How to Invest in St. Petersburg

St. Petersburg is a cultural and intellectual capital of Russia, the city with enormous scientific, technical, and production potential. All is needed to realize this potential is money. Not just some money, but investments in real sector. i.e. direct investments. However, money flows conform to their own rules - they go where the investments promise secure, fast, and high payback.

The financial crisis burst out in August 1998, followed by drastic devaluation of ruble with steady high export prices for energy resources in the background, determined a rather unique macro economical situation in Russia. Low and practically stable exchange value of the ruble and significant foreign trade gave a spur to the domestic production - both growth incentives and the money for the growth support appeared in the country. In fact, it has been three years since industry output is increasing and the policy of cautious ruble's exchange value strengthening conducted by the Government and Central Bank gives hope for the growth stability in the situation of favorable investment climate. With all this going on, the regions of the highest possible investment potential, among which was St. Petersburg long before crisis, are turned out to be in an advantageous position.

However, investors are guided not only by generalized indicators of St. Petersburg investment potential - they want to know specific conditions for investment activities in the city. To familiarize would-be investors with the specifics of investment activity in St. Petersburg this it for what the third edition of 'How to Invest in St. Petersburg' reference book is meant.

Not only it describes legal grounds for investment activities in St. Petersburg and practical measures for achieving high profitability of private investments made in the city's economy, but, what is most important, it shows in details the specific procedures of investment process realization in respect of relationship with the St. Petersburg governmental bodies. This reference book provides investor with knowledge on not only which of the legal acts protects their rights and secures their income but also how to pass 'corridor of power' to achieve their goal in the shortest possible time.

2.1. St. Petersburg Investment Legislation

Laws and Orders related to the investment activities in St. Petersburg:

Federal Legislation

1. Federal Law on Investment in RSFSR No. 1488-1of 26.06.1991;
2. Federal Law on Foreign Investments in the Russian Federation No. 160-FZ of 09.07.1999;
3. Federal Law on Investment Activities in the Russian Federation Performed As Capital Investment No. 39-FZ of 15.07.1998

St. Petersburg Legislation:

1. Law of St. Petersburg on the Federal Support to the Investment Activities on the Territory of St. Petersburg No. 185-36of 30.07.98;
2. Law of St. Petersburg on Investment into Real Estate in St. Petersburg No. 191-35of 09.07.98;
3. Law of St. Petersburg on Tax Reductions No. 81-11 of 14.07.1995;
4. Law of St. Petersburg on Special Programs in St. Petersburg No. 179-58of 06.11.97;
5. Law of St. Petersburg on Order and Conditions of Granting and Cancellation of Tax Reductions No. 24-7of 25.02.97;
6. Law of St. Petersburg on Some Issues on Taxation for 2000-2003 No. 252-34of 30.12.99;
7. Law of St. Petersburg on Moratorium on Increase of Tax Rate in St. Petersburg No. 239-20of 02.06.2000;
8. Law of St. Petersburg on Federal Support by St. Petersburg to the Investment Into House-Building No. 568-71of 16.07.2001;
   • Instruction of the Governor of St. Petersburg No. 1241-O of 10.12.97 on Order of Transfer of the Money for the Development of City's Infrastructure Into the Budget of St. Petersburg;
   • Instruction of the Governor of St. Petersburg No. 678-O of 08.07.97 Regulations for the Preparation and Coordination of the Investment Tender Documentation in Granting Real Estate Objects and Property Rights for Them on Investment Conditions (in edition No. 848-O of 10.08.2000 and No. 952-O of 12.09.2000);
   • Instruction of the Governor of St. Petersburg No. 994-O of 14.09.2000 on Participation of Citizens and Their Associations in Discussions and Decision-Making on the City-Planning Activities Exercised According to the Investments Proposals;
   • Instruction of the Governor of St. Petersburg No. 283-O of 04.04.97 on Improvement in Granting Real Estate Objects and Property Rights for Them on Investment Conditions;
   • Instruction of the Governor of St. Petersburg No. 952-O of 12.09.2000 on Amendments to the Instruction of the Mayor of St. Petersburg No. 585-O of 03.06.1994 and Instruction of the Governor of St. Petersburg No. 678-O of 08.07.1997 Regulations for the Preparation and Coordination of the Investment Tender Documentation in Granting Real Estate Objects and Property Rights for Them on Investment Conditions.

2.2. Investors Rights and Protection

The legislation of St. Petersburg (Law of St. Petersburg No. 185-36 of 30.07.98 on Federal Support to the Investment Activities on the Territory of St. Petersburg) states that all investors have equal rights for:

• Government support of their investment activities in the case, order, and on the conditions stated by the laws of St. Petersburg and other comported with them legal acts;
• Information necessary for the decision making on investment and for the investment activity exercise;
• Earning, free use, and repatriation of the profit on investment left in investor's possession after tax payments and other obligatory payments according to the legislation currently in force;
• Stability of the conditions for exercising the investment activity. It is secured by the legislation that the St. Petersburg newly issued standard legal acts worsening investor's position as compared with the St. Petersburg standard legal acts active on August 18, 1998, are not being applied within 3 years starting from the date of the given acts coming into effect regarding the persons being considered investors on the date of the given acts coming into effect.

Special favor has been granted to foreign investors. By the legislation of the Russian Federation (Federal Law on Investment in the Russian Federation No.160-FZ of 09.07.1999) the supplementary guarantees of not worsening of the conditions of investment activity - at increase of a number of federal taxes, import customs duty, and other obligatory payments; or at an establishment of a mode of prohibitions and restrictions concerning foreign investments in the Russian Federation after the beginning of a priority-driven investment project with participation of a foreign investor, the specified changes are not applied within the project payback time but no longer than 7 years.

The specified statements apply to commercial institutions with foreign investments if the share of foreign investors in the authorized capital stock of the specified institution is more than 25 percent; as well as to the commercial institutions with foreign investments carrying out a priority-driven investment project regardless of the share of foreign investors in the authorized capital stock of the specified institution.

