Volkswagen Group Rus

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Volkswagen will construct (2007-09) and operate a greenfield automobile assembly plant (the “Project”) in the Russian Federation for a total investment of approx EUR 425 million. The new Russian entity, “Volkswagen Rus”, will begin production in late 2007. The transition impact potential of the Project is derived primarily from the positive influence of a reputable foreign strategic investor on the restructuring and modernisation of the Russian automotive industry. The popularity of Volkswagen cars in Russia insures the Company a strong position on the domestic market. Volkswagen is world-renowned for its quality, efficiency, and engineering achievements. Local production will enable the Company to demonstrate these attributes in the Russian automotive industry, thereby influencing local producers and improving industry standards. Strengthening competition within the sector as well as setting product quality, technological and business standards will be major contributions to this process. Strengthening of market interactions and linkages in other related sub-sectors is another potential transition merit of the Project. VW Rus will be working together in a quasi-vertically integrated structure with local supply companies and service providers. This is likely to have a two-fold impact – drawing FDI parts suppliers into Russia and providing a new but demanding market for domestic parts suppliers. This should lead to increased competitiveness and quality of domestically manufactured Russian motor vehicles, as well as set higher standards in the Russian automotive production industry. Volkswagen Rus will operate a greenfield automotive assembly plant near Kaluga City (Kaluga Oblast), Russia. The Project Sponsor will be Volkswagen AG, the largest auto manufacturer in Europe. The EBRD will provide EUR 30 million to the Project in the form of an equity investment in Volkswagen Rus. Total project will cost approx EUR 425 million, of which EUR 150 million will be in the form of equity, the remainder will be in the form of a syndicated loan. The EBRD’s portion will be EUR 30 in equity. Separate discussions on a potential loan are continuing. Construction of new facility on an 800 hectares greenfield site is likely to be significant therefore an Initial Environmental Examination (IEE) will be carried out to determine the environmental category and the environmental due diligence requirements. Other issues associated with EU vehicle standards (fuel quality, emission standards, recycling, etc.) will also be addressed. Specific attention will be placed any operations that would fall under EU IPPC requirements, such as the use of solvents (eg volatile organic compounds “VOC”) in the painting process. Preliminary information and discussions with VW’s environmental staff confirmed that the site selection, OVOS (EIA) and some public consultation has recently taken place. This will be reviewed as part of the IEE, and terms of reference for any further environmental due diligence that may be necessary will be developed. None. M. Kleimann, Volkswagen AG Tel: +49-5361-941767