On a cold, grey and sleepy September morning, a site in the Special Economic Zone Alabuga (SEZ Alabuga) is abuzz with activity as a new plant, owned by Turkish MDF boards producer Kastamonu, is readied for its official launch. Large trucks drive back and forth, while an army of construction workers put the finishing touches to a complex build that cost an estimated $113m.
“The big day is coming,” says Ali Kilic, managing director of Kastamonu. “We are opening next week, and we will have three aeroplanes [full of guests], from Turkey and Moscow. Now, all we have to do is to clean it all. But, it is so hard to get rid of mud here. Turns out that it is different to the mud that we see in Turkey.”
Leaks in the line
Problems such as this are relatively minor compared with those that the company was faced with on its first attempted venture in Russia. Hayat Holding, which owns Kastamonu, originally decided to expand into the country in 2007, attracted by the low gas and timber prices, which were five and three times lower than in the company's home market Turkey, respectively.
Hayat chose a location in the south of Russia, bought a plot of land and signed a deal with the local authorities that stated that the new plant would receive access to the necessary industrial infrastructure in two years. After 12 months, the plant was still without utility connections, Hayat's executives had run out of patience and the company withdrew from the country.
It took nearly two years to convince Hayat executives to give Russia another try and, according to Mr Kilic, this time around everything went to plan. “The infrastructure is already here [in SEZ Alabuga]. Now we are finalising our railway branches, one for raw materials, one for finished products. They should be ready in a couple of months and will take our products to Siberia and countries in central Asia,” he says.
Connection to a railroad was also crucial to Rockwool, a Danish producer of stone wool, which invested $156m in an insulation plant operating in SEZ Alabuga in 2012. One of the raw materials required at the site – basalt – has to be imported from the regions of Karelia and Ural, both of which are 1000 kilometres away from Alabuga, and therefore rely on rail connections.
Another crucial factor in Rockwool's decision to invest in SEZ Alabuga was the fact that the zone could guarantee that the company would be connected to all the relevant utilities on time. “If there had been no connection to utilities by the time we started construction, we would have had problems with our schedule,” says Maxim Vasiliev, head of Rockwool's Alabuga factory.
As it happened, Rockwool actually finished construction of its plant in January 2012, five months ahead of schedule.
“We know that access to infrastructure is among the largest problems that investors face when locating in Russia, that is why we made sure that it is all here,” says Renat Halimov, the deputy director-general of SEZ Alabuga. He adds that plots offered to investors always have access to water, gas, electricity and heat. “It is basically a 'plug-and-play' approach. All the investor has to do is to plug into our grids,” says Mr Halimov.
Ilvir Sattarov, director of P-D Tatneft Alabuga Fiberglass, a German and Russian joint venture that manufactures glassfibres, confirms that utilities were ready when his company started its construction project in SEZ Alabuga 2008. “We did not have to worry about [questions such as] 'where do we go to ask for electricity', 'where do we go to ask for gas supply'. We just came here and started working on our project,” he says.
Another advantage is that access to the zone's electrical grid is free, which is not usually the case in Russia. “It is ridiculous, but in Russia you pay not only for consuming electricity, but also for connecting. And these fees can be pretty high,” says Mr Halimov.
For example, in Moscow there is a connection charge of $1m for each megawatt (MW). In Tatarstan, however, the charge is $200,000 for each MW, but thanks to Alabuga's free connection to the electric grid, Air Liquide, a French industrial gases supplier that invested about $57m in the zone in 2012, estimates that it has saved more than $5m.
Watch this space
As well as instant and free-of-charge connection to utilities, and access to a 27-kilometre network of roads and 12-kilometre network of railroads, SEZ Alabuga's infrastructure offering will soon also include ready-to-move-in buildings. A Plus Park Development, a construction company with offices in Moscow and St Petersburg, is scheduled to open the first building in its complex, which will offer production and office facilities for rent. When finished, the development will comprise four buildings with total production and warehousing space of 186,000 square metres and administrative space of 14,000 square metres.
Meanwhile, Synergy, an industrial park constructed by SEZ Alabuga, is in the final stages of construction. When finished, it will offer 24,500 square metres of space for companies interested in renting ready-to-use facilities in the zone. “Finding an empty building in Russia is not difficult as there are plenty of empty ones from the communist era,” says Mr Halimov, “But, it can always be a surprise what you get, what is in which pipe and when it is going to blow up. New industrial buildings are a safer bet,” says Mr Halimov.
Apart from the industrial facilities, which soon will welcome their first residents, tenants can also rent offices in the zone's main administrative building. These are typically the first port of call for companies moving to the zone, when they are at the preparation and construction stages of a project. As well as the typical amenities of a business centre, residents will also be able to connect with other local businesses, such as banks and insurance companies, who also reside in the building and can potentially provide services to newcomers.
According to the World Bank's Doing Business 2014 report, Russia has one of the worst scores globally for ease of trade across borders. Since 60% of its tenants are foreign investors, Alabuga's customs infrastructure is a crucial part of the zone's offering. An on-site customs office, as well as a railway and container terminal, railway and automobile check points, facilities for freight and cargo examination and parking for trucks, all contribute to easing the difficulties associated with foreign trade in Russia.
“Instead of being stuck at the [Russian] border, where thousands and thousands of trucks are waiting for customs clearance, you go through the border as transit [freight] and then you get clearance here in the zone,” says Mr Halimov. He says that the process takes up to three hours and is conducted electronically.
Mr Kilic, whose factory shipped production lines from overseas, says: “We did not have any delays [when importing to the zone], actually it was all pretty easy." His factory also used customs to export products; the Kastamonu factory began shipping the first batches of its products before the official opening of the factory. “We file our declaration electronically, we get approval and off we go,” says Mr Kilic.
Outside of the zone, the infrastructure is also better than that typically found in towns outside of Russia's largest cities. Yelabuga, the closest town to the zone, may be small, but it is a smart and newly renovated old town, which is free of the post-Soviet architecture that characterises most of the country's industrial cities.
The choice of bars and restaurants may be limited, and Brooklyn Club – the main nightclub in town – does not quite live up to its name but, unlike many small towns in Russia, the town does offer visitors high-quality accommodation. This is mainly thanks to Alabuga City Hotel, which has been operating in the town since 2008, and offers hotel rooms, as well as suites and apartments for people who are sent to Yelabuga for longer assignments.
The city of Yelabuga also benefits from its location by the M7 highway, which links Moscow in the west to Ufa in the east, and is a part of the European E22 route, which goes through Latvia, Sweden, the Netherlands, Germany and the UK. It is also close to the river ports at Kama river, and the passenger and cargo train stations in Naberezhnye Chelny, which are just 30 kilometres west of the town.
Begishevo airport in Nizhnekamsk, which is located about 50 kilometres away from Yelabuga, is relatively small and has a limited number of shops and restaurants. But this year it underwent a much-needed renovation.
On top of this, the airport's connectivity has been improving, too. As well as the 16 direct flights, across the Commonwealth of Independent States region, including Russia (there are seven flights daily to Moscow), the airport recently gained a direct service to Istanbul. This is an important development, and recognises the fact that Turkish companies are among the most active in the region.