General Director of AVVA RUS on investments in the region

U-Turn on Business: Will We Invest?

Last week, after a nearly year-long hiatus, the program "U-Turn on Business" aired—a joint project of "Echo of Moscow" in Kirov, the newspaper "Business News," and the website Bnkirov.ru.

The hosts and studio guests took on one of the most pressing topics for discussion—investments in the region's economy.

Oleg Prokhorenko, Head of Public Relations at the Kirov Branch of "T Plus," host of "Echo of Moscow" in Kirov: - In the first half of 2017, 18.7 billion rubles of investments in fixed capital were recorded in the Kirov Region. This is only 90.5% of the figure for the same period in 2016. There is a decline, and it is obvious, for example, in retail trade, information and communications, and the construction industry. Of course, there has been growth in some areas, such as the production of medicines and wood processing. Today we have a representative of the pharmaceutical industry as our guest. Alexey Glebovich, tell us about the programs you are implementing and whether you are truly experiencing growth.

Alexey Egorov, General Director of JSC "AVVA RUS": - If we talk about the pharmaceutical industry, it is highly regulated. There are very strict requirements for the production and quality control system of medicines. We are inspected by many different agencies, and their requirements are only getting stricter year by year. This is dictated by the need for safety of this type of product for consumers and does not allow us to stand still: we must constantly invest in new equipment, develop technologies, and maintain the quality system at the proper level.

Svetlana Zanko, Editor-in-Chief of "Echo of Moscow" in Kirov: - And not only in equipment. So, in early autumn, you approached the government to obtain a site for the construction of a new building for the enterprise.

Alexey Egorov: - We have such plans. We want to expand our product line and, accordingly, are working on new developments. We have an industrial site, and we want to develop it. For this, we need additional land. But here we face a number of problems. For example, according to a decree by Russia's Chief Medical Officer, the construction of pharmaceutical warehouses and production facilities cannot be carried out within the sanitary protection zones of other enterprises. And we are currently located, as you know, on the territory of the former biochemical plant, and when our enterprise opened there, a different Sanitary Regulations and Norms (SanPiN) was in effect, which allowed for such production facilities. Today, everything has changed.

Svetlana Zanko: - As I understand it, this concerns 54 hectares of land that are not registered to you.

Alexey Egorov: - There are many enterprises on this territory (Luganskaya St., 53A). We need to figure out how many companies are registered at this address, how many are actually operating and have facilities on this area, what they do, their business profile, how transparent the taxes of these companies are... The information I received from official sources confirms that there are many objects on the territory, but it is unclear who the owners are, hence questions about taxes and land lease payments. Obviously, this money is not going into the budget. I am sure it is impossible to invest in business if the same rules of the game are not established for all participants: if one fulfills all the norms and pays taxes conscientiously, while another schemes and dodges. Even the Italian philosopher Machiavelli noted that only the inevitability of punishment for any offense can reduce the number of violations. I repeat, appropriate liability must be applied for any violation; otherwise, a sense of impunity arises, which automatically generates new crimes and violations. I will also say that over the past six months, I have received cooperation proposals from a number of Russian regions: among them are the Moscow Region and Tatarstan, for example. Izhevsk offered a specific plot with ready engineering infrastructure and even suggested business options that could be organized there.

Svetlana Zanko: - Why don't you go there?

Alexey Egorov: - I am confident that we can resolve all issues in Kirov, and we will modernize the existing production and launch new sections for the production of new forms of medicines in the Kirov Region.

Oleg Prokhorenko: - We have another guest today. Mikhail Shikhov will talk about the implementation of the investment project for the construction of a municipal solid waste (MSW) landfill for Kirov.

Mikhail Shikhov, Development Director of SAKH company, Deputy of the Kirov City Duma: - This investment project is worth about half a billion rubles. On May 1, we plan to launch the first section (cell) of the landfill, approve it, pass inspections, include the landfill in the register, and obtain a license. Starting January 1, 2019, the landfill will begin operation. Its first cell is designed for 2 years, the second cell will be used longer—almost 5 years.

Oleg Prokhorenko: - Why didn't other sites you considered suit you?

