Content. Special economic zones of Russia 1.1. Management bodies 1.2. Types of special economic zones 1.3. Benefits for investors

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3 Content 1 Special economic zones of Russia 1.1. Management bodies 1.2. Types of special economic zones 1.3. Benefits for investors SEZ Togliatti is one of the fastest growing SEZ in Russia SEZ Togliatti offers the best conditions for business DEVELOPMENT in the Samara region SEZ Togliatti in figures SEZ residents Construction of the SEZ s infrastructure Results of 2013 and prospects for the development of SEZ. Interview with Alexey Pakhomenko

4 Ministry of Economic Development of the Russian Federation Ministry of Economic Development of the Russian Federation «Together with the authorities of Samara region and the authorities of Togliatti we undertake а commitment to provide the most conducive business environment within the SEZ». The deputy Minister of Economic Development of the Russian Federation Oleg Saveliev 2

5 Samara Region Government «Building SEZ Togliatti is a matter of honour to us». The Governor of the Samara region Nikolay Merkushkin 3

6 1. Special economic zones of Russia 1.1. Management bodies A special economic zone is the part of the territory of the Russian Federation, which is designated as such by the Russian Government and which has a special scheme for entrepreneurial activity and where the custom procedure of a free economic zone may be applied. The activity of SEZ is regulated by the Federal Law of July 22, 2005 No. 116-FZ «On Special Economic Zones in the Russian Federation». Powers of normative legal regulation, establishment and management of special economic zones are given to the Ministry of Economic Development of the Russian Federation, whose structure includes Department of special economic zones, projects of regions and mono-cities development. Special economic zones activity is provided by: Ministry of Economic Development of the Russian Federation (Department of special economic zones, projects of regions and mono-cities development); OJSC Special Economic Zones Subjects of the Russian Federation Andrey Sokolov The Head of Department of special economic zones, projects of regions and mono-cities development «The world practice of establishment of similar areas proves the success of special economic zones Russia s pride. Thanks to SEZs activity the country offers the best conditions for the localization of advanced technological practices and the implementation of large industrial investment projects». 4

7 RUSSEZ is a federal chain of special economic zones. The managing company OJSC SEZ is in charge of its development and the State is its only shareholder. The project is realized under the guidance of the Ministry of Economic Development of the Russian Federation. Out of 17 SEZs managed by OJSC SEZ, 6 specialize in industrial production development, 5 in technological innovations, 4 - in tourism and recreation business, 2 in harbor logistics and transport hubs. OJSC SEZ was founded in companies from 25 countries in the world have been represented in special economic zones of Russia. Among them are such transnational giants as 3M, General Motors, Armstrong, Yokohama, Itochu, Air Liquide, Bekaert, Rockwool, Novartis, Nokia Siemens Networks and others. 420 billion rubles of investment have been declared by the residents. Vadim Tretyakov The General Director of OJSC SEZ «Special economic zones have proved to be an effective tool for attracting direct investment into the regional economies. Private business is developing on the basis of existing infrastructure, lowered administrative barriers, and preferential tax and customs terms. As a result of the work of SEZs in Russia, the actual growth of private investment into the national economy reached 8 %». 5

8 1.2. Types of special economic zones Industrial and production zones Such zones are located in major industrial regions of the country. Proximity to the resource base for production, and access to existing infrastructure and transport links are among the main advantages. Technical and innovation zones The main areas of SEZs of such type are located in the largest scientific and educational centers with long scientific tradition and well-recognized research schools. This creates great opportunities for the development of innovative business, hi-tech production and its output into the Russian and international markets. 6

9 Tourism and recreation zones These are located in the most picturesque and popular tourist regions of Russia, a special economic zone of the tourist-type offers favourable conditions for the organization of tourist, sports, recreational and other types of businesses. Port zones Being in close proximity to major transport routes, port SEZ can become a platform for organizing shipbuilding and repair activities, providing of logistics services, as well as a base for new routes. 7

