THE FAR EAST FOREST I NDUSTRY High Resource Potential | Growing Demand

Far East Investment and Export Agency

INVESTMENT MEMORANDUM THE FAR EAST FOREST I NDUSTRY High resource potential | Growing demand | State support

Autonomous Nonprofit Organization Far East Investment and Export Forest reserves by the Far Eastern Agency, the subordinated structure of the Ministry for the Development Federal District regions, billion m³ of the Russian Far East, has a wide range of necessary competencies in the Sakha (Yakutia) 8.8 forest industry, implements a large-scale portfolio of projects and is in Republic constant contact with investors, state authorities supervising the forest Khabarovsk Territory 5.2 industry and industry associations. Thanks to this, the Agency is able to support investors in the forest industry of the Far East, which has all the Amur Region 2.1 factors for successful implementation of projects. Primorye Territory 1.9

Kamchatka Territory 1.2 Raw materials base: 51% of the APAC region forest reserves are in the Far East Sakhalin Region 0.7

The Far East has a rich forest resource base, the largest in the Asia-Pacific region Magadan Region 0.5 (APAC). About 43% of the forest area of the Russian Federation is concentrated in Jewish Autonomous 0.2 the Far East. On the first place on reserves of standing wood is the Sakha (Yakutia) Region Chukotka Republic - 8.8 billion m³, then Khabarovsk Territory - 5.5 billion m³, Amur Region - 0.1 Autonomous Area 2.1 billion m³ and Primorye Region - 1.9 billion m³. The species composition varies Source: Rosstat depending on the region - so in the Sakha (Yakutia) Republic Dahurian larch makes about 50-80%. In the Khabarovsk Territory the prevailing species are birch Export of timber and wood products and larch, about 15-20% is occupied by spruce. Valuable species (cedar, oak, from Russia to China, billion dollars maple, etc.) are spread in the Primorye Territory - from 15% to 80% in various areas. Various species composition allows to produce lumber, veneer, plywood, furniture, plates, pellets, pulp and paper products. Sales markets: growth in Russia and abroad

Domestic market. The wood processing sector in Russia grew by 3% in 2016, by 2.2% in 2017. Production of pellets from wood waste increased by almost 30%, sawmill production showed an increase of 5.7%, production of chipboard in the whole of Russia increased by 8%, production of MDF - by more than 6%. In the housing construction sector, the production of wooden windows increased by 11%. Almost 90% of sawn timber, produced in 2017, fell on coniferous wood - about 23.2 million m³, with growth of volumes by 6.2%.

Source: WITS Export. Export shipments show positive dynamics, and the APAC countries remain as the main market for timber products from the Far Eastern Federal District. The Net revenue of enterprises of the exports volume from Russia to China for the 2000 - 2016 period has increased by forestry complex of the Russian more than 4.5 times, to India - by more than 5 times. Key growth factors are: Federation, billion rubles. demand for construction materials in Asia, reduction of timber exports from countries of South-East Asia, need for raw materials and wood semi-finished products in China production facilities, demand for pellets due to development of alternative energy in Japan.

Logistics. The most attractive from the logistics point of view is the South of the Far Eastern Federal District. Timber and wood products are delivered by railway and river transport to Vladivostok, Sovetskaya Gavan, Vanino, Olga seaports, from where they are sent to the seaports of the importing countries.

Far East Investment and Export Agency

Tax burden comparison for ASEZ Investment environment: state support, benefits residents and non-residents, % The development of the Russian Far East, including the forest industry complex, Source: Rosstat, Whatwood was announced the national priority for the 21st century by V. V. Putin, the President of the Russian Federation. In this regard, a wide range of measures to 1 support investors are applied in the Far Eastern Federal District, including:

