Russia and China to 85 new enterprises to be expand collaboration in established in the region the Far East by the end of 2017

Maxim Basov, CEO of "RusAgro" Tax Concession Law Far East regions on business development for Tourism Industry preparing Adopted for EEF-2017 in the Far East EAST RUSSIA No. 8 | JULY 2017 ECONOMIC AGENDA

Free Port territory Support Center for Large grain terminal will Oil Filters to Be expanded on Sakhalin Chinese Investors in FEFD be built in Primorsky by Produced in Khabarovsk under Construction ASEZ resident ASEZ LNG Export Terminal under Design in 1st Coal Batch Shipped for New Southern Kurils Far Eastern Investment Primorsky Krai Export in Beringovsky ASEZ ASEZ Due in Far East Showcase

Investment passport: Sakhalin Region

Mountains of gold Gold Miners Establishing New Infrastructure and Growth Points How a Free Port Resident in Macroregion Entered the Dry Construction Material Market EASTERN RUSSIA ECONOMIC AGENDA

6–7 September6–7 September 2017 2017

2 JULY 2017 EVENTS FAR EAST AS THE PLACE WHERE THE ACTION IS AT Russia and China Agree to Expand Collaboration in the Far East

development, Arctic tourism, and environ- mental protection. One of the documents signed in the presence of the heads of state was a memo- randum on cooperation in the development of the Primorye–1 and Primorye–2 ITCs. It was signed by Alexander Galushka, Minis- ter for Development of the Russian Far East, and He Lifeng, Chairman of China's Nation- al Development and Reform Commission. Under the document, the parties plan to help create the necessary infrastructure for ITC development, including roads and rail- ways, ports, airports, checkpoints, and com- munication systems. Measures will also be taken to simplify procedures, reduce the costs and time of the customs clearance of transit cargo. Moreover, the parties intend to increase freight traffic, strengthen cooper- ation between the ports of the Russian Far East and China, support construction of in- ternational logistics parks, and stimulate the Russian President Vladimir Putin and President of the People's Republic of China Xi development of cross-border e-commerce. Jinping signed a joint statement between the Russian Federation and the People's Project implementation will be coordi- Republic of China on further intensifying their comprehensive partnership and nated by an ad hoc interagency task force. It strategic cooperation, which also mentions cooperation in the Russian Far East. will prepare a project feasibility study, agree on the terms of ITC investment project im- The Russian and Chinese parties will use need to take mutual measures to improve plementation, study freight base formation, their cooperation experience under the mech- the conditions of shipping goods by the and improve ITC regulation mechanisms. The anism of the Intergovernmental Russian-Chi- Trans-Siberian Railway to Europe and to transport corridors will be managed and op- nese Commission for Cooperation and Devel- boost the international transport corridors erated by a joint management company. opment of the Far East and the Baikal Region (ITC) Primorye–1 and Primorye–2. of the Russian Federation and the Northeast During the talks, the parties' attention of the People's Republic of China. The coun- was drawn to the development of Bolshoy tries agreed to expand the scope and areas Ussuriysky Island. The two countries will of interregional interaction and facilitate the continue establishing the Bolshoy Ussuri- implementation of major joint projects, in- ysky-Heixiazi Island checkpoint. For the is- cluding those under the mechanism of the land's development, a cooperation mecha- Russian-Chinese Investment Fund for Region- nism will be set up to provide for environ- al Cooperation Development. mental actions. Russia and China will facilitate imple- The joint statement also stresses the mentation of transport and infrastructure countries' readiness to strengthen Rus- projects. These include construction of the sian–Chinese cooperation in the Arctic Re- railway bridge Nizhneleninskoe-Tongjiang, gion. This involves supporting interaction the motorway bridge Blagoveshchensk-Hei- between Russia and China's competent au- he, and the creation of the economic corri- thorities, scientific research organizations, He Lifeng, Chairman of China's National De- dor Russia-China-Mongolia. and ventures in the Northern Sea Route's velopment and Reform Commission, and Alex- Cross-border freight was a standalone development and usage, joint scientific ex- ander Galushka, Minister for Development of issue. The signed statement expresses the peditions, energy resource exploration and the Russian Far East.

3 EASTERN RUSSIA ECONOMIC AGENDA

FAR EASTERN NEWS

Organizations engaged in tourism TAX CONCESSION LAW FOR TOURISM mented, extending the Free Port regime to in the Far East will receive tax INDUSTRY ADOPTED Uglegorsk District will attract an addition- benefits On July 19, Russian President Vladimir al RUB 65B in private investment to the Putin signed the law "On Amendments to region. Chapter 25, Part 2, of the Russian Federation Tax Code Regarding Sponsorship of Develop- NEW SOUTHERN KURILS ASEZ DUE IN ing Tourism and Recreation Activities in the FAR EAST Far Eastern Federal District". Under the new The government subcommittee on in- law, from January 1, 2018 until December 31, vestment project implementation in the 2022, organizations engaged in tourism and Far East has approved the establishment recreation activities in the Far East will re- of a new Sakhalin Region ASEZ — South- ceive a tax concession in the form of a zero ern Kurils. The relevant documents will be income tax rate. The list of activities under submitted to the Russian Government in the bill will be established by the Russian the near future. Federation Government. Tax preferences are The decision to create a Kuril ASEZ was expected to affect hotels first. based on the initiative of a new investor, billion the fish works Ostrovnoy, to build a man- 5rubles will be invested in THE TERRITORY OF THE FREE PORT ufacturing complex for high-quality frozen the project on Shikotan by HAS EXPANDED and chilled fish products and preserves on an anchor resident of the Beginning July 1, the territory of the Ug- Shikotan island. The cumulative project in- ASEZ Southern Kurils legorsk District, Sakhalin Region, has been vestment would amount to approximately included within the Free Port of Vladivo- RUB 5B. Produce will be supplied both to stok. 12 new investment projects are due the domestic Russian and the Asia-Pacif- for launch in the district. Specifically, current ic markets: Japan, China, South Korea, etc. coal transshipment terminals will be up- Thanks to the new production launch, a graded and new ones built, the capacities of thousand new jobs will be created on the current coal producers will be increased, and island. new production facilities will be created. All According to the RF Ministry for Devel- this will foster the Russian coal market and opment of the Far East, creating a Kuril ASEZ increase its exports to the Asia-Pacific. is envisaged in the federal target program As Alexander Galushka, Minister for De- Socio-Economic Development of the Kuril Is- velopment of the Russian Far East, com- lands in 2016–2025.

4 JULY 2017 EVENTS

Entry with an electronic visa will be possible in Vladivostok International Airport from August 1, 2017. Citizens of the THE CENTER FOR ATTRACTING AND ment practices and legislation improvement SUPPORTING CHINESE INVESTORS IN in the field of the Far East advanced devel- FEFD IS UNDER CONSTRUCTION opment. This commission will include rep- An agreement has been signed between resentatives of ASEZ residents and the Free the Far Eastern Agency on Attracting Invest- Port of Vladivostok, leading experts and rep- ment and Supporting Exports and the China resentatives of science and public organiza- Overseas Development Association, which tions, the management of Institutes for Far countries18 can take provides for creating a joint Center for At- East development. The main goal is to joint- advantage of the tracting and Supporting Chinese Investors in ly and practically look at all issues in order to e-visa the Far East. make it easy and comfortable for investors to The Center will assist in attracting direct work within these regimes, to sectionize law served directly on the website in an individ- investment from China to the Far East and enforcement practices and to receive feed- ual's personal account. support Chinese entrepreneurs implement- back from business people. Type of visa — single entry business, tour- ing projects in the macroregion, by working ist or humanitarian. The visa is issued for a on a one stop-shop principle. The Center's AN INTERNET SERVICE FOR period of up to 30 calendar days with an al- offices will be opened in Vladivostok and OBTAINING AN ELECTRONIC VISA FOR lowed period of stay no longer than for 8 Beijing until October 1 this year. ENTRY INTO THE FREE PORT HAS BEEN days. In addition, under the agreement, the DEVELOPED The service operates in two languages: parties agreed to work together in raising The Ministry of Foreign Affairs of Russia Russian and English. In the future, develop- the awareness of the Chinese business com- has developed a specialized resource for ob- ers plan the use of Chinese and Japanese. munity of the Far East, including its invest- taining an electronic visa for foreigners en- Foreigners will be able to use the e-visa ment opportunities, and do joint research on tering the Free Port of Vladivostok's border for arrival at the Free Port of Vladivostok as new opportunities and growth points in bi- checkpoints. To receive e-visa, it is necessary early as from August 1. The first two check- lateral Russian-Chinese investment cooper- to fill in a special on line application form points in Vladivostok which will start work- ation. and attach a photo. No other documents (in- ing according to the new scheme are the vitations, confirmations, etc.) are required seaport and Knevichi airport. THE FAR EASTERN MINISTRY for visa processing. The visa is issued free The list of foreign countries whose citi- IS CREATING A PLATFORM FOR of charge, a consular fee is not charged. The zens can use the e-visa was approved by the DISCUSSING INITIATIVES TO DEVELOP application form must be filled in no earlier Government of the Russian Federation Exec- THE FAR EAST than 20 days and no later than 4 days before utive Order. It includes Algeria, Bahrain, Bru- The Ministry for Development of the Rus- entrance to Russia. A response on e-visa issue nei, India, Iran, Qatar, PRC, DPRK, Kuwait, Mo- sian Far East is organizing a standing colle- or refusal will be received within 4 days. The rocco, Mexico, UAE. Oman, Saudi Arabia, Sin- gial body — a commission on law enforce- status of application processing can be ob- gapore, Tunisia, Turkey, Japan.