10 1.3. BENEFITS FOR INVESTORS 8

11 Special economic 2. is one the fastest growing SEZs in Russia

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13 2011 October The project work began First residents 1. LLC TPV RUS 2. LLC Zhelezny potok 3. LLC Steering Systems Plus The declared investment of the residents is more than 1.3 billion rubles * The declared new workplaces * The infrastructure construction (first stage) is finishing New investors 12. LLC Avtoelektronika 13. LLC Togliatti Paper Mill 14. LLC AZ Powertrain 15. LLC CIE Automotive Rus 16. LLC GKN DriveLine Togliatti 17. LLC Mann+Hummel Togliatti The declared investment of residents is more than 19 billion rubles * The declared new workplaces* * оn a cumulative basis, in accordance with the business plans of resident 11

14 2010 August 12 SEZ Togliatti, which is of an industrial and production type, was established Area 660 ha Establishment purposes: Increase the economic potential and attractiveness of the region Create conditions for the development of Russian industry Improve the quality of life in Samara region December 23 The branch of JSC SEZ in Samara Region was created 2012 October The infrastructure construction (the first stage) began November 2 The first pile was hammered New investors 4. LLC JV-Systems - the anchor resident 5. LLC Edscha Togliatti 6 LLC Praxair Samara 7. LLC Sanoh Volga 8. LLC Mubea Suspension Components Rus 9. LLC Nobel Automotive Rus 10. LLC Atsumitec Toyota Tsusho Rus 11. LLC Hi-Lex Rus The declared investment of the residents is more than 12,4 billion rubles * The declared new workplaces *

15 Tax exemptions Free customs zone regime Free customs zone is the customs procedure under which goods are stored and used within SEZ territory or its part without payment of customs duties and taxes, and without application of non-tariff regulation of foreign goods, and without application of prohibitions and restrictions in relation to the goods of the Customs Union. женного союза. 0% import duties 0% VAT SEZ «TOGLIATTI» 0% import duties VAT refund FOREIGN COUNTRIES RUSSIA KAZAKHSTAN BELARUS Customs duties and VAT are to be paid 0% import duties SEZ «TOGLIATTI» Customs duties and VAT are to be paid FOREIGN COUNTRIES RUSSIA KAZAKHSTAN BELARUS 13

16 Infrastructure Special administrative regime State guarantees In accordance with the Federal Law on Special Economic Zones SEZ resident enterprises are guaranteed against adverse changes in taxes and fees in the legislation of the Russian Federation. Right to buy land at a reduced price Special administrative regulations on the territory of SEZ give land tenants - real estate owners - the right to purchase the land plots located under these facilities. Land rent in SEZ 0.13 EUR/m 2 Land purchase cost in SEZ 0.32 EUR/m 2 «One stop shop» system There shall be an effective system of state administration in the special economic zone: «One stop shop» scheme, ensuring the most convenient contacts with public and municipal bodies of management and control for businessmen. «One stop shop» system shall allow to facilitate residents registration, reduce administrative barriers, providing investors with a single contact post for all types of business cooperation with the state. 12

17 4. SEZ Togliatti in figures 2010 August 12 Establishment of SEZ Togliatti in accordance with the Government Order 621 Project finance 2010 December 23 billion rub. Establishment of Branch Office of JSC SEZ in the Samara region Federal budget Non-budgetary sources Budget of the Samara region Number of residents 14

18 zone Togliatti 3. offers the best conditions for business in the Samara region «The Samara Region Government continuously works on the improvement of the business environment in the region. SEZ Togliatti has become one of the most attractive areas for investment. We value the trust of investors and will do everything to ensure that our cooperation is mutually beneficial». The Deputy Chairman of the Samara Region Government the Minister of Economic Development, Investments and Trade of Samara region Alexander Kobenko

