ESTABLISHMENT OF INDUSTRIAL PARKS IN DNIPROPETROVSK REGION

The project’s conception. In order to discuss

PROJECTS INITIATED BY REGIONAL AUTHORITIES REGION Presentation’s target OF OPPORTUNITIES

 Informing investors about regional authorities’ initiatives in relation to attracting investment

 Checking correspondence of the conception being realized to business’ expectations

 Involving additional partners to the project of Industrial parks’ creation

 Receiving additional enquiries from investors in relation to participation in the project

1 Vision of the Industrial park REGION OF OPPORTUNITIES in Dnipropetrovsk region Strategic target of the Industrial park creation in Dnipropetrovsk region – regional economy diversification

The vision of the Industrial park in Dnipropetrovsk region was formed on the analysis base of the best practices of industrial parks establishment and operation:

Industrial park (hereinafter referred to as IP) – is a specially organized territory for new industrial plots with the following bound criteria

Proper plot Transport Engineering infrastructure Managing company for plant location infrastructure (maximum value on 1 hа)

 Land category – industrial land  Availability of roads for cargo  Electricity – 1,9 МW /h  A specialized company managing the  Land is leased from Residents with a transport and small remoteness  Gas supply – 1,506.8 м3/h operation of the Industrial park and subsequent right to purchase from roads of national significance  Potable water supply – 12 м3/h providing services to the IP residents  The total area around 3 km is not less  Availability of railroads on the IP  Service water supply – 21 м3/h than 110 hectares territory and small remoteness from  Water disposal – 24,8 м3/h freight train station  Proximity to the airport  Proximity to the river port

2 Planned location of Industrial parks REGION OF OPPORTUNITIES in Dnipropetrovsk region  7 Industrial parks are planned to be created in Dnipropetrovsk region by 2025

 According to the analysis carried out, creation of 3 Industrial parks1 in key cities of Dnipropetrovsk region is proposed within the pilot project

 Plots for IP location are chosen subject to the sufficiency of infrastructure and producers' goods city

Dnipropetrovsk city – one of the Population2 – 110 thousand people largest industrial and transport Population density – 1 861 people/km2 Quantity of business entities: 5 thousand hubs of Key branches: coal, engineering industry, construction engineering, chemical industry. Population2 – 1 001 thousand people Population density – 2 716 people/km2 Share in industrial production of Ukraine: 4,4% Quantity of business entities: 77 thousand Key branches: metallurgy, engineering industry, metal- working, chemical industry.

Novomoskovsk 70 thousand people Pavlohrad city – key region’s transport and industrial hub 48 thousand people Population2 – 659 thousand people Dniprodzerzhynsk Dnipropetrovsk Population density – 1 554 people/km2 234 thousand people Share of industrial production of Ukraine: 6,4% Quantity of business entities: 13 thousand Key branches: mining and smelting, engineering industry, construction engineering, sector of industrial building materials, chemical industry.

Kryvyi Rih cities of the region 49 thousand people international and national roads Ordzhonikidze 45 thousand people rail roads

Nikopol international airports river ports 122 thousand people

location of pilot industrial parks 1 – See more detailed description of pilot parks’ parameters in the Annex1 2 – Main Department of Statistics in Dnipropetrovsk region, on 01.12.2011 3 Increase of NPV of the project when realizing REGION OF OPPORTUNITIES on the IP territory in the Dnipropetrovsk region  Within the approved Target-Oriented Strategy of Development of Dnipropetrovsk Region for the Period till 2015, one of the kea initiatives of increasing the region’s investment attractiveness is creation of specialized sites for investing.  Best world practice in the matter is creation of industrial parks.  Implementation of investment projects on the territory of industrial parks that are planned to be built in Dnipropetrovsk region, may allow the investor to increase NPV of the projects considerably. The reason – existence of variety of factors effecting NPV positively:

Increase of NPV of the project when realizing on the IP territory in the Dnipropetrovsk Illustratory region + >5% + >20-40% + >5-15% + >5% + >5-15%

NPV of the Decrease of Decrease of Reduction of terms between Opportunity to use investment current costs moments of investment comparative, geographical NPV of the project project spending starting and putting into and other advantages of the on the IP territory operation region in the Dnipropetrovsk On account of: On account of: On account of: On account of: region

