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July

Moscow Investment Digest. July 2021

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The Moscow Department of Investment and Industrial Policy and the Moscow City Investment Agency present you the next digest of the main investment events in the Russian capital.

NEWS

UNDER THE CONCESSION, THE INVESTOR WILL BUILD THE FIRST SCHOOL IN MOSCOW

Within the framework of the first Moscow concession agreement in the field of education, a school for 825 places with an area of more than 13,000 sq. m may appear on the territory of the Skolkovo Innovation Center. A notice on the possibility of implementing the concession is published on the website torgi.gov.ru. Now investors can declare their intentions to participate in the implementation of this project.

"The total volume of concession agreements concluded by Moscow exceeds RUB 89 bn. This year, we have signed two concessions with a total investment of RUB 27.4 bn. Investments in the creation of an innovative school will amount to at least RUB 2 bn. For the construction of the facility, the investor will be provided with a land plot on lease on the territory of the Skolkovo Innovation Center: there are all opportunities for implementing such an educational project here," Deputy Mayor of Moscow for Economic Policy and Property and Land Relations Vladimir Efimov said.

"Currently, a comprehensive sketch of the development for the placement of the educational complex is being developed. If the agreement is signed, the investor will have to design, build and equip the school with innovative equipment and then carry out its operation and maintenance for 21 years," head of the Moscow Department of Investment and Industrial Policy Alexander Prokhorov explained.

THE CONCESSIONAIRE BEGAN CONSTRUCTION OF THE BRIDGE OF THE NORTHERN UNDERSTUDY OF KUTUZOVSKY PROSPEKT

The bridge over the Moskva River will be built by an investor as part of the implementation of the largest concession agreement in the capital for the construction of the Northern Double of Kutuzovsky Prospekt (NDKP). The ferry will connect the Business Center with the opposite bank and will become an important part of the future expressway. 

"The road concession for the construction of the Northern double of Kutuzovsky Prospekt is the largest in Moscow — both in size and in financial terms — the investor will finance the creation of the highway in the amount of more than RUB 50 bn. Now the builders have started the construction of an important part of the future understudy — a bridge near Moscow City. It is planned to complete these works in 2022, Muscovites will be able to fully use the understudy in 2023," Deputy Mayor of the capital for economic policy and Property and land Relations Vladimir Efimov said.

The new crossing over the Moskva River as part of the construction of the understudy is being built by the method of sliding the span — it is assembled from separate metal structures, connecting by welding and special high-strength bolts. The work is proceeding according to schedule: today the assembled part has reached the border of land and water, and soon the huge structure will begin moving over the bed of the Moskva River. Bridge construction is just one part of a complex infrastructure project. In parallel with the construction of the ferry, the investor is building the main course of the highway and overpasses.

"The northern understudy of Kutuzovsky Prospekt will become the first toll highway in the city and will connect Moscow City with the MKAD and the Northern Bypass of Odintsovo. It will be a traffic-free four-lane highway with a length of 10.3 km with an estimated speed of 100 km/h. The concession agreement is concluded for 40 years, according to its terms, the investor fully finances the construction of the highway, and the costs of preparing the territory are divided between the investor and the city in equal shares. After commissioning of the stand-in, the investor will recoup his investments during the term of the agreement by charging a fare," head of the Moscow Investment and Industrial Policy Department Alexander Prokhorov explained.

SINCE THE BEGINNING OF THE YEAR, INVESTORS IN MOSCOW HAVE SUBMITTED THREE INITIATIVES ON THE IMPLEMENTATION OF PPP PROJECTS

"Despite the need for quite serious investments in PPP projects, there are more and more people in Moscow who want to cooperate with the city. This year, we received initiatives from three investors to conclude agreements in areas of interest to Moscow — education, handling of used electrical equipment and housing and communal services. Investors will finance the implementation of these projects in the amount of more than RUB 10 bn. Now the possibility of their implementation is being worked out," head of the Moscow Department of Investment and Industrial Policy Alexander Prokhorov said.