5 EASTERN RUSSIA ECONOMIC AGENDA CONSTRUCTION SITE

By the end of 2017, 85 new enterprises will appear in the Far East, established thanks to new measures of state support

On July 17, Deputy Prime Minister Yuri Trutnev, the presidential en- voy in the Far Eastern Federal Dis- trict, reported to the President of Russia Vladimir Putin on the con- struction progress of new enter- prises in the Far East.

The Deputy Prime Minister said that 637 investment projects worth 2.11 trillion ru- bles were declared for implementation in the Far East of the country. "Vladimir Vlad- imirovich, we fully realize that these proj- ects still need to be turned into developed enterprises, but this work is also being car- ried out", the Deputy Prime Minister said. Ac- cording to him, "until the end of the year, 85 enterprises will be put into service". And he added one more figure: by the end of 2017, "the amount of private funds already invest- Port of Vladivostok or by subsidized infra- – Commercial pig units of Primorsky Bacon. ed in the economy of the Far East will exceed structure construction are, as known, the Investments — 1.8B rubles. 115B rubles, and 5.5K jobs will be created". following: – Feed-milling plant Mercy trade in Pri- According to the Ministry for Develop- – Inaglinsky surface coal mine of the MPP morsky Krai. Investments — 815M rubles. ment of the Russian Far East, for a year and of the same name, which is being built – Industrial park Aviapolis Yankovsky in Pri- a half 42 enterprises were put into service by Kolmar in Yakutia and which already morsky Krai. Investments — 590M rubles. in the macroregion, the total volume of in- produces 2M tons of coal per year. The – Greenhouses of JGC Evergreen in vestments made up 12B rubles, and 2K jobs total investment in the project is 5.95B Khabarovsk. Investments — 560M rubles. were created. rubles.­ – Water park in Kamchatka. Investments — The large-scale projects that have al- – TechnoNIKOL plant near Khabarovsk 530M rubles. ready been put into service within the Ad- which produces rockwool. Investments — Among the companies, which are expect- vanced Special Economic Zones, the Free 2.8B rubles. ed to be commissioned in the near future (rather than in the autumn of this year) - the Natalka deposit in Magadan Region (67B ru- TRANSFERRED ENTERPRISES BY TYPE OF ACTIVITY bles worth of investments), the dry lumber plant of RFP Group in Amursk (326M rubles). BY VOLUME OF INVESTMENT SHARE OF HIGH TECHNOLOGY PROJECTS Also, by the autumn, is planned the commis- ACCORDING TO VOLUME OF INVESTMENT sion of the lumber plant Asia Les, LLC (in- 11% – other vestments worth 6.5B rubles), the marble industries 35% – processing plant in Primorye (500M rubles), (1.9 billion manufacturing the diamond cutting plant KGK (530M ru- rubles) (5 billion rubles) 19% – high-technology bles) and a number of smaller objects. 9% – projects By the end of the year, it is planned transport (2.75 billion rubles) to commission "Mercy Trade" commercial 45% and logistics (1.1 billion – agriculture pig units in Sakhalin (2.3B rubles), hous- rubles) (6.5 billion rubles) ing blocks for employees of "Zvezda" ship- building yard in Primorye (1.5B rubles) and a number of other projects.

6 JULY 2017 EVENTS

Enterprises commissioned and under construction This sign indicates in the Far East working enterprises ASEZ KHABAROVSK ASEZ KOMSOMOLSK ASEZ IP KANGALASSY ASEZ YUZHNAYA

CONSTRUCTION OF THE HEAT- AND ROTARY CUT PRODUCTION PLANT CONTINUOUS BURNING BOILERS FEED-MILLING COMPLEX SOUND-INSULATING MATERIALS AMURSKAYA LESOPROMISHLENNAYA PRODUCTION FACILITY CONSTRUCTION PRODUCTION PLANT KOMPANIYA, LLC SAHA LIPSNELE, LLC MERCY TRADE, LLC TECHNONICOL DV, LLC Investment volume — 4.7B rubles Investment volume — 31M rubles Investment volume — 7.3B rubles Investment volume — 2.8B rubles

ASEZ MIKHAILOVSKY

GREENHOUSE COMPLEX FOR ESTABLISHMENT OF AN ENTERPRISE ESTABLISHMENT OF POLYTHENE­ FEED-MILLING PLANT YEAR-ROUND VEGETABLE FOR CEREALS CULTIVATION, MILK PIPES PRODUCTION PLANT MERCY TRADE, LLC PRODUCTION AND CATTLE MEAT PRODUCTION KHABAROVSKY TRUBNY ZAVOD, LLC Investment volume — 815M rubles SAYURI, LLC GREEN AGRO-SAKHALIN, LLC Investment volume — 1.5B rubles Investment volume — 95M rubles Investment volume — 4.7B rubles

CONSTRUCTION OF COMMERCIAL GREENHOUSE COMPLEX FOR YEAR- PIG UNITS AND FEED-MILLING ACRYLIC COLORS PRODUCTION GREENHOUSE COMPLEX ROUND VEGETABLE PRODUCTION COMPLEX BIGE, LLC SOVKHOZ TEPLICHNY, JSC JGC Evergreen, LLC RUSAGRO-PRIMORYE, LLC Investment volume — 32M rubles Investment volume — 637M rubles Investment volume — 500M rubles Investment volume — 15,8B rubles

ASEZ NADEZHDINSKAYA ASEZ SOUTHERN YAKUTIA

PRODUCTION OF AUTOMOBILE PIG-BREEDING COMPLEX PLASTIC PACKAGING CONSTRUCTION OF MPP CABIN AND AIR FILTERS PRIMORSKY BACON, LLC INTERMEDIATES MANUFACTURING AT INAGLINSKY AND DENISOVSKY PRADA PROMFILTR, LLC Investment volume — 1.8B rubles PRIMORSKY ZAVOD COAL DEPOSITS Investment volume — 55M rubles EUROPLAST, LLC KOLMAR COAL PRODUCER Investment volume — 212M rubles Investment volume — 28.5B rubles

ASEZ KAMCHATKA ASEZ BELOGORSK INFRASTRUCTURE SUBSIDY

POLYMER INSULATORS WATER RIDES COMPLEX BAKERY PRODUCTS CONSTRUCTION OF MPP AT NATALKA MANUFACTURING AQUAPARK PRODUCTION GOLD FIELD Energo-Impuls+, LLC SOLE PROPRIETOR VETCHINOVA BELKHLEB, LLC POLUS, PJSC Investment volume — 7M rubles Investment volume — 525M rubles Investment volume — 18M rubles Investment volume — 88B rubles