19 The volume of declared resident investment, mln. rubles * The number of declared new workplaces to be created by residents * The volume of investment made in the construction of infrastructure in the SEZ, mln. Rubles** SEZ Togliatti is an effective instrument of publicprivate partnership ruble State investment rubles Private investment Taking into account the fulfillment of 1/3 of the SEZ site * оn a cumulative basis, taking into account companies that received approval to obtain the status of SEZ resident for the year ** оn a cumulative basis and in accordance with the approved list of infrastructure in the SEZ 15

20 LLC JV Systems the USA Project Development and operation of assembly production for GM AVTOVAZ Occupied AREA hectares Construction start-up 2013 Production start-up 2015 Project status Under construction LLC Edscha Togliatti Germany Project Building of modern hi-tech plant for production of auto components (hinges, bonnet hinges, trunk hinges, door stops, hand brake levers). Occupied AREA 2.95 hectares Construction start-up 2013 Production start-up 2014 Project status Under construction 16

21 LLC Nobel Automotive Russia Turkey Project Development of diversified production of wide range products of OrhanHolding A. Ş. in Russia: fuel lines, windshield washers, flexible cables, seat frames, and springs for engine mounts Occupied AREA 3.25 hectares Construction start-up 2013 Production start-up 2014 Project status Under construction LLC TPV RUS Slovenia, Russia Project Development of modern production of car seats Occupied AREA 5.87 hectares Construction start-up 2012 Production start-up 2015 Project status Under construction 17

22 LLC Atsumitec Toyota Tsusho Rus Japan Project Building a plant specialising in manufacture of preselectors for manual and automatic transmissions for automotive industry Occupied AREA 5 hectares Construction start-up 2014 Production start-up 2015 Project status Design LLC Sanoh Volga Japan Project Development and operation of auto component production for car fuel and brake systems according to the innovative technologies Occupied AREA 2.94 hectares Construction start-up 2014 Production start-up 2015 Project status Design 18

23 LLC HI-LEX RUS Japan Project Development of cables production for the automotive industry Occupied AREA 4 hectares Construction start-up 2014 Production start-up 2015 Project status Design LLC Mubea Suspension Components Rus Germany Project Development and operation of suspension spring production for automobile production Occupied AREA 5.59 hectares Construction start-up 2014 Production start-up 2015 Project status Design 19

24 LLC CIE AUTOMOTIVE RUS Spain Project Development and operation of hi-tech production of cast aluminium parts for automobile engines Occupied AREA 3 hectares Construction start-up 2014 Production start-up 2015 Project status Design LLC Praxair Samara the USA Project Building of modern hi-tech factory on refueling of tanks with industrial and special gases Occupied AREA 2.39 hectares Construction start-up 2014 Production start-up 2015 Project status Design 20

25 LLC GKN DriveLine Togliatti the UK Project Development and operation of the production of constant velocity joints for the automotive industry in Russia Occupied AREA hectares Construction start-up 2014 Production start-up 2015 Project status Design LLC MANN + HUMMEL Togliatti Germany Project Creation and operation of production of automotive components in SEZ Togliatti Occupied AREA 1.65 hectares Construction start-up 2014 Production start-up 2015 Project status Design 21

26 LLC AZ Powertrain Russia, India Project Development and operation of engine production for the automotive industry Occupied AREA 3 hectares Construction start-up 2014 Production start-up 2015 Project status Design LLC Togliatti paper factory Russia Project Development and operation of corrugated paper production from waste-paper to make hard and corrugated cardboard and corrugated packaging Occupied AREA 2 hectares Construction start-up 2014 Production start-up 2015 Project status Design 22

27 LLC Zhelezny potok Russia Project Production development of indexable inserts and other hard-alloy products Occupied AREA 2 hectares Construction start-up 2014 Production start-up 2015 Project status Design LLS Steering Systems Plus Russia Project Development of motor car power steering production Occupied AREA 3.07 hectares Construction start-up 2014 Production start-up 2015 Project status Design 23

28 LLC AVtoelectronika Russia Project Development and production of a reduction gear version of a steering system for motorcars Occupied AREA 4 hectares Construction start-up 2014 Production start-up 2015 Project status Design 24

