+ 7 (499) 346-73-03
+ 7 (8422) 73-70-01
info@ulregion.com
Best region
to invest in

Map for investors

31.05.2011

There are now about 150 industrial parks in Russia. According to Ernst & Young their number grew by 15% in 2010. However, the consultants admit that the growth was caused by a backlog from previous years.

Search help

Yulia Stefanishina, senior manager at Ernst & Young explained "industrial parks are a stand alone format, which can take on one site (from 100 to 1,000 ha) several plants, ideally with a similar profile and usually with one larger anchor." She said that lots of industrial parks were created by companies acting as anchors and over time bringing other companies with them.

Turnkey industrial park sites are enclosed areas with installed utilities. Investors prefer Greenfield sites to Soviet period plants and industrial zones (brownfield).

Dmitry Ryabov, Deputy Chairman of the Government of Ulyanovsk Region, which has been developing industry over the last five years confirms that out of the 10 investors that have entered the region, nine have chosen Greenfield sites and only two Brownfield. The reason is simple and clear lease conditions and property registration. The only advantage of brownfield sites is the existing utility facilities, although their capacity needs to be adapted to residents' demands.

According to Maxim Ivanov the head of the Association of Industrial Parks, it is quite difficult for an investor, especially a foreign one, to find and evaluate a site. Sometimes the search takes years. The association has started to help investors by certifying sites prepared for accommodating parks. Together with Ernst & Young a map of the parks in Russia and Moscow Region was developed. As Mr Ivanov recognises, investors are drawn to the regions of Central Russia to bring production as close as possible to sales and storage areas.

Projects which survived the crisis are being supported by the authorities not just with words but in deeds. Mikhail An, Deputy Director of the Department for Investment Policy and Development of Public-Private Partnerships of the Russian Ministry for Economic Development says that there is already high competition between regions for investors.

Residents for donors

The most advanced regions in attracting investors into the industrial sphere are donor regions. The leaders include Moscow Region, which, according to Ernst & Young research, has a quarter of existing Russian industrial parks. Interest in Moscow Region forced civil servants to develop a specialised program for creating industrial districts in Moscow Region by 2010, which, according to the authorities was accomplished last year. The document is now being developed with new deadlines, to 2015, although the situation is far from ideal.

Most industrial parks do not have any residents yet according to Ernst & Young research. In those already built tenants arrived before the crisis. One of the main issues is still the availability of utilities. While municipal authorities are waiting for requests from specific companies for developing utility infrastructures, park sites remain undeveloped.

In Tatarstan the first projects for developing industrial sites date from 2006. Now work is being done on creating the 2,000 hectare Sinergia industrial park in the Alabuga special economic zone. Renat Khalimov, Director of Investor Relations SEZ Alabuga confidently stated that in two year's time it would be 100% filled with residents.

A lot of importance is being placed on various tax preferences for a period of 10 years: property tax, vehicle and social tax are not collected at all, profit tax is reduced to 15.5% (the Russian average is 20%). In addition, customs incentives are promised: export of goods to outside Russia do not require duties and VAT. An important innovation: from this year such a standard (VAT payments are also cancelled) will be applied to import of 20% of raw materials and equipment used in the manufacturing process. Land can be rented or purchased. Rent will be $1,000 per hectare and purchase $2,000 according to Mr Khalimov.

If production is placed in the industrial park as part of the SEZ, then benefits are applied to the purchase and rent of ready sites and not land. The territory has all utilities, water supply, electricity, heat and fibre optic connections. According to developers surveyed by Vedomosti, to provide a site with 1 MW capacity requires $500,000 while in Tatarstan it requires $200,000, in Alabuga the government takes all costs. The project cost the republic $0.5 billion.

Tatarstan authorities reject residents who are legal entities who are unable to demonstrate business transparency and stable sources for future development. Mr Khalimov explains that they may not be able to actually start a project. About half of the manufacturers are foreign companies.

Do like others

Regions that have more modest possibilities have approached the idea of developing parks only relatively recently. For example, Ryazan Region government formed and approved in November 2010 in local legislative bodies the main proposals and preferences to be provided to investors. They had to base themselves on their own economic possibilities. Oleg Bulekov, Minister for Economic Development of Ryazan Region explained, "in accordance with the Investment Development Program of Ryazan Region, the regional budget will begin to repay tax payments to investors for the return on investment period (but no more than 10 years). So, the region only gets the benefit of job creation and income tax receipts paid by employees of the created plants. In five years, if the production is successful, profit tax will begin to be paid". Bulekov believes that even this approach opens up good prospects for the region as within at least ten years the government will receive serious money.

It is suggested that tax benefits will also be relevant for Russian companies for modernising production. The example of Guardian Glass Ryazan, which produces float glass and fibre glass insulation, proves this. The plant opened long before the support measures had been developed. The company intended to open a new line (mirror production) and the management decided to look for a site in other regions with more attractive business conditions. However, they have rejected these plans having analysed the preferences declared in Ryazan's regional program.

Natalya Krol
Source: Vedomosti No. 97