Voronezh looks for deep pockets to fund its $395m logistics expansion

4 Aug '10
Oleg Kouzbit, Online News Managing Editor

The Voronezh region has announced a $395m expansion of its fledgling Chertovitskoye logistic project. Situated adjacent to the Don federal highway, the prospective 281,000 sq. m warehousing complex is viewed as a logistic pivot for Russia’s entire Black Soil area. But with the government shelling out just 5% of the total, the burden of completing the logo-zone is being shouldered on private business.

The Voronezh region has high hopes for its $395m Chertovitskoye logistic project, first announced last year. The sprawling 117-hectare logo-zone is being developed at the northern outskirts of the city of Voronezh next to the M4 “Don” federal highway that connects Moscow to Russia’s southern cities of Krasnodar and Novorossiisk.

The hub, with an impressive 281,000 sq. m of warehousing space, is being promoted as one of the largest and most promising in Russia’s vast Black Soil area, given its location and announced capabilities. To help revive sluggish demand, the region is pushing the RF Investment Fund for a minimum $15m.

Phase 1 price tag of over $200m

By the end of 2012 investors are expected to pony up $212m to build six storage facilities with a total area of 180,000 sq. m, several 7,000 sq. m technical centers, and a recreation zone.

The $180m second stage, to be reportedly completed in 2015, will include a 101,000 sq. m warehouse, a 21,000 sq. m container terminal, 5,000 sq. m technical center, cargo-processing facilities with a total area of 42,000 sq. m, and another 3,000 sq. m recreation zone.

Big returns for deep pockets?

Even if the RF Investment Fund kicks in $15m, with only $5m coming from Voronezh regional authorities, government money will account for just 5% of the total—the rest is expected to come from private tenants.

Project planners claim the payback period for tenants will be just six years and project $2+bn in revenues over the next decade with an estimated $0.45 annual return on each dollar of investment.

On the plus side, the logo-zone already has a few anchor tenants. One of them, Voronezh Logistics, has reportedly opened a 21,000 sq. m warehouse and is now working on its expansion to 45,000 sq. m. Two more local firms, Sota and Aviron, are said to have jointly commissioned a 40,800 sq. m Aerobus storage complex. The Voronezh International Airport is also a resident in the logo-zone, but it is currently inactive while focusing on an upgrade to its airport facilities.

Clouds on the horizon

Prior to the financial crisis, the regional logistic market was healthy, growing at 17-23% a year and hitting a reported $650m by January 1, 2009. Analysts predict growth next year at 20-25%.

The region feels that by 2015 the Voronezh logo-market, with Chertovitskoye as its centerpiece, will be worth $2.5bn and robust enough to compete with any warehousing center along the “Don” federal highway.

Some analysts however, paint a very different picture. Most of the facilities that have already been put into operation in the logo-zone are struggling or altogether idle.

For example, Aerobus has been waiting for its first tenants for more than six months, Kommersant reports. The Aerobus management is reportedly courting Kellogg’s, an international cereal maker that runs a factory in Voronezh, but no deal has been inked.

Piggybacking for profit

One of the reasons that local officials are upbeat on Chertovitskoye is because they feel it will be a strong complement to the nearby $330m Maslovsky industrial park announced last year.

Being able to collectively promote Chertovitskoye’s class A space and Maslovsky to prospective tenants in energy/nuclear energy, car-making, agricultural and railroad machinery, etc. is seen as a win-win for both projects and the region.

Now all that’s needed are investors willing to put up 95% of the cost.
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