In St. Petersburg, the following institutions protecting investors rights in the city function:

Name	Subject of Competence	Address for Appeal
Investment Contradictions Commission, Committee on the Economy, Production Policy and Trade, and Committee on Construction	Contradictions appearing at exercising investment activity in St. Petersburg with the participation of foreign investors, including the following situations: Selecting and granting lands to investors; Interaction between developers, contractors, and subcontractors participating in investment projects and programs; Project documentation coordination	16 Voznesensky Prospect, St. Petersburg   190000 Phone: 319-9747
Council on Assistance in Investments at the Governor of St. Petersburg (Instruction of the Governor of St. Petersburg No.123-O of 10.02.1997)	Management of work on analysis and generalization of foreign and domestic experience on investment obtaining. Development of recommendations on working with investors for structural divisions of the St. Petersburg administration, the institutions within their jurisdiction, and territorial divisions of the federal bodies of executive power in St. Petersburg and North-Western region of the Russian Federation. Ensuring of information exchange between structural divisions of the St. Petersburg administration as well as between territorial divisions of the federal bodies of executive power in St. Petersburg on working with the enterprises and institutions exercising investment activity on the territory of St. Petersburg. Preparation of proposals and development of outlines of federal and city standard acts on subjects lying within a scope of the Council's competence.	Committee on External Relations, Smolny, St. Petersburg 193060 Phone: 276-14-15
Bodies of the St. Petersburg Administration	In accordance with the subjects lying within a scope of the St. Petersburg Administration competence.	Phone: 319-94-32
St. Petersburg International Business Association (SPIBA)	Representative of the international business community in the North-West of Russia. Provides a sponsorship for conducting business in the North-West of Russia.	36 Shpalernaya Ul., St. Petersburg  191194 Phone: 325-90-91, 279-18-15
St. Petersburg Association of Joint Ventures	Protection of the enterprises with foreign investments by the executive and legislative authorities.	58 Moika Emb., St. Petersburg 190000 Phone: 312-79-54

The specified institutions constitute infrastructure of extrajudicial procedures of problems and conflicts resolution; and appealing to them does not prohibit from appealing to law-courts of the Russian Federation.

2.3. Taxation

2.3.1. Principles of the Tax System of the Russian Federation

The tax system of the Russian Federation is regulated by the legislation on taxes and fees of the Russian Federation that consists of the Tax Code and the laws of the Russian Federation. The Tax Code establishes the system of the taxes collected to the federal budget as well as general principles of taxation in the Russian Federation, including:

• The taxes and fees collected in the Russian Federation;
• The grounds for arising and the procedure for fulfillment of obligations to pay taxes and fees;
• Rights and duties of taxpayers, tax authorities, and other participants of the relations regulated by the legislation on taxes and fees;
• Forms and methods of tax control;
• Liability for tax violations;
• The procedure for appeals against reports of tax bodies and actions (inaction) of their officials

Standard legal acts of the government bodies of the Russian Federation or Russian Federation member territories on local taxes and dues shall be adopted in accordance with the Tax Code.

In accordance with the Tax Code, the following types of taxes and fees are imposed in the Russian Federation:

• Federal taxes and fees;
• Taxes and fees of Russian Federation member territories (hereinafter referred to as regional taxes and fees);
• Local taxes and fees

In accordance with the Law of the Russian Federation on Principles of Organization of Local Self-government in the Russian Federation (Article 6, Clause 3), for the purpose of unity of municipal economy, municipal property and source of revenue to local budgets in the cities of federal importance - Moscow and St. Petersburg - shall be determined by the laws of the said subjects of the Russian Federation.

Taxes shall be paid only in Russian rubles.

2.3.2. Tax System of St. Petersburg

As of 01.01.2002, the following taxes and fees are imposed in St. Petersburg:

Federal Taxes and Fees

Regional and Local Taxes and Fees

Type of Tax or Fee	Objects of Taxation	Rates
1. Land tax and payment for land rent	Land area	Rates differentiate by locations and zones of city-planning value
2. Tax on enterprise property	Fixed assets, fictitious assets, purveyance, and inputs on payer's balance. Fixed assets, fictitious assets, and inferior and wearing equipment are estimated by residual value.	2% (1% for water transport organizations only in respect to steamship enterprises)
3. Tax on private property	Cost of buildings, premises, and other installations
Tax on buildings, premises, and other installations	Less than or equal to 300,000 rubles	0,1 %
	From 300.000 to 500.000 rubles	0,3 %
	More than 500.000 rubles	2,0 %
Tax on carriers	Air and water carriers	Depending on the type of a carrier
4. Sale tax	Cost of sold goods (works, services) on the territory of St. Petersburg. Operations on sale of goods (works, services) are an object of taxation if the sale is performed for cash or with the use of pay or credit cards.	5 %
5. Tax on advertising	Cost of works on goods advertising	5 %
6. Unified tax on imputed earnings for the specified types of activity	The taxable object at applying a unified tax on imputed earnings for the specified types of activity is imputed earning for the regular calendar month.	Unified tax on imputed earnings for the specified types of activity is 20% of imputed earning. In accordance with the Law of the Russian Federation No.198-FZ of 31.12.2001 tax rate is 15%.
7.  Charge for using water objects	Water volume taken out from the water object  (Law of the Russian Federation No.71-FZ of 06.05.98):	Rates are defined by the Law of St. Petersburg No.262-38 of 13.04.01
	Draw off of surface water	132 rub. per 1000 cubic meter;
	Draw off of underground water	179 rub. per 1000 cubic meter;
	Effluent discharge	20 rub. per 1000 cubic meter

2.3.3. Tax Privileges in St. Petersburg

In addition to the privileges defined by the federal legislation, the Law of St. Petersburg provides the following tax privileges.

To legal entities established with the participation of St. Petersburg and foreign investors according to the international agreements between St. Petersburg and foreign country governments, the following tax exemptions are provided for the sums entered in the budget of St. Petersburg and for the term specified by the international agreement but not more than for seven years:

• Property Tax;
• Land Tax;
• Advertising Tax;
• Vehicle Owners Tax.

Obligatory condition for privilege granting is actual paying up of contribution to legal entity's authorized capital stock by the foreign investor in amount of not less than equivalent of 1 million USD and direct capital investments into St. Petersburg's tangible production made by the foreign member of the legal entity in amount of not less than equivalent of 10 million USD.

In St. Petersburg, tax privileges to the benefit of foreign investors providing significant investment in basic production assets are valid. The privileges are provided by excluding from the assessment basis for estimation of the tax on enterprise property in respect of the amount entering in the St. Petersburg budget, net book value (with the deduction of deterioration) of basic production assets put into operation within the last four quarters.

