COMMERCIAL NEWS UPDATE FROM THE LOWER VOLGA

March 2006

Author: Marina Johnson, BISNIS Representative for Samara, Lower Volga

This report summarizes commercial and business development news in the South of Russia and the Lower Volga regions for March 2006.

This report contains the following information:

LOWER VOLGA VALLEY

- Samara Region: Automotive, Financial Market

- Ulyanovsk Region: Trade Shows

SOUTH OF RUSSIA

- Volgograd: Retail, Agriculture, Industrial Production, Investment Climate

- Astrakhan Region: Construction

- Rostov Region: Trade Shows

- Krasnodar Region: Retail, Wood Processing

Samara Region

Automotive

GM-AvtoVAZ raises prices

As of February 22nd, 2006 GM-AvtoVAZ, JV raised prices for Chevrolet Niva of L and GLS class by 1.1% up to $11 482 and $12 625 correspondingly, the press service of the enterprise reported. “AvtoVAZ” having raised prices for car parts called this action forth.

Source: www.volgainform.ru

AvtoVAZ launches assembling plant in Egypt

In February AvtoVAZ ceremonially opened a division plant in Egypt. The first car manufactured and assembled was LADA 2107. 5 000cars of this model have been assembled since the foundation of the assembling enterprise “LADA-Egypt” in 2002. Presently the enterprise has been expanded and its capacities enforced with welding and painting workshops.

In 2005 JSC AvtoVAZ has shipped 2 200car part sets of LADA 2107 and LADA 110 models. The plan for 2006 is to ship over 3 300 sets.

Source: www.volgainform.ru

AvtoVAZ mulls 12 new models

The new management announced plans to create a principally new model line of 12 models on the basis of some European brand, which one is yet to be decided (Renault, Fiat or DaimlerChrysler).

Up to the date the plant has only produced one new model since 1995: LADA Kalina. In February 2006 the board of directors agreed upon the strategy of development aimed at constructing a new automotive plant in Togliatti with production capacity of 450 000cars a year. AvtoVAZ cannot afford to fulfill the project independently (estimated as some $20bln) and welcomes participation of banks and other investment groups. The attractiveness of the proposal is defined by the existing niche for cars below $10 000.

Source: www.themoscowtimes.com

AvtoVAZ Looking at Engine Plant in Brazil

State official and AvtoVAZ board member Boris Alyoshin is set to visit an engine plant in Brazil in April, with a view to buying the plant for the country's largest carmaker. The visit comes as AvtoVAZ embarks on a multibillion-dollar restructuring program, under which it plans to launch a dozen new models in the next five years. Securing a new engine supply is part of that plan.

During the visit to Brazil planned for April 2-7, Alyoshin, head of the Federal Industry Agency, will visit gasoline engine manufacturer Tritec Motors. Tritec, which is located in Campo Largo in the southern Brazilian state of Parana, is jointly owned by BMW and DaimlerChrysler. The report said the plant was worth up to $1.5 billion. The 42,000-square-meter plant currently produces 1.6-liter gasoline engines mainly for BMW's Mini car.

Securing new engines for AvtoVAZ was one of the points in a plan for the car industry drawn up last year by the Federal Industry Agency, which is part of the Industry and Energy Ministry. The plan, which called for $5 billion in state funds for AvtoVAZ, said the Russian car industry needed two new types of 1.1-liter to 2.2-liter gas engines and a new type of 1.8-liter to 2.2-liter diesel engine. Purchasing an engine plant would be quicker and smarter for AvtoVAZ than building its own production from scratch.

While the plant produces gasoline engines only, Tritec spokesman Thomas Prete said Friday that he did not "exclude the possibility to market diesel engines" in the future. Automotive firm GAZ said it was interested in buying a foreign diesel engine maker, adding it would consider purchasing jointly with AvtoVAZ

Source: www.themoscowtimes.com

Johnson Controls enters Russia

Johnson Controls, a leading car parts maker, has picked a Russian partner to set up a joint venture in Togliatti in a bid to satisfy demand for quality car parts in Russia. The joint venture, to be based in Togliatti, will initially produce between 60,000 and 70,000 seating parts. It will be Johnson's second manufacturing facility in Russia, the Milwaukee-based firm already operates its own manufacturing facility near St. Petersburg, where it makes seating systems for the Ford Focus model that Ford's Russian plant assembles nearby. Initial investment in the joint venture will be between $3 million and $5 million, and the U.S. firm is to own a majority stake.