Thus, the Ecopolis Corporation offers to implement a PPP project in the capital for the collection and sorting of out-of-order electronic and electrical equipment. For Moscow, this will be the first agreement in this area. As part of another planned agreement, an innovative school for 825 places, which has no analogues in the country, may appear on the territory of Skolkovo. The project will be the first concession in Moscow in the field of education. The planned investments in the creation and equipping of the school are at least RUB 2 bn. The third concession initiative was received by the city just a few days ago. The investor made a proposal to implement a project in the housing and utilities sector.

"In Moscow, PPP projects can receive benefits on income taxes, property, land tax and the rate of payment for the lease of a land plot, if they are assigned the status of an investment priority project. Support measures from the city increase the attractiveness of investment projects and allow you to save budget funds. In addition, a positive multiplier effect is achieved: the demand for industrial products is growing, new enterprises are being built, jobs are being created. Today, more than 250 PPP contracts worth over RUB 1.1 trn have been signed in the capital, only this year the volume of such agreements has increased by more than RUB 80 bn," said Svetlana Ganeeva, director of the City Investment Management Agency.

THE INVESTMENT THRESHOLD HAS BEEN LOWERED WHEN CONCLUDING AGREEMENTS ON THE PROTECTION AND PROMOTION OF CAPITAL INVESTMENTS

The relevant amendments to Federal Law № 69-FZ of 01.04.2020 "On the Protection and Promotion of Capital Investments in the Russian Federation" were adopted in early July 2021. "According to the amendments to the law, for some industries, when concluding an Agreement on the Protection and Promotion of Capital Investments (APPCI), the requirements are simplified. Thus, investors should finance projects in the construction of air terminals and transport and logistics complexes, the development of public transport in the amount of at least RUB 1.5 bn instead of RUB 5 bn. The threshold for investments in the construction of sports and recreation complexes, ski slopes and hotels, the food and processing industry has been lowered from RUB 5 bn to RUB 500 m, for entering into projects of integrated development of territories — from RUB 5 bn to RUB 250 m," Deputy Mayor of Moscow for Economic Policy and property and land Relations Vladimir Efimov said.

For projects in the field of agriculture, food and processing industry, education, healthcare, the volume of capital investments in which does not exceed RUB 5 bn, the stabilization period has been increased, for which the immutability of legislative acts is guaranteed – from six to ten years. The amendments to the law also give businesses the opportunity to issue bonds secured by monetary claims arising from the provision of state support measures in the form of subsidies or tax deductions that the investor will receive in the future from the state to reimburse various costs associated with the implementation of the project.

"Three agreements on the protection and promotion of capital investments have already been signed in Moscow. The first one we signed with OOO R-OPRA, it provides for the creation of a pharmaceutical plant in the SEZ Technopolis Moscow, the investor plans to finance the project in the amount of RUB 8.6 bn. The second agreement was signed with R-Pharm JSC, it also concerns the creation of a pharmaceutical enterprise, investments in the capital will amount to RUB 7.3 bn. The third is with the Medsi Group of Companies, within the framework of this project, a multifunctional medical center will be created on Michurinsky Prospekt, investments in the project will amount to RUB 7.8 bn. All three agreements also provide for the participation of the Russian Federation. As for the innovations, we are sure that they will make the mechanism more accessible to our investors," head of the Moscow Investment and Industrial Policy Department Alexander Prokhorov said.

"APPCI gives business advantages in the implementation of investment projects: first of all, they guarantee the immutability of legal acts. The mechanism assumes that the key taxes, conditions of land use and urban development are fixed at the time of conclusion of the agreement and remain unchanged throughout the entire duration of the project. For example, if the basic income tax rate at the time of signing the agreement is 20%, then for an investor it will remain at the same level even if the tax is increased for all other taxpayers," director of the City Investment Management Agency Svetlana Ganeeva said.

