Sverdlovsk Region, Russian Federation Investment Opportunities. Chemical Industry

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1 Sverdlovsk Region, Russian Federation Investment Opportunities Chemical Industry 1

About Sverdlovsk Region Sverdlovsk Region lies 2000 kilometers east from

transcontinental flows of materials, goods, financial and labor resources.

TERRITORY: 194.3 thousand square kilometers.

Sverdlovsk Region is a home to 47 cities, 26 industrial townships and

Local government is exercised in 94 municipal entities.

with a high level of business, cultural and public activity.

2 About Sverdlovsk Region Sverdlovsk Region lies 2000 kilometers east from Moscow, at the border between Europe and Asia and at the crossroads of transcontinental flows of materials, goods, financial and labor resources. The city of Ekaterinburg is the region s administrative center. TERRITORY: thousand square kilometers. POPULATION: the resident population of Sverdlovsk Region is 4,311,700. Sverdlovsk Region is a home to 47 cities, 26 industrial townships and urban-type settlements and 1841 rural settlements. Local government is exercised in 94 municipal entities. Today Sverdlovsk Region is a large economically developed territory of Russia with a high level of business, cultural and public activity. It is one of the most promising territories of the Russian Federation. In terms of major socioeconomic development indices, Sverdlovsk Region is among the top ten regions of the Russian Federation. EKATERINBURG 2

3 Introduction Government of the Sverdlovsk Region offers for your attention investment niches for starting chemical production within the region. We performed market research and identified upcoming trends that have not yet been developed but look highly promising. Our conclusions are based on the existing demand, as well as resources and infrastructure for the production start-up. To help you estimate advantages for your organization, for each of these prospective niches we have determined their market drivers and identified prospective consumers and strong partners among local companies. We are providing you with the unique data regarding the sector situation, because we are interested in developing business in Middle Urals. For the same reason, the Government of Sverdlovsk Region established a number of state support measures for companies that setup their business projects within the region. These measures are also described in this document. Support for investors including more in-depth consultations in case you are interested is provided by Development Corporation the of Middle Ural. About Corporation Development Corporation of Middle Ural, OJSC. is a special-purpose company of the Government of Sverdlovsk Region, founded in The Corporation has implemented a variety of projects in different spheres of business for a total amount of 20 billion rubles. The services that the Corporation provides to businesses free of charge: information about markets and terms for carrying business in Sverdlovsk Region search for partners and suppliers assistance in selecting the best location for production site (site selection) selecting the best government support measures for the project (subsidies, tax reliefs and other preferences) obtaining of necessary permits for construction and launch of the project 3

4 Chemical industry of the Sverdlovsk Region and possible areas for investment Chemical industry is one of the basic sectors of the economy. Enterprises of the Sverdlovsk Region produce tens of thousands kinds of products for different purposes: commercial gas, chromic compounds, sulphuric acid, copper sulphate, mineral fertilisers, synthetic resin and plastics, paintand-lacquer materials, fiberglass and by-products, perfumes and cosmetics, pharmaceutical products, rubber and plastics articles and etc. The leading companies in this sector are: Uralchimplast, Concern Kalina, Ural Plant of Rubber Technical Products, Uralelastotehnika, Uralplastic-N, Russian Chrome Chemicals 1915, Irbit Pharmaceutical Chemistry Production Plant, and Uralbiopharm. The local chemical industry accounts for 3.5% of the Sverdlovsk Region s gross regional product (GRP). Shipped chemical products make up 4.7% of all manufacturing shipments. Altogether, 17,700 people are employed in the region s chemical industry. In the chemical industry of the Sverdlovsk Region, we have identified the following niches, where for potential investors, it will be profitable to open a chemical production: production of raw chemical components for dry mortar manufacture production of raw chemical components for heat insulation manufacture production of ion-exchange resins for various industries production of special chemical reagents for oil, gas and extractive industries 4