Johnson Controls plans to grow its presence in Russia, cooperating with domestic and Asian suppliers, and eventually to export some of the parts to Western Europe. The firm is now reviewing two "major supply contracts".

Source: www.themoscowtimes.com

Togliatti designates a special economic zone for auto parts production

Togliatti is to create a special economic zone for car parts production. The zone is to be 250 hectares large and host 15-25 foreign (German and Japanese) and domestic producers of car construction materials, parts, units and accessories. The zone is going to offer favorable tax, customs, licensing and visa conditions for 20 years. The buyers of the products will become JSC “AvtoVAZ”, “GM-AvtoVAZ” and other car assembling enterprises in Russia, both foreign and local.

Source: www.volgainform.ru

Financial market

EBRD opens representation in Samara

European Bank of Reconstruction and Development intends to open a representation in Samara by 2006. Presently EBRD has been the largest investor as well as agent for other financial groups. The major projects of the bank in the region, totaling 188mln euros, include launching of an automotive JV “GM-AvtoVAZ” and renovation of ammonia production line at “Togliatti-Azot”.

Source: www.volgainform.ru , www.samara.ru, www.regions.ru

China is Samara’s major trade partner

Samara region administration summed up the trade volume and reported China as its largest trade partner. Germany and USA were the largest investment resources. The overall trade turnover grew by 5.8%, the export advanced by 6.8%. The major commodities did not change considerably, the core of the export being mineral raw materials, the main imported commodities were machines and equipment.

Source: www.volgainform.ru

Ulyanovsk Region

Ulyanovsk takes part in MIPIM-2006

Ulyanovsk region took part in the International Commercial Estate Show “MIPIM-2006” and presented the following projects: an autodrome, an entertaining center in the existing skating complex and a congress hall. The region administration also researched the experience of creation special economic zones and mulls implementing it in Ulyanovsk. Negotiations with 4 logistic groups were held to discuss future cooperation. A large French construction company “Bouyges” expressed interest in finishing construction of a bridge over the Volga.

Source: www.volgainform.ru

http://www.mipim.com/App/homepage.cfm?appname=100458&moduleid=399

Volgograd Region

Retail

Volgograd to welcome IKEA

In April 2006 the Volgograd oblast administration and “IKEA MOS”, Ltd are to sign an agreement of investment cooperation aimed at construction of a multifunctional trading and commercial center. The investment volume is to reach $100mln. So far the site has been selected and confirmed by the region administration. The region authorities attempted to attract the retailer a few times previously, yet succeeded only presently.

Source: www.volgainform.ru

Agriculture

Volgograd holds agriculture conference

JSC “Agromashholding” took part in the conference on realization of a national priority project “Agriculture Development” in Volgograd. “Caterpillar” tractors and other agricultural equipment of Volgograd Tractor Plant and Krasnoyarsk Tractor Plants were presented to the participants. After the merger with “Tractor Plants Concern”, “Agromashholding” will offer a whole complex of most modern technologies and equipment, as well as repair services.

Source: www.volgainform.ru

http://www.volgograd.ru/news/?new=31574

Industrial Production

Volzhsky Pipe Plant grows sales

In February 2006 Volzhsky Pipe Plant (a part of “Pipe Metallurgic Company”) sold 73 500 tons of pipes, which is 7.5% over January 2006. Steel production grew 14.2% against January 2006 up to 66 600 tons. The overall sales of 2006 reached 141 000tonsof pipes, it being 3.2% higher than the same period of 2005. The total production output of 2006 increased by 2.5% the output of January-February 2005 and equaled 125 000 tons.

Source: www.volgainform.ru

Investment climate

Volgograd sums up investment inflow

Capital investment volume in Volgograd amounted to $1.42bn, which is 19% above the volume of 2004, the press-service of the region administration reported. The major investments share was attracted to telecommunications and transportations enterprises ($560mln) and processing enterprises ($310mln).

Source: www.volgainform.ru

Astrakhan Region

Austrian corporation invests in Astrakhan construction

Pado Oil & Chemicals (Austria) will invest $26.78mln in construction of a residential area in Astrakhan. The area is to consist of 13 high blocks of flats, office buildings, a car park and social infrastructure. The first blocks are to be completed by autumn 2007 and the total area is to be finished by 2008.