Mikhail Shikhov: - There are many requirements for our type of activity. We searched for a suitable territory for the landfill for about 6 years. 50-60 sites were considered. But this is normal—landfill planning takes decades. Furthermore, I remind you that starting in 2019, a number of wastes cannot be stored in landfills. For this, we are currently designing a waste sorting plant. Its capacity will be 300 thousand tons of waste annually. This will be enough for all of Kirov with a small reserve left.

Oleg Prokhorenko: - So, we have another resource for economic development?

Mikhail Shikhov: - Actually, for some types of recycled materials, there is even a shortage in the Kirov Region. "Elikon," for example, is ready to take very large volumes of waste paper: currently, it collects it from grocery retail chains. But for glass, the nearest collection point is a plant in Nizhny Novgorod. And it's not profitable for us to transport it there. Therefore, changes are needed at the state level in this area—a law on the turnover of glass containers, for example.

Oleg Prokhorenko: - What obstacles do you face in implementing this project?

Mikhail Shikhov: - I forgot about the obstacles. So, for financing this project, we hope to get a loan under a federal program at an annual rate of 6.5%. We don't feel strong pressure from regulatory authorities. Sometimes we even ask them to inspect us more often so that everything is clear to us.

Oleg Prokhorenko: - Today we will also talk about the creation of a biotechnology cluster in the region. Our guest Mikhail Nekrasov will tell us about the goal of its creation (attracting federal funds or the emergence of new market players).

Mikhail Nekrasov, General Director of "Nanolek" company: - We are in the process of registering the biotechnology cluster with the Ministry of Industry and Trade. All documents have been submitted. The government is ready to finance projects that will be approved by the ministry's commission. We, for example, are preparing a project to scale up the cell-based influenza vaccine, which we created from scratch.

Oleg Prokhorenko: - How can these developments improve the investment climate in the region?

Mikhail Nekrasov: - For example, we also plan to develop vaccines against rotavirus infections and chickenpox because they will soon be included in the national vaccination calendar. More than 3 billion rubles are planned to be allocated for these purposes. We have the capacity to implement these projects. Together with VyatSU, we are considering a program to scale up influenza vaccine production because we cannot do it at the existing production site—a special testing area is needed. Its launch is possible this year—and the funds obtained through the creation of the industrial cluster will go towards this.

Svetlana Zanko: - What obstacles do you encounter when implementing your investment projects?

Mikhail Nekrasov: - None.

Svetlana Zanko: - But other enterprises experience difficulties. For example, they talk about the need to improve interaction with local authorities.

Mikhail Nekrasov: - One of the advantages of developing industrial clusters is that an enterprise is not alone; it is in cooperation with others.

Alexey Egorov: - In 2016, we met with the regional governor for the first time in a long time. I said then that we are ready to do everything to increase our payments to the regional budgets. And despite the fact that we are residents of Moscow, our tax payments to the budget of the Kirov Region increased by 38% in 2017 compared to 2016. At the same time, I am very grateful to the head of the Kirov tax service. I hear a lot of negativity from residents of Kirov about companies that are not residents of the Kirov Region. However, as Svetlana Gennadievna Charushina noted, if a company is a manufacturing company, it doesn't matter which region it is a resident of. The facilities, equipment, and personnel are on Kirov land, and the payments go to the regional budget. I must also note the Decision to organize a public reception office of the Federal Tax Service (FTS), which was made following a roundtable held by the Governor of the Kirov Region, Igor Vasilyev. I note the activity and support on this issue from the President of the Vyatka Chamber of Commerce and Industry, Nikolai Mikhailovich Lipatnikov, and Svetlana Gennadievna Charushina. I can compare the attitude of the tax service in Kirov and Moscow. Our company undergoes an on-site inspection once every three years (you could set your watch by it); the duration of such inspections is from 8 months and up. The possibility of communicating with the head of the service is excluded. Therefore, I can confidently say that a quite comfortable environment for business development has been created in the Kirov Region.

Oleg Prokhorenko: - Yet rating agencies still classify us as a region with increased risks. Another investor will now tell us if we have opportunities for development.