7 EASTERN RUSSIA ECONOMIC AGENDA NEWS OF ASEZ AND THE FREE PORT OF VLADIVOSTOK RESIDENTS

LARGE GRAIN TERMINAL WILL BE BUILT opment Corporation to implement a project to IN PRIMORSKY BY ASEZ RESIDENT build a commercial kindergarten in the Nade- The resident of Mikhailovsky ASEZ, LLC zhdinsky district of Primorsky Krai. A kindergar- Chernigovsky Agroholding, intends to build ten for 120 children will appear as a part of the a grain terminal as a part of a grain receiving, infrastructure of the housing complex under cleaning and drying complex with a volume of construction and will accept children between one-time storage of 20K tons. The volume of the ages of 1.5 and 7. The opening is scheduled planned investments is more than 500M rubles. for the fourth quarter of 2020. The company intends to cultivate soy- beans, corn and barley. The size of land A CHINESE MANUFACTURE OF BASIC planned for cultivation of these crops is GOODS WILL OPEN IN USSURIYSK 3.4K hectares. Currently, the residents of the The SHUO DA company, a resident of the Mikhailovsky ASEZ are seven companies that Free Port of Vladivostok, intends to build a implement projects with investment vol- factory in Ussuriysk for the production of ba- umes exceeding 45B rubles. sic goods under the brand XING TIAN. The area of the factory will be 2,000 square me- AN IT-ENTERPRISE HAS BECOME ters. The manufacturing of building materi- The volume of planned A RESIDENT OF KHABAROVSK ASEZ als, footwear, television and radio equipment investments in the grain terminal The IT-company Ipiton, a resident of the will be arranged there as well. The volume construction is more than 500M Khabarovsk ASEZ, intends to organize the pro- of investments in the project will be around rubles. duction of modern software products for auto- RUB 19M. Completion of construction is mation of warehouses, logistics, trade teams, etc. scheduled for the second quarter of 2018, The volume of investments in the project will and at the moment, the investor is designing amount to around 23.3M rubles. The main ben- the facility and registering the trademark. efit for the investor from project implementa- tion in the ASEZ system is potential tax benefits. KORSAKOV WILL HAVE A REAR "In an IT company, the majority of costs come LOGISTICS CENTER from the payroll fund. It is extremely import- The resident of the Free Port of Vladivo- ant to obtain the best conditions for tax deduc- stok Eastern Freight Forwarding Company bln tions in the framework of the ASEZ. This allows (Vostochnaya Transportno-Ekspeditorskaya RUB us to reinvest savings received into the busi- Kompaniya) is implementing an investment 45 ness, thereby bringing IT products to the market project in Sakhalin for the organization of a is today's cumulative more quickly for our customers", explains Vladi- logistics complex for the storage and trans- investment of mir Kontarev, the company's general director. shipment of containers and general cargo in the city of Korsakov. The logistics complex 7 residents of the FREE PORT RESIDENT TO BUILD A NEW will be designed for the development of the Mikhailovsky ASEZ MARINA IN VLADIVOSTOK port, including the turnover of goods aimed The AquaStroy company intends to im- at oil and gas projects on the shelf of Sakha- plement an investment project to create a lin Island. pedestrian street and the Aquamarine mod- ern yacht port in Fedorov cove of Amur Bay RESIDENTS OF ASEZ KAMCHATKA WILL in Vladivostok. The new marina will accom- BE PROVIDED WITH THERMAL WATER modate cruise and sport yachts, and the cre- On the site Zelenovskie ozerki (ASEZ Ka- ated infrastructure will allow for the orga- mchatka), the reopening of thermal wells has nization of large-scale sporting events. It is begun. Thermal water obtained from these assumed that construction will begin in the wells will be used by residents of the ASEZ — third quarter of 2018, and the volume of in- agro-industrial park and tourist facilities. vestment is estimated at RUB 493M. Wells were laid up more than 20 years ago. In total, eight wells will be developed, A COMMERCIAL KINDERGARTEN WILL and investors expect that at least six of them APPEAR IN THE FREE PORT will give the required result. The largest laid The Transformatsiya company has signed up well produces 12 liters of thermal water an agreement with the Russian Far East Devel- per second, which is enough to provide for

8 JULY 2017 EVENTS

the needs of 1–2 tourist bases. And the ther- KOREAN INVESTOR TO BUILD A HOTEL mal water can be used not only for bathing IN BOLSHOY KAMEN AND A GOLF CLUB and balneology, but also for heating the base IN VLADIVOSTOK itself. The LS Networks Korean company intends to invest more than RUB 596M in the con- THE FIRST COMPOSITE MATERIALS struction of a hotel complex in the Bolshoy BOAT HAS BEEN PRODUCED BY A Kamen ASEZ. The hotel will be focused on the RESIDENT OF THE FREE PORT OF growing demand for hotel services associated VLADIVOSTOK with the implementation of the construction The resident of the Free Port of Vladi- project of the largest commercial shipyard in vostok, the Kompozitnoye Korablestroyeni- Russia in the region. The project includes the Beringopromugol has ye Company, presented the first boat of the construction of a hotel with 120 rooms, an Pacifico Adventure project 72 to the pub- apartment hotel with 80 rooms, guest houses exported to China lic. The investor is the only manufacturer of and the necessary infrastructure: parks, sports composite vessels in Primorsky Krai. grounds, restaurants, conference halls. Cur- The company obtained the status of res- rently, the project documentation is under de- ident in May 2016. Investment in the con- velopment. The completion of work is planned thous. struction of a shipyard for the production of for 2019. civilian vessels will amount to RUB 36M. Another project of LS Networks is the tons construction of a golf club in Primorsky Krai. 40 of high-energy coal A RESIDENT OF THE BERINGOVSKY On a plot of 300 hectares, a year-round resort ASEZ HAS SHIPPED A BATCH OF COAL with an 18-hole golf course and the related FOR EXPORT infrastructure will be created, as well as a ho- The Beringopromugol company (a subsidiary tel with 80 rooms and 20 guest houses. The of the Australian Tigers Realm Coal) sent 40K volume of investments in the project will ex- tons of high-energy coal mined in Chukotka ceed RUB 1.5B, and the investor has already for export to China. More than one hundred applied for the status of resident of the Free thousand tons of solid fuel is stored up in the Port of Vladivostok. transshipment complex in the port. The next shipment is scheduled for early August. A TERMINAL IS BEING DESIGNED FOR The company conducts coal mining at the THE EXPORT OF LIQUEFIED GASES IN Fandyushkinskoye field. Every day, 8 coal cars PRIMORSKY KRAI with a capacity of 40 tons each arrive from The resident of the Free Port of Vladivo- the field to the port. The volume of invest- stok Vostok LPG, LLC is designing a marine ter- ments in the project amounted to 23.3M Aus- minal and infrastructure for exporting deliv- tralian dollars. For 4.5 months, the construc- eries of liquefied hydrocarbon gas. The termi- tion of a winter road with a length of around nal will be located in Perevoznaya Bay of Pri- 40 km was completed, office buildings and morsky Krai. The selected terminal construc- profile workshops were built, an analytical tion site already has access to railway sidings, laboratory was delivered and installed. Ad- which facilitates project implementation. The ditional equipment for the extraction and investor is going to begin construction already transportation of coal was purchased and de- in 2018 and complete it in a year. The enter- livered to the site, personnel were recruited prise's designed capacity is 1M tons per year from among the local population and other with the potential for expansion. regions of the Russian Far East. SALMON FISH HATCHERY IN VANINO ASEZ RESIDENT MODERNIZES A The 50th October Anniversary fishing co- GREENHOUSE COMPLEX IN ANADYR operative (collective farm), as a resident of The resident of ASEZ Beringovsky, indi- the Free Port of Vladivostok, is planning to vidual entrepreneur Pavel Makarov, intends begin construction of a salmon fish hatch- to implement an investment project in the ery in Vanino (Khabarovsk Krai) in the next The three-story greenhouse agricultural sector in Chukotka. The investor 2 months. An enterprise with a capacity of complex in Chukotka will intends to modernize the three-story green- 30–50M tiny fish per year will require a RUB supply the region with house complex in the region, introducing ~200M investment. The project will be im- fresh produce modern technologies of disinfection, ventila- plemented in 2–3 years. tion and heating. The volume of the invest- The construction of a fish hatchery would ments will amount to RUB 1M, and the prod- raise the cooperative's capture levels by ucts will be sold on the domestic market of around 16K tons per year. The cooperative the Chukotka Autonomous District. produces around 20K tons of fish per year.

