on 20-21 August 2008

Donetsk Region

The Donetsk region is a big industrial, cultural and scientific center.

The industry of the region is based on coal extracting, metallurgical and machine building industries. The region specialization is stipulated by its favourable geographical position, rich mineral and raw material base, sufficiently developed infrastructure and high urbanisation degree.

The Donetsk region can also boast of its industrious and talented people. The names of our compatriots who are famous scientists, sportsmen, culture workers are well known far away from Ukraine.

10 reasons to invest in Donetsk region

1. Favourable geographic location of the region
2. Access to vast markets of Eastern Europe and other regions
3. International relations
4. Highly skilled workforce
5. Developed infrastructure
6. Natural resources and fertile land
7. Special Mode of Investment Activity, SEZ and TPD
8. Leading position of the region of the economy of Ukraine
9. Developed industry on local mineral and raw materials base
10. Experience of investment activity

FAVOURABLE GEOGRAPHIC LOCATION OF THE REGION

Donetsk region is located in the south-east of Ukraine, covering the area of 26,5 thousand square km with the population of about 5 million people.

Average population density –187 persons/sq.km

Distance to the capital of Ukraine, Kiev – 871 km by rail, 693 km by highway

The administrative-territorial division of the region includes 28 towns and 17 districts subordinated to the regional administration.

Has a seaport in Mariupol with an access to the Black and Mediterranean seas.

Borders on the most densely populated and economically developed regions of Ukraine – Dnepropetrovsk, Kharkov, Zaporozhye, Lugansk, and Rostov region of the Russian Federation.

Special mode of investment activity operates in the territory of 26 towns and 7 agricultural districts. There were created 2 special economic zones "Donetsk" and "Azov" within the region. These towns and agricultural districts share 40% of the territory of the region where 84% of the population lives and 85% of industrial potential is concentrated

ACCESS TO VAST MARKETS OF EASTERN EUROPE AND OTHER REGIONS

Investors have direct access to the consumers markets of Ukraine (about 50 million consumers) and Russia (about 150 million consumers).

Due to the developed system of automobile, railway and air transport, the investor has all the opportunites to service effectively the markets of Eastern and Central Europe, and also the countries of CIS.

Access to the Black and Mediterranean Sea basins enables to develop successfully the trade relations with the countries of Balkan Peninsula, Middle East, Africa, Central and Southeast Asia.

INTERNATIONAL RELATIONS

Donetsk region has longstanding and strong international trade relations with partners from more than 100 countries of the world which play the important role in the economy of the region.

The basic factors indicating a high international trade development level are following:
The economy of the region includes more than 150 industries. Among them there are metallurgy, machine-building, chemical and coal industries, agriculture and food-processing industry, other profitable industries with high resource potential.

Developed infrastructure with two main trade gates:

• the international airport; the international transportation makes 70% of freight turnover.
• Mariupol trading port with capacity up to 12 mln. tones of cargo annually. Deep waterways sof the port (average depth 12 m) allow to accept ships with carrying capacity up to 16 thsd. tons .
• 53 vessels with total displacement of 462,4 thsd.tones belong to Mariupol port.

SEZ "Azov" provides transhipment and transit cargoes handling, renders services in sea-going vessels repair and restoration.

70% of manufactured products in the region are sold on foreign markets. Donetsk region trades with more than 100 countries of the world. The major trade partners of the region are Russia, China, the countries of the European Union, USA, and Turkey.

The share of the region in total Ukraine export comes to more 20%.

HIGHLY SKILLED WORKFORCE

Companies investing in Donetsk region, enjoy advantages of having acces to the largest in Ukraine labour market (2 million people). All over the world Donetsk region is known for the developed labour market with qualified broad specialists which are well-trained and easy adaptable to changing labour conditions.

Donetsk region is the most urbanised in Ukraine – 90% of its population lives in the big and small towns; the density of population is uneven.

Higher education
The education system in Donetsk region is one of the most effective and prestigious in Ukraine.

It includes 112 higher educational institutions which annually prepare about 40 thousand specialists. By number of educational institutions Donetsk region takes the third place in Ukraine after such educational centres as Kiev and Kharkov. The education system of the region is adapted to varied economic conditions. There have been introduced new programs on training of specialists with the aim to meet the requirements of developing Donbass economy in managers, experts in the field of international business, computer science, etc.

There have already been established relations with many universities and educational institutions of foreign countries. Graduates of Donetsk universities are considered to be of a high qualification and successfully work in the countries of Western Europe and America.

