Leonid Kostroma: We structurize major projects

Moscow has no intention to be a city for solely ministries and offices, so it actively attracts investments for developing its own businesses. Moscow City Investment Agency has an important part to play in the said processes. Invest Foresight discussed the benefits offered to investors, development of Moscow’s infrastructure and the functions of the Agency in general with its CEO Leonid Kostroma.

– Could you summarize the achievements of the Agency over its seven years’ existence?

– A lot has been done by the Agency which has become a development institution mainly aimed at promoting investment projects and supporting them. Moscow has successfully advanced in key investment attractiveness ratings. The major evidence of the Agency’s (and municipal government’s in general) success as far as investments are concerned, is certainly the scope of the investments attracted. Between 2010 and 2017 the volume of investments in fixed assets grew by 80% in comparable prices and reached almost RUR 2 tln ($31 bln) last year. 70% of those investments were private.

– Given a complicated international situation, what are the sources of foreign investments in Moscow? What is the dynamics? Are there many new foreign investors in Russia’s capital?

– As for direct foreign investments, according to the Russian Central Bank’s statistics, over the recent years about half of all foreign investments in Russia were made in Moscow. The latest data of the Central Bank suggests that the volume of the FDI inward stock in Moscow reached $263 bln. Geographically, such investments originate from Western Europe, Asia and America.

– Are there any new aspects in the Agency’s work?

– First of all, we support and promote new projects. I would like to specifically single out a cableway project. It will be a state-private partnership. The project will be implemented in the north of the city and link Rechnoy Vokzal and Skhodnenskaya underground stations. The cableway will be another step aimed at easing transportation problems and will reduce travel time between the two points from 45 to 7 minutes. The cableway will be integrated into the overall transportation system of Moscow. A common Troika travel card will be used to pay for a cableway trip.

– As far as I know, an important instrument for attracting investments to Moscow is the so called offset agreements. Is it right?

– Absolutely. An offset agreement is based on lasting (up to ten years) municipal procurements. In fact, it is a state-private partnership in manufacturing. An investor who gets the right to supply products for municipal needs, will within few years have to localize production in the city. If, for example, a pharmaceutical company is awarded a ten-years-long contract, it is to within three years build or upgrade a production facility thus meeting its investment obligations specified in the agreement. After the manufacturing facilities are in place, the goods are supplied at a price set through the tender procedures. Since the term of an agreement is ten years, there are respective provisions therein on the price adjustments over the term. Besides, there are certain requirements regarding a production localization degree.

The major advantage of an offset agreement for a manufacturer is the fact it guaranties long-term supplies. The city gets new jobs, new taxable revenes, and – as compared to regular municipal procurements – lower purchase prices because of guaranteed supplies. Last year, we signed an offset agreement with Biocad, a leading Russian innovative biotech company, on supply of medicines. By now, preliminary project documentation and design documentation are ready while Biocad has been awarded the status of a resident at Technopolis Moscow special economic zone where production facilities will be located. Construction of such facilities will be launched this year.

– If there is an investor looking for a project to invest in Moscow, can such an investor get benefits and support from the municipal authorities?

– We do not distinguish between Russian and foreign investors. Depending on the project, an investor may get certain benefits. Two years ago, for instance, Moscow substantially restructured the overall approach to supporting investors in industrial production, hi-tech and innovations. The general support can be divided into four major areas. First of all, it is tax relief, so that companies willing to actively investment, pay high salaries, and develop hi-tech industrial facilities, get maximum taxation benefits Moscow authorities can offer. Those include lower profit tax, zero property and real estate taxes.

Another area is financial support. That includes subsidized interest rates, easy-term loans, recovery of cost of machinery leasing, connecting to utility lines, facilitating exports, help to investors in promoting their projects abroad, organization of conferences and exhibitions.

One more aspect is infrastructure development. We now have 33 technology parks. Most of them are private, yet five are owned by the government of Moscow. The city therefore either develops, or stimulates development of facilities where companies which are unable to finance their own construction, can rent premises they need. Those technology parks have common use centers where machinery (which is not used on a daily basis or which can not be bought by an investor due to lack of funds) can be rented. They also provide legal services. The city has a very important platform, Technopolis Moscow special economic zone, which offers a favorable taxation rate. The platform can therefore be used to implement greenfield projects and as a provider of premises for rent.

Besides, Moscow is actively advancing a program One ruble per one square meter a year, which many entities already use. Under that program, an investor is to invest in a restoration of a cultural heritage site, or in renovating and re-equipping kindergartens, schools, general practitioners’ offices. In turn, a reduced rate is granted for the entire duration of the lease term, which depending on a particular project may be 20 or 49 years. Once an investor meets his obligations and launches a site in question in operation, a preferential rent rate applies. Within the said program, the city has already got over 100 sites thus renovated. More than half of them are already in operation.

By Konstantin Frumkin

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