MOSCOW WILL BE ABLE TO CONCLUDE OFFSET CONTRACTS FOR SERVICES

Federal Law № 44-FZ on the contract system in the field of public procurement has been amended, which will allow extending the practice of concluding offset contracts for the provision of services from July 2022. "The adopted amendments to the law will allow the city to conclude offset contracts for services. Among the most promising areas for the use of offsets are communication services, for example, the creation of infrastructure for the 5G urban Internet network, the provision of services for exoprosthetics, recycling and waste disposal. According to the offset contract, the investor will have to create or reconstruct an object used to provide such a service on the territory of the city, which, as a rule, gives the city new jobs," Deputy Mayor of Moscow for Economic policy and Property and Land Relations Vladimir Efimov said.

An offset contract is a public procurement that involves not only the delivery of goods to the customer, but also the counter investment obligations of the supplier – the creation, modernization or development of production of this product on the territory of the subject of the Russian Federation. Moscow has already signed five offset agreements providing for the localization of production and supply of medicines, medical products for stomatological patients, and baby food products to the city.

"The total volume of private investments in the five capital offsets is almost RUB 13 bn, and the volume of purchases by the city is RUB 72.7 bn. One of the obvious advantages of signed offset contracts for the city is a significant reduction in their initial prices, that is, saving budget funds. In addition, new jobs are being created, tax revenues are increasing. At the conclusion of such a contract, investors receive a solvent buyer in the person of Moscow, a long-term guarantee of sales of manufactured products, subsequent inclusion in the regional register of sole suppliers," head of the Department of Investment and Industrial Policy of the city of Moscow Alexander Prokhorov said.

Moscow is the leader among Russian regions in the use of offset contracts: the volume of investments under them is more than 80% of the total volume of offset contracts concluded in Russia. Such conclusions were reached by the law firm You & Partners, which analyzed the use of this mechanism in Russia.

"As a mechanism for cooperation between the state and business in industry, the offset contract is attractive and promising for any region of the country. The Moscow region has already followed in the footsteps of the capital – there is an offset in the pharmaceutical industry. At the end of last year, the Republic of Bashkortostan announced its intention to sign an offset contract. Moscow is always ready to help colleagues from other regions to scale the practice of offsets. Along with the federal authorities, we are actively participating in the discussion of amendments to the current legislation and issues related to the development of the mechanism. Our practice is presented on the Smarteca ASI portal – you can get acquainted with it in detail and ask questions to an expert," director of the City Investment Management Agency Svetlana Ganeeva said.

THE CITY HAS ALLOCATED MORE THAN 57 HA OF LAND FOR THE IMPLEMENTATION OF LARGE-SCALE INVESTMENT PROJECTS

"The city provides investors who implement large-scale investment projects with land plots for rent for six years without bidding. Since the beginning of this year, at the meetings of the Urban Planning and Land Commission of Moscow, decisions were made to allocate 49 land plots with an area of over 57 ha of land for the implementation of 43 such projects. New facilities will appear in 10 administrative districts of Moscow," said Vladimir Efimov, Deputy Mayor of Moscow for Economic Policy and Property and Land Relations.

Nine LSIP are planned to be implemented in New Moscow, six LSIP are in the east of the city, five LSIP are in the south-east and north-east, four LSIP are in the south-west and north of the city, three LSIP are in the west and south, two LSIP are in the center and north-west.

In LSIP, for which the city has allocated land since the beginning of the year, sports facilities predominate (there are 15 of them), for the construction of which plots with a total area of over 22 ha have been selected. In addition, the capital has provided plots with a total area of over 10 ha for the construction of nine industrial facilities. The city has allocated land with an area of about 9 ha for the construction of objects of different formats in seven transport and transfer hubs (TTH). Among them, in particular, it is planned to build offices, a shopping and entertainment complex, a hotel, a parking lot, a multifunctional center.