Pado Oil and Chemicals have been previously engaged into extracting and processing of iodine in the region and bus station construction in Astrakhan.

Source: www.volgainform.ru

Rostov Region

Trade Shows

Rostov to take part in Cannes Estate Show

Rostov region will take part in the international show of commercial estate MIPIM-2006, in Cannes. In 2006 the show is dedicated to tourism and hospitality business, and Rostov will present 30 investment projects, the regional ministry of economy, trade and international affairs reported.

Source: www.interfax.ru

http://www.donland.ru/news.asp?Id=5456&newsGroupId=2

http://www.mipim.com/App/homepage.cfm?appname=100458&moduleid=399

Rostov holds agribusiness show

On March 22 Rostov held the agribusiness show “Interagromash - 2006”, the largest event of its kind in the South of Russia. JSC “Agromashholding”, the major participant, presented its new caterpillar tractors produced at the Volgograd Tractor Plant (a part of “Agromashholding”). The holding announced its intentions to make its machines as affordable as possible and appealed to regional banks and financial groups to invest into leasing programs. The holding plans to double its sales in the region in 2006.

Source: www.volgainform.ru

http://www.vertolexpo.ru/expo-in.htm?pid=407

Krasnodar Region

Retail

Krasnodar opens a new mall

The second line of “Krasnaya Ploshad Mall” was opened on March 1 in Krasnodar. The new mall has 3 levels of 10 000sq m each, entertaining center with a bowling, children’s park, cafés and pizza shops. The mall houses a hypermarket “Mosmart”, “Banana-Mama”, NIKE, МЕХХ, Mango shops and, for the first time for Krasnodar, New Yorker, Esprit, Brandtex, Консул, Gregoгy, Camaieu, Morgan. The investor of the project, “Ramo-M”, and “Savings Bank of Russia” plan to construct the third part of the center.

“City-Park”, Ltd is to launch construction of a shopping and entertaining center in Krasnodar in March 2006. The estimated cost of construction is over $100mln, the general director of “City-Park” Dmitry Belousov reported.

Source: www.interfax.ru, http://economy.kuban.info

Krasnodar trade turnover grew 1.5 times

In 2005 the foreign trade turnover of the Krasnodar region grew by 1.5 times up to $2.88bn against $1.88bn in 2004, the department of economic development, investments and international affairs of the Krasnodar region reported on March 7. Thus the region holds the second position after Rostov. The main trade partners of the region are Turkey, Italy, France, Egypt, Germany, the USA and Ukraine. The export reached $1.54bn, being 71% higher than the year before. The import grew by over 30% up to $1.34bn.

The Krasnodar division of Federal Service of Statistics (KrasnodarStat) reported the production output of industrial enterprises of Krasnodar achieved 7% raise in 2005 against the year before.

Source: www.interfax.ru, http://economy.kuban.info

Krasnodar retailer expands to Nizhniy Novgorod

CJSC “Tander” (Krasnodar), a major Russian food discounter, acquired ownership of a chain of 22 stores of “Ekonta”, in Nizhniy Novgorod, from the local GC “Alliance” (controlled by “Millhouse Capital”, Great Britain). A Moscow food retailer “Kopeika” attained administration of 48 more stores of the chain, previously owned by “Ekonta”. The details of the transaction remain undiscovered, yet a source with the local administration reported the second deal worth $80-90mln.

Source: http://economy.kuban.info

MosMART opens first store in Krasnodar

A Moscow largest retailer “MosMART” started its region development with opening a store in Krasnodar. The investment volume into a “maxi”-format store (some 5.5 thou sq m) reached $5mln. The company announced plans to open 11 more stores of different format tailored to different groups of customers in other regions of Russia.

Source: http://economy.kuban.info

Wood Processing

Italians to build timber processing plant in Krasnodar

Federlengno Arredo (Italy) will invest 120mln euros in construction of a fine-dispersed boards plant in Abinsk, Krasnodar Region. The plant will use low quality timber as raw material, the capacity is to be 150 000c.m. a year. The construction is to be launched in April 2006 and completed in 2007.

Source: http://economy.kuban.info

For more information on Astrakhan and southern Russia, visit BISNIS online at http://www.bisnis.doc.gov/bisnis/country/volga.cfm

BISNIS (www.bisnis.doc.gov) is part of the U.S. Commercial Service (www.export.gov).