9 EASTERN RUSSIA ECONOMIC AGENDA THE STREET FORMAT

Far Eastern Regions Preparing for Eastern Economic Forum

On July 18, Yury Trutnev, Deputy PM sia — ASEAN, Russia — India, Russia — Chi- ter Shinzo Abe and South Korean President and Russian Presidential Envoy in the Far na, Russia — the Republic of Korea, Russia — Mun Jain. Eastern Federal District (FEFD), held a Japan. Over 3,700 visitors including 1,200 The business program is based on 4 top- meeting with the Organizing Committee journalists from Russian and foreign media ical units. of the 3rd Eastern Economic Forum (EEF). are expected to attend the event. Represen- The first topic is 'Economic Policy in According to him, the upcoming forum tatives from 26 countries have already been Eastern Russia. What to Do Next?'. This sec- will demonstrate the projects already im- registered at the forum. Leaders of Russia's tion will discuss the results of implement- plemented by investors and confirm the nearest eastern neighbors have confirmed ing new mechanisms of the Far East's de- transition to a new stage in the Far East's their participation — Japanese Prime Minis- velopment, such as advanced special eco- development. "Compared to the first stage, when we were establishing legislative space and Vladimir Ilyukhin, Kamchatka Krai Governor tools for the Far East's development, and the second stage when we launched them, now Kamchatka has always actively participated in both previous we can talk about the first results; that we EEFs. The Kamchatka Krai exhibit was recognized as the best in are creating the first real enterprises with past forums. This year, we are also preparing some surprises for jobs. We view this forum's aspect as anoth- attendees. I think people will like them. We will show Kamchatka er tool for disseminating information that in winter and many unusual things. I hope they will be of interest. it is reliable, safe, and cost-effective to op- As concern projects, the EEF's highlight will be the presenting and erate in the Russian Far East", Yury Trutnev signing of an agreement to build a new international airport in Petropavlovsk-Kam- stressed. chatsky. The tendering procedures for an investor are currently underway, and we will The 3rd Eastern Economic Forum will complete them by late August to select the investor. We will sign an investment agree- be a momentous event for the whole coun- ment at the forum. This is a long-awaited event for us, and we hope everything will work try and the Asia-Pacific Region. The program out successfully. includes country-business dialogues: Rus-

10 JULY 2017 EVENTS

At the Amur Region booth, awaiting Alexander Kozlov, Amur Region Governor guests is a rocket symbolizing the Vo- stochny Cosmodrome. The pavilion will The Far Eastern Street exhibit will be historically themed. The detail the investment projects being im- major exhibit is the Albazinsky Ostrog, which was founded by pi- plemented in the region, including gas oneer Cossacks and has an heroic background. A nation that re- processing, agriculture, and cross-bor- members its history has a future. der infrastructure. The Jewish Autono- Our exhibit will show the projects that have been implemented mous Region (JAR) exhibition will focus in the region. First of all, this is the Vostochny Cosmodrome with its 2nd rocket launch on environmental projects. The regional due this year. Energy projects are also important, as we lead in this field in the Far East. Amuro-Khinganskaya ASEZ will also be The Nizhne-Bureyskaya HPP is due for completion this year. The implementation of a presented. gas-chemical cluster, with Gazprom building 2 plants will be specially presented. No Far Kamchatka Krai will present winter Eastern region has such an amount of investment amount. So we will demonstrate all holiday options, including the tradition- of this in our presentations. al dogsled race Beringia, mountain ski- ing, and ice fishing. The Primorsky Krai pavilion will greet EEF guests with a de- tailed historical exhibit on the 19th-cen- tury free port arrangement. The Republic of Sakha (Yakutia) booth, designed as the traditional Yakut dwelling Urasy, will fea- ture trade showcases with diamond prod- ucts. The Sakhalin Region pavilion will be designed as a giant salmon. The pavilion will feature a 'virtual door to Sakhalin' that enables chatting online with guides and artists in the island region. A giant whale will embody the Chukotka Autono- mous Region's booth. Beside the story of economic projects, guests will enjoy virtu- al northern lights. The Magadan Region will traditional- ly feature gold mining, so that anyone will be able to independently try washing gold the old-fashioned way in its pavilion. Final- nomic zones, the Free Port of Vladivostok, hibition due to be held on the Ayaks Bay em- ly, the Khabarovsk Krai pavilion will pres- and support for major investment projects. bankment on September 5–10. In their pavil- ent the region's economic projects includ- Some discussions will focus on SMB devel- ions, FEFD constituent entities will present ing a package development plan for Kom- opment in the Far East and the implemen- themselves in detail, along with their tourism somolsk-on-Amur and major projects in tation of the Far Eastern Hectare program. potential, and key development projects. progress. The 2nd section is 'How to Do Business in the Far East'. Its events will unleash the macroregion's investment potential in ar- Alexander Levintal, JAR Governor eas like petrochemistry, gas-to-chemicals, mining, travel, agriculture, fish processing, Our Far Eastern Street pavilion will resemble Noah's Ark in ref- transport, and logistics. erence to the Year of the Environment. The tiger protection pro- The 3rd section is 'We are Neighbours gram implemented in our region and a number of other envi- Earning in Cooperation'. This section in- ronmental programs will be presented. This will be the pavilion's volves the discussion of the integration of core idea. Russia and the Asia-Pacific region in energy, Economic development projects are sure to be presented as well. logistics, finance, and hi-tech. There will be a model of the transborder Nizhneleninskoe-Tongjiang bridge that is un- The 4th topic is 'Far East: A New Quality der construction. Of course, there will be mining projects including, those launched just of Life; Meeting Challenges' with a focus on before the previous forum. They are now operating at 50% capacity and will reach 100% demographic policy, cross-border coopera- by next year. We will present our major mining facilities and agribusiness projects, in- tion, integrated urban/rural development, cluding Russian-Chinese ventures like Spring Park and others with soybean processing and job creation in the region. and diverse cultivation. There are plans to grow ginseng, etc. As for the Amuro-Khin- The EEF program is available on the EEF's ganskaya ASEZ, this year we are launching a facility — а building structure plant to be official website at www.forumvostok.ru. presented as well. Traditionally, the Far Eastern regions will be represented at the Far Eastern Street ex-

11 EASTERN RUSSIA ECONOMIC AGENDA

"If there was no infrastructure, there would be no project"

Maxim Basov, Rusagro Group CEO, on how business is developing in the Far East

– Mr. Basov, the Rusagro Group has – Are there any plans to increase stormed into the Far East, developing 3 ar- seeds? eas at once: livestock breeding, foodstuffs, – It depends on how much and agribusiness in general. How is your land we'll have and what the business developing in the region, and are price environment will be. you satisfied with its dynamics? Moreover, the bulk of grain – I am optimistic. We are growing not as production will be con- fast as we would like, as there is an under- sumed by our own livestock run in the livestock project. This is primari- business here. Pig husband- ly the result of the underdevelopment of the ry alone will take up to 130K Far Eastern construction sector and, second- tons of grain. ly, some delays in building infrastructure for Of note is that the cur- us. For various reasons, gas will be piped to rently established grain and us only in Q1 2019, and there's also a year's soy prices make further land delay in roads. purchases unprofitable. We expect Still, these delays have not been crit- growing crop yields thanks to land ical until recently, because we ourselves preparation and staff training. We re- lagged behind in project construction. How- ceived some of the land in a troubled state, ever, Rusagro already has 6 sites under con- as the Chinese worked there using unknown struction in the Mikhailovsky ASEZ, and the chemicals that caused severe damage to the – Do these timeframes depend on the punctual commissioning of the infrastruc- soil. It'll take a couple of years to clean the timing of gas supply? ture being developed out of public funds is soil up and normalize its yielding capacity. – Our primary goal is gas supply to the becoming quite an issue. We know that fed- – So after meat production begins, will feed mill. So we're going to launch it in Q1 eral funds were allocated a year and a half your crop production be running for the sake 2019. Gas is likely to be supplied to the pig ago, now we are working closely with con- of the livestock breeding complex? farms earlier. At the very least, however, we'll tractors and the Primorsky Krai Administra- – Yes, for the mean time. We plan grain launch operations with liquefied gas. Any- tion. I think we'll solve to be supplied to our way, we've decided to supply livestock with- all these problems to- feed mill in Mikhai- out fail. gether.. "There will lovsky District, soy- – You first said that the 1st stage would – How is crop pro- be vertically beans to our soybean be launched to saturate the Far East with ag- duction develop- processing plant in ricultural products. ing? Has this business integrated Ussuriysk, oil meal in – Exactly. started successfully? part to our meat pro- – For how long can you meet the domes- – We now have ap- production in the duction and in part to tic demand for pork given current needs? proximately 80K hect- Far East" the market, and oil to – Quite quickly — for 3 years. Our share ares of land in Pri- the market. We will in consumption is expected to be 30–35% in morsky Krai, and this then have vertically the Far East. Meanwhile, production capacity year we have sown around 54K ha. They integrated production in this way. So manure will be around 60–80K tons. comprise 6K ha of wheat, 13K ha of corn, will be applied by pig farms to fields as fer- – As for the development and produc- and 35K ha of soy. All the corn and wheat tilizers. tion of exported goods, will this take place are likely to be exported somewhere, which – When will such a configuration be during the 2nd stage? we'll decide depending on the market situ- formed? When will the pig breeding com- – We'll proceed to the 2nd stage when ation. The soy will either go to China or be plex be launched? export markets open. Otherwise, we won't processed in Russia. In Ussuriysk, we own the – We plan to supply livestock in the first start the 2nd stage. We can currently sup- plant Primorsky Soy, where it's profitable to quarter of next year. Our pork will enter Pri- ply only heat-treated meat to Japan. This is process the harvest into butter and oil meal. morsky Krai's market late next year already. mainly sausages and other derivative prod-

