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20-22 October 2010.

Russian-Turkish Business Forum

Thematic trend: Strategy of innovative development of Russian Federation automotive industrial cluster

Report theme: Regions’ development by means of Industrial parks creation. Project of Dimitrovgrad Industrial Park creation

Reporter: Chairman of the Management Board of ОАО «United Automotive Technologies» Mihail Nikolaevich Dobyndo

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1. Brief information about UAT plants

2. Brief description and plants location

3. The necessity of government support for operating plants

4. Development trend of production line of UAТ plants

5. Greenfield development in Samara and Ulyanovsk regions

6. Choice of UAT plants development trends: Greenfield or Brownfield on the example of DIP project

7. Project development support from Ulyanovsk Region Government concerning Brownfield development and Joint Ventures

8. Brownfield project development and Joint ventures on the examples of DIP

9. Availability of production areas for projects

10. Proposals to change regulatory framework for automotive components manufacturers support

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Brief description about UAТ plants UAT «United Automotive Technologies» was established in 2008. Company managers twelve industrial plants manufacturing automotive components which located in different regions of the country.

Actually UАТ is the first automotive component cluster in Russia

UAT «United Automotive Technologies » was established in 2008. Company managers twelve industrial plants manufacturing automotive components which located in different regions of the country.

ОАО «United Automotive Technologies» brings in investments (including foreign) into Russian automotive Industry, raise competitiveness of manufactured products, extends production line, and as a result , increases business worth. At the present moment the main aim of UAT is formation of the instrument for AVTOVAZ strategy realization of formation automotive component «quasi-branch» around automotive manufacturer and to the highest extent is aiming to mother company activity – AVTOVAZ.

Strategic Company’s plans include establishing Joint Ventures with foreign partners, oriented to automotive components production, assembled in Russia within production localization programs

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55

66

77

Gas exhaust system

Rear suspension modules

Lock systems , access system and

door modules

Air and fuel electronic engine supply systems Steering system Front suspension

module

Cooling and heat exchanging

vehicle systems Braking system

Chassis

Wheels Suspension Bumpers and springs Steering Supporting elements Braking system

Engine/ Assist systems

Engine Additional power

systems Conditioning system Exhaust system Fuel injection

Body and exterior

Passenger seats Front section Rear section Roof Front doors/rear doors

Front/ rear part Trunk door Windows/glasses Lighting Systems of locks Windscreen wipers Additional equipment

Interior

Roof Saloon Passenger protection Doors Pedals Acoustic Ventilation

Power supply Tape recorder Engine control Chassis/actuator Comfort Safety

Electrics

JV

JV

JV

JV

JV

JV

JVJV

JV

JV

Planning modules for assimilation by UАТ plants

Planning technologies for assimilation by UAT plants

Small stampings Average and big stampings

Automotive turning parts

Metal Powder metallurgy Aluminum casting Joint Venture Iron castings Upset forging

technologyRubber parts Production

Main functional vehicles modules (TIER I)

JV

JV

JV

Cimos CimosJV JV JV JV

Development of traditional competencies

Assimilation of new competencies

Development trends of UAT plants production line

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The necessity of government support for operating enterprises

The plants owned by UAT were built in the beginning of 70-s years of the last century for supplying AVTOVAZ with automotive components. Most of the plants , due to application of the gradation system, used to be town-forming enterprises, which besides of population employment, provided towns with central heating, sewerage and drain waters cleaning. UAT’s plants fulfill their main task by supplying AVTOVAZ conveyer but together with out-of-dating old models «Classics» and minimum volumes of component development for new vehicles modules, plants are loosing production volumes very rapidly.

Understanding the situation, Ulyanovsk Region Government and OАО «United Automotive Technologies» signed the agreement about joint project creation «Dimitrovgrad Industrial Park» in Dimitrovgrad town in the manufacturing site of ОАО «DAAZ». ОАО «DAAZ» and a number of plants located in this territory, used to provide 100% of AVTOVAZ volumes on injection and cooling engine systems, heating saloon systems, locks, window regulators, mirrors and so on.

The aim of Industrial Park Creation is transformation of UAT’s plants from today-yesterday status into new supplier model, providing in such a way a traditional role of reliable supplier for automotive assembling plants, and the most important point, providing population employment at the expense of creation new jobs instead of the old ones which are going away together with old vehicle models.

To solve this task is possible only with the partnership with the leading world famous automotive component manufacturers. Meanwhile, leading automotive manufacturers do not hurry to localize production in Russia, offering direct parts deliveries from their abroad plants. If you were on their place you would do the same, as applicable regulations of 10-s years favor their activities:

• concessionary duties (0 to 14%) for components import, as for assembly, so as for resale at after market;• absence of possibility of bringing in government’s investments into energy communications, which are on

the plants’ balance;• absence of government support concerning investments into plants’ R&D .

A possible way out of this situation can be a federal, regional and local

authorities support for the operating plants.

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Greenfield Development in Samara and Ulyanovsk regions

.

SPECIAL ECONOMIC ZONE OF INDUSTRIAL TYPE«TOGLIATTI»

Territory area 660 HaREGULATION OF CREATION GEZ ISSUE

✍ Federal law «About Special Economic Zones in Russian Federation» №116-ФЗ of July, 2 , 2005.