Dmitry Tregubov, General Director of "DimAl" company: - There are opportunities for development. The region has a number of positive conditions for this: large territories (including unused areas), many qualified specialists, transport infrastructure (the roads have become much better lately: I can compare them to roads in other regions where we supply our products). Recently, we created a new production site in an open field: next to a federal highway, treatment facilities; we ourselves installed gas and electricity.

Oleg Prokhorenko: - Did that "eat up" a lot of money?

Dmitry Tregubov: - A lot, but we started investing in this site 10 years ago. In recent years, the import substitution program has seriously helped us: Western equipment became expensive, and many buyers switched to us.

Svetlana Zanko: - Well, can you note any problems with investing in our economy?

Dmitry Tregubov: - Lack of funding. It would be good to use programs to support small businesses, which today have problems with loans, for example.

Alexey Egorov: - At the moment, there are all the prerequisites and opportunities to invest in business and expand production. Especially since this issue is a priority for the governor and the government of the Kirov Region. If your business needs money and loans, ensure transparency of your business for the lender; getting a loan is quite realistic. Attention needs to be paid to the practice of intentional bankruptcy. In my opinion, there are grounds to talk about such cases in the Kirov Region in a number of instances. Measures should be developed to eliminate the possibility of dishonest persons using the practice of intentional bankruptcy of enterprises, splitting business into small companies to avoid liability. Such practice corrodes the entire regional business like rust; creditors suffer losses, curtail their investment programs, and the budget loses money. On this issue, the practice of holding persons who managed such enterprises subsidiarily liable should be more actively applied, along with their disqualification from holding managerial positions. The possibility of more consolidated assistance from regional authorities should be organized, with the opportunity for direct discussion of the problem with the investor and the development of joint measures to solve it.Svetlana Zanko: - Why don't you go there?

Alexey Egorov: - I am confident that we can resolve all issues in Kirov, and we will modernize the existing production and launch new sections for the production of new forms of medicines in the Kirov Region.

Oleg Prokhorenko: - We have another guest today. Mikhail Shikhov will talk about the implementation of the investment project for the construction of a municipal solid waste (MSW) landfill for Kirov.

Mikhail Shikhov, Development Director of SAKH company, Deputy of the Kirov City Duma: - This investment project is worth about half a billion rubles. On May 1, we plan to launch the first section (cell) of the landfill, approve it, pass inspections, include the landfill in the register, and obtain a license. Starting January 1, 2019, the landfill will begin operation. Its first cell is designed for 2 years, the second cell will be used longer—almost 5 years.

Oleg Prokhorenko: - Why didn't other sites you considered suit you?

Mikhail Shikhov: - There are many requirements for our type of activity. We searched for a suitable territory for the landfill for about 6 years. 50-60 sites were considered. But this is normal—landfill planning takes decades. Furthermore, I remind you that starting in 2019, a number of wastes cannot be stored in landfills. For this, we are currently designing a waste sorting plant. Its capacity will be 300 thousand tons of waste annually. This will be enough for all of Kirov with a small reserve left.

Oleg Prokhorenko: - So, we have another resource for economic development?

Mikhail Shikhov: - Actually, for some types of recycled materials, there is even a shortage in the Kirov Region. "Elikon," for example, is ready to take very large volumes of waste paper: currently, it collects it from grocery retail chains. But for glass, the nearest collection point is a plant in Nizhny Novgorod. And it's not profitable for us to transport it there. Therefore, changes are needed at the state level in this area—a law on the turnover of glass containers, for example.

Oleg Prokhorenko: - What obstacles do you face in implementing this project?

Mikhail Shikhov: - I forgot about the obstacles. So, for financing this project, we hope to get a loan under a federal program at an annual rate of 6.5%. We don't feel strong pressure from regulatory authorities. Sometimes we even ask them to inspect us more often so that everything is clear to us.

Oleg Prokhorenko: - Today we will also talk about the creation of a biotechnology cluster in the region. Our guest Mikhail Nekrasov will tell us about the goal of its creation (attracting federal funds or the emergence of new market players).

Mikhail Nekrasov, General Director of "Nanolek" company: - We are in the process of registering the biotechnology cluster with the Ministry of Industry and Trade. All documents have been submitted. The government is ready to finance projects that will be approved by the ministry's commission. We, for example, are preparing a project to scale up the cell-based influenza vaccine, which we created from scratch.