Capital investments into the basic production assets put into operation within the last four quarters	Period of tax privilege validity (starting from the first day of the quarter, at the beginning of which discounting conditions were fulfilled)
Exceeding 1 million rubles	8 quarters
Exceeding 5 million rubles	16 quarters
Exceeding 500 million rubles	28 quarters

An exemptions from land tax in respect of the sums entering in the St. Petersburg budget are the lands not handed over to entrust management, rent, or other use and used for the construction of new buildings and (or) reconstruction of the objects of real estate located on them for the whole standard period of construction and (or) reconstruction in accordance with the approved project, starting from the actual date of capital investment and on for the two consequent years after the specified term finish.

Beside the above-listed tax privileges, in St. Petersburg there are privileges for the residents of free economic zones.

Free economic zone is the restricted area on the territory of St. Petersburg or on the territory of the St. Petersburg administrative subordinate, where privilege taxation on economic activity of the area residents is in force.

Privilege taxes are defined separately for each zone.

Currently, in St. Petersburg are four economic zones, namely Izhora, Tsarskoselskaya, Polustrovo, and Kronshtadtskaya.

Up to 2010, residents of Izhora zone of economical development are exempted from tax on enterprise property and from vehicle owner tax in respect of the amount entering in the St. Petersburg budget.

Residents of the tourist-recreation zone of economical development Tsarskoselskaya are exempted from all taxes, fees, and charges in respect of amounts to be entered in St. Petersburg budget for the period of the project development and payback.

Kronshtadtskaya zone of economical development is a zone of mixed activities, which aims to the development of Kronshtadt town, stimulation of investment process for solving problems of reconstruction and development of port, customs, and production infrastructure, tourism, and employment on the territory of the town Kronshtadt. For the zone residents for the time up to 2010, rates on the following taxes in respect of amounts entering in the St. Petersburg budget are reduced:

• Tax on enterprise property;
• Land tax.

From 2001 to 2005, residents of Polustrovo zone of economical development are exempted from 50% of the following taxes in respect of amounts entering in the St. Petersburg budget:

• Land tax

An order of getting residential status.

Any Russian or foreign legal entity may become a resident of a zone by submitting to Economical Development, Production Policy and Trade Committee an application, which should include the following:

• Request for residential status in written;
• Business plan;
• Constituent documents (copies authenticated by a notary);
• Reference from State Tax Inspection confirming an absence of pretender's debt to budgets of all levels.

An application is considered within one month. If no remarks were made, the Administration of St. Petersburg and a pretender sign an agreement on economical activity on the zone territory. Tax privileges come in force from the day of signing of an agreement.

Table. Investors' tax privileges introduced on the territory of St. Petersburg.

No.	Taxpayer category (name in accordance with legislation)	Privileges for the specified taxpayer	Standard act (including reference to the Article)
1	Legal entities established with the participation of both St. Petersburg and foreign investors on the grounds of international agreements between St. Petersburg and foreign countries governments	Exemption for seven-year period, or other stipulated by international agreement but no more than seven-year period, from the following taxes: Tax on enterprise property in respect of amount entering St. Petersburg budget; Land tax in respect of amount being at disposal of St. Petersburg; Tax on vehicle purchase; Vehicle owners tax; Tax on maintenance of housing resources and social and cultural objects in respect of amount entering in the St. Petersburg budget; Special fee on support of law-enforcement bodies in respect of amount entering the St. Petersburg budget; Advertising tax in respect of amount entering in the St. Petersburg budget.	Article 11-2 Law of St. Petersburg No. 81-11 of 14.07.1995
2	Organizations of any sector of national economy exercising activity on the territory of St. Petersburg	At profit tax computation in respect of amount entering St. Petersburg budget, taxable profit is reduced by an amount of actual capital investments (including those made on the sharing base) for production and non-production purposes, as well as for repayment of bank credits acquired and used for the specified purposes, including interest on the specified credits but not more than 3% above refinancing rate fixed by Central Bank of the Russian Federation on the day of the credit receipt. At computation of amount of tax on enterprise property, payment entering in the St. Petersburg budget, taxable property cost is reduced by a net book value (with the deduction of amount of deterioration) of basic production assets put into operation within not more than last four quarters. Duration of privilege validity depends on the cost of the specified assets. Exemption from land tax in respect of the sums entering in the St. Petersburg budget for the lands not handed over to entrust management, rent, or other use and used for construction of new buildings and (or) reconstruction of objects of real estate located on them for the whole standard period of construction and (or) reconstruction in accordance with the approved project, starting from the actual day of capital investment and during two consequent years after the specified term finish.	Cт. 11-3 Law of St. Petersburg от 14.07.1995 No. 81-11
3	Taxpayers producing excise products	Exemption from the following taxes in respect of amount entering in the St. Petersburg budget: Land tax; 50% of property tax Advertising tax The specified privileges are granted for 5 years.	Article 11-3 of Law of St. Petersburg No. 81-11 of 14.07.1995

2.3.4. Tax Support of Investors in St. Petersburg

One of the key point of today's tax policy in the Russian Federation is reduction of a taxpayers tax burden. 

At the same time, constituent part of this policy is leveling out all taxpayers in their rights by eliminating various tax concessions. Thus, federal legislation has repealed capital investment concession, the most often used by St. Petersburg enterprises. Moreover, the right (granted to St. Petersburg as to the subject of the Russian Federation) for granting other profit tax concessions, which were widely used by St. Petersburg investors and indicated favorable taxation climate in the region, was restricted considerably.

Despite this, St. Petersburg legislation, along with the new norms of federal laws on taxation taken in consideration, is still one of the most progressive one in Russia from the standpoint of provision of relative stability of tax legal relationship with investors participation as well as of availability of a number of tax concessions for investors. Today, the city Administration carries on an energetic dialogue with the city business community aiming for the development of new policy on investment activity stimulation, which will continue the current tendency for Russian investors to stir up and attract additional foreign investments. In this connection, we assume it expedient to consider measures of state support which will be in the future available in St. Petersburg for both current and coming investors and to formulate practical recommendations on given issue for the city investors.