12 JULY 2017 FACTS AND OPINIONS

ucts and is not our priority market. These are project; it just would not pay off in any condi- are key specialists and managers who know the small volumes. Our priority market is fresh tions. And furthermore, for us the unified social technologies and who can utilize them. meat to China and Japan. China, of course, tax reduction, which the ASEZ provides, is quite – From your experience, what is neces- comes first, because we have very good lo- significant, as well as the certain reductions of sary to offer to specialists from the Europe- gistics from Primorsky Krai to China. imported equipment customs clearance. an part of the country to get them to move to – When, in your estimate, will the Chi- – Does the company use any other Far the Far East? Money? Career opportunities? nese and Japanese markets open for our East development instruments? – Of course, the key specialists, as we meat products? – At present we work only with ASEZs. transfer them, receive a pay raise. Because – You know, some European companies As we are a large company and we have our to motivate people you usually have to of- negotiated for 30–40 years to enter the Chi- own manufacturing plant and ground there, fer them more. But sometimes if we see pros- nese market. Brazilians had been negotiating we are interested only in ASEZs and infra- pects in our employees, we offer them new for 40 years before admittance. The Chinese structure. We are ready to do all further work career opportunities in the Far East. Then they say right away, 'When we talk to you about 3 ourselves. The only thing I can say is that we are not payed more than in the European part, years, you should understand it's about noth- use the Far East Human Assets Development but they receive pretty strong motivation. ing'. I don't know how much time we'll actu- Agency's services, and they provide quite – You talked about one thousand people. ally need. All possible resources have been substantial support to the staff we transfer How many jobs will you create in the near activated on the Russian part, the negotia- from Central Russia. These people receive future? tions are being held at the top level, so we financial aid for moving which they do not – Jobs for two thousand more people can only wait and see. have to return if they work in the region for a within two years. By the way, we have our job As for Japan, it's a very closed-off coun- specified period. fair open on-line, everyone can see, where try as well. Some experts though believe – How well is the Far-Eastern business of and what jobs there are. that Japan will open the company equipped – The company operates in Primorsky its market to Rus- with employees? Krai. What other regions of the Far East are sia sooner than Chi- "We have about – Our business is you considering? na will. But whenev- never fully equipped – We are consulting the authorities of er it happens, the for- one thousand with employees, be- Khabarovsk Krai regarding dairy farming. The eign market needs to cause we constantly government of the region seems interested, be taken very serious- people working in need to change per- effective. We are holding a constructive dia- ly. Even if the market is Primorsky Krai" sonnel. But on the log, and I think we will make our decision by open, one also needs whole, the situation the end of the year. to invest big money, in the Far East is nor- – What plans do you have for the Eastern arrange distribution, and hire staff. Any mar- mal. We have about one thousand people Economic Forum? ket (Russian, Japanese, American) is not emp- working in Primorsky Krai at present. 90% of – In September at the EEF we will contin- ty; you have to compete and invest. these people are locals. ue to discuss export issues with our Japanese – Apart from pork, are you considering – Do you bring the other 10% from Cen- and Chinese partners, both current and new other production directions? tral Russia? ones. The entire management of our compa- – We are considering a chicken produc- – We send people to Primorsky Krai who are ny will come, and it will be a good and conve- tion project; also in the ASEZ. We'll estimate already trained and trusted and who are work- nient time to discuss all issues regarding grain, the project and decide by next year whether ing at our plants in other regions today. These oil-bearing crops, meat, and, probably also milk. we'll do it or not. Another area is dairy hus- bandry. It's also under analysis. Overall, we have a huge Far Eastern program with a lot of money being invested. Nearly RUB 20B will be invested in the meat project. We've already invested RUB 4B in agriculture. If we will produce chicken, this will add RUB 15B more, if we will start up milk in two clus- ters, that will be an extra RUB 30–60B. Basi- cally, we have resources for this and we are ready to invest. The main obstacle, as I have already said, is the openness of the export markets. – What is the main benefit for the com- pany in fulfilling the project in the ASEZ en- vironment? – Today infrastructure development is es- sential for us. The infrastructure is being built, and it is financed exactly as a part of the ASEZ. If there was no infrastructure, there would be no Construction of traffic infrastructure for ASEZ Mikhailovsky

13 EASTERN RUSSIA ECONOMIC AGENDA

Mountains of gold The exhaustion of the raw materials base of the existing gold fields causes Great expectations are connected also gold miners to widen their exploration horizons, moving farther from well- with the development of the Natalinskoye organized infrastructure and building new kinds. To do this, a company has field, where a MPP of big capacity is being built and which is capable of processing up to bear extra expenses in logistics and power supply. However, new points to 10 mln tons of ore yearly. The company of growth in the industry are appearing in the Far East as large mining and Polus that is implementing the project has refining facilities are being opened. postponed facility start-up twice. According to the latest data, as governor of Magadan One of the regions of Russia that depos- down was steeper due to the mining out of Region Vladimir Pecheny notes, Natalkinskoe its the most amount of vein and placer gold is large fields, among other reasons. The histori- field is planned to be put into operation by still the Magadan Region. And Kolyma is lead- cal minimum was recorded in 2008 when only the end of the year 2017. Pavel Grachev, the ing in Russia in silver production (its produc- 14.7 tons of gold were produced. director general of Polus, PJSC, also says that tion in 2017 according to plan However, during the last construction works at Natalka are to be fin- will reach 675 tons). In the six years the industry is on the ished soon. first half of the year, local min- In 2016, 27.9 rise. In the last industrial sea- The opening of modern production facili- ers produced 11.7 tons of gold. son, gold mining companies of ties has a positive effect on indexes of the in- This is one third more than a tons of gold the region produced 27.9 tons dustry also in Kamchatka Krai, which neigh- year ago. In the current season, were mined of the precious metal, which bors Kolyma. This way, in 2016, the industrial production at placer mines in is 3.4 tons more than the pro- complexes of Zoloto Kamchatki, JSC (a part of the region has begun in at end in Magadan duction of the previous sea- GC Renova) increased their gold production of April and by July, 4.5 ton of son. The five leaders include by 114% to 5.4 tons and silver productions precious metal have already Region Polimetall, JSC (its assets in- by 309% to 7.7 tons. The main amount of pre- been produced (+8.63% of last clude Omolonskaya zolotorud- cious metals was provided by MPP Ametisto- year's level). In the period under review, the naya kompaniya, LLC and Serebro Magadana, voye, which became project of the year for production of ore has grown by half, which is JSC, Susumanzoloto, OJSC, ZRK Pavlik, JSC (a the peninsula in 2016. In 2017, the compa- to 7.2 tons. part of the ARLAN investment company), Ar- ny plans to strengthen those gold production According to the Magadan Region's Minis- bat group and GDK Berelekh, OJSC. 30.9 tons volumes already reached, but in the future, ter of Natural Resources and Ecology Vladimir of gold are planned to be produced by the end it hopes for further growth owing to a new Mitkin, the peak of precious metals production of the year 2017. resource base. This summer, the drilling op- in the region was reached in the 1930–1940s The growth of production in the region is eration season began at Kumroch field, one with the creation of the "Dalstroi' trust. At that mainly due to the growth of production at the of the most promising fields in Kamchatka. time, yearly gold production increased to 80 Pavlik field. As is known, one and a half years The total investments into geological pros- tons. Subsequently, the amount of production ago, a gold processing plant was opened there. pecting and exploration in 2017 amounted was leaner, although it remained at quite a And already in 2016 ZRK Pavlik produced 3.8 to about RUB 1B. The construction of a plant high level of 30–50 tons per year for quite a tons of gold. In the future, yearly production is that will produce 3.5–4.5 tons of gold a year long time. In the post-soviet period, the slow- planned to be increased up to 12 tons. at the Kumroch field is being planned.