5 Production of raw chemical components for dry mortar manufacturing How we estimate the current market environment: The current situation in the Russian economy determines the use of construction materials that reduce the consumption of materials, labor and cost of buildings and structures. For companiesmanufacturers of dry mortar it is a stimulus to increase the range, improve product quality and reduce dependence on imported raw materials (additives). Import ratio of this input product at Russian market makes at least 80% Market drivers: construction is the main driver but currently it faces recession. However, experts mark the growth in demand for some product category (e.g., multipurpose DM) in the short term, increase in DM production may be influenced significantly by construction of facilities for FIFA World Cup 2018 Consumers: DM producers in the Ural Federal district: Bergauf (Russia) headquarters in Ekaterinburg, 5 production sites in Russia, 2 of which are located in Sverdlovsk Region Knauf (Germany) represented by 11 production plants in Russia, 2 of which are located in neighboring regions Chelyabinsk Region and Perm Region Henkel (Germany) represented by 9 production plants in Russia, 2 of which are located in neighboring regions Chelyabinsk Region and Perm Region Weber-Vetonit SG (France) 3 production sites in Russia, one of which is located in Sverdlovsk Region Mapei (Italy) 2 production sites in Russia, one of which is located in Sverdlovsk Region Brozex Group (Russia) headquarters in Ekaterinburg, dry mortars plant is in Berezovsky town (15km from Ekaterinburg) Total number of DM producers in Russia amounts up to more than 200 enterprises. 5

6 Production of raw chemical components for heat insulation manufacturing How we estimate the current market environment: Russian economic crisis exerted negative influence on the construction industry, where for the last two years one can see a steady decline of construction speed. In turn, such tendencies adversely affected the market of construction materials, particularly heat insulation. At 2014 end, the growth amounted to 7% and in 2015 about 3%. However, potential of Russian heat insulation market is still maintained and, in the long view, it will be developing. market volume of heat insulation materials in Russia: 60 mln. m3 (145 bln. RUB) Market drivers: high cost of energy is the main driver in favor of heat insulation market construction industry, which is characterized by decline now, directly influences on the heat insulation market. Nevertheless, in an increasingly competitive climate there is a growth of tendency for development of heat insulator production technology, which, in turn, creates a demand for raw components in the short term, significant growth of heat insulator production output may be influenced significantly by construction of facilities for FIFA World Cup 2018 Consumers: Primary producers of heat insulation materials in Russia: Knauf represented by 11 production plants in Russia, 2 of which are located in neighboring regions Chelyabinsk Region and Perm Region Tizol (plant in Sverdlovsk Region) Tekhno plant (plant in Chelyabinsk Region) Rockwool (plant in Chelyabinsk Region) Isover (plant in Chelyabinsk Region) Linerock (plant in Chelyabinsk Region) Ursa (three plants in Moscow Region) 6

7 Production of ion-exchange resins for various industries How we estimate the current market environment: Major market share is formed mainly by import. There are only two producers of ion-exchange resins (IER) in Russia, and quality of their products and production output may not satisfy the market demand. Current economic situation in the country (devaluation of the Russian ruble) creates opportunities for localization of ion-exchange resin production in Russia. import ratio amounts up to 90% market capacity amounts to 25 KTA with annual increase by 7-10% Market drivers: Development of technologies of leading industries where water treatment is required. Water treatment is the target application of IER. Consumers: Diversified industrial complex of the Sverdlovsk Region: combined heat and power stations machine building factories steel works chemical and pharmaceutical enterprises municipal boiler organizations food industry enterprises cosmetic plants printing and publishing integrated works sanatoria 7

8 Production of special chemical reagents for oil, gas and mining industries How we estimate the current market environment: Currently, the oil service market is under pressure but on condition that three main activities such as oil production maintenance in brownfields, development of new hard-to-reach deposits, and development of oil production in Greenfields (Eastern Siberia), will continue to be developed, it will definitely grow. the capacity of the oil service market in 2015 is was $27.5 billion, last year it was $25.9 billion. Market drivers: New technologies for drilling; Due to the currency rate increase and ruble weakening, the price of certain chemical agents containing imported components has considerably increased. The customers are not ready to increase expenses for chemical agents as well. Therefore, it is necessary to look for new efficient agents of permanent high quality produced from domestic raw materials. Consumers: The largest upstream oil and gas company in Russia: Rosneft LUKOIL Gazprom Neft Surgutneftegas Tatneft Slavneft Bashneft NOVATEK 8