Traditionally, progressiveness of the city tax legislation was shown as in maintenance of predictability of the taxation mode for city taxpayers, so in gradual easing tax burden on the enterprises by reduction of tax rates. Examples could be the lowest rate of tax on vehicle purchase, exemption from tax on maintenance of housing resources and social and cultural objects on the territory of the city that was put in force earlier than on the federal level, legislatively fixed gradual reducing of rate of tax on profit of enterprises and organizations entering in St. Petersburg budget. Finally, the most significant was imposing in 2000 a two-year ban for increasing tax rates entering in the St. Petersburg budget. The above-mentioned examples show earnestness of the city legislator intention and with no doubt give hope to investors that St. Petersburg in the future will do its best for lightening investors tax burden. Further, we will discuss the most significant tax concessions available in St. Petersburg in details.

As we said earlier, as of January 1, 2002, available almost for any investor in St. Petersburg capital investment concession has collided with federal legislation and cannot be applied any more. At the same time, federal legislation grants to St. Petersburg the right for discount on 4% of taxable profit out of 14,5%, which will enter in the St. Petersburg budget. As far as we conceive, External Relations Committee of the St. Petersburg Administration has positive disposition toward working out a draft enabling applying of the specified norm of federal legislation by St. Petersburg investors. The Committee also discusses with business community of the city the possibility of putting in force mechanism of subvention (compensation from budget) in respect of left portion of regional share of profit tax - the way it is in a number of regions of Russia. We recommend proceeding discussion between investors and city Administration on this issue in order to submit it for consideration of the city Legislative Assembly in the shortest possible time.

St. Petersburg legislation keeps privileges on property tax available for investors. In case of investments made in basic production assets exceeding 1 million rubles during four quarters, the investor is exempted from property tax  (which is 2% of average annual of property cost) in respect of the specified basic production assets for 8 to 28 subsequent quarters depending on the cost of basic production assets being put in operation. As the experience shows, the specified privilege might be very significant for the investors being at construction or fixed assets purchase.

The investors carrying out construction of new buildings or reconstruction of real estate objects are exempted from land tax in respect of the lots being used for construction or reconstruction for all the time of carrying out the project and for the two subsequent years.

The city legislation enables privilege taxation for the enterprises with the foreign investment involvement that carry out the investment projects on capital investment in St. Petersburg tangible production in the amounts not less than equivalent of 10 millions USD. And at the same time, foreign investor's share in the authorized capital stock shall be not less than 1 million USD and the project shall be carried out according to international agreement between St. Petersburg and the foreign country government. The specified enterprises are granted with exemption from the most significant taxes entering in the city budget, such as property tax, land tax, vehicle owners tax, and advertising tax. 

In addition to the specified above privileges, significant tax exempts are granted to producers of excise products and to residents of zones of economical development. 

Conducting comparative analysis of privileged taxation, we would like to note that in contrast to investors exercising activities in different subjects of the Russian St. Petersburg investors should not submit their investment projects for the approval of the regional state bodies for getting the privileges. This fact significantly simplifies the procedure of getting and applying tax privileges.

We believe that the work on tax St. Petersburg legislation in respect of investments should be continued. We realize the city power's intention to help investors and hope their constructive dialogue assisting in investment conditions improvement will be proceeded.

Nataliya Scherbakova, Senior Manager of Taxation Department
Vyacheslav Vlasov, Manager of Taxation Department
PricewaterhouseCoopers
+73( 812) 326-66-88
Natalia.sherbakova@rupwcglobal.com

2.4. Antimonopoly Legislation

Antimonopoly legislation of the Russian Federation is a set of standard acts defining and regulating basic issues of the market structures functioning. Among them are: competitive relationships between market subjects, relationships between the subjects of natural monopolies and consumers of their services, relationships between the subjects of natural monopolies and their counteragents, relationships between goods producers and resellers and consumers, relationships presented in the advertising market, functioning of the financial markets.

The core of the Russian antimonopoly legislation is compiled with the following standard acts: Law of RSFSR on Competition and Restriction of Monopoly Activity in the Goods Markets (of 1991, with Amendments of 1992, 1995, 1998, and 2000), Federal Law on Natural Monopolies (of 1995, with Amendments of 2001), Federal Law on Protection of Competition in the Financial Market (of 1999), Federal Law on Advertising (of 1995, with Amendments of 2001), Federal Law on Protection of Consumers' Rights (of 1992, with Amendments of1996 and 1999). Application and correct interpretation of the specified laws require detailed comments; however, at present such a universally recognized system is absent. Therefore, the problem of understanding and applying the laws is being resolved by conduction of the various meetings, including workshops, with the participation of power bodies representatives, science representatives, judges, and entrepreneurs.

For the fulfillment of antimonopoly legislation in the Russian Federation, in the early nineties the system of antimonopoly bodies was established. It included State Committee (nowadays Ministry) and its territorial bodies (territorial administrations). Today, 71 territorial antimonopoly administrations operate on the territory of the Russian Federation. On the territory of St. Petersburg and Leningrad oblast, functions and goals of antimonopoly policy are fulfilled by the Territorial Administration for St. Petersburg and Leningrad Oblast of Russian Federation Ministry on Antimonopoly Policy and Business Support (hereafter referred to as Antimonopoly Administration for St. Petersburg and Leningrad Oblast of RFMAP).

The major functions and goals of Antimonopoly Administration for St. Petersburg and Leningrad Oblast of RFMAP are as follows:

1. Prevention, restriction, and suppression of unfair competition and monopoly activity in the form of misuse of the dominant position in the goods markets and in the form of coordinated acts restricting competition in the goods markets;
2. Assistance in the development of the market relationships, lowering of administrative barriers on the basis of competition and business development, and monitoring the power bodies activity;
3. Conducting on the territory of St. Petersburg and Leningrad oblast federal policy in the field of state support for business;
4. Conducting state control of observance of the Russian Federation antimonopoly legislation, the Russian Federation consumer rights legislation, advertising legislation, and also, in the limits of its jurisdiction, legislation on natural monopolies and commodity exchange;
5. Conducting control of accomplishment of RFMAP resolutions on state regulation of activity of natural monopolies subjects;
6. Providing coordination between territorial administrations of the North-Western federal region and authorized representative of the President of the Russian Federation in the federal region.

Supplementary information is available at Antimonopoly Administration for St. Petersburg and Leningrad Oblast of the Russian Federation of Ministry on Antimonopoly Policy and Business Support: post address: 7-9 Nevsky Prospect, St. Petersburg 191186, Phone: (812) 314-79-14, fax: (812) 315-78-51, e-mail: root@tu-gkap.spb.ru, www.antimonopoly.spb.ru.

2.5.Tariffs and Prices

Prices of non-housing real estate (commercial real estate market in prices of actual offers) in May 2001.