14 JULY 2017 FACTS AND OPINIONS

However, positive dynamics in precious Amur Minerals, LLC Thomas Edwards Bowens of precious metals. The projects in Magadan metals production is not being seen in all expressed his intention to continue follow-up Region began with the participation of Chi- parts of the Far Eastern Federal District. Chu- exploration of the Malyzhskoye field when its nese funds. The specialists of Tonghua Min- kotka's mineral developers produced 29.1 commercial exploitation ban are conducting geolog- tons of gold last year, which is 3 tons less than begins in 2021. By 2025, ical explorations at the Utro in 2015. The reduction in production is con- it is planned to erect an In 2016, Zoloto antimony and silver field, nected with a decrease in mining by 9.1%, due MPP with a production Senon and Serebryannoye to the fact that ores have been mined out at capacity of the first stage Kamchatki, JSC silver and gold field, in the a number of mines, specify authorities of the of 75K tons of copper and south-eastern part of the Chukotka Autonomous Region. 3.6 tons of gold concen- increased gold Burkhalinskoye orefield, as Indeed, exhaustion of the raw materials trate yearly. By that time, production by well as in the Kegali mine. base of large existing fields is a serious prob- Amur Minerals plans to The company Tian He ob- lem for Far East industry. This causes miner- invest more than $1.5B 114% and silver tained a license for the geo- al developers to widen their exploration hori- into the project. logical exploration and pro- zons and move farther from well-organized It is worth mention- production duction of silver, zinc, cop- infrastructure. For example, Polimetall has be- ing that Khabarovsk Krai by 309% per, and other metals at the gun production at Svetloye field which is 240 still does not posses a perspective Kunarevskaya km south-west from Okhotsk. Capital expen- rich history of fund rais- area. diture for the facility with a yearly capacity of ing for the commercial exploration of precious It is necessary to note, that currently the 2.5 tons of gold was $80M. metals. At the end of 1990s, beginning of the costs the infrastructure for several gold pro- It is worth mentioning that in 2015–2016, 2000s, numerous Chinese work associations ducing projects in the Far East are covered Khabarovsk Krai managed to raise more than were present in the Priamurye regions, but as from the budget of the Russian Federation RUB 16B ­of funds for the development of the a rule, they were occupied with small placer by the Ministry for Development of the Rus- mining industry, and by doing this, they cre- gold fields. Whereas, for instance, at the same sian Far East. In order to build an access way ated the foundation for the further growth of time, international level players were entering to Ozersky MPP in Kamchatka that is be- mineral production. As the head of the region- large license blocks in Chukotka. ing developed by Sibirsky gorno-metallur- al Department of Environmental Resources Nowadays, the Canadian company Kinross gichesky alyans, OJSC, the investor will re- Alexander Ermolin said, the Belaya Gora min- Gold Corp. is active in the region through Chu- ceive RUB 758.4M in aid. For the construc- ing and refining facility is effectively operat- kotskaya gorno-geologicheskaya kompaniya, tion of Fevralskaya–Rudnaya HVTL 220 kV ing in Nikolayevsky district. In 2016, gold pro- JSC and Severnoye zoloto, LLC, which are de- in Amurskaya Oblast for the gold extraction duction increased at Mnogovershinnoye, OJSC veloping Kupol (in 2016 production of gold facilities of TEMI, LLC, RUB 5.49B have been (a part of Rusdragmet) and Resursy Albazino, equaled 10.7 tons) and Dvoinoye (10.5 tons set aside.­ For the construction of Ust-Om- LLC (a subsidiary of Polymetall). Amur Zoloto, of gold) accordingly. The Karalveem mine (1.3 chug–Omchak Novaya HVTL 220 kV for the LLC (controlled by GC Russkaya Platina) start- tons of gold) is being explored by the interna- Natalkinskoye gold ore field, RUB 9.94B have ed up the gold processing plant Yubileinaya tional Auramine Resources Ltd., and the Val- been set aside. An agreement for subsidizing at Krasivoye field. The same company began unistoye field (approximately 0.9 tons of gold) infrastructure projects in the Oimyakon re- exploration of the Perevelnoye field in the by Millhouse Group. gion worth RUB 978M was signed with Vyso- Ayano-Maisky district. In total, the mining fa- China is yet not a very active player, but it chaishy, PJSC (GV Gold). The group is current- cilities plan to produce 19.5 tons of gold and is also interested in the Far-eastern deposits ly building the Taryn MPP. more than 1.5 tons of platinum in 2017. As the tendency of late is the growth in the share of underground mining, and since the costs of underground works are higher com- pared to strip mining, the current sophisticat- ed problem for the authorities of the region is to make the industry attractive for invest- ments. For instance, in Khabarovsk Krai about 80 km from Komsomolsk-on-Amur the larg- est gold, copper, and porphyry field Malmyzhs- koye has been opened. Metals exploration at this ore field has been performed since 2010, and the results of estimation works confirm the amount of 5.6 tons of copper and 298 tons of gold. The company Amur Minerals, established by the American Khabarovsk Minerals, LLC was allowed to explore the strategic field (the Rus- sian Prime Minister Dmitry Medvedev signed the corresponding decree). At a meeting in the regional administration, the Director General of

15 EASTERN RUSSIA ECONOMIC AGENDA

A RELIABLE MIX

HOW A FREE PORT RESIDENT ENTERED THE DRY CONSTRUCTION MATERIALS MARKET

No construction will do without dry construction mixtures, but it is 25 kg bags with mortars, says the director the builder who decides what to use: self-made or that prepared by of the company Valery Rybenkov. Plant ca- the manufacturer. The Tiger Mix company has created in Primorsky pacity is up to 10 t/h. Krai the unique manufacturing of building mixes from local compo- Making preparations to implement the nents. This enterprise began its work in October 2016 and became investment project, the company atten- tively studied the benefits that could be one of the first success stories on the practical application gained from utilizing the Free Port Vlad- of the­ Free Port Vladivostok regime. ivostok's economic regime for the project. "Free port residency provides serious tax Strange as it may seem, the majori- and insurance benefits. It is a big advan- ty of dry mortars in the Far East are im- tage for our company that will allow us ported. A business-idea to produce four to lower the cost of our products without types of mortars, trowelling and sand-ce- loosing quality", — he clarifies. ment, floor foundation and glue for por- As a result, RUB 24M were invested into celain stoneware, appeared exactly due to the new plant and 17 jobs were created. the lack of local products on the region- Since last year, the company has been reg- al market. Equipment by a leading Chinese ularly providing its products to the market. manufacturer, the CNBM company, was Tiger Mix products have two advantages custom-produced for the plant. The com- compared to imported mortars right away, pany is equipped with a triple shaft mixer as their two main components are cement and an automatic filling machine that fills and sand, and the resident company ships

16 JULY 2017 PRACTICE

it for production also from the local mar- rough handling, can withstand a large bulk ket. A raw material partner of the company weight, and is convenient for packing and is the Vostokcement group, that provides Ti- storing. And the main thing is that it is not ger Mix not only with high-quality cement, afraid of moisture, which is especially im- but also with "artificial" sand. For now, this is portant in the damp Far Eastern climate. the only example of its kind in Russia. In addition, the production turned out to The manufacturer pays special atten- be universal: it is possible to make mix- tion to the sand used. "Artificial sand" is a tures according to the recipe of the cus- product made of solid rock, which means tomer, for example, by using the torkret RUB M that it has improved damage stability. It is method, which involves the application of is the starting24 investment enriched sand, and at the same time it is one or several layers of a mixture under suitable for several stages of processing — pressure of compressed air to the surface in the enterprise from crushing and cubization using mod- of the structure when repairing a ferrocon- ern Japanese equipment to dedusting by crete or concrete surface. One company re- air stream. How good the quality of such port in July 2017 on the implementation of a component is in comparison with usu- one of these individual orders, when the al sand is clear with a test of the strength mixture was prepared according to a spe- of a freshly made brickwork by any met- cial recipe and was sent to the customer in al object — it is more likely that the object the North of the Far East, for use in diffi- will wear away than the mortar bed of the cult climatic conditions. brickwork. Sand-cement mix by Tiger Mix is used for making walls and separations of any REFERENCE: TAX RELIEF FOR RESIDENTS OF THE FREE PORT type of bricks, natural stone, small details and blocks, as well as for leveling flooring underlay, plastering and wall repair. Screed for flooring — for leveling the base of a 7,6% 0% 0% 0% floor and the arrangement of facial final covering. Stucco mixture — for single and Amount of insurance Income tax for the Property tax for the Land tax for multi-layered manual application on walls contributions in 10 first 5 years (the next first 5 years (the next the first 5 years and ceilings, and on concrete base and ma- years 5 years — 12%) 5 years — 0.5%) (for non-residents — sonry. Glue for ceramic granite — for facing (for non-residents — 30%) (for non-residents — 20%) (for non-residents — 2.2%) 0.3–1.5%) with slabs or tiles of walls and floor cov- erings inside and outside buildings. These four types of dry mixes are the basis of any • Leasing of land without bidding, based on cadastral value. construction work. • Foreign labor permit without quotas: up to 20% for all residents. Over 20% — with As the company develops, it has tak- permission of the supervisory board. en the path of improving its technologies • Less scheduled audit time. not only in terms of the composition of the • Less time spent on non-scheduled audits. mixtures. Thus, a polypropylene packing of • Residents of the Free Port of Vladivostok can use the free customs zone regime (FCZ). box type has been chosen as the packag- The FCZ involves duty-free and tax-free imports, the storage and use of foreign-made ing for the Tiger Mix mixes. A well-known goods. alternative to this package is a paper bag. But a polypropylene bag is not afraid of

