Tyumen’s Challenge: 20% Less Costs

27.05.2009 — Analysis

In the past few years, the Tyumen Oblast has been actively raising foreign investment. International oilfield services companies coming to the region were followed by foreign manufacturers of electrical equipment, building materials, and foods. Alexander Moor, Deputy Governor of the Tyumen Oblast, told RusBusinessNews in an exclusive interview what preferences foreign investors can count on.

- Mr Moor, what was the 5 years' foreign investment volume in the Tyumen Oblast economy?

- In five most recent years, the total volume of capital investment in the Tyumen Oblast has increase more than 3.5 times; its aggregate amount during this period has exceeded 4.4 billion U.S. dollars (exclusive of the Khanty-Mansiysk and Yamalo-Nenets autonomous okrugs). Foreign capital plays a major role in this process.

The global economic crisis has certainly impacted the foreign investment growth rate in the Tyumen Oblast, too; however, several major foreign companies have already confirmed their intention to develop the production of goods with high added value in the region. These projects will make it possible for us to avoid a dramatic reduction of foreign investment that has become so common for the majority of the Russian Federation regions. Furthermore, it should be taken into account that affiliates of many international companies have been registered within Russia. When investment projects are implemented by way of these affiliates, they are accounted for as domestic ones.

- Are there any favourable factors for the attraction of foreign investors that make the Tyumen Oblast stand out amongst other constituent entities of the Federation in the Urals and Siberia?

- There undoubtedly are. The Tyumen Oblast as a region possesses a whole range of advantages. Amongst them, first and foremost in our viewpoint, is our favourable geographic position and transportation infrastructure. The railroad that connects KhMAO and YaNAO with the Trans-Siberian Railway passes through the Tyumen Oblast. In addition to that, the Tyumen Oblast is favourably different due to its efficient and operational market infrastructure, and a high corporate and consumer solvency.

The region has also accumulated a unique and successful experience of major foreign investment (TNK-BP, Schlumberger, Bentec, etc.) that has largely been made possible due to the modern system of state support for foreign investment activity. Virtually every one of major investment projects that are implemented in the Tyumen Oblast by Russian and foreign companies receives an integrated state support, in terms of tax benefits or subsidies.

This factor, with the addition of quality investment sites that are the municipal and Oblast property, can make the implementation of an investment project for a company in the Tyumen Oblast 15-20% less expensive than in its neighbour regions. The key advantage of the Tyumen Oblast is a knowledgeable and exacting operation of the competent state authorities.

- What are the preferences that the Tyumen Oblast authorities offer to foreign companies in order to attract them into the region? In general terms, what must be the role of regional authorities in the establishment of a favourable investment climate?

- I believe that it is the regional and municipal authorities' policy that determines the investment attractiveness of a region in the majority of cases in the Russian Federation. This is natural since the measures taken at the federal level equally influence the investment attractiveness of each constituent entity of the Russian Federation. The key role of the regional authorities, though, must boil down to creating the most comfortable conditions for investing, and providing an exhaustive support to this type of activity.

We do not restrict ourselves by merely creating a legislative base that would be favourable for the investment in the region's economy; we also provide investors with complete information assistance in the course of implementing the project, starting as early as the preparation stage; we also try to create for investors a method of obtaining the required approvals as quickly as possible. Amongst the specific preferences for investment project holders in the Tyumen Oblast, the following can be stressed:

- establishing tax benefits within the amounts that are collected for the Oblast budget;

- providing investment tax loans;

- providing subsidies on account of the Oblast budget resources;

- providing investments on account of the Oblast budget resources and (or) property that is owned by the Tyumen Oblast (state investments);

- providing organizational assistance in the procedure of the provision of land plots and other items of real estate that are owned by the Oblast;

- providing governmental guarantees of the Tyumen Oblast.

- What are the most important tasks that the Tyumen Oblast is facing in the context of foreign investment expansion - transportation infrastructure development, staff training, land plots provision, administrative barrier elimination, or something else? And, how are they solved?

- All of the mentioned areas are developed in a methodical manner. The Tyumen Oblast Government has studied the experience of foreign companies that have already invested in the regional economy, and has come to a conclusion that a substantial amount of funds is spent on preparing the transportation and engineering infrastructure. Therefore, we believe the development of the Oblast's transportation and engineering infrastructure to be one of the key tasks for the enhancement of its investment attractiveness.

To this end, a 228-hectare plot has been allocated within the Municipality of Tyumen, and a detailed plan for the industrial area layout has been developed on account of the Oblast budget. The plan for the future is to involve a management company that would develop the industrial site, and assist it as much as possible. The Oblast has also created registers of vacant municipal sites that can be provided on favourable terms for the implementation of investment projects. A presentation of a few dozen of such sites, including a description of infrastructure and industry-specific facts, can be found at www.tyumen-region.ru.

For several investment projects, the Tyumen Oblast is directly involved in solving the issues of infrastructure supply and repair. The Oblast Government provides an exacting administrative support for all projects in order to minimize companies' expenses on the solution of infrastructural issues.

The issue of staff is of a great significance for us, too. All major companies that implement investment projects are offered to establish training centres on the basis of higher and secondary education establishments in the Oblast, with the purpose of personnel training. This is what Schlumberger, Halliburton, De Laval have chosen to do.

In addition to that, we also run a series of training functions for our companies on account of the Oblast budget, with a focus on how to attract investors and work with them. In 2008, 20+ specialized seminars on these topics were conducted in the Oblast. For two years in a row and with the same purpose, we have been implementing the Investment Academy project that involved the experience of foreign trainers.

Another area of our activities is to organize regular business visits of foreign delegations to the Tyumen Oblast. This year alone, delegations from the Czech Republic, Germany, and Uzbekistan have visited Tyumen; before the six months expire, delegations from Romania, Finland, Denmark, Luxembourg, etc. will visit us, too. An individual program that includes contacts with Tyumen partners, discussions with competent authorities, etc. is developed for each delegation.

When foreigners come to Tyumen and see the actual investment potential of the region, the level of infrastructure development, and the expertise of the business people and public servants, and hear the success stories of their colleagues and competitors, their assessment of the future for their business development within the Tyumen Oblast changes completely. In our work, we also have our little secrets.

- Would you tell us about the new projects that foreign companies began to implement in the Tyumen Oblast in 2008, or those that are scheduled for this year.

- In 2008, the Oblast Government has initiated and supported a number of important investment projects that are implemented by foreign companies. In January 2008, an agreement on the construction of a timber processing plant in Ishim was signed between the Tyumen Oblast Government and IKEA. At the same time IKEA is considering the issue of building a new quality shopping centre in Tyumen.

The agreement signed with Knauf Insulation (Germany) last August on building a heat insulation material plant in the region has also become a significant event. The implementation of both projects is scheduled to commence in summer 2009. MC-Bauchemie is building a plant for producing dry pack mortar. Steklotech is getting ready to produce glass containers.

Following the successful implementation of investment projects by Schlumberger and Integra, Bentec is about to finish the construction of its drilling equipment production plant in Tyumen. Baker Hughes, America's largest company, is proceeding in accordance with its plan of building a cable plant in the Tyumen Oblast. We also expect a positive response from Danone.

The interview has been prepared by Pavel Kober