Buildings: from $52 to $150 per 1 м2 (typical (i.e. most frequently occurring) price is $80-85 per 1 м2).

Cafe and restaurants: Annual rent rate is from $100 to $350 per 1 м2.

Shops: Annual rent rate is from $12 to $2000 per 1 м2 (typical rate is $300-400 per 1 м2).

Offices: Annual rent rate is from $45 to $2000 per 1 м2

Shopfloor : Annual rent rate is from $10 to $200 per 1 м2

Stores: Annual rent rate is from $25 to $50 per 1 м2 (typical rate is $30 per 1 м2).

All-purpose rooms: Annual rent rate is from $60 to $600 per 1 м2 (typical rate is $110 per 1 м2).

Prices of housing real estate. Cost of purchase of apartments of improved planning in prices of actual offers is from $380 to $600 per 1 м2 in the primary market and from $380 to $550 per 1 м2 respectively in the secondary market.

Cost of purchase of elite apartments in prices of actual offers is from $500 to $1700 per1 м2 in the primary market and from $1200 to $2000 per 1 м2 respectively in the secondary market.

Electrical Power in St. Petersburg

Notes:

1. Electrical power consumed by consumers of category No.6, 7, 8, and 9 in amounts exceeding approved limits is paid for at the tariffs of consumers of category No.2.

The tariffs apply to the electrical power conforming to GOST 13109-97 'Electrical Power Quality Standards'.

St. Petersburg power tariffs differentiated by day and night time

No.	Consumer category	Day and night rates as of 01.03.2002, ruble/kwh
		night time	semi peak time	peak time
1	Industry and equated consumers consuming 750 kwh and more	0.27	0.73	1.13
2	Consumers not included in other rate categories	0.27	0.90	1.41

Notes:

1. The right to choose between double-rate tariff and single-rate tariff on electric power as well as between day and night rates and the order of applying day and night rates on the territory of St. Petersburg are determined by the Resolution of REC SPb No.55 of 22.12.2000 'On setting of electric power day and night tariffs on the territory of St. Petersburg'.
2. The tariffs apply to the electrical power conforming to GOST 13109-97 'Electrical Power Quality Standards'.

2.6. Exchange Regulation and the Order of Income Repatriation by Foreign Investors

The Russian exchange legislation is mostly meant for the regulation of residents' activity and does not set barriers for foreign investors at investing in Russian enterprises the money both in rubles and in foreign currency. Responsibility to receive the permissions (if necessary) is laid on Russian partners. Entering the foreign currency in resident's authorized capital stock does not require the permission from Bank of Russia.

Foreign investors are allowed to establish in Russian banks accounts both in rubles and in their national currency. Particularities of an order of establishing accounts in rubles are stated in the Instruction of Bank of Russia No.93-I of October 12, 2000. Three types of ruble residents' accounts in Russian banks are available for establishing: K (convertible), N (non-convertible), and F (account of natural person). Lists of operations for accounts of each type as well as an order of converting the money into the foreign currency are also stated by this Instruction.

The primary legislative act on exchange regulation in the Russian Federation - Law of the Russian Federation on Exchange Regulation and Exchange Control of 09.10.92 - states that exchange transference in the form of interests, dividends, and other investment profit are performed by residents without restrictions (Article 1, Clause 9-c; Article 6, Clause 1). In other words, Russian legal entity has a right to disburse profit due to foreign investor entering the money in investors exchange account in either Russian or foreign bank.

Currency entered in investor's account in Russian bank is allowed for further transference abroad with no restrictions. (Section V, Clause 3 of Principles of Regulation of Currency Transactions on the Territory of the USSR Approved by the Letter of State Bank of the USSR, No.352 of 24.05.91).

Operations on entering foreign investor's income denominated in rubles and on purchase of foreign currency for rubles are carried out through established in Russian banks C (convertible) accounts. The owner of such account could be both the investor (either legal entity or natural person) and foreign bank entitled for making transactions through its correspondent account.

Foreign investors are allowed to transfer the foreign currency purchased for rubles to their accounts in foreign banks.

It is necessary to mention that in 2001 by introducing the amendments to the Law on Exchange Regulation and Exchange Control and by enactment of such standard acts as Bank of Russia Regulations No.152-P of 17.09.01 and No.157-P of 24.10.01, the procedure of performing of a number of operations by residents was significantly simplified, which will enable to shorten the time of bargains completion and will assist in eliminating administrative barriers for Russian enterprises (including affiliated companies of non-residents) activities.

2.7. Investments

2.7.1. Investments in St. Petersburg

Because of purposeful investment policy, within the last five years (except for 2000) stable growth of capital investments has been evident in St. Petersburg.

During 1997-1998 and 2001, the city's investment rate growth exceeded the All-Russian one (see the table).

The Dynamics of Capital Investments (measured in percentage terms against the preceding year)

	1997	1998	1999	2000	2001
Russia	95	93	104,5	117	108,7
St. Petersburg	117	107	102	79	114

The primary amount of investments is directed in transport - 32,5%, industry - 28,9% (mainly in food, power, machine-building, and metal working industries), construction, housing and communal services, and communication (see graphic).

Industry Distribution of Capital Investments for 2001, in Percentage terms against Total Amount (on Large and Middle-Sized Organizations)

Investment development prospects in St. Petersburg are concerned with the two basic sources: state budgets and off-budget investments.

In 2001, investment share of budget sources aggregated 29% (18% from the federal budget, 11% from the St. Petersburg budget).

In accordance with the Plan of Main Actions on Preparations to Celebrating of 300th Anniversary of St. Petersburg (approved by the Instruction of the Government of the Russian Federation No. 331-r of 06.03.2000), the basic federal budget investment amounts are directed for the carrying out the projects for preservation and development of cultural heritage and for the construction of Ring Motor Road.

The City Administration works on supplementing the direct budget financing with guarantees that allow more effectively attract off-budget sources for financing of the top-priority city projects and programs.

One of the most important tasks of rising of the city's investment attractiveness is providing investors with accessible and reliable information on the conditions of and opportunities for investment activities in St. Petersburg.