Another 12 LSIP, which the city has provided with plots of over 16 ha, involve the construction of multifunctional complexes, as well as social and transport infrastructure facilities. For some of them, the city has allocated several sites at once. Thus, for the construction of a multifunctional sports and recreation complex in New Moscow, it was decided to provide two land plots to the investor, and the city allocated six more plots for the design and construction of a street and road network in the north-west of the capital.

THE INVESTOR WILL CREATE A NEW PASTA PRODUCTION IN MOSCOW

As part of the implementation of a large-scale investment project, the city allocated a land plot in the north of Moscow with an area of 0.5 ha for the creation of a new pasta production to the capital's flour mill without bidding. The corresponding decision was made at a meeting of the Urban Planning and Land Commission.

"A new pasta factory with a total area of about 8,500 sq. m will appear in the Khoroshevsky district of Moscow. The project is planned to be implemented by the end of 2025, AO "Melkombinat №3" is going to invest RUB 1.5 bn. About 75 jobs will be created at the production site," Deputy Mayor of Moscow for Economic Policy and Property and Land Relations Vladimir Efimov said.

INVESTORS WILL REORGANIZE THE FORMER INDUSTRIAL ZONES WITHIN THE FRAMEWORK OF THE INDUSTRIAL QUARTERS PROGRAM

The territory of the former industrial zone on the Berezhkovskaya Embankment with a total area of more than 26 ha will be reorganized. The implementation of the project will allow the city to get 12,500 jobs. Investments in a new facility in the west of Moscow will exceed RUB 150 bn, the expected budget effect will be RUB 4.3 bn per year. More than 660,000 sq. m of real estate will be built on the territory of the former industrial zone. Half of them will be for housing, the same amount in the new industrial quarter will be occupied by non-residential buildings: offices, retail facilities, high-tech industries, a kindergarten, a school, as well as a temple complex. The project will be implemented by 2029.

The area of the Brattsevo industrial zone, which is subject to comprehensive development within the framework of the Industrial Quarters project, will be 22 ha. The redevelopment of the site of the former industrial zone will create more than 1,500 jobs. Investments in the new facility will exceed RUB 50 bn, and the expected budget effect will be more than RUB 800 m per year. The project is planned to be completed in 2030. 550,000 sq. m of real estate are going to be built on this territory near the Baltiyskaya station of the MCC. According to the project, 90,000 sq. m of housing will be built as part of the renovation program. The investor will also build a kindergarten for 325 places and a school designed for 750 students.

The area of the southern section of the former industrial zone Ogorodny Proezd in the Butyrsky district, which is subject to comprehensive development, exceeds 7 ha. Investments in the reorganization of the territory in the north-east of Moscow will amount to RUB 10 bn, the expected budget effect will be RUB 1.18 bn per year. About 170,000 sq. m of industrial and public buildings will appear on the site of the former industrial zone, more than 4,000 jobs will be created. The redevelopment of the territory will be completed in 2028.

MACROECONOMICS

THE VOLUME OF INDUSTRIAL PRODUCTION IN MOSCOW INCREASED BY ALMOST 14%

In the first half of 2021, the growth of industrial production in the capital amounted to 13.9% compared to the same period last year.

"The main driver of growth was the development of the manufacturing industry, compared to January–June 2020, it increased by 11.3%. The growth is due to the development of such industries as online commerce and medicine, as well as certain types of consumer goods-cars, shoes and cosmetics," Deputy Mayor of Moscow for Economic Policy and Property and Land Relations Vladimir Efimov said.

According to him, the volume of industrial production in the capital is increasing annually. Thus, in the six months of 2020, Moscow increased industrial production by almost 1.5% compared to January–June 2019. The growth of the manufacturing industry for the same period amounted to 3.6%.

The positive dynamics in the manufacturing industry against the background of difficult macroeconomic conditions is achieved, among other things, due to the policy of stimulating investment activity carried out by the Moscow Government and maintaining the previously adopted investment programs by the city.