Scientific and research potential
Donetsk region is one of the major scientific and research centres of Ukraine. Scientific researches and analysis are carried out by 101 organisations.

Research activity is undertaken by 8 institutes of the National Academy of Science of Ukraine, 18 higher education institutes, and more than 100 scientific-research and project institutions, bureaux, research stations and branches.

DEVELOPED INFRASTRUCTURE

Commercial and industrial accommodation
In Donetsk region there is a wide range of various premises suitable for dwelling, production, and offices and which meet all investors' requirements.

Office premises
Donetsk offers premises for organisation of modern business centres, including with already created complex of services and with restaurants and polyclinics in one building. The rental fee depends on quality of premises and their location.

Industrial premises
The bulk of the industrial space currently available is located within existing industrial complexes. Industrial units tend to be large. However,there is a wide range of multifunctional industrial space available at competitive price. Actual rates vary depending upon lease duration, nature of business etc.

By road
Donetsk is well connected by road to other regions of Ukraine and to southern Russia. The highways are among the best in Ukraine in terms of quality. All roads are well-equipped with networks of modern and high quality petrol stations which render full range of services up to the best international standards. All major vehicle manufactures have in Donetsk region sales, repair, and maintenance service centres.

By air
There are three airports within the region: Donetsk, Mariupol and Kramatorsk. Donetsk airport has international status and offers a full-range of customs services.

By railway
Donetsk region's railway system is among the most dynamic in Ukraine and carries 40% of the total of Ukraine's railway transportation, servicing the industries and population of Donetsk and Lugansk regions and partially – Dnepropetrovsk, Zaporozhie and Kharkov regions.

Donetsk region is directly connected by rail to other major railway terminals in Ukraine and Russia – Kiev, Lvov, Odessa, Kharkov, Simferopol, Moscow, St.Petersburg, and many others. Besides, many of the available industrial spaces within the region benefit from one-side access to the railway network through their own branch lines.

By sea
The port of Mariupol is one of the largest ports in Ukraine. Due to extensive railway network, all major companies of the region has a direct access to the port. . Railway connection, full customs facilities, and high quality communication systems make the port an important import-export centre of the region. More than 7 mil. tons of goods are handled by Mariupol sea port every year where 50% of goods are export finished products. Deep sheltered approaches (12,0 m in average) allow ships of up to 116 000 tons deadweight capacity to berth. Mariupol is a home port for 53 ships, with the total deadweight of 462,4 thsd. tons. There are vessels of different types (multifunctional and special): for vehicles transportation, timber cargo and etc. The ships offer freight services to customers from all over the world, including the South And Middle East, East Africa, Persian Gulf, South and North America. The average ship draught is 8 metres.

Telecommunications
Telecommunications infrastructure in Donetsk region is developing rapidly. There is an opportunity to expand the usage of mobile phones, cell communication of GSM standard and paging communication. Costs of mobile communication are comparable to European level. Donetsk region has high quality access to the Internet services which are provided by a number of companies.

Utilities
Electricity is supplied mainly by the local power stations. Their capacity not only covers the region's needs, but has a good export potential. Gas is purchased from Russia and Turkmenistan and supplied to Donetsk region through the well-developed pipe-line system. Donetsk region's water resources are not enough to cover the whole region's population and industry needs. Alternative sources of water supply are being studied.

NATURAL RESOURCES AND FERTILE LAND

Donetsk region is the richest region of Ukraine in terms of natural resources deposits. 12% of all natural resources of the country is concentrated in Donetsk region it's more than in any other region of the country.

The structure of Donetsk region's natural recourses potential
Donetsk region meets the requirements of own needs and delivers to other regions of Ukraine the following minerals:
▪ coal;
▪ rock salt;
▪ limestone and dolomites;
▪ fire-resistant and ceramic clays;
▪ kaolin;
▪ mercury;
▪ asbestos;
▪ gypsum;
▪ chalk;
▪ building and facing stone.

There were developed perspective programs on extraction of the following deposits:
▪ iron ore;
▪ rare-earth metals;
▪ feldspar;
▪ phosphorite;
▪ potash salt;
▪ bentonite clays;
▪ nepheline;
▪ graphite;
▪ semiprecious stones, etc.

The region is currently exploring the deposits of hydrocarbons, iron ores, fluorite, brown coal, ochre, alkaline kaolin, semiprecious stones, basalt, copper, lead.

Kimberlite pipes with fractions of fine diamond crystals have been discovered in the north of Priazovsky crystal field.

