Sistema subsidiary United Petrochemical to invest US$5B in building PTA, PET plant and pyrolysis complex with capacity of 1 million tonnes/year of ethylene in Ufa, Russia; production expected to begin in Q3 2017

UFA, Russia , November 8, 2013 () – United Petrochemical Company (UPC), a subsidiary of Russian conglomerate Sistema JSFC (MOEX AFKS), plans to invest $5 billion in projects to build a terephthalic acid (TPA) and polyethylene terephthalate (PET) plant and a pyrolysis complex in Ufa, Bashkortostan Deputy Prime Minister Yevgeny Mavrin told reporters on Thursday.

UPC chief executive Kirill Tyurdenev said earlier that the company tentatively estimates the cost of the TPA/PET plant at $500 million. The cost of the pyrolysis complex, with annual capacity of 1 million tonnes of ethylene, is therefore tentatively estimated at $4.5 billion.

The project to build the TPA/PET plant calls for a major reconstruction of the petrochemical facilities of Ufaorgsintez (MOEX: UFOS) within the bounds of its buffer zone.

The Bashkir government plans to sign a letter of intent with UPC by the end of this year. Mavrin said UPC is expected to begin implementing the project to build the plant by the middle of 2014, when it has the "preliminary project documentation, all the outlines for resources, including energy and transport infrastructure." Production is expected to be launched in the third quarter of 2017.

Mavrin said that the projects of some companies, including the Sibur Group's Polief, could run into problems due to a shortage of feedstock, as UPC might take some of the resources of oil company Bashneft (MOEX: BANE), another Sistema subsidiary. "Therefore, we need to understand what will change in the plans of other companies, whether they are prepared to replace this or not," he said.

"We are being promised, according to estimates, about 20 billion rubles in tax revenues [from the two projects], of which half will remain in the republic," Mavrin said.

Tyurdenev told reporters that the company is continuing negotiations on feedstock supplies for the pyrolysis complex with Bashneft and "other players who can supply similar feedstock."

"I really hope that we'll get clarity on this issue by the end of the year," Tyurdenev said.

The cost of the project "depends in large part on what infrastructure will be needed, what the feedstock composition is in this project," Tyurdenev said, adding that "billions of dollars" are involved.

He said UPC has not yet decided on a partner for the project. The FEED (front-end engineering design) will be completed by the end of 2014 or in early 2015.

The new facility is expected to be located outside of Ufa. "There is no space for such a facility at the existing plant [Ufaorgsintez]. This facility will probably be located nearby. There are proposals for sites that are being considered," Tyurdenev said.

He said the company is hoping for preferences that the Bashkir government can provide under current legislation, including removal of infrastructure restrictions, a ten-year exemption from profit tax, and compensation for spending on the construction of external infrastructure such as power, gas and water supply networks.

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