Oleg Prokhorenko: - How can these developments improve the investment climate in the region?

Mikhail Nekrasov: - For example, we also plan to develop vaccines against rotavirus infections and chickenpox because they will soon be included in the national vaccination calendar. More than 3 billion rubles are planned to be allocated for these purposes. We have the capacity to implement these projects. Together with VyatSU, we are considering a program to scale up influenza vaccine production because we cannot do it at the existing production site—a special testing area is needed. Its launch is possible this year—and the funds obtained through the creation of the industrial cluster will go towards this.

Svetlana Zanko: - What obstacles do you encounter when implementing your investment projects?

Mikhail Nekrasov: - None.

Svetlana Zanko: - But other enterprises experience difficulties. For example, they talk about the need to improve interaction with local authorities.

Mikhail Nekrasov: - One of the advantages of developing industrial clusters is that an enterprise is not alone; it is in cooperation with others.

Alexey Egorov: - In 2016, we met with the regional governor for the first time in a long time. I said then that we are ready to do everything to increase our payments to the regional budgets. And despite the fact that we are residents of Moscow, our tax payments to the budget of the Kirov Region increased by 38% in 2017 compared to 2016. At the same time, I am very grateful to the head of the Kirov tax service. I hear a lot of negativity from residents of Kirov about companies that are not residents of the Kirov Region. However, as Svetlana Gennadievna Charushina noted, if a company is a manufacturing company, it doesn't matter which region it is a resident of. The facilities, equipment, and personnel are on Kirov land, and the payments go to the regional budget. I must also note the Decision to organize a public reception office of the Federal Tax Service (FTS), which was made following a roundtable held by the Governor of the Kirov Region, Igor Vasilyev. I note the activity and support on this issue from the President of the Vyatka Chamber of Commerce and Industry, Nikolai Mikhailovich Lipatnikov, and Svetlana Gennadievna Charushina. I can compare the attitude of the tax service in Kirov and Moscow. Our company undergoes an on-site inspection once every three years (you could set your watch by it); the duration of such inspections is from 8 months and up. The possibility of communicating with the head of the service is excluded. Therefore, I can confidently say that a quite comfortable environment for business development has been created in the Kirov Region.

Oleg Prokhorenko: - Yet rating agencies still classify us as a region with increased risks. Another investor will now tell us if we have opportunities for development.

Dmitry Tregubov, General Director of "DimAl" company: - There are opportunities for development. The region has a number of positive conditions for this: large territories (including unused areas), many qualified specialists, transport infrastructure (the roads have become much better lately: I can compare them to roads in other regions where we supply our products). Recently, we created a new production site in an open field: next to a federal highway, treatment facilities; we ourselves installed gas and electricity.

Oleg Prokhorenko: - Did that "eat up" a lot of money?

Dmitry Tregubov: - A lot, but we started investing in this site 10 years ago. In recent years, the import substitution program has seriously helped us: Western equipment became expensive, and many buyers switched to us.

Svetlana Zanko: - Well, can you note any problems with investing in our economy?

Dmitry Tregubov: - Lack of funding. It would be good to use programs to support small businesses, which today have problems with loans, for example.

Alexey Egorov: - At the moment, there are all the prerequisites and opportunities to invest in business and expand production. Especially since this issue is a priority for the governor and the government of the Kirov Region. If your business needs money and loans, ensure transparency of your business for the lender; getting a loan is quite realistic. Attention needs to be paid to the practice of intentional bankruptcy. In my opinion, there are grounds to talk about such cases in the Kirov Region in a number of instances. Measures should be developed to eliminate the possibility of dishonest persons using the practice of intentional bankruptcy of enterprises, splitting business into small companies to avoid liability. Such practice corrodes the entire regional business like rust; creditors suffer losses, curtail their investment programs, and the budget loses money. On this issue, the practice of holding persons who managed such enterprises subsidiarily liable should be more actively applied, along with their disqualification from holding managerial positions. The possibility of more consolidated assistance from regional authorities should be organized, with the opportunity for direct discussion of the problem with the investor and the development of joint measures to solve it.