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. Last Updated: 07/27/2016

State-Run United Grain Company Needs $1.6Bln Investment

State-run grain trader United Grain Company estimates that $1.6 billion investment in infrastructure is needed by 2015 if the country is to achieve its goal of higher grain capacities, a report showed on Tuesday.

"The total volume of investments in developing export-oriented grain trade channels of grain is estimated at 52 billion rubles ($1.6 billion)," according to a copy of the report by UGC CEO Sergei Levin prepared for a conference of the International Grain Council in London.

Russia aims to eventually double its export capacity to 40 million to 50 million metric tons of grain a year, but to achieve this it has to modernize its obsolete infrastructure, a process in which UGC plans to play a key part.

The report retains the target of increasing Russia's export capacities, including through building new export terminals, by 18 million to 20 million metric tons by 2015 from an estimated 21.6 million metric tons in the current 2009-10 crop year.

UGC also plans to build modern junction silos and organize the shipping of grain in long trains.

"The increased efficiency and competition on the infrastructure services market will allow cutting grain costs by up to $20 per metric ton," the report said.

Cheaper grain will make Russia a more competitive player on the global market where it is seeking to increase its presence.

UGC estimates total investments in port infrastructure development at 22 billion rubles ($690 million).

The Black and Azov sea expansion will require raising the capacity of the UGC-controlled Novorossiisk port terminal by 1.5 million metric tons within two years at a cost of 2.5 billion rubles.

UGC plans to build a new 8-million-metric-ton terminal on the Taman Peninsula capable of loading 36,000 metric tons of grain per day with a port silos storage capacity of 250,000 metric tons, requiring investments of 10 billion rubles.

The trader is also examining projects to develop shallow water ports in the area, including Yeisk port silos, and to build a network of river grain terminals on the Volga and Don rivers to provide annual shipments of up to 1.5 million metric tons of grain. These will require investments of 2.5 billion rubles.

The capacity of the far eastern ports should be increased to 5 million metric tons a year from current 1 million, the report said.

In addition, UGC is examining a project to build a terminal in the port of Vanino with Basic Element, owned by tycoon Oleg Deripaska, with an annual export capacity of 2.5 million metric tons, which may cost 3.8 billion rubles.

Jointly with the Ust-Luga company, UGC is looking into building a 6-million-metric-ton terminal at the Ust-Luga port on the Baltic sea, capable of loading ships with a deadweight of 100,000 metric tons. The construction will require 3.8 billion rubles.

But the construction of grain terminals will solve the issue of the competitiveness of Russian grain only in the medium term, Levin said.

"At the same time, it is necessary to develop grain market export-oriented infrastructure and to create logistical corridors in the long-term prospect," he said.

For this purpose, it is necessary to create by 2015 a network from 21 junction silos with a transshipment capacity of about 8 million metric tons of grain a year to ports, which will require investments of 24 billion rubles.

UGC also confirmed its plan to create an independent Transport Grain Company with an inventory of 5,000 cars capable to transport 8 million metric tons a year of grain a year, on which it will spend another 6 billion rubles.

The Russian government has already agreed to subsidize construction of some grain infrastructure, and UGC invited foreign investors to participate in such projects.

"UGC as a state agent is ready to act as the coordinator of works of modernizing Russian grain market infrastructure, as well as the conductor and the guarantor of foreign investments into the Russian grain branch," Levin said.