29 THE MAP OF SEZ TOGLIATTI RESIDENTS LLS Steering Systems Plus sion 25

30 general manager of CJSC GM-AVTOVAZ Gary Tilson

31 CJSC GM-AVTOVAZ about their activities in SEZ Togliatti What factors did become basic when choosing the SEZ Togliatti as a site to place your production? First, the Special Economic Zone Togliatti provides GM-AVTOVAZ with an opportunity to combine several of its operations in one location at the same time. The SEZ s extremely attractive incentive package also helps create a solid economic foundation for the further development of our subsidiary «JV Systems» and the whole JV. We made a decision to invest in the Special Economic Zone not only because of its proximity to our current operations in Togliatti (which allows us to save logistics costs), but also because the cost base of Togliatti is extremely competitive versus other locations and because the regional workforce is so capable. How dynamic and effective from your point of view is the process of development of the project to create the SEZ «Togliatti»? We see how proactive the SEZ Togliatti works attracting new residents, providing support and follow-up at every step especially when it comes to approval with the governmental institutions. Particularly, our «JV Systems» with the support of the SEZ Togliatti acquired the residency status very quickly to start with construction process. How can you characterize the development pace of the project LLC JV Systems in In June 2013, we broke the ground for construction of our new operations, and immediately started with construction works. By the end of the previous year, we have reached strong progress in construction, particularly with earthworks, and started construction of metal frames for some of facilities. We think that we managed to establish effective cooperation both with the SEZ Togliatti and with our constructor JSC Avtozavodstroy. During our regular meetings, we discuss the stages of project fulfillment and emerging issues. It helps us to resolve even smallest problems at the very early stage. What work will be carried out by CJSC GM-AVTOVAZ to develop LLC JV Systems in 2014? We will continue construction works on the territory of the SEZ Togliatti. And start with deliveries of technological equipment for our operation in spring By the end of 2014, we plan to accomplish construction of our spare parts warehouse and move in. 27

32 6. BUILDING OF INFRASTRUCTURE The area of special economic zone Togliatti is 660 hectares. Its development is carried out in three phases in order to maximize the distribution of resources. Construction work is done on the principle of parallel engineering, which also allows to reduce in timing. The first stage, the development of 181-hectare area began in Starting from Q begins a step-by-step connection of SEZ residents into existing infrastructure using a permanent scheme., start-up One of the priorities of JSC SEZ branch office in the Samara region is maximizing the use of modern materials and technologies in the construction of infrastructure. Only high-quality construction and finishing materials are used from the design stage to the final acceptance and commissioning of the finished building and the work is done according to all technologies of building and installation of facilities. The construction of the second stage of the SEZ begins in Q

33 Specifications of infrastructure (Stage 1) from JSC AVTOVAZ * Residents must have: - agreed technical requirements - engineering network constructed - signed agreement on utilities supply 29

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37 Q I I ANNUAL REPORT SEZ TOGLIATTI 2013

38 Q I I I -2013

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41 Q I v -2013

42 «Four of our residents have already started active construction work on their sites. The volume of accomplished work on their projects in the SEZ has exceeded 349 million rubles and has already created more than 200 workplaces, including those on temporary production facilities». Head of the Branch office of JSC SEZ in the Samara region Alexey Pakhomenko 38

