Economy: Krasnodar is the breadbasket of Russia and its economy is heavily agricultural. The food industry has developed around agricultural production and is represented by the winemaking, oil-pressing, meat, dairy, and canning sectors. The territory's diversified agriculture has always required a high-capacity food industry. As a result, processing companies predominate in the territory's industrial structure, and their production amounts nearly 50% of total industrial output.

The territory is involved in investment cooperation with more than 60 countries, and 773 companies with foreign capital are registered there. Forty percent of FDI of over $2 billion comes from the United States and 32% comes from Germany. Most FDI is concentrated in the fuel, woodworking, and food industries.

Krasnodar hosts a 1580-km-long oil pipeline from the Tengiz field in Kazakhstan to a terminal in Novorossiysk on the Black Sea, currently being developed at a cost of $4 billion by the Caspian Pipeline Consortium (KTK) and is also the site for the landfall of the Blue Stream gas pipeline to Turkey. The pipeline's gas throughput capacity is expected to reach 16 billion m3 per year by 2007.

Philip Morris is the largest foreign investor in the territory, having invested some $73 million since 1993 in reconstructing and expanding a Krasnodar tobacco factory. The company has set up a new tobacco- and cigarette-manufacturing complex. he German firm Tetra Laval Group GmbH has invested $55 million in setting up packaging production for the agricultural processing industry. Swedish and Finnish firms have invested $11 million since 1998 in rebuilding and reequipping factories to produce packaging for Tetra Pak-Kuban. Pepsi Cola runs a JV in Socki with total foreign investments of more than $10 million, where it produces three brands which are sold in Russia.

Tourism/SEZs

The reform of Russia’s gambling industry has attracted international interest, evidenced by the application by South Africa’s Sun International for a long-term lease of 2,000 hectares (4942.107 acre) of land in a special gambling area on the Sea of Azov on the border of the Krasnodar and Rostov Regions.  The local government expects an investment of over $2.5 bln in the area.The Krasnodar project is Sun’s second attempt to enter the Russian market. In the autumn of 2006, it announced its plans to build a giant entertainment centre, Parkland, with several casinos on a 5,000-Ha (12355.269-acre) plot in Ramenskoye near Moscow.  Sun was prepared to invest $2 bln in the joint project with Russian agrarian holding Belaya Dacha, but suspended it after the parliament passed the bill on removing gambling businesses to special areas in early 2007.

n March '07 The Russian Ministry of Economic Development and Trade, acting on behalf of the Russian government, signed agreements on the establishment of tourism and recreation zones with the administrations of the Krasnodar and Stavropol territories (southern Russia), the westernmost Kaliningrad Region, Altai Territory and the Republic of Altai (south Siberia), the Irkutsk Region and the Republic of Buryatia (both in east Siberia) covering the financing, planning and construction of infrastructure facilities. Any activities except those prohibited by the law "On Special Economic Zones" can be conducted in an economic zone. The maximum size of rent for land plots allocated to zone residents under an agreement on tourism and recreation activities is 2% of their cadastre cost annually.

At the Hotel Business 2007 exhibition held in Moscow, Yuri Pozhidayev, head of the territorial dept for resorts and tourism, said more than €7 bln had been invested in Krasnodar in the past three years, 40% of which went into resort development. Pozhidayev spoke about the creation of five resort and recreation zones in krasnodar: in Sochi, Tuapse, Gelendzhik, and two sites in Anapa. Each zone will have its own specialty. The special economic zone will be developed on the principles of public/private partnership. The state will invest Rbs10.5 bln ($403.4 mln) in the zone by the end of 2009, but 83% of the necessary funds will be provided by private investors. Companies investing in the tourism and recreation zone will be granted privileges in transport, land, real estate and profit taxes for three to five years.