17 EASTERN RUSSIA ECONOMIC AGENDA OIL FILTER made in Khabarovsk

Prada Promfilter is preparing to begin the second stage of an investment project in ASEZ

The Prada Promfilter company has al- significantly reduce the payback period of Up to now, we had been supplying import- ready been a hero of the news of the last any project. ed products to the Russian market. But the year, being one of the first to launch pro- Last year, RUB 56M were invested in economic situation is such that it is more duction in the Advanced Special Econom- high-tech production, the director general appropriate to produce filters in Russia. ic Zone of the Far East. Today, the manage- of the company Artem The project for ment of the enterprise, which has set up Lisichonok said. In the manufacturing air production of automobile air and cabin fil- shops of the enter- Investor plans to and salon filters in ters in Khabarovsk, is planning further de- prise, a line of Kore- Prada Promfilter is velopment. The resident company is already an-made equipment invest RUB 100M considered to be al- cramped in existing workshops, so new was installed. Kore- in new production ready implemented: lines will be deployed on the adjacent site. an specialists also the shop is working, The company has still been determining conducted personnel sales turnover is es- what exactly to produce on them: oil filters training. timated at millions of rubles. The compa- or other products. It does however already "In fact, our project is an import substi- ny is expanding the line and looking for understand: preferential ASEZ regimes can tution," says the head of the enterprise. — new sales markets. The plant is working,

18 JULY 2017 PRACTICE

but it sees the prospects in another things. separate entrance to our future site is en- term, it is possible to place production Prada Promfilter has already concluded an visaged, "says a representative of the in- buildings there for manufacturing wash- agreement with the management compa- vestor company. ing fluids, tosols, antifreezes. This is not ny Corporation of the Development of the Prada Promfilter has already appreci- a part of the agreement, but there are Far East, JSC (Korporatsiya Razvitiya Dalne- ated the advantages of its status of res- prospects for development in this regard", go Vostoka, JSC) on the implementation of ident of the Advanced Special Economic he says. Prada promfilter also imported a new investment project worth about RUB Zone. According to the head of the inves- equipment for the first stage of the proj- 100M up to 2022, but it wants to realize tor company, the preferential rate of rent- ect without paying a duty tax, and enjoys it more quickly, in order to begin the con- ing a new piece of land "significantly re- all the tax benefits provided for residents, struction next year and to finish it within a duces costs". "The site is big. In the long Artem Lisichenok says. year and a half. The production of oil filters in the new workshop is planned to be arranged. An air REFERENCE: TAX RELIEF FOR RESIDENTS filter consists of three components: plastic, OF THE PRIORITY DEVELOPMENT AREA nonwoven filter material and sealing rub- ber. And an oil filter consists of at least 27 parts and it is "a more responsible product: 7,6% 0% 0% 0,4% the fate of an engine is at stake", Artem Lisi- chenok reasons. Amount of insurance Income tax for the Property tax for the Reduced rent rates Therefore, the second part of the in- contributions in 10 first 5 years (the next first 5 years (the next (coefficient from the vestment project is "much more difficult", years 5 years — 10%) 5 years — 0.5%) basic rate) he admits. "There is no building yet, and (for non-residents — 30%) (for non-residents — 20%) (for non-residents — 2.2%) we will have to go to an open field for con- struction: we have purchased an adjacent plot. Now we are at the stage of the fi- • Application order of VAT refund nal calculation of production capacity. We • Less scheduled audit time are trying to understand whether we can • Priority connection of residents to infrastructure place such a quantity of goods in the cells • Reduced time for getting approval documentation where we are carrying out the implemen- • Permits to attract foreign employees are not required tation. On the part of the authorities and • Construction of infrastructure is financed at the expense of government budgetary the management company, all obligations resources are being fulfilled. Now, for example, re- • Free customs zone regime for residents pairs on Suvorov Street, which leads to the • MET decreasing coefficient (0–0.8) in 10 years, then coefficient of 1 is applied southern industrial zone, are underway. A

19 EASTERN RUSSIA ECONOMIC AGENDA

INVESTMENT PASSPORT:

Sakhalin Region Anadyr Main factors

Sakhalin Region area: 87,101 sq km Population: 487 thousand people Magadan

Volume of GRP: RUB 786.3B Yakutsk Petropavlovsk - GRP per capita: RUB 2,048K Kamchatsky RUSSIAN Sakhalin FEDERATION Region The volume of investment in fixed assets: RUB 248B As of 2016. Yuzhno - Birobidzhan Sakhalinsk Blagoveshchensk Khabarovsk The number of economically active members of the population: Ulaanbaatar MONGOLIA Vladivostok 285.6K people As of March 2017. China JAPAN

Beijing DPRK Tokyo Pyongyang Seoul PERSPECTIVE BRANCHES OF THE ECONOMY REPUBLIC OF KOREA Petrochemicals Fish industry Power engineering Core capabilities: Main features: Main features: The extraction of oil and natural High profitability of the industry. •Availability of a cheap source of gas is one of the most important Significant export potential. electricity — natural gas. industries. •Holds first place in Russia in terms of EBE Energy surplus region. The installed capacity is In 2016, 18.1M tons of oil and 28.9B cubic reserves. more than 700 MW *. meters of natural gas are set to be mined. •Significant potential for improving catch effi- •The possibility of implementing joint projects A pipeline system is present as well as is an out- ciency and expanding the production chain. with Japan — the export of electricity, the de- let to the ports for the shipment of products. •Significant potential for the extraction of velopment of renewable energy in the Kurils. Geographical position: Proximity to the larg- FBG facilities, for which the permissible est markets of the APR. catch (not TAC) is not established.

Investment activity: Investment activity: Investment activity: 5 prospective projects with investments ex- More than 10 investment projects worth 2 investment projects with a total invest- ceeding RUB 0.8 trillion. RUB 15B. ment of around RUB 500B.

Mining Tourism Agriculture

Main features: Main features: Main features: The availability of a rich re- •Availability of entry tourist traf- •The need for additional production source base: stocks in categories fic from the PRC, Japan and South on the market in the region: A+B+C1+C2 are valued at over $97B: coal Korea — 170M tourists who annual- – Meat — 31K tons ($153M) — 2,420M tons ($96.8B); gold — 7.3 tons ly spend $275B. – Milk — 128K tons ($162M) ($267M) •The region is developing the Mountain Air – Vegetables — 55K tons ($155M) Unallocated fund of minerals: Coal — 82%, (Gorny Vozdukh) sports and tourist com- •The availability of local producers who are in- gold — 10% plex, which will become the core of the terested in attracting investors •Proximity to the largest APR market and tourist cluster •The import of food products to the PRC, Ja- interest among local companies in attract- The current tourist infrastructure is much pan and South Korea is worth about $192B. ing strategic investors to projects inferior to the tourist potential of the re- Annually, the countries import >5M tons of gion. meat.

Investment activity: Investment activity: Investment activity: 3 investment projects with a total invest- 7 investment projects with a total invest- 6 investment projects with a total investment ment volume of RUB 68B. ment of more than RUB 4B. of around RUB 9B.

