Omsk agrarian wonder plan worth a billion dollars

23 Jan '09
Olga Konovalova, News Editor
No sooner had everyone got over the copious levels of food, drink and relaxation of the festive period than Omsk's authorities came up with plans to create a regional agro-industry cluster worth a hefty $1.07bn.

The Omsk government broke the news while announcing a recently developed program for construction of an advanced processing biocomplex to be completed by 2015. Under the program, Omsk petrochemical company Titan is to build as many as 10 production facilities and create over 2,600 new jobs.

Big plans, big bucks

According to the regional government, most of the construction costs will be financed by Titan, though regional authorities have agreed to cover infrastructure expenses as well as construction of a neighborhood for workers, which accounts for one-fifth of the project’s total expenses.

Under plans, by 2011 the company is to put into operation an animal-breeding complex for 100,000 cattle head, a fodder plant, poultry farm, meat processing factory, grain processing factory, and an ethyl tert-butyl ether (ETBE) plant with the capacity of 150,000 tons of processed bioethanol a year.

By 2015 several more facilities are scheduled to be commissioned, including plants to produce amino acids, organic acids, vitamins, biopolymers, and ferments.

Investment in Omsk Biocomplex is estimated at 35 billion rubles or over a billion dollars.

What about the crisis?

A question that hovers on everyone's mind is whether such an expensive project can stay afloat in such troubled global economic waters. In many countries, the credit crunch alone has resulted in stagnation of the agricultural sector and last summer’s high-flying commodity prices have taken a real tumble.

Many leading meat, milk and grain producers have found themselves in survival mode. They invested significant funds, including loans, in advanced agro complex projects and now they have to shelve them.

In October Marchmont reported that one of Russia's major agricultural companies, Gruppa Razguilay, had to halt construction of five new grain elevators worth $153.2m in Krasnodar Region. Its share price, as high as $9 last summer, is now less than $1. Also in October, Kursk-based Agroholding also announced the shelving of its $150m investment projects and Moscow-based Russian Farm postponed construction of a milk farm for 10,000 cattle head in Lipetsk Region.

The list of other casualties makes many observers nervous about the Omsk endeavor. There are more sad examples, like Mosselprom scrapping construction of a 1,200-head dairy farm and a 4,800-head pig complex in Orel Region or Miratorg putting the brakes on construction of several compexes, including logistics centers in Rostov-on-Don and Ekaterinburg and a fodder plant, and also shelving grain and industrial meat production projects in Belgorod Region, or others.

Critics argue further that Titan Group is known for its petrochemical business, not agro projects—its website doesn’t even mention agro business, they claim.

But Titan officials told Marchmont that its new Biocomplex was its second large agro-project. In September 2006 the company put $100m into a Kazahsktan Biokhim complex, the first of its kind in the CIS. The factory produces bioethanol from wheat or corn feed grain with capacity of 57,000 tons a year.

Waste not, want not

Yury Sutyaginsky, Titan’s CEO is confident his company has found the value-added niche that others have overlooked—and has the chemical expertise to be hugely successful.

“Advanced grain-processing methods are practically ignored in the Omsk region,” he said. Processors ignore the vast value-added potential locked inside every kernel. “Grain,” he continued, “contains a huge number of healthy protein components that can be chemically extracted.

These elements can be used to prepare concentrated fodder, for example, as well as a wide range of products. However, nowadays, all wheat processing plants (mainly alcohol production) waste all of these derived products. In other words, they just flush these useful elements of grain down the drain.”

RF antes up some assistance

Titan is also encouraged by the support it has received from the RF Investment Fund, in addition to the funding provided by regional authorities. and loans the company has secured on its own credit.

The RF Investment Fund has been a ray of sunshine for many ambitious projects during the crisis. At the end of 2008 Marchmont reported that the Investment Fund allocated $23.8m for three agricultural investment projects in Tambov Region and is considering more. Marchmont will report further on the Titan Biocomplex at the end of this year.
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