Commercial Property Development
Vyacheslav Kaminsky, president of DVI, and Martin Hubmann, development director at OBI, signed a 15-year agreement with an option for prolongation, according to which, OBI home improvement stores will be the anchor tenants in all projects completed by DVI Group. The developer's first project in which OBI will open will be a shopping and entertainment center in Krasnodar, where the retailer will occupy 18,000 sqm. The 70,000-sqm shopping and entertainment center is located at the corner of Ushakov and Topolinaya streets, respectively, on Rostovskoe Shosse. Construction began on the complex in November 2006 and is slated for completion in the fourth quarter of 2008. In addition to OBI, Carousel grocery hypermarket will also be an anchor tenant in the shopping and entertainment center, where it is also planned to open an electronics and appliances hypermarket, a 5,300-sqm furniture store, a bowling alley and other stores. DVI will open a shopping and entertainment center in Yekaterinburg, followed by Volgograd and Tyumen.

Ground was broken in November 2006 on the site for City Park, one of the largest shopping malls in Russia. It will have a total area of 150,000 sq m, requiring investment of over $110 mln in the first two years. The six-level building will house trade galleries, an eight-movie theaters, an entertainment zone, and a three-level parking plot for 1,000 vehicles. "The city needs such projects," said Vladimir Yevlanov, head of the territorial centre. "They boost infrastructure development and land improvement, create new jobs and provide funds for the budgets of all levels.

Russian investment company Russky Azov is developing a resort in Krasnodar, to be opened in 2016. The resort, near the Kuchugury village, will accommodate 10,000 visitors. Investment in the project is estimated at Rbs16 bln ($611.85 mln). It will have a balneal centre, motel, yacht club with a covered slipway, hotels, a residential area, children's recreation camps, and an aqua park. The local administration is now deciding on the status of land plots that will be given to investors for long-term lease.

Agribusiness.
The Russian Agricultural Bank Rosselkhozbank intends to seriously increase loans to agribusinesses and the rural population in the Krasnodar Territory, including within the Agricultural Development priority national project. In 2006, the Krasnodar branch of Rosselkhozbank issued Rbs5.5652 bln ($212.33 mln) in loans within the national project.

St Petersburg-based Baltimor Holding, established in 1995 and one of Russia's leading food producers, is investing Rbs640 mln ($24.15 mln) in the construction of a large pig farm, Delimit, in the Krasnodar Territory in southern Russia. The farm will be based on an operating cattle farm and comprise 16 pig houses, a slaughterhouse, a refrigerator and a fodder department. The project will be completed by mid-2007 and full-scale production is to begin in 2008. Baltimor has trade offices in all large cities of Russia and the CIS. The company's turnover in 2006 was $140 mln

The Euroservice Group will invest over $51 mln in 2007 in the acquisition of three sugar refineries in Krasnodar. Each of the refineries has a capacity of 3,600 to 4,200 metric tons and is worth $17 mln, and all the three will be purchased from a single owner, said Igor Lapshin, the company's director for strategic development. The acquisition is expected to increase the Group's share in Russia's sugar market to 15%. Euroservice agribusiness group was set up in 1991 for import and wholesale and retail trade in food and agricultural raw materials. At present it owns nine sugar refineries.

Krasnodar hosting Russia' first grain exchange. Kuban will launch a grain exchange in early 2007. "We have reached a relevant agreement with the management of the MICEX exchange. The grain exchange will free farmers from the need to use the questionable services of speculators and stabilise grain prices in southern Russia," First Deputy Governor Alexander Remezkov said at a meeting of the territorial board on the development of the stock market. Trading on the grain exchange and futures deals should ensure transparent prices and guarantee the sale of farmers' grain in due time at a negotiated price.

