Comprehensive Investment Plan for Modernization of Gavrilov Yam (in Yaroslavl oblast)

Summary presentation for the Working Group

June 15, 2010

Preconditions and potential for economic modernization of Gavrilov Yam

Key strengths
Favorable investment image of the area Convenient location in the Moscow Archangelsk transport corridor (20 km from the 8 North federal highway) Proximity to large cities and markets; Gavrilov Yam is about 40 km from Yaroslavl and about 250 km from Moscow Low cost of local labor (30-40% cheaper than in Yaroslavl and 2.6 times cheaper than in Moscow) Availability of unutilized workforce ready for employment (about 700 people) More favorable taxation conditions for doing small business as concerns rates of the unified tax on imputed income compared with nearby municipal districts Availability of an educational framework for training of specialists for high technology production operations

Key weaknesses

Weak economic diversification by sectoral structure: the share of core enterprises in the pre-crisis 2007 year reached 62% Insufficient share of small and medium business in the economic structure (15-20%) Decline in working-age population by 1.5% every year Low level of household incomes (salaries are 30-40% lower than in Yaroslavl and 2.6 times lower than in Moscow) Inadequate level of skills to develop modern production operations High degree of deterioration of infrastructure Predominant reliance of the local fiscal system on transfers from higher level budgets (about 70%) Large share of public sector employment (40%)

Main socioeconomic indicators of the monotown

Indicator Share of core enterprises in local output Share of small and medium enterprises Turnover of town s enterprises, billion rubles Working-age population, thousand people Unemployment rate, % 2007 2008 2009

62% 17% 2,45 11,2 2,5%

40% 19% 2,78 11,0 3,9%

39% 15% 2,21 10,8 9,1%

Key areas of economic modernization of Gavrilov Yam

Stabilizing and diversifying operations of core enterprises

Setting up an industrial park at vacant land plots and premises of the Gavrilov Yam Flax Processing Plant provided by the plant in exchange for cancellation of its tax arrears to the local budget Implementation of an investment project of the Agat machine building plant, envisaging the expansion of the mix of products for aircraft manufacturers with penetration of new markets

Creating new industrial enterprises in the medium business segment Main areas of economic development of Gavrilov Yam Supporting small business

Setting up an industrial park for siting new production and warehousing facilities Granting deferrals for some taxes to industrial park residents Implementing medium business support programs (subsidizing network connection fees, loan rates and leasing payments, provision of guarantees and sureties) Implementing educational programs to boost employment of residents

Providing financial support to small businesses (grants, subsidization of leasing payments, provision of sureties, network connections, etc.) Developing infrastructure for small business support (roundtables, information and counseling assistance, exhibitions, contests, media relations, etc.)

Social and economic development of the monotown

Pursuing rehabilitation and upgrading of communal infrastructure in the town Construction of phase 2 of the central district hospital Housing construction with the aim of relocating residents from dilapidated and unsafe houses, preparing land plots to implement a program of individual housing construction

Target indicators of the Comprehensive Investment Plan for economic modernization of Gavrilov Yam
No. Indicator Meas. unit
% % % people people thousand rubles Million rubles

Actual 2009 17,6% 7,6% 9,1% 11,6 2 207 100%

2010 20,2% 11,5% 2,9% 564 681 14,0 2 675 71%

Plan 2012 2015 20,1% 13,5% 2,3% 600 1403 16,9 3 289 55% 22,3% 14,6% 1,7% 600 2415 21,1 4 464 46%

2020 22,8% 16,5% 1,7% 600 2630 24,6 5 780 51%

1 Core enterprise employment as a percentage of the total working age population 2 Small enterprise employment as a percentage of the total working-age population 3 Registered unemployment 4 5 6 Total number of newly created temporary jobs during implementation of the projects (cumulatively) Total number of newly created permanent jobs during implementation of the projects (cumulatively) Average monthly salary of workers at large and medium enterprises

7 Amount of local goods, works, and services shipped/completed/provided in traditional industries 8 Share of traditional industries in total local amount of shipped goods, completed works and provided services

9 Amount of goods, works, and services shipped/completed/provides by core enterprises 10 Share of core enterprises in total local amount of shipped goods, completed works and provided services