✍ RF Government resolution of August, 12, 2010. N 621 «About creation of Special Economic Zone of Industrial Type in the territory of Samara region”

ОЭЗ ПТТ «TOGLIATTI»STAVROPOLSKYII REGION

Togliatti

Financing of creation engineering, transport, social, innovative and other infrastructure at the expense of:Federal budget- 53% (7193 millions of rubles);Samara region budget – 5,7% (734 millions of rubles);Samara region Stavropolskii district municipal budget – 0,3% (40 millions of rubles );Off-budget resources - 41% (5602 millions of rubles ).

But there are more than 300 000 m2 not being used production areas with prepared infrastructure in the territory

of Togliatti

.

Project is being realized at government support at expenses of budgetary appropriations from

Investment Fund of RF(RF Government directive of 28 August 2009 №1250-р)

SPECIAL ECONOMIC PORT ZONE (SEPZ) INDUSTRIAL ZONE «ZAVOLZHJE»

According to experts it is possible to expect start of production in 2014-2015

Comparison of Ulyanovsk region privileges with General Economic Zone (GEZ):

N п/п Privilege ОЭЗ «Alabuga" Ulyanovsk region

rate (%) Period of validity rate (%) Period of Validity 1 Income tax 15,5 For pay-off period 13,5 For pay-off period 2 Local taxes     

 

Property tax 0 10 years, from the

moment of registration 0 For pay-off period, but not more than 8 years

Land tax 0

10 years, from the moment of property

right registration 0

For pay-off period, but not more than 8 years

Transport tax 0 10 years 0

For pay-off period, but not more than 8 years

3

Customs duties exemption and VAT at import of foreign equipment (raw material) for privileges

territory Exemption Privilege for SEPZ «Airport -

Vostochnyi»

4 Creation of industrial zones, provided by necessary engineering communications As a part of privileges As a part of privileges

5 Payment for connecting to power network Doesn’t impose Doesn’t need

6 Provision of subsidies for payment %% at

refinancing rate No information As a part of privileges

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.

.

Price reduction for manufacturing at the expense of prepared industrial buildings

Price decreasing for logistics Outsourcing or service functions Minimization of investments risks

Long-term contracts with OEM Sales market development at the

expense of partners’ sales markets Experience in execution of logistic

and service functions Formation of cooperation chains

concerning new products manufacturing

Choice of development trend of UАТ plants: Greenfield or Brownfield on the example of DIP projects

Prepared infrastructure, provision by personnel

Димитровградский

Индустриальный парк

Preservation of jobs Creation of conditions for social stability in the

region Investments to buildings repair and

infrastructures Tax revenue Positive influence on secondary industries

(building, maintenance service)

Greenfield Brownfield (operating plants)

Building of engineering infrastructure at the expense of federal, regional and local budgets

The necessity of houses and social infrastructure building for the personnel or organization of personnel delivery by buses from the nearest population centers

Competition with the operating manufacturing sites

Additional costs of Government

Non-realization of automotive industry development program concerning development of trend «Partnership»

Diversion of funds for a long period

Personnel can’t wait for some years during building and starting of production at Greenfield and people have to find jobs in different regions

Strategy of plants development envisages usage of operating manufacturing sites of Brownfield, the process of Joint Ventures has already begun.

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Project development support from Ulyanovsk Region Government concerning development trend of Brownfield and Joint Ventures

1. Regulatory framework regarding to concessionary taxation of Industrial parks is being formed now

in October-November 2010

2. The system of «common window» is being created nowduring 2010 – 2011

3. Bringing in investments by means of Intergovernmental agreement is being organized

during 2010 – 2015

4. Social block development is being organized(hotel business, relaxing infrastructure)

during 2010 – 2012

5. Ulyanovsk region project development in the field of automotive industry, logistics and industrial cooperation, regional and urban infrastructure (investments bringing in)

in 2011

Increasing of tax revenue into regional budget Financial model

Tax preferences

New productions development

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1

4

2010 - 2018

Bringing in investors

2

Plants are getting a new development impulse

Joint Ventures are being created

Business structure of the current manufacturers is being changed, new products appear

Additional employees are involved – social status of region is being stabilized

EVEN TODAY,

during 2010-2011 the product localization process is going on !!!

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Brownfield project development and Joint Ventures on the example of DIP

Joint ventures

ООО «DAAZ»

TIER-I

ОЕМ

Other customers

market

services

усл

уги

order

productproduct

order

partner

R&D

technologies

ООО «Dimitrovgrad Industrial Park»

Investments and federal programs

(investment protection from the side of Ulyanovsk region Government)

investments

R&D

technologies

preferences

Ulyanovsk region Government

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Availability of production areas for projects

2-nd priority

1st priority

3-d priority

Free areas 6 408 m2

Areas, planned to be freed by 2012 70 337 m2

Areas for projects being realized 46 553 m2

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Proposals to change regulatory framework for automotive components manufacturers support

1. Continuation of government politics concerning support of automotive manufacturers components regarding to requirements on components production localization for OEM in the territory of Russia

2. Requirements on higher volumes localization – min 80% automotive components in the territory of RF

3. Creation of Joint Ventures at the operating Brownfield

4. Increase of customs duties at the import of foreign components (at the present moment average 14%, to increase to 35%)

5. Investments to Greenfield only in case of absence of operating productions at Brownfield

6. Government financing of electric-power modernization, logistics and road building of operating Brownfield

7. Credit concessionary program for Russian party (at 5-6% annualy)

8. Subsidization of 50% R&D for operating plants

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Thank you for your attention!