. Absence of necessity to invest in site . Joint use of objects of engineering, transport . Acceleration of undergoing of permitting . Large market capacity: more than 104 searching and preproject analysis as this and other infrastructure by Residents procedures through DIA support thousand enterprises of all branches of work is already carried out by regional . Reduction of administrative costs on (Dnipropetrovsk regional investment economy and more than 3 million authorities account of opportunity to use services of agency) inhabitants . Opportunity to locate production facilities on specialized company, which manages IP . Comparatively high level of real income as land lot with all engineering communications operation and provides variety of services for CIS countries – prepared within the IP creation required by IP Residents more than € 6 thousand/year . Joint use of objects of engineering, . Comparatively low taxes and mandatory . High average GDP growth up to 3-6% per transport, social and administrative contributions percentage of total year infrastructure by IP Residents commercial profits1 . Developed transport infrastructure . Exemption or remission of mandatory share . Comparatively inexpensive and qualified . Comparatively inexpensive and qualified participation (up to 10% of total estimated personnel personnel costs of object’s construction) in . Low electricity prices . Availability of sufficient quantity of human development of local infrastructure resources and other factors of production . Comparatively low prices of Ukrainian raw . Proximity to CIS and Eastern Europe sale materials and resources markets

1 – Doing Business 2012 (published by IFC and the World Bank) 4 REGION Advantages of Dnipropetrovsk region OF OPPORTUNITIES

Basic region’s structural advantages for business

Volynska Rivnenska Chernihivska activity on its territory: Sumska 300 km Favorable economic-geographical disposition Zhytomyrska KYIV  the region is placed in central part of Ukraine and Lvivska Kyivska Poltavska Kharkivska borders upon 7 regions 1,5 million people 2,7million people Ternopilska 37 thousand 77 thousand enterprises enterprises  proximity to extensive sale markets of Russia and Khmelnytska Luhanska Cherkaska Ivano- Eastern Europe Frankivska Vinnytska  the region is placed at the intersection of European Zakarpatska Kirovohradska Dnipropetrovska 1 million people 3,3 million people Donetska and Asian trade routes East-West and North-South Chernivetska 25 thousand 104 thousand 4,4 million people enterprises enterprises 90 thousand enterprises

Zaporizka Mykolaivska Advanced infrastructure 1,2 million people 1,8 million people Index of economic component of 33 thousand 49 thousand regions’ sustainable development enterprises enterprises Odeska Khersonska  advanced motorroad network 1,1 million people 27 thousand (more than 9 thousand km) – very high enterprises  vigorous railroad system (more than 3 thousand km) – high  presence of 2 international airports;  presence of gas-main pipeline – medium  presence of a governmental waterway (Dnieper river)

– low AR Crimea  presence of 2 river ports

– very low

Availability of comparatively inexpensive qualified labour potential Extensive domestic market. Within a radius of 300 km: of the region  17 million people (40% of population of Ukraine)  7,3% of population of Ukraine live in Dnipropetrovsk region  There’re more than 440 thousand businesses and  training of young specialists in the region is provided by 85 higher organizations concentrated in the region which give educational institutions and 70 institutions of vocational and technical up to 50% of profits of all state’s enterprises training  level of average wage in the region amounts $ 400 (300% lower than in other countries of Eastern Europe) Favorable conditions for agriculture Opportunities to purchase basic production facilities  area of region's agricultural lands exceeds land  availability of great number of brown-field lots which resources of number of EU countries, such as Austria, can be purchased by investor and used as base for the Netherlands and other, and amounts to 2,5 million business development hectares  moderate continental climate  flat ground

In December 2011, Fitch Ratings gave a long-term score B/Stable Projection to the region, having admitted strong economy of the region, good budget performance and zero direct risk 5 Advantages of business activity on IP territory REGION OF OPPORTUNITIES in Dnipropetrovsk region Decrease of project’s investment spending is the result of:

 joint use of objects of engineering, transport infrastructure, as well as administrative and storage premises by Residents;

 absence of need to invest in creation of support and non-manufacturing services on account of availability of specialized managing company providing general administration of IP operation and complex service support (security, territory cleaning, recruiting etc.);

 subject to project support by regional authorities, operation on IP territory in Dnipropetrovsk region may enable to appreciably reduce terms of putting the project into operation on account of free land selection and provision of all assistance in procedures passing

Reduction of implementation terms on account of previously underwent permitting procedures1, days

-55% 494 Land allotment 120 222 Building permits 374 30 192

Basic conditions IP

 Practice of DIA in local projects support shows that indicators, commensurable with the ones achieved on the territory of already operating IP in Poland (301 day), Turkey (189 days)1 etc., can be assured after terms are reduced.