20 JULY 2017 PROJECTS

INVESTMENT IN UPCOMING SECTORS

Industry Investment, billion rubles Jobs, thousand people Number of projects Oil-and-gas and chemical 810 2,0 5 industry Fish industry (fishing, 30 1,0 60 aquaculture, processing) Extraction of solid 68 1,7 3 minerals Tourism 5 0,5 7 Agroindustrial 9 0,3 6 complex Power engineering 500 0,8 2 Transport logistic 38 0,6 6 complex Total 1.46 6,9 89+

Transport Isolation from largest transport nodes Core capabilities: Distance and flight time to the nearest major cities* •The geographical position of the Sakha- lin Region defines cargo transportation Tok yo (Japan) — 1,278 km / 2 hour flight as one of the most important roles in the economy Seoul (South Korea) — 1,659 km / 3 hour flight (the volume of cargo transportation equals more Khabarovsk — 595 km / 1,5 hour flight than 7M tons) Vladivostok — 948 km / 2 hour flight •90% of passenger traffic is carried out by air Blagoveshchensk — 1,173 km / 2 hour flight •70% of the network of public roads does not meet Novosibirsk — 4,145 km / 6 hour flight operational requirements. Moscow — 4,885 km / 9 hour flight

*At an aircraft speed of 850 km/h. 0,2% The structure of cargo flow 21% in the Sakhalin Region, mln tons Railway transport 7.3M 34% tons Maritime transport Contacts Air transport 45% Automobile transport Georgy Kolpachev, director of the investment department of the Agency of the Far East for attracting investments and supporting exports, 8 Comparative throughput capa- [email protected], 30 bility of the Far Eastern Feder- +7 985 761 5007 41 al District ports, mln tons 248M Primorsky Krai Anton Sheredekin, tons Khabarovsky Krai head of the Sakhalin Investment Agency, 169 Sakhalin Region [email protected], Other +7 4242 725 324

Investment activity: 6 projects with a total value of more than RUB 38B, including the port of Shakhtersk, Korsakovsky port, and Yuzhno-Sakhalinsk airport

21 EASTERN RUSSIA ECONOMIC AGENDA

FAR EAST INVESTMENT SHOWCASE

In this section, we publish examples of investment projects implemented in the Far East. Detailed infor- mation on participation in these or other projects in the region can be obtained from the Agency of the Far East for attracting investments and supporting exports.

THE PRODUCTION AND REALIZATION OF UNDER- GROUND FRESH WATER SOURCES IN KAMCHATKA

REGION: Kamchatka Krai INDUSTRY: the production and bottling of water INVESTMENT SIZE: RUB 2B PI: 1.7 IRR: 33.49% PROJECT DESCRIPTION: the production and sale of natural drinking water from the Akhomtenskoye deposit with estimated reserves of about 100K cubic meters per day, in the volume of 3M cubic meters per year, water-filled loans with a carrying capacity of up to 100K tons. The deposit is located near the Russkaya Bay (eastern coast of the Kamchatka peninsula, 90 km to the south of the port of Petropavlovsk-Kamchatsky).

DEVELOPMENT AND EXTRACTION OF DEVELOPMENT OF COKING COAL OPENING AN GRAPHITE DEPOSIT INDUSTRIAL REGION: Jewish Autonomous Region REGION: Chukotka Autonomous Region LAUNDRY INDUSTRY: Mining INDUSTRY: Mining INVESTMENT SIZE: RUB 4.3B INVESTMENT SIZE: RUB 6.5B REGION: Primorsky Krai PI: 1,4 EBITDA: 35–50% INDUSTRY: services IRR: 25–30% IRR: 20.8% INVESTMENT SIZE: RUB 23M PROJECT DESCRIPTION: PROJECT DESCRIPTION: PI: 2.25 the development of the Topolikhinsky section of Beringpromugol, LLC is implementing a project IRR: 87.07% the Soyuzny graphite deposit with balance re- to develop the coal deposit Fandyushkinskoe PROJECT DESCRIPTION: serves of 13M tons of graphite and the construc- pole in the Anadyr municipal district of the Chu- the essence of the project is the opening of tion of a mining and processing enterprise with a kotka Autonomous Region. The project provides an industrial laundry in the city of Vladivo- production capacity of up to 40,000 tons of graph- the extraction and enrichment of 24.5M tons of stok with the newest equipment of increased ite concentrate per year. The project is planned to raw coal and transportation of 18.9M tons of capacity to service businesses with large be implemented in two stages: the production marketable coal (29% of energy and 71% of cok- volumes of consumption of services and the of concentrate with a maximum carbon content ing coal). The term of the quarry development is satisfaction of commercial and government of up to 94%; production of high-tech brands: 20 years with output by 2019 at the designed organizations, as well as individuals with spherical graphite and ultra-high-purity graphite. capacity of 1M tons of commercial coal per year. quality services.

22 JULY 2017 PROJECTS

ESTABLISHMENT OF A WHOLESALE DISTRIBUTION AGROINDUSTRIAL PARK

REGION: KHABAROVSKY KRAI INDUSTRY: agriculture INVESTMENT SIZE: RUB 3.2B NPV: RUB 295M IRR: 26% PROJECT DESCRIPTION: creation of an effective agroindustrial cluster, which includes: an agroin- dustrial park, a wholesale distribution center, a group of agro-service com- panies. The facilities of the cluster will be linked by technological ties with each other, and will also be included in cooperative chains with other agricul- tural enterprises of the Khabarovsk Krai, the Amur Region and the Jewish Autonomous Region.

CONSTRUCTION OF A FOOD WAREHOUSE AS A PART OF THE AVANGARD INDUSTRIAL PARK REGION: KHABAROVSKY KRAI INDUSTRY: logistics INVESTMENT SIZE: RUB 382.5M NPV: RUB 65.7M IRR: 11% PROJECT DESCRIPTION: This investment project is an integral part of the complex project for the creation and de- CONSTRUCTION OF A velopment of the Avangard private industrial REFRIGERATION TER- park and belongs to the first of three stages of the integrated project. MINAL, A TERMINAL FOR HANDLING BULK CARGO PRODUCTION OF AND A PASSENGER TINS AND CANS TERMINAL FOR WATER TOURISM REGION: Primorsky Krai INDUSTRY: industry REGION: Kamchatka Krai INVESTMENT SIZE: RUB 47M INDUSTRY: transport and logistics NPV: RUB 437.5K INVESTMENT SIZE: RUB 4B PROJECT DESCRIPTION: PI: 2.7 creation of the production of tin cans. IRR: 21.9% During the first stage, it is planned to ar- PROJECT DESCRIPTION: range the production of the lid as a mass the creation of a multifunctional transit and in-demand product. During the sec- cargo hub for handling, receiving and trans- ond stage, to organize the production of porting cargo from the Kamchatka Krai to a complete set: a cover and a can. In the various regions of Russia, the countries of future, it is planned to begin production of South-East Asia, Europe along the Northern a completely new type of product: a lam- Sea Route, as well as reducing the delivery inated, one-piece can for the seaming of time between the Far East and the central high-protein product, as well as a lid with regions of Russia. a key.

23 EASTERN RUSSIA ECONOMIC AGENDA CONTACTS

MINISTRY FOR DEVELOPMENT OF THE RUSSIAN FAR EAST МИНИСТЕРСТВО РОССИЙСКОЙ ФЕДЕРАЦИИ ПО РАЗВИТИЮ ДАЛЬНЕГО ВОСТОКА +7 (495) 531-06-45 [email protected] www.minvr.ru

FAR EAST INVESTMENT AND EXPORT AGENCY АГЕНТСТВО ДАЛЬНЕГО ВОСТОКА ПО ПРИВЛЕЧЕНИЮ ИНВЕСТИЦИЙ И ПОДДЕРЖКЕ ЭКСПОРТА +7 (495) 540 41-63 [email protected] www.investvostok.ru

CORPORATION FOR DEVELOPMENT OF THE RUSSIAN FAR EAST КОРПОРАЦИЯ РАЗВИТИЯ ДАЛЬНЕГО ВОСТОКА +7 (800) 707-55-58 [email protected] www.erdc.ru

FAR EAST DEVELOPMENT FUND ФОНД РАЗВИТИЯ ДАЛЬНЕГО ВОСТОКА +7 (495) 540-47-37 [email protected] www.fondvostok.ru

AGENCY FOR THE DEVELOPMENT OF HUMAN CAPITAL IN THE FAR EAST АГЕНТСТВО ПО РАЗВИТИЮ ЧЕЛОВЕЧЕСКОГО КАПИТАЛА НА ДАЛЬНЕМ ВОСТОКЕ +7 (495) 123-47-27 [email protected] www.hcfe.ru

Official Bulletin of the Ministry for development of the Russian Far East. This document was prepared by The Far East Investment and Export Agency, an autonomous non-commercial organization. All published information is relevant as of July 24, 2017. Distributed by email subscription. When using materials, reference to the source is required. Published photos provided by: TASS, ROSCONGRESS, administrations of subjects of the far Eastern Federal district, Kremlin.ru, Shutterstock.

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