9 Competitive advantages of the Sverdlovsk Region Establishment of raw chemical components production for dry mortar in the Sverdlovsk Region will make it possible to: replace expensive imported raw materials for consumers acquire a significant market share due to substitution of expensive imported components with their production in proximity to potential customers obtain immediate access to supply streams develop product line with the use of scientific potential of the participants of the chemical cluster The factors forming competitive advantages of the Sverdlovsk Region: skilled labor (Sverdlovsk Region is renowned for strong vocational education) cost of energy (lower than in the Central regions of Russia) favorable geographical location and developed transport infrastructure (Sverdlovsk Region has logistics complex of international level) proximity to the market (a key industrial region of Russia) support of the Government of Sverdlovsk Region What do we offer to potential partners: industrial real property with ready-made infrastructure designated for chemical production ChemPark TAGIL assistance in obtaining documents required for production organization and startup, particularly construction licenses guarantee for stability of fiscal and regulatory conditions, provision of government measures for stimulation and support, among them marketing and selling award of special investment contract (SIC) strong local partner Uralchimplast, JSC 9

Industrial Park "Chempark "Tagil" Ready site for chemical production enterprises with its own supply of raw materials Free plots Occupied plots Occupied facilities Located in Nizhny Tagil city (140

10 Industrial Park "Chempark "Tagil" Ready site for chemical production enterprises with its own supply of raw materials Free plots Occupied plots Occupied facilities Located in Nizhny Tagil city (140 km from Ekaterinburg) It has been functioning since 2012 Total area: 128 ha Class of hazard: I V Provided resources Gas supply: 25,000 m 3 /hour Power supply: 50 MW Heat supply: 35 Gcal/hour Water supply: 820 m 3 /day Wastewater disposal: 870 m 3 /day Nitrogen: m 3 /min Compressed air: 30 m 3 /min Features: Current residents: Uralchimplast, OJSC (Anchor resident) Production of synthetic resins Ural Plasticizers Plant, LLC Production of plasticizers. Uralchimplast-Amdor, LLC Production of chemical agents for road construction and corrosion inhibitors Uralchimplast SI Group Production of synthetic resins for tires and rubber goods, abrasive and friction goods Uralchimplast - Huttenes-Albertus, LLC Production of chemical products for the foundry industry (resins, shapes and rods) Available main raw materials: methanol, carbolic acid, formaldehyde Wastewater disposal with its own sewage treatment plants Dumping ground for domestic solid wastes disposal Heat treatment furnaces for disposal of chemically contaminated wastewater Developed railway network Its own storehouse facilities Services provided by the management company: turn-key environmental-safe maintenance power supply occupational Health and Safety and Industrial Safety 10

11 Uralchimplast, JSC. Reliable business partner in the chemical industry About Company founded in 1938 one of the largest producers of synthetic resins in Russia the main shareholder of UCP Chemicals AG (Austria) (97.3%) the annual turnover of over 100 million Euros the staff is people party EPRA, GPRA, Responsible Care, TUV Certificate Specializes in the production of resins for heat insulation, woodworking, foundry, petroleum and road industry. The main production facilities of Uralchimplast is located in the city of Nizhny Tagil, Sverdlovsk Region. Group of companies includes infrastructure in Nizhny Tagil (Sverdlovsk region), branches in such cities as Moscow, Novosibirsk, Tolyatti, Joint Venture URALCHIMPLAST HÜTTENES-ALBERTUS (UCP- HA), Joint Venture UralChimPlast - Amdor, Joint Venture UralMetanolGroup, Joint Venture UralChimPlast -SI Group. Engineering superiority of production and quality of the most products are confirmed by TUV Certificate and certified by ISO-9001:

12 Government of the Sverdlovsk Region Basic incentives and subsidies for business development Status of the Priority Investment Project: TAX RATE USUAL TERMS TERMS FOR PRIORITY PROJECT Corporate Profit tax 20% 15,5% Property Tax 2% 0% Land Tax 1,5% 0% Subsidies: compensation of capital expenses for production interest compensation on loan Loan for business development at preferential rate: the Industry Development Fund grants loans of 500 to 700 mln. rub. for the best investment projects at 5% interest rate per annum financing of 80% of the investment project cost for the projects of 1 to 20 billion rub. value at key interest rate (currently 11%) + 2.5% per annum 12

13 Contact information Development Corporation of Middle Ural, OJSC. 50b Lenina ave, office , Ekaterinburg, Russia Tel./Fax: +7 (343) investural.com Nikita Koskevich Head of Residents Engagement Division Tel.: +7 (343) , ext. 107 Mob.: +7 (912)

Uralchimplast General Presentation

Uralchimplast General Presentation Nizhny Tagil March 2010 Group s Corporate Structure UCP Group s Corporate Structure UCP Chemicals AG Holding Vienna JSC Uralchimplast Management Company 100% 91.62% LLC