Source: 1 – Agency analysis on the base of World Bank report Doing Business 2011

6 REGION Advantages of doing business in Ukraine OF OPPORTUNITIES

 Advantages of doing business in Ukraine in comparison with a number of European countries: . comparatively low share of taxes and mandatory contributions in total commercial profit of company; . comparatively low wage costs; . low electricity prices; . sufficient labour and land resources; . high potential of the region’s domestic market. Rate of taxes and mandatory contributions of a company as its commercial profits share in 20121, % 68,3 65,6 57,7 53,1 8,2 55,4 Income tax 22,9 5,4 15,7 11,6 Unified social contribution 50,8 51,7 43,4 43,1 Other 35,5 2,0 1,9 1,5 5,7 0,7

Unit of Country Italy Sweden Belgium France Ukraine measure Share of taxes and mandatory contributions in total commercial profit of a company in % 68,3 53,1 57,7 65,6 55,4 20121 Rate: income tax % 31,4 26,3 34,0 34,4 19,0

Rate: value added tax in 2012 % 22,0 25,0 21,0 21,2 20,0

Rate: unified social contribution % 34,3 31,4 45,3 45,5 34,7

Average monthly salary, 2012 USD 2950 3 410 3 585 3 177 360

Average monthly salary, 01.01.2013 USD/kW*h 0,28 0,26 0,29 0,18 0,09

Natural gas tariffs, 01.01.2013 USD/m3 0,62 0,81 0,63 0,64 0,50

million Population, 01.01.2013 people 60,8 9,5 11,0 65,4 45,7

Population density, 01.01.2012 people/km2 202 21 337 119 76

TOTAL

6  It is necessary to point that the Tax Code of Ukraine contemplates reducing of some taxes till 2015 : The optimal value by the criterion . reducing of total tax contribution up by ​​lowering the income tax in 2013 to 19%, in 2015 – to 16% . reducing of the value added tax rate to 17% Rates do not include VAT

Source: the World Bank report “Doing Business 2012” 7 REGION Priority investment sites OF OPPORTUNITIES

 370 sites were analyzed, 3 priority investment sites were identified for a pilot IP placement.  Key criteria for sites selection: . area – more than 30 ha; 1 . industrial land (except site “Kolomoitsevo Industrial Hub”); Former landfill of YuMP (Pavlohrad district) . public / state property. Area: 200 ha (with expandability up to 566 ha) Disposer: SE PA Yuzhny Machine-Building Plant named after A.M. Makarov (Act of permanent use) Budget of land allocation: 2 104 thousand UAH

This area is considered: 3 • by Glas Trösch A.G. to construct a glass plant Voitsehovo industrial area (the first potential Resident of the IP); (Dnipropetrovsk city) • by the company interested to become a managing company. Area: 31 ha (with expandability up to 120 ha) Disposer: Dnipropetrovsk City Council Budget of land allocation: 200 thousand UAH

The land designated purpose is not determined Pavlohrad city at the 6-ZEM form (at the general plan – “industrial land”) Dnipropetrovsk city

Kryvyi Rih city

2 Kolomoitsevo industrial hub (Kryvyi Rih city)

Area: 43 ha (consists of 2 plots) Designated purpose: open land with no or little vegetation cover Disposer: Kryvyi Rih City Council Budget of land allocation: 320 thousand UAH

Change of the designated purpose is required 8 REGION 1 Former landfill of YuMP (Pavlohrad district) OF OPPORTUNITIES

Railway station “Pavlohrad-2” Comments Distance to IP – 2,3 km  The site proposed for IP – 200 ha (industrial land according to the 6-ZEM form, in permanent use by the SE PA Yuzhny Machine-Building Plant named after A.M. Makarov (YUZHMASH).

 Expandability is possible up to 566 ha – industrial Gas flowmeter of land. the Mechanical Plant  Site’s advantages: . convenient road access: Electrical substation PS 150/6/6 kV “PZTO” • near an asphalt road of territorial significance; • presence of the railway along the site; • close location to the freight railway station; . location at the industrial hub’s territory that will allow

М-04 Road to place necessary production in compliance with Road of international environmental and sanitary standards; significance . close location to the residential area; Distance to IP– 1,3 km . developed public transport system; . flat relief, lack of height differences; . absence of ruined buildings.

 Site’s disadvantages: . land title – Governmental Property Act (subrental is not allowed). In this case YUZHMASH’s disclamation of the site in behalf of the Dnipropetrovsk Regional State Administration is required (additional legal analysis is required).

sites proposed for IP Today negotiations are underway with prospective residents – companies of such fields: railway production of building materials, packaging, solar energy, etc.