Million rubles

864 39% 15% 46% 24 16,7%

1 232 33% 20% 48% 35 41,1 710 23%

1 660 28% 25% 47% 40 77,5 476 35%

2 670 28% 29% 43% 42 115,2 174 56%

3 400 30% 28% 42% 45 150,0 350 58%

11 Share of SMEs in total local amount of shipped goods, completed works and provided services 12 Share of medium enterprises in total locally produced shipped goods 13 Number of small enterprises 14 Total additional revenues to the municipal budget 15 Amount of investments from extra-budgetary sources 16 Share of municipalitys own revenues in total municipal budget revenues

. Million rubles Million rubles %

Creation of new jobs as a result of implementing the Gavrilov Yam CIP

New jobs 52 904 1070 2415

389
Agat Plant Medium business Small business 2010 Central district hospital 2011 2012 2010-2015

Number of new jobs

2013

2014

2015

Total

Core enterprise (Agat Plant) Medium business Small business Lost jobs Completion of construction of the Central District Hospital (CDH) TOTAL, annual jobs gain

149 130 402 0 0 681

18 210 131 0 0 359

7 195 137 0 24 363

57 295 86 0 12 450

55 120 74 0 13 262

103 120 74 0 3 300

389 1070 904 0 52 2415

Key investment projects under the Gavrilov Yam Comprehensive Investment Plan
Project targets for 2015
Investment projects Annual proceeds, million rubles New jobs Annual tax payments, million rubles Investment Payback period, per new job, years million rubles

Expanding Manufacturing of Aircraft Products Setting Up the Industrial Fabrics Technopark* Developing Production of Semifinished Varnishes Construction of a Factory for Manufacturing Ceramic Bricks Using a Vacuum Extruder Development of Small Business Total for the projects

2,228

389

348

1.9

1,800 940 732 622 6,322

600 170 300

300

2.1 1.7 3.6

7 4 6 1-5 3-4

105 136 77 966

522 1,981

0.4 1.8

* The targets take into account activities of potential residents of the industrial park.

Targeted programs under the Gavrilov Yam CIP for 2010-2015 2010Program Objective Financing, million rubles
y y 23 y 182 (for 2010-2012) 181 (for 2013-2015) y

Targets

Employment promotion programs for 2010

Create preconditions for employment of nonemployed people Create new jobs in small and medium business Increase the share of small business in the towns economy

SME support programs for 20102012 and for 2013-2015

y y

Programs for upgrading the housing and communal services sector for 2010-2013

Improve housing conditions and communal services for residents

y 106 y y

Training of ~ 340 people Public works for ~ 1,330 people Temporary employment of 884 people Creation of ~ 160 jobs by 2013 and ~ 380 new jobs by 2016 Share of small business increased to 30% Capital repairs of the housing stock Relocation of residents from hazardous houses Rehabilitation of water pipelines Gasification 415 visits per shift 45,000 bed-days/year Creation of up to 50 temporary jobs

Program for strengthening physical infrastructure of health facilities (completion of construction of the central district hospital) for 20102015

Improve the quality of healthcare services

175

y y y

Main financing sources for the Gavrilov Yam CIP for 2010-2015 2010Funding sources, million rubles
Total Expanding manufacturing of aircraft products Setting up the Industrial Fabrics Technopark Manufacturing of semi-finished condensation resin based varnishes Construction of a factory for manufacturing ceramic bricks using a vacuum extruder Small business development projects Completion of construction of the Central District Hospital Employment promotion programs SME support program HCS upgrading programs Total for the projects Total for the programs Federal budget Region. budget Municip. budget Extrabudget

730 1719 287 1082 234 175 23,3 364 106

0 1264 0 0 4 100 23 336 71

0 455 0 0 0 75 0,3 20 24

0 0 0 0 0 0 0 3 7

730 0 287 1082 230 0 0 4 3

4049 668

1264 531

455 119

0 10

2329 7

Total for the Gavrilov Yam CIP Share of budgetary sources in the projects is 42% Share of budgetary sources in the programs is 99% Share of budgetary sources in the CIP overall is 50%

4716

1795

574

10

2336

Structure of financing sources for the Gavrilov Yam CIP for 2010-2015 2010Funding sources, million rubles
Total Federal budget Region. budget Municip. budget Extrabudget