THE CAPITAL'S EXPORT OF CLEANING PRODUCTS INCREASED BY 4.3% IN 2020

According to the results of 2020, the capital's export of cleaning products and soap amounted to USD 148.17 m, which is 4.3% more than a year earlier. "The basis of Moscow's cleaning products exports is household chemicals, in 2020 the volume of deliveries of these products abroad amounted to almost USD 102 m. The rest of the exports include soaps, shower gels and wet wipes. They account for USD 46.2 m of export revenue. Compared to 2019, the export of household chemicals increased slightly – by 0.3%, but the export of soap, shower gel and wet wipes increased by 14.1%," Deputy Mayor of Moscow for Economic Policy and Property and Land Relations Vladimir Efimov said.

In 2020, household chemicals from the capital were delivered to 51 countries of the world. The main importers of products were the neighboring countries: Kazakhstan, Belarus and Kyrgyzstan.

"There are our partners in the EAEU, with whom there are many interstate trade agreements on mutual integration of economies. If we talk about the export of household chemicals to these countries, it amounted to USD 45 m to Kazakhstan, USD 29 m to Belarus, and USD 5.3 m to Kyrgyzstan. There are also many foreign countries among the importers – Israel, Brazil, Argentina, Turkey," head of the Department of Investment and Industrial Policy of the City of Moscow Alexander Prokhorov said.

58 countries of the world became buyers of another large product category, which includes soap, shower gels and wet wipes. The leaders in the import were Kazakhstan (USD 17 m), Belarus (USD 14.45 m), Kyrgyzstan (USD 2.5 m), Armenia (USD 2 m) and Uzbekistan (USD 1.6 m).

THE EXPORT OF PRODUCTS OF RESIDENTS OF TECHNOPOLIS MOSCOW INCREASED BY 2.7 TIMES

"In the first quarter of this year, the exports volume of products of SEZ residents amounted to RUB 248 m, which is 2.7 times higher than in the same period of 2020. At the same time, compared to January–March 2019, deliveries increased by 4.5 times. Every eighth resident of the Moscow SEZ acted as an exporter," Deputy Mayor of Moscow for Economic Policy and Property and Land Relations Vladimir Efimov said.

The largest export activity is among manufacturers of microelectronics and fiber-optic equipment. These enterprises provided more than 68% of the total export volume, sending abroad products worth more than RUB 164 m. Inspection equipment and lithium-ion batteries accounted for more than a quarter of deliveries. The export portfolio of the SEZ also includes products from manufacturers of composite materials, cutting tools, disinfection and educational equipment, as well as pharmaceutical products.

The geography of deliveries of products from the Moscow SEZ covers several dozen countries, new directions regularly appear. Residents' products are purchased in Europe (Switzerland, Germany, France, Lithuania, the Netherlands), in Asia (China, South Korea, Japan), and there are also deliveries to the United States and Canada. Contacts with partners in the Middle East are developing.

SUPPORT MEASURES

THE CITY PROVIDED BENEFITS TO DEVELOPERS FOR RUB 12.5 BN

"Within the framework of five agreements on the program to stimulate the creation of employment places, investors will build almost 300,000 sq. m of commercial real estate outside the center of the capital, where more than 7,600 people will be able to work. The city provided these investors with benefits for paying for changing the type of permitted use of land for housing construction for a total of RUB 12.5 bn," Deputy Mayor of Moscow for Economic Policy and Property and Land Relations Vladimir Efimov said.

The city launched the program last year to attract business to the construction of commercial and social facilities outside the city center. Developers of apartment buildings receive a benefit on payment for the first year of rent and payment for changing the type of permitted use of the land plot for housing construction, if they simultaneously build places of employment outside the TTR and MKAD: from offices to educational facilities. As a result, the city receives new jobs, and the investor receives income from the sale of both housing and a new business object.