Taganrog-based company Morion plans to launch a Euro 60 mln fish-processing plant to be built in the Slavyansky District, close to the Sea of Azov, the Black Sea and inland water reservoirs with developed fish-breeding. Euro 19 mln will support the territory's fish-breeding farms. German companies Rosoma (farm machinery and equipment) and SIG Cantec (metal packaging equipment) and two Russian banks will act as co-investors in this project. The plant's annual designed capacity is 43,000 metric tons of fish

Banking/Investment

Lending organisations working in Krasnodar increased loans and deposits 50% in 2006. Bank deposits grew 42% to Rbs85 bln ($3.27 bln) and loans by 50%, attracting Rbs466 bln ($17.94 bln) worth of credit resources to the Krasnodar economy last year.

More than 34,000 housing loans worth more than Rbs9 bln ($346.42 mln) were granted including about 4,000 mortgages totaling Rbs4 bln ($153.96 mln), up by a factor of 6 y-o-y but still failed to address the estimated 120,000 prospective clients seeking housing related finance.

In Agriculture, loans worth Rbs1.6 bln ($61.59 mln) were issued for livestock development (3.5% of Russia’s total). 6,000 private individuals borrowed Rbs710 mln ($27.33 mln), though very few from agricultural bank Rosselkhozbank, meaning the territory did not use all subsidies granted within the Agricultural Development national project for the payment of loan interest.

The territorial branch of Alfa Bank has invested over $750 mln in the Krasnodar Territory over the last six years, and now services more than 400 corporate clients, including the largest energy companies (Kubanenergo, the Kuban electricity distribution company, Krasnodarregiongaz), construction and trade majors (Tander, Transasia, Kormilitsa, Krasnodarstroi) and agricultural producers (Razgulay, Sucden, Solnechnye Produkty, and Wimm-Bill-Dann).
In 2006, the branch carried out several investment projects to modernise companies and finance commercial property construction. It entered a new sphere of working with large corporate clients by offering them structured investment products, and won a local tender to become lead manager of Kubanenergo's Rbs3-bln ($114.33 mln) bond issue.

The Kuban subsidiary of Raiffeisenbank Austria has purchased the mortgage pool from the Krasnodar subsidiary of the Moscow Bank for Reconstruction and Development (MBRD). The pool includes mortgage loans secured by real estate in Krasnodar with maturity of up to 25 years. Raiffeisenbank Austria intends to develop this trend in south Russian and other cities undergoing rapid development with a poopulation of over 1 million, including Sochi, Novorossiisk and Armavir.

Banking/Government
State-owned Vnesheconombank and the Krasnodar Administration signed a co-operation agreement on financing investment projects in November 2006. The bank's press service confirmed the agreement envisaged joint development of schemes for organising sponsorship for investment projects in Krasnodar, including PPP's. Power generation, the processing of agricultural products and the hotel business are considered priorities. Quite clearly, investment in Krasnodar improves the region's social and economic development and raise Sochi's chances of hosting the 2014 Winter Olympics.

Energy

-Investment from various sources in Krasnodar's power grid for preparations for the 2014 Winter Olympics in Sochi will total some RUR55.6bn ($2.17bn, or €1.59bn), according to the Federal Grid Company, a subsidiary of electricity monopoly RAO UES. By 2014 over RUR52bn ($2.03bn, or €1.49bn) will spent on modernising old generation facilities and on building new sites in the Krasnodar Territory and RUR3.6bn ($140.24mn, or €102.97mn) will be invested in the distribution networks.

-In December 2006 the board of TGK-8 announced it will take over Kuban Generating Company. SGC TGK-8 unites generating assets of the Astrakhan, Volzhskaya, Rostov, Dagestan and Stavropol generating companies, which were merged with the South Generation Company on June 1, 2006 and converted to a single unit. The authorised capital of SGC TGK-8 is Rbs11,889,164,463.65 ($452.4 mln). The Kuban Generating Company was registered on July 1, 2006, and has an authorised capital of Rbs1.0721664 bln ($40.8 mln).