43 Results of 2013 and prospects for the development of SEZ. Interview with Alexey Pakhomenko How do you evaluate the dynamics of SEZ Togliatti s development in 2013? In 2013, we were able to make significant progress in the implementation of the SEZ Togliatti project. Firstly, we made a big step forward in terms of building infrastructure. The first pile in SEZ was hammered on November 2, 2012 and one year later building of the main objects of the first stage is about to be finished: water and sanitation systems, power supply systems, sewage treatment plants, stormwater facilities and communal areas. Also, we made technological connections of water supply and sanitation facilities to offsite infrastructure. We started the construction of a gas supply system and communication networks. Contracts have been signed for the construction of roads and residents power supply system, which will increase the electric power in the SEZ to 80 MW in As for electricity, this year we have increased the capacity of the temporary power supply system of the new electrical substation «Technopark». It was built specifically for the needs of the SEZ and technopark «Zhiguli Valley». From the same substation we are planning to provide electricity to our infrastructure and for production of our residents using a permanent scheme, starting with the first quarter (Q1) of the next year. This year in terms of infrastructure the construction of the first stage drew more than 1.4 billion rubles, and more than two thousand workplaces were created on the site thanks to the current contractors. How do you evaluate the results of 2013 in terms of working with investors? The project has shown a good development in terms of working with investors. We managed to exceed the plan for the branch of JSC SEZ, as well as to justify Governor Nikolai Merkushin s hopes for the project. We are pleased to say that today SEZ Togliatti has registered 17 resident companies with a total declared investment of more than 19 billion rubles, and 5093 declared new workplaces. Geography of investors varies greatly. Investors from Spain, India and UK joined to companies from the U.S., Japan, Germany, Turkey and Slovenia. The number of labor-intensive, high-tech industries is growing and cooperation between investors is developing within a single site. This year we have strengthened the automotive cluster in the SEZ and in the near future about 60% 39

44 of car components will be produced here. In addition, it is important to mention that four of our residents have already started active construction work on their sites. The volume of accomplished work on their projects in the SEZ has exceeded 349 million rubles and has already created more than 200 workplaces, including those on temporary production facilities In your opinion, what is the strength of the project and what could be done better? Personally, I am generally satisfied with the development of SEZ Togliatti. The project was praised more than once by the Governor Nikolay Merkushkin and the Ministry of Economic Development. Again, in terms of attracting investors, we exceeded the plan. Big companies and well-known brands keep joining the project, which we are really proud of. It is always a pleasure to work with professionals. As for the infrastructure construction, it is not as easy as it might seem. Unfortunately, our country has not seen implementation of such major projects for a long time. Construction companies and design organizations have forgotten what large-scale industrial construction is like. Having started work with contractors, we realized that local organizations are not willing to work at our rates and to meet the requirements of foreign companies. We have to say that the quality of construction does not always meet our expectations. Thus, we spend a lot of time on unplanned work as we strive for the quality expected by foreign investors. Unfortunately, it does affect timing. However, it is worth mentioning that the project has a lot of support from all levels of authorities and many partners of ours. Our team employs a team of highly qualified specialists. And I thank everyone involved for their work. Our joint efforts will, in spite of all the difficulties, fulfill all the guarantees of the state and provide our residents with energy resources on time. What plans do you have for the following year? The main expectations of 2014 are related to the launch of the residents production. The first production launch is scheduled for June We also expect the majority of our investors, at least 10 companies, to begin the construction of their buildings in the spring of the following year according to the schedule. In the first quarter, the SEZ site is going to be supplied with energy using the permanent scheme, in the second quarter the development of the territory of the second stage will take place. The following year will be the year of the official launch of special economic zone Togliatti and the year of large-scale building. We have great hopes for 2014, as it is bound to be a historic milestone in the project. How do you see the prospects for the development of Togliatti after the launch of the special economic zone? Taking into consideration that the built-up area of SEZ is comparable to one of the largest plants in Russia - JSC AVTOVAZ, we can assume what prospects the city might have. In addition to a large number of new workplaces, a sufficiently high level of salaries, a qualitatively different level of production, there are also many social perspectives. Already at the initial stage of SEZ development, the authorities carried out a lot of work in order to create an efficient environment in the city, which includes educational, medical and transport infrastructure. The housing and construction markets have become more active. Moreover, as the time passes the effect of the SEZ will be more noticeable. Perhaps, we will talk about the fourth birth of Togliatti in a while. 40

45 «The main expectations of 2014 are related to the launch of the residents production. The first production launch is scheduled for June 2014».

46 JSC SEZ branch office Russia, Samara region Togliatti, Str.Frunze, 8, office 508 Tel +7 (8482) Fax +7 (8482)