"According to the agreements already concluded, each object has been assigned the status of an investment project to create places of employment. It gives the right to receive benefits. The volume of investments in these projects exceeds RUB 25 bn.  New facilities under the program should appear in Moscow in the coming years," head of the Moscow Investment and Industrial Policy Department Alexander Prokhorov explained.

AUCTIONS

MOSCOW HAS ANNOUNCED THE SECOND AUCTION FOR THE INTEGRATED DEVELOPMENT OF THE TERRITORY OF THE FORMER INDUSTRIAL ZONE

The second auction in the country for the right to conclude a contract for the integrated development of the territory within the framework of the Industrial Quarters project will be held on August 31. The initial price of the contract for the right to reorganize part of the former industrial zone Altufevskoe Highway in the north-east of Moscow is about RUB 37.5 m, and the auction step is about RUB 749,200. An agreement will be signed with the winner, under the terms of which investments in the implementation of the project will amount to at least RUB 45 bn, and the industrial zone will be transformed no later than 2035.

Applications for participation in the auction are accepted until 3:00 p.m. on August 26. Its goal is to find an investor who is able to implement the project of reorganization of the territory strictly according to the parameters established by the city. The financing of the construction of all objects, as well as the complex improvement of the site, is provided at the expense of the winner of the auction.

THE CITY SOLD AT AUCTION MORE THAN 200 PREMISES AT A PREFERENTIAL RATE

In the first half of 2021, the city sold 201 premises with a total area of 19,200 sq. m at auctions at a preferential rate. Almost two thousand investors took part in auctions for small and medium-sized businesses. The average competition was nine participants per lot. Most of the premises in the first half of the year were offered for rent in the south-west, south and east of the capital – 43, 35 and 22 objects, respectively.

In the first half of 2021, the average area of one lot according to the results of the auction was about 95.7 sq. m, and the average rental cost for basements and objects located in the aboveground part of buildings was RUB 6,400 and RUB 12,900 per sq. m, respectively. The smallest object that was sold at auction at a preferential rate is located in the Sokolniki district, its area is 9.9 sq. m. At the same time, the largest room is located in Southern Tushin, its area is 457.8 sq. m.

INVESTORS WILL BE ABLE TO RENT TWO HISTORICAL BUILDINGS IN THE TAGANSKY DISTRICT

The first object is a one-story building with an area of 171.4 sq. m. This is the carriage house, the oldest part of the Lepekhins' estate. It is located on Andronevskaya Square, near the Rimskaya metro station. Next door is the already restored wing of the estate. Applications for participation in the auction will be accepted until July 30, the auction will be held on August 6.

The second object is the building of the main house of the former Fryanov wool-spinning manufactory of G.V. and M.V. Zaloginykh of the XVIII-XIX centuries. Its area is 1007.4 sq. m. The building is located on Vorontsovskaya Street, near the Marxistskaya metro station. The bid campaign for this lot will be held until August 6, the auction is scheduled for August 13.

The starting amount of the annual rent for the object on Andronevskaya Square is RUB 1.97 m per year at the rate of about RUB 11,500 per sq. m. And the initial rental rate of one square meter of the building on Vorontsovskaya Street is about RUB 12,400 per year, or RUB 12.5 m for the entire object.

INVESTORS CAN BUY THE BUILDING OF THE FORMER PERMANENT MISSION OF THE CHELYABINSK REGION IN MOSCOW

The object is located in the Timiryazevsky district of the capital, its area is 765.7 sq. m. The building was built according to an individual project in 1995, located at the address: Dmitrovsky proezd, 4a. It has four separate offices for business meetings, a comfortable living room, several rest rooms and a kitchen.

The area around the building is fenced, there is a private garage, a security access system. The object is located within walking distance from the Dmitrovskaya metro station, tram and trolleybus stops, railway station.

The initial auction price is RUB 127.5 m, including VAT. Applications for participation in the auction are accepted until August 3, 2021, the auction on the federal electronic platform TEK-Torg is scheduled for August 10, 2021.

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