I. Ministry of Economic Development (subsidies for government support to SMEs) Cofinancing of the local targeted program for SME support Targeted support of SME projects (budgetary funding is incorporated in activities under the SME support program) II. Ministry of Regional Development (federal subsidies for upgrading engineering infrastructure in monocities) III. HCS Reforms Support Fund IV. Ministry of Health and Social Development Federal Employment Service Completion of construction of the Central District Hospital V. Programs for HCS upgrading in the Yaroslavl oblast VI. Projects without budgetary funding VII. Ministry of Finance (budget loans)

594 364 235

336 336 4

20 20 0

3 3 0

234 4 230

398 86 198 23,3 175 20 2099 1321

378 71 123 23,0 100 0 0 886

20 10 75 0,3 75 14 0 435

0 2 0 0 0 6 0 0

0 3 0 0 0 0 2099 0

Total for the Gavrilov Yam CIP

4716

1795

574

10

2336

Structure of financing sources for the Gavrilov Yam CIP for 2010, 2011-2012, and 2013-2015 201120132010
Total FB RB MB Extr a Total FB

2011-2012
RB MB Extr a Total

2013-2015
FB RB MB Extr a

I. Ministry of Economic Development (subsidies for government support to SMEs) Cofinancing of the local targeted program for SME support Targeted support of SME projects (budgetary funding is incorporated in activities under the SME support program) II. Ministry of Regional Development (federal subsidies for upgrading engineering infrastructure in monocities) III. HCS Reforms Support Fund IV. Ministry of Health and Social Development Federal Employment Service Completion of construction of the Central District Hospital V. Programs for HCS upgrading in Yaroslavl oblast VI. Projects without budgetary funding VII. Ministry of Finance (fiscal equalization grants from the federal budget)

201

48

150

212

119

83

181

169

10

52 152

48 3

1 149

131 83

119 2

2 81

181

169

10

120

114

278

264

14

86 23 23

71 23 23

10

3 75 50 25 100 50 50

75 12 557 9 3 557 6 881

50

25 4 2 881

100 1,6 661

50

50 1,1 0,5 661

142 1141

142

807

517

290

372

227

145

Total for the Gavrilov Yam CIP

399

27

710

2259

950

341

964

1316

446

206

662

Funds additionally sought from the MoF are expected to be used for setting up the industrial park: park:

Purchase by the municipality of engineering infrastructure facilities (boiler plant, treatment facilities for water intake and sewage runoff), land plots, and production premises, now owned by the Gavrilov Yam Flax Processing Plant, with the aim of setting up the industrial park: 15 million rubles Financing of work related to the development of design specifications and estimates for rehabilitation of engineering infrastructure and production premises in the industrial park: 51 million rubles Co-financing of rehabilitation and construction of production facilities needed for implementation of business projects: 820 million rubles

Funds requested from the Ministry of Regional Development are proposed to be used for rehabilitation of engineering infrastructure in the industrial park
Rehabilitation of facilities for transportation and treatment of effluents: 133 million rubles Rehabilitation of intake treatment facilities: 143 million rubles Rehabilitation of the heating system: 103 million rubles The calculations have been done under the assumption that the federal budget will co-finance 95 % of the costs and the subnational budget, the remaining 5 %.

Engineering infrastructure facilities are planned to be used both for HCS needs of Gavrilov Yam and for operations of the industrial park to be created

Cost effectiveness and budgetary efficiency of implementation of CIP projects for 2010-2015 2010Indicator Budgetary investments for projects Gain in sales proceeds Additional tax collections, total Federal budget Regional budget Local budget Budgetary investment per new job Additional tax collections for every one million rubles in budgetary investment Extra-budgetary investments for every one million rubles in budgetary investment Amount, million rubles

1719 17234 2978 1733 918 328 0.87 2.3 1.35

Implementation management arrangements for the Gavrilov Yam Comprehensive Investment Plan
Yaroslavl Oblast Governor Deputy Governor of Yaroslavl oblast

Directorate for Comprehensive Investment Plans (CIP Directorate) at the Yaroslavl Oblast state autonomous institution Agency for Supporting Investment Projects

Coordinating Council (town and district administration officials; members of the general public; business community)

Expert review of CIP business plans and investment projects  Ensuring timely financing of CIP projects and programs Overseeing how the core enterprise is addressing its production diversification plans Attracting investors to the Industrial Fabrics Technopark Overseeing how municipal programs for creating a new economy are being implemented Ongoing monitoring of CIP deadlines and targets Management of CIP risks Producing reports for the federal government