By the beginning of 2002, the St. Petersburg Administration has completed regular stage of work on development of Unified Reference and Information System 'Development of the St. Petersburg Territory and Real Estate' (URIS). The information system is meant for providing potential developers and investors with basic information about the city territory and the existing investment processes. We mean by that the information necessary for the preliminary estimation of investment attractiveness of one or another lot, for the search for lots and real estate objects with prescribed characteristics. In the end of 2001, the fifth issue of URIS has been placed to the website www.statedevelopment.spb.ru. To provide potential investors with the information necessary for decision-making, the City Administration publishes reference brochures 'How to Invest in St. Petersburg', 'Reference-book for Investor', 'Economics of St. Petersburg'.

In the framework of attracting the investments into St. Petersburg, high attention is being given to stirring up the congress and show and fair activities. Among the most significant events in this field the following are worth mentioning: St. Petersburg Economical Forum, International Conference 'Investments-2001: New Reality - New Opportunities for Russian North-West'', show 'Russian Manufacturer', and others.

High level of the city investment attractiveness is characterized with quantity and quality of investment projects, which are under development in St. Petersburg. 

In 2001, the first complex (21,6 km from Primorskoye to Vyborgskoye motor road) of the Ring Motor Road (RMR) was placed in operation. The construction of RMR will enable for the development in 2002-2003 of a number of projects for creation of logistic terminal and other service complexes on the territories adjacent to RMR and other transport projects.

New projects and programs in different fields of the city economy have been completed by the enterprises of St. Petersburg: the first stage of construction of the terminal for reloading of mineral fertilizers has been completed by enterprise 'Sea Port of St. Petersburg', modernization of production line with productivity increase of 15% has been completed by enterprise 'The First St. Petersburg Macaroni Factory', a new production line for producing tubes has been placed in operation by enterprise 'Softpak Tuba', and many others.

The following ecological projects are of tremendous importance for the city's life support: South-Western sewage disposal plant construction, construction of a factory for processing toxic waste on Krasny Bor ground, reconstruction of the heat supply and communication systems, ecological control systems maintenance.

Tourist business in St. Petersburg has a great potential. In 2001, the hotel complex Radisson SAS with 30 million dollars investments was placed in operation. A number of other projects in the fields of tourist and hotel businesses are currently under the development (construction of the hotels Gavan, Dostoevskaya, and others).

The city Administration assists in realization of project on creation of Sea Cargo Area in Bronka settlement (about 100 million US dollars in investments), on construction of aqua park in the Park of the 300th Anniversary of St. Petersburg, on arranging of high-speed fair communication between St. Petersburg and Helsinki, on opening of the wholesale and retail centers of international network 'Metro' and 'IKEA', on creation of techno parks for placing new production enterprises 'Rzhevka' and 'North-Western'.

For 2002, it is planned to carry out a number of important industry investment projects, such as construction of a plant for producing alcohol production 'Russian Standard', sugar plant, confectionery, concrete mix plant, and others.

2.7.2. Foreign Investments in St. Petersburg

Foreign investments in 2001 constituted 1,171.3 million US dollars, including 114.1 million US dollars of direct investments.

The steady foreign investment growth in St. Petersburg economy has been observed since 1994. St. Petersburg's share in the total amount of foreign investments into Russian economy was constantly growing during 1997-2001: 2%; 4%; 7%; 10,6%; and 13% respectively. In regard of this index, St. Petersburg ranks the second among the Russian Federation regions (after Moscow).

Foreign Investment Flows in St. Petersburg in 1994-2001 (million US dollars)

The most sound investors are the Netherlands, the USA, and Finland. Switzerland, Luxemburg, and Cyprus also take their high stands in this regard.

Primary Countries Invested in the St. Petersburg Economy in 2001.

In 2001, organizations of CIS countries invested in the St. Petersburg economy 756 thousand US dollars, the largest share of which (577 thousand US dollars invested in machine-building) was due to Ukraine.
 
The major factors, which has provided investment growth for the last years, were as follows:

• Steady social and political situation in the country and in St. Petersburg;
• Transparent and balanced budgetary and financial city policy expressed in credit rank rise that in turn gave a possibility to attract currency creditor's equity on favorable conditions;
• Increase in actual income of population.

Within the next few years, foreign investments high growth rate is expected to be kept. The partnership between the Administration and the international investment community established in the frame of open policy, which has been exercised since 1996, will assist in this regard largely.

Foreign investments are made mainly in real economy sector, namely food production, essential goods production, and telecommunications.

Foreign Investments in 2001 (million US dollars)

Activity of Large and Middle-Sized Enterprises with Foreign Investments in 2001:

• Number of enterprises - 632
• Average number of employees - 95,8 тыс. человек
• Output quantum in current prices - 104,2 млрд. руб.

General indices of activity of large and middle-sized enterprises of mixed patterns of ownership with foreign capital in 2001:

	Number of enterprises for the end of period, units	Average number of employees		Goods and services output
		man	% to sum total	million rubles	% to sum total
Total	632	95780	100	104168	100
including:
Industry	176	68334	71,3	79061	75,9
Transport	57	7193	7,5	5448	5,2
Communication	26	2694	2,8	10281	9,9
Construction	33	1448	1,5	1145	1,1
Trade and catering	174	6241	6,5	2767	2,6
Wholesale of production and technical products	9	395	0,4	252	0,2
Real estate transactions	27	436	0,5	406	0,4
Common-purpose commercial activity on market functioning support	41	633	0,7	604	0,6
Other activities in the field of substantive production	11	515	0,5	189	0,2
Housing and communal services	12	1778	1,9	1798	1,7
Public health, physical culture, and social security	6	250	0,3	85	0,1
Culture and art	16	3189	3,3	1444	1,4
Science and science support	26	1335	1,4	514	0,5
Other activity	18	1339	1,4	174	0,2

2.8. Investment Policy Concept

Investment Policy:

Creation of Favorable Conditions for Attracting Investments on the Base of Raising Investments Attractiveness.

St. Petersburg investment legislation secures the following principles, on which the city investment policy is based:

• Benevolent relationship with investor;
• Presumption of investor's honesty;
• Balance between public and private interests;
• Openness of and accessibility to the information necessary for exercising investment activity for all investors;
• Clearness and simplicity of investment process in St. Petersburg;
• Equality of investors and commonality of public procedures;
• Objectivity and common economical sense in decisions made;
• Invariability of approved decisions;
• Mutual responsibility of St. Petersburg and investors

Governmental authorities of St. Petersburg has made it possible for one to start business in any field. Conditions of exercising entrepreneur activity in St. Petersburg are predictable and improve all the.