. preferential tax and administrative regimes for ASEZ and Free Port of Vladivostok residents 1; 0 – 3 years . 50% allowance for payment for use of forest areas and a mechanism for obtaining forest plots for priority forest development projects (Decree of the Government of the Russian Federation of February 23, 2018 No. 190); 2 . subsidizing up to 90% of forest raw materials transportation costs to

processing sites, partial cost recovery (Decree of the Government of the 0 – 5 years 5 – 10 years Russian Federation of December 5, 2014 No. 1319); . possibility of co-financing the infrastructure necessary for the implementation of the project, at the budget expense in the amount of up 3 to 10% of the project investments; . assistance in search of partners and attraction of financing for projects, 0 – 5 years 5 – 10 years rendered by the Ministry for the Development of the Russian Far East and Autonomous Nonprofit Organization Far East Investment and Export Agency. Projects for investment: 10 projects of Autonomous Nonprofit 0 – 10 years 4 Organization Far East Investment and Export Agency, as well as own projects of applicants ASEZ ASEZ RESIDENT NON-RESIDENT In the forest industry, Autonomous Nonprofit Organization Far East Investment and Export Agency offers investors to consider 4 major projects in the Sakha (Yakutia) Republic and Amur Region, the P&P project in Khabarovsk Territory, 5 medium- List of taxes and fees: scale projects in Sakhalin Region, Khabarovsk Territory, Amur Region, Primorye 1. Land tax 2. Income tax Territory. Autonomous Nonprofit Organization Far East Investment and Export 3. Property tax Agency will also consider initiative projects of investors on forest exploitation. 4. Total rate of social insurance payments 5. Map of prospective projects in the forest industry offered by Autonomous Source: Autonomous Nonprofit Organization Far Nonprofit Organization Far East Investment and Export Agency East Investment and Export Agency

*WPC – wood processing complex **P&P – Pulp & Paper plant

1 Federal law of December 29, 2014 No. 473-FZ "On the Advanced Special Economic Zones in the Russian Federation",Source: Federal Autonomous Law of July Nonprofit 13, 2015 Organization № Far 212-FZ "On the Free Port of Vladivostok" East Investment and Export Agency 2

Far East Investment and Export Agency

Map of medium-scale perspective projects in the forest industry Project 7: . Project: WPC . Location: Sovetskaya Gavan, Khabarovsk Territory . Investments: 2 billion rubles KHABAROVSK . Estimated harvesting area – 600 thousand m³ TERRITORY . Number of jobs created – 500 . IRR – 29%

Project 8: . Project: WPC . Location: Svetlogorye, Primorye Territory . Investments: 3 billion rubles AMUR . Estimated harvesting area – 800 thousand m³ REGION . Number of jobs created – 550 . IRR – 35%

Project 9: . Project: WPC Project 6: . Location: . Project: WPC . Alexandrovsk-Sakhalinsky, Sakhalin Region . Location: Novy Urgal, Khabarovsk Territory . Investments: 28 billion rubles . Investments: 2 billion rubles . Estimated harvesting area – 1.2 million m³ . Estimated harvesting area – 700 thousand m³ . Number of jobs created – 800 . Number of jobs created – 500 . IRR – 28% . IRR – 32%

PRIMORYE TERRITORY Project 10: . Project: WPC . Location: Olga seaport, Primorye Territory Forest areas of the . Investments: 2,5 billion rubles project . Number of jobs - 700 . Estimated harvesting area – 0.6 million m³ 150 km radius from . IRR – 34%. the project site Map of medium-scale perspective projects in the forest industry

The southern part of the Far Eastern Federal District may be of the greatest interest to investors. More developed infrastructure in comparison with the northern part, the availability of valuable wood species and the access to the sea form attractive conditions for the creation of a wood and paper facility in selected areas.

Procedure and criteria of applications selection for projects implementation

Selection of applications for forest development projects in the Russian Far East to be supported and supervised by Autonomous Nonprofit Organization Far East Investment and Export Agency is carried out on a competitive basis. Selection criteria include: amount of investments, applicant's ability to implement the project, technological depth of raw materials processing, social value of the project and other criteria. Detailed information about the procedure, terms of submission and criteria for selection of applications is available on the Autonomous Nonprofit Organization Far East Investment and Export Agency website www.investvostok.ru in the "For Investor" section.

Contacts

Autonomous Nonprofit Organization Far East Investment and Export Agency Phone: +7 (495) 540-41-33 Investor hotline: 8 (800) 234-85-09 E-mail: [email protected] Address: 123317, Moscow, Presnenskaya Embankment, 8, building 1, Moscow City, Capital City multifunctional complex, Northern Block

ALEKSANDR KONKOV GEORGY KOLPACHEV First deputy CEO Deputy CEO +7 (985) 116 61 57 +7 (985) 761 50 07 [email protected] [email protected]

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