Communication with the federal government Administrative support Adoption of decisions concerning co-financing of projects and development of regional targeted programs

 Advisory and analytical support Creation of non-economic drivers for development of the region  Organizing public hearings and creating a positive public opinion Monitoring social impacts from the CIP

Expanding Manufacturing of Aircraft Products: project information sheet (Gavrilov Yam Machine Building Plant Agat) Agat)
Project description
Project Private investor participants Implementatio 2010-2015 n period Project purpose Retrofitting of the enterprise, assimilation and manufacturing of new products to be used by motor and aircraft makers Units and assemblies for aircraft and gas turbine engines, component parts for ground-based air defense and for surface-to-air missiles Aircraft motor manufacturers: Salut, Chernyshev Moscow Machine Building Plant, Ufa Engine Building Production Association, Novosibirsk Aviation Production Association, Energiya Corporation, Proton, Signal research institute Activity Structure of investment expenditures Acquisition of primary and ancillary equipment Equipment installation and checkout Certification of production operations, R&D Working capital Amount, mln. rub. 300 82 100 100 Indicator New jobs created (cumulatively) Tax collections including to the local budget Amount of investments All sources - Federal budget - Regional budget - Local budget - Extra-budgetary sources For reference: Potential consumers of project products MoED MoF Sales proceeds (without VAT and excise taxes) Profit before tax Payback period 0 0 0 0 0 0 0 0 Key project indicators Total 730 0 0 0 730 2010 83 0 0 0 83 2011-2012 218 0 0 0 218 2013-2015 429 0 0 0 429

Project products

1,232 million rubles in 2015 258.7 million rubles in 2015 3 years Project benefits Total: 389 1,460.7 180 2010 149 165 21 2011-2012 174 404.4 52 2013-2015 389 891.3 107

VEB guarantees for 582 million rubles Modalities of Granting tax privileges, spreads/deferrals for profit government tax and corporate property tax support Subsidization of a portion of interest payments

Key project implementation stages: Expanding Manufacturing of Aircraft Products (Gavrilov Yam Machine Building Plant Agat) Agat)
Indicator Project works Preparation of the construction site, laying communication lines, connections to resource supply sources Construction (rehabilitation or capital repairs) of production premises Acquisition of primary and ancillary equipment Equipment installation and checkout Personnel training Certification of production operations, research and development Working capital Commencement of manufacturing Commencement Completion -

2010 2010 2011 2010 2010 2010

2015 2015 2015 2015 2015 2015

Setting Up the Industrial Fabrics Technopark: project information sheet Technopark:

Project description
Project participants Implementatio n period Project purpose Yaroslavl oblast 2010-2015 Set up an industrial park to site new production operations Production and administrative facilities of class B with a total floor space of up to 100,000 sq. m., transport, electricity and services infrastructure facilities Russian enterprises from various sectors for which the established sanitary protection zones are 50-100 meters Activity Buyout of land plots and premises Structure of investment expenditures Project works Construction of production facilities Total Modalities of government support Amount, mln. rub. 100 65 1,201 1,276 All sources - Federal budget - Regional budget - Local budget - extra-budgetary sources For reference: Minregion MoF Sales proceeds (without VAT and excise taxes) Profit before tax Payback period 378 886 114 142 264 517 0 227 Key project indicators Amount of investments Total 1,719 1,264 455 0 0 2010 262 256 6 0 0 2011-2012 2013-2015 1,085 781 304 0 0 372 227 145 0 0

Project products Potential consumers of project products

665 million rubles in 2015 - 33 million rubles in 2015 7 years

Project benefits (including residents operations) Indicator New jobs created (cumulatively) Tax collections including to the local budget Total 600 1,023 83 2010 50 58 7 2011-2012 2013-2015 200 224 19 600 742 57

MoF fiscal equalization grants Granting tax privileges and spreads/deferrals for the profit tax and corporate property tax

Schedule for preparation of project documents for the Industrial Fabrics investment project from the time of decision on approval of the amount and form of government support
No

Activity

Year 1 II III

IV

Year 2 II III

IV

Year 3 I II

Activities related to the purchase by the regional government of land plots and 1. production premises for setting up the industrial park 2. Development of design specifications and estimates for phase 1 Development of design specifications and estimates for phase 2 Development of design specifications and estimates for phase 3 Development of a business plan for the investment project

3.

4.

5.

Thank you very much