2.9. Investment Attractiveness of St. Petersburg.

Being under conditions of open market economy, cities and regions compete with each other to attract investments, to create new workplaces, and to arrange one or another economical activity. Competitive potential and cities' and regions' development prospects depend on both external (geographical and geopolitical location, climate, macro economical situation in the country, and tendencies of the world and Russian economy and trade), and internal (quantity of the production basic components in the region as well as their quality and conditions for economical activity, i.e. economical climate, and the like) characteristics.

St. Petersburg has a number of significant competitive advantages, both external and internal, in comparison with other regions of Russia and Europe.

Advantageous geopolitical position of St. Petersburg regarding the world economy connections is due to the St. Petersburg's next-to-border location; its position in contact zone with European Union and on the intersection of the sea, river, motor, aviation, and pipe-line ways; location in the alignment of high-priority European transport corridor No.9; availability of powerful transport junction and the outlet to the sea. Collapse of the USSR as well as the currently observed tendency toward stirring up the foreign commerce in North-Western region of Russia assist to the development of trade-distribution, trade-intermediary, transit, and transport activities on the territory of SP.

Internal characteristics of St. Petersburg competitive potential comparing to the other cities and regions concern, first of all, with a large investment potential (investment amount, which may be contributed to the region's fixed capital at the expense of all financing sources considering all region's economical, social, and natural resources) and, on the other hand, aggregation of economical and institutional conditions for exercising economical activity that determine (among the other conditions) regional risk rate and influence region's investment attractiveness.

Thus, an absence of significant mineral-raw resources is compensated with high professional, educational, and cultural level of labor resources; diverse economical structure; consumer market capacity; predominance of private and mixed ownership over the public one; relatively big portion of enterprises with foreign participation; significant tourist and scientific and technical potential; developed system of external transport and infrastructure; effectiveness of scientific and technical activity; developed communication and telecommunication system; international reputation; and leadership in the process of reformation and institutional reorganization

According to the rating agency 'Expert-RA', St. Petersburg (along with the Moscow and Sverdlov oblast and Hanty-Mansiysky Autonomous Region) was included in the group of regions with the highest possible investment potential. The city was rated with 1B (big potential - small risk).

Since 1996 St. Petersburg has held second (after Moscow) place among the regions with the biggest investment potential (in 1995 St. Petersburg was on fourth place). 

The investment policy has been exercised by the St. Petersburg Administration within the last few years has been oriented toward providing favorable conditions for attracting investments to the city economy on the base of investment attractiveness improvement. Thus in 1998, a number of legislative and standard documents assisting in rise of investment activity in St. Petersburg and in protecting investors and securing their rights was developed.

Governmental support for the investors exercising their activity on the territory of the city is being performed by:

• Providing investors with guarantees of St. Petersburg in exchange for ensuring of return of funds drawn by investor for investment activity exercise in amount stipulated every year in the St. Petersburg budget;
• Granting to investors tax in limits of amount entering in the St. Petersburg budget according to the valid legislation;
• Providing investors with privileges at real estate rent for the purposes of the investment activity exercised in respect of rented real estate;
• Providing investors with payment term prolongations and payment by installments for a time period not more than 5 years in respect of payments for real estate objects owned by St. Petersburg and granting property rights for these objects on investment conditions according to the procedure approved by the St. Petersburg Administration;
• Support to investors by using the St. Petersburg budget funds;
• Participation of St. Petersburg in design, expertise, and fulfillment of the city investment programs as well as of some investment projects

All the above served as a base for international experts to estimate investment attractiveness of St. Petersburg. Thus, foreign investment consultant group of International Finance Corporation and World Bank, which in 2001 had been researching administrative barriers for investments in different regions of Russia, noted the progressive character of St. Petersburg tax legislation and comparatively developed level of investment infrastructure. International rating agency Standard & Poors has raised city's solvency rating to B+ /Stable/.

2.10. The City's Top-Priority Projects

St. Petersburg government has defined the territories for the 23 top-priority projects in accordance with the Instruction of the Governor No.165-r and the draft No. 134 of 16.02.1998 indicated in the Order of the Governor on Priority Projects for the 300th Anniversary of St. Petersburg (No.1-p of 05.01.2001).

The Federal Special Program for Preservation and Development of Historical Center of St. Petersburg (hereafter referred as to FSP). FSP was approved by Resolution of the Russian Federation Government No. 585 of 16.05.96. The program assists in solving the problems of preservation, restoration, and reconstruction of the St. Petersburg historical center. The schedule time for the program is 1996-2010. The program sets its major goals, milestones, and schedule. Seven Appendixes of the Program contain the lists of main actions, works on engineering and transport infrastructure, objects considered by the decrees of the President of the Russian Federation as particularly valuable, objects and installations of architectural, cultural, and historical St. Petersburg heritage that need to be reconstructed and restored first of all.

The territories of the priority development are eight zones marked out in the project for the center reconstruction (Sennaya, Teatralnaya, Vladimirskaya, District 130, Konushennaya, Main city area, Courtyards of Capella, Nevsky Prospect, two zones marked out in the frame of Housing Project (Kamenka, Kolomyagy), blocks 10 and 23a in Shuvalovo-Ozerki district, Northern Valley district, Pulkovo business. The development of zones is based on the Federal Special Program for Preservation and Development of Historical Center of St. Petersburg (441 objects).

Decree of the St. Petersburg Governor No. 1-p of 05.01.2001 on the City's Top-Priority Projects to Be Fulfilled in 2001-2003 set the list of 203 projects, including:

No.	Names of the city's top-priority projects
1	St. Petersburg flood control complex
2	Ring motor road around St. Petersburg (RMR)
3	Development of transport and engineering communication zone of St. Petersburg Big Seaport
4	City-planning development of the territories meant for the construction of logistic  terminal complexes
5	City-planning development of the territories meant for the construction of the entry service complexes
6	Development of the territories adjoining to the Pulkovo-3 international terminal
7	Transformation of the territories and objects of Krestovsky, Kamenny, and Petrovsky islands.
8	City-planning development of the territories meant for the construction of service complexes of commercial transport, including bus and railway stations of international and local communications.
9	Construction of aqua park on Prospect Slavy
10	Construction of the St. Petersburg hippodrome in Shuvalovo area
11	Construction of the St. Petersburg the 300th Anniversary Park
12	Development of pedestrian's zone and construction of the Business Center (Finsky Pereulok)
13	Construction of the passenger sea terminal in Gavan area
14	Construction of the South-Western treatment plants complex
15	The projects for the development and reconstruction of yacht-clubs in St. Petersburg
16	The projects for the development and reconstruction of lawn tennis centers in St. Petersburg
17	The project for the seaport complex in Kronshtadt
18	The project of the restoration and use of Kronshtadt forts
19	Construction of St. Petersburg bicycle center
20	The projects for the construction of bath pools in St. Petersburg