Deposits of gold in Donetsk region are considered to have good potential.

In the northern part of Donetsk region, there was discovered gas deposit with a daily output of 70 000 m3 and total deposit of 1400 million cubic meters. At present, the other 15 potential gas fields with total deposits of around 30 bln. cubic meters are being explored.

Donetsk region boasts 2 million hectares of fertile land suitable for agricultural holding. 1,6 million hectares of land is currently in agricultural production. Fertile soil is mainlyblack earth with the humus concentration up to 6%.

DEVELOPED INDUSTRY ON LOCAL MINERAL AND RAW MATERIALS BASE

Metallurgical industry
There are 3 large groups of metallurgical enterprises, 4 metallurgical plants, 2 companies specialising in steel pipes production, a number of tube-rolling mills and steel plants operating in non-ferrous and steel industry.

The capacity on pig-iron production equals 18,2 mln. tons, steel – 22,9 mln. tons, rolled metal – 15,8 mln. tons.

The share of exported metal in international trade turnover equals 70%; the products of metallurgical industry are being sold to more than 50 countries of the world.

There are metallurgical plants located in the region that are well-known all over the world:
▪ OSC "Donetsk metallurgical works", which managed to attract more than 50 mln. USD foreign investments
▪ OSC "Metallurgical works "Azovstal", OSC "Mariupol metallurgical works "Illicha" which enlarge export of their products using Mariupol sea port as an access to foreign markets

In the region there are big enterprises of non-ferrous metallurgy important for the industry of Ukraine. This field of industry includes 7 companies that work on secondaryraw materials; the share of export equals 20% of goods produced.

Machine-building
The Machine-building sector of Donetsk region includes nearly 220 companies covering the most part of demand of Ukraine for different types of machinery and equipment.

All companies have well-developed infrastructure, which serves to provide them with raw materials and through which their finished products are sold. Among the biggest manufactures of machine-building products are: Closed Stock Company "Novokramatorsk machine-building plant", concern "Azovmash", "Starokramatorsk machine-building plant", Yasinovatskiy machine-building plant.

Chemical industry
The chemical industry is represented by 15 companies of different specialisation, producing a wide range of products, including mineral fertilisers, acids, soda, plastics.

The leading company is Open Stock Company "Concern "Stirol". The greater part of its production is exported to CIS countries, Europe, Asia.

Coal industry
Coal industry is represented by 101 coal mines, 12 coal mines construction enterprises, 33 processingmills. The coal deposits equal to 14,3 bln. tons, including cocking coal –7,5 bln. tons . Within the framework of the program of coal industry re-structuring the closure of unpromising mines is carried out.

Power industry
Power industry is represented by a complex of generating, network, technical repair manufactures. The capacity of 7 heat power stations(about 10 thousand. МWh.)covers needs of the region and allows to export the electric power beyond the borders of Donetsk region.

Agriculture
Donetsk Region's fertile soil provides ideal conditions forproducing a wide range of agricultural products. Agriculture has 2 mln. hectares of fertile lands at its disposal.
The region is a major producer of winter wheat, sunflower seeds, grain, vegetables, eggs, milk, , beef, pork and poultry. As a result of transforming of 414 collective agricultural companies there were formed 567 private agricultural companies in agricultural sector. There are 2132 farms operating in Donetsk region.

Food processing industry
Donetsk region has free niche in the market of food products. As experience shows, the food-processing industry has proved to be one of the most attractive sectors for investments. At the present time this branch is the most popular sphere among foreign investors. There have been already made significant investments in food processing industry of Donetsk region; among foreign investors is the world famous company – Cargill.

Donetsk region is the large centre of beverage industry , specialising in quality beer, champagne and vodka production. One of the largest factories on manufacture of champagne and winesis located in Artemovsk. Itproduces champagne "Artemovskoye" which is the world-famous brand.

Light industry, consumer goods
The production of goods for population is implemented by 400 companies which produce furniture, refrigerators, gas ovens, washing machines, clothes, footwear, knitted goods, etc.
Other sectors offering investment potential include:
▪ Alternative power sources;
▪ Exploration of gas deposits;
▪ Infrastructure: transport and communications;
▪ Service sector: hotel, banking, insurance;
▪ Municipal sector development.

EXPERIENCE OF INVESTMENT ACTIVITY

Historical reference
Beginning from XVIII century Donetsk region (Donbass) has wide experience in the sphere of attracting foreign investments.

