Industries on the move
Joera Mulders
October 2, 2010
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Ekspert magazine features a round up analysis of all major investments (>$20 mln) in industrial production that were either announced, started or completed in the months May up to July. The list contains a total of 70 projects with a total sum of 25,6 bln dollars. It’s encouraging to see the total sum of investments is up 25% up since the previous round-up conducted in the months from February till April. The really interesting part of the round up however is the insight look it gives us in the dynamics of Russia’s industrial development.

Let us start with the absolute numbers. The researchers do caution the reader. The Russian economy is very cyclical and the summer months are traditionally the peak season for construction. So to make good predictions, we have to wait for the YOY data. By the way, Ekspert has only started making these roundups since November 2009.

Nevertheless, the authors can hardly hide their enthusiasm. The investments involved in industrial projects in which construction was underway during the months of April till July totaled $16,4 bln. This is an increase of 64% in comparison to the period of February till May. Most of these production facilities will come online in the next few years and contribute to an increase of industrial output and GDP growth.

The trend becomes visible, when we have a look at graph no2. Black means projects that have been announced. Red means that construction is underway. Grey stands for completed construction and blue means that production has commenced.

The researchers proceed to look into the involvement of foreign capital. Graph 3 shows the increase of foreign capital (in red) over the periods November-January, February-April and May-July. Graph 4 displays the data for 137 investment projects in the period November 2009 – July 2010.

  • In more than 60 of these 137 projects foreign capital is involved.
  • Foreign capital prefers greenfield projects. But also more than half of Russia’s federal and regional investors choose to build entirely new facilities.
  • The most significant projects with foreign investment are realized together with large state companies or companies close to the state. (Not visible in graph)
  • Ekspert concludes: ‘It seems that American, European and Asian companies acknowledge the long-awaited stability in the Russian economy and started to direct the fundamentals in their post crisis expansion to the Russian markets, an indispensable aspect of which has to be the localization of production in our country.’
  • To accentuate the nature of cooperation between foreign and Russian companies Ekspert quotes a general director of a large meat factory: ‘We understand our regional market. We have the financial resources. However, because of our lack of knowledge and skills, we do not have the capacity to realize investment projects independently. We need our partners.’ The authors conclude: ‘Industrial investments are in high demand and opportunities are plenty. Even money is not the problem. All rests on the shortage of qualifications for the realization of such projects, starting with the business case and ending with industrial engineering and the actual construction of new plants and factories.’ In other words, Russia is looking for technology and experience.

The real gem in Eksperts research is the upcoming list of the major and most interesting projects in their roundup. I remind you that all of these projects have either been announced in the months of April up to July, or construction has started or completed. The list gives us a great insight in the direction Russia’s industry is heading. Most new projects are extensions of existing industrial processes. Successful Russian industries find foreign partners with the technology and experience to take the next step in modernizing their production process.

Chemical Industry and Oil Refining

  • Leading sector by nominal sum of investments.
  • Since Soviet times chemical industry has been the most under-invested among the heavy industries.
  • Fertilizer producer Evrochim is building a $3bln plant around a large deposit of potassium salt in the Volgograd oblast. When the production facility comes online in as is expected 2013, Evrochim will become the fourth company in the world with its own access to all three raw materials: nitrogen, potassium and phosphorous. Evrochim is becoming so large in Russia that is one of the very few companies in the chemical industry that produces for export.
  • Petrochemical holding Sibur is starting two projects. In Western Siberia, near Tobol’sk a polypropylene production complex and pyrolisys factory is build with a total cost of $2bln. Since the 1970’s the center of oil extraction has migrated to this region, but up till now this area has seen few investments in the petrochemical industry. The companies spokesman: ‘In the past 2-3 decades no large petrochemical objects have been build in Russia. The skills of project management, engineering and construction are lost. That’s why we have to turn to the leading western contractors.’
  • Sibur has also started construction of a second project in the Nizhny Novgorod region, which will produce polyvinyl chloride and caustic soda, using a the economically effective and ecologically cleaner ‘membrane’ technology, supplied by partners Solvay (Belgium) and BASF (Germany).
  • In a good example of Social Corporate Resonsibility Russian style, two Russian entrepreneurs, who sold their coal mine to the Evrazholding, will build the first oil refinery in the Kemerovo region. The facility expected to launch in 2011 is heavily supported the local governor Tuleyev. Its output would provide the region with its own benzine production and give the governor some leverage over fuel prices.
  • A smaller project, but mentioned by Ekspert as an example of import substitution, is a $4mln polyamide textile factory near the city of Tolyatti. Polyamide of this quality is currently not being produced in Russia. The investors own several other textile plants and prefer to produce their own raw materials.

