 thousand up to 850 thousand heads.

The third aim, in governor’s opinion, is to double the vineyard areas in 5 years: 93 thousand hectares of local land are suitable for grapes growing, however only 22 thousand are used for this purpose. Therefore every year can be created over 5 thousand hectares of best wine grades vineyards, and in 10-15 years Krai can supply all of Russia with its local wine.

Sources: IA REGNUM and Yuga.ru

5. Volgograd Oblast

Volgograd Airport Expects Reconstruction

Volgograd International airport Board of Directors presented its program of airport development through 2012. Reconstruction provides for increasing the number of arriving flights and boosting revenue of the airport. Plans include renovation of main airport building, finishing of cargo terminal construction and new runway. General part of works will be carried out "at own expense" though attraction of funds from investors is also planned.

Source: IA Volgograd news

6. Samara Oblast

Samara Oblast Government Has Created Foreign Investments Council

The foreign investments council includes all regional structures involved with foreign investment: representatives of the regional ministry of economic development and investments, tax inspections and customs service, deputies of the Samara Oblast Duma, etc.

Gabibula Hasaev, minister of economic development, investments and trade of Samara Oblast Government, became head of the Council. The new structure is created to lobby interests of the Samara Oblast, because of raising competitiveness between regions of the Russian Federation in the field of foreign investments attraction. The Council will research spheres of capital investments, determine reliability of investors, calculate estimated risks of foreign investments and so on.

Source: United Volga

7. Saratov Oblast

1) Saratov Business Park

The Ministry of Investment Policy of Saratov Oblast and «Saratov Business Park» company have signed an agreement to create in five years a multipurpose complex for $ 0.5 billion (13 billion rubles). This complex will be constructed on 196 hectares in Raskovo settlement in Saratov region.

This Business Park will be divided into two functional zones. The first zone - «Retail Park» - will include grocery and furniture hypermarket, construction materials and interior assets hypermarket, and trading complex with various boutiques and pavilions. Also it will host an entertaining complex with food-court and a restaurant court yard. Skating ring, multihall cinema, children's playground with sports center, bowling-center, billiard hall and discotheque are also planned. «Retail Park» will be equipped with multilevel elevated parking.

Second functional zone - «Logistic Park » - will consist of railway access roads, administrative buildings, warehouse terminals, office areas, service areas, parking for trucks, gas station with car wash.

Source: United Volga

8. Astrakhan Oblast

First Congress of Local Businessmen Was Held in Astrakhan

Small business does not want to ask for help from authorities, but prefers to be considered as a reliable partner. First congress of Astrakhan businessmen has gathered more than 100 small enterprises. The congress has been organized by regional administration, Astrakhan Chamber of Commerce and Industry and regional branch of all-Russian non-profit organization "Opora Rossii" ( Support of Russia). Today small business in Astrakhan area employs more than 165 thousand person that is each third working place. The most important problems are high prices in office space rent and bureaucratic barriers in rent of land plots.

Source: GTRK "Lotos"

Update prepared by:

Olga Kutuzova

BISNIS Representative

Lower Volga and Southern Russia

ul.Octyabrskaya, 106

Krasnodar 350000 Russia

Phone/fax +7(861) 275-05-39

For more information on the South of Russia, visit BISNIS online at http://www.bisnis.doc.gov/bisnis/country/southern.cfm

Service (www.export.gov).