The construction of coal mines in XVIII century made a good start for industrial development of Donbass. Great demand for high quality coal was an excellent incentive to invest in Donetsk region's coal industry. Thanks to direct foreign investments, in XIX century Donbass was extracting 74% of total coal production in the country and nearly 100% of the volume of cocking coal.

Intensive railway construction stimulated the industrial growth in the region, while the development of mining industry created favourable conditions for ferrous metallurgy development. By the middle of 1870s Novorossiiskaya company located in Donbass and owned by the British manufacturer John Hughes, became one of the largest metallurgical works in the country. 12 out of 17 Russian metallurgical works were located in Donbass. The construction of plants was mainly financed by American, English, French, Belgian, and German investors. At the same time a great number of rail ways were being built all over Donbass region.

Thus, at the beginning of ХХ century there were operating more than 300 industrial companies: coal-mines, metallurgical works, plants, factories, shops, chemical plants, textile mills, food processing companies. At the same time the share of foreign capital in industrial complex of the region was quite significant.

Present-day experience
From the moment of adoption and implementation of the law of Ukraine "About special economic zones and special mode of investment activity in Donetsk region" there has been accumulated significant experience in co-operation with foreign investors.

With the aim to coordinate the co-operation between local authorities and investors acting on territories of priority development there was established the Board on special economic zones and special mode of investment activity in Donetsk region. In the towns and districts, which have status of the territory of priority development (TPD), there were established structural governing bodies on managing the special regime of investment activity. There was launched an appropriate advertising campaign aimed at attracting foreign investment capital in the Donetsk region's economy.

Since the implementation of the law of Ukraine "About special economic zones and special mode of investment activity in Donetsk region " the average annual volume of foreign investments in the region's economy 4 times exceeded the volumes of previous years.

The approved projects provide for creation of 10,6 thsd. new and retention of 26,4 thsd. existing jobs. Branch structure of projects is represented on the diagram.

On the share of basic branches of industry fall 60 projects (total cost 2,7 bln.UAH), including in metallurgy – 12, coal industry – 11, chemical – 21, machine-building – 13, construction – 3 projects. In light and food industries there were approved 31 projects (total cost – 1,0 bln. USD), agriculture – 10 (total cost – 122 mln.USD), transport and communication – 12 (total cost – 343 mln.USD), municipal economy – 4 (total cost – 157 mln.USD,), health service – 1 project (6,6 mln. USD).

The realisation process of investment projects on the territories of priority development and special economic zone "Donetsk".

The works have already started on 78 projects. Actually for their implementation there were invested 1,8 bln.UAH (325 mln. USD), or 67% of the total cost of projects.

The share of foreign investments from 22 countries of the world exceeded 50% (of the total investments made).

On 55 projects the building and assembling construction phase has already been finished and the production started.

The total production output (since the beginning of projects implementation) amounted to 2,2 bln. UAH (these are bakery, confectionery and sausages, vegetable oil, modern furniture, clothes, drugs, high quality soap and goods of technical use).The forth part of goods produced is being exported.

In fact there have already been created more than 4 thsd. new and retained 7,8 thsd. existingjobs, the salary level is approximately twice the height ofthe rate of average salary in the region.

The cost of creation of onejob depends on the branch of industry in view of their great variety and on average equals to 421 thsd. UAH (76,6 thsd.USD). At the same time, when investing in high technologies (metallurgy) the cost of one job reaches the sum of 4 mln. UAH (691 thsd.USD).

The activity as for successful functioning of special economic zones is taking place too.

The construction of a new meatprocessing plant in SEZ"Donetsk" has been completed (the investor of the project – LLC "Vozrogdeniye"). The planned production capacity – up to 2000 tons of ready products monthly. 80 new jobs are to be created according to the project.

A new plant on electrical household appliances manufacture is under construction. The investor of the project – OSC "NORD".

The launch of special customs regime in SEZ "Azov" during the period between March-May is planned, the infrustructure of which has already been created.

The implementation works of investment project on development of the main activity of Azov vessels repairing plant, which is located in the territory of SEZ "Azov", are under way.

It is necessary to mention that the law of Ukraine "About special economic zones and special regime of investment activity in Donetsk region "has a stabilising influence on other regions of Ukraine – positively promotes the economy of regions, their companies, budget financing and solve the social problems.

It total as suppliers and subcontractors in realisation of projects take place 2,5 thsd. companies of Ukraine.

The recipient investment capacity of the region equals to 100 bln. USD.