9 Steps on creating an Industrial park REGION OF OPPORTUNITIES in Dnipropetrovsk region

Registration and implementation Choosing a site Creating an Industrial Choosing a managing of economic activity for industrial park park company within the IP

 Choosing a territory for IP1 is  An authorized body:  Tender commission on choosing  An authorized body makes an fulfilled by the authorized . develops the IP concept a managing company: application to the Stateinvestproject body2 in accordance with the (subject to the requirements . undertakes a tendering for inclusion the IP into the following demands: of Art. 17 of the Law of procedure; Industrial Parks Registry. . industrial land; Ukraine On Industrial . conducts a tender to choose a . land area must be minimum Parks); managing company (subject to  Stateinvestproject makes a 15 ha, maximum – 700 ha; . determines tender the requirements of Art. 17 of the decision concerning conclusion of the IP into the Registry. . term of land use – not less conditions and a tender Law of Ukraine On Industrial

than 30 years; commission composition on Parks);  A managing company concludes choosing an IP managing . according to the tender’s results, . land use must respond a contract on implementation of company. draws a conclusion on approval sanitation, epidemiological economic activity within the by an authorized body. and environmental industrial park with IP’s participants. requirements.  An authorized body takes a decision on approval:  An authorized body takes a  A managing company subleases . of the IP concept; decision: land plots with the right to build to . of tender conditions and a . to approve a winner; participants. tender commission . to conclude a contract on composition for selection of establishment and operation of an IP managing company. an industrial park with the

winner;

. to conclude a land rental agreement.

______¹ IP – industrial park. 2 Authorized body – city council or regional administration ³ Stateinvestproject – State Agency for Investment and National projects of Ukraine

10 REGION 2 Kolomoitsevo Industrial Hub OF OPPORTUNITIES (Kryvyi Rih city) Comments Wool Yarn Factory (WYF), parts of private property  The site proposed for IP – 43 ha (consists of 2 plots, S=14,4 ha according to the 6-ZEM form – not given for use, other land with little vegetation cover).  Site’s advantages: . possibility to connect the engineering infrastructure; S=28,6 ha S=62,6 ha . convenient road access: • near an asphalt road of territorial significance; S=48,8 ha • presence of the railway of PJSC “KTsRZ” along the site; Railway station “Kryvyi Rih • close location to the freight railway station; Marshalling” . location at the industrial hub’s territory that will allow Distance to IP – 2 km to place necessary production in compliance with environmental and sanitary standards; . close location to the residential area; . developed public transport system; PJSC “KTsRZ” . flat relief, lack of height differences; . absence of ruined buildings.

 Site’s disadvantages: . this variant is not a single site but consists of 2 plots that will result in limitations for potential investors’ production facilities.

“Dnipropetrovsk shosse” Road of national significance Distance to IP – 6 km

boundaries of available expansion

land plots offered for the Industrial park – 43 ha (according to the 6-ZEM form – land with little vegetation cover, not given for use)

land plots near the potential IP (according to the 6-ZEM form – agricultural land, tilled field, land shares)

railway 11 REGION 3 Voitsehovo industrial area (Dnipropetrovsk city) OF OPPORTUNITIES

Cemetery

S=14 ha

S=42 ha S=31 ha

S=31 ha

Railway station 175 km Distance to IP – 1,4 km

Railway station “Voitsehovo” Distance to IP – 2,0 km

The property is owned by “Kryvyi Rih Shosse” the JSC Dniprometrobud, Road of international the land under the building is the public significance property, not given for use Distance to IP – 6,6 km

Comments boundaries of available expansion – 120 ha

site offered for the Industrial park– 31 ha  The site proposed for IP – 31 ha (according to the 6-ZEM form – not given for use, the designated (the designated purpose is not determined at the 6-ZEM form) purpose is not determined; at the general plan – industrial land).  The land expansion is possible till ~120 ha. The expansion requires changes to the general town at the general plan – planted land – 42 ha plan (under a decision of the city council session). In this case, project implementation period and the (the designated purpose is not determined at the 6-ZEM form) budget will increase. at the general plan – steading – 14 ha  Site’s advantages: (the designated purpose is not determined at the 6-ZEM form) . possibility to connect the engineering infrastructure; . convenient transport infrastructure: at the general plan – land for the cemetery expansion – 31 ha • the railway is near the site; close location to freight railway stations; (the designated purpose is not determined at the 6-ZEM form) • close location to the road of international significance; railway • close location to the airport of international significance – 16 km; . close location to the residential area; . flat relief, lack of height differences.  Site’s disadvantages: . presence of the property owned by the JSC Dniprometrobud at the site (2,3 ha) 12 REGION OF OPPORTUNITIES