2.11.Samples of Successful Investments

JT International Company

JT International has been showing its presence since 1992. The company is one of the largest tobacco producers in Russia. Being the first of the international tobacco companies invested into the Russian tobacco industry, today it is the largest Japan investor in Russia and the largest investor for the Russian tobacco industry (the total direct investments into the Russian Federation economy calculates at 500 million USD) and one of the largest taxpayers (payments to the various budgets of the Russian Federation since 1992 has been calculated at over 500 million USD). Petro production complex in St. Petersburg is the largest and most modern tobacco plant in Russia and the largest JTI plant in the world (production volume in 2000 has been calculated at 50 billion cigarettes). The Russian subsidiary staff counts 3 thousand employees.

In 2001 JT International confirmed its status as the largest in Russia tobacco producer: production line of St. Petersburg Petro, the flag-ship plant of the company, has produced 55 billion cigarettes that is 4 billion more than in previous year. Thus, the company representatives' forecast for the plant output growth by 10% was verified.

Petr I, who was the first to start producing international quality domestic cigarettes, remains the leader of the middle-price segment of the Russian cigarettes market. In 2001, cigarettes Petr I were awarded with Brand of the Year/Effie award.

In addition to selling Winston, JTI Company increases sale of their other global brands, Camel and Salem, which, along with Winston, has been being produced by Petro for the last two years, and Mild Seven which is being imported from Japan.

JT International exercises charity activity in Russia. It is a sponsor for a number of projects in the field of culture, the most significant of which are: sponsorship for Bolshoy and Mariinsky theaters and for the collection of traditional Japan art of the Pushkin State Museum of Painting, restoration of Marfo-Mariinskaya Mercy Cloister in Moscow, original restoration of Michailovsky Garden fence in St. Petersburg, the Great Faberge show-case in the State Hermitage 

OTIS Russia

Over 50-million US dollars investments enabled OTIS Elevator company, the world leader in elevator building, for establishing its subsidiary in Russia organized according to the regional principle. Each of the six regional branches of OTIS Russia provides their clients with all the services of elevator business. In fact, OTIS returned to Russia after a hundred years, for the first elevator was put by OTIS into operation in Russia in 1893. On its return, OTIS did in Russia what no Western elevator company did - during 1991-1993 there were built three plants (elevator-building in St. Petersburg and hoist-building in Moscow). Along with the manufacturing capabilities, the technical support network was built in all of the large regions of Russia. The North-Western regional branch with the headquarters in St. Petersburg consists of a plant and the departments for maintenance and modernization and counts 750 employees in total.

Today OTIS is a single company in Russia producing the world-class elevators. Significant business activities in the region are installation, technical support, and modernization of elevators that are performed with the use of OTIS know-how.

During the time of its existence, the company proved to be a reliable partner and a leader in the most up-to-date technologies and materials.

Pulkovo Cargo Terminal ZAO was founded in 1997 by a German firm Globe Ground GmbH (affiliate of Lufthanza) and two Russian companies Pulkovo GUAP and LenStroyZhilService.

The company was established for the cargo terminal construction on the territory of the Pulkovo Airport. For the terminal construction, both company's and borrowed from the European Bank of Reconstruction assets were used.

The construction costs were approximately estimated at 13 million USD.

Pulkovo Cargo Terminal ZAO foundation could be considered extremely successful project in the frame of the cooperation between Russia and Germany. Despite the 1998 economical crisis, the company in the cooperation with EBR managed to provide regular financing of the project.

After the project finish in 2002 and putting into operation the terminal of 8,000 sqr m in square, the anticipated amount of the to be processed cargo will count in 35,000 ton in a year. This terminal will be the first one in St. Petersburg compliant to the most up-to-date world standards with the use of advanced Western technologies. The staff numbers 200 persons. The total investment amount counts at 10 million USD.

OSKO Company has worked in the Russian market since the yearly nineties. It represents a number of German producers of engineering equipment.

Stiebel Eltron produces electrical water heaters, convectors and fans heaters, electrical heating boilers, hand-drying apparatus, and electrical floor heaters.

OASE produces wide range of equipment for fountains and man-made water reservoirs: all kinds of fountain pumps and nozzles, lamps and underwater floodlights, film and frameworks for man-made water reservoirs, biological filtration systems for the garden ponds maintenance, and the like.

Grundfos produces pumps for heating and water supply, drain and sewer pumps.

JUDO produces water preparation, filtration, and softening systems.

Buderus produces heating boilers on gas and diesel oil.

The company was founded in 1991.

The main activity lays in supply of Russia with German engineering equipment:

• Intermediate and after-intermediate maintenance
• Fountains design works
• Fountains chief-mounting
• Equipment spares supply
• Service and technical staff training

The main market outlets are the Russian Federation, Ukraine, and Kazakhstan.

The staff numbers 100 persons.

Projects:

1. Russian-German company OSKO-HAUS is at supply and construction of elite country houses, offices, and trade pavilions. Using German conventional technologies and materials, the OSKO-HAUS company pioneered in the Russian market houses of the very popular in Germany 'fahverk' style.
   Architectural and interior design of a house and wood selection and processing are fulfilled in Germany and meet all German standards.
2. MANSA company offers fishing in the poorly explored and wild areas of Russia, exotic thrill of the flight on a helicopter, land rover ride, tundra hike, and the like.
3. Sadovy Center project intends to create a big trade complex with an assortment of household and horticultural sundry, house and garden equipment and materials. The project's first milestone deadline is the summer of 2003.

OSKO Company

Location 
50 Kamennoostrovsky Prospect
St. Petersburg 197022б
Phone: +7 812 327-52-52
Fax: +7 8  12 325-13-46
E-mail  osko@osko.ru
URL: www.osko.ru

ST. PETERSBURG ADMINISTRATION TASKS AND DUETIES ON INVESTMENT ACTIVITY SUPPORT

* New works demanding for the approval and regulation, including those of legislative aspect.