STARTING THE PRODUCTION OF PEAT BRIQUETTES IN THE ARKHANGELSK REGION

Investment Proposal

41%

5%16%

22%

5%

11%

20122020

Coal

Natural gas

Renewable power source, including biofuels

Hydropower

Nuclear power

Oil

30%

1%

16%23%

12%

18%

Global energy production, 2012–2040

(types of fuel, percentages)

2040

37%

17%

10%

5%

5%5% 4%

Global peat production

RussiaFinland

Sweden

Ireland

Canada

Belarus

Latvia

MARKET DESCRIPTION

MARKET DESCRIPTION

1.301.20

1.50

1.101.00

1.10

0.00

0.50

1.00

1.50

2.00

Dynamics of peat production in Russia,

million tons

58%19%

3%6% 1% 1%

12%

Peat and peat mixes export composition among

the constituent entities of the Russian Federation,

in proportion (in-kind)

Kaliningrad Region

Karelia Republic

Leningrad Region

Pskov Region

Sakhalin

Moscow Region

2010 2012 2013 2014 2015 2016

Others

Promising markets:

Countries in Southern EuropeCountries in the Middle EastSouth-East Asia

Total volume of peat resources in Russia:

150–160 billion tons

Vast bulk of Russia’s peat consumption relates to

agricultural and gardening use.

Only 5% of peat from Russia’s deposits are

used as a fuel.

Russia exports to:

JapanGermanyNetherlands

PRODUCT DESCRIPTION

Peat is a clean and reliable source of energy, which is gradually becoming an alternative to coal, firewood, fuel oil and gas.

10 kg burning duration:8–12 hours (4 times longer than coal

and 5–7 times longer than firewood)

Ash content: 20 times less than in firewood and 40 times less than in coal

When peat is burned, no poisonous and carcinogenic

fumes are released.

Average price of packed peat briquettes: 8,573 rubles/ton, 20%Without individual package: 2,385rubles/ton

Russia’s main rival in the CIS peat extraction sector is Ukraine.

PEAT EXTRACTION

Bory DepositPrimorsky District, Arkhangelsk Region, Russia

Total area: 2,824hectaresPeat reserves: 3,457 thousand tonsDistance to Arkhangelsk: 8.6 kmDistance to the railway station Tsiglomen: 2.5kmDistance to the quay Glinnik: 1.5km

BoryDeposit,

PrimorskyDistrict

Arkhangelsk

Severodvinsk

Kotlas

PEAT PROCESSINGEquipment line for peat production:

• heat generator;• storage hopper with two dispensers for raw

material;• belt conveyor intended for raw material

supply into the dry kiln;• tramp iron remover;• wind tunnel drying chamber;• high pressure fan;• cyclonic separators;• prefabricated raw material storage bin

for further granulation or briquetting;• granulation press;• suction and cooling system for pellets;• cooler for briquettes;• end trimming unit.

OUTLINE OF THE COMPETITIVE FORCES (according to the model by M Porter)

Intraindustrycompetition

Threat from substitute products

Threat from external vendors

Threat of the entry

of incoming competitors

Threat from consumers

INSTITUTIONAL PLAN OF THE PROJECT

Year 1 Year 2 Year 3 Year 4 Year 7

KEY FINANCIAL INDICATORS OF THE PROJECT

Total

investments

189 000 thousand

rubles

Payback period 4 years since the beginning of production

NPV 1,075 thousand rubles

IRR 14.4%

47000

55000

40000

160000

140000

120000

100000

80000

60000

40000

20000

0

-20000

-40000

Year 1

-23000

Year 2 Year 3 Year 4

Dynamics of financial results,

thousand rubles

Revenue Expenditure Net profit

SWOT ANALYSIS Strengths

• Proximity to the port• Large volumes of deposits• Accessibility of major transport routes• Availability of human resources for the

implementation of the project

Weaknesses

• Existence of periods with low temperatures • Lack of experience in peat extraction and processing • Lack of current geological data on new deposits• Obligation to pay ‘Northern’ contributions• High logistics costs (the product is light, but bulky)• Considerable time gap between extraction and

production

Opportunities

• Development of several peat fields• Development of business strategy for fertilizer

production• Organizing of a new peat geological exploration• Establishment of peat-fuelled power plants in

the municipalities of the region• In sales, development of export• Establishment of several processors with a single

extraction operator

Threats

• Increase of the tax rates• Decline of the climatic conditions caused by climate

change in general• Decrease in international peat briquette prices• Worsening in the global political situation• Declining demand for peat briquettes

(advent of alternative energy sources which seem more appropriate)

CONTACT INFORMATION

Address:Multi-line phone:E-mail:Web:Director General:

23 SvobodyStreet, 163000, Arkhangelsk, Russia+7 (800) 100 7000invest@krao29.rukrao29.ruAlexey Kovalev