-NESK, founded by the Krasnodar Territory administration, local governments and enterprises of municipal electricity networks in 2003, has been approved a Rbs140 mln 1 year credit facility by Promsvyazbank. NESK accounts for 35% of the local energy market and its annual turnover is Rbs7 bln ($260 mln). Promsvyazbank Krasnodar was opened in May 2006. Its credit portfolio currently exceeds Rbs172 mln ($6.4 mln

Telecoms
In February '07 the Southern Telecommunications Company (Russian abbreviation UTK), the principal fixed-line service provider for the South Federal District and one of the largest Russian telecoms operators, announced revenues for 2006 totaling Rbs17.6644 bln ($675.76 mln), down 2.58% against 2005. Operation costs were down by 8.48%, boosting estimated net profit by 159.4% to Rbs791.7 mln ($30.29 mln) in 2007. The company's EBITDA is expected to grow 10.3%, to Rbs5.961 bln ($228.04 mln).

SME's
Moscow's small business department has established official ties with Krasnodar, since November 2006. The project seeks to establish direct and mutually beneficial industrial and trade cooperation between businessmen of the two regions. Forty companies from Moscow and 140 from Krasnodar said they were interested in cooperation and would attend bilateral talks.

Customs Receipts
The Southern Customs Department of Russia's Federal Tax Service announced that customs officers in the port of Tuapse in the Krasnodar Territory recovered Rbs62.2 mln ($2.4 mln) in customs duties in 2006, up 49% compared to 2005. Oil and oil products accounted for the bulk of the cargo (over 14.1 mln tons) registered with the Tuapse Customs Office. The customs duties transferred in the process to the federal budget amounted to 94.5% of the total sum, or Rbs58.8 bln ($2.24 bln). 2006 data demonstrated a steady growth of the total amount of transported oil products, especially petrol. Their export increased by 47% against 2005. 2007 also saw a 50% increase of Russian grain export.

Transport Infra-structure
The Novorossiisk Commercial Sea Port won a tender held by the Russian Transport Ministry to undertake development of the Novorossiisk hub. The tender was held as part of the federal target programme to modernise Russia's transport system in 2006-2010 with a view to expanding the seaport's capacity. The contract is worth Rbs327 mln ($12.45 mln) and the project is to be developed by October 2007. The project envisages the construction of Russia's first comprehensive transport hub comprising 12 facilities. Its implementation will increase the throughput capacity of the Krasnodar section of the North Caucasian Railway to 50 mln metric tons annually and the capacity of Novorossiisk roads to 7 mln metric tons of cargos annually. It will also increase NCSP's annual cargo turnover to 110 mln metric tons.

International Cooperation
In late 2006 Krasnodar Governor Alexander Tkachev signed contracts for €0.5 bln with Turkish companies. Ideser Seramik Sanayi ve Ticaret A.S. confirmed its intention to invest €30 mln in the construction of a ceramic tile plant in Armavir. Southern Transnational Agency of Technology Development will build a plant to produce M 500-900 cement, using resources of the marlstone deposit in the Abinsk District: a $400-mln project to launching in mid-2007. Anadolu Cam Sanayii A.S., part of Sisecam (a diversified group of manufacturing companies active in flat glass, glassware and glass packaging, and industrial chemicals), will invest about €70 mln in the construction of a glass container plant in Krymsk.

Official website: http://admkrai.kuban.ru

Contact information
Governor
Alexander Nikolayevich Tkachev
35 Ulitsa Krasnaya
Krasnodar 350014
Tel.: +7 (8612) 68 45 38; 68 25 40
Fax: +7 (8612) 68 35 42

Chairman of the Legislative Assembly
Vladimir Andreyevich Beketov
Tel.: +7 (8612) 68 50 07
Fax: +7 (8612) 68 37 41

Representative to the Government of the Russian Federation
Dmitry Leonidovich Mikheev
31 Ulitsa Pokrovka, office 1
Moscow 103065
Tel: +7 (095) 238 20 28
Fax: +7 (095) 917 35 82

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