ANNEXES

13 REGION Annex 1. Reserve investment sites OF OPPORTUNITIES

7 Former building industry (Zhovti Vody city)

Area: 32 ha Disposer: Dnipropetrovsk Regional State Administration* Designated purpose: industrial land Pavlohrad city Budget of land allocation: 250 thousand UAH Dnipropetrovsk city

Zhovti Vody city

4 Machine building industrial area (Dnipropetrovsk city)

Area: 110 ha Disposer: SE PA Yuzhny Machine-Building Plant named after A.M. Makarov (Act of permanent use) city Budget of land allocation: 882 thousand UAH

5 Canning factory (Apostolove city)

6 Industrial area of concrete products Area: 30 ha Designated purpose: industrial land (Apostolove city) Disposer: Dnipropetrovsk Regional State Administration Budget of land allocation: 250 thousand UAH Area: 100 ha Designated purpose: industrial land Disposer: Dnipropetrovsk Regional State Administration Budget of land allocation: 760 thousand UAH 14 * taking into account legislation changes effective from 01.01.2013 REGION Annex 2. Priority specialization of industrial parks OF OPPORTUNITIES

 Three clusters have been identified as priority specialization of industrial parks. Their system development is able to diversify the region’s economy significantly1: Machinery: Construction: Chemical industry:

• Manufacture of agricultural machinery • Infrastructure construction • Manufacture of plastics in primary forms and • Instrumentation technology (optical • Public construction plastic products instruments, measuring tools, watches • Industrial construction • Production of construction materials (paints, etc.) • Commercial construction varnishes, ceramics, cement, lime, plaster • Automobile industry (cars, motorcycles, mixes, concrete etc.) bicycles) • Glass and glass products • Pharmaceutical production

Criteria Machinery Construction Chemical industry

. presence of the key metallurgical enterprises: . presence of the cement and brick factories, paint . Large deposits of raw materials: • ArcelorMittal Kryvyi Rih companies: • primary and alkaline kaolin Production facilities • Metallurgical Plant named after Dzerzhynskyi • HeidelbergCement Ukraine • clay gravels, sand • Dnipro Metallurgical Plant named after Petrovskyi • Novoaleksandrovsk brick factory • quartzite and shale barren, migmatites • Kryvyi Rih Surikovyi plant • dolomite, granite

. need to modernize the production base of industrial . need to provide housing stock to citizens with average . need to provide high-tech materials for the construction enterprises in the region; level of income in the Dnipropetrovsk region; industry, engineering, medicine, agriculture

Depreciation of fixed assets in enterprises, 2008,% The provision of housing stock, m2 per inhabitant Import 2010, $ million

Kazakhstan 36 France 40 polymer, plastic 422 Poland 45 Czech Respublic 33 pharmaceutics 419 Czech Respublic 46 Dnip.region 23 ceramics 52 Russia 46 Russia 22 glass products 20 varnishes and paints 19 Dnipr.region 62 Poland 22

. need to expand and replace the fleet of public . need to maintain the technical condition of the existing . unmet demand for polymer products in medicine, transposition mouth in the key cities of the Dnipropetrovsk road (more than 9 thousand km) and railway (more than 3 agriculture (existing companies in polymer manufacture region; thousand km) are focused in heavy and extractive industries)

The need to purchase additional public transport fleet, unit . need to expand and modernize the regional transport . lack of internal competition in the pharmaceutical market trams 84 network to realize the potential of the area as a (90% of total consumption – imports) Development potential trolley 59 transportation hub by means of additional roads in the length of 263,2 km, with a budget of 9,3 billion UAH . huge amount of pharmaceutical market – UAH 3,72 billion buses 50 (16% of total retail and hospital implementation of drug metrotram 49 products in 2010 in Ukraine)

. demand in a large amount of engineering products from agricultural, transport and mining companies of the region

Import 2010, $ million

electrotechnical equipment 525

cars and vehicles 59 (ex.railway vehicles) medical and 28 optical devices

1 – The Project of Improving of the Economic Competitiveness of the Dnipropetrovsk Region (Monitor Group analysis) 15 REGION Contact information OF OPPORTUNITIES

Dnipropetrovsk Investment Agency (DIA) Address 49004, Ukraine, Dnіpropetrovsk, 2 Kirova prospect, office 538 Tel +38 056 742 86 87 +38 056 742 86 21 Fax +38 056 742 86 87 E-mail [email protected] Web www.dia.dp.ua

Dnipropetrovsk

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