Nonferrous Metallurgy and Power Engineering

  • Russia’s large holdings in the nonferrous metallurgy sector are reorienting their production on Chinese, East- and South-East Asian markets.
  • Investment company ‘Metropol’ will construct the will invest $1.2bln in a mining plant in the republic of Buryatiya. Half of the extracted zinc and lead concentrate will be exported, mostly to China.
  • Rusal’s Boguchanskii Aluminum Factory is entirely intended for Asian markets. This factory is build together with Rushydro as part of the Boguchanskii Energo-Metallurgical Union (BEMO). Rushydro is finishing up the construction work on a 3 gigawatt hydroelectric plant. The first units of the $2bln dam, which production was started 30 years ago, are planned to come online in 2011.

Ferrous metallurgy

  • All projects in Eksperts round up are completely oriented on the domestic market.
  • Seven of the 8 projects with a total sum of investments of $3,4 bln are greenfield projects.
  • The ChTPZ group is building a new production line for large-diameter pipes in Chelyabinsk for $700 mln. The group already owns a sheet metal plant in the region.
  • In October 2010, the same ChTPZ group will start the construction of a $630 mln production line in Pervouralsk for high quality steel for its tube rolling mill in Chelyabinsk and pipe factory in Pervouralsk.
  • Ekspert mentions two projects that will produce for the construction center, but notes that the investors are currently not in a hurry, because the construction market is not expected to recover before the year 2012: 1/ Severstal’ has announced the construction of a plant in the Saratov region, which will produce profiled metal for the construction sector in the Privolzhe area. 2/NLMK will complete a metal plant in the Kaluga region that was started by its former owner, the Maxi group, but frozen due to a deficit of funding. The company expects to acquire a 35% market share among suppliers of metals for armatures in central Russia.
  • In the Nizhny Novgorod region the Ruspolimet holding that already owns metallurgical factory ring-roller mill is building another ring-roller mill, based on modern technologies, that will produce stronger, one piece rings of large diameters for general and energy machine building. The holding is also planning another steel factory for supply of raw materials.
  • Finally, a smaller investment, but one with unique technology for Russia: Kurganstal’most in partnership with the French Wheelabrator Allevard will build a $20 mln factory, producing abrasive balls.


  • Out of the 16 machine-building projects worth in total $1.2 bln, 13 are either partnerships with foreign companies or completely foreign.
  • The automotive industry attracts most investments. Russia wants to more than a place for assembly lines, so Ekspert is proud to announce that in the Techno Park Grabtsevo in the Kaluga region the Spanish Gestamp and Russian Severstal’ have build a production line for stamped body and chassis components for the Volkswagen plant. Also in Grabtsevo the German Benteler build a production line for car suspensions, also for the Volkswagen plant. In Shushari near St. Petersburg the the Canadian Magna will soon start the construction of a $50 mln plant producing sheet metal stamping.
  • In the Far East of Russia a new wharf will be build by a partnership of the South Korean Daewoo Shipbuilding, Marine Engineering and the Russian State Unified Shipbuilding Sorporation. It’s total costs are estimated at $600 mln. The larger part of these funds, as well as all the construction materials and equipment come from South Korea. Russia in turn will acquire the capacity to build oil tankers of the Aframax class (up to 120,000 metric tons deadweight) for the need of its oil companies.
  • The Swiss company Liebherr is building its first plant in Russia in the Nizhny Novgorod region for $365 mln. In its first stage the plant will manufacture components for hydraulics, gear reduction and steel constructions for Liebherr factories in Germany, Austria and France. In the second stage the plant will also produce and assemble construction equipment (cranes and earth mowers) for the Russian market. Again Ekspert stresses the Russia’s construction boom is expected to commence not sooner than 2012.
  • Special attention is given to a $95 mln project of a Russian company called ‘Fire Prevention Service’ in partnership with the German Minimax. The plant constructed in the Kaluga region will produce high pressure pipes, automatic fire detection and extinguishing systems. The project also boasts the construction of a research laboratory and information center.

Construction Materials and Glass Industry

  • The Construction materials industry and glass industry have attracted over $1 bln in investments. All of the projects are greenfield.
  • In the special economic zone of Alabuga in Tatarstan 3 new factories are being build for respectively the production of industrial glass, thermal insulation and fiberglass. The total sum of investments is $580 mln.
  • The Omsk region, the no.3 region in Russia for vodka production and no.4 region for beer production, is finally getting its own bottle plant. Ekspert applauds the investment strategy of the Avangard bank management, who in the early years of 2000 constructed 4 malt plants in central Russia and emerged as the key supplier of malt for international beer brewing factories expanding into the Russian market.
  • The GRAS group of companies is rapidly building a network of plants producing AAC (concrete with high thermal insulation characteristics) used in the construction of low rise housing. Plants are being launched in the Kaluga and Saratov regions. Construction has started in the Stavropol and Vladimir regions. Documentation is being prepared for plants in the cities of Anapa and Perm. Ekspert notes that the GRAS company is also active as a constructor in the state program for low cost housing, which explains the ease with which the GRAS is receiving credit from the state-run VEB bank.

Forestry industry

  • Each of the 4 projects included in Eksperts roundup are realized with participation of foreign capital. All of them are intended to substitute import.
  • At the start of this summer the US company Kimberly-Clark has launched a factory in the Moscow region producing Huggies diapers, toilet paper, paper towels and paper napkins of the Kleenex brand. A spokesman: “The demand for products in our segment has risen tenfold over the past decade and still the level of consumption of personal hygiene products is not very high.”

Agriculture and food industry

  • Eksperts roundup includes 14 projects with a total sum of $850 mln. Four of which are in the active phase of construction. The usual poultry plants and compound feed factories are not specially mentioned.
  • In the Kirov region the local agricultural company ‘Doronichi‘ is building a $85 mln cheese factory. Their mission is to develop a new national cheese brand, similar to Wimm Bell Dann’s ‘Lamber’ cheese.
  • In the Bryansk region the investment group Ekofri will build a factory for the production of frozen french fries for fast food chains. Russia currently imports about 60-70 thousand ton of french fries annually. 60% comes from Poland. The rest from the Netherlands. In the Rostov region the Aston company has launched a new oilseed refinery. The novelty is the construction of a bio energy plant that recycles the waste products and practically lowers the refinery costs to zero.


  • Eksperts roundup contains four projects with a total sum of $700 mln. These sea ports and terminals all belong to Russian companies.
  • Fertilizer producer Evrochim builds 2 terminals, one in Tuapse on the Black Sea coast, the other in Ust-Luga on the coast of the Baltic Sea. Coal producer Mechel’ builds its own terminal in the Primorsky region in Russia’s Far East. Both projects are intended for export.
  • In the OAO Ust-Luga port near St. Petersburg a multipurpose transshipment complex called Yug-2 is being constructed. The complex will facilitate the transshipment of at least half of the imported cars that come through the Baltic and Finnish ports. It will also supply capacity for saw-timber, cellulose, veneer, paper, which is currently unavailable in the St. Petersburg area.


  • Because the Retail trade is relatively not very capital intensive, Ekspert has found few projects with investments higher than $50 mln.
  • Worth mentioning is a $55o mln shopping mall and entertainment center build along Moscow’s MKAD ring road. ‘Vegas’ is being build by the Crocus group owned by Araz Agalarov. The companies spokesperson tells Ekspert that 9000 people will work in this ‘gigantic postindustrial economy’. Taking into account the total sum of investments and size of the land (more than 400.000 m2) Ekspert writes that Vegas will become the largest retail object in Europe.